BlackRock Greater Europe Investment Trust Plc - Half-year Report

BLACKROCK GREATER EUROPE INVESTMENT TRUST PLC

LEI:  5493003R8FJ6I76ZUW55

Half Yearly Financial Report 28 February 2019
(Article 5 Transparency Directive, DTR 4.2)
 

PERFORMANCE RECORD

FINANCIAL HIGHLIGHTS

	As at  28 February 2019	As at 31 August 2018	Change %
Assets
Net asset value per ordinary share (pence)	346.20	382.17	-9.4
– with dividends reinvested*	–	–	-8.4
Net assets (£’000)**	295,562	330,419	-10.5
Ordinary share price (mid-market) (pence)	333.00	363.00	-8.3
– with dividends reinvested*	–	–	-7.1
FTSE World Europe ex UK Index (total return)	1,298.50	1,390.67	-6.6

   

	For the six  months ended  28 February 2019	For the six  months ended  28 February 2018	Change  %
Revenue
Net profit after taxation (£’000)	356	1,091	-67.4
Revenue profit per ordinary share (pence)	0.41	1.18	-65.3

*   Net asset value and share price performance include the dividend reinvestments.

** The change in net assets reflects the tender offer implemented in the period, buyback of shares into treasury and market movements.

CHAIRMAN’S STATEMENT FOR THE SIX MONTHS TO 28 FEBRUARY 2019

MARKET OVERVIEW
2018 was a very challenging year for European equities and, over the final quarter, there was higher global volatility leading to disappointing negative returns across most regions. Markets were vulnerable to fears of a deepening economic slowdown, whilst trade frictions between the US and China also loomed over markets. Sentiment to European equities was low, given Brexit and the UK’s future relationship with the European Union, Italian budget deficit concerns, and the progressive withdrawal of quantitative easing. In the market sell-off towards the end of the year, investors favoured defensive assets, those with less exposure to the economic cycle.

European markets started on a stronger note in 2019. Investor sentiment was supported by a slightly better than expected earnings season, the resumption of US-China trade negotiations and the European Central Bank’s accommodative monetary policy stance.

PERFORMANCE
During the six months ended 28 February 2019, the Company’s net asset value per share (NAV) decreased by 8.4%, underperforming the FTSE World Europe ex UK Index which fell by 6.6%. Over the same period, the Company’s share price decreased by 7.1% (all percentages calculated in sterling terms with dividends reinvested). Nonetheless, performance over the 12 months ended 28 February 2019 was positive with the Company’s NAV outperforming the reference index by 5.0%. Further information on investment performance is given in the Investment Manager’s Report.

Since the period end to 30 April 2019, the Company’s NAV has increased by 7.9% compared with a rise in the FTSE World Europe ex UK Index of 6.7% over the same period.

EARNINGS AND DIVIDENDS
The Company’s revenue return per share for the six month period ended 28 February 2019 amounted to 0.41p compared with 1.18p for the corresponding period in 2018, a decrease of 65.3%. This in part reflects the absence this year of the one-off receipt of French withholding tax reclaims which was a feature of earnings in the first half of 2018.

The Board has declared an interim dividend of 1.75p (2018: 1.75p) per share. The dividend will be paid on 31 May 2019 to shareholders on the Company’s register on 10 May 2019, the ex-dividend date being 9 May 2019.

TENDER OFFERS/SHARE REPURCHASES
The Board has the option to implement a tender offer in order to assist in controlling the discount to NAV at which shares are traded. In addition, it will consider buying back shares in the market between tenders when it is considered to be in the interests of shareholders to do so.

The Directors exercised their discretion to operate the half yearly tender offer in November which, in common with previous tender offers, was for up to 20% of the ordinary shares in issue at the prevailing NAV less 2%. Valid tenders for 1,036,590 ordinary shares were received at a price of 335.38p per share, representing 1.2% of the ordinary shares in issue excluding treasury shares. All shares repurchased by the Company following the tender offer have been placed in treasury.

On 25 March 2019, the Board announced that it would not be implementing the May semi-annual tender offer. Over the six months to 28 February 2019, the average discount to NAV (cum income) was 4.6% and the discount to NAV on a cum income basis (diluted for treasury shares) as at close of business on 22 March 2019 was 3.7%. The Board therefore concluded that it was not in the interests of shareholders as a whole to implement a semi-annual tender offer. The Board will continue to monitor the Company’s discount to NAV and will look to buyback shares and/or operate six monthly tender offers if it is deemed to be in the interests of shareholders as a whole.

During the six month period under review, the Company repurchased 50,000 ordinary shares under the share buyback authority. Since the period end, and up to the date of this report, the Company has repurchased a further 355,000 ordinary shares.

OUTLOOK
In the months ahead we are likely to get a clearer picture of Europe’s growth trajectory. Whilst economic indicators in Europe disappointed through the second half of 2018, and many economists have cut their growth expectations for 2019, fears about a global slowdown leading to potential recession may have been overplayed. Most indicators suggest that Europe is in a low, but positive, growth environment.

While headwinds and uncertainties remain, should key issues be resolved there is scope for positive upside as we move through 2019. A de-escalation in global trade tensions would be positive for sentiment, as would resolution on trade tariffs between the EU and the US, a Brexit deal and the Italian debt crisis. Falling unemployment, renewed consumer confidence and increased corporate profits are also reasons for optimism.

