Final Results

BLACKROCK EMERGING EUROPE PLC - Final Results

PR Newswire

London, March 24

BlackRock Emerging Europe plc

Financial Highlights

1. Net return indices calculate the reinvestment of dividends net of withholding taxes using the tax rates applicable to institutional investors who are not resident in the local market.2. Based on an exchange rate of 1.4185 (31 January 2015: 1.5019).3. Long positions plus short positions as a percentage of net assets.4. Calculated in accordance with AIC guidelines.

CHAIRMAN’S STATEMENT

I am pleased to present the Annual Report and Financial Statements to shareholders for the year ended 31 January 2016.

MARKET OVERVIEW

In the year under review, equity markets generally continued to be negatively impacted by investor concerns over interest rate rises in the US and fears about Chinese growth and its impact on commodity prices. In mid-December 2015 the US Federal Reserve finally raised interest rates by 0.25%, the first such move since 2006.

The Company’s benchmark, the MSCI Emerging Europe 10-40 Index returned -14.2%, outperforming global emerging markets which returned -23.0%.

Russia performed strongly in the first half of 2015 driven by a temporary recovery in the oil price and a diminishing likelihood of additional sanctions being imposed. This strong performance reversed in the second half of the year as the oil price resumed its downwards trend but it is pleasing to note that the Russian market still ended the year in positive territory, returning +5.3%.

The Greek sovereign debt crisis dominated world headlines in the middle of the year with the introduction of capital controls and the closure of the Greek stockmarket. A bailout programme was eventually agreed, paving the way for a stabilisation of the country’s financial position. Greece was the poorest performing country in the region, returning -56.1% over the year, although its impact was muted as it represents only 6.0% of the benchmark.

Poland and Turkey also performed poorly returning -27.6% and -29.9% respectively. Turkey suffered from its initial failure to form a new government following elections and the new Polish government, which was elected in October, implemented a number of policies which had a negative impact on investor sentiment.

In contrast Hungary was the best performing market, returning +49.3% due to a combination of positive political and stock specific factors.

All performance figures are in US Dollar terms and on a total return basis.

PERFORMANCE

Against this background, the Company’s net asset value (NAV) per share fell by 10.1% in US Dollar terms (4.8% in sterling terms) which compared favourably with the benchmark net return of -14.2% in US Dollar terms (-9.1% in sterling terms). The share price fell by 9.9% (-4.6% in sterling terms) which was broadly in line with the performance of the NAV per share.

Whilst absolute performance is disappointing, when compared to the Morningstar peer group of funds investing in Emerging Europe equity, over the year to 31 January 2016 the Company was ranked 14/44 in NAV terms and over 3 and 5 years was ranked 5/44 and 7/43 respectively.

Since the year end and up to the close of business on 24 March 2016 the Company’s NAV per share has increased by 11.3% compared with an increase in the benchmark of 12.5% over the same period (in US Dollar terms).

REVENUE RETURN AND DIVIDENDS

The Company’s revenue return for the year amounted to 2.69 cents per share (2015: 6.31 cents). The reduction in income from investments compared to the previous year was driven primarily by the companies within the portfolio generating lower earnings in USD terms as a consequence of weaker Emerging Markets currencies and commodity prices. This consequently led to lower dividend payments.

As mentioned previously there is no longer a requirement to pay a dividend in order to maintain the Company’s investment trust status and the Directors have resolved not to pay a dividend for the year ended 31 January 2016.

ALLOCATION OF MANAGEMENT FEES AND FINANCE CHARGES

The Board has reviewed the allocation of management fees and finance costs and has concluded that with effect from 1 February 2016, 70% of these costs will be allocated to the Company’s capital reserve (previously 100% were allocated to revenue). It is expected that the Company will pay a dividend based on the net revenue generated by the portfolio in respect of the year ended 31 January 2017.

PERIODIC OPPORTUNITIES FOR RETURN OF CAPITAL AND 3 YEARLY CONTINUATION VOTESIt was agreed in June 2013 that prior to 21 June 2018, the Board will formulate and submit to shareholders proposals (which may constitute a tender offer and/or other method of distribution) to provide shareholders with an opportunity to realise the value of their investment in the Company at NAV less applicable costs. Notwithstanding this, under the Company’s Articles of Association shareholders are given the opportunity to vote on the future of the Company every three years and an ordinary resolution in relation to the continuation of the Company as an investment trust will be proposed at the forthcoming AGM. The Board recommends that shareholders vote in favour of the resolution.

PERFORMANCE TRIGGERED TENDER OFFER

It was also agreed in June 2013 that the Board would put forward proposals for a tender offer for up to 25% of the Company’s ordinary shares in issue (excluding treasury shares), if the Company has underperformed its benchmark index by in excess of 3% on a cumulative basis (measured on a NAV per share total return basis over the 3 year period from 21 June 2013).

In the period up to 24 March 2016 the Company’s NAV per share returned -16.1% compared with a return of -27.5% from the benchmark (in US Dollar terms) and it therefore seems unlikely that the tender offer will be triggered.

However, if the tender offer is triggered a circular setting out the terms and conditions of the tender offer and convening a general meeting to grant authority to the Directors to implement the tender will be sent to shareholders as soon as practicable after 21 June 2016.

PORTFOLIO MANAGER CHANGE

We are pleased to welcome Chris Colunga to the portfolio management team who will be appointed co-manager alongside Sam Vecht. Chris has extensive experience of the region both as an analyst and portfolio manager, most recently at Charlemagne Capital. Chris replaces David Reid who is changing roles at BlackRock. Your Board wishes to thank David for his valuable contribution as portfolio manager of the Company.

ANNUAL GENERAL MEETING

The AGM will be held at 12.00 noon on 21 June 2016 at the offices of BlackRock at 12 Throgmorton Avenue, London EC2N 2DL. We hope that as many shareholders as possible will attend. This year, for the first time, shareholders who are unable to attend in person will be able to watch the meeting via a live stream. Further details of how to register for this are given on page 69 of the Annual Report and Financial Statements and on the Company’s website at blackrock.co.uk/beep. The AGM will include a presentation by the portfolio managers on the Company’s performance and the outlook for the year ahead.

OUTLOOK

After a rollercoaster start to 2016, the year ahead is uncertain for global markets with many of the financial and political factors which influenced performance in the last year continuing to dominate the headlines. On the positive side, a number of the difficulties specific to our investment region have now moderated or have been resolved, leaving us well-positioned to benefit when markets recover. Our portfolio managers continue to focus the Company on a relatively concentrated number of holdings which represent their best ideas in the region. Your Board remains of the view that this ‘conviction based’ approach will continue to provide superior returns over the medium term.

Neil EnglandChairman30 March 2016

STRATEGIC REPORT

The Directors present the Strategic Report of the Company for the year ended 31 January 2016.

PRINCIPAL ACTIVITY

The Company carries on business as an investment trust and its principal activity is portfolio investment. Investment trusts, like unit trusts and OEICs, are pooled investment vehicles which allow exposure to a diversified range of assets through a single investment, thus spreading, although not eliminating investment risk.

