Final Results
BlackRock Income & Growth Investment Trust plc
LEI: 5493003YBY59H9EJLJ16
Annual results announcement
for the year ended 31 October 2019
PERFORMANCE RECORD
| As at 31 October 2019 |
As at 31 October 2018 |
Change % |
|
| Net asset value per ordinary share (pence) | 201.30 | 194.26 | +3.6 |
| – with dividends reinvested1 | +7.4 | ||
| Ordinary share price (mid-market) (pence) | 198.00 | 183.00 | +8.2 |
| – with dividends reinvested1 | +12.2 | ||
| FTSE All-Share Index (with dividends reinvested)2 | 7,419.67 | 6,947.84 | +6.8 |
| Net assets (£’000)3 | 46,214 | 46,738 | -1.1 |
| Discount to net asset value1 | 1.6% | 5.8% | |
| --------------- | --------------- | --------------- | |
| Year ended 31 October 2019 |
Year ended 31 October 2018 |
Change % |
|
| Revenue | |||
| Revenue earnings per ordinary share (pence) | 7.37 | 7.09 | +3.9 |
| Net revenue profit on ordinary activities after tax (£’000) | 1,729 | 1,724 | +0.3 |
| Dividends per ordinary share | |||
| Interim | 2.60p | 2.50p | +4.0 |
| Final | 4.60p | 4.40p | +4.5 |
| --------------- | --------------- | --------------- | |
| Total dividends paid and payable | 7.20p | 6.90p | +4.3 |
| ========= | ========= | ========= |
1 Alternative Performance Measures, see Glossary in the Annual Report and Financial Statements.
2 The Benchmark Index.
3 The change in net assets reflects the market movements during the year, the purchase of the Company’s own shares and dividends paid.
CHAIRMAN’S STATEMENT
I am pleased to present the annual report and financial statements of the Company for the year ended 31 October 2019.
PERFORMANCE
During the year the Company’s Net Asset Value per share (NAV) returned 7.4%. By comparison, the Company’s benchmark, the FTSE All-Share Index, returned 6.8%. At the share price level the Company returned 12.2% over the period (all percentages are in Sterling with dividends reinvested). This represents a strong return in absolute and relative terms given the heightened market volatility witnessed during the period. The ongoing Brexit process continued to weigh heavily on UK market sentiment during the period and UK assets remained out of favour. Global markets saw a significant fall in the fourth quarter of 2018 as concern around the escalation of US/China trade tensions spiked, with each side imposing trade tariffs. However, markets rebounded during the first quarter of 2019, benefitting from a softening of at least some geopolitical tensions. A detailed commentary on the portfolio’s performance, its positioning, and the investment outlook for the forthcoming year can be found in the Investment Manager’s report below.
REVENUE EARNINGS AND DIVIDENDS
The Company’s revenue earnings per share for the year to 31 October 2019 amounted to 7.37 pence compared with 7.09 pence for the previous year. An interim dividend of 2.60 pence per share (2018: 2.50 pence) was distributed to shareholders on 2 September 2019. The Directors are mindful of shareholders’ desire for income in addition to capital growth and are proposing a final dividend per share of 4.60 pence (2018: 4.40 pence) giving total dividends for the year of 7.20 pence per share. This represents a 4.3% increase over the prior year (2018: 6.90 pence per share). Subject to approval at the Annual General Meeting, the final dividend will be paid on 19 March 2020 to shareholders on the Company’s register at the close of business on 7 February 2020 (ex-dividend date is 6 February 2020).
POLICY ON SHARE PRICE DISCOUNT
The Directors recognise the importance to investors that the Company’s share price should not trade at a significant discount to NAV, and therefore, in normal market conditions, may use the Company’s share buy back, sale of shares from treasury and share issue powers to seek to ensure that the share price is broadly in line with the underlying NAV. The existing authority to buy back up to 14.99% of the Company’s issued share capital (excluding treasury shares) will expire at the conclusion of the 2020 Annual General Meeting and a resolution will be put to shareholders to renew the authority at that meeting. Currently, ordinary shares representing up to 33% of the Company’s issued ordinary share capital can be allotted as new ordinary shares or sold from treasury. It is proposed to renew the authority at the forthcoming Annual General Meeting.
During the year, a total of 1,101,568 ordinary shares were purchased at an average price of 191.6 pence per share, for a total consideration (including costs) of £2,125,000. These shares were placed in treasury for potential reissue, thereby saving the associated costs of an issue of new shares if demand arises. No shares were issued or sold from treasury this year. Subsequent to the year end, a further 85,000 ordinary shares have been purchased for a total consideration of £169,000. The average discount for the year to 31 October 2019 was 3.7% and the discount at the year-end was 1.6% which resulted in a share price return of 12.2% over the financial year. At the time of writing the discount is 5.1%.
GEARING
The Company operates a flexible gearing policy which depends on prevailing market conditions and is subject to a maximum level of 20% of net assets at the time of investment. Net gearing during the financial year did not exceed the level as at 31 October 2019 which stood at 6.7%. The Company has in place a borrowing facility of up to £4 million, provided by ING Luxembourg S.A. At the year end and at the date of this report the Company has drawn down fully on the facility.
CHANGE IN CHAIRMAN AND BOARD COMPOSITION
As previously announced, having served on the Board since September 2010, I will not be seeking re-election at the Company’s next AGM and will be stepping down from the Board, and as Chairman, with effect from the conclusion of the AGM to be held on 12 March 2020. It has been a privilege to chair the Company during my tenure and I would like to thank all shareholders for their support; and also to thank my Board colleagues and the team at BlackRock for their valued contribution to the long-term success of the Company. Having carefully considered the composition of the Board and the need to ensure that a suitable balance of skills, knowledge, experience and independence is maintained, the Board recently undertook a search to identify a new Director. As a result, I am delighted to welcome Mr Graeme Proudfoot to the Board. Graeme was appointed on 1 November 2019 and, subject to election by shareholders at the next AGM, will succeed me as Chairman upon my retirement at the close of that meeting. He will also become Chairman of the Company’s Nomination and Management Engagement Committees. Following due consideration, and as permitted by the AIC Code of Corporate Governance, the Board has determined that it would be beneficial for Graeme also to be a member of the Company’s Audit Committee.
Graeme has a wealth of experience of asset management, regulation and the financial sector generally having spent his executive career at Invesco, latterly as Managing Director, EMEA and CEO of Invesco Pensions. He joined Invesco in 1992 as a legal advisor and held various senior roles within the Invesco Group leading up to his retirement earlier this year. The Board believes that Graeme has the right blend of expertise and experience to lead the Company forward. Further details of Graeme’s background can be found in his biography in the Annual Report and Financial Statements. Shareholders will also have the opportunity to meet him at the forthcoming AGM.
At the date of this report the Board currently consists of five independent Non-executive Directors to facilitate the succession process, but this number will reduce to four upon my retirement at the AGM. In accordance with best practice and developing corporate governance, the Directors have also agreed to submit themselves for annual re-election. The Board has a succession plan in place and will continue to appraise regularly its composition to ensure that a suitable balance of skills, knowledge, experience, independence and diversity is achieved to enable the Board to effectively discharge its duties. In this context we are mindful of the need for greater diversity, including that of gender, to meet current best practice. Further information on the Board’s policy on director tenure and succession planning can be found in the Directors’ Report in the Annual Report and Financial Statements.
CORPORATE GOVERNANCE
Earlier this year, the Association of Investment Companies (AIC) published the 2019 Code of Corporate Governance (the AIC Code) which was endorsed by the Financial Reporting Council (FRC) as being appropriate for investment companies. The AIC Code applies to accounting periods beginning on or after 1 January 2019. The Board has determined that, effective from the Company’s new financial year, it will comply with the recommendations of the 2019 AIC Code. This, in most material respects, is the same as the UK Corporate Governance Code, save that there is greater flexibility regarding the tenure of office of the Chairman and Membership of the Audit Committee.
OUTLOOK
The result of the recent UK General Election has boosted UK equity markets. Sterling rallied against the US Dollar on the news and in the short term domestically focused UK equities have benefited from greater political certainty, the prospect of some fiscal stimulus and a generally improved growth outlook. The emergence of a comfortable working majority indicates that the UK will exit the EU by 31 January 2020. Nevertheless, it remains to be seen whether a comprehensive trade deal with the EU can be negotiated by the deadline of the end of 2020. At the same time, the UK will be free to negotiate trade deals with other countries which, although also a complex process, should be facilitated by the UK Government’s ability to present a clear position which can deliver the backing of Parliament. Overall, the higher degree of political uncertainty should be positive for the UK economy.
Elsewhere in the world, the outlook for 2020 appears to be relatively benign, although a number of macroeconomic risks remain. The heightened volatility seen in 2019 is likely to continue to be a feature throughout the forthcoming financial year as the Brexit process plays out, although this should present the Company’s active portfolio managers with opportunities.
As you will read in their report in the Annual Report and Financial Statements, the portfolio managers’ fundamental approach and long-term strategy has not changed. They remain focused on identifying companies with sustainable cashflow generation and balance sheet strength in anticipation of continued market volatility. They continue to apply a bottom-up approach to stock selection, assembling a portfolio of individual companies which, taken as a whole, should prove capable of growing the Company’s revenue and supporting dividend growth into the future. Your Board is fully supportive of this approach.
ANNUAL GENERAL MEETING
The Company’s Annual General Meeting will be held on Thursday, 12 March 2020 at 12.00 noon at the offices of BlackRock at 12 Throgmorton Avenue, London, EC2N 2DL. Details of the business of the meeting are set out in the Notice of Annual General Meeting in the Annual Report and Financial Statements. The Investment Manager will make a presentation to shareholders on the Company’s progress and the outlook for the year ahead.
Finally, I would like to thank shareholders for their continuing support.
JONATHAN CARTWRIGHT
Chairman
23 December 2019
STRATEGIC REPORT
The Directors present the Strategic Report of the Company for the year ended 31 October 2019.
