Source - PRN

BlackRock Emerging Europe plc

Half Yearly Financial Results Announcement for Period Ended 31 July 2016

PERFORMANCE RECORD

FINANCIAL HIGHLIGHTS



Attributable to ordinary shareholders 
As at 
31 July 2016 
(unaudited) 
As at 
31 January 2016 
(audited) 

Change 
US dollar
Net assets (US$'000) 132,361  113,043  17.1 
Net asset value per ordinary share (US$ cents) 366.41c  312.13c  17.4 
MSCI Emerging Europe 10-40 Index (net return)(1) 352.01  307.15  14.6 
Ordinary share price (mid-market)(2) 323.29c  270.76c  19.4 
Sterling
Net assets (£’000)(2) 99,692  79,692  25.1 
Net asset value per ordinary share(2) 275.97p  220.04p  25.4 
MSCI Emerging Europe 10-40 Index (net return)(1) 265.13  216.53  22.4 
Ordinary share price (mid-market) 243.50p  190.88p  27.6 
Discount to net asset value 11.8%  13.3% 
Gross market exposure(3) 105.6%  106.7% 
Sources: BlackRock and Datastream.
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 a £: US$ exchange rate of 1.3277 (31 January 2016: 1.4185).
3 Long positions plus short positions as a percentage of net assets.

   

For the 
six months ended 
31 July 2016 
(unaudited) 
For the 
six months ended 
31 July 2015 
(unaudited) 


Change 
Revenue
Net revenue after taxation (US$’000) 2,341  1,473  58.9 
Revenue return per ordinary share 6.47c  4.06c  59.4 
Source: BlackRock.

CHAIRMAN’S STATEMENT
for the six months ended 31 July 2016

MARKET OVERVIEW

Following a long period of poor performance by the asset class, investors’ patience was partially repaid during the reporting period with the benchmark index returning more than 22% in sterling terms (more than 14% in US dollar terms). The first half of the year started strongly for Emerging European equity markets as central banks provided liquidity enabling commodities to recover from their recent lows. The weak US payroll data in June followed by a dovish statement from the US Federal Reserve served to defer expectations of when US interest rates would rise again. This increased investor confidence and led to a further rally in emerging market equities. Whilst the Brexit vote had an immediate impact globally, the Emerging Europe universe was mostly flat in June in US dollar terms.

From an individual country perspective, Russia’s equity market performed well in the period under review returning over 32% in sterling terms (over 23% in us dollar terms). The country has benefited from a rise in oil prices and the weaker ruble has helped to restore economic competitiveness.

In Poland, the equity market ended the period in positive territory despite being significantly impacted for a short period by the Brexit vote.

The Greek equity market performed well following a positive reaction to the bailout programme’s first review although it was subsequently affected by the Brexit vote and renewed solvency concerns over its banking sector.

Turkey ended the period positively despite continued political uncertainty, heightened by the attempted coup on 15 July.

PERFORMANCE

The Company’s net asset value per share (NAV) returned +17.4% and the share price +19.4% in US dollar terms (+25.4% and +27.6% respectively in sterling terms). The MSCI Emerging Europe 10-40 Index returned +14.6% and +22.4% in US dollar and sterling terms. Since the appointment of BlackRock as investment manager on 1 May 2009 the Company’s NAV has increased by 50.7% in US dollar terms and 68.1% in sterling terms, outperforming the benchmark index by 30.0 and 33.4 percentage points respectively (all percentages with income reinvested).

Further details of the factors which have contributed to performance are set out in the Investment Manager’s Report.

Since the period end and up until the close of business on 27 September 2016 the Company’s NAV has increased by 4.8% in US dollar terms and by 7.1% in sterling terms compared with an increase in the benchmark of 3.1% in US dollar terms and 5.4% in sterling terms (all percentages with income reinvested).

PERFORMANCE TRIGGERED TENDER OFFER

In June 2013 shareholders approved the introduction of a performance triggered tender offer whereby 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 underperformed its benchmark index by in excess of 3% on a cumulative basis (measured on a NAV per share total return basis over the three year period from 21 June 2013).

The Board announced on 21 June 2016 that in the three year period from 21 June 2013 the Company had outperformed the benchmark by 13.7 percentage points (in US dollar terms) and therefore the performance triggered tender offer for up to 25% of the Company’s shares would not take place.

PERIODIC OPPORTUNITIES FOR RETURN OF CAPITAL

Shareholders should note that it was also agreed in June 2013 that, prior to 21 June 2018, the Board would formulate and submit 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. A further announcement regarding these proposals will be made prior to 21 June 2018.

SHARE BUYBACKS

During the period under review, the Company repurchased 92,800 ordinary shares at an average price of 221.2p and at an average discount to NAV of 12.6% and at a total cost of £207,000 including stamp duty and commission. A further 104,000 shares have been repurchased since the period end up to close of business on 27 September 2016.

OUTLOOK

Following a challenging period in recent years we believe that the region provides an attractive investment opportunity, particularly when compared to developed markets, with compelling valuations and increased economic competitiveness. Our portfolio managers continue to focus the portfolio on a relatively concentrated number of holdings which represent their best ideas in the region. We continue to believe that this strategy will provide superior returns over the medium term.

Neil England

29 September 2016

INTERIM MANAGEMENT REPORT AND RESPONSIBILITY STATEMENT

The Chairman’s statement and the Investment Manager’s Report give details of 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 risk;
-   Investment performance risk;
-   Legal & Compliance risk;
-   Operational risk;
-   Market risk (including political risk);
-   Financial risk; and
-   Marketing risk.