OBJECTIVE

The Company’s objective is to achieve long term capital growth, principally by investing in companies that do business primarily in Eastern Europe, Russia, Central Asia and Turkey.

STRATEGY, BUSINESS MODEL, INVESTMENT POLICY & INVESTMENT PROCESS

The Company invests in accordance with the objective given above. The Board is collectively responsible to shareholders for the long term success of the Company and is its governing body. There is a clear division of responsibility between the Board and BlackRock Fund Managers Limited (the Manager or BFM). Matters for the Board include setting the Company’s strategy, including its investment objective and policy, setting limits on gearing (both bank borrowings and the effect of derivatives), capital structure, governance, and appointing and monitoring of performance of the Manager and other service providers.

The Company’s business model follows that of an externally managed investment trust, therefore the Company does not have any employees and outsources its activities to third party service providers, including the Manager who is the principal service provider.

The management of the investment portfolio and the administration of the Company have been contractually delegated to the Manager who in turn (with the permission of the Company) has delegated certain investment management and other ancillary services to BlackRock Investment Management (UK) Limited (the Investment Manager or BIM (UK)). The Manager, operating under guidelines determined by the Board, has direct responsibility for the decisions relating to the day-to-day running of the Company and is accountable to the Board for the investment, financial and operating performance of the Company.

Other service providers include the Depositary, BNY Mellon Trust & Depositary (UK) Limited (BNYMTD), the Fund Accountant and custodian, Bank of New York Mellon (International) Limited (BNYM), and the Registrar, Computershare Investor Services PLC (Computershare). Details of the contractual terms with the other third party service providers are set out in the Directors’ Report on page 24 of the Annual Report and Financial Statements.

INVESTMENT POLICY

The Manager’s portfolio selection is unconstrained by benchmark weightings and the Company’s portfolio is expected to contain between 20 to 30 holdings at any one time. To achieve the Company’s objective, the Manager selects stocks by combining political and macroeconomic insights with fundamental analysis of companies and by looking for long term appreciation from mispriced value or growth. The weightings of holdings within the Company’s portfolio are based upon the Manager’s conviction level and an assessment of upside potential and liquidity. As a result, the weighting of a company in the portfolio could be materially higher or lower than its benchmark weighting.

The portfolio of the Company is not constructed with any yield target.

The Company invests so as not to hold more than 15% of its net assets in any one stock at the time of investment.

The Company may undertake transactions in derivatives for both hedging and investment purposes.

The Company may use derivatives to diversify risk. It may use a variety of strategies which include the purchase or sale of options traded on recognised or designated investment exchanges as well as over-the-counter. The Company may also establish short positions up to a limit of 10% of net assets. To establish short exposures, the Company may use credit default swaps, major generic global indices as well as local indices and individual stocks.

In addition, the Company may borrow to enhance its portfolio performance but the aggregate of gearing through the use of derivatives and borrowing shall not exceed 20% of the Company’s net asset value.

No more than 15% of the gross assets of the portfolio shall be invested in other UK listed investment companies (including other investment trusts).

The Company’s financial statements are maintained in US Dollars. Although many investments are likely to be denominated and quoted in currencies other than in US Dollars, the Company does not currently employ a hedging policy against fluctuations in exchange rates.

No material change will be made to the Company’s investment policy without shareholder approval.

INVESTMENT PROCESS

Portfolio construction is a continuous process, with the Investment Manager analysing constantly the impact of new ideas and information on the portfolio as a whole.

The approach is flexible, varying through market and economic cycles to create a portfolio appropriate to the focused and unconstrained strategy of the Company.

The global and country specific macroeconomic environment is factored into all portfolio decisions. In general, macroeconomic analysis is a more dominant factor in investment decision making when the outlook is negative. The macro process is comprised of three parts: political assessment, macroeconomic analysis and appraisal of the valuation of a country’s market, which can only take place with thorough analysis of stock specific opportunities.

The Investment Manager’s research team generates ideas from a diverse range of sources. These include frequent travel to the markets in which the Company invests and regular conversations with contacts that allow the Emerging Europe team to assess the entire eco-system around a company; namely competitors, suppliers, financiers, customers and regulators. The team leverages the internal research network sharing information between BlackRock’s investment teams using a proprietary research application and database, and develop insights from macroeconomic analysis.

The Board believes that BlackRock’s research platform is a significant competitive advantage, both in terms of information specific to emerging markets equities and through its global insights across asset classes. Access to companies is extremely good given BlackRock’s market presence, which makes it possible to develop a detailed knowledge of a company and its management.

The research process focuses on cash flow, as the investment team believes that this is ultimately the driver of share prices over time. The process is designed with the aim of identifying companies that can translate top line revenue growth to free cash flow and investing in these companies when the analysis suggests that the cash flow stream is undervalued. Financial models are developed focusing on company financials, particularly cash flow statements, rather than relying on third party research.

The Investment Manager’s research team monitors differing levels of risk throughout the process and believes that avoiding major downside events can generate significant outperformance over the long term. Inputs from BlackRock’s Risk & Quantitative Analysis Team (RQA) are an integral part of the investment process. This is particularly important in emerging markets where portfolios are subject to complex correlations. The overall premise of BlackRock’s risk analysis is to try and understand risk as opposed to avoiding risk. RQA analyse market and portfolio risk factors including stress tests, correlations, factor returns, cross-sectional volatility and attributions.

BlackRock’s evaluation procedures and financial analysis of the companies within the portfolio also take into account environmental, social and governance matters and other business issues. The Company invests primarily on financial grounds to meet its stated objectives.

DISCOUNT PROTECTION

The Directors recognise that it is in the long term interests of shareholders that shares do not trade at a significant discount to their prevailing NAV.

In June 2013 shareholders approved the use of a performance triggered tender offer and periodic opportunities for the return of capital (further details are given below), together with the use of the Company’s share buy back authorities, where appropriate, as the tools to be used to manage the Company’s discount in the future.

Share buy backs

The Board seeks to maintain the share price discount to NAV at below 10% in normal market conditions. In the year to 31 January 2016 the average discount to NAV has been 11.7% reflecting the exceptional volatility in the year under review.

26,000 ordinary shares with a nominal value of 10 cents per share were bought back for cancellation in the year under review for a total consideration of £48,000 (US$ 70,000). Since the year end a further 30,800 ordinary shares have been bought back for cancellation at a total cost of £65,000 (US$91,000).

Performance triggered tender offer

The Board will put forward proposals for a tender offer for up to 25% of the Company’s ordinary shares in issue (excluding treasury shares), if the Company has underperformed its benchmark index by in excess of 3% on a cumulative basis (measured on a NAV per share total return basis over the 3 year period from 21 June 2013). Since 21 June 2013 and up until the close of business on 24 March 2016, the NAV has decreased by 16.1% and the benchmark by 27.5% in US dollar terms (8.7% and 21.1% in sterling terms respectively).

Periodic opportunities for return of capital

Prior to 21 June 2018, the Board will formulate and submit to shareholders proposals (which may constitute a tender offer and/or other method of distribution) to provide shareholders with an opportunity to realise the value of their investment in the Company at NAV less applicable costs. If the first such return of capital is not undertaken in conjunction with a liquidation of the Company, the Board intends to offer shareholders further opportunities to realise the value of their investment in the Company at net asset value less applicable costs at subsequent 5 yearly intervals.

