BlackRock Greater Europe Investment Trust Plc – Half-year Report

BlackRock Greater Europe Investment Trust plc
LEI:  5493003R8FJ6I76ZUW55

Half Yearly Financial Report 28 February 2018
(Article 5 Transparency Directive, DTR 4.2)
 

PERFORMANCE RECORD

FINANCIAL HIGHLIGHTS

Attributable to ordinary shareholders	As at  28 February  2018	As at  31 August  2017	Change  %
Assets
Net asset value per ordinary share  – with income reinvested*	346.16p –	347.05p –	-0.3  +0.8
Net assets (£’000)**	307,398	330,727	-7.1
Ordinary share price (mid-market)  – with income reinvested*	329.00p –	328.00p –	+0.3  +1.4
FTSE World Europe ex UK Index	1,342.42	1,371.28	-2.1
	========	========	========

   

	For the  six months  ended  28 February  2018	For the  six months  ended  28 February  2017	Change  %
Revenue
Net profit return after taxation (£’000)	1,091	654	+66.8
Revenue profit per ordinary share	1.18p	0.66p	+78.8
	========	========	========

*              Net asset value and share price performance include the dividend reinvestment.
**             The change in net assets reflects the tender offer implemented in the period and market movements.

CHAIRMAN’S STATEMENT
for the six months to 28 February 2018

MARKET OVERVIEW
The Eurozone’s economic recovery continued to gather pace over the period with synchronised global growth, as well as healthy domestic fundamentals, supporting the region. Many lead economic indicators in Europe reached record highs in the half year period and the performance of many European companies improved after a prolonged period of weakness. The economy remained robust and led to a pick-up in corporate investment. With a stronger euro and subdued inflation, the European Central Bank’s monetary policy remained accommodative, when compared with other central banks, albeit on a reduced basis following its tapering of monthly asset purchases.

PERFORMANCE
During the six months ended 28 February 2018, the Company’s net asset value per share (NAV) increased by 0.8%, outperforming the FTSE World Europe ex UK Index which fell by 2.1%. Over the same period, the Company’s share price rose by 1.4% (all percentages calculated in sterling terms with income reinvested).

Since the period end to 23 April 2018, the Company’s NAV has decreased by 0.7% compared with a fall in the FTSE World Europe ex UK Index of 0.1% over the same period.

EARNINGS AND DIVIDENDS
The Company’s revenue return per share for the six months ended 28 February 2018 amounted to 1.18p compared with 0.66p for the corresponding period in 2017. Underlying earnings have increased in the first half of the year, compared with 2017, due to the receipt of £406,000 in French withholding tax reclaims.

The Board has declared an interim dividend of 1.75p (2017: 1.75p) per share in line with the previous interim dividend payment. The dividend will be paid on 31 May 2018 to shareholders on the Company’s register on 4 May 2018, the ex-dividend date being 3 May 2018.

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 6,494,090 ordinary shares were received at a price of 333.76p per share, representing 6.81% of the ordinary shares in issue excluding treasury shares. All shares repurchased by the Company following the tender offer have been placed in treasury.

The Directors have decided to exercise their discretion to implement the next semi-annual tender offer subject to a maximum 20% in aggregate of the shares in issue (excluding treasury shares). The tender offer NAV will be calculated at close of business on 31 May 2018 and will be for 98% of the NAV per share. Full details of the tender offer and the procedure for tendering shares are contained in the circular to shareholders dated 30 April 2018.

During the six month period under review, the Company did not repurchase any ordinary shares under the share buy back authority. Since the period end, and up to the date of this report, the Company has repurchased 25,000 ordinary shares.

OUTLOOK
Since the period end, equity markets have sold off as President Trump has imposed tariffs on imports of steel and aluminium to the U.S., as well as on a number of targeted Chinese imports, raising fears of a wider trade war that could in due course impact on the global economy. A number of key personnel changes in the administration have also unsettled some investors and overshadowed the positive reception to the previous tax reforms.

In Europe, following a strong start to the year, markets suffered a slow down and the Eurozone composite Purchasing Manager’s Index (PMI) slipped to a three month low, adding to concerns over the growth outlook. Nonetheless, the PMI still indicates healthy economic growth within the region and manufacturing is enjoying one of its strongest periods in recent history. Although political risk remains, as evidenced by the Catalan independence referendum, a minority government in Germany, and a hung parliament in Italy, market reaction to these events has been muted.