The current political uncertainties in Europe do present opportunities to invest in specific stocks at attractive levels. The Portfolio Managers will continue to identify stocks that can deliver meaningful uplift in the general market environment, with a preference for higher-quality, globally-oriented names.

ERIC SANDERSON
1 May 2019

INVESTMENT MANAGER’S REPORT

OVERVIEW
Markets were gripped by fears of a global growth slowdown towards the end of 2018 which led to a sharp sell-off in equities. As well as the fall in share prices, we witnessed a change in the composition of the market, with assets which were considered defensive (those that are less dependent on the economic cycle) rallying at the expense of more cyclical assets. However, much of this rotation was not founded on fundamentals, but instead sentiment, and thus we saw some reversal of these trends as we moved into 2019.

The full year earnings season for European corporates, reported from January 2019 onwards, proved more supportive for markets. Expectations have now been reset lower, whilst valuation for the market looks attractive on aggregate.

Headwinds continue to face the European market in the guise of political disruption which continues to weigh on sentiment towards the region. However, policy is easing and we expect supportive fiscal policy across most European countries. Monetary policy also remains loose by historical standards, although the European Central Bank ceased its Quantitative Easing programme of bond buying at the onset of 2019.

PORTFOLIO ACTIVITY
After a strong period of performance, the Company underperformed the broader market in the six months to 28 February 2019. This was primarily driven by negative returns to sector allocation, whilst stock selection was neutral. Our process is driven by fundamentals, looking to understand the underlying cash flows and earnings of the businesses in which we invest. In a period where the market is responding less to fundamental signals, we can experience underperformance. However, we believe that fundamentals drive markets in the long run and thus a focus on fundamental analysis can generate attractive returns.

Performance was negatively impacted by the higher weighting to industrials relative to the reference index. This area of the market came under pressure in the fourth quarter of 2018 as cyclical shares underperformed. Our exposure within the industrials sector is diversified across end markets and geographies with a bias towards higher quality companies with a strong installed base which allows for their earnings to remain resilient in a downturn. Thus, over the period, stock selection within this sector was additive.

The Company’s lower allocation to the utilities sector when compared with the reference index also detracted. These assets saw strong share price performance as investors looked for a ‘safe haven’. Given these companies typically have a high visibility on revenues due to their regulated nature and long contract structures, they are often seen as attractive assets in downturns. However, we have a lower allocation to this sector given high levels of leverage, relatively low levels of profitability and structural headwinds evident in certain markets. The Company benefited from the lower weight to basic materials and higher weighting to health care when compared with the reference index.

Looking to individual holdings, Lonza Group, a biotechnology and speciality chemicals company, was the largest detractor during the period, having performed strongly in the portfolio since purchase. The shares came under pressure towards the end of 2018, both due to market rotation but also the departure of the CEO. The results released in January 2019 were disappointing, as their vitamins and wood preservatives businesses’ performance was poorer than expected; however, the core pharmaceutical and biotechnology business continued to execute well.

A position in Danske Bank also detracted from performance. Danske shares came under pressure both before and after the publication of its report into alleged money laundering at its Estonian unit given uncertainty over the extent of the issue and potential impacts of it, both financially and reputationally.

Positively, a position in aerospace manufacturer Safran aided returns. The company reported strong results throughout 2018 exhibiting robust operational trends across divisions. Their aftermarket sales business grew 12.5% through 2018 and the company’s confidence in this area shows, with guidance given out to 2025. The aerospace component manufacturer it acquired last year, Zodiac, has showed improving trends which is particularly encouraging given the company’s history of poor execution.

The performance of Emerging European assets, Sberbank and Gazprom, also aided returns over the period, with share prices moving off depressed levels in August 2018. In August 2018 the US introduced the DASKA bill* to Congress which threatened more sanctions, then later in the month the US issued actual sanctions against Russia under the chemical warfare provisions related to the UK poisonings. The initial downward moves were overreactions and the market has bounced up strongly over the period. On the underlying fundamental story, Sberbank delivered full year results in line with expectations, whilst Gazprom managed to beat expectations and has seen its recommended dividend per share increase by more than 25%.

While many market participants were moving aggressively towards defensive assets at the end of 2018, we made few changes to the composition of the portfolio holdings. Where shares fell but we could not identify fundamental changes in the underlying earnings and cash flows of the businesses, we held on to positions and subsequently saw many of these rebound strongly at the start of 2019. In transitory markets, we feel it is important to be selective. We wish to be good owners of businesses, identifying potential winners, sizing them appropriately and running them for appropriate durations.

Over the period we marginally reduced exposure to cyclical assets, such as Volvo and retailer Inditex, driven by a deterioration we saw in the outlook for these businesses. We increased capital allocations to those positions for which we have high conviction. This included a position in FinecoBank which we added to over the period. In a challenging environment for Italian asset gatherers, FinecoBank has performed strongly and increased their market share. With this, they have also seen their fee revenue increase by 16% year-on-year. We think due to the strong management team and capital allocation, this business is well positioned to continue to grow at attractive rates and improve margins.

A position was also purchased in Amadeus IT Group, a major Spanish IT provider for the global travel and tourism industry. We have always rated the business model but found the valuation challenging. However, following a pullback in the share price, and with accelerating organic growth as new airlines come on to the platform, we have added the company to the portfolio. We also see additional potential upside via further deployment of their IT expertise into the Hotels segment.