INVESTMENT OBJECTIVE
The Company’s objective is to provide growth in capital and income over the long term through investment in a diversified portfolio of principally UK listed equities.
BUSINESS AND MANAGEMENT OF THE COMPANY
BlackRock Income and Growth Investment Trust plc is an investment trust company that has a premium listing on the London Stock Exchange. Its principal activity is portfolio investment. Investment trusts, like unit trusts and Open-ended Investment Companies (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.
Investment trusts, unlike unit trusts and OEICs, have the ability to borrow for investment purposes and to manage dividend distributions through revenue reserves. They also enjoy, unlike unit trusts and OEICs, the benefit of continuous dealing during market hours.
The Company is an Alternative Investment Fund in accordance with the Alternative Investment Fund Managers' Directive (AIFMD). 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 Fund Accountant, 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 in the Annual Report and Financial Statements.
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 the performance of service providers, including the Manager.
The Company’s business model follows that of an externally managed investment trust, therefore the Company does not have any employees and outsources its activities to third party service providers, including the Manager which is the principal service provider.
INVESTMENT STRATEGY AND POLICY
The Company’s policy is that the portfolio will usually consist of approximately 30-60 securities and is invested primarily in UK securities, which include the shares of companies listed, domiciled or carrying out the majority of their business in the UK.
The Company may hold a maximum of 10% of the issued ordinary share capital of any company. No more than 15% of the gross asset value of the Company may be invested in the securities of any one issuer, calculated at the time of any relevant investment. Cash or non-benchmark stocks may not exceed 10% of the net asset value of the Company. Each stock held is subject to a lower limit of 0% and an upper limit of plus 4 percentage points against its weighting in the FTSE All-Share Index on an ongoing basis, subject to an absolute sector weighting upper limit of 20% of the Company’s net assets at any time.
The Company may deal in derivatives, including options, futures, contracts for difference and derivatives not traded on or under the rules of a recognised or designated investment exchange for the purpose of efficient portfolio management. Derivatives and exchange traded funds may be dealt in only with the prior consent of the Board.
The performance of the Company is measured by reference to the FTSE All-Share Index (the Index) on a total return basis. The Company achieves an appropriate spread of risk by investing in a diversified portfolio of securities.
No material change can be made to the investment policy without the approval of shareholders by ordinary resolution.
INVESTMENT APPROACH AND PROCESS
In assembling the Company’s portfolio, a relatively concentrated approach to investment is adopted to ensure that the fund manager’s best ideas contribute significantly to returns. We believe that it is the role of the portfolio overall to achieve a premium level of yield rather than every individual company within it. This gives increased flexibility to invest where returns are most attractive. This relatively concentrated approach results in a portfolio which differs substantially from the Index and in any individual year, the returns will vary, sometimes significantly from those of the Index. Over longer periods the objective is to achieve returns greater than the Index.
The foundation of the portfolio, approximately 70% by value, is in high free cash flow companies that can sustain cash generation and pay a growing yield whilst aiming to deliver a double-digit total return. Additionally, the investment managers seek to identify and invest 20% by value of the portfolio in ‘growth’ companies that have significant barriers to entry and scalable business models that enable them to grow consistently. Turnaround companies are also sought, at around 10% by value, which represent those companies that are out of favour by the market, facing temporary challenges with high yields/very low valuations, but with recovery potential. The return from this segment is expected to contribute meaningfully to returns over time.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG)
ESG factors can be useful and relevant indicators for investment purposes and can help portfolio managers with their decision making through identifying potentially negative events or corporate behaviour. This results in the expectation that there will be an outperformance bias towards better governed companies in the long-run.
The portfolio managers work closely with BlackRock’s Investment Stewardship team (BIS) to assess the governance quality of companies and investigate any potential issues, risks or opportunities.
Specific to corporate governance, the portfolio management team leverages local expertise (BIS and investors) in its proprietary, risk-based approach. Financial statement integrity is central to the analysis, where BIS applies a range of systematic measures to highlight companies’ accounting ratios in its assessment of balance sheet and earnings quality risks. For other categories under the corporate governance umbrella (e.g. audit quality, board accountability, executive pay and ownership and control), BIS flags risks based on internal research, including regulatory filings announcements and public news feeds. Governance (G) data from MSCI ESG Research Manager and other data sources may also be employed for supporting consideration. Environmental (E) and Social (S) factors are primarily assessed using MSCI data, examining whether specific E&S exposure exists, and if so, to determine how well such exposure is being managed. Further information on the Manager’s approach to ESG and Socially Responsible Investing can be found in the Corporate Governance Statement in the Annual Report and Financial Statements.
Embedded risk management framework
The Investment Managers’ research team monitors differing levels of risk throughout the process and believes that avoiding major downside events can generate significant outperformance over the long-term. Inputs from BlackRock’s Risk & Quantitative Analysis Team (RQA) are an integral part of the investment process. RQA analyse market and portfolio risk factors including stress tests, correlations, factor returns, cross-sectional volatility and attributions. BlackRock’s evaluation procedures and financial analysis of the companies within the portfolio also take into account environmental, social and governance matters and other business issues. The Company invests primarily on financial grounds to meet its stated objectives.
Gearing and Borrowings
The appropriate use of gearing can add value and the Company may, from time to time, use borrowings to achieve this. The Board is responsible for the level of gearing in the Company and reviews the position at every meeting. Gearing, including borrowings and gearing through the use of derivatives (which requires prior Board approval), when aggregated with underwriting participations, will not exceed 20% of the net asset value at the time of investment, drawdown or participation. Any borrowing, except for short term liquidity purposes, is used for investment purposes or to fund the purchase of the Company’s own shares. The Company has a two-year unsecured sterling revolving credit facility of £4 million, provided by ING Luxembourg S.A which expires in October 2020. At the date of this report the new facility is fully drawn down.
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 7.37p per share (2018: 7.09p per share). The total net profit for the year, after taxation, was £3,256,000 (2018: loss of £2,220,000) of which the net revenue profit amounted to £1,729,000 (2018: £1,724,000) and the net capital profit amounted to £1,527,000 (2018: net capital loss of £3,994,000). Details of dividends paid and declared in respect of the year 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 against the benchmark
The performance of the portfolio together with the performance of the Company’s net asset value and share price are reviewed at each Board meeting and compared to the return of the Company’s benchmark, the FTSE All-Share Index.
Premium/discount to NAV
At each meeting the Board monitors the level of the Company’s premium or discount to NAV and considers strategies for managing any premium or discount. Further details of the discount policy are provided in the Annual Report and Financial Statements. In the year to 31 October 2019, the Company’s share price to NAV traded in the range of a discount of 0.4% to a discount of 8.0%, both on a cum income basis. The Company bought back a total of 1,101,568 ordinary shares during the year at an average discount of 5.7% and at an average price of 191.6p per share. The total consideration (including costs) was £2,125,000. A further 85,000 ordinary shares have been bought back since the year end for a total consideration of £169,000. No shares were issued or sold from treasury.
Ongoing charges
Ongoing charges represent the Company’s 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.
The Board reviews the ongoing charges and monitors the expenses incurred by the Company at each meeting. The Board also compares the level of ongoing charges against those of its peers.
Performance
The Board 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 impact performance.
The table below provides performance information for the current and prior year. Further details are provided in the Investment Manager’s Report.
Alternative performance measures (see Glossary in the Annual Report and Financial Statements).
| Year ended 31 October 2019 |
Year ended 31 October 2018 |
|
| NAV per share1 | 201.30p | 194.26p |
| Share price2 | 198.00p | 183.00p |
| Net asset value total return3, 6 | +7.4% | -4.5% |
| Share price total return3, 6 | +12.2% | -8.0% |
| Change in Benchmark Index4 | +6.8% | -1.5% |
| Discount to net asset value6 | 1.6% | 5.8% |
| Revenue earnings per share | 7.37p | 7.09p |
| Dividends per share | 7.20p | 6.90p |
| Ongoing charges5, 6 | 1.07% | 1.10% |
| --------------- | --------------- |
1 Calculated in accordance with AIC guidelines.
2 Mid-market share price.
3 This measures the Company’s share price and NAV total return, which assumes dividends paid by the Company have been reinvested.
4 FTSE All-Share Index (total return).
5 Ongoing charges represent the Company’s 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.
6 Alternative Performance Measures, see Glossary in the Annual Report and Financial Statements.
Performance against the Company’s peers
Whilst the principal objective is to achieve growth in capital and income relative to the benchmark, the Board also monitors performance relative to a range of competitor funds, particularly those also within the AIC UK Equity Income sector.
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 reassessed. 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 Committee. In order to gain a more comprehensive understanding of the Manager’s and other third-party service providers’ risk management processes and how these apply to the Company’s business. The Audit Committee periodically receives presentations from BlackRock’s Internal Audit and Risk & Quantitative Analysis functions. The Audit Committee also reviews Service Organisation Control (SOC 1) reports from the Company’s service providers.
As required by the UK Corporate Governance Code (2016 Code), the Board has undertaken a robust assessment of the principal risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity. The 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.
