Final Results
BLACKROCK COMMODITIES INCOME INVESTMENT TRUST PLC
(LEI: 54930040ALEAVPMMDC31)
Annual Results announcement for the year ended 30 November 2018
PERFORMANCE RECORD
| 30 November 2018 |
30 November 2017 |
Change % |
|
| Assets | |||
| Net asset value per ordinary share (pence) | 75.87 | 76.92 | (1.4) |
| – with dividends reinvested2 | 3.6 | ||
| Net assets (£’000)1 |
88,109 |
91,357 |
(3.6) |
| Ordinary share (mid-market) (pence) | 70.60 | 75.00 | (5.9) |
| – with dividends reinvested2 | (0.9) |
| Year ended 30 November 2018 |
Year ended 30 November 2017 |
Change % |
|
| Revenue | |||
| Net revenue profit after taxation (£’000) | 5,145 | 5,753 | (10.6) |
| Revenue return per ordinary share (pence) | 4.37 | 4.84 | (9.7) |
| Interim dividends (pence) | |||
| 1st interim | 1.00 | 1.00 | - |
| 2nd interim | 1.00 | 1.00 | - |
| 3rd interim | 1.00 | 1.00 | - |
| 4th interim | 1.00 | 1.00 | - |
| --------------- | --------------- | --------------- | |
| Total dividends paid and payable | 4.00 | 4.00 | - |
| ========= | ========= | ========= |
1 The change in net assets reflects market movements and the issue and buyback of shares during the year.
2 Further details of the calculation of performance with dividends reinvested are given in the Glossary contained within the Company’s Annual Report for the year ended 30 November 2018.
CHAIRMAN’S STATEMENT
Dear Shareholder
I am pleased to present the annual report to shareholders of BlackRock Commodities Income Investment Trust plc for the year ended 30 November 2018.
Overview and performance
The year under review was marked by a mid-year u-turn in investor sentiment, with gains made through a strong first half being reversed as markets became increasingly nervous over the prospects for global growth. Heightened trade tensions between the US and China, a slowdown in Chinese demand and the oil market moving into a position of oversupply all contributed to market concerns. Against this backdrop, the Company’s NAV per share rose by 3.6% for the year to 30 November 2018, outperforming both the MSCI World Energy Index which returned 3.5% and the EMIX Global Mining Index which returned 0.4% (all data in sterling terms with dividends reinvested). A 50:50 composite of the two indices posted an increase of 1.9% for the year to 30 November 2018.
It should be noted that these comparisons are given for illustrative purposes only. The Company’s objectives are to achieve both an annual dividend target and, over the long term, capital growth. Consequently the Board does not benchmark performance against mining and energy sector indices as meeting a specific dividend target is not within the scope of these indices.
Additional information on commodity markets and key contributors and detractors to portfolio performance are set out in the Investment Manager’s report. Additional information on the performance of the Company is set out in the table below and in the performance record above.
Since the year end and up to the close of business on 25 January 2019, the Company’s NAV has returned -0.2% and the share price has returned +0.8% (all calculations with dividends reinvested).
| One year % | Three years % | Five years % | Since inception % | |
| Net Asset Value (with dividends reinvested)1 | 3.6 | 52.4 | -1.1 | 53.2 |
| Share price (with dividends reinvested)1 | -0.9 | 43.3 | -10.8 | 40.3 |
1 Further details of the calculation of performance with dividends reinvested are given in the Glossary contained within the Company’s Annual Report for the year ended 30 November 2018.
Revenue return and dividends
The Company’s revenue return per share for the year amounted to 4.37 pence (2017: 4.84 pence). This was sufficient to meet our declared target of paying four quarterly dividends of 1.00 pence, making a total of 4.00 pence for the year. Full details of the dividends paid for the 2017 and 2018 financial years are set out in note 7.
The Board’s current target is to declare quarterly dividends of at least 1.00 pence in the year to November 2019, making a total of at least 4.00 pence for the year as a whole. This target represents a yield of 5.7% based on the share price as at the close of business on 30 November 2018.
The Company currently employs an option writing strategy to generate revenue returns and to ensure that the Company’s dividend is covered by current year income. In 2018, option premium income represented 36% of total income (2017: 51%). The Board has discussed the merits of a more flexible approach, recognising that it may be possible to generate similar, or possibly improved returns for the Company with a lower level of option writing (particularly in rising markets where the returns may be curtailed by writing call options). Given that the Company has revenue reserves and also has the ability to make dividend distributions out of special reserves and capital reserves (totalling £39,942,000 at 30 November 2018), the Board does not believe that there is an overriding requirement for the annual dividend target to be covered by current year revenue alone. The portfolio managers therefore focus on investing the portfolio to generate an optimal level of total return without striving to meet an annual income target and the Board is prepared to use revenue reserves and capital and special reserves to meet the dividend target if current year portfolio income alone is insufficient.
Tender offers
The Directors have discretion to make semi-annual tender offers at the prevailing NAV, less 2%, for up to 20% of the issued share capital in August and February of each year.
The Board announced on 25 June 2018 that it had decided not to proceed with a tender offer in August 2018 and on 11 December 2018 that the tender offer in February 2019 would not be implemented. During the year ended 30 November 2018, the Company’s shares traded at an average discount to NAV of 5.2% compared to the discount of 2.0% to NAV at which any tender offer would be made.
The Board is conscious of the Company’s prevailing discount and recognises the importance to shareholders that the market price of the Company’s shares should not trade at a significant discount to the underlying NAV. However, it does not believe that discretionary semi-annual tender offers represent the most effective form of discount mitigation and the Board has concluded that it would be more appropriate for the Company’s share buybacks to be used, in normal market conditions, to seek to ensure that the share price does not trade at a significant discount to the underlying NAV per share. To this end the Board is proposing that the Company’s existing authority to buy back up to 14.99% of the Company’s issued share capital, excluding treasury shares, be renewed at the forthcoming Annual General Meeting (AGM).
The Board will not be seeking authority from shareholders to implement discretionary semi-annual tenders at the next AGM.
Share capital
As noted above, the Directors are mindful of the Company’s discount to NAV. The Board monitors the Company’s share rating closely, and is committed to making share purchases where appropriate to ensure that the share price does not trade at a significant discount to the underlying NAV per share.
To the extent that shares are trading at a premium, the Board is committed to the regular issue of ordinary shares as a way of ensuring that any premium to NAV is maintained within a sensible range, to provide ongoing market liquidity and to do so in a manner that is accretive to shareholders. At the forthcoming AGM the Company will be seeking the authority to allot new ordinary shares or sell from treasury ordinary shares representing up to 10% of the Company’s issued ordinary share capital.
During the financial year ended 30 November 2018, the Company bought back 2,891,485 ordinary shares at an average price of 82.08 pence per share and at an average discount of 6.6% representing total consideration of £2,373,000. The Company has not bought back any shares since 30 November 2018 up to close of business on 28 January 2019.
The Company also issued 250,000 ordinary shares during the year at a price of 76.75 pence per share for a total consideration of £192,000, before the deduction of issue costs. The shares were issued at a premium of 2.02% to the cum income NAV at the close of business on the business day prior to the issue and at a premium to the estimated cum income NAV at the time of the transaction.
Since 30 November 2018, and up to the close of business on 28 January 2019 no additional shares have been issued.
Gearing
The Company operates a flexible gearing policy which depends on prevailing market conditions. The maximum gearing used during the year was 11.2% and at 30 November 2018 net gearing was 7.6%. Gearing has been calculated in accordance with AIC guidelines and on a net basis. Further details are included in the Glossary contained within the Company’s Annual Report for the year ended 30 November 2018.
Board composition
The Board is mindful of the increasing focus on independence, tenure and succession planning set out in the recently updated Financial Reporting Council’s review of the UK Corporate Governance Code, which will apply for periods commencing on or after 1 January 2019. Consequently it will be taking steps to refresh Board composition in the coming year to ensure that the majority of Directors, excluding the Chair, are non-executive directors whom the Board considers to be independent.
Franked Investment Income (FII) Group Litigation order (GLO) V HMRC
It was pleasing to note the positive outcome on a tax ruling relating to overseas dividends during the year.
By way of background, in 2003 The Prudential Assurance Company Limited filed a case against HM Revenue & Customs (HMRC) on the treatment of foreign sourced dividends. The litigation has been ongoing for many years and concerned the tax treatment of UK-resident companies (including investment funds) that received dividends from portfolio shareholdings in non-UK companies. It had previously been settled that the UK dividend tax regime that applied to portfolio dividends prior to 2009 was contrary to EU law, as UK dividends were not subject to tax whereas non-UK dividends were taxable.
On 25 July 2018 the UK Supreme Court handed down its judgement in the Prudential case, ruling (inter alia) that non-UK dividends remain taxable but that credit should be given for the underlying foreign tax at the foreign nominal corporate income tax rate of the source country. It is not yet clear how this decision will be practically implemented; however the Company has submitted protective claims to HMRC for credit relief for the overseas withholding tax suffered on the relevant income impacted by this litigation. The value of the tax potentially recoverable under these claims is currently estimated to be approximately 1.1% of the Company's NAV as at 30 November 2018. No accrual has been made for this in the Company's NAV or the financial statements due to the continuing uncertainty as to how HMRC will implement the ruling which may affect the quantum of the amount potentially recoverable and the likelihood of recoverability.
Annual general meeting
The Company’s AGM will be held on Tuesday, 12 March 2019 at 10.30 a.m. at the offices of BlackRock, 12 Throgmorton Avenue, London EC2N 2DL. Details of the business of the meeting are set out in the Notice of Meeting contained within the Company’s Annual Report for the year ended 30 November 2018. The portfolio managers will make a presentation to shareholders on the Company’s progress and the outlook for the year.
Outlook
In the energy sector, structural shifts away from carbon-based energy supplies towards alternative and renewable energy sources will have fundamental and long-term consequences and be likely to cause permanent change in demand for these fuels. Whilst there remain good opportunities for investment in the traditional sectors of the industry, the Board is increasingly mindful of the growing use of renewable sources of power in electricity generation and the rapid development of energy technology. The shift to electricity to power cars will drive growth across a wide range of industries including lithium miners, battery cathode manufacturers and a wealth of companies involved in the electrification of transport.
In the mining sector, future prospects depend to a large extent on the outlook for economic growth in China. If this can be sustained, most mining companies continue to be well positioned, having paid down debt and been disciplined in their approach to capital spending in recent years.
The Manager continues to research these trends and regularly reports to the Board on their evolving views. They, as ever, will look to take advantage selectively of the opportunities identified in the coming year.
ED WARNER
Chairman
28 January 2019
INVESTMENT MANAGER’S REPORT
Market Overview
2018 can be best described as a year of two halves. The year began strongly with both the mining and energy sectors outperforming broader equity markets on expectations of strong global growth. This performance was largely given back during the second half of the year as the market became increasingly focused on the risk to global growth as US/China trade tensions rose, cracks began to emerge in Chinese demand and the oil market moved into a position of oversupply.
Despite the high level of volatility in the sector, the Company was able to increase its NAV by +3.6% over the period outperforming both the MSCI World Energy Index which returned +3.5% and the EMIX Global Mining Index which returned +0.4% (all data in sterling terms with dividends reinvested). The Company also outperformed the FTSE All-Share Index by 5.1% over the one year period. (For reference the FTSE All-Share Index returned -1.5% during the year).
We have seen a dramatic improvement in the oil market over the last two years as inventories have drawn down, OPEC compliance has remained high and underlying demand has been solid. For much of 2018, crude oil has traded between US$65-75 per barrel with the oil forward curve moving into backwardation - a sign of a strong oil market with the near-term oil price above the price further out. However, just at the point when the oil price peaked at ~US$85/bbl (Brent) in early October and market commentators were positing $100/bbl oil, we saw the most significant correction in the oil price since 2016 with the Brent oil price declining ~30% to finish the year at US$58/ bbl.
The sell-off was primarily driven by the oil market moving into a position of oversupply as Saudi Arabia increased production to over 11mbpd, US supply also surprised to the upside and critically the US gave waivers to certain nations that mitigated the effect of Iranian crude oil sanctions. While the oil price finished the period lower year-on-year, it is important to note that the average oil price was ~30% higher year-on-year which has driven higher earnings across the energy sector and allowed companies to further reduce debt and increase returns to shareholders through dividends and buybacks.
The mining sector started the year strongly buoyed by better than expected economic data and seasonal strength in Chinese commodity demand which saw the sector +11% over the first two months of the year. However, concerns over the escalating US/China trade war, global growth and deteriorating economic data in China saw the sector decline during the second half of the year, finishing the period flat (+0.4% in sterling terms).
Base, bulk and precious metals prices generally traded down year-on-year. This was largely a function of a broad sell-off towards the end of the year with average prices generally flat to up over the year. Encouragingly, we continue to see a high degree of discipline across the sector with companies focused on free cash flow generation, deleveraging and returning excess cashflow to shareholders via dividends and buybacks which we believe will drive a re-rating of the sector in time.