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 January 2016. A detailed explanation can be found on pages 9 to 11 and in note 18 on pages 56 to 66 of the Annual Report and Financial Statements which are available on the website maintained by BlackRock, at www.blackrock.co.uk/beep.

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 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 is 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 taxation) for the year ended 31 January 2016 were approximately 1.3% of net assets.

RELATED PARTY DISCLOSURE AND TRANSACTIONS WITH THE INVESTMENT 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 management fees payable are set out in note 3 and note 10.

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

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 Standard FRS104 ‘Interim Financial Reporting’; and
-   the Interim Management Report together with the Chairman’s Statement and Investment Managers’ 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.

The 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 29 September 2016 and the above responsibility statement was signed on its behalf by the Chairman.

Neil England
For and on behalf of the Board
29 September 2016

INVESTMENT MANAGER'S REPORT

MARKET REVIEW

In the six months to 31 July 2016, the MSCI Emerging Europe 10-40 Index gained +14.6% in US dollar terms (22.4% in sterling terms, all percentages with income reinvested).

Russia and Poland were the main drivers of performance while Turkey was the largest detractor during the period.

The first half of 2016 continued the good recovery seen in 2015 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, markets are cheap and GDP growth is depressed. Russia has stabilised its economic activity through a sharp economic adjustment as the cheap currency has acted to restore economic competitiveness. The country still needs to work on its fiscal position, with a moderate budget deficit of 3.7% of GDP estimated for this year, but has otherwise put itself in position to recover as the cycle improves. Overall, in the six months to 31 July 2016, Russia returned +23.7% in US dollar terms.

The Polish equity market finished the period up by 4.4% in US dollar terms despite being significantly impacted by the surprise Brexit vote in June. Markets later rallied in July, reacting positively to headlines that the Polish government’s new pension reforms were more benign than had been feared.

Politics on both sides of the Aegean Sea impacted Greek and Turkish markets. In Greece the ongoing saga to resolve the country’s sovereign debt issues dominated the headlines. At the very beginning of the period, the Greek market performed well following positive progress on the bailout program. A majority of these gains were unfortunately given back in June post the Brexit vote, ending the period up by 2.0% in US dollar terms.

Turkey remained volatile throughout the six months to 31 July 2016 amid continued political uncertainty ending the period up 4.3% in US dollar terms. The attempted coup in Turkey in July underscored the geopolitical risks. As a result of it, the immediate effect was a sharp decrease in FX and a much sharper fall in the Turkish equity market bringing its valuation to all-time lows on both an absolute basis and versus its emerging market peers. However, the impact was relatively short-lived as by 23 August the currency was back to pre-coup levels and the market had recovered half of its losses.

PERFORMANCE REVIEW

The Company returned +17.4% in US dollar terms for the six month period ended 31 July 2016, outperforming the MSCI Emerging Europe 10-40 Index by 2.8% in US dollar terms.

Positive contributions to performance came from stock selection in Russia. Our position in Russian utility Inter RAO rose after reporting strong first quarter results for 2016 and announcing the sale of a non-core asset. Norilsk Nickel was a good performer on the back of the strong move in nickel prices in July. We continue to like Norilsk Nickel as we feel that the nickel price may continue to benefit from regulatory actions in the Philippines constricting supply of the metal. Our position in Yandex, a Russian IT company, was a strong performer as internet advertising accelerated in line with the recovery in the Russian economy. In addition, the Company benefited, on a relative basis, from its underweight position in Russian food retailer Magnit after its results were weaker than expected.

In Poland, mining company KGHM benefited from a rally in silver prices. The environment remains supportive for KGHM and speculation over a cut in mineral extraction taxes may unlock further value in the company’s shares.

The main detractors from performance were stock selection in Turkey and Greece. Our holdings in Halk Bank and Turkiye Sinai Kalkilma Bank detracted from returns as a result of ongoing political concerns, especially after the failed coup attempt in July. However, we took this opportunity to add to our positions in Turkey as we felt the sell-off was excessive and did not reflect the fundamental facts on the ground. The political leadership was robust enough to withstand the attempted coup and, if anything, emerged stronger. The macroeconomic outlook has not shifted significantly and the government is issuing a raft of reforms to support domestic growth. In this environment we believe that the Turkish banks will show increased profitability going forward, not less, and so we increased our exposure.

During the first quarter of 2016 developments were positive for Greek assets and the Company benefited from holdings in Alpha Bank and National Bank of Greece. Shares in the banks rallied on speculation that Greece will be able to access financing from the European Central Bank’s quantitative easing programme. However, in June 2016, post the Brexit vote, Greek financials detracted from performance.

OUTLOOK

We see emerging markets economies stabilising as the US Federal Reserve keeps interest rates relatively low. Divergence within emerging markets continues to be the dominating theme; however, we believe that emerging markets performance drivers have shifted radically and are now focused on free cash flow optimisation, policy reforms and interest rate changes. As such, stock-specific fundamentals should play an increasingly important role in realising returns going forward, and we continue to focus on firms with high quality balance sheets and strong cash flow generation.

Importantly, many of the difficulties specific to the region appear to have been priced into markets. 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 low, the price has stabilised and the flexibility of the floating ruble has helped the economy adjust and become more competitive. As a result, we believe that the economic situation will continue to improve. 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 low, dividend yields are high and a re-rating is possible.