The current risk register includes a range of risks which are categorised under the following headings:
• investment performance;
• income/dividend;
• gearing;
• legal and regulatory compliance;
• operational;
• market; and
• financial.
| Principal Risk | Mitigation/Control |
| Investment Performance Risk 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 performance compared to the Benchmark Index and the Company’s peer group; • a widening discount to NAV; • a reduction or permanent loss of capital; and • dissatisfied shareholders and reputational damage. |
To manage this risk the Board: • regularly reviews investment performance; • regularly reviews the Company’s investment mandate and long term strategy; • is required to provide prior consent to the use of derivatives and exchange traded funds; • has set investment restrictions and guidelines which the Investment Manager monitors and regularly reports on; • reviews 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; and • monitors the discount to NAV and use of the granted buy back powers. |
| Income/Dividend The amount of dividends and future dividend growth will depend on the Company’s underlying portfolio. Changes in the composition of the portfolio, any change in the tax treatment of the dividends or interest received by the Company may alter the level of dividends received by shareholders. |
The Board monitors this risk through the receipt of detailed income forecasts and considers the level of income at each meeting. The Company also has a revenue reserve and powers to pay dividends from capital which could potentially be used to support the Company’s dividend if required. |
| Gearing The Company’s investment strategy may involve the use of gearing to enhance investment returns. Gearing may be generated through borrowing money or increasing levels of market exposure through the use of derivatives. The Company currently has an unsecured revolving credit facility with ING Luxembourg S.A. The use of gearing exposes the Company to the risks 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. |
To manage this risk the Board has limited gearing, including borrowings and gearing through the use of derivatives, to 20% of NAV at the time of investment, drawdown or participation. 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 meeting the relevant eligibility conditions and operating as an investment trust in accordance with sections 1158 and 1159 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. 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 & Transparency Rules. 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. |
Compliance with the accounting rules affecting investment trusts are regularly monitored. The Investment Manager monitors investment movements, the level and type of forecast income and expenditure 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. 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 of The Bank of New York Mellon (International) Limited (the Fund Accountant, Depositary, and Custodian), who maintain the Company’s assets, dealing procedures 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 these third-party service providers. Disruption to the accounting, payment systems or custody records, as a result of a cyber-attack or otherwise, 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 reports to the Board. The Bank of New York Mellon’s and BlackRock’s internal control processes are regularly tested and monitored throughout the year and are evidenced through their Service Organisation Control (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 regularly reviewed by the Audit Committee. The Company’s 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 and compliance with the Investment Management Agreement regularly. 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. It represents the potential loss the Company might suffer through realising investments at a time of negative market movements. There is also the potential for the Company to suffer loss through holding investments in a period 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. |
| Financial The Company’s investment activities expose it to a variety of financial risks that include interest rate risk. |
Details of these risks are disclosed in note 16 of the Annual Report and Financial Statements, together with a summary of the policies for managing these risks. |
VIABILITY STATEMENT
In accordance with provision C.2.2 of the UK Corporate Governance Code, the Directors have assessed the prospects of the Company over a longer period than the 12 months referred to by the ‘Going Concern’ guidelines.
The Board conducted this review for the period up to the AGM in 2025, being a five year period from the date that this annual report will be approved by Shareholders. This period has been selected as it is aligned to the Company’s objective of achieving long-term growth in capital and income. In making this assessment the Board has considered the following factors:
• the Company’s principal risks as set out above;
• the ongoing relevance of the Company’s investment objective in the current environment; and
• the level of demand for the Company’s shares.
The Company is required to undertake a continuation vote in 2023 and has also reviewed the potential impact that this may have on the Company’s viability. Particular consideration has been given to the following:
• good communication with major shareholders; at the present time there has been no indication that the continuation vote will not be successful; and
• at the close of business on 20 December 2019, the Company’s shares were trading at a discount to NAV of 5.1%.
Having considered the above factors, the Board believes that the scheduled continuation vote does not have a detrimental impact on the Company’s viability.
The Board has also considered a number of financial metrics in its assessment, including:
• the level of ongoing charges, both current and historical;
• the level at which the shares trade relative to NAV;
• the level of income generated;
• future income forecasts; and
• the liquidity of the portfolio.
The Board has concluded that the Company would be able to meet its ongoing operating costs and net current liabilities as they fall due as a consequence of:
• a liquid portfolio; and
• overheads which comprise a small percentage of net assets.
Therefore, the Board has concluded that even in exceptionally stressed operating conditions, the Company would comfortably be able to meet its ongoing operating costs as they fall due.
However, investment companies may face other challenges. These include regulatory changes, changes to the tax treatment of investment trusts, a significant decrease in size due to substantial share buy back activity, which may result in the Company no longer being of sufficient market capitalisation to represent a viable investment proposition or no longer being able to continue in operation.
THE UK’S EXIT FROM THE EUROPEAN UNION
The Board has considered the potential impact on the Company of the UK’s decision to leave the European Union (the ‘EU’) following a referendum held on 23 June 2016 (‘Brexit’). The result has led to political and economic instability and volatility in the financial markets of the United Kingdom and more broadly across Europe. This has also led to weakening in consumer, corporate and financial confidence in such markets as the UK finalises the terms of its exit from the EU. The extent of any potential impact will depend in part on the nature of the trade deals and other arrangements that the UK will seek to agree with the EU and other countries following its withdrawal from the EU.
The Board has also considered the impact of potential changes in law, regulation and taxation and the matter of foreign exchange risk. They have determined that although there are a number of potential risks associated with the Brexit process and the legal, fiscal and regulatory landscape thereafter, they do not believe that this represents a material threat to the Company’s strategy and business model, nor do they believe that the Investment Manager would be materially impeded in achieving the Company’s investment objective. The longer-term process of implementing the political, economic and legal framework that is agreed between the UK and the EU is likely to lead to continuing uncertainty and periods of exacerbated volatility in both the UK and in wider European markets.
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 income and capital growth. The future performance of the Company is dependent upon the success of the investment strategy.
The outlook for the Company is discussed in the Chairman’s Statement and in the Investment Manager’s Report.
SOCIAL, COMMUNITY AND HUMAN RIGHTS ISSUES
As an investment trust, the Company has no direct social or community responsibilities.
However, the Company believes that it is in shareholders’ interests to consider 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 Annual Report and Financial Statements.
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. In any event, 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 31 October 2019, all of whom held office throughout the year, are set out in the Governance Structure and Directors’ biographies in the Annual Report and Financial Statements.
The Board recognises the importance of having a range of experienced Directors with the right skills and knowledge to enable it to fulfil its obligations. As at 31 October 2019, the Board consisted of four male Directors. The Company does not have any employees.
BY ORDER OF THE BOARD
KEVIN MAYGER
FOR AND ON BEHALF OF
BLACKROCK INVESTMENT MANAGEMENT (UK) LIMITED
Company Secretary
23 December 2019
RELATED PARTY TRANSACTIONS
BlackRock Fund Managers Limited (BFM) provides management and administration services to the Company under a contract which is terminable on six months’ notice. BFM has (with the Company’s consent) delegated certain portfolio and risk management services, and other ancillary services, to BlackRock Investment Management (UK) Limited (BIM (UK)). Further details of the investment management contract are disclosed in the Directors’ Report in the Annual Report and Financial Statements.
The investment management fee is levied quarterly, based on 0.60% per annum of the Company’s market capitalisation. The investment management fee due for the year ended 31 October 2019 amounted to £268,000 (2018: £291,000). At the year end, £202,000 was outstanding in respect of the management fee (2018: £146,000).
The Company holds an investment in the BlackRock Institutional Cash Series plc - Sterling Liquid Environmentally Aware Fund of £1,481,000 (2018: £3,400,000 in BlackRock Institutional Cash Series plc – Sterling Liquidity Fund) which for the year ended 31 October 2019 and 31 October 2018 have been presented in the financial statements as a cash equivalent.
In addition to the above services, BlackRock has provided the Company with marketing services. The total fees paid or payable for these services for the year ended 31 October 2019 amounted to £13,000 including VAT (2018: £49,000). Marketing fees of £11,000 including VAT were outstanding at 31 October 2019 (2018: £33,000).
The Board currently consists of five non-executive Directors, all of whom are considered to be independent of the Company’s Manager. None of the Directors has a service contract with the Company. For the year ended 31 October 2019, the Chairman received an annual fee of £28,750 (2018: £28,750), the Chairman of the Audit Committee received an annual fee of £23,250 (2018: £23,250) and each of the other Directors received an annual fee of £19,750 (2018: £19,750). Subject to shareholder approval at the forthcoming AGM, Directors’ fees will be increased with effect from 1 November 2019, as set out in the Remuneration Policy in the Annual Report.
Disclosures of the Directors’ interests in the ordinary shares of the Company and fees and expenses payable to the Directors are set out in the Directors’ Remuneration Report in the Annual Report and Financial Statements. At 31 October 2019, £7,000 (2018: £7,000) was outstanding in respect of Directors’ fees.
As at 31 October 2019 and 2018, the Directors’ interests in the Company’s ordinary shares were as follows:
| 31 October 2019 | 31 October 2018 | |
| Jonathan Cartwright (Chairman) | 20,000 | 20,000 |
| Nicholas Gold | 20,000 | 20,000 |
| George Luckraft | – | – |
| Charles Worsley | 987,5931 | 987,5931 |
| Graeme Proudfoot2 | n/a | n/a |
1. Including a non-beneficial interest in 655,500 ordinary shares.
2. Mr Proudfoot was appointed as a Director after the financial year end.
All of the holdings of the Directors are beneficial. No changes to these holdings had been notified up to the date of this report.
The information in the table above has been audited.
STATEMENT OF DIRECTORS’ RESPONSIBILITIES IN RESPECT OF THE ANNUAL REPORT AND FINANCIAL STATEMENTS
The Directors are responsible for preparing the Annual Report and Financial Statements in accordance with applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law they have elected to prepare the financial statements in accordance with applicable law and United Kingdom Generally Accepted Accounting Practice, including FRS 102 The Financial Reporting Standard applicable in the UK and Ireland.
Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company as at the end of each financial year and of the profit or loss of the Company for that year.
In preparing these financial statements, the Directors are required to:
• present fairly the financial position, financial performance and cash flows of the Company;
• select suitable accounting policies and 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 applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and
• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors are also responsible for preparing the Strategic Report, the Directors’ Report, the Directors’ Remuneration Report, the Corporate Governance Statement and the Report of the Audit Committee in accordance with the Companies Act 2006 and applicable regulations, including the requirements of the Listing Rules and the Disclosure Guidance and Transparency Rules.