PORTFOLIO ANALYSIS

A detailed analysis of the portfolio has been provided on pages 19 to 21 of the Annual Report and Financial Statements.

PERFORMANCE

Details of the Company’s performance are set out in the Chairman’s Statement.

The Chairman’s Statement and the Investment Manager’s Report form part of this Strategic Report and include a review of the main developments in the Company’s investment markets during the year, together with information on investment activity within the Company’s portfolio.

Results for the year

The results for the Company are set out in the Income Statement. The total net loss for the year, after taxation, was US$12,768,000 (2015: a loss of US$32,009,000) of which the revenue return amounted to US$976,000 (2015: US$2,288,000), and the capital loss amounted to US$13,744,000 (2015: a loss of US$34,297,000).

Strategic report

The Company’s revenue return amounted to 2.69 cents per share (2015: 6.31 cents).

Key performance indicators

At each Board meeting, the Directors consider a number of performance measures to assess the Company’s success in achieving its objectives. The key performance indicators (KPIs) used to measure the progress and performance of the Company over time are set out below.

1. Calculated in US Dollar terms on a total return basis.

2. Calculated in US Dollar terms on a mid to mid basis and on a total return basis.

3. Calculated in accordance with AIC guidelines.

The Board regularly reviews a number of indices and ratios to understand the impact on the Company’s relative performance of the various components such as asset allocation and stock selection. The Board also reviews the performance and ongoing charges of the Company against a peer group of emerging Europe focused open and closed-end funds.

Performance is assessed on a total return basis for both the NAV and the share price. The relative performance of the benchmark is assessed on a net return basis, reflecting the withholding tax rates applicable to institutional investors who are not resident in the local market.

As set out on page 8 of the Annual Report and Financial Statements, the Directors recognise that it is in the long term interests of shareholders that shares do not trade at a significant discount to their prevailing NAV.

PRINCIPAL RISKS

The Company is exposed to a variety of risks and uncertainties. The Board has in place a robust process to identify, understand and monitor the principal risks of the Company. A core element of this process is the Company’s risk register which identifies the risks facing the Company, the likelihood and potential impact of each risk and the controls established for mitigation. A residual risk rating is calculated for each risk.

The risk register, its method of preparation and the operation of key controls in the Manager’s and third party service providers systems of internal control are reviewed on a regular basis by the Audit Committee. In order to gain a more comprehensive understanding of the Manager’s and other third party service providers’ risk management processes and how these apply to the Company’s business, the Audit Committee periodically receives presentations from BlackRock’s Internal Audit and Risk & Quantitative Analysis teams. Where produced, the Audit Committee also reviews Service Organisation Control (SOC 1) reports from the Company’s service providers. The current risk register includes 50 risks which have been categorised as follows:

The principal risks and uncertainties faced by the Company during the financial year, together with the potential effects, controls and mitigating factors, are set out in the following table.

As required by the UK Corporate Governance Code (the 2014 Code), the Board has undertaken a robust assessment of the principal risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity. Those principal risks have been described in the above table together with an explanation of how they are managed and mitigated. The Board will continue to assess these risks on an ongoing basis.

VIABILITY STATEMENT

In accordance with provision C.2.2 of the 2014 Code on UK Corporate Governance, the Directors have assessed the prospects of the Company over a longer period than the 12 months referred to by the ‘Going Concern’ guidelines. The Board conducted this review for the period up to 21 June 2018 which is the deadline by which the Board will formulate and submit to shareholders proposals (which may constitute a tender offer and/or other method of distribution) to provide an opportunity to realise the value of their investment in the Company at NAV less applicable costs.

In its assessment of the viability of the Company the Directors have noted that:

Given the factors stated above the Board is confident that the continuation vote which the Company is required to put to shareholders at the AGM in 2016 will be passed and has prepared the viability statement on this assumption.

The Directors have also reviewed:

The Directors reviewed the assumptions and considerations underpinning the Company’s existing going concern assertion which are based on:

Based on the results of their analysis, the Directors have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment.

FUTURE PROSPECTS

The Board’s main focus is the achievement of capital growth and an attractive total return. The future of the Company is dependent upon the success of the Company’s investment strategy. The outlook for the Company is discussed in both the Chairman’s Statement and the Investment Manager’s Report.

SOCIAL, COMMUNITY AND HUMAN RIGHTS ISSUES

As an investment trust, the Company has no direct social or community responsibilities. However, the Company believes that it is in shareholders’ interests to consider human rights issues, environmental, social and governance factors when selecting and retaining investments. Details of the Company’s policy on socially responsible investment are set out on page 34 of the Annual Report and Financial Statements.

DIRECTORS AND EMPLOYEES AND GENDER REPRESENTATION

The Directors of the Company on 31 January 2016, all of whom held office throughout the year, are set out in the governance structure and Directors’ biographies on page 22 of the Annual Report and Financial Statements.

The Board consists of four men and one woman. The Company does not have any employees, therefore there are no disclosures to be made in respect of employees.

The Chairman’s statement on pages 4 and 5 of the Annual Report and Financial Accounts together with the Investment Manager’s Report and portfolio analysis on pages 13 to 21 form part of the Strategic Report.

The Strategic Report was approved by the Board at its meeting on 30 March 2016.

By order of the BoardBlackRock Investment Management (UK) LimitedCompany Secretary30 March 2016

RELATED PARTY TRANSACTIONS

BlackRock Fund Managers Limited (BFM) was appointed as the Company’s Alternative Investment Fund Manager (AIFM) with effect from 2 July 2014. BlackRock Investment Management (UK) Limited continues to act as the Company’s Investment Manager under a delegation agreement with BFM. Details of the fees payable in relation to these services are set out in note 4.

At the year end, an amount of US$854,000 was outstanding in respect of these fees (2015: US$298,000).

In addition to the above services, BlackRock provided the Company with marketing services. The total fees paid or payable for these services for the year ended 31 January 2016 amounted to US$20,000 excluding VAT (2015: US$117,000). Marketing fees of US$87,000 (2015: US$149,000) were outstanding at 31 January 2016.

The Board consists of five non-executive Directors, all of whom are considered to be independent by the Board. None of the Directors has a service contract with the Company. The Chairman receives an annual fee of £38,000, the Chairman of the Audit Committee receives an annual fee of £28,250 and each other Director receives an annual fee of £24,000. This excludes expenses paid to each of the Directors which are set out in the Directors' Remuneration Report in the Annual Report and Financial Statements.

All members of the Board hold ordinary shares in the Company. Neil England holds 156,633 ordinary shares, Rachel Beagles holds 20,131 ordinary shares, Mark Bridgeman holds 8,650 ordinary shares, Philippe Delpal holds 12,000 ordinary shares and Robert Sheppard holds 10,000 ordinary shares.