Although we are cognisant of the risks, we continue to see good prospects for European equities. With a wide disparity in stock and sector valuations, we also believe there is plenty of scope for active portfolio management to add value.

Eric Sanderson
25 April 2018

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 2017. A detailed explanation can be found in the Strategic Report on pages 8 and 9 and in note 16 on pages 54 to 60 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 (excluding interest costs and after any relief for taxation) for the year ended 31 August 2017 were 1.10% 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 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 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 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 25 April 2018 and the above responsibility statement was signed on its behalf by the Chairman.

Eric Sanderson
For and on behalf of the Board
25 April 2018

INVESTMENT MANAGER’S REPORT

OVERVIEW
The Company’s underlying NAV gained over the last six months to 28 February 2018, rising by 0.8%. By way of comparison, the FTSE World Europe ex UK Index fell by 2.1% during the same period.

The six month period to the end of February 2018 saw a continuation of the synchronised global economic recovery. Multiple economic indicators across Europe reached new highs, including the German IFO business confidence survey, which recorded its highest level since records began in 1970. This confidence has led to greater capital expenditure by European companies, which in turn continues to support growth. This is evidenced by the Purchasing Manager’s Index (PMIs), a reliable gauge of economic activity, which was confirmed at an eleven-and-a-half year high (58.8) in January 2018.

Confidence has also risen significantly in the consumer economy as unemployment has reached a record low of 8.7% post the 2008 financial crisis. Despite this, wage inflation remains low, at just 0.2% above the three year average level. Indeed, core inflation overall, the measure targeted by the European Central Bank (ECB), has remained elusive over the period. In February, Eurozone inflation slowed to a 14-month low, underling the ECB’s caution in removing stimulus, despite growth exceeding expectations and the most constructive economic backdrop in a decade.

The political sphere had a relatively benign impact upon markets over the period. Whilst there were separatist rumblings in Catalonia, a reduced electoral backing for Angela Merkel in Germany and, in March 2018, an election leading to a hung parliament in Italy, the market reaction has been limited. Volatility, and the resultant negative outcome over the last six months for the FTSE World Europe ex UK Index, has emanated primarily from US inflationary surprises and politics.

PORTFOLIO ACTIVITY
Over the period, both stock selection and sector allocation contributed positively to performance.

Whilst it is often considered that Europe is a laggard to the U.S. in terms of the presence of technology companies, we believe there are some strong investment opportunities. The higher allocation to technology proved profitable for the Company over the period. A holding in Dutch listed ASML was a standout performer in this respect. Orders for Extreme Ultraviolet (EUV) lithography tools, a technology which ASML monopolise, remain strong, with ten orders placed at an average selling price of US$120 million per tool in the fourth quarter, as much as the past two years combined.

With the constructive economic backdrop, positions in real-world cyclical assets, those positively exposed to economic growth, performed well over the period. Our large allocation to industrials, for example, contributed positively to performance. A position in Hexagon, a global technology group headquartered in Sweden, aided returns. Hexagon is a market leader in quality measurement tools for industrial and consumer products. In this growing market place, they offer a unique product and enjoy high levels of customer loyalty given expensive switching costs. The shares, however, came under pressure in early 2017 on accusations of improper market practice by the CEO. With the CEO cleared in January 2018, the shares saw a relief rally and were further supported by a strong earnings release in early February 2018.

Elsewhere within industrials, however, a holding in RELX, a world-leading provider of information and analytics, detracted from returns. The company’s share price was negatively impacted by heightened concerns around competitive threats and more broadly by market participants selling defensive assets, those which are less geared to economic growth. Given concerns of competitive threats and limited information around these at present, we reduced the size of the position. Overall, we still believe the business has a robust long-term earnings profile with attractive compounding potential that is often underappreciated. Indeed, our holding in transnational consumer goods company, Unilever, suffered a similar fate, detracting from performance over the period.

Within the consumer space, outcomes were mixed. The Company saw positive performance from a position in luxury goods company Kering which continued to deliver strong returns, fuelled by the revival of the Gucci brand. The combination of heritage and fashion has been maximised by the new design team at Gucci, taking a brand with abnormally low sales density back to healthy levels. We took partial profits in our holding given the strong run in performance.