The Directors have delegated responsibility to the Manager for the maintenance and integrity of the Company’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 Annual Report and Financial Statements, confirm to the best of their knowledge that:
• the financial statements, prepared in accordance with applicable accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and
• the Strategic Report contained in the Annual Report and Financial Statements includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces.
The 2016 UK Corporate Governance Code requires Directors to ensure that the Annual Report and Financial Statements are fair, balanced and understandable. In order to reach a conclusion on this matter, the Board has requested that the Audit Committee advise on whether it considers that the Annual Report and Financial Statements fulfils these requirements. The process by which the Audit Committee has reached these conclusions is set out in the Audit Committee’s report in the Annual Report and Financial Statements. As a result, the Board has concluded that the Annual Report and Financial Statements for the year ended 31 October 2019, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company’s position and performance, business model and strategy.
FOR AND ON BEHALF OF THE BOARD
JONATHAN CARTWRIGHT
Chairman
23 December 2019
INVESTMENT MANAGERS’ REPORT FOR THE YEAR ENDED 31 OCTOBER 2019
PERFORMANCE
Over the year to 31 October 2019, the Company saw a NAV return of 7.4% and share price return of 12.2%, outperforming the FTSE All-Share Index, which returned 6.8% for the period (all returns in sterling terms with dividends reinvested).
MARKET REVIEW
The first quarter of the Company’s financial year saw a sharp down turn in global markets that had begun in September of 2018 due to concerns over the escalating trade war between US and China, slowing economic growth and confusion surrounding Federal Reserve policy. The UK market was also impacted by Brexit related uncertainty. The slump continued until the end of the calendar year. 2019 started with a more accommodative approach from policy makers leading to bond yields falling and increased confidence in equity markets. There has been limited progress in US-China trade negotiations and the global economic outlook has broadly softened over the course of 2019 as weakness in the automotive sector has spread to industrials more broadly. Despite numerous attempts to secure a Brexit deal, the stalemate has continued, with the associated uncertainty contributing to a subdued economic backdrop. Having seen significant volatility in sterling and domestic share prices as the probabilities of a 'no-deal' Brexit and a change of political leadership oscillated, we believe that following the Conservative majority announced in December, we now have greater political visibility in the UK. There is still a discount being applied to UK assets, and we are not surprised therefore that Mergers & Acquisitions (M&A) and private equity activity in the UK has been strong. For much of the year, conditions, such as falling bond yields, have favoured growth shares, with greater dispersion between the multiples of growth and value shares, a theme that has created a headwind for high yielding shares. This dispersion reached historically wide levels in August, coinciding with the inversion of the US 2-10 year yield curve, a good indicator of impending recession in prior cycles. The theme reversed sharply over September and October, with risk assets performing better than traditionally defensive asset class as recessionary fears have faded for now.
CONTRIBUTORS TO PERFORMANCE
Rentokil Initial (Rentokil), the pest control and hygiene solutions company, was the largest contributor to performance for the period. Pest control remains an attractive industry benefitting from structural growth drivers such as urbanisation and regulation. Additionally, the pest control industry is highly fragmented where scale allows for network benefits and greater innovation.
As a leading player, Rentokil continues to demonstrate its ability to grow both organically through bolt-on acquisitions. Rentokil’s capital allocation decisions have also impressed, most recently selling the remainder of its workwear business to Haniel during the period and redeploying the cash in the core Pest Control and Hygiene divisions. The shares have rallied this year, reflecting the strong revenue and profit growth and the scarcity of this growth in current markets. London Stock Exchange Group also contributed to performance. The company has continued to deliver strong underlying growth, in particular in its key franchises, London Clearing House and Information Services, specifically FTSE and Russell, which have been beneficiaries of the growth in passive investing. London Stock Exchange Group also announced a deal with Refinitiv earlier this year which the market took positively. The deal offers substantial earnings accretion through cost and revenue synergies.
RELX, the global provider of information-based analytics and decision tools for professional and business customers, also contributed positively to performance. The company continues to deliver consistent revenue growth in its core divisions of scientific and medical journals as well as its risk solutions business. It is continuing its journey to digitalise the business and further develop the data and associated analytics it provides to its customers. It continues to reinvest its cash flows to drive revenue growth, but also to enhance shareholder returns through dividends and buy backs.
Superdry was the biggest detractor of performance. We bought shares in the company as a turnaround situation, centred around management re-focusing the brand and with the perceived protection of a low valuation and net cash balance sheet. However, the investment case was undermined by continued weakness in trading and a very public dispute between the company and its founder leading to a wholesale change of the management team and the board. We have since sold the position. Premier Asset Management Group also detracted from performance. The company is an asset manager with a strong multi-asset and income franchise and a long track record of consistent quarterly inflows. It has not though been immune to pressures seen in the Active Equity industry, particularly for UK fund managers, and this has impacted flows. Recently it has announced an attractive deal with Miton Group, which offers significant earnings accretion and leaves the shares on an attractive valuation, while the core franchises remain intact. Whitbread also detracted from performance. Trading in the hotels business, Premier Inn, has been under pressure as a function of on-going uncertainty relating to Brexit. In spite of the recent weakness in the shares, our investment thesis continues to centre around Premier Inn having a leading position within the budget hotel market, providing customers with a low cost, high quality service. We are mindful of the substantial freeholder backing of the estate and note M&A interest in UK assets of this nature.
TRANSACTIONS
During the period new positions included National Grid, the company that delivers electricity and gas in the UK and the US, the latter of which makes up 60% of its asset base. We believe it can continue to earn an attractive return and that it is economically robust and resilient both in the US and the UK. Notwithstanding political concerns and risks, it remains a key part of the energy infrastructure and specifically plays a key role in the evolution of the infrastructure to incorporate renewable power and battery technology. The continued need for investment should ensure it can continue to generate an attractive return. We also bought positions in St. James’s Place, the wealth management advisor and Smith and Nephew, the multinational medical equipment manufacturer whose products include wound management, trauma and clinical therapy as well as orthopaedic reconstruction.
We sold positions in the utilities company United Utilities. Following a strong total return contribution to the Company, we considered that there was a better risk/reward ratio in National Grid and continue to be committed to a concentrated portfolio. We also sold our position in Inchcape, the automotive retailer and distributor. Management has impressed in its efforts to refocus the group on the more valuable distribution division. However, the current headwinds in their key automotive markets combined with the transactional headwind from the Japanese Yen versus Australian Dollar prompted us to sell the position. We also sold our position in the paper and packaging company Mondi on concerns regarding the deterioration in the European economic backdrop.
Over the last few months we have been increasing our exposure to domestic assets as we continue to identify strong franchises where we believe their valuations are increasingly attractive.
Over the period we added to the positions in Whitbread, Associated British Foods and Tesco. We trimmed the position in Weir Group over continued weakness in the US shale oil price, with all US oil producers under pressure, though the investment thesis remains focused on Weir’s more stable mining aftermarket division. We also trimmed our positions in London Stock Exchange Group and Rentokil, reflecting the significant re-rating in the shares. Overall, the portfolio remains positioned towards companies with dependable cashflow generation, robust balance sheets and trusted management teams.
OUTLOOK
Globally, we expect the current environment of low economic growth to persist. This, supported by accommodative financial actions by central banks, has provided a benign environment for equity markets since the start of 2019. Since the end of October, and particularly into December, the global market has made record highs as the first phase of a trade deal between the US and China was announced. Additionally, the Conservative majority has brought more political certainty and visibility for the UK. We have seen signs of sentiment and investment returning to the UK following the election result, and we expect this to continue into the start of next year, particularly as we believe the UK's economic climate has the potential to improve as we go in to 2020. The employment market is strong with underlying growth in both nominal and real wages for the first time in recent years. Combined with increasing fiscal spending, we believe the UK economic outlook is more encouraging.
Consistent with our process and philosophy, we believe we can identify strong franchises across the UK market which can sustain their competitive advantage over the long term, supporting strong and consistent cash generation. We will look to focus on those companies with robust balance sheets and where we trust the management teams to grow the cash generation through their capital allocation decisions. We will continue to focus the portfolio on stock specific risk where our resources and long-term analysis is best able to deliver capital and income growth over the long-term for shareholders.
We are also conscious that Environmental, Social and Governance matters (“ESGâ€) is increasingly at the forefront of shareholders’ minds. We have always looked to our companies to operate within a healthy ecosystem of all their stakeholders whether these are shareholders, employees, customers, regulators or suppliers. It is our belief that a company’s ‘ecosystem’ is crucial to ensuring the sustainability of long-term returns.
ADAM AVIGDORI AND DAVID GOLDMAN
Blackrock Investment Management (UK) Limited
23 December 2019
TEN LARGEST INVESTMENTS AS AT 31 OCTOBER 2019
1 (2018 1st)
Royal Dutch Shell ‘B’
Sector: Oil & Gas Producers
| Market value | £3,042,000 |
| Percentage of portfolio | 6.2% (2018: 6.8%) |
Royal Dutch Shell ‘B’ is a global oil and gas company. The company operates in both Upstream and Downstream industries. Upstream is engaged in searching for and recovering crude oil and natural gas, the liquefaction and transportation of gas. Downstream is engaged in manufacturing, distribution and marketing activities for oil products and chemicals.
2 (2018 9th)
AstraZeneca
Sector: Pharmaceuticals & Biotechnology
| Market value | £2,620,000 |
| Percentage of portfolio | 5.3% (2018: 3.9%) |
AstraZeneca is an Anglo-Swedish multinational pharmaceutical company with its headquarters in the UK. It is a science-led biopharmaceutical business with a portfolio of products for major disease areas including cancer, cardiovascular, infection, neuroscience and respiratory.
3 (2018 6th)
GlaxoSmithKline
Sector: Pharmaceuticals & Biotechnology
| Market value | £2,248,000 |
| Percentage of portfolio | 4.6% (2018: 4.0%) |
GlaxoSmithKline is a science-led global healthcare company focused on researching, developing and manufacturing innovative pharmaceutical medicines, vaccines and consumer healthcare products.
