BlackRock Greater Europe Investment Trust plc
Half Yearly Financial Report 29 February 2012
For further information please contact:
Simon White, Managing Director, Investment Company Division,
BlackRock Investment Management (UK) Limited - 020 7743 5284
Vincent Devlin, Fund Manager,
BlackRock Investment Management (UK) Limited - 0131 472 7376
Emma Phillips, Media & Communications,
BlackRock Investment Management (UK) Limited - 020 7743 2922
Chairman's Statement
Overview
The period under review was again dominated by the central concern of recent
years: how best to confront the over-indebtedness of the southern EU countries
and the ramifications of this.
Markets were volatile at the start of the financial period but risk appetite
returned to the region at the beginning of 2012. In particular, more favourable
economic data from the US, and a bold initiative from the European Central Bank
to provide liquidity to the banking system, on an unprecedented scale, through
the long term refinancing operation ("LTRO") steadied nerves and allowed
markets to progress.
Against this improving background, the Company's net asset value per share
("NAV") increased by 3.2% in the six months ended 29 February 2012, compared
with a rise of 4.2% in the FTSE World Europe ex UK Index. The Company's share
price rose by 5.0% over the same period (all percentages calculated in sterling
terms with income reinvested).
Since the period end, the Company's NAV has declined by 1.0% compared with
a fall in the FTSE World Europe ex UK Index of 5.8% over the same period.
Charter European Trust plc
In January, I wrote to shareholders to advise of the proposed acquisition of
assets of Charter European Trust plc ("Charter") through a scheme of
reconstruction and winding up of Charter and to seek approval for those
proposals. I am pleased to report that, at a General Meeting held on 23
February 2012, the proposals received the necessary approvals and a total of
26,890,598 new ordinary shares and 5,196,398 new subscription shares were
issued by the Company on 27 February 2012 in consideration for the transfer to
the Company of the assets of Charter, valued at approximately £50.5 million in
accordance with the scheme.
I extend a warm welcome to our new shareholders.
Tender offers
The Directors exercised their discretion to operate the half yearly tender
offer on 30 November 2011, which in common with previous tender offers was for
up to 20% of the shares in issue at the prevailing NAV less 2%. Valid tenders
for 1,495,164 shares were received at a price of 166.11p per share,
representing 1.55% of the shares in issue, excluding treasury shares. All
shares tendered in November were placed in treasury.
The Prospectus dated 26 January 2012, in respect of the Charter proposals,
confirmed that the next semi-annual tender offer would take place on
31 May 2012, for up to 20% of the shares in issue at the prevailing NAV per
share subject to a discount of 2%. A Circular relating to the tender offer
will be sent to shareholders at the end of April or will be available either
on the BlackRock Investment Management website at www.blackrock.co.uk/brge
or in hard copy on request from the Company's registered office c/o The
Secretary, BlackRock Greater Europe Investment Trust plc, 12 Throgmorton
Avenue, London EC2N 2DL.
Subscription shares
During the period and up to the date of this report, the Company has issued a
total of 14,952 ordinary shares following exercises. Total proceeds amounted to
£27,300.
Subscription shareholders have three further opportunities to subscribe for all
or any of the ordinary shares to which their subscription shares relate on each
of 30 April, 31 July and 31 October 2012 at a price of 183p per share.
Following the issue of new ordinary and subscription shares pursuant to the
reconstruction and winding up of Charter, the Company now has 121,769,700
ordinary shares and 23,533,121 subscription shares in issue (excluding
2,734,952 ordinary shares held in treasury).
Board of Directors
Following the Annual General Meeting on 30 November 2011, Béatrice Philippe
retired as a Director having joined the Board at the formation of the Company.
The Board was pleased to announce the appointment of Davina Curling as a
non-executive Director with effect from 1 December 2011. Davina has over 20
years' experience of investment management.
Outlook
2012 started on a positive note. In the US, the economy seems to have
gained some momentum and the actions of the European Central Bank in providing
liquidity to the banking system have so far averted a major dislocation of the
European financial sector. Fostering the conditions for economic growth in
Europe has proved much more elusive, and achieving the right balance between
restoring solvency in the peripheral EU countries, without choking off the
growth which will be ultimately necessary to pay down governments' debts, is
likely to dominate the political debate for years to come. As continues to be
seen, this background will also be likely to lead to continuing stock market
volatility. Your Fund Managers will continue to focus on companies which they
believe are, and will be, successful, which in many cases operate globally and
have products or services which exhibit enduring growth characteristics.
John Walker-Haworth
17 April 2012
Interim Management Report and Responsibility Statement
The Chairman's Statement and the Investment Manager's Report 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:
- Performance;
- Income/dividend;
- Regulatory;
- Operational;
- Market; and
- Financial.
The Board reported on the principal risks and uncertainties faced by the
Company in the Annual Report and Accounts for the year ended 31 August 2011. A
detailed explanation can be found in the Directors' Report on pages 13 and 14
and in note 18 on pages 41 to 46 of the Annual Report and Financial Statements
which is available on the website maintained by the Investment Manager,
BlackRock Investment Management (UK) Limited, at www.blackrock.co.uk/brge.