Statement of Directors’ Responsibilities in respect of the Annual Report and Financial Statements

The Directors are responsible for preparing the Annual Report and Financial Statements in accordance with applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law they have elected to prepare the financial statements in accordance with applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company as at the end of each financial year and of the profit or loss of the Company for that period. In preparing those financial statements, the Directors are required to:

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors are also responsible for preparing the Strategic Report, Directors’ Report, the Directors’ Remuneration Report, the Corporate Governance Statement and the Report of the Audit Committee in accordance with the Companies Act 2006 and applicable regulations, including the requirements of the Listing Rules and the Disclosure and Transparency Rules. The Directors have delegated responsibility to the Investment Manager for the maintenance and integrity of the Company’s corporate and financial information included on the Investment Managers’ website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Each of the Directors, whose names are listed on page 22 of the Annual Report and Financial Statements, confirm to the best of their knowledge that:

The 2014 UK Corporate Governance Code also requires Directors to ensure that the Annual Report and Financial Statements are fair, balanced and understandable. In order to reach a conclusion on this matter, the Board has requested that the Audit Committee advise on whether it considers that the Annual Report and Financial Statements fulfils these requirements. The process by which the Audit Committee has reached these conclusions is set out in the Audit Committee’s report on pages 36 to 38 of the Annual Report and Financial Statements. As a result, the Board has concluded that the Annual Report and Financial Statements for the year ended 31 January 2016, taken as a whole, is fair, balanced and understandable and provide the information necessary for shareholders to assess the Company’s position, performance, business model and strategy.

For and on behalf of the BoardNeil EnglandChairman30 March2016

Investment manager’s report

MARKETS OVERVIEW

In the 12 months to 31 January 2016, the MSCI Emerging Europe 10-40 Index returned -14.2% in US dollar terms and -9.1% in sterling terms, all percentages with income reinvested. To put this into perspective, the region outperformed Emerging Markets globally, which were down almost 23.0% in US dollar terms over the same time period.

The first half of 2015 marked a strong recovery for the Russian equity market, providing evidence to support the body of academic work that indicates that often the correct time to buy Emerging Markets is when currencies are weak, equity markets are cheap and GDP growth is depressed. Investors returned to the market as oil prices staged a temporary recovery and the ruble strengthened. The rally was also driven by the market view that the near-term threat of additional Western sanctions on Russia had receded as the Minsk 2 accord provided a realistic roadmap to cease the conflict. As a result, the Russian equity market rallied 47% in US dollar terms from the start of the period until the peak in May.

The second half of the period was a very different story. As global oil supply remained persistently strong, the oil price resumed its fall, breaking the levels seen in the trough of the 2008-09 financial crisis. The Russian equity market fell in sympathy, effectively erasing its gains for the period. Although there was no significant absolute return, it is interesting to note that the market was an outperformer amongst Emerging Markets despite commodity prices continuing to fall.

Despite the volatility, many Russian corporates are adjusting better than might be perceived. These days, the ruble operates a floating rather than managed exchange rate mechanism. As the ruble has depreciated, Russian corporate competitiveness has improved, a result which is indicative of a more flexible economy than in the past. Despite the difficult economic conditions, corporate profit margins have increased so far this year to the highest level since 2011. This does not remove the pain of devaluation, but it does assist with recovery and growth subsequent to an economic shock.

For example, MMC Norilsk Nickel, a Russian miner with operations in the Russian arctic, has benefitted from this flexibility. The company is the lowest cost producer of nickel globally, due to accessible, high-grade, by-product-rich ore. The recent commodity weakness has impacted the price of Nickel. However, the fall in Nickel prices have been cushioned by the fall in the ruble as a commodity linked currency, meant that the company can still generate significant free cash flow margins and pay a high dividend yield.

Greece was a weaker market over the period as the focus of investors remained on the continuing Greek sovereign debt crisis. Despite the economic incentives for both sides to agree a deal, negotiations broke down in June 2015, as the Greek government called a referendum on the bailout programme. As a consequence, capital controls were imposed and the Athens stockmarket was temporarily closed.

Subsequently, the Greek government and the Eurozone agreed a framework of a third bailout programme for the country, unlocking critical financing. Whilst not all the capital controls have been removed, they are significantly reduced and the stock market has been trading since August. Although there is still much to be done in terms of implementation, continued progress should result in a stabilisation of the finances of Greece with positive long term consequences for markets.

The Greek banking system has also gone through a very large recapitalisation programme, which was a major driver of market underperformance but puts the financial system on a much firmer footing going forward – Greek banks are now some of the best-capitalised in Europe.

For example, Alpha Bank now has a Tier 1 capital ratio of over 16%, compared to a 13% average in for European banks. In the recapitalisation programme, Alpha Bank was required to raise less capital than its peers and did not require state aid. As a result, the bank is likely to resume its dividend payment policy sooner and we believe that there remains significant upside to the current share price.

The Polish market was remarkably stable in the first half of the year. The Polish economy has been in good health, with the GDP growing at 3.6% on the back of the recovery in Northern Europe, solid domestic demand and low unemployment. However, the market started to slide in October as a new Polish government was elected, they subsequently proposed a series of policies which have weighed on investor sentiment, such as retail and financials taxes, and a Swiss Franc mortgage readjustment bill. As a result, Poland ended up as one of the weaker markets in the region during the reporting period.

Poland has traditionally been one of the more expensive markets in the Emerging European region, but we are now starting to see significant value emerging. For example, Poland’s largest bank, PKO Bank Polski, now trades at 1.0x its book value, the cheapest it has been for over a decade.

Whilst Hungary’s strong economic performance, with GDP growing 3.2%, was similar to Poland, its market was quite a contrast, rising by 49.3% over the reporting period. This was a combination of political factors – with policies like the banking tax heading in the opposite direction to Poland – and stock-specific factors, such as pharmaceutical company Richter gaining FDA approvals on a potential ‘blockbuster’ new drug called Cariprazine.

Turkey was weak during the year as progress in negotiations to form a new government stalled, leading to two general elections, whilst a return to slightly tighter US monetary policy provided a more difficult financing environment for Emerging Markets – something Turkey is particularly sensitive to. Despite these political and monetary issues, the lower oil price has proven to be a tailwind for Turkey as it is a significant energy importer.

It has also been a tailwind for stocks with crude oil inputs such as Tupras, the leading refiner in Turkey, which successfully commissioned an upgrade to its major Izmit refinery this year to allow it to produce more valuable oil products. As a consequence, the company was able to achieve financial results on a par with some of its best periods historically.

PORTFOLIO

In the 12 months to 31 January 2016, the Company’s net asset value (NAV) returned -10.1%, outperforming the benchmark by 4.0% in US dollar terms. Whilst absolute performance is disappointing, this strong relative performance was satisfying, as it was produced in volatile and difficult markets, whilst demonstrating the advantages of the Trust’s investment strategy.

Some of the best contributions to relative performance came from positions in the technology sector such as IT service provider, Luxoft and leading Russian social media platform, Mail.Ru. The technology sector is not represented in the benchmark, highlighting the opportunities that exist beyond the index stocks. The Company’s investment strategy is designed to capture undervalued stocks with exposure to emerging Europe and positive prospects, regardless of benchmark weights.

Investments beyond the benchmark countries, in places such as Turkmenistan and Romania, also contributed positively to performance.