4 (2018 3rd)
RELX
Sector: Media
| Market value | £2,130,000 |
| Percentage of portfolio | 4.3% (2018: 4.9%) |
RELX is a global provider of professional information solutions that includes publication of scientific, medical, technical and legal journals. It also has the world’s leading exhibitions, conference and events business.
5 (2018 4th)
Unilever
Sector: Food Producers
| Market value | £1,899,000 |
| Percentage of portfolio | 3.9% (2018: 4.3%) |
Unilever is a global supplier of food, home and personal care products with more than 400 brands focused on health and wellbeing.
6 (2018 2nd)
British American Tobacco
Sector: Tobacco
| Market value | £1,795,000 |
| Percentage of portfolio | 3.6% (2018: 5.5%) |
British American Tobacco is one of the world’s leading tobacco groups, with more than 200 brands in the portfolio selling in approximately 180 markets worldwide.
7 (2018 11th)
Tesco
Sector: Food & Drug Retailers
| Market value | £1,753,000 |
| Percentage of portfolio | 3.6% (2018: 3.1%) |
Tesco is a British multinational groceries and general merchandiser retailer. It is the third largest retailer in the world, measured by gross revenues. It has shops across Asia and Europe and is the market leader of groceries in the UK, Ireland, Hungary and Thailand.
8 (2018 n/a)
National Grid
Sector: Gas, Water & Multiutilities
| Market value | £1,693,000 |
| Percentage of portfolio | 3.4% (2018: nil) |
National Grid is one of the world’s largest investor-owned energy companies, committed to delivering electricity and gas safely, reliably and efficiently to the customers and communities they serve. It plays a vital role in connecting millions of people to the energy they use, through regulated businesses in the UK and the US, with principal operations in electricity and gas transmission and distribution.
9 (2018 5th)
BP Group
Sector: Oil & Gas Producers
| Market value | £1,684,000 |
| Percentage of portfolio | 3.4% (2018: 4.1%) |
BP Group is a multinational oil and gas company that is vertically integrated and operates in all areas of the industry including exploration, production, refining, distribution, trading and renewable energy.
10 (2018 16th)
BHP
Sector: Mining
| Market value | £1,525,000 |
| Percentage of portfolio | 3.1% (2018: 2.6%) |
BHP is a world-leading resources company. It extracts and processes minerals, oil and gas, with more than 72,000 employees and contractors, primarily in Australia and the Americas. It is one of the world’s top producers of major commodities including iron ore, coal and copper.
All percentages reflect the value of the holding as a percentage of total investments as at 31 October 2019.
Together, the ten largest investments represent 41.4% of total investments (ten largest investments as at 31 October 2018: 44.8%).
DISTRIBUTION OF INVESTMENTS
ANALYSIS OF PORTFOLIO BY SECTOR
| % of investments by value | Benchmark | ||
| 1 | Pharmaceuticals & Biotechnology | 9.9 | 8.1 |
| 2 | Oil & Gas Producers | 9.6 | 11.6 |
| 3 | Life Insurance | 8.9 | 3.2 |
| 4 | Media | 8.8 | 3.7 |
| 5 | Banks | 7.6 | 9.8 |
| 6 | Support Services | 7.5 | 5.3 |
| 7 | Food Producers | 6.7 | 1.1 |
| 8 | Financial Services | 6.5 | 4.1 |
| 9 | Household Goods & Home Construction | 4.6 | 3.3 |
| 10 | Travel & Leisure | 4.6 | 4.9 |
| 11 | Tobacco | 3.6 | 3.2 |
| 12 | Food & Drug Retailers | 3.6 | 1.8 |
| 13 | Gas, Water & Multiutilities | 3.4 | 2.1 |
| 14 | Mining | 3.1 | 6.9 |
| 15 | Health Care Equipment & Services | 2.5 | 1.2 |
| 16 | Industrial Engineering | 2.3 | 0.8 |
| 17 | Mobile Telecommunications | 2.2 | 1.9 |
| 18 | Non-Life Insurance | 1.8 | 1.1 |
| 19 | Electronic & Electrical Equipment | 1.2 | 0.6 |
| 20 | Construction & Materials | 0.9 | 1.7 |
| 21 | General Retailers | 0.5 | 2.0 |
| 22 | Beverages | 0.2 | 3.3 |
Sources: BlackRock and Datastream.
INVESTMENT SIZE
| Number of investments | % of investments by value | |
| < £1m | 26 | 28.3 |
| £1m to £2m | 18 | 51.3 |
| £2m to £3m | 3 | 14.2 |
| £3m to £4m | 1 | 6.2 |
Source: BlackRock.
INVESTMENTS AS AT 31 OCTOBER 2019
| Market value £’000 |
% of investments |
|
| Pharmaceuticals & Biotechnology | ||
| AstraZeneca | 2,620 | 5.3 |
| GlaxoSmithKline | 2,248 | 4.6 |
| --------------- | --------------- | |
| 4,868 | 9.9 | |
| ========= | ========= | |
| Oil & Gas Producers | ||
| Royal Dutch Shell ‘B’ | 3,042 | 6.2 |
| BP Group | 1,684 | 3.4 |
| --------------- | --------------- | |
| 4,726 | 9.6 | |
| ========= | ========= | |
| Life Insurance | ||
| Prudential | 1,446 | 2.9 |
| St. James’s Place | 1,210 | 2.5 |
| Phoenix Group | 1,016 | 2.1 |
| Aviva | 713 | 1.4 |
| --------------- | --------------- | |
| 4,385 | 8.9 | |
| ========= | ========= | |
| Media | ||
| RELX | 2,130 | 4.3 |
| WPP | 764 | 1.6 |
| Moneysupermarket Group | 607 | 1.2 |
| Euromoney Institutional Investor | 503 | 1.0 |
| Ascential | 331 | 0.7 |
| --------------- | --------------- | |
| 4,335 | 8.8 | |
| ========= | ========= | |
| Banks | ||
| Standard Chartered | 1,285 | 2.6 |
| Lloyds Banking Group | 1,171 | 2.4 |
| HSBC Holdings | 891 | 1.8 |
| Barclays | 380 | 0.8 |
| --------------- | --------------- | |
| 3,727 | 7.6 | |
| ========= | ========= | |
| Support Services | ||
| Rentokil Initial | 1,039 | 2.1 |
| Ferguson | 975 | 2.0 |
| HomeServe | 643 | 1.3 |
| Serco | 576 | 1.1 |
| Grafton | 487 | 1.0 |
| --------------- | --------------- | |
| 3,720 | 7.5 | |
| ========= | ========= | |
| Food Producers | ||
| Unilever | 1,899 | 3.9 |
| Associated British Foods | 1,388 | 2.8 |
| --------------- | --------------- | |
| 3,287 | 6.7 | |
| ========= | ========= | |
| Financial Services | ||
| John Laing Group | 1,458 | 3.0 |
| Premier Asset Management Group | 758 | 1.5 |
| London Stock Exchange Group | 570 | 1.2 |
| M&G | 413 | 0.8 |
| --------------- | --------------- | |
| 3,199 | 6.5 | |
| ========= | ========= | |
| Household Goods & Home Construction | ||
| Reckitt Benckiser | 1,235 | 2.5 |
| Taylor Wimpey | 553 | 1.1 |
| Bellway | 496 | 1.0 |
| --------------- | --------------- | |
| 2,284 | 4.6 | |
| ========= | ========= | |
| Travel & Leisure | ||
| Whitbread | 1,311 | 2.7 |
| EasyJet | 604 | 1.2 |
| Fuller Smith & Turner ‘A’ | 354 | 0.7 |
| Patisserie Holdings* | – | – |
| --------------- | --------------- | |
| 2,269 | 4.6 | |
| ========= | ========= | |
| Tobacco | ||
| British American Tobacco | 1,795 | 3.6 |
| --------------- | --------------- | |
| 1,795 | 3.6 | |
| ========= | ========= | |
| Food & Drug Retailers | ||
| Tesco | 1,753 | 3.6 |
| --------------- | --------------- | |
| 1,753 | 3.6 | |
| ========= | ========= | |
| Gas, Water & Multiutilities | ||
| National Grid | 1,693 | 3.4 |
| --------------- | --------------- | |
| 1,693 | 3.4 | |
| ========= | ========= | |
| Mining | ||
| BHP | 1,525 | 3.1 |
| --------------- | --------------- | |
| 1,525 | 3.1 | |
| ========= | ========= | |
| Health Care Equipment & Services | ||
| Smith & Nephew | 1,246 | 2.5 |
| --------------- | --------------- | |
| 1,246 | 2.5 | |
| ========= | ========= | |
| Industrial Engineering | ||
| Bodycote | 703 | 1.4 |
| Weir Group | 415 | 0.9 |
| --------------- | --------------- | |
| 1,118 | 2.3 | |
| ========= | ========= | |
| Mobile Telecommunications | ||
| Vodafone | 1,087 | 2.2 |
| --------------- | --------------- | |
| 1,087 | 2.2 | |
| ========= | ========= | |
| Non-Life Insurance | ||
| Hiscox | 900 | 1.8 |
| --------------- | --------------- | |
| 900 | 1.8 | |
| ========= | ========= | |
| Electronic & Electrical Equipment | ||
| Oxford Instruments | 608 | 1.2 |
| --------------- | --------------- | |
| 608 | 1.2 | |
| ========= | ========= | |
| Construction & Materials | ||
| Forterra | 447 | 0.9 |
| --------------- | --------------- | |
| 447 | 0.9 | |
| ========= | ========= | |
| General Retailers | ||
| Trainline | 243 | 0.5 |
| --------------- | --------------- | |
| 243 | 0.5 | |
| ========= | ========= | |
| Beverages | ||
| Fevertree Drinks | 98 | 0.2 |
| --------------- | --------------- | |
| 98 | 0.2 | |
| --------------- | --------------- | |
| Total investments | 49,313 | 100.0 |
| ========= | ========= |
* Suspended investment held at fair value (please see note 16(d) in the Annual Report and Financial Statements for further information).