At the end of the period, the Company had a higher weighting relative to the reference index towards industrials, health care, technology and consumer services and a lower weight to financials, consumer goods, oil & gas, utilities, basic materials and telecommunications. The Company continues to favour companies with strong management teams, high and predictable return on capital with strong free cash flow conversion, an ability to invest in growth and a unique aspect which can allow returns to be sustainable.

OUTLOOK
Looking to markets, global political uncertainty remains high and continues to impact markets adversely. The European market is set to face a number of issues this year, not least the impending Brexit date. However, we believe much has been priced into equity markets, including a greater potential of recession than fundamentals currently point to. We see opportunity for a gentle increase in European growth as we move through the year. This could be driven by fiscal stimulus, abating headwinds and resilience of the consumer. Given the significantly bearish sentiment and positioning towards European equities, we could be nearing the point of maximum pain for the European market, particularly if fundamentals stabilise and improve from here. Where optimism for growth is low, optimism for earnings seems slightly overeager in our view and we see risks of earnings downgrades across the market, particularly in companies which have high debt burdens. We believe a selective, stock-focused approach could provide meaningful uplift to investors’ portfolios in this higher volatility environment.

STEFAN GRIES AND SAM VECHT
BlackRock Investment Management (UK) Limited
1 May 2019

*Defending American Security from Kremlin Aggression Act of 2019.

PORTFOLIO

PORTFOLIO ANALYSIS 28 FEBRUARY 2019

% France

% Switzerland

% Ireland

% Germany

% Sweden

% Netherlands

% Denmark

% Belgium

% Finland

% Spain

% Italy

%  Central Eastern  Europe & other

Basic Materials

–

–

–

–

–

2.4

–

–

–

–

–

1.8

Consumer Goods

1.8

–

–

1.6

–

3.3

–

–

–

–

2.9

–

Consumer Services

2.7

–

–

–

–

–

–

–

–

–

–

4.1

Financials

–

1.9

–

–

–

–

1.4

1.9

–

–

2.4

3.3

Health Care

–

7.3

–

4.0

–

–

7.5

–

–

2.1

1.8

–

Industrials

12.4

7.6

2.2

–

2.1

–

2.9

–

2.2

–

–

–

Oil & Gas

–

–

–

–

–

–

–

–

–

–

–

–

Technology

–

–

–

7.0

1.7

3.5

–

–

–

1.9

–

–

Telecommunications

–

–

–

–

–

–

–

–

–

–

–

2.3

Utilities

–

–

–

–

–

–

–

–

–

–

–

–

% Portfolio 28.02.19

16.9

16.8

2.2

12.6

3.8

9.2

11.8

1.9

2.2

4.0

7.1

11.5

% Portfolio 31.08.18

15.5

18.8

2.1

12.7

7.1

11.0

11.0

1.7

2.9

4.9

3.9

8.4

FTSE World Europe ex UK 28.02.19

22.6

19.0

0.5

18.8

5.6

7.5

3.8

2.2

2.9

6.7

4.8

5.6

   

	%  Portfolio  28.02.19	% Portfolio  31.08.18	FTSE World  Europe ex UK  28.02.19
Basic Materials	4.2	3.6	5.5
Consumer Goods	9.6	11.5	19.2
Consumer Services	6.8	6.2	4.5
Financials	10.9	10.0	21.3
Health Care	22.7	20.9	14.9
Industrials	29.4	35.0	15.2
Oil & Gas	–	1.7	5.3
Technology	14.1	9.3	6.3
Telecommunications	2.3	1.8	3.3
Utilities	–	–	4.5
% Portfolio 28.02.19	100.0	–	–
% Portfolio 31.08.18	–	100.0	–
FTSE World Europe ex UK 28.02.19	–	–	100.0

TEN LARGEST INVESTMENTS AS AT 28 FEBRUARY 2019

Safran: 6.7% (2018: 4.7%) is a French multinational supplier of systems and equipment for aerospace, defence and security. We believe Safran is a structural winner within the European aerospace sector, with strong execution in its new LEAP engine and growing after-market servicing for previous engine models. The recent acquisition of the underperforming Zodiac business provides further optionality for earnings growth.

Novo Nordisk: 5.8% (2018: 4.7%) is a Danish multinational pharmaceutical company which is a leader in diabetes care. The stock suffered underperformance in 2016 as drug pricing deteriorated, particularly in the US. Recent results have re-instilled confidence as pricing pressure has abated and there is now significantly enhanced visibility over the further trajectory in earnings and cash flows. We believe the company offers attractive long-term growth potential at high returns and sector leading cash flow conversion with any excess cash being returned to shareholders.

SAP: 5.4% (2018: 4.6%) is one of the leading global enterprise software providers. Its recently launched S4/Hana software and database solution appears a ‘must own’ product for a large existing client base in need of enhanced data analytics capabilities. We believe this has created a platform for profitable, multi-year growth at high returns. With the balance sheet turning net cash, we also see potential for a further enhanced shareholder return policy.

Sika: 5.0% (2018: 4.6%) is a speciality chemical company with a leading position in both the building sector and automotive industry. Sika has proprietary technology within adhesives, which has an increasing array of applications as technology advances. The company has a growing addressable market, which helps drive attractive organic growth rates. They further support growth via M&A across regions and markets and have a strong balance sheet to facilitate this, as well as a strong track record of integrating these acquired businesses.