In the view of the Board, there have not been any changes to the fundamental
nature of these risks since the previous report and these principal risks and
uncertainties are equally applicable to the remaining six months of the
financial year as they were to the six months under review.
Related party transactions
The Investment Manager is regarded as a related party and details of the
management fees payable are set out in note 4 and note 10. The related party
transactions with the Directors are set out in note 10.
Directors' responsibility statement
The Disclosure 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 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 FSA's Disclosure and Transparency Rules.
The half yearly financial report was approved by the Board on 17 April 2012 and
the above responsibility statement was signed on its behalf by the Chairman.
John Walker-Haworth
For and on behalf of the Board
17 April 2012
Investment Manager's Report
Overview
Over the six month period ended 29 February 2012, the Company's NAV increased
by 3.2% and the share price rose by 5.0%. By way of comparison, the FTSE World
Europe ex UK Index gained 4.2%. (All percentages are calculated in sterling
terms with income reinvested.)
European equity markets experienced an extremely weak period during the third
quarter of 2011, due mostly to the toxic combination of political uncertainty
and economic growth downgrades in the Eurozone. However, markets recovered in
the final quarter of 2011 as investors began to gain confidence in the various
proposals resulting from frequent political summits. These proposals, most
notably, focused on finding a solution for a managed reduction of Greek debt
and vital support for the banking system in Europe. Political change,
particularly in Italy and Spain, also signalled to the markets that targets for
the reduction of government spending in the periphery were more likely to be
met. During the six month period, markets were heavily influenced by sentiment
surrounding the crisis, with heightened levels of volatility and significant
movements in share prices as investors sought to either avoid risk or take on
risk depending on the interpretation of the various political developments.
This improved sentiment was supported towards the end of 2011 by improving
economic data in the US, and globally-exposed cyclical sectors such as oil &
gas, basic materials and parts of the industrials sector led the subsequent
market gains. Equity markets in Europe also delivered positive returns in
January and February of 2012, as markets continued to support riskier cyclical
companies including the financials sector. The European Central Bank's long
term refinancing operation ("LTRO") led to the purchasing of peripheral
sovereign bonds, primarily by the domestic banking system, thereby supporting
sovereign bond yields in key nations such as Italy and Spain. Global leading
indicators rebounded in January and Eurozone flash Purchasing Manager Indices,
which are a lead indicator for economic expansion or contraction, indicated
signs of tentative expansion.
Portfolio activity
In general, the allocation of capital at a sector level was more successful
than stock selection. The portfolio had a small average net cash position
during the period, which harmed returns when compared with the broader market.
Stock selection in the oil & gas and industrials sectors detracted from returns
when compared to the broader market. A holding in Galp Energia, a Portuguese
company, produced negative returns towards the end of 2011. Although we felt
that the core business remained resilient with attractive production growth
rates in the coming years, the company's share price fell as the price achieved
for the disposal of strategically-valuable assets in Brazil did not meet the
market's expectations. In addition, the decision not to own a holding in oil
major Total for the majority of the period, instead favouring oil services
companies, hurt returns as the company benefited from a rising oil price.
Positions in Russian oil pipeline operator, Transneft, and Italian energy
producer, Eni, also underperformed the broader market during the period.
Elsewhere within the portfolio, the Company's performance was hindered by
holdings in higher-quality defensive companies in the food producers industry,
including Nestlé and Danone, which underperformed as investors aggressively
re-allocated towards more cyclical names at the beginning of 2012. On the same
theme, the decision not to own positions in chemicals companies Bayer and BASF
at the end of 2011 and beginning of 2012 harmed the Company's performance as
the sector rallied strongly.
On a more positive note, many of the most successful individual stock positions
proved to be, in general, relatively stable businesses with a high degree of
exposure to international growth markets. This included Danish pharmaceutical
company, Novo Nordisk, which we believe continues to offer one of the highest
growth rates in its sector with attractive exposure to structural growth in
insulin demand, both within developed and emerging markets, and market-leading
products. Elsewhere, a position in Dutch food retailer, Ahold, benefited from
its exposure to the US markets which showed encouraging signs for 2012 growth
at the end of 2011.
Stock selection within the consumer services sector also proved successful,
with a holding in Irish airline, Ryanair, being one of the best performing
stocks in the portfolio during the period. Positions in software services
company, SAP, and semiconductor manufacturer, Infineon Technologies, both
performed well for the Company. SAP continued to outperform during the period,
benefiting from strong new products and attractive growth in both the US and
emerging markets. Infineon's share price rose as its cost cutting plan allowed
the potential for strong margin expansion; the stock also benefited from the
continuation of strong automotive demand, with close to 50% of Infineon's sales
coming from its automotive division.
The portfolio's sector allocation, lower weightings in telecoms and utilities,
strongly contributed to relative returns as the sectors significantly
underperformed the market. Our stance on the telecoms sector is based on the
view that many of the companies do not offer attractive growth potential and
may be exposed to dividend cuts given the relatively high yield offered by the
sector. We have also avoided the utilities sector which offers relatively low
growth in the domestic European markets. Often labelled 'defensive' areas of
the market, both the telecoms and utilities sectors also suffered on a relative
basis from a significant increase in investor risk appetite at the beginning
of 2012.
