Final Results
BLACKROCK INCOME AND GROWTH INVESTMENT TRUST PLC
LEI: 5493003YBY59H9EJLJ16
Annual results announcement
for the year ended 31 October 2021
PERFORMANCE RECORD
|
|
As at 31 October 2021 |
As at 31 October 2020 |
Change % |
| Net assets (£000)1 | 43,468 | 36,401 | 19.4 |
| Net asset value per ordinary share (pence) | 203.13 | 161.70 | 25.6 |
| Ordinary share price (mid-market) (pence) | 191.00 | 162.50 | 17.5 |
| (Discount)/premium to net asset value2 | (6.0)% | 0.5% | |
| FTSE All-Share Index | 8173.30 | 6036.60 | 35.4 |
| ======== | ======== | ======== |
|
|
For the year ended 31 October 2021 |
For the year ended 31 October 2020 |
| Performance (with dividends reinvested) | ||
| Net asset value per share2 | 30.4% | -16.7% |
| Ordinary share price2 | 22.2% | -14.8% |
| FTSE All-Share Index | 35.4% | -18.6% |
| ======== | ======== |
|
|
For the year ended 31 October 2021 |
For the year ended 31 October 2020 |
Change % |
| Revenue | |||
| Net profit after taxation (£'000) | 1,557 | 1,234 | 26.2 |
| Revenue earnings per ordinary share (pence)3 | 7.10 | 5.43 | 30.8 |
| Dividends (pence) | |||
| Interim | 2.60p | 2.60p | – |
| Final | 4.60p | 4.60p | – |
| Total dividends paid and payable | 7.20p | 7.20p | – |
| ======== | ======== | ======== |
1 The change in net assets reflects the market movements during the year, the purchase of the Company’s own shares and dividends paid.
2 Alternative Performance Measures, see Glossary in the Annual Report and Financial Statements.
3 Further details are given in the Glossary in the Annual Report and Financial Statements.
CHAIRMAN’S STATEMENT
OVERVIEW
I began my letter to shareholders in last year’s Annual Report by expressing the hope that the optimism being reflected in the financial markets would translate to improved experiences for us more generally as we moved through 2021. As we pass the end of the calendar year I would have to say that the jury is still out: the successful roll-out of vaccines and more recently boosters has been met with the emergence of new Covid variants such that both health and financial experts alike remain uncertain about the shorter-term prospects for normality reasserting itself. We continue to hope that it will. In the meantime, your Board and I are conscious that the results detailed in this report are not as positive as we would wish in that whilst we are reporting a strong absolute return we have trailed our target benchmark. The detailed numbers appear below, and the Investment Manager’s report describes what has driven those results and we all look to see their strategy bearing fruit in the coming year.
PERFORMANCE
During the year the Company’s Net Asset Value per share (NAV) returned 30.4%. By comparison, the Company’s benchmark, the FTSE All-Share Index, returned 35.4%. At the share price level, the Company returned 22.2% over the period.
Our underperformance over the period reflected our focus on quality companies in a period when more highly leveraged and cyclical shares made the running.
As at 11 January 2022, since the year end the Company’s NAV and share price have increased by 4.0% and 3.7%, respectively (all percentages are in Sterling with dividends reinvested).
Details of the key contributors and detractors from performance, and the portfolio managers’ views on the outlook for the forthcoming year, can be found in their report which follows below.
REVENUE EARNINGS AND DIVIDENDS
The Company’s revenue earnings per share for the year to 31 October 2021 amounted to 7.10 pence compared with 5.43 pence for the previous year. An interim dividend of 2.60 pence per share (2020: 2.60 pence) was paid to shareholders on 1 September 2021.
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 (2020: 4.60 pence) giving total dividends for the year of 7.20 pence per share. Subject to approval at the Annual General Meeting, the final dividend will be paid on 17 March 2022 to shareholders on the Company’s register at the close of business on 4 February 2022 (ex-dividend date is 3 February 2022).
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 issuance powers to seek to ensure that the share price does not differ excessively from 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 2022 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.
During the year, a total of 1,112,783 ordinary shares were purchased at an average price of 177.30 pence per share, for a total consideration (including costs) of £1,973,000. All ordinary shares bought back were cancelled. No shares were placed in treasury. The average discount for the year to 31 October 2021 was 7.4% and the discount at the year-end was 6.0% which resulted in a share price return of 22.2% over the financial year. As at 11 January 2022, the discount was 6.3%.