Lonza Group: 5.0% (2018: 5.8%) is a Swiss biotechnology and speciality chemicals company. Through its Pharma & Biotech division, Lonza is one of the leading players in contract development and manufacturing of high-end drugs. We believe the company offers attractive growth, which should ultimately be less dependent upon the general economic cycle, given their large and diversified biopharma and speciality chemicals client base. The acquisition of Capsugel, which adds 25% to revenues, adds valuable technologies to the existing group offering and thereby further enhances barriers to entry, as well as the competitive position for the group.

RELX: 4.1% (2018: 2.5%) is a multinational information and analytics company which has high barriers to entry in most of its divisions, including scientific publishing. The capital light business model allows for a high rate of cash flow conversion with repeatable revenues built on subscription models. The business also benefits from the structurally increasing usage of data globally, which supports their data and analysis business.

ASML: 3.5% (2018: 2.8%) is a Dutch company which specialises in the supply of photolithography systems for the semiconductor industry. The company is at the forefront of technological change and invests in leading research and development to capture the structural growth opportunity supported by growth in mobile devices and microchip components. The high barriers to entry within the industry give ASML a protected position which allows growth in margins whilst they continue to innovate. The company has strong management who aim to create long-term value for the business whilst returning excess cash to shareholders.

Unilever: 3.3% (2018: 3.7%) is a transnational consumer goods company with more than 400 brands. Management have set out clear targets to 2020 to improve margins, returns and cash flow conversion, which we believe has the potential to create significant value for shareholders. In addition, the measures taken should translate into sector leading earnings growth and will allow the company to return significant amounts of capital via share buybacks and dividends.

Thales: 3.1% (2018: 3.2%) is a French multinational company which designs and builds tools servicing aerospace, defence and transportation. In addition to defence, Thales is a leader in digital technology and recently acquired Gemalto, making them the world’s largest digital security business. Thales generates a high return on capital and has a very strong net cash balance sheet, which gives the company significant flexibility and the possibility to pursue acquisitions. We believe the company has an excellent management team who have executed on turnaround, driving organic growth and repairing margins.

Fresenius Medical Care: 3.0% (2018: 3.6%) is the global leader in providing dialysis care and related services to patients suffering from end-stage renal disease. FMC’s most important market is North America where volumes are growing 3% to 4% per annum, which in combination with positive pricing should allow for attractive growth in earnings and cash flows, as well as continued improvement in returns in coming years. Through its Care Coordination business, FMC also benefits from the long-term structural shift towards value based care to aid cost savings in the US healthcare system.

All percentages reflect the value of the holding as a percentage of total investments. Percentages in brackets represent the value of the holding as at 31 August 2018. Together, the ten largest investments represent 44.9% of the Company’s portfolio (31 August 2018: 41.1%).

INVESTMENTS AS AT 28 FEBRUARY 2019

	Country of  operation	Market  value  £’000	% of  investments
Industrials
Safran	France	20,518	6.7
Sika	Switzerland	15,210	5.0
Thales	France	9,360	3.1
DSV	Denmark	8,925	2.9
Schindler Holding	Switzerland	7,991	2.6
Vinci	France	7,976	2.6
Wartsila	Finland	6,651	2.2
Kingspan	Ireland	6,609	2.2
Assa Abloy	Sweden	6,402	2.1
		---------------	---------------
		89,642	29.4
		=========	=========
Health Care
Novo Nordisk	Denmark	17,599	5.8
Lonza Group	Switzerland	15,135	5.0
Fresenius Medical Care	Germany	9,294	3.0
Straumann Holding	Switzerland	7,090	2.3
Grifols	Spain	6,322	2.1
DiaSorin	Italy	5,444	1.8
Chr. Hansen	Denmark	5,260	1.7
Stratec Biomedical Systems	Germany	3,043	1.0
		---------------	---------------
		69,187	22.7
		=========	=========
Technology
SAP	Germany	16,550	5.4
ASML	Netherlands	10,677	3.5
Amadeus IT Group	Spain	5,776	1.9
Hexagon	Sweden	5,137	1.7
Infineon Technologies	Germany	4,852	1.6
		---------------	---------------
		42,992	14.1
		=========	=========
Financials
FinecoBank	Italy	7,426	2.4
Sberbank	Russia	7,079	2.3
KBC Groep	Belgium	5,778	1.9
Partners Group	Switzerland	5,778	1.9
Danske Bank	Denmark	4,476	1.4
Alpha Bank	Greece	2,978	1.0
		---------------	---------------
		33,515	10.9
		=========	=========
Consumer Goods
Unilever	Netherlands	9,974	3.3
Ferrari	Italy	8,817	2.9
Rémy Cointreau	France	5,548	1.8
Adidas	Germany	4,890	1.6
		---------------	---------------
		29,229	9.6
		=========	=========
Consumer Services
RELX	United Kingdom	12,396	4.1
Kering	France	8,273	2.7
		---------------	---------------
		20,669	6.8
		=========	=========
Basic Materials
IMCD	Netherlands	7,265	2.4
Israel Chemicals	Israel	5,517	1.8
		---------------	---------------
		12,782	4.2
		=========	=========
Telecommunications
Bezeq – Israeli Telecommunication	Israel	6,967	2.3
		---------------	---------------
		6,967	2.3
		=========	=========
Total investments		304,983	100.0
		=========	=========

All investments are in ordinary shares unless otherwise stated. The total number of investments held at 28 February 2019 was 37 (31 August 2018: 41).