In Turkmenistan, oil exploration and production company Dragon Oil, performed well. Dragon Oil’s parent company, ENOC, made an offer in June to buy the shares in the company which it did not already own at a premium to the pre-existing market price. This was a reflection of the strong progress Dragon had made in terms of growing production and cash flow generation together with its inexpensive valuation. Dragon Oil had been one of the more significant positions in the portfolio for some time, possessing many of the qualities we like to see in an investment, and it was satisfying to see a rewarding conclusion.

In Romania, the banking sector has benefitted from entering a new credit cycle as the economy has improved, with higher loan growth and lower cost of bad debt. This was confirmed just after the end of the reporting period as Romanian bank BRD Groupe Société Générale delivered strong 2015 results. The favourable economic conditions helped the bank to report a doubling of year on year profits, outpacing its peers across the region.

Despite the turbulence in Greece, the Company generated positive relative performance over the period from the country. The Company was invested in Motor Oil, one of Europe’s most advanced refineries, which benefitted from a strong refining environment and traded very inexpensively during the Greek bailout negotiations despite having little reliance on the Greek economic situation and generating good cash flow. The stock was one of the best performers in the region, rallying almost 90% in US dollar terms from its low point at the start of the reporting period.

The Company’s exposure to Turkey detracted from performance over the year. Despite the economic tailwind from lower oil prices, investors were concerned about domestic political developments ahead of parliamentary elections. This particularly affected state-owned Halk Bank, which sold-off as a result, hurting relative performance. Halk Bank did however announce financial results after the end of the reporting period which were better than consensus expectations.

OUTLOOK

The broad Global Emerging Markets currency sell-off, spurred by a combination of weakened Chinese demand and the impact of the US Federal Reserve’s decision to raise interest rates, has continued to redirect capital away from Emerging Markets. This has resulted in many Emerging Market currencies trading at or around a 13 year low point. We believe this trend is not sustainable given improving competitiveness and current account balances across many Emerging Markets. As noted above, the correct time to buy Emerging Markets is often when currencies are weak, markets are cheap and GDP growth is depressed. All three are true of the Emerging Europe region today.

Importantly, many of the difficulties specific to the Emerging European region appear to have stabilised and have been priced into markets, as evidenced by their relative outperformance of global Emerging Markets over the past 12 months.

In Russia, the conflict in the east of Ukraine remains tense but there has been some improvement in terms of the development of diplomatic channels. While oil prices remain below the levels of 12 months ago, the flexibility of the floating ruble has cushioned the state budget and company profitability. We continue to identify stocks for investment, concentrating on cash generative exporters and domestic stocks that can deliver growth even without rising oil prices. Valuations are very low, dividend yields are high and a re-rating is possible if the politics remains supportive and oil stages a modest recovery.

The turbulence in Greece intensified around the bailout negotiations in 2015, but it appears that the negotiations surrounding the first review of the programme are currently being handled in a more constructive manner. We believe that, although the reforms under discussion are not trivial, all parties would like to avoid a repeat of the 2015 turmoil. Progress would open up discussion of potential debt relief and set Greece on a more positive and sustainable economic trajectory, with positive impact on the market.

The political instability that characterised Turkey for much of 2015 has moderated with the decisive victory of the AK Party in the second election. In addition, the Turkish economy benefits from the lower oil price which is reflected by a lower current account deficit. Our optimism is moderated by concerns about the stock of external liabilities accumulated by the country.

In Poland, the strength of the export sector that has driven growth in recent quarters is now broadening into consumer strength as employment and wages remain strong whilst inflation is subdued. We have started to see significant value emerging in the market for the first time in a while, but we believe it will take some more time for the policy environment to settle, particularly around state-owned companies. As an alternative we continue to see select opportunities in countries experiencing similar economic trends such as Romania, where valuations can be cheaper and the long term potential for growth higher.

Emerging Europe has endured some surprisingly difficult external economic shocks over the past year, but has proved more resilient than many other Emerging Markets. The region ends the year with weaker currencies but improved competitiveness, which has the potential to drive a cyclical recovery in growth over the longer term. Financial markets typically move in advance of economic improvements, and so the potential is there for better returns going forward, whilst the Company will still benefit from the focused and unconstrained investment strategy that has produced strong relative performance over the past 12 months.

Sam Vecht and David ReidBlackRock Investment Management (UK) Limited30 March 2016

Performance

Performance attribution

1. Due to the limitations of a static attribution methodology, the numbers quoted are indicative and not exact.2. The interaction effect is included within stock selection.

FIFTEEN LARGEST EQUITY INVESTMENTS

Sberbank – 8.0% (2015: 5.2%) is Russia’s largest bank. The state-owned bank has branches throughout the country and a 50% share in the retail deposit market. The bank continues to build on its restructuring strategy that has driven much of its success over the past few years, improving its services and the efficiency with which they are delivered.

Halk Bank – 7.2% (2015: 8.7%) is a state-controlled Turkish bank. The bank has a long history of delivering attractive returns and is one of the most profitable companies in the sector, particularly in its high margin SME banking operation.

Novatek – 6.8% (2015: nil) is Russia’s largest independent natural gas producer. The company is set to enter a new phase of growth through its Yamal LNG project, whilst the capital expenditure burden for the company is set to become much lighter, allowing it to generate increasing amounts of free cash flow.

PKO Bank Polski – 6.7% (2015: 6.9%) is Poland’s largest bank. The Company has one of the strongest deposit franchises in the country, meaning it has a structurally lower cost of funding than its peers. The bank trades at attractive valuations relative to other Polish banks.

Lukoil – 6.1% (2015: nil) was formed in 1991 following the merger of three state-run companies in western Siberia. The three companies were called Langepasneftegaz, Urayneftegaz, and Kogalymneftegaz and this heritage is preserved in the company’s current name. Today, the company is the largest privately-owned company by proved oil reserves. Lukoil is a highly competitive oil producer even at current low oil prices and generates significant free cash flow.

PZU – 5.7% (2015: nil) is Poland’s largest insurance company, active in both the life and non-life segments for over 16 million customers. Its scale and unparalleled distribution network – both through direct sales and 12 thousand agents – provide a strong competitive advantage that enables the company to generate attractive returns.

Gazprom – 5.3% (2015: 3.9%) is Russia’s largest gas producer and transporter, with a pipeline export monopoly. Despite its status as one of the most profitable companies in the world, Russian energy giant, Gazprom has been out of favour with investors. We believe that the risks associated with Gazprom are more than priced into the valuation and the company pays an attractive dividend yield.

KazMunaiGas Exploration Production – 5.0% (2015: nil) is an oil exploration and production company based in Kazakhstan, which is 58% state-owned. New management are currently implementing an improved strategic plan, building on their previous successful experience in Russia. The investment case is also supported by the decision of the Kazakhstan government to move to a more flexible exchange rate regime, which has provided a cushion to costs despite the falling oil price.