A position in Remy Cointreau also aided performance. The group reported robust sales trends, with particular strength in cognac, supporting margin progression. Less positively within the consumer space, a position in Spanish listed fashion firm Inditex detracted from performance. Despite executing well and delivering organic growth, foreign exchange impacts and weather effects have weighed on the share price.

Within the Emerging Europe portion of the portfolio, the Company generated positive returns from holdings in Israeli listed Teva Pharmaceuticals and Russian listed Gazprom. Teva’s shares rose as the company unveiled changes to its leadership team and assured its restructuring plan would arrive earlier than expected. Gazprom performed well due to the energy prices rally during the period and as the company set a record on gas exports to Europe in 2017 amidst a cold winter.

Over the period we increased the weighting towards the industrial sector, purchasing a position in Safran which we believe is a structural winner of the European aerospace sector. The company has been executing strongly on its new LEAP engines whilst also moving into a phase of harvesting after market gains for their previous engine models. Parallel to this, they have acquired Zodiac, a business which has a history of poor management leading to multiple profit warnings and a collapse in profit margin. The new management employed to stabilise this business have the opportunity to turnaround profitability and contribute to growing earnings for Safran.

Exposure to the financials sector was also increased, topping up existing holdings in KBC and Danske Bank. Within the diversified financials sub-sector, we added a position in one of the leading alternative asset managers Partners Group, in January 2018, impressed by yet another excellent set of results. The group operates within a structurally growing area of the market, with high operating margins, strong recurring revenues and low capital requirements. We see potential for returns improving going forward.

At the end of the period, the portfolio was particularly weighted (when compared with the reference index) towards positions in the industrials, technology, consumer services and health care sectors. The portfolio had lower exposure to the financials, consumer goods, utilities, telecommunications, basic materials and oil & gas sectors.

OUTLOOK
Recovery within the euro area remains broad based, with the outlook for expansion in both manufacturing and services robust. Indeed, Europe also sees buoyant demand regionally, despite some more testing political situations. Whilst the election outcome in Italy will increase uncertainty in the near-term, we do not believe it derails the European recovery story. It may, however, have implications for EU reform, but broadly we believe the outlook for the European project remains favourable, with a German coalition led by Angela Merkel and pro-reform government in France spearheading the agenda.

With Europe as a region being very much geared into the global economy, the positive backdrop continues to support European earnings and revenues. The Q4 earnings season saw improved revenue trends versus the previous quarter, despite the stronger euro. Whilst the strength of the euro may be a headwind for some companies’ earnings, we believe it is broadly a reflection of the greater economic expansion and current account surplus for the euro area. Valuations in Europe remain undemanding, particularly relative to other developed equity markets and fixed income markets, despite recent slight increases in government bond yields.

Regarding monetary policy, we believe the ECB will remain cautious as inflation continues to undershoot their targets, despite the constructive economic backdrop. As active managers, we believe the higher volatility which has been present in the market due to indicators surprising or rolling over from elevated levels, provides opportunities for the selective investor who can look through short-term noise.

Stefan Gries and Sam Vecht
BlackRock Investment Management (UK) Limited
25 April 2018

TEN LARGEST INVESTMENTS
28 FEBRUARY 2018

Unilever: 4.3% (2017: 4.4%) 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 buy backs and dividends.

Safran: 4.3% (2017: nil) is a French multinational supplier of systems and equipment for aerospace, defence and security. We believe that 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.

Lonza Group: 4.2% (2017: 4.1%) is a Swiss multinational chemicals and biotechnology company. We believe the company offers attractive growth, which is less dependent upon the economic cycle, given their large and diversified biopharma and speciality chemicals client base. The recent acquisition of Cappsugel, 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.

Fresenius Medical Care: 4.1% (2017: 3.3%) is the global leader in providing dialysis care and related services to patients suffering from end-stage renal disease. FME’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 saving in the U.S. healthcare system.

Danske Bank: 4.0% (2017: 3.1%) is one of the dominant banks in the Nordic region. We like Danske as it operates in consolidated banking markets that are seeing positive loan growth on the back of buoyant economies and with the potential for improving returns. Danske was one of the first banks to invest heavily in a digital banking platform, positioning it well to gain market share in the Nordic region due to an enhanced cost position relative to peers. Boasting one of the strongest capital positions in European banks generally, the company is also in a position to return close to all of its earnings via dividends and share buy backs leading to an attractive all in yield of over 9%.