All investments are in ordinary shares unless otherwise stated.
The total number of investments held at 31 October 2019 was 48 (31 October 2018: 42).
As at 31 October 2019, the Company did not hold any equity interests comprising more than 3% of any company’s share capital.
INCOME STATEMENT FOR THE YEAR ENDED 31 OCTOBER 2019
Notes |
Revenue | Capital | Total | ||||
| 2019 £’000 |
2018 £’000 |
2019 £’000 |
2018 £’000 |
2019 £’000 |
2018 £’000 |
||
| Gains/(losses) on investments held at fair value through profit or loss | – | – | 1,781 | (3,682) | 1,781 | (3,682) | |
| Gains/(losses) on foreign exchange | – | – | 1 | (1) | 1 | (1) | |
| Income from investments held at fair value through profit or loss | 3 | 2,003 | 2,053 | – | – | 2,003 | 2,053 |
| Other income | 3 | 41 | 21 | – | – | 41 | 21 |
| ------------------ | ------------------ | ------------------ | ------------------ | ------------------ | ------------------ | ||
| Total income | 2,044 | 2,074 | 1,782 | (3,683) | 3,826 | (1,609) | |
| ------------------ | ------------------ | ------------------ | ------------------ | ------------------ | ------------------ | ||
| Expenses | |||||||
| Investment management fee | 4 | (67) | (73) | (201) | (218) | (268) | (291) |
| Other operating expenses | 5 | (231) | (265) | (7) | (7) | (238) | (272) |
| ------------------ | ------------------ | ------------------ | ------------------ | ------------------ | ------------------ | ||
| Total operating expenses | (298) | (338) | (208) | (225) | (506) | (563) | |
| ------------------ | ------------------ | ------------------ | ------------------ | ------------------ | ------------------ | ||
| Net profit/(loss) on ordinary activities before finance costs and taxation | 1,746 | 1,736 | 1,574 | (3,908) | 3,320 | (2,172) | |
| Finance costs | 6 | (16) | (12) | (47) | (36) | (63) | (48) |
| ------------------ | ------------------ | ------------------ | ------------------ | ------------------ | ------------------ | ||
| Net profit/(loss) on ordinary activities before taxation | 1,730 | 1,724 | 1,527 | (3,944) | 3,257 | (2,220) | |
| Taxation | (1) | – | – | – | (1) | – | |
| ------------------ | ------------------ | ------------------ | ------------------ | ------------------ | ------------------ | ||
| Net profit/(loss) on ordinary activities after taxation | 8 | 1,729 | 1,724 | 1,527 | (3,944) | 3,256 | (2,220) |
| ------------------ | ------------------ | ------------------ | ------------------ | ------------------ | ------------------ | ||
| Earnings/(loss) per ordinary share (pence) | 8 | 7.37 | 7.09 | 6.50 | (16.22) | 13.87 | (9.13) |
| ========== | ========== | ========== | ========== | ========== | ========== | ||
The total column of this statement represents the Company’s profit and loss account. The supplementary revenue and capital columns are both prepared under guidance published by the Association of Investment Companies (AIC). All items in the above statement derive from continuing operations. No operations were acquired or discontinued during the year. All income is attributable to the equity holders of the Company.
The net profit/(loss) for the year disclosed above represents the Company’s total comprehensive income/(loss).
STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 OCTOBER 2019
Notes |
Called up share capital £’000 |
Share premium account £’000 |
Capital redemption reserve £’000 |
Capital reserve £’000 |
Special reserve £’000 |
Revenue reserve £’000 |
Total £’000 |
|
| For the year ended 31 October 2019 | ||||||||
| At 31 October 2018 | 329 | 14,819 | 220 | 9,963 | 18,667 | 2,740 | 46,738 | |
| Total comprehensive income: | ||||||||
| Net profit for the year | – | – | – | 1,527 | – | 1,729 | 3,256 | |
| Transactions with owners, recorded directly to equity: | ||||||||
| Ordinary shares purchased into treasury | 9 | – | – | – | – | (2,110) | – | (2,110) |
| Share purchase costs | 9 | – | – | – | – | (15) | – | (15) |
| Dividends paid1 | 7 | – | – | – | – | – | (1,655) | (1,655) |
| ------------------ | ------------------ | ------------------ | ------------------ | ------------------ | ------------------ | ------------------ | ||
| At 31 October 2019 | 329 | 14,819 | 220 | 11,490 | 16,542 | 2,814 | 46,214 | |
| ========== | ========== | ========== | ========== | ========== | ========== | ========== | ||
| For the year ended 31 October 2018 | ||||||||
| At 31 October 2017 | 329 | 14,819 | 220 | 13,907 | 19,784 | 2,621 | 51,680 | |
| Total comprehensive income: | ||||||||
| Net (loss)/profit for the year | – | – | – | (3,944) | – | 1,724 | (2,220) | |
| Transactions with owners, recorded directly to equity: | ||||||||
| Ordinary shares purchased into treasury | 9 | – | – | – | – | (1,109) | – | (1,109) |
| Share purchase costs | 9 | – | – | – | – | (8) | – | (8) |
| Dividends paid2 | 7 | – | – | – | – | – | (1,605) | (1,605) |
| ------------------ | ------------------ | ------------------ | ------------------ | ------------------ | ------------------ | ------------------ | ||
| At 31 October 2018 | 329 | 14,819 | 220 | 9,963 | 18,667 | 2,740 | 46,738 | |
| ========== | ========== | ========== | ========== | ========== | ========== | ========== |
1 Interim dividend paid in respect of the six months ended 30 April 2019 of 2.60p per share was declared on 25 June 2019 and paid on 2 September 2019. Final dividend paid in respect of the year ended 31 October 2018 of 4.40p per share was declared on 20 December 2018 and paid on 19 March 2019.
2 Interim dividend paid in respect of the six months ended 30 April 2018 of 2.50p per share was declared on 25 June 2018 and paid on 3 September 2018. Final dividend paid in respect of the year ended 31 October 2017 of 4.10p per share was declared on 20 December 2017 and paid on 9 March 2018.
BALANCE SHEET AS AT 31 OCTOBER 2019
Notes |
2019 £’000 |
2018 £’000 |
|
| Fixed assets | |||
| Investments held at fair value through profit or loss | 49,313 | 47,830 | |
| ------------------ | ------------------ | ||
| Current assets | |||
| Debtors | 213 | 167 | |
| Cash and cash equivalents | 1,575 | 3,442 | |
| ------------------ | ------------------ | ||
| 1,788 | 3,609 | ||
| ------------------ | ------------------ | ||
| Creditors – amounts falling due within one year | |||
| Bank loan | (4,000) | (4,000) | |
| Other creditors | (887) | (701) | |
| ------------------ | ------------------ | ||
| (4,887) | (4,701) | ||
| ------------------ | ------------------ | ||
| Net current liabilities | (3,099) | (1,092) | |
| ------------------ | ------------------ | ||
| Net assets | 46,214 | 46,738 | |
| ------------------ | ------------------ | ||
| Capital and reserves | |||
| Called up share capital | 9 | 329 | 329 |
| Share premium account | 10 | 14,819 | 14,819 |
| Capital redemption reserve | 10 | 220 | 220 |
| Capital reserve | 10 | 11,490 | 9,963 |
| Special reserve | 10 | 16,542 | 18,667 |
| Revenue reserve | 10 | 2,814 | 2,740 |
| ------------------ | ------------------ | ||
| Total shareholders’ funds | 8 | 46,214 | 46,738 |
| ------------------ | ------------------ | ||
| Net asset value per ordinary share (pence) | 8 | 201.30 | 194.26 |
| ========== | ========== |
STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 OCTOBER 2019
Notes |
2019 £’000 |
2018 £’000 |
|
| Operating activities | |||
| Net profit/(loss) before taxation | 3,257 | (2,220) | |
| Add back finance costs | 63 | 48 | |
| (Gains)/losses on investments held at fair value through profit or loss | (1,781) | 3,682 | |
| Net (gains)/losses on foreign exchange | (1) | 1 | |
| Special dividends allocated to capital | 111 | 92 | |
| Sales of investments | 20,358 | 25,978 | |
| Purchases of investments | (20,201) | (24,517) | |
| (Increase)/decrease in other debtors | (1) | 15 | |
| Increase/(decrease) in other creditors | 171 | (53) | |
| Taxation on investment income | (1) | – | |
| ------------------ | ------------------ | ||
| Net cash generated from operating activities | 1,975 | 3,026 | |
| ------------------ | ------------------ | ||
| Financing activities | |||
| Ordinary shares purchased into treasury | (2,110) | (1,109) | |
| Share purchase costs paid | (15) | (8) | |
| Drawdown of bank loan | – | 2,000 | |
| Interest paid | (63) | (53) | |
| Dividends paid | 7 | (1,655) | (1,605) |
| ------------------ | ------------------ | ||
| Net cash used in financing activities | (3,843) | (775) | |
| ------------------ | ------------------ | ||
| (Decrease)/increase in cash and cash equivalents | (1,868) | 2,251 | |
| ------------------ | ------------------ | ||
| Cash and cash equivalents at the start of the year | 3,442 | 1,192 | |
| Effect of foreign exchange rate changes | 1 | (1) | |
| ------------------ | ------------------ | ||
| Cash and cash equivalents at end of the year | 1,575 | 3,442 | |
| ------------------ | ------------------ | ||
| Comprised of: | |||
| Cash at bank | 94 | 42 | |
| Cash Fund* | 1,481 | 3,400 | |
| ------------------ | ------------------ | ||
| 1,575 | 3,442 | ||
| ========== | ========== |
* Cash Fund represents funds held on deposit with the BlackRock Institutional Cash Series plc – Sterling Liquid Environmentally Aware Fund (2018 – BlackRock Institutional Cash Series plc – Sterling Liquidity Fund).