OPAP – 4.5% (2015: nil) is a Greek gaming company. OPAP was established in 1958 by the Greek state. Fully privatised in 2013, the government sold down its 33% stake to the Emma Delta private equity vehicle. It entered into a 20 year concession in 2000, which granted exclusive rights to run 9 existing games. In 2011 this concession was extended until 2030. The company is highly cash generative and has opportunities to improve and grow its portfolio of games.

TSKB – 4.5% (2015: 6.4%) is a Turkish development bank which focused on lending to infrastructure projects. The bank’s high margin, stable revenue projects combined with their long funding maturities mean that the company has one of the most sustainable earnings streams in the Turkish banking sector.

Globaltrans – 4.4% (2015: 2.1%) is a leading freight rail transportation group with operations in Russia, the CIS and the Baltic countries. The company provides services to more than 500 customers and its key customers include companies in, or suppliers to, a number of large Russian industrial groups in the metals and mining and the oil products and oil sectors.

Tupras – 3.7% (2015: nil) is a Turkish oil refiner. Turkey has become a major energy hub in recent years, and Tupras has a sustainable competitive advantage by dynamically sourcing the optimal crude oil mix both from seaborne and pipeline supplies. The company can process this oil in high quality refining facilities, which have been recently improved through a major upgrade program, making it one of the most profitable refining companies worldwide.

KGHM – 3.6% (2015: 1.9%) is one of the largest producers of copper and silver in the world. Whilst the copper price has fallen, the Polish zloty has also fallen, meaning the impact on the company’s margins is partially compensated for by lower costs. The company is consequently able to remain profitable when many similar producers are making losses, and is trading at an attractive valuation.

Coca Cola Icecek – 3.5% (2015: nil) is the Coca-Cola bottling franchise with sole responsibility for Turkey. The company also has operations in rapidly-growing Frontier markets such as Pakistan, Iraq, the CIS and across the Middle East and North African region.

Garanti Bank – 3.3% (2015: 5.6%) is Turkey’s second largest private bank. Garanti Bank has a long track record of delivering high returns on equity and has increasing contributions from associated financial services such as leasing and asset management.

All percentages reflect the value of the holding as a percentage of net assets. Percentage in brackets represents the value of the holding at 31 January 2016. Together, the fifteen largest investments represents 78.3% of net assets (31 January 2015: 79.3%).

Top and bottom 5 contributors to relative performance

Top 5 largest positive contributors to relative performance

Luxoft (total effect on relative performance 2.5%) is an international software development and IT outsourcing company with 90% of its employee base in Emerging Europe. Many of the company’s customers are global financial services and automotive firms and it is rapidly capturing market share as it is able to provide high quality human capital at competitive cost, a key competitive advantage of the region. The stock continued to outperform and deliver double digit growth rates in sales and earnings and the team took profits by selling the position. The team subsequently bought a new position after the stock fell on concerns that weakness in European banks may impact IT spending. However, Luxoft announced that no projects had been cancelled and the team believed that the share price once again represented good value.

Sberbank (total effect on relative performance 2.0%) Russia’s largest bank has significantly outperformed the index as it demonstrated a strong recovery from the difficult economic environment prompted by the fall in oil price immediately prior to the reporting period. The bank was able to display sequential growth in operating profits in the following quarters, beating analyst expectations and meeting all its provisioning needs.

Mail.Ru (total effect on relative performance 1.6%) is Russia’s leading social network and associated internet businesses. The company has weathered the difficult economic environment well, progressing with the monetisation of its platform and developing impactful new gaming products.

Motor Oil (total effect on relative performance 1.3%) is an oil refiner based in Greece. The refinery is one of the most sophisticated in Europe, as measured by a Nelson Complexity Index score of 11.5, which compares favourably to a European average of 7.8. The position of the company’s facilities on the Mediterranean affords a competitive advantage, with the company able to source crude oil from across the region and obtain the best prices. The underlying business is more linked to the regional refining environment than the Greek domestic economy and the market was initially under-appreciating the healthy cash flow stream the company is able to generate.

Dragon Oil (total effect on relative performance 1.0%) is an oil exploration and production company based in the Caspian Sea. Dragon Oil’s parent company, ENOC, made an offer in June to buy the shares in the company which it did not already own at a premium to the pre-existing market price. This was a reflection of the strong progress Dragon Oil had made in terms of growing production and cash flow generation together with its inexpensive valuation. Dragon Oil had been one of the more significant positions in the portfolio for some time, possessing many of the qualities we like to see in an investment, and it was satisfying to see a rewarding conclusion.

Top 5 largest negative contributors to relative performance

Halk Bank (total effect on relative performance -2.2%) & TSKB (total effect on relative performance -1.0%) were impacted by sentiment about domestic political developments in Turkey surrounding the parliamentary elections, which initially failed to produce a majority government. As a state-owned bank, Halk Bank, was particularly affected. The return of tighter monetary policy in the US also had an effect on Turkish bank valuations, as Turkey is sensitive to the cost of external funding.

National Bank of Greece (total effect on relative performance -1.2%) The bank detracted due to concerns over the Greek economy, which culminated in the imposition of capital controls, which have since been partially raised. The banking system subsequently underwent a new round of stress tests and a significant European Union backed recapitalisation, which now leaves the banks in a much stronger situation than had been previously.

PKO Bank Polski (total effect on relative performance -0.9%) This leading Polish bank suffered on concerns surrounding the proposed CHF mortgage conversion plan that resulted from the Swiss central bank’s decision to end its currency cap. The new Polish government has done little to allay short term fears with its initial draft of the plan – although it may be subject to future revision – and also chose to institute a new bank tax.

OTP (total effect on relative performance -0.9%) Relative performance of the Company was impacted due to a zero weighting in OTP as the Hungarian market rallied. On the financial side, interest rates in the region fell throughout the first half of the year, as falling inflation trends persisted. This further supported the market and inflation now looks to have stabilised at benign levels, meaning that the economic outlook should continue to improve for consumers and banks.

Total effect on relative performance includes the contribution from asset allocation, stock selection and interaction relative to the benchmark index.

Portfolio analysis as at 31 January 2016

The table above shows the analysis of the net assets as at 31 January 2016 by sector and region, compared with the net assets as at 31 January 2015 and the MSCI Emerging Europe 10-40 Index breakdown as at 31 January 2016.

Investments as at 31 January 2016

The total number of investments (excluding CFD positions) held at 31 January 2016 was 30 (31 January 2015: 28). All investments are in equity shares unless otherwise stated.

During the year, the Company entered into CFDs to gain long and short exposure on individual securities. At the year end, no short CFDs were outstanding (31 January 2015: one short CFD with a net fair value of US$515,000; and an underlying market value of US$3,465,000). One long CFD position was held (31 January 2015: One) with a net fair value loss of US$88,000 (31 January 2015: net fair value profit of US$36,000) and an underlying market value of US$2,332,000 (31 January 2015: US$6,129,000).

Fifteen largest investments as at 31 January 2016

Income statement for the year ended 31 January 2016

The total column of this statement represents the Company’s Profit and Loss Account of the Company.

The supplementary revenue and capital columns are both prepared under guidance published by the Association of Investment Companies (AIC). The Company had no recognised gains or losses other than those disclosed in the Income Statement. All items in the above statement derive from continuing operations and no operations were acquired or discontinued during the year. All income is attributable to the equity holders of the Company.