As at 28 February 2019, 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 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 & 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 2018. A detailed explanation can be found in the Strategic Report on pages 8 to 10 and in note 15 on pages 56 to 62 of the Annual Report and Financial Statements which are available on the website maintained by BlackRock at 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.

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. For this reason, they continue to adopt the going concern basis in preparing the financial statements. The Company has a portfolio of investments which are considered to be readily realisable and is able to meet all of its liabilities from its assets and income generated from these assets. Ongoing charges for the year ended 31 August 2018 were 1.09% of net assets and it is expected that this is unlikely to change significantly going forward.

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 11. The related party transactions with the Directors are set out in note 10.

DIRECTORS’ RESPONSIBILITY STATEMENT
The Disclosure Guidance and Transparency Rules 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 1 May 2019 and the above responsibility statement was signed on its behalf by the Chairman.

ERIC SANDERSON
For and on behalf of the Board
1 May 2019

FINANCIAL STATEMENTS

INCOME STATEMENT FOR THE SIX MONTHS ENDED 28 FEBRUARY 2019

	Notes	Revenue £’000			Capital £’000			Total £’000
		Six months ended		Year ended	Six months ended		Year ended	Six months ended		Year ended
		28.02.19  (unaudited)	28.02.18  (unaudited)	31.08.18  (audited)	28.02.19  (unaudited)	28.02.18  (unaudited)	31.08.18  (audited)	28.02.19  (unaudited)	28.02.18  (unaudited)	31.08.18  (audited)
(Losses)/gains on investments held at fair value through profit or loss		–	–	–	(27,059)	2,078	31,646	(27,059)	2,078	31,646
(Losses)/gains on foreign exchange		–	–	–	(8)	(191)	100	(8)	(191)	100
Income from investments held at fair value through profit or loss	3	1,056	1,472	6,948	–	–	–	1,056	1,472	6,948
Other income	3	–	39	41	–	–	–	–	39	41
		---------------	---------------	-----------------	---------------	---------------	-----------------	---------------	---------------	-----------------
Total income		1,056	1,511	6,989	(27,067)	1,887	31,746	(26,011)	3,398	38,735
		---------------	---------------	-----------------	---------------	---------------	-----------------	---------------	---------------	-----------------
Expenses
Investment management fee	4	(251)	(267)	(537)	(1,002)	(1,069)	(2,147)	(1,253)	(1,336)	(2,684)
Other operating expenses	5	(362)	(416)	(779)	(6)	(11)	(44)	(368)	(427)	(823)
		---------------	---------------	---------------	---------------	---------------	---------------	---------------	---------------	---------------
Total operating expenses		(613)	(683)	(1,316)	(1,008)	(1,080)	(2,191)	(1,621)	(1,763)	(3,507)
		---------------	---------------	---------------	---------------	---------------	---------------	---------------	---------------	---------------
Net profit/(loss) on ordinary activities before finance costs and taxation		443	828	5,673	(28,075)	807	29,555	(27,632)	1,635	35,228
Finance costs		(14)	(15)	(51)	(6)	(34)	(118)	(20)	(49)	(169)
		---------------	---------------	---------------	---------------	---------------	---------------	---------------	---------------	---------------
Net profit/(loss) on ordinary activities before taxation		429	813	5,622	(28,081)	773	29,437	(27,652)	1,586	35,059
Taxation (charge)/credit		(73)	278	(275)	–	–	–	(73)	278	(275)
		---------------	---------------	---------------	---------------	---------------	---------------	---------------	---------------	---------------
Net profit/(loss) on ordinary activities after taxation	7	356	1,091	5,347	(28,081)	773	29,437	(27,725)	1,864	34,784
		---------------	---------------	---------------	---------------	---------------	---------------	---------------	---------------	---------------
Earnings/(loss) per ordinary share (pence)	7	0.41	1.18	5.95	(32.67)	0.84	32.76	(32.26)	2.02	38.71
		=========	=========	=========	=========	=========	=========	=========	=========	=========

The total column of this statement represents the Company’s profit and loss account. The supplementary revenue and capital columns 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 2019

	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 2019 (unaudited)
At 31 August 2018	110	–	130	54,869	264,422	10,888	330,419
Total comprehensive income:
(Loss)/profit for the period	–	–	–	–	(28,081)	356	(27,725)
Transactions with owners, recorded directly to equity:
Ordinary shares purchased into treasury	–	–	–	(162)	–	–	(162)
Tender offer into treasury	–	–	–	(3,477)	–	–	(3,477)
Share purchase and tender costs	–	–	–	(35)	–	–	(35)
Dividend paid(a)	–	–	–	–	–	(3,458)	(3,458)
	---------------	---------------	---------------	---------------	---------------	---------------	---------------
At 28 February 2019	110	–	130	51,195	236,341	7,786	295,562
	---------------	---------------	---------------	---------------	---------------	---------------	---------------
For the six months ended 28 February 2018 (unaudited)
At 31 August 2017	110	63,214	130	–	256,652	10,621	330,727
Total comprehensive income:
Profit for the period	–	–	–	–	773	1,091	1,864
Transactions with owners, recorded directly to equity:
Cancellation of share premium account(b)	–	(63,214)	–	63,214	–	–	–
Tender offer into treasury	–	–	–	–	(21,675)	–	(21,675)
Tender costs	–	–	–	–	(203)	–	(203)
Tender cost accrual written back	–	–	–	–	211	–	211
Dividend paid(c)	–	–	–	–	–	(3,526)	(3,526)
	---------------	---------------	---------------	---------------	---------------	---------------	---------------
At 28 February 2018	110	–	130	63,214	235,758	8,186	307,398
	---------------	---------------	---------------	---------------	---------------	---------------	---------------
For the year ended 31 August 2018 (audited)
At 31 August 2017	110	63,214	130	–	256,652	10,621	330,727
Total comprehensive income:
Profit for the year	–	–	–	–	29,437	5,347	34,784
Transactions with owners, recorded directly to equity:
Cancellation of share premium account(b)	–	(63,214)	–	63,214	–	–	–
Ordinary shares purchased into treasury	–	–	–	(78)	–	–	(78)
Tender offer into treasury	–	–	–	(8,143)	(21,675)	–	(29,818)
Share purchase and tender costs	–	–	–	(124)	(203)	–	(327)
Tender cost accruals written back	–	–	–	–	211	–	211
Dividend paid(d)	–	–	–	–	–	(5,080)	(5,080)
	---------------	---------------	---------------	---------------	---------------	---------------	---------------
At 31 August 2018	110	–	130	54,869	264,422	10,888	330,419
	=========	=========	=========	=========	=========	=========	=========