In Greece, we maintain our overweight to Greek banks which we believe stand to benefit from falling Greek bond rates and further progress in the bailout programme. The banks are trading at exceptionally depressed levels and present an attractive opportunity as the environment normalises.

In Poland, the economy continues to grow. Whilst Brexit has certainly raised the risk of a slight slowdown in growth, the government’s fiscal package is providing additional support to a consumer already benefiting from high disposable income growth. However, valuations already reflect this strength, and so the country may not offer the most interesting opportunities relative to its peers.

In Turkey, the market, especially banks, has rallied significantly from the July lows therefore the key to performance going forward will be stock selection. While the government has passed a number of significant and positive reforms during the current state of emergency, for example, automatic private pensions and the establishment of the sovereign wealth fund, we think that investors will be unwilling to pay a higher multiple for the market as a whole until there is greater political clarity.

Going into the remainder of 2016, we continue to be positive about emerging markets as valuations remain cheap in both absolute terms and relative to history, whilst also trading at a discount to developed markets. The currency weakness observed throughout 2015 has resulted in much needed current account improvements and other external adjustments, paving the way for the increased competitiveness of many emerging market economies. Improving emerging markets liquidity and signs of a pick-up in activity, supported by constructive policy reform, continue to provide for an increasingly attractive opportunity set.

While the Company’s NAV has rallied by 17.4% in US dollar terms (25.4% in sterling terms) over the six months to 31 July 2016 we see the potential for further appreciation ahead as both earnings and the multiple the market pays for those earnings rise concurrently for the first time in a good many years.

Sam Vecht and Christopher Colunga
BlackRock Investment Management (UK) Limited
29 September 2016

PORTFOLIO ANALYSIS
as at 31 July 2016





Russia 




Turkey 




Poland 




Greece 




Other 
 

Net current 
assets/ 
(liabilities) 



portfolio 
31.07.16 



portfolio 
31.01.16 

MSCI 
EM Europe 
10-40 Index 
31.07.16 
Consumer Discretionary  –   –   –  2.9   1.3   –   4.2   8.4   4.3 
 --------   --------   --------   --------   --------   --------   --------   --------   -------- 
Consumer Staples  2.3  3.4   –   –   3.0   –   8.7   7.1   7.3 
 --------   --------   --------   --------   --------   --------   --------   --------   -------- 
Energy 17.0  2.6   –   –   4.2   –   23.8   28.1   33.8 
 --------   --------   --------   --------   --------   --------   --------   --------   -------- 
Financials 9.8  15.8  9.3  5.0  1.8   –   41.7   45.0   33.4 
 --------   --------   --------   --------   --------   --------   --------   --------   -------- 
Health Care 1.2   –   –   –   –   –   1.2   0.8   1.1 
 --------   --------   --------   --------   --------   --------   --------   --------   -------- 
Industrials 3.8   –   –   –   –   –   3.8   4.4   1.9 
 --------   --------   --------   --------   --------   --------   --------   --------   -------- 
Information Technology 4.8   –  –   –   3.6   –   8.4   5.2   – 
 --------   --------   --------   --------   --------   --------   --------   --------   -------- 
Materials 5.9   –   3.5   –   –   –   9.4   5.5   8.7 
 --------   --------   --------   --------   --------   --------   --------   --------   -------- 
Telecommunications Services  –   –   –   –   –   –   –   –   6.1 
 --------   --------   --------   --------   --------   --------   --------   --------   -------- 
Utilities 4.4   –   –   –   –   –   4.4   2.2   3.4 
 --------   --------   --------   --------   --------   --------   --------   --------   -------- 
Other  –   –   –   –   –  (5.6) (5.6) (6.7)  – 
 --------   --------   --------   --------   --------   --------   --------   --------   -------- 
% net assets 31.07.16  49.2   21.8   12.8   7.9   13.9  (5.6)  100.0   –   – 
 --------   --------   --------   --------   --------   --------   --------   --------   -------- 
% net assets 31.01.16  44.3   24.4   16.0   10.3   11.7  (6.7)  –   100.0   – 
 --------   --------   --------   --------   --------   --------   --------   --------   -------- 
% MSCI EM Europe 10-40 Index 31.07.16  53.5   18.1   16.6   5.1   6.7   –   –   –   100.0 
 =====   =====   =====   =====   ====   ====  =====   =====   ===== 

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

FIFTEEN LARGEST INVESTMENTS
as at 31 July 2016

Sberbank – 9.8% (2016: 8.0%) is Russia’s largest bank and is state-owned. It 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.

Norilsk Nickel – 5.9% (2016: 1.9%) a Russian nickel and precious metal mining and smelting company. It is the world’s largest producer of nickel and palladium and one of the world’s leading producers of platinum and copper.

PKO Bank Polski – 5.8% (2016: 6.7%) 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.

Garanti Bank – 5.8% (2016: 3.3%) is Turkey’s second largest private bank. The company 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.

Novatek – 5.7% (2016: 6.8%) 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 the company to generate increasing amounts of free cash flow.

Gazprom – 5.2% (2016: 5.3%) 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, the 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.

Lukoil – 5.1% (2016: 6.1%) 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 proven oil reserves. The company is a highly competitive oil producer even at current low oil prices and generates significant free cash flow.

Halk Bank – 4.7% (2016: 7.2%) 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.

Inter RAO – 4.4% (2016: 2.2%) is a diversified energy holding with a presence across multiple sectors in Russia and abroad. In Russia, it is a leader in the export and import of electricity and is actively expanding its operations, generation and distribution segments, while also developing new business.