OPERATIONAL RESILIENCE
As we reported at the half-year, throughout the COVID-19 outbreak the Board has been working closely with our Manager, BlackRock, and the Company’s key suppliers to minimise the risk the virus poses to the health and wellbeing of all those working on the management and administration of the Company. We have received regular updates on the portfolio, and I am pleased to report that the Company’s operations have continued not to be adversely affected and that established business continuity plans have been operating effectively.
GEARING
One of the advantages of the investment trust structure is that it can use gearing with the objective of increasing portfolio returns. 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 2021 when it stood at 6.0%. 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.
BOARD COMPOSITION
At the date of this report the Board currently consists of four independent Non-executive Directors, with two of the current Directors having been appointed since 2019. In accordance with best practice and good corporate governance, the Directors continue 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 discharge its duties effectively. 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
The UK Code of Corporate Governance (the UK Code) published in 2018 requires enhanced disclosure setting out how we, as Directors, have fulfilled our duties in taking into account the wider interests of stakeholders in promoting the success of the Company.
The Board takes its governance responsibilities very seriously and follows the provisions of the UK Code as closely as possible. As part of this reporting, and given the environmental, social and governance (ESG) issues that are faced by many companies, we have provided a detailed report on these matters in the Strategic Report in the Annual Report and Financial Statements. We have also provided more information on our Investment Manager’s approach to shareholder engagement and voting activities.
The Association of Investment Companies (AIC) has also published updates to its Code of Corporate Governance (the AIC Code) which were endorsed by the Financial Reporting Council (FRC) as being appropriate for investment companies and fulfills the requirements of the UK Corporate Governance Code, as they are applicable to investment companies. The 2019 AIC Code applies to accounting periods beginning on or after 1 January 2019 and the Board has fully adopted the recommendations of the 2019 AIC Code.
ANNUAL GENERAL MEETING
I am pleased to report that it is the Board’s intention that this year’s Annual General Meeting will be held in person on Tuesday, 8 March 2022 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.
At present UK Government restrictions on public gatherings are no longer in force in connection with COVID-19 and the AGM can be held in the normal way with physical attendance by shareholders. However, shareholders should be aware that it is possible that such restrictions could be reimposed prior to the date of the AGM. In such event, these restrictions could mean that the AGM is required to be held as a closed meeting as happened last year with physical attendance limited to only a small number of attendees comprising the required quorum for the meeting and those persons whose attendance is necessary for the conduct of the meeting, and that any other persons will be refused entry. Accordingly, all shareholders are recommended to vote by proxy in advance of the AGM and to appoint the Chairman of the meeting as their proxy. This will ensure that shareholders’ votes will be counted even if they (or any appointed proxy) are not able to attend. The appointment of a proxy does not preclude shareholders from attending the meeting in person. All votes will be taken by poll so that all proxy votes are counted.
The Company may impose entry restrictions on persons wishing to attend the AGM (including, if required, refusing entry) in order to secure the orderly conduct of the AGM and the safety of the attendees.
All shareholders intending to attend should either be fully vaccinated or obtain a negative COVID-19 test result before entering the venue. Negative test results must be obtained no earlier than one day before entering the venue and fully vaccinated shareholders are also strongly encouraged to get tested.
Attendees will also be required to wear a face covering at all times within the venue except when seated in the relevant meeting room. Shareholders are also requested not to attend the AGM if they have tested positive for COVID-19 in the 10 days prior to the AGM, are experiencing new or worsening COVID-19 related symptoms, have been in close contact with anyone who is experiencing symptoms or has contracted COVID-19 during the 14 days prior to the AGM, or are required to self isolate pursuant to UK Government guidance.
In the absence of any reimposition of restrictions, the Board very much looks forward to meeting with shareholders.
COMMUNCIATION WITH SHAREHOLDERS
We appreciate how important access to regular information is to our shareholders. To supplement our Company website, we now offer shareholders the ability to sign up to the Trust Matters newsletter which includes information on the Company as well as news, views and insights. Further information on how to sign up is included on the inside cover of the Annual Report and Financial Statements.