The Company does not have any other recognised gains or losses. The net loss for the year disclosed above represents the Company’s total comprehensive income.

Reconciliation of movements in shareholders’ funds for the year ended 31 January 2016

1 Final dividend of 3.50 cents per share for the year ended 31 January 2014, declared on 24 March 2014 and paid on 1 July 2014.

Balance sheet as at 31 January 2016

Cash flow statement for the year ended 31 January 2016

Notes to the financial statements

1. PRINCIPAL ACTIVITY

The principal activity of the Company is that of an investment trust company within the meaning of section 1158 of the Corporation Tax Act 2010.

2. ACCOUNTING POLICIES

(a) Basis of preparation

This is the first year that the Company has presented its results and financial position under FRS 102, ‘The Financial Reporting Standard applicable in the UK and Republic of Ireland’ (FRS 102), which forms part of the revised Generally Accepted Accounting Practice (New UK GAAP) issued by the Financial Reporting Council (FRC) in 2013. The last financial statements prepared under the previous UK GAAP were for the year ended 31 January 2015.

The financial statements have been prepared on a going concern basis in accordance with FRS 102 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.

As a result of the first time adoption of ‘New UK GAAP’ and the revised SORP, comparative amounts and presentation formats have been amended where required. The changes to accounting policies relate to the change in the presentation of cash flows (see below) and fair value hierarchy of financial instruments (see note 18 of the Annual Report and Financial Statements) and there were no adjustments to the Company’s income statement for the financial year ended 31 January 2015 and the total equity as at 1 February 2014 and 31 January 2015 between UK GAAP as previously reported and FRS 102 as a result of changes to accounting policies. There were no adjustments to the Company’s balance sheet at 1 February 2014 or 31 January 2015 on transition to FRS 102.

The Company’s cash flow statement reflects the presentation requirements of FRS 102, which are different to that prepared under FRS 1. In addition, the cash flow statement reconciles to cash and cash equivalents whereas under previous UK GAAP the cash flow statement reconciled to cash. Cash and cash equivalents are defined in FRS 102 as ‘cash in hand and on demand deposits and short term highly liquid investments that are readily convertible to known amounts of cash and that are subject to an insignificant risk of changes in value’ whereas cash is defined in FRS 1 as ‘cash in hand and deposits repayable on demand with any qualifying institution, less overdrafts from any qualifying institution repayable on demand’. The FRS 1 definition is more restrictive. Accordingly, cash collateral pledged with brokers is shown as a debtor and does not form part of cash and cash equivalents in the Cash Flow Statement. The comparative figures in the Cash Flow Statement have been updated to reclassify these amounts from cash and cash equivalents to debtors.

The Company’s Articles of Association require that an ordinary resolution be put to the Company’s shareholders to approve the continuation of the Company every three years. The Directors are satisfied that the Company has adequate resources to continue in operational existence for the foreseeable future and therefore consider the going concern assumption to be appropriate. The last resolution was put to shareholders at the 2013 AGM and the next such resolution will be put to shareholders at the AGM on 21 June 2016 and thereafter in 2019. (See page 27 of the Annual Report and Financial Statements for further details.) The Directors have no reason to believe that this resolution will not be passed.

The principal accounting policies adopted by the Company are set out below. Unless specified otherwise, the policies have been applied consistently throughout the year and are consistent with those applied in the preceding year. All of the Company’s operations are of a continuing nature.

The Company’s financial statements are presented in US Dollars, which is the functional and presentation currency of the Company. The US Dollar is the functional currency because it is the currency most related to the primary economic environment in which the Company operates. All values are rounded to the nearest thousand dollars (US$’000) except where otherwise indicated.

(b) Presentation of Income Statement

In order to reflect better the activities of an investment trust company and in accordance with guidance issued by the Association of Investment Companies (AIC), supplementary information which analyses the Income Statement between items of a revenue and a capital nature has been presented alongside the Income Statement.

(c) Segmental reporting

The Directors are of the opinion that the Company is engaged in a single segment of business being investment business.

(d) Income

Dividends receivable (including, where appropriate, overseas withholding taxes) on equity shares are treated as revenue for the year on an ex-dividend basis. Where no ex-dividend date is available, dividends receivable on or before the year end are treated as revenue for the year. Provisions are made for dividends not expected to be received. The return on a debt security is recognised on a time apportionment basis.

Special dividends are treated as a capital receipt or revenue receipt depending on the facts or circumstances of each particular case.

Dividends are accounted for in accordance with section 29 of FRS 102 on the basis of income actually receivable, without adjustment for tax credits attaching to the dividends. Dividends from overseas companies continue to be shown gross of withholding tax.

Interest income is accounted for on an accruals basis.

Where the Company has elected to receive its dividends in the form of additional shares rather than in cash, the amount of the cash dividend foregone is recognised as income. Any excess in the value of the shares received over the amount of the cash dividend foregone is recognised in capital reserves.

(e) Expenses

All expenses are accounted for on an accruals basis. Expenses which are incidental to the acquisition of an investment are charged to the capital column of the Income Statement. Expenses incurred on the sale of investments are deducted from the proceeds of the sale of the investments. The Board has decided that capital profits should not reflect the indirect costs incurred in generating capital returns therefore fees payable to the Investment Manager are charged to the revenue column of the Income Statement.

Transaction charges in relation to the purchase and sale of investments are charged to the capital column of the Income Statement.

(f) Finance costs

Finance costs are accounted for on an accruals basis in the revenue column of the Income Statement using the effective interest rate method.

(g) Taxation

The current tax effect of different items of expenditure is allocated between capital and revenue on the marginal basis using the Company’s effective rate of corporation taxation for the accounting period.

Deferred tax is recognised in respect of all timing differences at the balance sheet date, where transactions or events that result in an obligation to pay more tax in the future or right to pay less tax in the future have occurred at the balance sheet date. Deferred tax assets are recognised only when, on the basis of available evidence, it is more likely than not that there will be taxable profits in the future against which the deferred tax asset can be offset. Deferred tax assets and liabilities are not discounted to reflect the time value of money. Deferred tax is provided at the amount expected to be paid/recovered using the tax rates and laws which have been enacted or substantially enacted at the balance sheet date.

(h) Investments held at fair value through profit or loss

The Company’s investments are classified as held at fair value through profit or loss in accordance with section 11 and 12 of FRS 102 and are managed and evaluated on a fair value basis in accordance with its investment strategy.

All investments are designated upon initial recognition as held at fair value through profit or loss. Purchases of investments are recognised on a trade date basis. Sales of assets are recognised at the trade date of the disposal. Proceeds will be measured at fair value, which will be regarded as the proceeds of sale less any transaction costs.

The fair value of the financial investments is based on their quoted bid price or as otherwise stated at the balance sheet date, on the exchange on which the investment is quoted, without deduction for the estimated future selling costs.

Changes in the value of investments held at fair value through profit or loss and gains and losses on disposal are recognised in the Income Statement as ‘Gains or losses on investments held at fair value through profit or loss’. Also included within this heading are transaction costs in relation to the purchase or sale of investments.