KazMunaiGas Exploration Production – 4.2% (2016: 5.0%) 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.

Mail.Ru – 4.1% (2016: 2.3%) is a Russian IT company providing social media platforms, gaming and other services. The flagship site is VKontakte (‘VK’) and similar in concept to Facebook. The recent introduction of in-stream mobile advertising has the potential to drive revenues in the medium-term as 70 million of Russia’s 80 million internet users have active VK accounts.

Globaltrans – 3.8% (2016: 4.4%) 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.

Luxoft – 3.6% (2016: nil) is an IT outsourcer based in the CIS, primarily Russia and Ukraine. The company focuses on custom application development, mainly in the financial space as well as automotive interface/UX. It is very small compared with global peers (only US$650 million revenue) with an opportunity to win market share and benefit from outsourcing penetration, and hence grow quickly from a low base. The company benefits from the “near shoring” trend and a high quality engineering talent pool in the CIS.

PZU – 3.5% (2016: 5.7%) 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 12,000 agents – provide a strong competitive advantage that enables the company to generate attractive returns.

TSKB – 3.5% (2016: 4.5%) 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 TSKB has one of the most sustainable earnings streams in the Turkish banking sector.

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 represent 75.1% of net assets (31 January 2016: 78.3%).

INVESTMENTS
as at 31 July 2016


Country 
of operation 
Market 
value/exposure 
US$’000 

% of 
net assets 
Financials
Sberbank Russia  12,991  9.8 
PKO Bank Polski Poland  7,680  5.8 
Garanti Bank Turkey  7,651  5.8 
Halk Bank Turkey  6,241  4.7 
PZU Poland  4,684  3.5 
TSKB Turkey  4,650  3.5 
National Bank of Greece Greece  3,270  2.5 
Alpha Bank Greece  3,250  2.5 
Aviva Emeklilik ve Hayat Turkey  2,435  1.8 
Long CFD position – BRD Groupe Société Générale Romania  2,386  1.8 
 --------   -------- 
55,238  41.7 
 --------   -------- 
Energy
Novatek Russia  7,565  5.7 
Gazprom Russia  6,855  5.2 
Lukoil Russia  6,732  5.1 
KazMunaiGas Exploration Production Kazakhstan  5,625  4.2 
Tupras Turkey  3,365  2.6 
Volga Gas Russia  1,277  1.0 
 --------   -------- 
31,419  23.8 
 --------   -------- 
Materials
Norilsk Nickel Russia  7,773  5.9 
KGHM Poland  4,595  3.5 
 --------   -------- 
12,368  9.4 
 --------   -------- 
Consumer Staples
Coca Cola Icecek Turkey  4,554  3.4 
MHP Ukraine  3,935  3.0 
Lenta Russia  3,022  2.3 
 --------   -------- 
11,511  8.7 
 --------   -------- 
Information Technology
Mail.Ru Russia  5,456  4.1 
Luxoft Ukraine  4,794  3.6 
Yandex Russia  872  0.7 
 --------   -------- 
11,122  8.4 
 --------   -------- 
Utilities
Inter RAO Russia  5,871  4.4 
 --------   -------- 
5,871  4.4 
 --------   -------- 
Consumer Discretionary
OPAP Greece  3,801  2.9 
Apranga PVA Lithuania  1,705  1.3 
 --------   -------- 
5,506  4.2 
 --------   -------- 
Industrials
Globaltrans Russia  5,092  3.8 
 --------   -------- 
5,092  3.8 
 --------   -------- 
Health Care
MD Medical Group Russia  1,621  1.2 
 --------   -------- 
1,621  1.2 
 --------   -------- 
Total investments - gross exposure 139,748  105.6 
 --------   -------- 
Less: gross exposure on CFDs (2,386) (1.8)
 --------   -------- 
Equity investments held at fair value 137,362  103.8 
Net current liabilities (4,982) (3.8)
Preference shares (19) (0.0)
 --------   -------- 
Net assets 132,361  100.0 
 --------   -------- 
Long positions 139,748  105.6 
Short positions –  – 
 --------   -------- 
Gross positions 139,748  105.6 
======   ===== 

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

During the period, the Company entered into CFDs to gain long and short exposure on individual securities. At the period end, no short CFDs were outstanding (31 January 2016: no short CFDs outstanding). In addition, one long CFD position was held (31 January 2016: one) with a net fair value profit of US$56,000 (31 January 2016: net fair value loss of US$88,000) and an underlying market value of US$2,386,000 (31 January 2016: US$2,332,000).

INCOME STATEMENT
for the six months ended 31 July 2016






Notes 
Revenue US$’000 
Six months 
ended 
31.07.16 
(unaudited) 
Revenue US$’000 
Six months 
ended 
31.07.15 
(unaudited) 

Revenue US$’000 
Year ended 
31.01.16 
(audited) 
Capital US$’000 
Six months 
ended 
31.07.16 
(unaudited) 
Capital US$’000 
Six months 
ended 
31.07.15 
(unaudited) 

Capital US$’000 
Year ended 
31.01.16 
(audited) 
Total US$’000
Six months 
ended 
31.07.16 
(unaudited) 
Total US$’000
Six months 
ended 
31.07.15 
(unaudited) 