Wartsila: 3.6% (2017: 3.6%) is a Finnish industrial company producing high technology engines for the marine and energy markets. As a global leader in its field, the company is positioned for solid growth at high returns as its engines are used for back-up power in energy generation and its marine end market is at the start of a multi-year recovery following several years of stagnation. Lastly, with 43% of sales coming from aftermarket services earnings, cash flows are strongly underpinned by activities that grow regardless of general macro-economic conditions.

Novo Nordisk: 3.5% (2017: 3.4%) 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 U.S. 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.

Compagnie Financière Richemont: 3.4% (2017: 3.9%) is a Swiss-based luxury goods holding company, which owns some of the world’s most high-end jewellery and watch brands. The company has great potential for a significant recovery in both growth and returns, with the return of the Chairman Johann Rupert who is aiming to drive better results in the business going forward. Profit margins are likely to rise as operational efficiency increases and growth comes through within jewellery, particularly the branded category which the company is positively exposed to through brands such as Cartier.

SAP: 3.3% (2017: 4.1%) 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.

Adidas: 3.2% (2017: nil) is a multinational corporation, founded and headquartered in Germany that designs and manufactures shoes, clothing and accessories. It is the largest sportswear manufacturer in Europe, and the second largest in the world, after Nike. We are confident in Adidas being able to sustain high single digit to low double digit sales growth for the foreseeable future and in the group’s ability to significantly improve EBIT margins over time, thereby closing the gap on their main rival. This is particularly true for the U.S. market where Adidas are rapidly gaining market share from relatively depressed levels.

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 2017. Together, the ten largest investments represent 37.9% of the Company’s portfolio (ten largest investments as at 31 August 2017: 39.0%).

INVESTMENTS
as at 28 February 2018

	Country of  operation	Market  value  £’000	% of  investments
Industrials
Safran	France	13,760	4.3
Wartsila	Finland	11,486	3.6
Hexagon	Sweden	10,260	3.2
Sika	Switzerland	10,044	3.1
Volvo	Sweden	9,459	2.9
Vinci	France	9,363	2.9
DSV	Denmark	9,303	2.9
Thales	France	8,878	2.7
Schindler Holding	Switzerland	8,289	2.5
Eiffage	France	8,029	2.5
Assa Abloy	Sweden	7,672	2.4
		--------	--------
		106,543	33.0
		--------	--------
Health Care
Lonza Group	Switzerland	13,424	4.2
Fresenius Medical Care	Germany	13,266	4.1
Novo Nordisk	Denmark	11,263	3.5
Straumann	Switzerland	6,948	2.1
Chr. Hansen	Denmark	5,587	1.7
Stratec Biomedical	Germany	2,588	0.8
		--------	--------
		53,076	16.4
		--------	--------
Consumer Goods
Unilever	Netherlands	13,803	4.3
Compagnie Financière Richemont	Switzerland	11,008	3.4
Adidas	Germany	10,283	3.2
Remy Cointreau	France	6,455	2.0
		--------	--------
		41,549	12.9
		--------	--------
Consumer Services
Industria de Diseño Textil Inditex	Spain	9,893	3.1
RELX	Netherlands	8,867	2.7
Telenet	Belgium	8,382	2.6
Kering	France	6,100	1.9
		--------	--------
		33,242	10.3
		--------	--------
Financials
Danske Bank	Denmark	12,908	4.0
KBC Groep	Belgium	9,040	2.8
Partners Group	Switzerland	6,009	1.9
Alpha Bank	Greece	5,188	1.6
		--------	--------
		33,145	10.3
		--------	--------
Technology
SAP	Germany	10,516	3.3
ASML	Netherlands	9,900	3.1
Infineon Technologies	Germany	8,377	2.6
		--------	--------
		28,793	9.0
		--------	--------
Basic Materials
Israel Chemicals	Israel	6,543	2.0
IMCD	Netherlands	5,465	1.7
		--------	--------
		12,008	3.7
		--------	--------
Oil & Gas
Gazprom	Russia	6,526	2.0
Rosneft Oil Company	Russia	4,406	1.4
		--------	--------
		10,932	3.4
		--------	--------
Utilities
Enerjisa Enerji	Turkey	3,364	1.0
		--------	--------
		3,364	1.0
		--------	--------
Total investments		322,652	100.0
		========	========

All investments are in ordinary shares unless otherwise stated. The total number of investments held at 28 February 2018 was 37 (31 August 2017: 35).