Commodity |
30 November 2018 |
30 November 2017 |
Change % |
2018 on 2017 Average Price % Change |
| Base Metals (US$t) | ||||
| Aluminium | 1,957 | 2,034 | -3.8 | 9.5 |
| Copper | 6,227 | 6,735 | -7.5 | 8.6 |
| Lead | 1,961 | 2,471 | -20.6 | -0.2 |
| Nickel | 11,136 | 11,050 | 0.8 | 26.9 |
| Tin | 18,398 | 19,690 | -6.6 | -0.3 |
| Zinc | 2,655 | 3,177 | -16.4 | 4.3 |
| --------------- | --------------- | --------------- | --------------- | |
| Precious (US$/oz) | ||||
| Gold | 1,219.2 | 1,279.1 | -4.7 | 1.8 |
| Silver | 14.2 | 16.3 | -13.2 | -7.3 |
| Platinum | 805.0 | 940.0 | -14.4 | -6.3 |
| Palladium | 1,205.0 | 1,010.0 | 19.3 | 20.0 |
| --------------- | --------------- | --------------- | --------------- | |
| Energy | ||||
| Oil (WTI) (US$/Bbl) | 50.8 | 57.4 | -11.5 | 30.3 |
| Oil (Brent) (US$/Bbl) | 57.5 | 63.5 | -9.5 | 34.3 |
| Natural Gas (US$/MMBTU) | 4.6 | 3.0 | 55.7 | -8.9 |
| Uranium (US$/lb) | 29.1 | 22.0 | 32.3 | 12.1 |
| --------------- | --------------- | --------------- | --------------- | |
| Bulk Commodities (US$/t) | ||||
| Iron ore | 65.0 | 68.5 | -5.1 | -1.9 |
| Coking coal* | 225.5 | 214.5 | 5.1 | 8.7 |
| Thermal coal | 102.9 | 96.8 | 6.3 | 22.5 |
| --------------- | --------------- | --------------- | --------------- | |
| Equity Indices | ||||
| EMIX Global Mining Index (net return) (US$) | 657.0 | 694.1 | -5.3 | n/a |
| EMIX Global Mining Index (net return) (£) | 515.0 | 512.7 | 0.4 | n/a |
| MSCI World Energy Index (net return) (US$) | 317.7 | 325.8 | -2.5 | n/a |
| MSCI World Energy Index (net return) (£) | 249.0 | 240.7 | 3.5 | n/a |
| ========= | ========= | ========= | ========= |
Source: Datastream.
*Source: Macquarie.
Portfolio Activity and Investment Performance
The portfolio began the year with relatively high gearing and an equally balanced portfolio between mining and energy stocks which proved to be very beneficial given the strong performance of both sectors. Our expectation of a strong reporting season for the mining sector, in particular the large-cap diversified mining companies, saw the portfolio further increase gearing and its mining exposure towards the end of January. The Company benefited from the announcement of increased dividends by all the major mining companies. Consequently, the mining sector outperformed the energy sector by 13% over the first 3 months of the year.
In response to the outperformance of the mining sector we reduced some of our exposure taking down gearing as well as rotating exposure into a number of higher quality Exploration & Production (E&P) companies and our preferred integrated producers. This also proved beneficial with the energy sector performing very well in Q2 with the MSCI World Energy Index +16% (in sterling terms) driving strong performance of the Company with the NAV +17.7% in the first half of the year.
During the second half of the year, we increasingly took a more defensive portfolio stance reducing gearing initially to a level which offset the mining debt exposure in the portfolio, as well as reducing exposure to the more leveraged US E&P companies and mid-cap mining stocks. In addition, the option writing in the portfolio was biased towards call writing particularly over the US E&P’s that significantly sold-off and saw increased volatility especially during the last two months of the year. In hindsight we should have taken a more defensive portfolio position, however, we did not forecast such a steep decline in the oil price which hurt portfolio performance at the back end of the year. A chart detailing the portfolio’s allocation to the Energy and Mining sectors on a monthly basis for the five year period ended 30 November 2018 is included within the Investment Manager’s Report on page 10 of the Company’s Annual Report for the year ended 30 November 2018.
The Company successfully outperformed its reference 50/50 energy/mining indices by 1.7% net of fees over the year. The portfolio’s overweight to copper was the key driver of outperformance with two of its mid-cap copper holdings – Avanco Resources and Nevsun Resources – acquired during the year; Avanco was subsequently bid for and acquired by Oz Minerals. In addition, a new area of the portfolio – Battery Materials – added significantly to performance through the Company’s holdings (both equity and debt) in lithium producers as well as its holding in Umicore, a battery materials recycler. As discussed later in the report we are increasingly looking to build the portfolio’s exposure to the “energy transition†theme, where we had 10.5% of the portfolio directly exposed to the area at the end of the reporting period. Despite the significant sell-off in the US E&P’s during the last quarter of the year, the strong performance of this sub-sector during the first half, as well as our actions to cut exposure during the second half, resulted in a small positive contribution from the E&P companies as a whole over the year.
Income
The Company generated a total of £6.4 million in gross income during the year, which enabled a total dividend of 4.0 pence per share, being four quarterly payments of 1.0 pence. 0.4 pence per share was added to the revenue reserves of the Company, which now total 3.4 pence per share.
The Company’s income in sterling terms had a tailwind in 2018 from a depreciating pound. Most of the portfolio holdings pay dividends in US dollars, so a weaker pound translates, all else being equal, to higher sterling denominated income. On the other hand, the option writing environment was less attractive for most of the year (with the exception of the last couple of months) as implied volatilities fell. This was most notable in mining where the iron ore price, a key earnings driver of the major diversified miners, traded tightly between $60-65 per tonne for the second and third quarters of the year.
In our interim report, we noted that many of the E&P companies had used surplus cash flow (relative to the start of year expectations where many had planned at $50 per barrel oil) to increase returns to shareholders via dividends and buybacks. We have seen this trend continue in the second half of the year, albeit at a slower pace. Looking forward into early 2019 and what to expect in the full year announcements for the oil companies, we would anticipate a more cautious approach. The dramatic decline in the oil price in October and November may cause companies in the first instance to strengthen balance sheets rather than risk over distribution. However even at these lower oil prices, the dividends of the European integrated companies remain covered by underlying cash flow generation and, in the US, the dividend cover is even stronger, although dividend yield of, for example, Exxon is only two thirds of the yield of Royal Dutch Shell.
The mining sector continued to deliver strong returns to shareholders with the largest companies leading the way. BHP announced that it would be returning all the proceeds from its shale asset disposal back to shareholders via a dividend and a buyback. This follows Rio Tinto’s announcement of three buybacks during 2018, totalling over $5 billion. With mining company balance sheets now generally strong and willingness to invest in new projects being low, we would expect this bias towards returning capital to shareholders to continue.
Energy
Until the last two months of the reporting year, it had been a rather uneventful year for the oil market. Crude oil (WTI, US$) had traded around $65-75 per barrel for much of the year with demand and supply relatively well balanced and the oil forward curve in backwardation. We mentioned this in the 2017 annual report and noted that the near-term oil price being higher than the price further in the future was a sign of a strong oil market. However, towards the end of 2018, the curve moved from backwardation to contango – a sign that the market was becoming looser/oversupplied. This was a significant catalyst in causing the oil price to decline sharply in the last two months of the year. This was caused by continued supply growth from the US, Saudi Arabia increasing production to over 11 million barrels per day and, critically, Donald Trump giving waivers to certain nations on the Iranian crude oil sanctions. This was completely unexpected by the market and meant there were around 800,000 barrels per day of additional supply in the market. The moves in the physical market were exacerbated by financial market players selling their oil exposure with the net length in crude oil futures falling by over 67% from the end of September to the end of November.
Following the end of the Company’s reporting year, OPEC held its December meeting. Members announced a production cut of 800,000 barrels per day in conjunction with non-OPEC members agreeing to cut 400,000 barrels per day (the majority of this burden being shouldered by Russia). This was a larger cut than expected, and the oil price rallied but this was short lived with the oil price relinquishing most of the gain within a few days.
One of the most notable features of the oil market during 2018 was the emergence of a number of constraints to US shale production. The usual anecdotes of a lack of skilled labour and rapidly rising wages for truck drivers were perhaps not critical, but the lack of available infrastructure certainly was. There is currently not enough capacity in pipelines from the Permian Basin (the key US shale producing region), and this has resulted in producers in the region having to sell their product at a deep discount to the widely referenced WTI oil price. The chart on page 12 of the Investment Manager’s report (contained within the Company’s Annual Report for the year to 30 November 2018) shows the evolution of this discount through 2018 and it has been one of the key drivers of the disappointing performance of shares in US E&P companies with Permian exposure. Looking into 2019 there should be some relief towards the end of the year when over two million barrels per day of new pipeline capacity is due to come online.
Whilst the pipeline constraints discussed above have had a negative impact on certain US E&P’s, it has been a tailwind for refinery operators. This has benefited both dedicated refining companies and of course the larger integrated companies who also have significant trading operations. The outperformance of the integrated companies during 2018 is therefore something we believe to have been driven by fundamentals rather than a wider market trend of investments seeking dividend focused companies (integrated) over growth companies (E&P’s).
Mining
It was a strong start to the year for the mining sector with 2018 set to be another year of stable synchronous growth. This positive backdrop was further supported by a strong reporting season with companies delivering growth in earnings, dividends and free cash flow year-on-year. In the recent annual reports we have discussed at length the need for, and the improvement in, company behaviour and capital allocation - a key driver of the sector’s re-rating in our view. The increased focus on shareholder value creation with deleveraging, dividends and buybacks prioritised ahead of growth in recent years, sees the sector generating close to record levels of free cash flow underpinned by exceptionally strong balance sheets. Through a combination of dividends and buybacks, the large-cap diversified miners are forecast to deliver a 5-10% return in 2019, a high hurdle for mid-cap companies to compete against. Our conviction in the structural change in capital allocation for the major mining companies has translated into an increase in our diversified exposure to the highest level since the inception of the Company which was the third largest source of outperformance during the year and a core component of the Company’s income.
China’s influence on the mining sector remained at the forefront of investors’ minds from both a demand and supply perspective in 2018. China’s supply-side reform programme which commenced at the end of 2016 has continued to see supply exit and commodity markets tighten quicker than anticipated. In addition China’s “war on pollutionâ€, an initiative expected to continue into the future, has resulted in increasing premiums for high quality products and widening discounts for lower quality products. This has been a very notable feature of the iron ore market with high grade 65% iron ore trading at close to double the level of lower grade 58% iron ore in the middle of the year. The Company’s holding in the world’s largest iron ore producer, Vale, was a key beneficiary of this trend.
From a demand perspective, physical demand conditions remained reasonably solid throughout the first half of the year despite increasingly negative sentiment centred on the impact of the US/China trade war, cracks began to emerge in the second half of the year. Credit tightening measures put in place by the Chinese Government at the end of last year have resulted in a material slowdown in infrastructure spending in the country and while the Chinese Government has recently boosted infrastructure spending and is looking at various fiscal measures to support the economy, the outlook for demand in China remains an area of uncertainty for the market as we enter 2019.
Market Outlook and Portfolio Positioning
The second half of 2018 was a tough period for resource investors with weaker than expected demand in China and higher than expected oil supply each undermining supply and demand fundamentals in their respective markets. Sentiment towards the sector was also negative with headlines around the US – China trade war being perceived as a key risk to the outlook for global trade, growth and subsequently the resources sector. However, it is at times of heightened fear and uncertainty that it is important looking forward to block out the attention grabbing headlines and focus on fundamentals for the companies in the portfolio. Whilst the major mining companies can no longer be seen as the growth companies that they were in the 2000s, they have transformed into dividend and free cash flow machines. Management and boards have embedded a strong bias to returning cash to shareholders rather than reinvesting and this combined with exceptionally strong balance sheets, makes the large-cap mining companies attractive investments. In the portfolio we have increased the holdings in the diversified miners to their highest level in recent years, reflecting our conviction in the sustainability of returns from this group of companies. It is challenging for mid-cap companies to compete given their higher level of risk and volatility of cash flow, so we have funded the higher weight in the large-cap diversified companies by reducing our mid-cap holdings.
Our 2019 outlook for oil is that from December’s price ($53.8 per barrel for Brent Oil at 31 December 2018), there is a greater probability of a higher oil price than a lower one given OPEC’s willingness to defend this oil price with the recent larger than expected production cuts. However, we struggle to see upside beyond $70 per barrel as demand destruction, notably in countries such as India, begins to occur above this level of price and shale activity becomes heavily incentivised. As we move towards 2020, the infrastructure constraints on shale production will begin to ease with pipeline capacity being added so we would expect shale supply to respond more readily to higher prices. In this type of environment we see the integrated oil companies as best positioned so have focused the portfolio into companies such as Royal Dutch Shell and BP in Europe and Chevron and Exxon in the US. We see value in some of the E&P companies but have concentrated our positions into those with the highest quality acreage. The emerging cost pressures in the shale industry will likely disproportionately impact the lesser operators and those without tier one assets and we do not see the lower quality companies trading cheaply enough relative to the highest quality companies to justify investment at this point in time.
Looking out beyond a one year time horizon, we want the portfolio to be increasingly exposed to the Energy Transition – the changing nature of both energy supply and energy consumption. The increasing use of renewable sources of power in electricity generation has been underway for many years now and offers some attractive investment opportunities in well established companies. We recently added to the portfolio Enel, one of Europe’s leading energy companies with a focus on renewable energy generation and energy technology. Looking at the consumption of energy, the shift from internal combustion engines in cars to electric power is one we believe is going to happen more rapidly than consensus expectations. This is fuelling growth across a wide range of industries from metals such as lithium, battery cathode manufacturers and the vast array of automobile suppliers and technology companies involved in the electrification and, down the line, automation of transport. The portfolio has had holdings in lithium mining companies for a couple of years and we would expect to broaden portfolio holdings across the industries associated with the energy transition when suitable opportunities arise.