Total US$’000
Year ended 
31.01.16 
(audited) 
Gains/(losses) on investments held at fair value through profit or loss –  –  –  17,682  652  (15,121) 17,682  652  (15,121)
Gains on foreign exchange –  –  –  38  65  22  38  65  22 
Income from investments held at fair value through profit or loss 2,998  3,184  3,467  –  –  –  2,998  3,184  3,467 
Net income from contracts for difference 56  (349) (409) 32  1,599  1,434  88  1,250  1,025 
Other income –  –  –  –  – 
    --------   --------   --------   --------   --------   --------   --------   --------   -------- 
Total income/(loss) 3,055  2,835  3,062  17,752  2,316  (13,665) 20,807  5,151  (10,603)
    --------   --------   --------   --------   --------   --------   --------   --------   -------- 
Expenses
Investment management fee (167) (601) (1,144) (391) –  –  (558) (601) (1,144)
Operating expenses (201) (361) (597) (60) (31) (79) (261) (392) (676)
    --------   --------   --------   --------   --------   --------   --------   --------   -------- 
Total operating expenses (368) (962) (1,741) (451) (31) (79) (819) (993) (1,820)
    --------   --------   --------   --------   --------   --------   --------   --------   -------- 
Net profit/(loss) on ordinary activities before finance costs and taxation 2,687  1,873  1,321  17,301  2,285  (13,744) 19,988  4,158  (12,423)
Finance costs (13) (8) (24) (31) –  –  (44) (8) (24)
    --------   --------   --------   --------   --------   --------   --------   --------   -------- 
Net profit/(loss) on ordinary activities before taxation 2,674  1,865  1,297  17,270  2,285  (13,744) 19,944  4,150  (12,447)
Taxation (333) (392) (321) –  –  –  (333) (392) (321)
    --------   --------   --------   --------   --------   --------   --------   --------   -------- 
Net profit/(loss) on ordinary activities after taxation 2,341  1,473  976  17,270  2,285  (13,744) 19,611  3,758  (12,768)
    --------   --------   --------   --------   --------   --------   --------   --------   -------- 
Earnings/(loss) per ordinary share (US$ cents) 6.47  4.06  2.69  47.74  6.30  (37.92) 54.21  10.36  (35.23)
    ======   ======   ======   ======   ======   ======   =======   ======   ====== 

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 and no operations were acquired or discontinued during the period. All income is attributable to the equity holders of BlackRock Emerging Europe plc.

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

STATEMENT OF CHANGES IN EQUITY
for the six months ended 31 July 2016

Called up 
share 
capital 
US$’000 
Share 
premium 
account 
US$’000 
Capital 
redemption 
reserve 
US$’000 

Capital 
reserves 
US$’000 

Revenue 
reserve 
US$’000 


Total 
US$’000 
For the six months ended 31 July 2016 (unaudited)
At 31 January 2016 4,162  41,684  5,860  75,565  (14,228) 113,043 
Total comprehensive income:
Profit for the period –  –  –  17,270  2,341  19,611 
Transactions with owners, recorded directly to equity:
Ordinary shares purchased and cancelled (9) –  (293) –  (293)
 --------   --------   --------   --------   --------   -------- 
At 31 July 2016 4,153  41,684  5,869  92,542  (11,887) 132,361 
 --------   --------   --------   --------   --------   -------- 
For the six months ended 31 July 2015 (unaudited)
At 31 January 2015 4,164  41,684  5,858  89,332  (15,204) 125,834 
Total comprehensive income:
Profit for the period –  –  –  2,285  1,473  3,758 
 --------   --------   --------   --------   --------   -------- 
At 31 July 2015 4,164  41,684  5,858  91,617  (13,731) 129,592 
 --------   --------   --------   --------   --------   -------- 
For the year ended 31 January 2016 (audited)
At 31 January 2015 4,164  41,684  5,858  89,332  (15,204) 125,834 
Total comprehensive income:
(Loss)/profit for the year –  –  –  (13,744) 976  (12,768)
Transactions with owners, recorded directly to equity:
Ordinary shares purchased and cancelled (2) –  (70) –  (70)
Tender offer and subscription share issue costs written back –  –  –  47  –  47 
 --------   --------   --------   --------   --------   -------- 
At 31 January 2016 4,162  41,684  5,860  75,565  (14,228) 113,043 
======   ======  ======   =+====   ======   ====== 

The transaction costs incurred on the acquisition and disposal of investments are included within the capital reserves and amounted to US$68,000 for the six months ended 31 July 2016 (six months ended 31 July 2015:US$241,000; year ended 31 January 2016:US$487,000).

BALANCE SHEET
as at 31 July 2016



Notes 
31 July 2016 
US$’000 
(unaudited) 
31 July 2015 
US$’000 
(unaudited) 
31 January 2016 
US$’000 
(audited) 
Fixed assets
Investments held at fair value through profit or loss 137,362  130,294  118,313 
    --------   --------   -------- 
Current assets
Cash and cash equivalents –  966 
Debtors 1,472  1,151  2,074 
Amounts receivable in respect of contracts for difference 56  383  – 
Net collateral pledged in respect of contracts for difference –  –  204 
    --------   --------   -------- 
1,528  2,500  2,283 
    --------   --------   -------- 
Creditors – amounts falling due within one year
Bank overdraft (5,215) (3) (3,282)
Other creditors (1,295) (2,864) (4,164)
Amounts payable in respect of contracts for difference –  –  (88)
Net collateral received in respect of contracts for difference –  (316) – 
    --------   --------   -------- 
(6,510) (3,183) (7,534)
    --------   --------   -------- 
Net current liabilities (4,982) (683) (5,251)
    --------   --------   -------- 
Total assets less current liabilities 132,380  129,611  113,062 
    --------   --------   -------- 
Creditors – amounts falling due after more than one year
Preference shares of £1.00 each (one quarter paid) (19) (19) (19)
    --------   --------   -------- 
Net assets 132,361  129,592  113,043 
    --------   --------   -------- 
Capital and reserves
Called up share capital 4,153  4,164  4,162 
Share premium account 41,684  41,684  41,684 
Capital redemption reserve 5,869  5,858  5,860 
Capital reserves 92,542  91,617  75,565 
Revenue reserve (11,887) (13,731) (14,228)
    --------   --------   -------- 
Total shareholders’ funds 132,361  129,592  113,043 
    --------   --------   -------- 
Net asset value per ordinary share (US$ cents) 366.41  357.56  312.13 
    ======   ======   ====== 