NOTES TO THE FINANCIAL STATEMENTS
1. PRINCIPAL ACTIVITY
The principal activity of the Company is that of an investment trust company within the meaning of section 1158 of the Corporation Tax Act 2010.
2. ACCOUNTING POLICIES
The principal accounting policies adopted by the Company are set out below.
(a) Basis of preparation
The financial statements have been prepared on a going concern basis in accordance with ‘The Financial Reporting Standard applicable in the UK and Republic of Ireland’ (FRS 102) and the revised Statement of Recommended Practice – ‘Financial Statements of Investment Trust Companies and Venture Capital Trusts’ (SORP) issued by the Association of Investment Companies (AIC) in November 2014 and updated in January 2017 and February 2018, and the provisions of the Companies Act 2006.
The principal accounting policies adopted by the Company are set out below. Unless specified otherwise, the policies have been applied consistently throughout the year and are consistent with those applied in the preceding year. All of the Company’s operations are of a continuing nature.
The preparation of the Company’s financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts in the financial statements. These assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in the current and future periods, depending on circumstance. 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.
The Company’s financial statements are presented in sterling, which is the currency of the primary economic environment in which the Company operates. All values are rounded to the nearest thousand pounds (£’000) except where otherwise indicated.
(b) Presentation of the Income Statement
In order to reflect the activities of an investment trust company and in accordance with guidance issued by the AIC, supplementary information which analyses the Income Statement between items of a revenue and a capital nature has been presented alongside the Income Statement.
(c) Segmental reporting
The Directors are of the opinion that the Company is engaged in a single segment of business being investment business.
(d) Income
Dividends receivable on equity shares are treated as revenue for the year on an ex-dividend basis. Where no ex-dividend date is available, dividends receivable on or before the year end are treated as revenue for the year. Provisions are made for dividends not expected to be received.
Special dividends are recognised on an ex-dividend basis and treated as capital or revenue depending on the facts and circumstances of each dividend.
Dividends are accounted for in accordance with Section 29 of FRS 102 on the basis of income actually receivable, without adjustment for tax credits attaching to the dividend. Dividends from overseas companies continue to be shown gross of withholding tax.
Deposit interest receivable is accounted for on an accruals basis. Underwriting commission is recognised when the issue underwritten closes.
Where the Company 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.
(e) Expenses
All expenses are accounted for on an accruals basis. Expenses have been charged wholly to revenue column of Income Statement, except as follows:
• expenses which are incidental to the acquisition or disposal of an investment are treated as capital. Details of transaction costs on the purchases and sales of investments are disclosed in note 10, in the Annual Report and Financial Statements;
• the investment management fee has been allocated 75% to the capital column and 25% to the revenue column of the Income Statement in line with the Board’s expected long-term split of returns, in the form of capital gains and income respectively, from the investment portfolio.
(f) Finance costs
Finance costs are accounted for on an accruals basis. Finance costs are allocated, insofar as they relate to the financing of the Company’s investments, 75% to the capital column and 25% to the revenue column of the Income Statement, in line with the Board’s expected long-term split of returns, in the form of capital gains and income respectively, from the investment portfolio.
(g) Taxation
The current tax effect of different items of expenditure is allocated between capital and revenue on the marginal basis using the Company’s effective rate of corporation tax for the accounting period.
Deferred taxation is recognised in respect of all timing differences at the financial reporting date, where transactions or events that result in an obligation to pay more taxation in the future or right to less taxation in the future have occurred at the balance sheet date. Deferred taxation is measured on a non-discounted basis, at the average tax rates that are expected to apply in the periods in which the timing differences are expected to reverse based on tax rates and laws that have been enacted or substantively enacted by the balance sheet date. This is subject to deferred taxation 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 timing differences can be deducted.
(h) Investments held at fair value through profit or loss
The Company’s investments are classified as held at fair value through profit or loss in accordance with Sections 11 and 12 of FRS 102 and are managed and evaluated on a fair value basis in accordance with its investment strategy.
All investments are designated upon initial recognition as held at fair value through profit or loss. Purchases of investments are recognised on a trade date basis. Sales are recognised at the trade date of the disposal and the proceeds are measured at fair value, which is regarded as the proceeds of the sale less any transaction costs.
The fair value of the financial investments is based on their quoted bid price at the balance sheet date on the exchange on which the investment is quoted, without deduction for the estimated future selling costs.
Changes in the value of investments held at fair value through profit or loss and gains and losses on disposal are recognised in the Income Statement as ‘Gains or losses on investments held at fair value through profit or loss’. Also included within this heading are transaction costs in relation to the purchase or sale of investments.
The fair value hierarchy consists of the following three levels:
Level 1 – Quoted market price for identical instruments in active markets.
Level 2 – Valuation techniques using observable inputs.
Level 3 – Valuation techniques using significant unobservable inputs.
(i) Debtors
Debtors include sales for future settlement, other debtors and pre-payments and accrued income in the ordinary course of business. If collection is expected in one year or less, they are classified as current assets. If not, they are presented as non-current assets.
(j) Creditors
Creditors include purchases for future settlements, interest payable, share buy back costs and accruals in the ordinary course of business. Creditors are classified as creditors – amounts due within one year if payment is due within one year or less. If not, they are presented as creditors – amounts due after more than one year.
(k) Dividends payable
Under Section 32 of FRS 102, final dividends should not be accrued in the financial statements unless they have been approved by shareholders before the balance sheet date. Dividends payable to equity shareholders are recognised in the Statement of Changes in Equity when they have been approved by shareholders and have become a liability of the Company. Interim dividends are only recognised in the financial statements in the period in which they are paid.
(l) Cash and cash equivalents
Cash comprises cash in hand and demand deposits. Cash equivalents include bank overdrafts repayable on demand and short-term, highly liquid investments, that are readily convertible to known amounts of cash and that are subject to an insignificant risk of changes in value.
(m) Foreign currency translation
In accordance with Section 30 of FRS 102, the Company is required to nominate a functional currency being the currency in which the Company predominately operates. The functional and reporting currency is sterling, reflecting the primary economic environment in which the Company operates. Transactions in foreign currencies are translated into sterling at the rates of exchange ruling on 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 rates of exchange ruling at the balance sheet date. Profits and losses thereon are recognised in the capital column of the Income Statement and taken to the capital reserve.
(n) Share repurchases
Shares repurchased and subsequently cancelled – share capital is reduced by the nominal value of the shares repurchased, and the capital redemption reserve is correspondingly increased in accordance with section 733 of the Companies Act 2006. The full cost of the repurchase is charged to the special reserve.
Shares repurchased and held in treasury – the full cost of the repurchase is charged to the special reserve. Where treasury shares are subsequently reissued, any surplus is taken to the share premium account.
3. INCOME
| 2019 £’000 |
2018 £’000 |
|
| Investment income: | ||
| UK dividends | 1,892 | 1,768 |
| UK scrip dividends | – | 22 |
| UK special dividends | 107 | 221 |
| Overseas dividends | 4 | 42 |
| ----------------- | ----------------- | |
| 2,003 | 2,053 | |
| ----------------- | ----------------- | |
| Other income: | ||
| Interest from cash funds | 24 | 12 |
| Deposit interest | 12 | – |
| Underwriting commission | 5 | 9 |
| ----------------- | ----------------- | |
| 41 | 21 | |
| ----------------- | ----------------- | |
| Total | 2,044 | 2,074 |
| ========== | ========== |
Dividends and interest received in cash during the year amounted to £1,969,000 and £37,000 respectively (2018: £2,052,000 and £10,000).
Special dividends of £111,000 have been recognised in capital (2018: £92,000), see note 10 in the Annual Report and Financial Statements.
4. INVESTMENT MANAGEMENT FEE
| 2019 | 2018 | |||||
| Revenue £’000 |
Capital £’000 |
Total £’000 |
Revenue £’000 |
Capital £’000 |
Total £’000 |
|
| Investment management fee | 67 | 201 | 268 | 73 | 218 | 291 |
| ========== | ========== | ========== | ========== | ========== | ========== | |
Under the terms of the investment management agreement with BFM, BFM is entitled to a fee of 0.6% per annum of the Company’s market capitalisation. The investment management fee is allocated 75% to capital reserves and 25% to the revenue reserve. There is no additional fee for company secretarial and administration services.
5. OTHER OPERATING EXPENSES
| 2019 £’000 |
2018 £’000 |
|
| Allocated to revenue: | ||
| Custody fees | 1 | 2 |
| Depositary fees | 5 | 7 |
| Audit fees1 – statutory audit | 25 | 24 |
| Registrars’ fee | 25 | 23 |
| Directors’ emoluments* | 92 | 92 |
| Marketing fees2 | 13 | 49 |
| Marketing fee accrual in 2018 written back | (9) | – |
| Printing fees | 20 | 21 |
| Legal and professional fees | 11 | 7 |
| London Stock Exchange fee | 9 | 9 |
| FCA fee | 6 | 6 |
| Other administration costs | 33 | 25 |
| ----------------- | ----------------- | |
| 231 | 265 | |
| ----------------- | ----------------- | |
| Allocated to capital: | ||
| Custody transaction costs | 7 | 7 |
| ----------------- | ----------------- | |
| 238 | 272 | |
| ----------------- | ----------------- | |
| The Company’s ongoing charges3, calculated as a percentage of average shareholders’ funds and using operating expenses and excluding finance cost, VAT refunded, transaction costs and taxation were: | 1.07% | 1.10% |
| ========== | ========== |
1 No non-audit services are provided by auditors.
2 Marketing fees for 2018 include £24,000 to Kepler Partners for investor relations, marketing and roadshow services.
3 Alternative Performance Measures, see Glossary in the Annual Report and Financial Statements.
* Further information on Directors’ emoluments can be found in the Directors’ Remuneration Report in the Annual Report and Financial Statements.