^(a)      Final dividend paid in respect of the year ended 31 August 2018 of 4.00p per share, declared on 24 October 2018 and paid on 10 December 2018.
^(b)      Share premium account was cancelled pursuant to Court approval on 13 February 2018 and £63,214,000 was transferred to a special reserve.
^(c)      Final dividend paid in respect of the year ended 31 August 2017 of 3.70p per share, declared on 23 October 2017 and paid on 8 December 2017.
^(d)      Interim dividend paid in respect of the year ended 31 August 2018 of 1.75p per share, declared on 25 April 2018 and paid on 31 May 2018. Final dividend paid in respect of the year ended 31 August 2017 of 3.70p per share, declared on 23 October 2017 and paid on 8 December 2017.

The transaction costs incurred on the acquisition of investments amounted to £75,000 for the six months ended 28 February 2019 (six months ended 28 February 2018: £97,000; year ended 31 August 2018: £228,000). Costs relating to the disposal of investments amounted to £20,000 for the six months ended 28 February 2019 (six months ended 28 February 2018: £67,000; year ended 31 August 2018: £102,000). All transaction costs have been included within capital reserves.

The share premium account and capital redemption reserve are not distributable profits under the Companies Act 2006. The special reserve may be used as distributable profits for all purposes and, in particular, for the repurchase by the Company of its ordinary shares and for payment as dividends. In accordance with the Company’s articles, net capital reserves may be distributed by way of the repurchase by the Company of its ordinary shares and for payment as dividends.

BALANCE SHEET AS AT 28 FEBRUARY 2019

	Notes	28 February 2019  £’000  (unaudited)	28 February 2018  £’000  (unaudited)	31 August 2018  £’000  (audited)
Fixed assets
Investments held at fair value through profit or loss		304,983	322,652	336,832
		---------------	---------------	---------------
Current assets
Debtors		1,383	2,359	1,635
		---------------	---------------	---------------
		1,383	2,359	1,635
		---------------	---------------	---------------
Creditors – amounts falling due within one year
Bank overdraft		(7,682)	(14,545)	(5,589)
Other creditors		(3,122)	(3,068)	(2,459)
		---------------	---------------	---------------
		(10,804)	(17,613)	(8,048)
		---------------	---------------	---------------
Net current liabilities		(9,421)	(15,254)	(6,413)
		---------------	---------------	---------------
Net assets		295,562	307,398	330,419
		=========	=========	=========
Capital and reserves
Called up share capital	8	110	110	110
Capital redemption reserve		130	130	130
Special reserve		51,195	63,214	54,869
Capital reserves		236,341	235,758	264,422
Revenue reserve		7,786	8,186	10,888
		---------------	---------------	---------------
Total shareholders’ funds		295,562	307,398	330,419
		=========	=========	=========
Net asset value per ordinary share (pence)	7	346.20	346.16	382.17
		=========	=========	=========

STATEMENT OF CASH FLOWS FOR THE SIX MONTHS ENDED 28 FEBRUARY 2019

	Six months ended  28 February 2019 (unaudited)  £’000	Six months ended  28 February 2018 (unaudited)  £’000	Year ended  31 August 2018 (audited)  £’000
Operating activities
Net (loss)/profit before taxation	(27,652)	1,586	35,059
Add back: Finance costs expense	20	49	169
Losses/(gains) on investments held at fair value through profit or loss	27,059	(2,078)	(31,646)
Net losses/(gains) on foreign exchange	8	191	(100)
Sales of investments	65,829	144,707	228,091
Purchases of investments	(61,092)	(128,016)	(195,027)
Decrease in debtors	82	45	16
Increase/(decrease) in other creditors	717	(78)	(556)
Interest paid	(21)	(49)	(169)
Tax on investment income	(162)	(369)	(1,349)
Refund of withholding tax reclaims	258	760	804
	-------------------	-------------------	-------------------
Net cash generated from operating activities	5,046	16,748	35,292
	-------------------	-------------------	-------------------
Financing activities
Ordinary shares purchased into treasury	(162)	–	(78)
Tender offer into treasury	(3,477)	(21,675)	(29,818)
Share purchase and tender costs paid	(34)	(153)	(257)
Dividends paid	(3,458)	(3,526)	(5,080)
	-------------------	-------------------	-------------------
Net cash used in financing activities	(7,131)	(25,354)	(35,233)
	-------------------	-------------------	-------------------
(Decrease)/increase in cash and cash equivalents	(2,085)	(8,606)	59
	-------------------	-------------------	-------------------
Cash and cash equivalents at the beginning of the period/year	(5,589)	(5,748)	(5,748)
Effect of foreign exchange rate changes	(8)	(191)	100
	-------------------	-------------------	-------------------
Cash and cash equivalents at the end of the period/year	(7,682)	(14,545)	(5,589)
	-------------------	-------------------	-------------------
Comprised of:
Bank overdraft	(7,682)	(14,545)	(5,589)
	-------------------	-------------------	-------------------
	(7,682)	(14,545)	(5,589)
	===========	===========	===========