INCOME STATEMENT
for the six months ended 28 February 2018

		Revenue £’000			Capital £’000			Total £’000
	Notes	Six  months  ended  28.02.18  (unaudited)	Six  months  ended  28.02.17  (unaudited)	Year  ended  31.08.17  (audited)	Six  months  ended  28.02.18  (unaudited)	Six  months  ended  28.02.17  (unaudited)	Year  ended  31.08.17  (audited)	Six  months  ended  28.02.18  (unaudited)	Six  months  ended  28.02.17  (unaudited)	Year  ended  31.08.17  (audited)
Gains on investments held at fair value through profit or loss		–	–	–	2,078	15,070	57,909	2,078	15,070	57,909
(Losses)/gains on foreign exchange		–	–	–	(191)	516	270	(191)	516	270
Income from investments held at fair value through profit or loss	3	1,472	1,397	7,236	–	–	–	1,472	1,397	7,236
Other income	3	39	–	–	–	–	–	39	–	–
		--------	--------	--------	--------	--------	--------	--------	--------	--------
Total income		1,511	1,397	7,236	1,887	15,586	58,179	3,398	16,983	65,415
		--------	--------	--------	--------	--------	--------	--------	--------	--------
Expenses
Investment management fee	4	(267)	(244)	(515)	(1,069)	(977)	(2,058)	(1,336)	(1,221)	(2,573)
Other operating expenses	5	(416)	(352)	(720)	(11)	(18)	(29)	(427)	(370)	(749)
		--------	--------	--------	--------	--------	--------	--------	--------	--------
Total operating expenses		(683)	(596)	(1,235)	(1,080)	(995)	(2,087)	(1,763)	(1,591)	(3,322)
		--------	--------	--------	--------	--------	--------	--------	--------	--------
Net profit on ordinary activities before finance costs and taxation		828	801	6,001	807	14,591	56,092	1,635	15,392	62,093
Finance costs		(15)	(21)	(52)	(34)	(5)	(37)	(49)	(26)	(89)
		--------	--------	--------	--------	--------	--------	--------	--------	--------
Net profit on ordinary activities before taxation		813	780	5,949	773	14,586	56,055	1,586	15,366	62,004
Taxation credit/(charge)		278	(126)	(777)	–	–	–	278	(126)	(777)
		--------	--------	--------	--------	--------	--------	--------	--------	--------
Net profit on ordinary activities after taxation	7	1,091	654	5,172	773	14,586	56,055	1,864	15,240	61,227
		--------	--------	--------	--------	--------	--------	--------	--------	--------
Earnings per ordinary share (pence)	7	1.18	0.66	5.33	0.84	14.76	57.76	2.02	15.42	63.09
		========	========	========	========	========	========	========	========	========

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 for the period disclosed above represents the Company’s total comprehensive income.

STATEMENT OF CHANGES IN EQUITY
for the six months ended 28 February 2018

	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 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(a)	–	(63,214)	–	63,214	–	–	–
Tender offer into treasury	–	–	–	–	(21,675)	–	(21,675)
Tender costs	–	–	–	–	(203)	–	(203)
Tender cost accruals written back	–	–	–	–	211	–	211
Dividend paid(b)	–	–	–	–	–	(3,526)	(3,526)
	--------	--------	--------	--------	--------	--------	--------
At 28 February 2018	110	–	130	63,214	235,758	8,186	307,398
	--------	--------	--------	--------	--------	--------	--------
For the six months ended 28 February 2017 (unaudited)
At 31 August 2016	110	63,214	130	4,555	216,059	10,840	294,908
Total comprehensive income:
Profit for the period	–	–	–	–	14,586	654	15,240
Transactions with owners, recorded directly to equity:
Ordinary shares purchased into treasury	–	–	–	(1,665)	(357)	–	(2,022)
Tender offer into treasury	–	–	–	(2,882)	(15,027)	–	(17,909)
Share purchase and tender costs	–	–	–	(8)	(189)	–	(197)
Dividend paid(c)	–	–	–	–	–	(3,723)	(3,723)
	--------	--------	--------	--------	--------	--------	--------
At 28 February 2017	110	63,214	130	–	215,072	7,771	286,297
	--------	--------	--------	--------	--------	--------	--------
For the year ended 31 August 2017 (audited)
At 31 August 2016	110	63,214	130	4,555	216,059	10,840	294,908
Total comprehensive income:
Profit for the year	–	–	–	–	56,055	5,172	61,227
Transactions with owners, recorded directly to equity:
Ordinary shares purchased into treasury	–	–	–	(1,665)	(357)	–	(2,022)
Tender offer into treasury	–	–	–	(2,882)	(15,027)	–	(17,909)
Share purchase and tender costs	–	–	–	(8)	(189)	–	(197)
Tender cost accruals written back	–	–	–	–	111	–	111
Dividend paid(d)	–	–	–	–	–	(5,391)	(5,391)
	--------	--------	--------	--------	--------	--------	--------
At 31 August 2017	110	63,214	130	–	256,652	10,621	330,727
	--------	--------	--------	--------	--------	--------	--------