The Company has no employees.
6. FINANCE COSTS
| 2019 | 2018 | |||||
| Revenue £’000 |
Capital £’000 |
Total £’000 |
Revenue £’000 |
Capital £’000 |
Total £’000 |
|
| Interest on sterling bank loan | 16 | 47 | 63 | 12 | 36 | 48 |
| ========== | ========== | ========== | ========== | ========== | ========== | |
7. DIVIDENDS
Record date |
Payment date |
2019 £’000 |
2018 £’000 |
|
| 2017 Final dividend of 4.10p | 2 February 2018 | 9 March 2018 | – | 999 |
| 2018 Interim dividend of 2.50p | 27 July 2018 | 3 September 2018 | – | 606 |
| 2018 Final dividend of 4.40p | 8 February 2019 | 19 March 2019 | 1,056 | – |
| 2019 Interim dividend of 2.60p | 26 July 2019 | 2 September 2019 | 599 | – |
| ----------------- | ----------------- | |||
| 1,655 | 1,605 | |||
| ========== | ========== |
The Directors have proposed a final dividend of 4.60p per share in respect of the year ended 31 October 2019. The proposed final dividend will be paid, subject to shareholders’ approval, on 19 March 2020 to shareholders on the Company’s register on 7 February 2020. The proposed final dividend has not been included as a liability in these financial statements as final dividends are only recognised in the financial statements when they have been approved by shareholders, or in the case of interim dividends, recognised when paid to shareholders.
The total dividends payable in respect of the year which form the basis of determining retained income for the purpose of section 1158 of the Corporation Tax Act 2010 and section 833 of the Companies Act 2006, and the amount proposed for the year ended 31 October 2019, meet the relevant requirements as set out in this legislation.
Dividends paid or declared on equity shares: |
2019 £’000 |
2018 £’000 |
| Interim paid of 2.60p (2018: 2.50p) | 599 | 606 |
| Final proposed of 4.60p* (2018: 4.40p) | 1,052 | 1,056 |
| ----------------- | ----------------- | |
| 1,651 | 1,662 | |
| ========== | ========== |
* Based on 22,873,100 ordinary shares (excluding treasury shares) in issue on 23 December 2019.
The proposed final dividend is based on the number of shares in issue at the year end. However, the dividend payable will be based on the number of shares in issue on the record date and will reflect any purchases and buy back of shares by the Company settled subsequent to the year end.
All dividends paid or payable are distributed from the Company’s revenue profits.
8. EARNINGS AND NET ASSET VALUE PER ORDINARY SHARE
Revenue, capital earnings/(loss) and net asset value per ordinary share are shown below and have been calculated using the following:
| 2019 | 2018 | |
| Net revenue profit attributable to ordinary shareholders (£’000) | 1,729 | 1,724 |
| Net capital profit/(loss) attributable to ordinary shareholders (£’000) | 1,527 | (3,944) |
| ----------------- | ----------------- | |
| Total profit/(loss) attributable to ordinary shareholders (£’000) | 3,256 | (2,220) |
| ========== | ========== | |
| Total shareholders’ funds (£’000) | 46,214 | 46,738 |
| ----------------- | ----------------- | |
| Earnings per share | ||
| The weighted average number of ordinary shares in issue during the year on which the earnings per ordinary share was calculated was: | 23,467,645 | 24,306,961 |
| ----------------- | ----------------- | |
| The actual number of ordinary shares in issue at the year end on which the net asset value was calculated was: | 22,958,100 | 24,059,668 |
| ----------------- | ----------------- | |
| The number of ordinary shares in issue, including treasury shares at the year end was: | 32,933,932 | 32,933,932 |
| ----------------- | ----------------- | |
| Calculated on weighted average number of ordinary shares | ||
| Revenue earnings (pence) | 7.37 | 7.09 |
| Capital earnings/(loss) (pence) | 6.50 | (16.22) |
| ----------------- | ----------------- | |
| Total earnings/(loss) (pence) | 13.87 | (9.13) |
| ========== | ========== | |
| As at 31 October 2019 |
As at 31 October 2018 |
|
| Net asset value per ordinary share (pence) | 201.30 | 194.26 |
| ----------------- | ----------------- | |
| Ordinary share price (mid-market) (pence) | 198.00 | 183.00 |
| ========== | ========== |
There were no dilutive securities at the year end.
9. 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 | ||||
| At 31 October 2018 | 24,059,668 | 8,874,264 | 32,933,932 | 329 |
| Shares purchased and held in treasury | (1,101,568) | 1,101,568 | – | – |
| ----------------- | ----------------- | ----------------- | ----------------- | |
| At 31 October 2019 | 22,958,100 | 9,975,832 | 32,933,932 | 329 |
| ========== | ========== | ========== | ========== |
During the year 1,101,568 ordinary shares were purchased and held in treasury (2018: 554,600 were purchased and placed in treasury) for a total consideration of £2,125,000 (2018: £1,117,000). No shares were cancelled from treasury during the year (2018: nil). Since the year end a further 85,000 ordinary shares have been bought back and held in treasury for a total consideration of £169,000.
10. RESERVES
Share premium account £’000 |
Capital redemption reserve £’000 |
Capital reserves arising on investments sold* £’000 |
Capital reserves arising on revaluation of investments* £’000 |
Special reserve* £’000 |
Revenue reserve* £’000 |
|
| At 31 October 2018 | 14,819 | 220 | 6,474 | 3,489 | 18,667 | 2,740 |
| Movement during the year: | ||||||
| Purchase of ordinary shares to be held in treasury | – | – | – | – | (2,110) | – |
| Share purchase costs | – | – | – | – | (15) | – |
| Net profit for the year | – | – | 541 | 986 | – | 1,729 |
| Dividends paid during the year | – | – | – | – | – | (1,655) |
| ----------------- | ----------------- | ----------------- | ----------------- | ----------------- | ----------------- | |
| At 31 October 2019 | 14,819 | 220 | 7,015 | 4,475 | 16,542 | 2,814 |
| ========== | ========== | ========== | ========== | ========== | ========== |
* Distributable reserves.
The share premium account and capital redemption reserve are not distributable profits under the Companies Act 2006. The special reserve and capital reserves 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.
11. VALUATION OF FINANCIAL INSTRUMENTS
Financial assets and financial liabilities are either carried in the Balance Sheet at their fair value (investments) or at an amount which is a reasonable approximation of fair value (due from brokers, dividends and interest receivable, due to brokers, accruals, cash at bank, bank overdrafts and bank loans). Section 34 of FRS 102 requires the Company to classify fair value measurements using a fair value hierarchy that reflects the significance of inputs used in making the measurements. The valuation techniques used by the Company are explained in the accounting policies note to the Financial Statements in the Annual Report and Financial Statements.
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 Company does not adjust the quoted price for these instruments.
Level 2 – Valuation techniques using observable inputs
This category includes instruments valued using quoted prices for similar instruments in markets that are considered less active, or other valuation techniques where significant inputs are directly or indirectly observable from market data.
Level 3 – Valuation techniques using significant unobservable inputs
This category includes all instruments where the valuation technique includes inputs not based on observable 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 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.
Fair values of financial assets and financial liabilities
The table below is an analysis of the Company’s financial instruments measured at fair value at the balance sheet date.
Financial assets at fair value through profit or loss at 31 October 2019 |
Level 1 £’000 |
Level 2 £’000 |
Level 3 £’000 |
Total £’000 |
| Equity investments | 49,313 | – | – | 49,313 |
| ========== | ========== | ========== | ========== | |
Financial assets at fair value through profit or loss at 31 October 2018 |
Level 1 £’000 |
Level 2 £’000 |
Level 3 £’000 |
Total £’000 |
| Equity investments | 47,758 | – | 72 | 47,830 |
| ========== | ========== | ========== | ========== |
There were no transfers between levels for financial assets and financial liabilities during the year recorded at fair value as at 31 October 2019 (2018: none). The Company held one Level 3 security during the financial year and at 31 October 2019 (2018: one security).
The investment in Patisserie Holdings has been classified as a Level 3 investment as at 31 October 2019 and 31 October 2018 as the trading of shares in this company was suspended. As at 31 October 2019 the shares are valued at nil. At 31 October 2018, the value was based on the transaction price of shares placed by the company in a placing programme.
12. CONTINGENT LIABILITIES
There were no contingent liabilities at 31 October 2019 (2018: nil).
13. 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 Annual Report and Financial Statements for the year ended 31 October 2019 will be filed with the Registrar of Companies after the Annual General Meeting.
The figures set out above have been reported upon by the auditor, whose report for the year ended 31 October 2019 contains no qualification or statement under section 498(2) or (3) of the Companies Act 2006.
The comparative figures are extracts from the audited financial statements of BlackRock Income and Growth Investment Trust plc for the year ended 31 October 2018, which have been filed with the Registrar of Companies, unless otherwise stated. The report of the auditor on those financial statements contained no qualification or statement under section 498 of the Companies Act.
14. 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 Income and Growth Investment Trust plc, 12 Throgmorton Avenue, London EC2N 2DL.
15. ANNUAL GENERAL MEETING
The Annual General Meeting of the Company will be held at 12 Throgmorton Avenue, London EC2N 2DL on Thursday, 12 March 2020 at 12.00 noon.
ENDS
The Annual Report will also be available on the BlackRock website at blackrock.co.uk/brig. Neither the contents of the Manager's website nor the contents of any website accessible from hyperlinks on the Manager's website (or any other website) is incorporated into, or forms part of, this announcement.
For further information, please contact:
Simon White, Managing Director, Investment Trusts, BlackRock Investment Management (UK) Limited
Tel: 020 7743 5284
Press enquires:
Ed Hooper, Lansons Communications
Tel: 020 7294 3620
E-mail: BlackRockInvestmentTrusts@lansons.com or EdH@lansons.com
23 December 2019
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London
EC2N 2DL
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