STATEMENT OF CASH FLOWS
for the six months ended 31 July 2016

Six 
months ended 
31 July 2016 
US$’000 
(unaudited) 
Six 
months ended 
31 July 2015 
US$’000 
(unaudited) 

Year ended 
31 January 2016 
US$’000 
(audited) 
Operating activities
Profit/(loss) before taxation 19,944  4,150  (12,447)
Add back finance costs 44  24 
(Gains)/losses on investments held at fair value through profit or loss (17,714) (2,251) 13,687 
Net movement on foreign exchange (38) (65) (22)
Sales of investments held at fair value through profit or loss 24,426  64,578  129,123 
Purchases of investments held at fair value through profit or loss (27,369) (66,915) (136,021)
Increase in debtors (552) (956) (163)
(Decrease)/increase in other creditors (223) (234) 323 
Net movement in collateral pledged with brokers 204  312  (208)
Taxation on investment income (329) (382) (232)
 --------   --------   -------- 
Net cash used in operating activities (1,607) (1,755) (5,936)
 --------   --------   -------- 
Financing activities
Interest paid (44) (8) (24)
Ordinary shares purchased and cancelled (325) –  – 
 --------   --------   -------- 
Net cash used in financing activities (369) (8) (24)
 --------   --------   -------- 
Decrease in cash and cash equivalents (1,976) (1,763) (5,960)
 --------   --------   -------- 
Cash and cash equivalents at the start of the period (3,277) 2,661  2,661 
Effect of foreign exchange rate changes 38  65  22 
 --------   --------   -------- 
Cash and cash equivalents at end of period (5,215) 963  (3,277)
 --------   --------   -------- 
Comprised of:
Cash at bank –  966 
Bank overdraft (5,215) (3) (3,282)
 --------   --------   -------- 
(5,215) 963  (3,277)
 ======   =====   ===== 

NOTES TO THE FINANCIAL STATEMENTS

1. PRINCIPAL ACTIVITY AND BASIS OF PREPARATION

The Company conducts its business so as to qualify as an investment trust company within the meaning of sub-sections 1158-1165 of the Corporation Tax Act 2010.

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

The condensed set of financial statements has been prepared on a going concern basis in accordance with FRS 102 and ‘Interim Financial Reporting’ (FRS 104) issued by the FRC in March 2015 and the revised Statement of Recommended Practice – ‘Financial Statements of Investment Trust Companies and Venture Capital Trusts’ (SORP) issued by the Association of Investment Companies (AIC) in November 2014.

The accounting policies applied for the condensed set of financial statements with regard to measurement and classification are as set out in the Company’s Annual Report and Financial Statements for the year ended 31 January 2016. This reflects the Company’s application of Sections 11 and 12 of FRS 102 in relation to financial instruments, in full.

2. INCOME

Six 
months ended 
31 July 2016 
US$’000 
(unaudited) 
Six 
months ended 
31 July 2015 
US$’000 
(unaudited) 

Year ended 
31 January 2016 
US$’000 
(audited) 
Investment income:
UK dividends –  25  26 
Overseas dividends 2,998  3,159  3,441 
 --------   --------   -------- 
Net income from contracts for difference 56  (349) (409)
 --------   --------   -------- 
3,054  2,835  3,058 
 --------   --------   -------- 
Other income:
Deposit interest – 
 --------   --------   -------- 
Total income 3,055  2,835  3,062 
 =====   =====   ===== 

3. INVESTMENT MANAGEMENT FEE

The Manager receives a basic annual management fee of 1.0% of the Company’s average daily market capitalisation. Any charges in respect of BlackRock managed funds are deducted from the management fee.

Six 
months ended 
31 July 2016 
US$’000 
(unaudited) 
Six 
months ended 
31 July 2015 
US$’000 
(unaudited) 

Year ended 
31 January 2016 
US$’000 
(audited) 
Revenue:
Investment management fee 167  601  1,144 
 --------   --------   -------- 
Capital:
Investment management fee 391  –  – 
 --------   --------   -------- 
Total 558  601  1,144 
 ====   ====   ==== 

With effect from 1 February 2016, 70% of management fees are allocated to capital and 30% to revenue. Previously these expenses were attributed wholly to revenue.