OLIVIA MARKHAM AND TOM HOLL
BlackRock Investment Management (UK) Limited
28 January 2018
TOP TEN INVESTMENTS
1 (2017 3rd)
BHP
Diversified mining company
| Ordinary shares | £ | 8,616,000 |
| Share of investments | % | 9.1% |
An important global player in a number of commodities including iron ore, copper, thermal and metallurgical coal, manganese, uranium, nickel, silver, titanium minerals and diamonds. The company also has significant interests in oil, gas and liquefied natural gas.
2 (2017 1st)
First Quantum Minerals
Copper producer
| Ordinary shares | £ | 1,724,000 |
| Corporate bonds | £ | 5,148,000 |
| Share of investments | % | 7.2% |
An established and rapidly growing mining company operating seven mines and developing five projects worldwide. A significant producer of copper, as well as nickel, gold, zinc and platinum group elements.
3 (2017 4th)
Royal Dutch Shell ‘B’
Integrated oil company
| Ordinary shares | £ | 6,447,000 |
| Share of investments | % | 6.8% |
The Anglo-Dutch giant is active in every area of the oil and gas industry including exploration and production, refining and marketing, power generation and energy trading. The company also has renewable energy interests in biofuels.
4 (2017 2nd)
Rio Tinto
Diversified mining company
| Ordinary shares | £ | 6,157,000 |
| Share of investments | % | 6.5% |
One of the world’s leading mining operations. Although its primary product is iron ore, the company also produces aluminium, copper, diamonds, gold, industrial minerals and energy products.
5 (2017 7th)
Exxon Mobil
Integrated oil company
| Ordinary shares | £ | 4,913,000 |
| Share of investments | % | 5.2% |
The world’s largest publicly traded international oil and gas company and the largest refiner and marketer of petroleum products.
6 (2017 6th)
Chevron
Integrated oil company
| Ordinary shares | £ | 4,734,000 |
| Share of investments | % | 4.9% |
An integrated oil and gas producer engaged in all aspects of the industry. The company has both upstream and downstream operations, as well as alternative energy including solar, wind and biofuels.
7 (2017 9th)
BP Group
Integrated oil company
| Ordinary shares | £ | 4,209,000 |
| Share of investments | % | 4.5% |
An international leader in exploration and production of oil and natural gas, the company refines, markets and supplies petroleum products, generates solar energy and manufactures chemicals.
8 (2017 17th)
Teck Resources
Diversified mining company
| Ordinary shares | £ | 4,170,000 |
| Share of investments | % | 4.4% |
Canada’s largest diversified mining company. Teck is committed to responsible mining and mineral development, and is focused on copper, zinc, steelmaking coal and energy.
9 (2017 5th)
Glencore
Diversified mining company
| Ordinary shares | £ | 3,499,000 |
| Share of investments | % | 3.7% |
The company is a diversified miner with activities in mining, smelting, refining, processing and marketing of metals and minerals, energy products and agricultural products worldwide.
10 (2017 8th)
Vale
Diversified mining company
| Ordinary shares | £ | 3,497,000 |
| Share of investments | % | 3.7% |
Operating in 30 countries, Vale is the world’s largest producer of iron ore, iron ore pellets and nickel. Also produces metallurgical and thermal coal, copper, manganese, ferroalloys, platinum group metals, gold, silver, cobalt, potash, phosphates and fertiliser nutrients.
All percentages reflect the value of the holding as a percentage of total investments. For this purpose, where more than one class of securities is held, these have been aggregated. Together, the ten largest investments represent 56.0% of total investments (ten largest investments as at 30 November 2017: 52.6%).
DISTRIBUTION OF INVESTMENTS AS AT 30 NOVEMBER 2018
Geographical allocation
| Global | 62.1% |
| Canada | 12.9% |
| USA | 10.6% |
| Australia | 6.4% |
| Latin America | 4.6% |
| Other | 3.4% |
Commodity allocation
| Integrated Oil | 27.7% |
| Exploration & Production | 10.8% |
| Distribution | 1.2% |
| Electricity | 0.9% |
| Energy | 40.6% |
| Diversified Mining | 29.8% |
| Copper | 10.5% |
| Gold | 7.6% |
| Industrial Minerals | 4.5% |
| Diamonds | 2.5% |
| Steel | 1.9% |
| Silver | 1.7% |
| Aluminium | 0.9% |
| Mining | 59.4% |
INVESTMENTS AS AT 30 NOVEMBER 2018
| Main geographic exposure |
Market value £'000 |
% of investments |
|
| Diversified Mining | |||
| BHP | Global | 8,616 | 9.2 |
| BHP Put Option 21/12/18 | Global | (79) | (0.1) |
| Rio Tinto | Global | 6,157 | 6.5 |
| Teck Resources | Canada | 4,170 | 4.4 |
| Teck Resources Call Option 21/12/18 | Canada | (10) | – |
| Glencore | Global | 3,499 | 3.7 |
| Vale | Latin America | 3,497 | 3.7 |
| Vale Call Option 21/12/18 | Latin America | (3) | – |
| KAZ Minerals | Asia | 1,431 | 1.5 |
| South32 | Global | 815 | 0.9 |
| --------------- | --------------- | ||
| 28,093 | 29.8 | ||
| --------------- | --------------- | ||
| Integrated Oil | |||
| Royal Dutch Shell 'B' | Global | 6,447 | 6.8 |
| Royal Dutch Shell 'B' Call Option 21/12/18 | Global | (9) | – |
| Exxon Mobil | Global | 4,913 | 5.2 |
| Chevron | Global | 4,734 | 5.0 |
| Chevron Call Option 21/12/18 | Global | (106) | (0.1) |
| BP Group | Global | 4,209 | 4.5 |
| ConocoPhillips | USA | 3,267 | 3.5 |
| ConocoPhillips Call Option 21/12/18 | USA | (4) | – |
| Suncor Energy | Canada | 2,589 | 2.8 |
| --------------- | --------------- | ||
| 26,040 | 27.7 | ||
| --------------- | --------------- | ||
| Exploration & Production | |||
| EOG Resources | USA | 2,323 | 2.5 |
| Marathon Oil | Global | 2,264 | 2.4 |
| Anadarko Petroleum | USA | 1,787 | 1.9 |
| Devon Energy | USA | 1,323 | 1.4 |
| Noble Energy | Global | 1,152 | 1.2 |
| Hess | Global | 907 | 1.0 |
| Laredo Petroleum | USA | 384 | 0.4 |
| Laredo Petroleum Call Option 21/12/18 | USA | (3) | – |
| --------------- | --------------- | ||
| 10,137 | 10.8 | ||
| --------------- | --------------- | ||
| Copper | |||
| First Quantum Minerals 7.25% 15/05/22 | Global | 3,574 | 3.8 |
| First Quantum Minerals | Global | 1,724 | 1.8 |
| First Quantum Minerals 6.875% 01/03/26 | Global | 926 | 1.0 |
| First Quantum Minerals 7.5% 01/04/25 | Global | 325 | 0.3 |
| First Quantum Minerals 7.25% 01/04/23 | Global | 323 | 0.3 |
| OZ Minerals | Australia | 1,802 | 1.9 |
| Lundin Mining | Global | 1,335 | 1.4 |
| --------------- | --------------- | ||
| 10,009 | 10.5 | ||
| --------------- | --------------- | ||
Gold |
|||
| Newcrest Mining | Australia | 1,739 | 1.9 |
| Randgold Resources | Africa | 1,193 | 1.3 |
| Agnico Eagle Mines | Canada | 998 | 1.1 |
| Newmont Mining | Global | 995 | 1.1 |
| Franco-Nevada | Global | 882 | 0.9 |
| Barrick Gold | Global | 812 | 0.9 |
| Osisko Gold Royalties Convertible Bond 4% 31/12/22 | Canada | 406 | 0.4 |
| --------------- | --------------- | ||
| 7,025 | 7.6 | ||
| --------------- | --------------- | ||
| Industrial Minerals | |||
| Pilgangoora 12% 21/06/22 | Australia | 1,763 | 1.9 |
| Albemarle | Global | 1,510 | 1.6 |
| Nemaska Lithium 11.25% 30/05/23 | Canada | 1,009 | 1.1 |
| Umicore Put Option 21/12/18 | Global | (96) | (0.1) |
| --------------- | --------------- | ||
| 4,186 | 4.5 | ||
| --------------- | --------------- | ||
| Diamonds | |||
| Mountain Province Diamonds 8% 15/12/22 | Canada | 1,781 | 1.9 |
| Petra Diamonds 7.25% 01/05/22 | Africa | 549 | 0.6 |
| --------------- | --------------- | ||
| 2,330 | 2.5 | ||
| --------------- | --------------- | ||
| Steel | |||
| Arcelormittal | Global | 1,116 | 1.2 |
| Coronado Global | Australia | 701 | 0.7 |
| --------------- | --------------- | ||
| 1,817 | 1.9 | ||
| --------------- | --------------- | ||
| Silver | |||
| Fresnillo | Latin America | 1,065 | 1.1 |
| Fresnillo Put Option 21/12/18 | Latin America | (201) | (0.2) |
| Wheaton Precious Metals | Global | 768 | 0.8 |
| --------------- | --------------- | ||
| 1,632 | 1.7 | ||
| --------------- | --------------- | ||
| Distribution | |||
| TransCanada | Canada | 1,153 | 1.2 |
| --------------- | --------------- | ||
| 1,153 | 1.2 | ||
| --------------- | --------------- | ||
| Electricity | |||
| Enel | Global | 884 | 0.9 |
| --------------- | --------------- | ||
| |
884 | 0.9 | |
| --------------- | --------------- | ||
| Aluminium | |||
| Alcoa Corp | USA | 998 | 1.1 |
| Alcoa Corp Put Option 21/12/18 | USA | (171) | (0.2) |
| --------------- | --------------- | ||
| 827 | 0.9 | ||
| --------------- | --------------- | ||
| Portfolio | 94,133 | 100.0 | |
| ========= | ========= | ||
| Comprising | |||
| Equity and debt investments | 94,815 | 100.7 | |
| Derivative financial instruments – written options | (682) | (0.7) | |
| --------------- | --------------- | ||
| 94,133 | 100.0 | ||
| ========= | ========= |
All investments are ordinary shares unless otherwise stated. The total number of holdings (including options) at 30 November 2018 was 56 (30 November 2017: 53). The total number of open options as at 30 November 2018 was 10 (30 November 2017: 6). The negative valuations of £682,000 (30 November 2017: £98,000) in respect of options held represent the notional cost of repurchasing the contracts at market prices as at 30 November 2018.
The equity and debt investment total of £94,815,000 above before the deduction of the negative option valuations of £682,000 represents the Company’s total investments held at fair value as reflected in the Consolidated and Parent Company Statements of Financial Position. The table above excludes cash and gearing; the level of the Company’s gearing may be determined with reference to the bank overdraft of £7,718,000 and cash and cash equivalents of £29,000 that are also disclosed in the Consolidated and Parent Company Statements of Financial Position. Details of the AIC methodology for calculating gearing are given in the Glossary contained within the Company’s Annual Report for the year ended 30 November 2018.
As at 30 November 2018, the Company did not hold any equity interests comprising more than 3% of any company’s share capital.
STRATEGIC REPORT
The Directors present the Strategic Report of the Company for the year ended 30 November 2018. The aim of the Strategic Report is to provide shareholders with the information required to enable them to assess how the Directors have performed in their duty to promote the success of the Company during the year under review.
Business and management of the company
BlackRock Commodities Income Investment Trust plc (the Company) is an investment trust company that has a premium listing on the London Stock Exchange. Its principal activity is portfolio investment. The Company’s wholly owned subsidiary is BlackRock Commodities Securities Income Company Limited (together ‘the Group’). Its principal activities are option writing and investment dealing.
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.
In accordance with the Alternative Investment Fund Managers’ Directive (AIFMD) the Company is an Alternative Investment Fund (AIF). BlackRock Fund Managers Limited (the Manager) is the Company’s Alternative Investment Fund Manager. The management of the investment portfolio and the administration of the Company have been contractually delegated to the Manager. The Manager, operating under guidelines determined by the Board, has direct responsibility for decisions relating to the running of the Company and is accountable to the Board for the investment, financial and operating performance of the Company.
The Company delegates fund accounting services to BlackRock Investment Management (UK) Limited (BIM (UK) or the Investment Manager), which in turn sub-delegates these services to The Bank of New York Mellon (International) Limited and also sub-delegates registration services to the Registrar, Computershare Investor Services PLC. Other service providers include the Depositary, The Bank of New York Mellon (International) Limited. Details of the contractual terms with these service providers are set out in the Directors’ Report contained within the Company’s Annual Report for the year to 30 November 2018.
Business model
The Company invests in accordance with the investment objective. 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 the Manager. Matters reserved for the Board include setting the Company’s strategy, including its investment objective and policy, setting limits on gearing, capital structure, governance, and appointing and monitoring of the performance of service providers, including the Manager.