(a)           Share premium cancelled pursuant to Court approval on 13 February 2018 and £63,214,000 was transferred to a special reserve.
(b)           Final dividend paid in respect of the year ended 31 August 2017 of 3.70p per share was declared on 23 October 2017 and paid on 8 December 2017.
(c)           Final dividend paid in respect of the year ended 31 August 2016 of 3.65p per share was declared on 19 October 2016 and paid on 5 December 2016.
(d)           Interim dividend paid in respect of the year ended 31 August 2017 of 1.75p per share was declared on 26 April 2017 and paid on 26 May 2017. Final dividend paid in respect of the year ended 31 August 2016 of 3.65p per share was declared on 19 October 2016 and paid on 5 December 2016.

The transaction costs incurred on the acquisition and disposal of investments are included within the capital reserves and amounted to £164,000 for the six months ended 28 February 2018 (six months ended 28 February 2017: £192,000; year ended 31 August 2017: £544,000).

BALANCE SHEET
as at 28 February 2018

	Notes	28 February  2018  £’000  (unaudited)	28 February  2017  £’000  (unaudited)	31 August  2017  £’000  (audited)
Fixed assets
Investments held at fair value through profit or loss		322,652	275,886	334,660
		========	========	========
Current assets
Debtors		2,359	2,947	5,010
Cash and cash equivalents		–	10,243	–
		--------	--------	--------
		2,359	13,190	5,010
		--------	--------	--------
Creditors – amounts falling due within one year
Bank overdraft		(14,545)	–	(5,748)
Other creditors		(3,068)	(2,779)	(3,195)
		--------	--------	--------
		(17,613)	(2,779)	(8,943)
		--------	--------	--------
Net current (liabilities)/assets		(15,254)	10,411	(3,933)
		--------	--------	--------
Net assets		307,398	286,297	330,727
		========	========	========
Capital and reserves
Called up share capital	8	110	110	110
Share premium account		–	63,214	63,214
Special reserve		63,214	–	–
Capital redemption reserve		130	130	130
Capital reserves		235,758	215,072	256,652
Revenue reserve		8,186	7,771	10,621
		--------	--------	--------
Total shareholders’ funds		307,398	286,297	330,727
		========	========	========
Net asset value per ordinary share (pence)	7	346.16	300.43	347.05
		========	========	========

STATEMENT OF CASH FLOWS
for the six months ended 28 February 2018

	Six months  ended  28 February  2018  £’000  (unaudited)	Six months  ended  28 February  2017  £’000  (unaudited)	Year  ended  31 August  2017  £’000  (audited)
Operating activities
Net profit before taxation	1,586	15,366	62,004
Add back finance costs	49	26	89
Gains on investments held at fair value through profit or loss	(2,078)	(15,070)	(57,909)
Net losses/(gains) on foreign exchange	191	(458)	(270)
Sales of investments	144,707	143,378	342,583
Purchases of investments	(128,016)	(109,359)	(326,523)
Decrease/(increase) in debtors	45	82	(110)
(Decrease)/increase in other creditors	(78)	(579)	189
Tax on investment income	(369)	(211)	(1,256)
Refund of withholding tax reclaims	760	23	312
	--------	--------	--------
Net cash generated from operating activities	16,797	33,198	19,109
	--------	--------	--------
Financing activities
Tender offer into treasury	(21,675)	(17,909)	(17,909)
Ordinary shares purchased into treasury	–	(2,022)	(2,022)
Share purchase and tender costs paid	(153)	(165)	(183)
Interest paid	(49)	(26)	(54)
Dividends paid	(3,526)	(3,723)	(5,391)
	--------	--------	--------
Net cash used in financing activities	(25,403)	(23,845)	(25,559)
	--------	--------	--------
(Decrease)/increase in cash and cash equivalents	(8,606)	9,353	(6,450)
	--------	--------	--------
Cash and cash equivalents at the beginning of the period/year	(5,748)	432	432
Effect of foreign exchange rate changes	(191)	458	270
	--------	--------	--------
Cash and cash equivalents at the end of the period/year	(14,545)	10,243	(5,748)
	--------	--------	--------
Comprised of:
Cash at bank	–	34	–
Bank overdraft	(14,545)	–	(5,748)
BlackRock’s Institutional Cash Series plc – Euro Assets Liquidity Fund	–	10,209	–
	--------	--------	--------
	(14,545)	10,243	(5,748)
	========	========	========