NOTES TO THE FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED  28 FEBRUARY 2019

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 Company presents its results and positions under FRS 102, ‘The Financial Reporting Standard applicable in the UK and Republic of Ireland’ (FRS 102), which forms part of revised Generally Accepted Accounting Practice (New UK GAAP) issued by the Financial Reporting Council (FRC) in 2013.

The condensed set of financial statements has been prepared on a going concern basis in accordance with FRS 102 and FRS 104, ‘Interim Financial Reporting’ issued by the FRC in March 2015 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 November 2014 and updated in January 2017 and February 2018.

The accounting policies 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 2018.

3. INCOME

	Six months ended  28 February 2019 (unaudited)  £’000	Six months ended  28 February 2018 (unaudited)  £’000	Year ended  31 August 2018 (audited)  £’000
Investment income:
Overseas listed dividends	959	1,402	6,836
Overseas listed special dividends	97	70	112
	-------------------	-------------------	-------------------
	1,056	1,472	6,948
	-------------------	-------------------	-------------------
Other income:
Bank interest	–	–	2
Interest on withholding tax reclaims	–	39	39
	-------------------	-------------------	-------------------
	–	39	41
	-------------------	-------------------	-------------------
Total income	1,056	1,511	6,989
	===========	===========	===========

Dividends and interest received in cash during the period amounted to £1,155,000 and £nil (six months ended 28 February 2018: £1,523,000 and £39,000; year ended 31 August 2018: £6,999,000 and £41,000) respectively.

4. INVESTMENT MANAGEMENT FEE

	Six months ended 28 February 2019 (unaudited)			Six months ended 28 February 2018 (unaudited)			Year ended 31 August 2018 (audited)
	Revenue  £’000	Capital  £’000	Total  £’000	Revenue  £’000	Capital  £’000	Total  £’000	Revenue  £’000	Capital  £’000	Total  £’000
Investment management fee	251	1,002	1,253	267	1,069	1,336	537	2,147	2,684

The investment management fee is 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 80% to capital reserves and 20% to the revenue reserve.

5. OTHER OPERATING EXPENSES

	Six months ended  28 February 2019 (unaudited)  £’000	Six months ended  28 February 2018 (unaudited)  £’000	Year ended  31 August 2018 (audited)  £’000
Broker fees	24	24	48
Custody fees	23	19	42
Depositary fees	20	22	44
Audit fees	14	12	26
Legal fees	19	72	84
Registrar’s fees	40	38	81
Directors’ emoluments	61	65	131
Marketing fees	55	46	99
Printing and postage fees	32	32	64
Tax agent fees	18	11	33
Other administration costs	56	75	127
	-------------------	-------------------	-------------------
	362	416	779
Taken to capital:
Transaction costs	6	11	44
	-------------------	-------------------	-------------------
	368	427	823
	===========	===========	===========

6. DIVIDEND
The Directors have declared an interim dividend of 1.75p per share for the period ended 28 February 2019, payable on 31 May 2019 to shareholders on the register on 10 May 2019. The total cost of the dividend based on 85,018,101 ordinary shares in issue at 30 April 2019 was £1,488,000 (28 February 2018: £1,554,000).

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 and capital returns per share and net asset value per share are shown below and have been calculated using the following:

	Six months ended  28 February 2019 (unaudited)  £’000	Six months ended  28 February 2018 (unaudited)  £’000	Year ended  31 August 2018 (audited)  £’000
Net revenue profit attributable to ordinary shareholders (£’000)	356	1,091	5,347
Net capital (loss)/profit attributable to ordinary shareholders (£’000)	(28,081)	773	29,437
	-------------------	-------------------	-------------------
Total (loss)/profit (£’000)	(27,725)	1,864	34,784
	-------------------	-------------------	-------------------
Equity shareholders’ funds (£’000)	295,562	307,398	330,419
	-------------------	-------------------	-------------------
Earnings per share
The weighted average number of ordinary shares in issue during the period, on which the return per ordinary share was calculated was:	85,931,606	92,102,726	89,850,956
	-------------------	-------------------	-------------------
The actual number of ordinary shares in issue at the period end, on which the net asset value per ordinary share was calculated was:	85,373,101	88,801,863	86,459,691
	-------------------	-------------------	-------------------
The number of ordinary shares in issue, including treasury shares at the period end was:	110,328,938	110,328,938	110,328,938
	-------------------	-------------------	-------------------
Calculated on weighted average number of ordinary shares:
Revenue profit (pence)	0.41	1.18	5.95
Capital (loss)/profit (pence)	(32.67)	0.84	32.76
	-------------------	-------------------	-------------------
Total (loss)/profit (pence)	(32.26)	2.02	38.71
	===========	===========	===========

   

	Six months ended  28 February 2019 (unaudited)	Six months ended  28 February 2018 (unaudited)	Year ended  31 August 2018 (audited)
Net asset value (pence)	346.20	346.16	382.17
	-------------------	-------------------	-------------------
Ordinary share price (pence)	333.00	329.00	363.00
	===========	===========	===========

There are no dilutive securities at 28 February 2019 (28 February 2018: nil; 31 August 2018: nil).