As the Company’s business model follows that of an externally managed investment trust, it does not have any employees and outsources its activities to third party service providers including the Manager who is the principal service provider.
Investment objective
The Company’s objectives are to achieve an annual dividend target and, over the long term, capital growth by investing primarily in securities of companies operating in the mining and energy sectors.
Investment policy and strategy
The Company seeks to achieve its objectives through a focused portfolio, consisting of approximately thirty to one hundred and fifty securities.
Although the Company has the flexibility to invest within this range, at 30 November 2018 the portfolio consisted of 56 investments, and the detailed portfolio listing is provided above.
There are no restrictions on investment in terms of geography or sub-sector and, in addition to equities, other types of securities, such as convertible bonds and debt issued primarily by mining or energy companies, may be acquired. Although most securities will be quoted, listed or traded on an investment exchange, up to 10% of the gross assets of the Company and its subsidiary (the Group), at the time of investment, may be invested in unquoted securities.
Investment in securities may be either direct or through other funds, including other funds managed by BlackRock or its associates, with up to 15% of the portfolio being invested in other listed investment companies, including listed investment trusts.
Up to 10% of the gross assets of the Group, at the time of investment, may be invested in physical assets, such as gold and in securities of companies that operate in the commodities sector other than the mining and energy sectors.
No more than 15% of the gross assets of the Group will be invested in any one company as at the date any such investment is made and the portfolio will not own more than 15% of the issued shares of any one company, other than the Company’s subsidiary.
The Group may deal in derivatives, including options and futures, up to a maximum of 30% of the Group’s assets for the purposes of efficient portfolio management and to enhance portfolio returns. In addition, the Company is also permitted to enter into stock lending arrangements up to a maximum of 331/3% of the total asset value of the portfolio.
The Group may, from time to time, use borrowings to gear its investment policy or in order to fund the market purchase of its own ordinary shares. This gearing typically is in the form of an overdraft or short term facility, which can be repaid at any time. Under the Company’s Articles of Association, the Board is obliged to restrict the borrowings of the Company to an aggregate amount equal to 40% of the value of the gross assets of the Group. However, borrowings are not anticipated to exceed 20% of gross assets at the time of drawdown of the relevant borrowings.
The Group’s financial statements are maintained in sterling. Although many investments are denominated and quoted in currencies other than sterling, the Company does not intend to employ a hedging policy against fluctuations in exchange rates, but may do so in the future if circumstances warrant implementing such a policy.
No material change will be made to the investment policy without shareholder approval.
Performance
Details of the Company’s performance for the year are given in the Chairman’s Statement. The Investment Manager’s Report includes a review of the main developments during the year, together with information on investment activity within the Company’s portfolio.
Results and dividends
The Company’s revenue earnings for the year amounted to 4.37p per share (2017: 4.84p).
Details of dividends paid and declared in respect of the year, together with the Company’s dividend policy, are set out in the Chairman’s Statement.
Key performance indicators
A number of performance indicators (KPIs) are used to monitor and assess the Company’s success in achieving its objectives and to measure its progress and performance.
The principal KPIs are described below:
Performance
At each meeting the Board reviews the performance of the portfolio as well as the net asset value and share price for the Company and compares this to the performance of other companies in the peer group. The Company does not have a benchmark; however the Board also reviews performance in the context of the performance of the EMIX Global Mining Index and the MSCI World Energy Index and a 50:50 composite of both indices.
Information on the Company’s performance is given in the performance record and the Chairman’s Statement and Investment Manager’s Report.
Share rating
The Board monitors the level of the Company’s premium or discount to NAV on an ongoing basis and considers strategies for managing any premium or discount.
In the year to 30 November 2018, the Company’s share price to NAV traded in the range of a premium of 3.5% to a discount of 9.5% on a cum income basis. The average discount for the year was 5.2%. The Company issued a total of 250,000 shares during the year and further details are given in the Chairman’s Statement. 2,891,485 shares were bought back during the year. Details of shares issued and bought back since the year end date are given in note 9.
Further details setting out how the discount or premium at which the Company’s shares trade is calculated are included in the Glossary contained within the Company’s Annual Report for the year to 30 November 2018.
Ongoing charges
The ongoing charges represent the Company’s management fee and all other recurring operating and investment management expenses, excluding finance costs, VAT refunded, transaction costs and taxation, expressed as a percentage of average net assets.
The ongoing charges are based on actual costs incurred in the year as being the best estimate of future costs. The Board reviews the ongoing charges and monitors the expenses incurred by the Company on an ongoing basis. A definition setting out in detail how the ongoing charges ratio is calculated is included in the Glossary contained within the Company’s Annual Report for the year to 30 November 2018.
Dividend target and income generation
The level of income is considered at each meeting and the Board receives detailed income forecasts. The Board also monitors performance relative to a peer group of commodities and natural resources focused open and closed-end funds and also regularly reviews the Company’s performance attribution analysis to understand how performance was achieved. This provides an understanding of how components such as sector exposure, stock selection and asset allocation impacted performance. Further details are provided in the Investment Manager’s Report.
The table below sets out the key KPIs for the Company. These KPIs fall within the definition of ‘Alternative Performance Measures’ (APMs) under guidance issued by the European Securities and Markets Authority (ESMA) and additional information explaining how these are calculated is set out in the Glossary contained within the Company’s Annual Report for the year to 30 November 2018.
| Year ended 30 November 2018 |
Year ended 30 November 2017 |
|
| Net asset value total return1 | 3.6% | (3.2%) |
| Share price total return1 | (0.9%) | (4.4%) |
| Discount to net asset value (at year end)2 | 6.9% | 2.5% |
| Revenue return per share | 4.37p | 4.84p |
| Ongoing charges3 | 1.39% | 1.36% |
1 This measures the Company’s NAV and share price total returns, which assumes dividends paid by the Company have been reinvested.
2 This is the difference between the share price and the cum-income NAV per share.
3 Ongoing charges represent the management fee and all other recurring operating expenses excluding finance costs, VAT refunded, transaction costs and taxation, expressed as a percentage of average net assets.
Principal risks
The Company is exposed to a variety of risks and uncertainties. The Board has in place a robust process to identify, assess 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 and assesses the likelihood and potential impact of each risk and the controls established for mitigation. A residual risk rating is then calculated for each risk.
The risk register is regularly reviewed and the risks re-assessed. The risk environment in which the Company operates is also monitored and regularly appraised. New risks are also added to the register as they are identified which ensures that the document continues to be an effective risk management tool.
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 and Management Engagement 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, BlackRock’s internal audit department provides an annual presentation to the Audit and Management Engagement Committee Chairman setting out the results of testing performed in relation to BlackRock’s internal control processes. The Audit and Management Engagement Committee also periodically receives presentations from BlackRock’s Risk & Quantitative Analysis teams, and reviews Service Organisation Control (SOC 1) reports from BlackRock and from the Company’s custodian (The Bank of New York Mellon (International) Limited). The custodian is appointed by the Company’s Depositary and does not have a direct contractual relationship with the Company.
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 table below together with an explanation of how they are managed and mitigated. The Board will continue to assess these risks on an ongoing basis. In relation to the 2016 update to the UK Corporate Governance Code, the Board is comfortable that the procedures that the Company has in place are sufficient to ensure that the necessary monitoring of risks and controls has been carried out throughout the year under review.
The Company’s principal risks may be categorised under the following headings:
· investment performance;
· income/dividend;
· gearing;
· legal and regulatory compliance;
· operational;
· market; and
· financial.
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.
| Principal Risk | Mitigation/Control |
| Investment performance The returns achieved are reliant primarily upon the performance of the portfolio. The Board is responsible for: · setting the investment strategy to fulfil the Company’s objective; and · monitoring the performance of the Investment Manager and the implementation of the investment strategy. An inappropriate investment strategy may lead to: · poor relative performance; · a reduction or permanent loss of capital; and · dissatisfied shareholders and reputational damage. |
To manage this risk the Board: · regularly reviews the Company’s investment mandate and long term strategy; · has set investment restrictions and guidelines which the Investment Manager monitors and regularly reports on; · receives from the Investment Manager a regular explanation of stock selection decisions, portfolio exposure, gearing and any changes in gearing and the rationale for the composition of the investment portfolio; · monitors the maintenance of an adequate spread of investments in order to minimise the risks associated with factors specific to particular sectors, based on the diversification requirements inherent in the investment policy. |
| Income/dividend The ability to pay dividends, and future dividend growth, is dependent on a number of factors including the level of dividends earned from the portfolio and income generated from the option writing strategy. Income returns from the portfolio are dependent, among other things, upon the Company successfully pursuing its investment policy. Any change in the tax treatment of dividends or interest received by the Company including as a result of withholding taxes or exchange controls imposed by jurisdictions in which the Company invests may reduce the level of dividends received by shareholders. |
The Company has the ability to make dividend distributions out of special reserves and capital reserves as well as revenue reserves to support any dividend target. In setting the dividend target each year, the Board is mindful of the balance of shareholder returns between income and captial. |
| Gearing The Company’s investment strategy may involve the use of gearing, including borrowings. Gearing may be generated through borrowing money or increasing levels of market exposure through the use of derivatives. The Company currently has an uncommitted overdraft facility with The Bank of New York Mellon (International) Limited. The use of gearing exposes the Company to the risk associated with borrowing. Gearing provides an opportunity for greater returns where the return on the Company’s underlying assets exceeds the cost of borrowing. It is likely to have the opposite effect where the return on the underlying assets is below the cost of borrowings. Consequently, the use of borrowings by the Company may increase the volatility of the NAV. |
The Company’s Articles of Association limit borrowings to an aggregate amount equal to 40% of the value of the gross assets of the Group. However, to further manage this risk the Board does not anticipate borrowings will exceed 20% of gross assets at the time of drawdown. The use of derivatives, including options and futures has been limited to a maximum of 30% of the Group’s assets. The Investment Manager will only use gearing when confident that market conditions and opportunities exist to enhance investment returns. |
| Legal and regulatory compliance The Company has been approved by HM Revenue & Customs as an investment trust, subject to continuing to meet the relevant eligibility conditions and operates as an investment trust in accordance with Chapter 4 of Part 24 of the Corporation Tax Act 2010. As such, the Company is exempt from capital gains tax on the profits realised from the sale of its investments. Any breach of the relevant eligibility conditions could lead to the Company losing investment trust status and being subject to corporation tax on capital gains realised within the Company’s portfolio. Any serious breach could result in the Company and/or the Directors being fined or the subject of criminal proceedings or the suspension of the Company’s shares which would in turn lead to a breach of the Corporation Tax Act 2010. Amongst other relevant laws and regulations the Company is required to comply with the provisions of the Companies Act 2006, the Alternative Investment Fund Managers’ Directive, the Market Abuse Regulation, the UK Listing Rules and the FCA’s Disclosure Guidance and Transparency Rules. |
The Investment Manager monitors investment movements and the amount of proposed dividends, if any, to ensure that the provisions of Chapter 4 of Part 24 of the Corporation Tax Act 2010 are not breached. The results are reported to the Board at each meeting. Compliance with the accounting rules affecting investment trusts is carefully and regularly monitored. The Company Secretary and the Company’s professional advisers provide regular reports to the Board in respect of compliance with all applicable rules and regulation. Following authorisation under the Alternative Investment Fund Managers’ Directive (AIFMD), the Company and its appointed Alternative Investment Fund Manager (AIFM) are subject to the risks that the requirements of this Directive are not correctly complied with. The Board and the AIFM also monitor changes in government policy and legislation which may have an impact on the Company. The Market Abuse Regulation came into force across the EU on 3 July 2016. The Board has taken steps to ensure that individual Directors (and their Persons Closely Associated) are aware of their obligations under the regulation and has updated internal processes, where necessary, to ensure the risk of non-compliance is effectively mitigated. |
| Operational The Company relies on the services provided by third parties. Accordingly, it is dependent on the control systems of the Manager and The Bank of New York Mellon (International) Limited (who act as both Depositary and Fund Accountant and who maintain the Company’s assets, settlement and accounting records). The security of the Company’s assets, dealing procedures, accounting records and adherence to regulatory and legal requirements depend on the effective operation of the systems of the third party service providers. Failure by any service provider to carry out its obligations to the Company could have a material adverse effect on the Company’s performance. Disruption to the accounting, payment systems or custody records could prevent the accurate reporting and monitoring of the Company’s financial position. |
Due diligence is undertaken before contracts are entered into with third party service providers. Thereafter, the performance of the provider is subject to regular review and reported to the Board. The Fund Accountant’s and the Manager’s internal control processes are regularly tested and monitored throughout the year and are evidenced through their SOC 1 reports, which are subject to review by an Independent Service Assurance Auditor. The SOC 1 reports provide assurance in respect of the effective operation of internal controls. These reports are provided to the Audit and Management Engagement Committee. The Company’s financial assets are subject to a strict liability regime and in the event of a loss of assets, the Depositary must return assets of an identical type or the corresponding amount, unless able to demonstrate the loss was a result of an event beyond its reasonable control. The Board reviews the overall performance of the Manager, Investment Manager and all other third party service providers on a regular basis. The Board also considers the business continuity arrangements of the Company’s key service providers. |
| Market Market risk arises from volatility in the prices of the Company’s investments. The price of shares of companies in the mining and energy sectors can be volatile and this may be reflected in the NAV and market price of the Company’s shares. The Company invests in the mining and energy sectors in many countries globally and will also be subject to country specific risk. A lack of growth in world or country-specific industrial production may adversely affect metal and energy prices. Companies operating within the sectors in which the Company invests may be impacted by new legislation governing climate change and environmental issues, which may have a negative impact on their valuation and share price. There is the potential for the Company to suffer loss through holding investments in the face of negative market movements. |
The Board considers the diversification of the portfolio, asset allocation, stock selection, and levels of gearing on a regular basis and has set investment restrictions and guidelines which are monitored and reported on by the Investment Manager. The Board monitors the implementation and results of the investment process with the Investment Manager. Under the Company’s investment policy the Investment Manager has the ability to invest in energy transition stocks and is mindful of the impact of any shift in energy consumption towards less carbon intensive energy supply. This is taken into account by the Investment Manager in building a well-diversified portfolio. |
| Financial The Company’s investment activities expose it to a variety of financial risks that include interest rate risk and foreign currency risk. The Company invests in both sterling and non-sterling denominated securities. Consequently, the value of investments in the portfolio made in non-sterling currencies will be affected by currency movements. |
Details of these risks are disclosed in note 16 to the financial statements contained within the Company’s Annual Report for the year ended 30 November 2018, together with a summary of the policies for managing these risks. |
Viability statement
In accordance with provision C.2.2 of the 2016 UK Corporate Governance Code, the Directors have assessed the prospects of the Company for a period of three years. The Board considers three years to be an appropriate time horizon, being the period generally used to assess potential investments.