The weighting in Russia fell during the period. This reflected our view that,
despite a high oil price, the local market in late 2011 was not fully reflecting
the increased political and economic risks that Russia is facing. That said,
with several companies currently trading at close to distressed valuations,
significant opportunities are presenting themselves once again.
At the end of the period, the portfolio was particularly weighted towards
positions in the consumer goods and consumer services sectors. Within these
sectors, the portfolio had a focus on higher quality, globally exposed
companies with a stronger brand and generally higher growth rates than the rest
of the sector. The portfolio has lower exposure to the financials sector, which
we continue to view as subject to negative loan growth in parts of Europe,
higher demands from regulators and higher exposure to the sovereign debt issues
in the periphery of Europe. The portfolio also had higher weightings in
the oil & gas, basic materials and health care sectors, was neutral
industrials when compared with the broader market, and had lower weightings in
the telecoms and utilities sectors.
Outlook
Our outlook for the region remains positive in the long term. Following
February's second LTRO, we maintain that progress towards a resolution of the
European sovereign debt issues will continue to shape investor sentiment and
markets are likely to remain volatile. However, investors are pricing in a
significant risk premium for the current political and economic uncertainties
and we believe our strategy of building positions in the long term winners -
companies with highly differentiated business models, strong balance sheets and
structural growth driven largely by international demand - will deliver
attractive returns over the medium term.
Vincent Devlin and Sam Vecht
BlackRock Investment Management (UK) Limited
17 April 2012
Ten Largest Investments
29 February 2012
Novo Nordisk - 5.3% (2011: 4.6%) is a Danish pharmaceuticals company and the
dominant global franchise in diabetes treatment. The company has high levels of
market share in Asia ex-Japan, which is a rapidly growing market for insulin
demand, and we believe that the company has the most attractive pipeline of
short and long term acting insulin products on the market.
Nestlé - 5.0% (2011: 5.6%) is a Swiss company engaged in the nutrition, health
and wellness sectors. Nestlé has one of the world's leading product and brand
portfolios offering consistent, structural growth. The company has achieved
organic sales growth of more than 4% per year in 20 of the last 22 years and is
a high quality stable growth company. Nestlé also offers strong free cash flow
generation and has maintained or increased dividend payments every year since
1959.
Roche - 4.2% (2011: nil) is a Swiss pharmaceuticals and diagnostics company
with global exposure. Roche has gone through a strong period of growth but has
now transitioned to focusing on profitability and improving shareholder
returns. The company has the ability to improve productivity and cut costs
whilst trading on an attractive valuation given its double-digit earnings
growth profile.
Allianz - 4.1% (2011: nil) is a German based financial services provider, which
predominantly provides insurance services. Allianz commands strong market
positions and is relatively well capitalised to mitigate the risk of any asset
write-downs. The operational performance in the company's non-life division is
improving and the company offers relatively strong cash generation, supporting
its attractive dividend yield.
LVMH Moet Hennessy Louis Vuitton - 3.8% (2011: 4.6%) is a French luxury goods
company with exposure to the global high-end consumer. The company owns a
number of highly regarded luxury brands in five main areas: wines and spirits,
perfumes and cosmetics, watches and jewellery, fashion and leather goods and
selective retailing. The company offers attractive exposure to consumption
growth in some of the fastest growing markets in the world and enjoys strong
profitability due to the strength of its branding and the quality of its
product line-up.
Ahold - 3.8% (2011: nil) is a Dutch listed supermarket retailer. The company
has some exposure in the Netherlands but also has a significant franchise in
the US. Ahold is very cash-flow generative, which offers the ability for the
company to perform share buybacks and offer a high dividend yield. The company
is also cheaper than many of its peers with higher earnings growth potential
and may benefit from a strengthening US dollar.
Syngenta - 3.7% (2011: 2.9%) is a Swiss agribusiness company operating in the
crop protection and seeds businesses. The company's crop protection division,
in which it has high market share, benefits from farmers looking to maximise
yields and is a high quality, cash-generative business operating in an industry
with high barriers to entry. We believe the company will continue to benefit
from rising volumes and increasing margin expansion ahead of market
expectations.
Eni - 3.6% (2011: nil) is an Italian oil & gas exploration and production
company. The company is set to benefit from strong demand for exploration and
production in emerging markets as well as a corporate restructuring programme.
The company also offers the highest dividend yield in the European large-cap
oil & gas sector and is likely to benefit from its strong balance sheet in
uncertain conditions.
Anheuser-Busch - 3.1% (2011: 1.9%) is a Belgian beverage company. The company
owns, produces and distributes over 200 beer brands across the world, with a
high degree of strategic emerging market exposure and a quality management
team. The company offers an attractive growth profile, especially through its
Brazilian business and may benefit from efficiency improvements in the US.
Pernod Ricard - 3.1% (2011: 2.6%) is a French listed global producer and
distributor of wine and spirit brands.