NOTES TO THE FINANCIAL STATEMENTS
for the six months ended 28 February 2018

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 have 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 Investments Trusts Companies and Venture Capital Trusts’ (SORP) issued by the Association of Investment Companies (AIC) in November 2014 and updated in January 2017.

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 2017. This reflects the Company’s application of Sections 11 and 12 of FRS 102, in relation to the financial instruments, in full.

3. INCOME

	Six months  ended  28 February  2018  (unaudited)  £’000	Six months  ended  28 February  2017  (unaudited)  £’000	Year  ended  31 August  2017  (audited)  £’000
Investment income:
Overseas listed dividends	1,402	1,397	6,922
Overseas listed special dividends	70	–	314
	--------	--------	--------
	1,472	1,397	7,236
	--------	--------	--------
Other income:
	--------	--------	--------
Interest on withholding tax reclaims	39	–	–
	--------	--------	--------
	39	–	–
	--------	--------	--------
Total income	1,511	1,397	7,236
	========	========	========

Dividends and interest received during the period amounted to £1,523,000 and £39,000 (six months ended 28 February 2017: £1,505,000 and £nil; year ended 31 August 2017: £7,131,000 and £nil) respectively.

4. INVESTMENT MANAGEMENT FEE

	Six months ended 28 February 2018 (unaudited)			Six months ended 28 February 2017 (unaudited)			Year ended 31 August 2017 (audited)
	Revenue  £’000	Capital  £’000	Total  £’000	Revenue  £’000	Capital  £’000	Total  £’000	Revenue  £’000	Capital  £’000	Total  £’000
Investment management fee	267	1,069	1,336	244	977	1,221	515	2,058	2,573
	--------	--------	--------	--------	--------	--------	--------	--------	--------
Total	267	1,069	1,336	244	977	1,221	515	2,058	2,573
	========	========	========	========	========	========	========	========	========

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  2018  (unaudited)  £’000	Six months  ended  28 February  2017  (unaudited)  £’000	Year  ended  31 August  2017  (audited)  £’000
Custody fees	19	18	38
Depositary fees	22	20	41
Audit fees	12	12	24
Registrar’s fees	38	37	75
Directors’ emoluments	65	58	117
Marketing fees	46	36	90
Other administration costs	214	171	335
	--------	--------	--------
	416	352	720
	--------	--------	--------
Taken to capital:
Transaction costs	11	18	29
	--------	--------	--------
	427	370	749
	========	========	========

6. DIVIDEND
The Directors have declared an interim dividend of 1.75p per share for the period ended 28 February 2018 payable on 31 May 2018 to shareholders on the register on 4 May 2018. The total cost of the dividend based on 88,776,863 ordinary shares in issue at 25 April 2018 was £1,554,000 (28 February 2017: £1,668,000).