In its assessment of the viability of the Company the Directors have noted that:
· the Company predominantly invests in highly liquid, large listed companies so its assets are readily realisable;
· the Company has limited gearing and no concerns around facilities, headroom or covenants; and
· the business model should remain attractive for longer than three years, unless there is significant economic or regulatory change.
The Directors have also reviewed:
· the Company’s principal risks and uncertainties, as previously set out;
· the potential impact of a fall in commodity equity markets on the value of the Company’s investment portfolio and underlying dividend income;
· the ongoing relevance of the Company’s investment objective, business model and investment policy in the current environment; and
· the level of demand for the Company’s shares.
The Board has also considered a number of financial metrics in its assessment, including:
· the level of ongoing charges, both current and historic;
· the level at which the shares trade relative to NAV;
· the level of income generated;
· future income forecasts; and
· 99% of the portfolio was capable of being liquidated in less than 20 days
The Board has concluded that the Company would be able to meet its ongoing operating costs as they fall due as a consequence of:
· a liquid portfolio; and
· expenses which comprise a small percentage of net assets
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 an annual dividend target and, over the long term, capital growth. The future of the Company is dependent upon the success of the investment strategy. The outlook for the Company is discussed in both the Chairman’s Statement and in the Investment Manager’s Report.
Employees, social, community and human rights issues
The Company has no employees and all the Directors are non-executive, therefore, there are no disclosures to be made in respect of employees.
The Company believes that it is in shareholders’ interests to consider environmental, social and governance factors and human rights issues when selecting and retaining investments. Details of the Company’s policy on socially responsible investment are set out in the Corporate Governance Statement contained within the Company’s Annual Report for the year to 30 November 2018.
Modern Slavery Act
As an investment vehicle the Company does not provide goods or services in the normal course of business, and does not have customers. Accordingly, the Directors consider that the Company is not required to make any slavery or human trafficking statement under the Modern Slavery Act 2015. The Board considers the Company’s supply chain, dealing predominantly with professional advisers and service providers in the financial services industry, to be low risk in relation to this matter.
Directors, gender representation and employees
The Directors of the Company on 30 November 2018, all of whom held office throughout the year, are set out in the Governance Structure and Directors’ biographies contained within the Company’s Annual Report for the year to 30 November 2018.
The Board consists of three male Directors and one female Director.
By order of the Board
SARAH BEYNSBERGER
For and on behalf of
BlackRock Investment Management (UK) Limited
Company Secretary
28 January 2019
RELATED PARTY TRANSACTIONS AND 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. The management contract is terminable by either party on six months’ notice.
BlackRock Investment Management (UK) Limited (BIM (UK)) acts as the Company’s Investment Manager under a delegation agreement with BFM. BIM (UK) also acted as the Secretary of the Company throughout the year. BFM receives a management fee of 0.95% on the first £250 million of gross assets and 0.90% thereafter. The investment management fee due for the year ended 30 November 2018 amounted to £1,000,000 (2017: £956,000). At the year end, £412,000 was outstanding in respect of the management fee (2017: £387,000).
Further details in relation to the management fee are given in note 4. The Board believes that the current fee structure is appropriate for an investment company in this sector. Further details of the investment management contract are disclosed in the Directors’ Report contained within the Company’s Annual Report for the year ended 30 November 2018.
The Group contributes to a focused investment trust sales and marketing initiative operated by BIM (UK) on behalf of the investment trusts under its management. For the year ended 30 November 2018, the Group’s contribution to the consortium element of the initiative, which enables the trusts to achieve efficiencies by combining certain sales and marketing activities, represented 0.025% per annum of its net assets (£97.9 million) as at 31 December 2017, and this contribution is matched by BIM (UK). For the year ended 30 November 2018, £21,000 (excluding VAT) has been invoiced and paid in respect of this initiative (2017: £25,000). The purpose of the programme is to ensure effective communication with existing shareholders and to attract new shareholders to the Company. This has the benefit of improving liquidity in the Company’s shares and helps sustain the stock market rating of the Company. Marketing fees of £22,000 excluding VAT (2017: £23,000) were outstanding as at the year end.
BFM and BIM (UK) are subsidiaries of BlackRock, Inc. which is a publicly traded corporation on the New York Stock Exchange operating as an independent firm. The PNC Financial Services Group, Inc. has a significant economic interest in BlackRock, Inc. PNC Financial Services Group, Inc. is a US public company.
The Board consists of four non-executive Directors, all of whom, with the exception of Mr Ruck Keene (who was previously an employee of the Manager) are considered to be independent of the Manager by the Board. Mr Ruck Keene retired from his position at BlackRock on 7 April 2017 and will continue to be deemed to be non-independent of the Manager for a period of five years following his retirement under current guidance set out in the UK Corporate Governance Code. None of the Directors has a service contract with the Company. For the year ended 30 November 2018, the Chairman received an annual fee of £37,000, the Chairman of the Audit and Management Engagement Committee received an annual fee of £31,000 and the other Directors received an annual fee of £26,000.
The related party transactions with Directors are set out in the Directors’ Remuneration Report contained within the Company’s Annual Report for the year to 30 November 2018. At 30 November 2018, £10,000 (2017: £10,000) was outstanding in respect of Directors’ fees.
As at 30 November 2018 and 2017, the Directors’ interests in the Company’s Ordinary Shares were as follows:
| 30 November 2018 | 30 November 2017 | |
| Ordinary shares | Ordinary shares | |
| Ed Warner (Chairman) | 94,000 | 94,000 |
| Carol Bell | 33,500 | 33,500 |
| Michael Merton | 17,000 | 17,000 |
| Jonathan Ruck Keene | 14,000 | 14,000 |
STATEMENT OF DIRECTORS’ RESPONSIBILITIES IN RESPECT OF THE ANNUAL REPORT AND FINANCIAL STATEMENTS
The Directors are responsible for preparing the Annual Report and the Financial Statements in accordance with applicable United Kingdom law and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law, the Directors have elected to prepare the financial statements under IFRS as adopted by the European Union.
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 Group as at the end of each financial year and of the profit or loss of the Group for that year.
In preparing these Group financial statements, the Directors are required to:
· present fairly the financial position, financial performance and cash flows of the Group;
· select suitable accounting policies in accordance with IAS 8: Accounting Policies, Changes in Accounting Estimates and Errors and then apply them consistently;
· present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;
· make judgements and estimates that are reasonable and prudent;
· state whether the financial statements have been prepared in accordance with IFRS as adopted by the European Union, subject to any material departures disclosed and explained in the financial statements;
· provide additional disclosures when compliance with the specific requirements in IFRS as adopted by the European Union is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the Group’s financial position and financial performance; and
· prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group’s transactions and disclose with reasonable accuracy at any time the financial position of the Group 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 Group and for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors are also responsible for preparing the Strategic Report, the Directors’ Report, the Directors’ Remuneration Report, the Corporate Governance Statement and the Report of the Audit and Management Engagement Committee in accordance with the Companies Act 2006 and applicable regulations, including the requirements of the Listing Rules and the Disclosure Guidance and Transparency Rules. The Directors have delegated responsibility to the Manager for the maintenance and integrity of the Group’s corporate and financial information included on the BlackRock 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 in the Directors’ biographies section contained within the Company’s Annual Report for the year to 30 November 2018, confirm to the best of their knowledge that:
· the financial statements, which have been prepared in accordance with IFRS as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit of the Group; and
· the annual report and financial statements include a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that it faces.
The 2016 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 and Management Engagement Committee advise on whether it considers that the annual report and financial statements fulfil these requirements. The process by which the Committee has reached these conclusions is set out in the Audit and Management Engagement Committee’s report contained within the Company’s Annual Report for the year to 30 November 2018. As a result, the Board has concluded that the annual report and financial statements for the year ended 30 November 2018, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Group’s position, performance, business model and strategy.
For and on behalf of the Board
ED WARNER
Chairman
28 January 2019
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 NOVEMBER 2018
Notes |
Revenue 2018 £’000 |
Revenue 2017 £’000 |
Capital 2018 £’000 |
Capital 2017 £’000 |
Total 2018 £’000 |
Total 2017 £’000 |
|
| Income from investments held at fair value through profit or loss | 3 | 4,038 | 3,456 | – | – | 4,038 | 3,456 |
| Other income | 3 | 2,323 | 3,664 | – | – | 2,323 | 3,664 |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | ||
| Total income | 6,361 | 7,120 | – | – | 6,361 | 7,120 | |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | ||
| Net loss on investments and options held at fair value through profit or loss | – | – | (717) | (8,066) | (717) | (8,066) | |
| Net profit/(loss) on foreign exchange | – | – | 30 | (39) | 30 | (39) | |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | ||
| Total | 6,361 | 7,120 | (687) | (8,105) | 5,674 | (985) | |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | ||
| Expenses | |||||||
| Investment management fees | 4 | (250) | (239) | (750) | (717) | (1,000) | (956) |
| Other operating expenses | 5 | (343) | (336) | (3) | (3) | (346) | (339) |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | ||
| Total operating expenses | (593) | (575) | (753) | (720) | (1,346) | (1,295) | |
| ========= | ========= | ========= | ========= | ========= | ========= | ||
| Net profit/(loss) on ordinary activities before finance costs and taxation | 5,768 | 6,545 | (1,440) | (8,825) | 4,328 | (2,280) | |
| Finance costs | 6 | (37) | (69) | (109) | (90) | (146) | (159) |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | ||
| Net profit/(loss) on ordinary activities before taxation | 5,731 | 6,476 | (1,549) | (8,915) | 4,182 | (2,439) | |
| Taxation | (586) | (723) | 63 | – | (523) | (723) | |
| ========= | ========= | ========= | ========= | ========= | ========= | ||
| Profit/(loss) for the year | 5,145 | 5,753 | (1,486) | (8,915) | 3,659 | (3,162) | |
| ========= | ========= | ========= | ========= | ========= | ========= | ||
| Earnings/(loss) per ordinary share (pence) | 8 | 4.37 | 4.84 | (1.26) | (7.50) | 3.11 | (2.66) |
| ========= | ========= | ========= | ========= | ========= | ========= |
The total column of this statement represents the Group’s Statement of Comprehensive Income, prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union. The supplementary revenue and capital columns are both prepared under guidance published by the Association of Investment Companies (AIC). All items in the above statement derive from continuing operations. No operations were acquired or discontinued during the year. All income is attributable to the equity holders of the Group.
The Group does not have any other comprehensive income/(loss). The net profit/(loss) for the year disclosed above represents the Group’s total comprehensive income/(loss).
CONSOLIDATED AND PARENT COMPANY STATEMENTS OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 NOVEMBER 2018
Group |
Notes |
Called up share capital £’000 |
Share premium account £’000 |
Special reserve £’000 |
Capital reserve £’000 |
Revenue reserve £’000 |
Total £’000 |
| For the year ended 30 November 2018 | |||||||
| At 30 November 2017 | 1,188 | 46,827 | 71,223 | (31,394) | 3,513 | 91,357 | |
| Total comprehensive income: | |||||||
| Net (loss)/profit for the year | – | – | – | (1,486) | 5,145 | 3,659 | |
| Transactions with owners, recorded directly to | |||||||
| equity: | |||||||
| Share issues | 9,10 | 2 | 150 | – | – | – | 152 |
| Ordinary shares purchased into treasury | 9,10 | – | – | (2,373) | – | – | (2,373) |
| Ordinary shares reissued from treasury | 9,10 | – | – | 40 | – | – | 40 |
| Share purchase costs | 10 | – | – | (17) | – | – | (17) |
| Dividends paid* | 7 | – | – | – | – | (4,709) | (4,709) |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | ||
| At 30 November 2018 | 1,190 | 46,977 | 68,873 | (32,880) | 3,949 | 88,109 | |
| ========= | ========= | ========= | ========= | ========= | ========= | ||
| For the year ended 30 November 2017 | |||||||
| At 30 November 2016 | 1,183 | 46,395 | 71,223 | (22,479) | 2,511 | 98,833 | |
| Total comprehensive income: | |||||||
| Net (loss)/profit for the year | – | – | – | (8,915) | 5,753 | (3,162) | |
| Transactions with owners, recorded directly to | |||||||
| equity: | |||||||
| Share issues | 5 | 433 | – | – | – | 438 | |
| Share issue costs | – | (1) | – | – | – | (1) | |
| Dividends paid** | 7 | – | – | – | – | (4,751) | (4,751) |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | ||
| At 30 November 2017 | 1,188 | 46,827 | 71,223 | (31,394) | 3,513 | 91,357 | |
| ========= | ========= | ========= | ========= | ========= | ========= |
* 4th interim dividend of 1.00p per share for the year ended 30 November 2017, declared on 11 December 2017 and paid on 19 January 2018; 1st interim dividend of 1.00p per share for the year ended 30 November 2018, declared on 13 March 2018 and paid on 20 April 2018, 2nd interim dividend of 1.00p per share for the year ending 30 November 2018, declared on 13 June 2018 and paid on 20 July 2018 and 3rd interim dividend of 1.00p per share for the year ended 30 November 2018, declared on 18 September 2018 and paid on 23 October 2018.