4. OPERATING EXPENSES

Six 
months ended 
31 July 2016 
US$’000 
(unaudited) 
Six 
months ended 
31 July 2015 
US$’000 
(unaudited) 

Year ended 
31 January 2016 
US$’000 
(audited) 
Custody fee 33  29  51 
Depositary fees 15 
Audit fee* 20  23  40 
Registrar's fees 19  19  34 
Directors’ emoluments – fees for services to the Company* 84  148  254 
Marketing fees** (25) 48  20 
Other administrative costs 63  86  183 
 --------   --------   -------- 
201  361  597 
 --------   --------   -------- 
Transaction charges - capital 60  31  79 
 --------   --------   -------- 
261  392  676 
 =====   =====   ==== 
* The audit fee and Directors’ fees are paid in sterling and are therefore subject to exchange rate fluctuations.
** The marketing fees at 31 July 2016 include marketing expenses of US$14,000 in respect of the year ending 31 January 2017 and the write-back of marketing expenses of US$39,000 in respect of the year ended 31 January 2016.

5. DIVIDENDS

In accordance with FRS 102 Section 32 ‘Events After the End of the Reporting Period’, the final dividend payable on ordinary shares is recognised as a liability when approved by shareholders. Interim dividends are recognised only when paid.

The Board has not declared an interim dividend.

6. CREDITORS - AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR

Six 
months ended 
31 July 2016 
US$’000 
(unaudited) 
Six 
months ended 
31 July 2015 
US$’000 
(unaudited) 

Year ended 
31 January 2016 
US$’000 
(audited) 
Allotted, issued and one quarter paid: 19  19  19 
 --------   --------   -------- 
Shares in issue at 31 July 2016, 50,000 preference shares of £1.00 each 19  19  19 
 =====   ===== ===== 

The preference shares confer no right to receive notice of or attend or vote at any general meeting of the Company except upon any resolution to vary the rights attached to the preference shares. They carry the right to receive a fixed dividend of USD0.01 per preference share per annum, payable on demand. On a winding up or return of capital, the preference shares confer the right to be paid, out of the assets of the Company available for distribution, the capital paid up on such shares pari passu with and in proportion to any amounts of capital paid to ordinary shareholders, but do not confer any right to participate in the surplus assets of the Company. In the 6 months to 31 July 2016 and the year ended 31 January 2016, the preference shareholders waived their rights to any preference dividend.

7. CALLED UP SHARE CAPITAL

Ordinary 
shares 
number 
Treasury 
shares 
number 
Total 
shares 
number 
Nominal 
value 
US$’000 
Allotted, called up and fully paid share capital comprised:
Ordinary shares of 10 cents each
At 1 February 2016 36,216,928  5,400,000  41,616,928  4,162 
Shares bought back and cancelled (92,800) –  (92,800) (9)
 --------------  ------ --------   -------------   --------------- 
At 31 July 2016 36,124,128  5,400,000  41,524,128  4,153 
 ========   ========   ========   ======== 

During the six months ended 31 July 2016, the Company purchased and cancelled 92,800 ordinary shares of 10 cents each (six months ended 31 July 2015: nil; year ended 31 January 2016: 26,000) for a total consideration of US$293,000 (six months ended 31 July 2015: nil; year ended 31 January 2016: US$70,000).

8. EARNINGS AND NET ASSET VALUE PER ORDINARY SHARE

Six 
months ended 
31 July 2016 
(unaudited) 
Six 
months ended 
31 July 2015 
(unaudited) 

Year ended 
31 January 2016 
(audited) 
Net revenue profit attributable to ordinary shareholders (US$’000) 2,341  1,473  976 
 --------   --------   -------- 
Net capital profit/(loss) attributable to ordinary shareholders (US$’000) 17,270  2,285  (13,744)
 --------   --------   -------- 
Total profit/(loss) attributable to ordinary shareholders (US$’000) 19,611  3,758  (12,768)
 --------   --------   -------- 
Equity shareholders’ funds (US$’000) 132,361  129,592  113,043 
The weighted average number of ordinary shares in issue during each period on which the basic return per ordinary share was calculated was: 36,179,196  36,242,928  36,242,714 
The actual number of ordinary shares in issue at the end of each period on which the undiluted net asset value was calculated was: 36,124,128  36,242,928  36,216,928 
Revenue earnings per share (cents) 6.47  4.06  2.69 
Capital earnings/(loss) per share (cents) 47.74  6.30  (37.92)
Total earnings/(loss) per share (cents) 54.21  10.36  (35.23)
======  ======   ===== 

   

Six 
months ended 
31 July 2016 
(unaudited) 
Six 
months ended 
31 July 2015 
(unaudited) 

Year ended 
31 January 2016 
(audited) 
Net asset value per share (cents) 366.41  357.56  312.13 
 --------   --------   -------- 
Ordinary share price (mid-market)* (cents) 323.29  324.59  270.76 
 ======   ======   ====== 
*  The Company’s share price is quoted in sterling and the above represents the US dollar equivalent.

Basic and diluted earnings per share and net asset value per share are the same as the Company does not have any dilutive securities outstanding.

9. VALUATION OF FINANCIAL INSTRUMENTS

The Company has early adopted the amendments to FRS 102 ‘Fair value hierarchy disclosure’ effective for annual periods beginning on or after 1 January 2017. These amendments improve the consistency of fair value disclosure for financial instruments compared with those required by EU adopted IFRS.

The Company classifies financial instruments measured at fair value using a fair value hierarchy. The fair value hierarchy has the following categories:

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 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 in active markets for similar instruments; 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 techniques used include inputs not based on market data and these inputs could have a significant impact on the instrument’s valuation. This category also includes instruments that are valued based on quoted prices for similar instruments where significant unobservable adjustments or assumptions are required to reflect differences between the instruments and instruments for which there is no active 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 in its entirety.