8. SHARE CAPITAL

	Number of  ordinary  shares in  issue	Number  of treasury  shares in  issue	Total	Nominal  value  £’000
(unaudited)
Allotted, called up and fully paid share capital comprised:
Ordinary shares of 0.1p each:
At 31 August 2018	86,459,691	23,869,247	110,328,938	110
Shares repurchased and held in treasury	(50,000)	50,000	–	–
Shares repurchased and held in treasury pursuant to tender offer	(1,036,590)	1,036,590	–	–
	-------------------	-------------------	-------------------	-------------------
At 28 February 2019	85,373,101	24,955,837	110,328,938	110
	===========	===========	===========	===========

9. 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 11 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 49 of the Annual Report and Financial Statements for the year ended 31 August 2018.

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 prices 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 than 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 observable data and these inputs could have a significant impact on the instrument’s valuation.

This category also includes instruments that are valued based on quoted prices for similar instruments where significant entity determined adjustments or assumptions are required to reflect differences between the instruments and instruments for which there is no active market. The Investment Manager considers observable data to be that market data that is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market.

The level in the fair value hierarchy within which the fair value measurement is categorised in its entirety is determined on the basis of the lowest level input that is significant to the fair value measurement. If a fair value measurement uses observable inputs that require significant adjustment based on unobservable inputs, that measurement is a Level 3 measurement.

Assessing the significance of a particular input to the fair value measurement in its entirety requires judgement, considering factors specific to the asset or liability.

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 2019	Level 1	Level 2	Level 3	Total
(unaudited)	£’000	£’000	£’000	£’000
Equity investments	304,983	–	–	304,983
	===========	===========	===========	===========
Financial assets at fair value through profit or loss at 28 February 2018	Level 1	Level 2	Level 3	Total
(unaudited)	£’000	£’000	£’000	£’000
Equity investments	322,652	–	–	322,652
	===========	===========	===========	===========
Financial assets at fair value through profit or loss at 31 August 2018	Level 1	Level 2	Level 3	Total
(audited)	£’000	£’000	£’000	£’000
Equity investments	336,832	–	–	336,832
	===========	===========	===========	===========

There were no transfers between levels for financial assets and financial liabilities during the period/year recorded at fair value as at 28 February 2019, 28 February 2018 and 31 August 2018. The Company did not hold any Level 3 securities throughout the six month period ended 28 February 2019 (six month period ended 28 February 2018: none; year ended 31 August 2018: none).

10. RELATED PARTY DISCLOSURE
The Board consists of four 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. With effect from 1 September 2018, the Chairman receives an annual fee of £38,000, the Chairman of the Audit and Management Engagement Committee receives an annual fee of £31,000 and each other Director receives an annual fee of £27,000.

As at 28 February 2019, the following members of the Board held shares in the Company: Eric Sanderson held 4,000 ordinary shares, Peter Baxter held 5,000 ordinary shares, and Paola Subacchi held 590 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 AIFM and Investment Manager are stated in note 11.

11. TRANSACTIONS WITH THE AIFM AND THE INVESTMENT MANAGER
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 on pages 19 and 20 in the Annual Report and Financial Statements for the year ended 31 August 2018.

The investment management fee due for the six months ended 28 February 2019 amounted to £1,253,000 (six months ended 28 February 2018: £1,336,000; year ended 31 August 2018: £2,684,000).

At 28 February 2019, £1,249,000 was outstanding in respect of the investment management fee (six months ended 28 February 2018: £1,351,000; year ended 31 August 2018: £687,000).

In addition to the above services, BlackRock provided the Company with marketing services. The total fees paid or payable for these services for the six months ended 28 February 2019 amounted to £55,000 excluding VAT (six months ended 28 February 2018: £46,000; year ended 31 August 2018: £99,000). Marketing fees of £128,000 excluding VAT were outstanding at 28 February 2019 (28 February 2018: £102,000; 31 August 2018: £74,000).

12. CONTINGENT LIABILITIES
There were no contingent liabilities at 28 February 2019 (28 February 2018: £nil; 31 August 2018: £nil).

13. 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 2019 and 28 February 2018 has not been audited.

The information for the year ended 31 August 2018 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.

14. ANNUAL RESULTS
The Board expects to announce the annual results for the year ending 31 August 2019 in late October 2019. Copies of the results announcement can be obtained from the Secretary on 020 7743 3000 or [e-mail]. The Annual Report should be available by the end of October 2019, with the Annual General Meeting being held in December 2019.

12 Throgmorton Avenue
London
EC2N 2DL

1 May 2019

For further information please contact:

Melissa Gallagher, Co-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 enquiries:

Lucy Horne, Lansons Communications – Tel:  [phone]
E-mail:  [e-mail]


END


The Half Yearly Financial Report will also be available on the BlackRock website at www.blackrock.co.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.

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