** 4th interim dividend of 1.00p per share for the year ended 30 November 2016, declared on 16 December 2016 and paid on 20 January 2017; 1st interim dividend of 1.00p per share for the year ended 30 November 2017, declared on 14 March 2017 and paid on 21 April 2017, 2nd interim dividend of 1.00p per share for the year ending 30 November 2017, declared on 13 June 2017 and paid on 21 July 2017 and 3rd interim dividend of 1.00p per share for the year ended 30 November 2017, declared on 11 September 2017 and paid on 13 October 2017.
Company |
Notes |
Called up share capital £’000 |
Share premium account £’000 |
Special reserve £’000 |
Capital reserve £’000 |
Revenue reserve £’000 |
Total £’000 |
| For the year ended 30 November 2018 | |||||||
| At 30 November 2017 | 1,188 | 46,827 | 71,223 | (30,099) | 2,218 | 91,357 | |
| Total comprehensive income: | |||||||
| Net (loss)/profit for the year | – | – | – | (1,345) | 5,004 | 3,659 | |
| Transactions with owners, recorded directly to | |||||||
| equity: | |||||||
| Share issues | 9,10 | 2 | 150 | – | – | – | 152 |
| Ordinary shares purchased into treasury | 9,10 | – | – | (2,373) | – | – | (2,373) |
| Ordinary shares reissued from treasury | 9,10 | – | – | 40 | – | – | 40 |
| Share purchase costs | 10 | – | – | (17) | – | – | (17) |
| Dividends paid* | 7 | – | – | – | – | (4,709) | (4,709) |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | ||
| At 30 November 2018 | 1,190 | 46,977 | 68,873 | (31,444) | 2,513 | 88,109 | |
| ========= | ========= | ========= | ========= | ========= | ========= | ||
| For the year ended 30 November 2017 | |||||||
| At 30 November 2016 | 1,183 | 46,395 | 71,223 | (21,975) | 2,007 | 98,833 | |
| Total comprehensive income: | |||||||
| Net (loss)/profit for the year | – | – | – | (8,124) | 4,962 | (3,162) | |
| Transactions with owners, recorded directly to | |||||||
| equity: | |||||||
| Share issues | 5 | 433 | – | – | – | 438 | |
| Share issue costs | – | (1) | – | – | – | (1) | |
| Dividends paid** | 7 | – | – | – | – | (4,751) | (4,751) |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | ||
| At 30 November 2017 | 1,188 | 46,827 | 71,223 | (30,099) | 2,218 | 91,357 | |
| ========= | ========= | ========= | ========= | ========= | ========= |
* 4th interim dividend of 1.00p per share for the year ended 30 November 2017, declared on 11 December 2017 and paid on 19 January 2018; 1st interim dividend of 1.00p per share for the year ended 30 November 2018, declared on 13 March 2018 and paid on 20 April 2018, 2nd interim dividend of 1.00p per share for the year ending 30 November 2018, declared on 13 June 2018 and paid on 20 July 2018 and 3rd interim dividend of 1.00p per share for the year ended 30 November 2018, declared on 18 September 2018 and paid on 23 October 2018.
** 4th interim dividend of 1.00p per share for the year ended 30 November 2016, declared on 16 December 2016 and paid on 20 January 2017; 1st interim dividend of 1.00p per share for the year ended 30 November 2017, declared on 14 March 2017 and paid on 21 April 2017, 2nd interim dividend of 1.00p per share for the year ending 30 November 2017, declared on 13 June 2017 and paid on 21 July 2017 and 3rd interim dividend of 1.00p per share for the year ended 30 November 2017, declared on 11 September 2017 and paid on 13 October 2017.
CONSOLIDATED AND PARENT COMPANY STATEMENTS OF FINANCIAL POSITION AS AT 30 NOVEMBER 2018
| 30 November 2018 | 30 November 2017 | ||||
Notes |
Group £’000 |
Company £’000 |
Group £’000 |
Company £’000 |
|
| Non current assets | |||||
| Investments held at fair value through profit or loss | 11 | 94,815 | 97,071 | 94,603 | 96,718 |
| --------------- | --------------- | --------------- | --------------- | ||
| Current assets | |||||
| Other receivables | 474 | 474 | 2,057 | 2,057 | |
| Cash collateral held with brokers | 2,013 | – | 949 | – | |
| Cash and cash equivalents | 29 | – | 78 | – | |
| --------------- | --------------- | --------------- | --------------- | ||
| 2,516 | 474 | 3,084 | 2,057 | ||
| --------------- | --------------- | --------------- | --------------- | ||
| Total assets | 97,331 | 97,545 | 97,687 | 98,775 | |
| --------------- | --------------- | --------------- | --------------- | ||
| Current liabilities | |||||
| Other payables | (822) | (631) | (786) | (557) | |
| Derivative financial liabilities held at fair value through | |||||
| profit or loss | 11 | (682) | (682) | (98) | (98) |
| Bank overdraft | (7,718) | (8,123) | (5,446) | (6,763) | |
| --------------- | --------------- | --------------- | --------------- | ||
| (9,222) | (9,436) | (6,330) | (7,418) | ||
| --------------- | --------------- | --------------- | --------------- | ||
| Net assets | 88,109 | 88,109 | 91,357 | 91,357 | |
| ========= | ========= | ========= | ========= | ||
| Equity attributable to equity holders | |||||
| Called up share capital | 9 | 1,190 | 1,190 | 1,188 | 1,188 |
| Share premium account | 10 | 46,977 | 46,977 | 46,827 | 46,827 |
| Special reserve | 10 | 68,873 | 68,873 | 71,223 | 71,223 |
| Capital reserves | |||||
| At 1 December | (31,394) | (30,099) | (22,479) | (21,975) | |
| Net loss for the year | (1,486) | (1,345) | (8,915) | (8,124) | |
| --------------- | --------------- | --------------- | --------------- | ||
| At 30 November | 10 | (32,880) | (31,444) | (31,394) | (30,099) |
| --------------- | --------------- | --------------- | --------------- | ||
| Revenue reserves | |||||
| At 1 December | 3,513 | 2,218 | 2,511 | 2,007 | |
| Net profit for the year | 5,145 | 5,004 | 5,753 | 4,962 | |
| Dividends paid | (4,709) | (4,709) | (4,751) | (4,751) | |
| --------------- | --------------- | --------------- | --------------- | ||
| At 30 November | 10 | 3,949 | 2,513 | 3,513 | 2,218 |
| --------------- | --------------- | --------------- | --------------- | ||
| Total equity | 88,109 | 88,109 | 91,357 | 91,357 | |
| ========= | ========= | ========= | ========= | ||
| Net asset value per ordinary share (pence) | 8 | 75.87 | 75.87 | 76.92 | 76.92 |
| ========= | ========= | ========= | ========= | ||
CONSOLIDATED AND PARENT COMPANY CASH FLOW STATEMENTS FOR THE YEAR ENDED 30 NOVEMBER 2018
| 30 November 2018 | 30 November 2017 | |||
| Group £’000 |
Company £’000 |
Group £’000 |
Company £’000 |
|
| Operating activities | ||||
| Net profit/(loss) on ordinary activities before taxation | 4,182 | 3,823 | (2,439) | (2,970) |
| Add back finance costs | 146 | 145 | 159 | 120 |
| Net loss on investments and options held at fair value through | ||||
| profit or loss (including transaction costs) | 717 | 576 | 8,066 | 7,273 |
| Net (profit)/loss on foreign exchange | (30) | (31) | 39 | 41 |
| Sales of investments held at fair value through profit or loss | 34,333 | 34,333 | 63,910 | 63,910 |
| Purchases of investments held at fair value through profit or loss | (34,678) | (34,678) | (63,836) | (63,836) |
| Increase in other receivables | (83) | (83) | (21) | (21) |
| Increase in other payables | 74 | 74 | 6 | 6 |
| Decrease/(increase) in amounts due from brokers | 1,568 | 1,568 | (1,120) | (1,120) |
| Decrease in amounts due to brokers | – | – | (2,335) | (2,335) |
| Net movement in cash collateral held with brokers | (1,064) | – | 2,041 | – |
| --------------- | --------------- | --------------- | --------------- | |
| Net cash inflow from operating activities before taxation | 5,165 | 5,727 | 4,470 | 1,068 |
| --------------- | --------------- | --------------- | --------------- | |
| Taxation paid | (397) | – | (655) | – |
| Taxation on investment income included within gross income | (66) | (66) | (192) | (192) |
| --------------- | --------------- | --------------- | --------------- | |
| Net cash inflow from operating activities | 4,702 | 5,661 | 3,623 | 876 |
| --------------- | --------------- | --------------- | --------------- | |
| Financing activities | ||||
| Interest paid | (146) | (145) | (159) | (120) |
| Proceeds from share issues | 192 | 192 | 438 | 438 |
| Share issue costs paid | – | – | (1) | (1) |
| Payments for share purchases | (2,373) | (2,373) | – | – |
| Share purchase costs paid | (17) | (17) | – | – |
| Dividends paid | (4,709) | (4,709) | (4,751) | (4,751) |
| --------------- | --------------- | --------------- | --------------- | |
| Net cash outflow from financing activities | (7,053) | (7,052) | (4,473) | (4,434) |
| --------------- | --------------- | --------------- | --------------- | |
| Decrease in cash and cash equivalents | (2,351) | (1,391) | (850) | (3,558) |
| Effect of foreign exchange rate changes | 30 | 31 | (39) | (41) |
| --------------- | --------------- | --------------- | --------------- | |
| Change in cash and cash equivalents | (2,321) | (1,360) | (889) | (3,599) |
| Cash and cash equivalents at start of year | (5,368) | (6,763) | (4,479) | (3,164) |
| --------------- | --------------- | --------------- | --------------- | |
| Cash and cash equivalents at end of year | (7,689) | (8,123) | (5,368) | (6,763) |
| --------------- | --------------- | --------------- | --------------- | |
| Comprised of: | ||||
| Cash at bank | 29 | – | 78 | – |
| Bank overdraft | (7,718) | (8,123) | (5,446) | (6,763) |
| --------------- | --------------- | --------------- | --------------- | |
| (7,689) | (8,123) | (5,368) | (6,763) | |
| ========= | ========= | ========= | ========= | |
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 NOVEMBER 2018
1. Principal activity
The principal activity of the Company is that of an investment trust company within the meaning of section 1158 of the Corporation Tax Act 2010. The Company was incorporated on 4 November 2005 and this is the thirteenth Annual Report.
2. Accounting policies
The principal accounting policies adopted by the Group and Company are set out below.
(a) Basis of preparation
The Group and Parent Company financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006. The Company has taken advantage of the exemption provided under section 408 of the Companies Act 2006 not to publish its individual Statement of Comprehensive Income and related notes. All of the Group’s operations are of a continuing nature.
Insofar as the Statement of Recommended Practice (SORP) for investment trust companies and venture capital trusts issued by the Association of Investment Companies (AIC), revised in November 2014 and updated in January 2017 and February 2018, is compatible with IFRS, the financial statements have been prepared in accordance with guidance set out in the SORP.
Substantially, all of the assets of the Group consist of securities that are readily realisable and, accordingly, the Directors believe that the Group has adequate resources to continue in operational existence for the foreseeable future. Consequently, the Directors have determined that it is appropriate for the financial statements to be prepared on a going concern basis.
The Group’s financial statements are presented in sterling, which is the functional currency of the Group and of the primary economic environment in which the Group operates. All values are rounded to the nearest thousand pounds (£’000) except when otherwise indicated.
A number of new standards, amendments to standards and interpretations are effective for the annual periods beginning on or after 1 December 2018 and have not been applied in preparing these financial statements (major changes and new standards issued are detailed below) as these are not expected to have any effect on the measurement of the amounts recognised in the financial statements of the Group.
IFRS standards that have been recently adopted:
Amendments to IAS 7 – Disclosure Initiative Statement of Cash Flows (effective 1 January 2017). The amendments did not have a significant effect on the presentation of the Cash Flow Statement within the financial statements of the Group.