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 judgment, considering factors specific to the asset or liability.

The determination of what constitutes ‘observable’ inputs requires significant judgement by the Investment Manager. The Investment Manager considers observable inputs 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 table below gives an analysis of the Company’s financial instruments measured at fair value at the balance sheet date.

Level 1 
US$’000 
Level 2 
US$’000 
Level 3 
US$’000 
Total 
US$’000 
Financial assets at fair value through profit or loss at 31 July 2016 
Assets:
Equity investments 137,362 137,362
Derivative instruments – CFD's (gross exposure) 2,386 2,386
 --------   --------   --------   -------- 
Total 137,362 2,386 139,748
 =======   ========   ========   ======== 

   

Level 1 
US$’000 
Level 2 
US$’000 
Level 3 
US$’000 
Total 
US$’000 
Financial assets/(liabilities) at fair value through profit or loss at 31 July 2015 
Assets:
Equity investments 127,621 2,673 130,294
Derivative instruments - CFD's (gross exposure) 6,033 6,033
 --------   --------   --------   -------- 
127,621 6,033 2,673 136,327
 --------   --------   --------   -------- 
Liabilities:
Derivative instruments - CFD's (gross exposure) (2,905) (2,905)
 --------   --------   --------   -------- 
Total 127,621 3,128 2,673 133,422
 =======   ========   ========   ======== 

   

Level 1 
US$’000 
Level 2 
US$’000 
Level 3 
US$’000 
Total 
US$’000 
Financial assets at fair value through profit or loss at 31 January 2016 
Assets:
Equity investments 118,313 118,313
Derivative instruments - CFD's (gross exposure) 2,332 2,332
 --------   --------   --------   -------- 
Total 118,313 2,332 120,645
 ========   ========   ========   ======== 

For exchange listed equity investments the quoted price is the bid price.

CFDs have been classified as Level 2 investments as their valuation has been based on market observable inputs represented by the underlying quoted securities to which these contracts expose the Company.

There were no transfers between levels for financial assets and financial liabilities recorded at fair value during the six months ended 31 July 2016. The Company did not hold any Level 3 securities throughout the six month period or as at 31 July 2016. The holding in the Greek company Motor Oil was classified as a Level 3 security as at 31 July 2015 due to the temporary closure of the Greek stock exchange. After 31 July 2015, the security moved from Level 3 back to Level 1 when the Greek market re-opened.

10. TRANSACTIONS WITH THE AIFM AND THE INVESTMENT 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)). Further details of the investment management contract are disclosed in note 3.

The investment management fee for the six months ended 31 July 2016 amounted to US$558,000 (six months ended 31 July 2015: US$601,000; year ended 31 January 2016: US$1,144,000).

At the period end, a total amount of US$558,000 was outstanding in respect of the investment management fees (six months ended 31 July 2015: US$312,000; year ended 31 January 2016: US$854,000).

In addition to the above services, BIM (UK) has provided the Company with marketing services. The total fees written back after payment for these services for the six months ended 31 July 2016 amounted to US$25,000 excluding VAT (total fees paid or payable for six months ended 31 July 2015: US$48,000; year ended 31 January 2016: US$20,000) of which US$16,000 was outstanding at 31 July 2016 (31 July 2015: US$194,000; 31 January 2016: US$87,000).

11. RELATED PARTY DISCLOSURE

The Board consists of five non-executive Directors, all of whom are considered to be independent by the Board. None of the Directors has a service contract with the Company. With effect from 1 February 2016, the Chairman receives an annual fee of £38,000 (2015: £38,000), the Chairman of the Audit Committee/Senior Independent Director receives an annual fee of £28,250 (2015: £28,250) and each of the other Directors receives an annual fee of £24,000 (2015: £24,000).

At the period end and as at the date of this report members of the Board held ordinary shares in the Company as set out below:

29 September 2016 
Ordinary shares 
31 July 2016 
Ordinary shares 
Rachel Beagles 20,131  20,131 
Mark Bridgeman 8,650  8,650 
Philippe Delpal 12,000  12,000 
Neil England (Chairman) 156,633  156,633 
Robert Sheppard 10,000  10,000 

12. CONTINGENT LIABILITIES

There were no contingent liabilities at 31 July 2016, 31 July 2015 or 31 January 2016.

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 31 July 2016 and 31 July 2015 has not been audited or reviewed.

The information for the year ended 31 January 2016 has been extracted from the latest published audited financial statements, which have been filed with the Registrar of Companies, unless otherwise stated. The report of the Auditor on those financial statements 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 January 2017 as prepared under UK GAAP in March 2017. Copies of the results announcement can be obtained from the Secretary on 020 7743 3000. The annual report should be available by early April 2017, with the Annual General Meeting being held in June 2017.

For further information, please contact:

Simon White, Managing Director, Investment Trusts, BlackRock Investment Management (UK) Limited

Tel: 020 7743 5284

Press enquiries:

Lucy Horne, Lansons Communications – Tel:  020 7294 3689

E-mail:  [email protected]

29 September 2016
12 Throgmorton Avenue
London EC2N 2DL

END

The Half Yearly Financial Report will also be available on the BlackRock Investment Management website at http://www.blackrock.co.uk/beep.  Neither the contents of the Manager’s website nor the contents of any website accessible from hyperlinks on the Manager’s website (or any other website) is incorporated into, or forms part of, this announcement.

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Blackrock Emerging Europe Ord Usd0.10 (BEEP)

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