In order to improve the disclosure of how companies measure the fair value of their financial investments, the disclosure requirements in section 11 of FRS 102 have been extended to include a fair value hierarchy. The fair value hierarchy consists of the following three levels:

Level (a) – quoted prices for identical instruments in active markets

Level (b) – prices of recent transactions for identical instruments

Level (c)(i) – valuation techniques that use observable market data

Level (c)(ii) – valuation techniques that use unobservable market data

Fair values for unquoted investments, or investments for which the market is inactive, are established by using various valuation techniques. These may include recent arm’s length market transactions or the current fair value of another instrument which is substantially the same. Where no reliable fair value can be estimated for such instruments, they are carried at cost subject to any provision for impairment.

(i) Valuation of derivative financial instruments

Derivatives are initially accounted and measured at fair value on the date the derivative contract is entered into and subsequently measured at fair value. The gain or loss on re-measurement is taken to the Income Statement. The sources of the return under the derivative contract (e.g. notional dividends, financing costs, interest returns and capital charges) are allocated to the revenue and capital columns of the Income Statement in alignment with the nature of the underlying source of income and in accordance with the guidance given in the AIC SORP.

(j) Preference shares

The Company’s preference shares are classified as a liability under section 22 of FRS 102.

(k) Dividends payable

Under section 32 of FRS 102, final dividends should not be accrued in the financial statements unless they have been approved by shareholders before the balance sheet date. Dividends payable to equity shareholders are recognised in the Reconciliation of Movements in Shareholders’ Funds when they have been approved by the shareholders and become a liability of the Company. Interim dividends are only recognised in the financial statements in the period in which they are paid.

(l) Foreign currency translation

All transactions in foreign currencies are translated into US dollars at the rates of exchange ruling on the dates of such transactions. Foreign currency assets and liabilities at the balance sheet date are translated into US dollars at the exchange rates ruling at that date. Exchange differences arising on the revaluation of investments held as fixed assets are included in the capital column of the Income Statement. Exchange differences arising on the translation of foreign currency assets and liabilities are taken to the capital column of the Income Statement.

(m) Cash and cash equivalents

Cash comprises cash in hand and on demand deposits. Cash equivalents comprise short term, highly liquid investments that are readily convertible to known amounts of cash and that are subject to an insignificant risk of changes in value.

(n) Capital redemption reserve

The nominal value of ordinary share capital for cancellation is transferred out of share capital and into the capital redemption reserve.

(o) Shares repurchased and held in treasury

The full cost of shares repurchased and held in treasury is charged to capital reserves. Where treasury shares are subsequently reissued, any surplus is taken to the share premium account.

(p) Capital reserves

The following transactions are accounted for in capital reserves:

(q) Other receivables

Other receivables are sales for future settlement, other receivables, pre-payments and accrued income in the ordinary course of business. If collection is expected in one year or less (or in the normal operating cycle of the business if longer), they are classified as current assets. If not, they are presented as non-current assets. Other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest rate method.

(r) Other payables

Other payables are purchases for future settlements, interest payable, share buyback cost and accruals in the ordinary course of business. Other payables are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not, they are presented as non-current liabilities. Other payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest rate method.

3. INCOME

4. INVESTMENT MANAGEMENT FEE

BFM was appointed as the Company’s AIFM with effect from 2 July 2014, having been authorised as an AIFM by the FCA on 1 May 2014. The management contract is terminable by either party on six months’ notice. Prior to this, BIM (UK) was appointed as Investment Manager and Company Secretary on 1 May 2009.

The Manager receives a basic annual management fee of 1.0% of the Company’s average daily market capitalisation. Investment management fees were paid to BIM (UK) until 1 July 2014 and thereafter are payable to BFM. Any charges in respect of BlackRock managed funds are deducted from the management fee. With effect from 1 February 2016 70% of management fees will be allocated to the Company’s capital reserve.

5. OTHER OPERATING EXPENSES

No fees were paid to the Auditors for other services in respect of the year under review (2015: US$ nil). The underlying audit fee is invoiced in sterling and is therefore susceptible to exchange rate fluctuations.

Expenses of US$79,000 (2015: US$54,000) charged to the capital column of the Income Statement relate to transaction costs charged by the custodian on the purchases and sales of investments, and other administrative costs.

A significant proportion of the Company’s operating expenses are paid in sterling and are therefore subject to exchange rate fluctuations.

6. DIVIDENDS

The Directors have not proposed a final dividend (2015: nil).

Following changes to the taxation rules in July 2013 the Company is not required to pay a dividend to meet the requirements of section 1158 of the Corporation Tax Act 2010 until such time as it has positive revenue reserves.

The 2014 final dividend was paid from capital reserves.

7. EARNINGS AND NET ASSET VALUE PER ORDINARY SHARE

Revenue and capital returns per share are shown below and have been calculated using the following:

\* The Company’s ordinary share price is quoted in sterling and the above represents the US Dollar equivalent using an exchange rate of 1.4185 (2015: 1.5019).

8. SHARE CAPTIAL

During the year ended 31 January 2016, the Company purchased and cancelled 26,000 Ordinary shares of 10 cents each (2015: nil) for a total consideration of US$70,000 (2015: US$ nil).

9. CONTINGENT LIABILITIES AND ASSETS

There were no contingent liabilities or assets at 31 January 2016 (2015: nil).

10. PUBLICATION OF NON-STATUTORY ACCOUNTS

The financial information contained in this announcement does not constitute statutory accounts as defined in the Companies Act 2006. The 2016 annual report and financial statements will be filed with the Registrar of Companies shortly.

The report of the Auditors for the year ended 31 January 2016 contains no qualification or statement under Section 498(2) or (3) of the Companies Act 2006.

The comparative figures are extracts from the audited financial statements of BlackRock Emerging Europe plc for the year ended 31 January 2015, which have been filed with the Registrar of Companies, unless otherwise stated. The report of the Auditors on those financial statements contained no qualification or statement under Section 498 of the Companies Act.

This announcement was approved by the Board of Directors on 30 March 2016.

11. ANNUAL REPORT

Copies of the Annual Report and Financial Statements will be published shortly and will be available from the registered office, c/o The Company Secretary, BlackRock Emerging Europe plc, 12 Throgmorton Avenue, London EC2N 2DL.

12. ANNUAL GENERAL MEETING

The Annual General Meeting of the Company will be held at the offices of BlackRock, 12 Throgmorton Avenue, London EC2N 2DL on Tuesday, 21 June 2016 at 12.00 noon.

ENDS

The Annual Report and Financial Statements will also be available on the BlackRock website at http://www.blackrock.co.uk/beep. Neither the contents of the Investment 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.

For further information, please contact:

Simon White, Managing Director, Investment Trusts, BlackRock Investment Management (UK) LimitedTel: 020 7743 5284

Emma Phillips, Media & Communication, BlackRock Investment Management (UK) LimitedTel: 020 7743 2922

Press Enquiries:Lucy Horne, Lansons Communications – Tel: 020 7294 3689E-mail: [email protected]

30 March 2016

12 Throgmorton AvenueLondon EC2N 2DL