Amendments to IAS 12 – Recognition of deferred tax assets for unrealised losses (effective 1 January 2017). The amendment did not have a significant effect on the measurement of amounts recognised in the financial statements of the Group.
IFRS standards that have yet to be adopted:
IFRS 9 (2014) – Financial Instruments replaces IAS 39 and deals with a package of improvements including principally a revised model for classification and measurement of financial instruments, a forward looking expected loss impairment model and a revised framework for hedge accounting. In terms of classification and measurement, the revised standard is principles based depending on the business model and nature of cash flows. Under this approach, instruments are measured at either amortised cost or fair value. Under IFRS 9, equity and derivative investments will be held at fair value because they fail the ‘solely payments of principal and interest’ test and debt investments will be held at fair value because the business model is to manage them on a fair value basis. The standard is effective for periods beginning on or after 1 January 2018 with earlier application permitted. The standard is not expected to have any impact on the Group as all of its investments are held at fair value through profit or loss.
IFRS 15 – Revenue from Contracts with Customers (effective for periods beginning on or after 1 January 2018) specifies how and when an entity should recognise revenue and enhances the nature of revenue disclosures. Given the nature of the Group’s revenue streams from financial instruments, the provisions of this standard are not expected to have a material impact.
(b) Basis of consolidation
The Group’s financial statements are made up to 30 November each year and consolidate the financial statements of the Company and its wholly owned subsidiary, which is registered and operates in England and Wales, BlackRock Commodities Securities Income Company Limited (together ‘the Group’).
Subsidiaries are consolidated from the date of their acquisition, being the date on which the Company obtains control, and continue to be consolidated until the date that such control ceases. The financial statements of subsidiaries used in the preparation of the consolidated financial statements are based on consistent accounting policies. All intra-group balances and transactions, including unrealised profits arising therefrom, are eliminated.
(c) Presentation of the Consolidated Statement of Comprehensive Income
In order to reflect better the activities of an investment trust company and in accordance with guidance issued by the AIC, supplementary information which analyses the Consolidated Statement of Comprehensive Income between items of a revenue and a capital nature has been presented alongside the Consolidated Statement of Comprehensive Income.
(d) Segmental reporting
The Directors are of the opinion that the Group is engaged in a single segment of business being investment business.
(e) Income
Dividends receivable on equity shares are recognised 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. Provision is made for any dividends not expected to be received. Special dividends, if any, are treated as a capital or a revenue receipt depending on the facts or circumstances of each dividend. The return on a debt security is recognised on a time apportionment basis so as to reflect the effective yield on the debt security. Interest income and deposit interest is accounted for on an accruals basis.
Options may be purchased or written over securities held in the portfolio for generating or protecting capital returns, or for generating or maintaining revenue returns. Where the purpose of the option is the generation of income, the premium is treated as a revenue item. Where the purpose of the option is the maintenance of capital, the premium is treated as a capital item.
Option premium income is recognised as revenue evenly over the life of the option contract and included in the revenue column of the Consolidated Statement of Comprehensive Income unless the option has been written for the maintenance and enhancement of the Group’s investment portfolio and represents an incidental part of a larger capital transaction, in which case any premia arising are allocated to the capital column of the Consolidated Statement of Comprehensive Income.
Where the Group has elected to receive its dividends in the form of additional shares rather than in cash, the cash equivalent of the dividend is recognised as revenue. Any excess in the value of the shares received over the amount of the cash dividend is recognised in capital.
(f) Expenses
All expenses, including finance costs, are accounted for on an accruals basis. Expenses have been charged wholly to the revenue column of the Consolidated Statement of Comprehensive Income, except as follows:
· expenses which are incidental to the acquisition or sale of an investment are charged to the capital column of the Consolidated Statement of Comprehensive Income. Details of transaction costs on the purchases and sales of investments are disclosed within note 10 to the financial statements contained within the Company’s Annual Report for the year to 30 November 2018;
· expenses are treated as capital where a connection with the maintenance or enhancement of the value of the investments can be demonstrated;
· the investment management fee and finance costs have been allocated 75% to the capital column and 25% to the revenue column of the Consolidated Statement of Comprehensive Income in line with the Board’s expectations of the long term split of returns, in the form of capital gains and income, respectively, from the investment portfolio.
(g) Taxation
The Group accounts do not reflect any adjustment for group relief between the Company and the Subsidiary.
The tax expense represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on the taxable profit for the year. Taxable profit differs from net profit as reported in the Consolidated Statement of Comprehensive Income because it excludes items of income or expenses that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that were applicable at the balance sheet date.
Where expenses are allocated between capital and revenue, any tax relief in respect of expenses is allocated between capital and revenue returns on the marginal basis using the Company’s effective rate of corporation tax for the accounting period.
Deferred taxation is recognised in respect of all temporary differences that have originated but not reversed at the financial reporting 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 financial reporting date. This is subject to deferred tax assets only being recognised if it is considered more likely than not that there will be suitable profits from which the future reversal of the temporary differences can be deducted. Deferred tax assets and liabilities are measured at the rates applicable to the legal jurisdictions in which they arise.
(h) Investments held at fair value through profit or loss
The Company’s investments are designated upon initial recognition as held at fair value through profit or loss in accordance with IAS 39 – “Financial Instruments: Recognition and Measurement†and are managed and evaluated on a fair value basis in accordance with its investment strategy.
All investments are measured initially and subsequently at fair value through profit or loss. Purchases of investments are recognised on a trade date basis. Sales of investments are recognised at the trade date of the disposal.
The fair value of the financial investments is based on their quoted bid price at the financial reporting date, without deduction for the estimated 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 Consolidated Statement of Comprehensive Income as ‘Net profit or loss on investments and options held at fair value through profit or loss’. Also included within the heading are transaction costs in relation to the purchase or sale of investments.
For all financial instruments not traded in an active market, the fair value is determined by using various valuation techniques. Valuation techniques include market approach (i.e., using recent arm’s length market transactions adjusted as necessary and reference to the current market value of another instrument that is substantially the same) and the income approach (i.e., discounted cash flow analysis and option pricing models making use of available and supportable market data as possible). Where no reliable fair value can be estimated for such instruments, they are carried at cost subject to any provision for impairment.
(i) Options
Options are held at fair value based on the bid/offer prices of the options written to which the Group is exposed. The value of the option is subsequently marked-to-market to reflect the fair value of the option based on traded prices. Where the premium is taken to revenue, an appropriate amount is shown as capital return such that the total return reflects the overall change in the fair value of the option. When an option is exercised the gain or loss is accounted for as a capital gain or loss. Any cost on closing out an option is transferred to revenue along with any remaining unamortised premium.
(j) Other receivables and other payables
Other receivables and other payables do not carry any interest and are short term in nature and are accordingly stated at their nominal value.
(k) Dividends payable
Under IFRS, final dividends should not be accrued in the financial statements unless they have been approved by shareholders before the financial reporting date. Interim dividends should not be accrued in the financial statements unless they have been paid.
Dividends payable to equity shareholders are recognised in the Consolidated and Parent Company Statements of Changes in Equity.
(l) Foreign currency translation
Transactions involving foreign currencies are converted at the rate ruling at the date of the transaction. Foreign currency monetary assets and liabilities and non monetary assets held at fair value are translated into sterling at the rate ruling on the financial reporting date. Foreign exchange differences arising on translation are recognised in the Consolidated Statement of Comprehensive Income as a revenue or capital item depending on the income or expense to which they relate. For investment transactions and investments held at the year end, denominated in a foreign currency, the resulting gains or losses are included in the profit/(loss) on investments held at fair value through profit or loss in the Consolidated Statement of Comprehensive Income.
(m) Cash and cash equivalents
Cash comprises cash in hand and on demand deposits. Cash equivalents are 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) Bank borrowings
Bank overdrafts are recorded as the proceeds received. Finance charges are accounted for on an accruals basis in the Consolidated Statement of Comprehensive Income using the effective interest rate method and are added to the carrying amount of the instruments to the extent that they are not settled in the period in which they arise.
(o) Critical accounting estimates and judgements
The Group makes estimates and assumptions concerning the future. The resulting accounting estimates and assumptions will, by definition, seldom equal the related actual results. Estimates and judgements are regularly evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
The Directors do not believe that any accounting judgements or estimates have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities within the next financial year.
3. Income
| 2018 £’000 |
2017 £’000 |
|
| Investment income: | ||
| UK listed dividends | 1,599 | 1,300 |
| Overseas listed dividends | 1,478 | 1,574 |
| Overseas listed special dividends | 49 | – |
| Fixed interest | 912 | 582 |
| --------------- | --------------- | |
| 4,038 | 3,456 | |
| --------------- | --------------- | |
| Other income: | ||
| Deposit interest | 16 | 23 |
| Option premium income | 2,307 | 3,641 |
| --------------- | --------------- | |
| 2,323 | 3,664 | |
| --------------- | --------------- | |
| Total income | 6,361 | 7,120 |
| ========= | ========= |
During the year, the Group received option premium income totalling £2,370,000 (2017: £3,334,000) for writing covered call and put options for the purposes of revenue generation. Option premiums of £2,307,000 (2017: £3,641,000) were amortised to revenue. At 30 November 2018, there were 10 (2017: 6) open positions with an associated liability of £682,000 (2017: £98,000).
Dividends and interest received in cash during the year amounted to £3,134,000 and £740,000 (2017: £2,866,000 and £491,000).
No special dividends have been recognised in capital during the year (2017: £91,000).
4. Investment management fees
| 2018 | 2017 | |||||
| Revenue £’000 |
Capital £’000 |
Total £’000 |
Revenue £’000 |
Capital £’000 |
Total £’000 |
|
| Investment management fees | 250 | 750 | 1,000 | 239 | 717 | 956 |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | |
| 250 | 750 | 1,000 | 239 | 717 | 956 | |
| ========= | ========= | ========= | ========= | ========= | ========= | |
The investment management fee is levied at 0.95% of gross assets per annum on the first £250 million of the Company’s gross assets reducing to 0.90% thereafter. The fee is allocated 25% to the revenue column and 75% to the capital column of the Consolidated Statement of Comprehensive Income.
5. Other operating expenses
| 2018 £’000 |
2017 £’000 |
|
| Allocated to revenue: | ||
| Custody fees | 4 | 5 |
| Auditors’ remuneration – audit services | 26 | 25 |
| Registrar’s fee | 30 | 23 |
| Directors’ emoluments | 120 | 107 |
| Broker fees | 20 | 25 |
| Depositary fees | 11 | 11 |
| Marketing fees | 21 | 25 |
| Printing fees | 25 | 20 |
| Other administrative costs | 86 | 95 |
| --------------- | --------------- | |
| 343 | 336 | |
| Allocated to capital: | --------------- | --------------- |
| Custody transaction charges | 3 | 3 |
| --------------- | --------------- | |
| 346 | 339 | |
| --------------- | --------------- | |
| The Company’s ongoing charges, calculated as a percentage of average net assets and using expenses, excluding any finance costs, VAT refunded, transaction costs and taxation were: | 1.39% | 1.36% |
| ========= | ========= |
Details of the calculation methodology for ongoing charges can be found in the Glossary contained within the Company’s Annual Report for the year to 30 November 2018.
For the year ended 30 November 2018, expenses of £3,000 (2017: £3,000) were charged to the capital column of the Consolidated Statement of Comprehensive Income. These relate to transaction costs charged by the custodian on sale and purchase trades.
Details of the Directors’ emoluments are given in the Directors’ Remuneration Report contained within the Company’s Annual Report for the year to 30 November 2018 and also in note 12 below.
6. Finance costs
| 2018 | 2017 | |||||
| Revenue £’000 |
Capital £’000 |
Total £’000 |
Revenue £’000 |
Capital £’000 |
Total £’000 |
|
| Interest payable – bank overdraft | 37 | 109 | 146 | 69 | 90 | 159 |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | |
| 37 | 109 | 146 | 69 | 90 | 159 | |
| ========= | ========= | ========= | ========= | ========= | ========= | |
Finance costs for the Company are charged 25% to the revenue column and 75% to the capital column of the Consolidated Statement of Comprehensive Income. Subsidiary finance costs are charged 100% to the revenue column of the Consolidated Statement of Comprehensive Income.
7. Dividends
Dividends paid on equity shares:
Record date |
Payment date |
2018 £’000 |
2017 £’000 |
|
| 4th interim dividend of 1.00p per share for the year ended 30 November 2017 (2016: 1.00p) |
22 December 2017 | 19 January 2018 | 1,188 | 1,188 |
| 1st interim dividend of 1.00p per share for the year ended 30 November 2018 (2017: 1.00p) |
23 March 2018 | 20 April 2018 | 1,190 | 1,187 |
| 2nd interim dividend of 1.00p per share for the year ended 30 November 2018 (2017: 1.00p) |
22 June 2018 | 20 July 2018 | 1,169 | 1,188 |
| 3rd interim dividend of 1.00p per share for the year ended 30 November 2018 (2017: 1.00p) |
28 September 2018 | 23 October 2018 | 1,162 | 1,188 |
| --------------- | --------------- | |||
| Accounted for in the financial statements | 4,709 | 4,751 | ||
| ========= | ========= |
The total dividends payable in respect of the year ended 30 November 2018 which form the basis of section 1158 of the Corporation Tax Act 2010 and section 833 of the Companies Act 2006, and the amounts proposed, meet the relevant requirements as set out in this legislation.