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  2018  (unaudited)	Six months  ended  28 February  2017  (unaudited)	Year  ended  31 August  2017  (audited)
Net revenue profit attributable to ordinary shareholders (£’000)	1,091	654	5,172
Net capital profit attributable to ordinary shareholders (£’000)	773	14,586	56,055
	--------	--------	--------
Total profit (£’000)	1,864	15,240	61,227
	--------	--------	--------
Equity shareholders’ funds (£’000)	307,398	286,297	330,727
	--------	--------	--------
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:	92,102,726	98,826,248	97,046,595
	--------	--------	--------
The actual number of ordinary shares in issue at the period end, on which the net asset value per ordinary share was calculated was:	88,801,863	95,295,953	95,295,953
	--------	--------	--------
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 (pence)	1.18	0.66	5.33
Capital (pence)	0.84	14.76	57.76
	--------	--------	--------
Total (pence)	2.02	15.42	63.09
	--------	--------	--------
	As at  28 February  2018  (unaudited)	As at  28 February  2017  (unaudited)	As at  31 August  2017  (audited)
Net asset value (pence)	346.16	300.43	347.05
	--------	--------	--------
Ordinary share price (pence)	329.00	284.50	328.00
	--------	--------	--------

There are no dilutive securities at 28 February 2018 (28 February 2017: nil; 31 August 2017: nil).

8. SHARE CAPITAL

	Number of  ordinary  shares  in issue	Number of  treasury  shares  in issue	Total	Nominal  value  £’000
Allotted, called up and fully paid share capital comprised:
Ordinary shares of 0.1p each:
At 31 August 2017	95,295,953	15,032,985	110,328,938	110
Shares repurchased and held in treasury pursuant to tender offer	(6,494,090)	6,494,090	–	–
	--------	--------	--------	--------
At 28 February 2018	88,801,863	21,527,075	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 47 of the Annual Report and Financial Statements for the year ended 31 August 2017.

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 the unobservable 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. For this purpose, the significance of an input is assessed against the fair value measurement in its entirety. 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 2018	Level 1  £’000	Level 2  £’000	Level 3  £’000	Total  £’000
Equity investments	322,652	–	–	322,652
	========	========	========	========

   

Financial assets at fair value through profit or loss at 28 February 2017	Level 1  £’000	Level 2  £’000	Level 3  £’000	Total  £’000
Equity investments	275,886	–	–	275,886
	========	========	========	========

   

Financial assets at fair value through profit or loss at 31 August 2017	Level 1  £’000	Level 2  £’000	Level 3  £’000	Total  £’000
Equity investments	334,660	–	–	334,660
	========	========	========	========

There were no transfers between levels for financial assets and financial liabilities during the period/year recorded at fair value as at 28 February 2018, 28 February 2017 and 31 August 2017. The Company did not hold any Level 3 securities throughout the six month period ended 28 February 2018 (six month period ended 28 February 2017: none; year ended 31 August 2017: 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 2017, the Chairman receives an annual fee of £36,500, the Chairman of the Audit and Management Engagement Committee receives an annual fee of £30,000 and each other Director receives an annual fee of £26,000.

The following members of the Board hold shares in the Company: Eric Sanderson holds 4,000 ordinary shares and Peter Baxter holds 5,000 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 in the Annual Report and Financial Statements on pages 18 and 19 in the Annual Report and Financial Statements for the year ended 31 August 2017.

The investment management fee due for the six months ended 28 February 2018 amounted to £1,336,000 (six months ended 28 February 2017: £1,221,000; year ended 31 August 2017: £2,573,000).

At 28 February 2018, £1,351,000 was outstanding in respect of the investment management fee (six months ended 28 February 2017: £594,000; year ended 31 August 2017: £1,352,000).

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 2018 amounted to £46,000 excluding VAT (six months ended 28 February 2017: £36,000; year ended 31 August 2017: £90,000). Marketing fees of £102,000 excluding VAT were outstanding at 28 February 2018 (28 February 2017: £82,000; 31 August 2017: £70,000).

12. CONTINGENT LIABILITIES
There were no contingent liabilities at 28 February 2018 (28 February 2017: nil; 31 August 2017: 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 2018 and 28 February 2017 has not been audited.

The information for the year ended 31 August 2017 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 2018 in late October 2018. Copies of the results announcement can be obtained from the Secretary on 020 7743 3000 or cosec@blackrock.com. The Annual Report should be available by the end of October 2018, with the Annual General Meeting being held in December 2018.

12 Throgmorton Avenue
London
EC2N 2DL

For further information please contact:

Simon White, Managing Director, Closed End Funds, BlackRock Investment Management (UK) Limited – 020 7743 5284

Stefan Gries, Fund Manager, BlackRock Investment Management (UK) Limited – 020 7743 3000

Press enquiries:

Lucy Horne, Lansons Communications – Tel:  020 7294 3689
E-mail:  lucyh@lansons.com


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.