Dividends paid or declared on equity shares: |
2018 £’000 |
2017 £’000 |
| 1st interim dividend of 1.00p per share for the year ended 30 November 2018 (2017: 1.00p) | 1,190 | 1,187 |
| 2nd interim dividend of 1.00p per share for the year ended 30 November 2018 (2017: 1.00p) | 1,169 | 1,188 |
| 3rd interim dividend of 1.00p per share for the year ended 30 November 2018 (2017: 1.00p) | 1,162 | 1,188 |
| 4th interim dividend of 1.00p per share for the year ended 30 November 2018 (2017: 1.00p)* | 1,161 | 1,188 |
| --------------- | --------------- | |
| 4,682 | 4,751 | |
| ========= | ========= |
* Based on 116,126,515 ordinary shares in issue on 20 December 2018.
8. Earnings and net asset value per ordinary share
Total revenue, capital return and net asset value per share are shown below and have been calculated using the following:
| 2018 | 2017 | |
| Net revenue profit attributable to ordinary shareholders (£’000) | 5,145 | 5,753 |
| Net capital loss attributable to ordinary shareholders (£’000) | (1,486) | (8,915) |
| --------------- | --------------- | |
| Total profit/(loss) attributable to ordinary shareholders (£’000) | 3,659 | (3,162) |
| --------------- | --------------- | |
| Equity shareholders’ funds (£’000) | 88,109 | 91,357 |
| --------------- | --------------- | |
| The weighted average number of ordinary shares in issue during the year, on which the earnings per ordinary share was calculated was: | 117,618,034 | 118,751,562 |
| The actual number of ordinary shares in issue at the year end, on which the net asset value per ordinary share was calculated was: | 116,126,515 | 118,768,000 |
| --------------- | --------------- | |
| Earnings per share: | ||
| Revenue earnings per share (pence) | 4.37 | 4.84 |
| Capital earnings per share (pence) | (1.26) | (7.50) |
| --------------- | --------------- | |
| Total earnings per share (pence) | 3.11 | (2.66) |
| ========= | ========= |
| As at 30 November 2018 |
As at 30 November 2017 |
|
| Net asset value per ordinary share (pence) | 75.87 | 76.92 |
| --------------- | --------------- | |
| Ordinary share price (pence) | 70.60 | 75.00 |
| ========= | ========= |
There were no dilutive securities at the year end.
9. Called up share capital
| Ordinary shares number |
Treasury shares number |
Total shares number |
Nominal value £’000 |
|
| Allotted, called up and fully paid share capital comprised: | ||||
| Ordinary shares of 1 pence each | ||||
| Shares in issue at 30 November 2017 | 118,768,000 | – | 118,768,000 | 1,188 |
| Shares issued | 198,000 | – | 198,000 | 2 |
| Shares purchased into treasury | (2,891,485) | 2,891,485 | – | – |
| Shares reissued from treasury | 52,000 | (52,000) | – | – |
| --------------- | --------------- | --------------- | --------------- | |
| At 30 November 2018 | 116,126,515 | 2,839,485 | 118,966,000 | 1,190 |
| ========= | ========= | ========= | ========= |
During the year 2,891,485 (2017: nil) shares were bought back and transferred to treasury for a total consideration of £2,373,000 (2017: nil). Of these 52,000 (2017: nil) were subsequently re-issued along with a new issue of a further 198,000 shares (2017: 500,000 new shares) for a total consideration of £192,000 (2017: £438,000) before the deduction of issue costs. Since 30 November 2018, no shares have been issued or bought back into treasury.
10. Reserves
| Distributable reserves | |||||
Group |
Share premium account £’000 |
Special reserve £’000 |
Capital reserve arising on investments sold £’000 |
Capital reserve arising on revaluation of investments £’000 |
Revenue reserve £’000 |
| At 30 November 2017 | 46,827 | 71,223 | (34,992) | 3,598 | 3,513 |
| Movement during the year: | |||||
| Total comprehensive income: | |||||
| Net capital loss for the year | – | – | (745) | (741) | – |
| Net revenue profit for the year | – | – | – | – | 5,145 |
| Transactions with owners recorded directly to equity: | |||||
| Share issues | 150 | – | – | – | – |
| Ordinary shares purchased into treasury | – | (2,373) | – | – | – |
| Ordinary shares reissued from treasury | – | 40 | – | – | – |
| Share purchase costs | – | (17) | – | – | – |
| Dividends paid | – | – | – | – | (4,709) |
| --------------- | --------------- | --------------- | --------------- | --------------- | |
| At 30 November 2018 | 46,977 | 68,873 | (35,737) | 2,857 | 3,949 |
| ========= | ========= | ========= | ========= | ========= | |
| Distributable reserves |
|||||
Company |
Share premium account £’000 |
Special reserve £’000 |
Capital reserve arising on investments sold £’000 |
Capital reserve arising on revaluation of investments £’000 |
Revenue reserve £’000 |
| At 30 November 2017 | 46,827 | 71,223 | (35,810) | 5,711 | 2,218 |
| Movement during the year: | |||||
| Total comprehensive income: | |||||
| Net capital loss for the year | – | – | (745) | (600) | – |
| Net revenue profit for the year | – | – | – | – | 5,004 |
| Transactions with owners recorded directly to equity: | |||||
| Share issues | 150 | – | – | – | – |
| Ordinary shares purchased into treasury | – | (2,373) | – | – | – |
| Ordinary shares reissued from treasury | – | 40 | – | – | – |
| Share purchase costs | – | (17) | – | – | – |
| Dividends paid | – | – | – | – | (4,709) |
| --------------- | --------------- | --------------- | --------------- | --------------- | |
| At 30 November 2018 | 46,977 | 68,873 | (36,555) | 5,111 | 2,513 |
| ========= | ========= | ========= | ========= | ========= | |
The share premium account is not a distributable reserve under the Companies Act 2006. The special reserve and capital reserve may be used as distributable profits for all purposes and, in particular, for the repurchase by the Company of its ordinary shares and for payment as dividends. In accordance with the Company’s Articles and its status as an investment company under the provisions of section 1158 of the Corporation Tax Act 2010, net capital returns may be distributed by way of dividend.
11. Valuation of financial instruments
Financial assets and financial liabilities are either carried in the Consolidated and Parent Company Statements of Financial Position at their fair value (investment and derivatives) or at an amount which is a reasonable approximation of fair value (due from brokers, dividends and interest receivable, due to brokers, accruals, cash at bank and bank overdrafts). IFRS 13 requires the Group to classify fair value measurements using a fair value hierarchy that reflects the significance of inputs used in making the measurements. The valuation techniques used by the Group are explained in the accounting policies note 2(h) to the Financial Statements (set out above).
Categorisation within the hierarchy has been determined on the basis of the lowest level input that is significant to the fair value measurement of the relevant asset.
The fair value hierarchy has the following levels:
Level 1 – Quoted market price for identical instruments in active markets
A financial instrument is regarded as quoted in an active market if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service or regulatory agency and those prices represent actual and regularly occurring market transactions on an arm’s length basis. The Group does not adjust the quoted price for these instruments.
Level 2 – Valuation techniques using observable inputs
This category includes instruments valued using quoted prices for similar instruments in markets that are considered less than active, or other valuation techniques where all significant inputs are directly or indirectly observable from market data. Valuation techniques used for non-standardised financial instruments such as options, currency swaps and other over-the-counter derivatives include the use of comparable recent arm’s length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, option pricing models and other valuation techniques commonly used by market participants making the maximum use of market inputs and relying as little as possible on entity specific inputs.
Level 3 – Valuation techniques using significant unobservable inputs
This category includes all instruments where the valuation technique includes 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 entity determined adjustments or assumptions are required to reflect differences between the instruments and instruments for which there is no active market. The determination of what constitutes ‘observable’ inputs requires significant judgement by the Investment Manager. The Investment Manager considers observable data to be that market data that is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market.
The level in the fair value hierarchy within which the fair value measurement is categorised in its entirety is determined on the basis of the lowest level input that is significant to the fair value measurement. If a fair value measurement uses observable inputs that require significant adjustment based on unobservable inputs, that measurement is a Level 3 measurement.
Assessing the significance of a particular input to the fair value measurement in its entirety requires judgement, considering factors specific to the asset or liability. The determination of what constitutes ‘observable’ inputs requires significant judgement by the Investment Manager.
Over-the-counter derivative option contracts 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 Group.
The investment in the subsidiary is classified within Level 3 since the subsidiary is not a listed entity. The fair value of the investment in the subsidiary is calculated based on the fair value of the underlying balances within the subsidiary. Therefore, no sensitivity analysis has been presented.
Fair values of financial assets and financial liabilities
The table below sets out fair value measurements using the IFRS 13 fair value hierarchy.
Financial assets/(liabilities) at fair value through profit or loss at 30 November 2018 – Group |
Level 1 £’000 |
Level 2 £’000 |
Level 3 £’000 |
Total £’000 |
| Assets: | ||||
| Equity and fixed income investments | 94,815 | – | – | 94,815 |
| Liabilities: | ||||
| Derivative financial instruments – written options | – | (682) | – | (682) |
| --------------- | --------------- | --------------- | --------------- | |
| 94,815 | (682) | – | 94,133 | |
| ========= | ========= | ========= | ========= |
Financial assets/(liabilities) at fair value through profit or loss at 30 November 2018 – Company |
Level 1 £’000 |
Level 2 £’000 |
Level 3 £’000 |
Total £’000 |
| Assets: | ||||
| Equity and fixed income investments | 94,815 | – | 2,256 | 97,071 |
| Liabilities: | ||||
| Derivative financial instruments – written options | – | (682) | – | (682) |
| --------------- | --------------- | --------------- | --------------- | |
| 94,815 | (682) | 2,256 | 96,389 | |
| ========= | ========= | ========= | ========= |
Financial assets/(liabilities) at fair value through profit or loss at 30 November 2017 – Group |
Level 1 £’000 |
Level 2 £’000 |
Level 3 £’000 |
Total £’000 |
| Assets: | ||||
| Equity and fixed income investments | 94,603 | – | – | 94,603 |
| Liabilities: | ||||
| Derivative financial instruments – written options | – | (98) | – | (98) |
| --------------- | --------------- | --------------- | --------------- | |
| 94,603 | (98) | – | 94,505 | |
| ========= | ========= | ========= | ========= |
Financial assets/(liabilities) at fair value through profit or loss at 30 November 2017 – Company |
Level 1 £’000 |
Level 2 £’000 |
Level 3 £’000 |
Total £’000 |
| Assets: | ||||
| Equity and fixed income investments | 94,603 | – | 2,115 | 96,718 |
| Liabilities: | ||||
| Derivative financial instruments – written options | – | (98) | – | (98) |
| --------------- | --------------- | --------------- | --------------- | |
| 94,603 | (98) | 2,115 | 96,620 | |
| ========= | ========= | ========= | ========= |
A reconciliation of fair value measurement in Level 3 is set out below.
Level 3 Financial assets fair value through profit or loss at 30 November – Company |
2018 £’000 |
2017 £’000 |
| Opening fair value | 2,115 | 1,322 |
| Total gains or losses included in profit/(loss) on investments in the Consolidated Statement | ||
| of Comprehensive Income: | ||
| – assets held at the end of the year | 141 | 793 |
| --------------- | --------------- | |
| Closing balance | 2,256 | 2,115 |
| ========= | ========= |
12. Related party disclosure: directors’ emoluments
The Board consists of four non-executive Directors, all of whom, with the exception of Mr Ruck Keene (who was previously an employee of the Manager) are considered to be independent of the Manager by the Board. Mr Ruck Keene retired from his position at BlackRock on 7 April 2017 and will continue to be deemed to be non-independent of the Manager for a period of five years following his retirement under current guidance set out in the UK Corporate Governance Code.
None of the Directors has a service contract with the Company. For the year ended 30 November 2018, the Chairman received an annual fee of £37,000, the Chairman of the Audit and Management Engagement Committee received an annual fee of £31,000 and the other Directors received an annual fee of £26,000.
The related party transactions with Directors are set out in the Directors’ Remuneration Report contained within the Company’s Annual Report for the year ended 30 November 2018
At 30 November 2018, £10,000 (2017: £10,000) was outstanding in respect of Directors’ fees.
13. Contingent liabilities
There were no contingent liabilities at 30 November 2018 (2017: nil).
14. 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 2018 Annual Report and Financial Statements will be filed with the Registrar of Companies shortly.
The report of the auditor for the year ended 30 November 2018 contains no qualification or statement under Section 498(2) or (3) of the Companies Act 2006.
This announcement was approved by the Board of Directors on 28 January 2019.
15. ANNUAL REPORT
Copies of the Annual Report will be sent to members shortly and will be available from the registered office c/o The Company Secretary, BlackRock Commodities Income Investment Trust plc, 12 Throgmorton Avenue, London EC2N 2DL.
16. ANNUAL GENERAL MEETING
The Annual General Meeting of the Company will be held at 12 Throgmorton Avenue, London EC2N 2DL on Tuesday, 12 March 2019 at 10.30 am.
ENDS
For further information, please contact:
Sarah Beynsberger, Director, Investment Companies, BlackRock Investment Management (UK) Limited
Tel: 020 7743 2639
Press enquires:
Lucy Horne, Lansons Communications - 020 7294 3689
E-mail:lucyh@lansons.com
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