OUTLOOK
As you will read in their report which follows below, your investment managers’ fundamental strategy has not changed and although they remain cautious given the ongoing impact of COVID-19 and new variants such as Omicron, they are optimistic about the recovery seen in the UK market and for dividends paid by UK companies, which have risen to near pre-COVID-19 levels. Earnings growth is often a key driver of valuations and our portfolio is comprised of many cash generative companies which they believe will be able to grow their dividend over time as the market begins to normalise. The focus remains on bottom-up stock selection, assembling a portfolio of individual companies which, taken as a whole, should prove capable of delivering attractive returns and supporting growth into the future.
Your Board remains fully supportive of this approach and we have every confidence in the ability of our Investment Managers to continue to deliver on the Company’s investment objective as we move into 2022.
GRAEME PROUDFOOT
Chairman
12 January 2022
INVESTMENT MANAGER’S REPORT
PERFORMANCE
Over the year to 31 October 2021, the Company saw a NAV return of 30.4% and a share price return of 22.2%, underperforming the FTSE All-Share Index which returned 35.4% over the same period. All returns are in Sterling, with dividends reinvested.
MARKET REVIEW
The end of 2020 was marked by the turbulence that characterised an extraordinary year. Equity markets reacted very positively to the Pfizer/BioNTech announcement on 9 November that their vaccine had achieved greater than 90% efficacy. Importantly, this announcement also led to a significant shift in market leadership as companies with ‘value’ characteristics outperformed. UK equity markets were further buoyed by progress around Brexit with a deal finally agreed in December. Although this exuberance was quickly offset by further lockdowns, both in the UK and abroad, following a sharp increase in COVID-19 cases due to a particularly contagious variant.
Global stock markets made a strong start to 2021 as both consumers and corporates shrugged off concerns around virus variants. This optimism was supported by the initiation of global vaccination programmes and large-scale government stimulus. The start of the year also saw a growing number of Initial Public Offerings (IPOs) in London as corporate and investor confidence returned. The UK market also saw significant inbound mergers and acquisitions across a range of sectors highlighting the value on offer.
More recently, the backdrop has become more balanced and demand from consumers and corporates remains robust. However, this has led to a growing debate around inflation and interest rates, especially as supply chain challenges intensified. Additionally, fiscal and monetary support has started to fade while China related shares were impacted by both regulatory changes and systemic concerns regarding the potential failure of Evergrande, a struggling Chinese property developer.
The UK market rose over the period, returning 35.4% to the end of October; Oil & Gas, Basic Materials, Industrials, and Financials were top performing sectors.
CONTRIBUTORS TO PERFORMANCE
We have been happy with the progress many companies within the portfolio have made over the course of the COVID-19 crisis, navigating a difficult backdrop and emerging from the crisis with enhanced growth prospects. Indeed, the absolute NAV performance of 30.4% is our strongest annual return since taking over the management of the portfolio in 2012. That said, whilst strong in absolute terms, the NAV performance lagged the FTSE All-Share Index. The bias towards quality and balance sheet strength created headwinds to the portfolio in a market where returns to leverage, low liquidity and particularly the lower deciles of ‘value’ were particularly strong. Whilst we made a number of further changes towards cyclical areas and reduced defensiveness, we were surprised by the strength of the vaccine led rotation in the early part of the year. We remain fairly balanced within the portfolio and have been reluctant to increase exposure to leveraged or lower quality companies as the various COVID-19 ‘waves’, subsequent lockdowns and re-openings have created considerable confusion about the sustainability of corporate and consumer behaviours.
Notably, the shocks to the global supply chain have resulted in significant disruption across many industries. This has meant widespread product shortages and resulted in the strongest inflation backdrop in the last decade. As we look ahead, we would expect this disruption to last well into 2022 as bottlenecks unwind and supply normalises. The likely withdrawal of large-scale government support that was so critical during the crisis, will, in our view, contribute to far larger dispersion within sectors and companies. As we enter this period of ‘normalisation’ we expect the visibility of the underlying strength of companies’ earnings prospects to improve. We see material opportunities in those who have invested in their propositions and can fund their investments through the cycle. As a result, we are excited with where the portfolio is positioned currently.
When we look at the detractors during the year, there were two notable underperformers in large positions, both impacted in part by COVID-19 but for different reasons. Smith & Nephew shares struggled during the year as orthopaedic procedures have been heavily impacted by the lack of hospital capacity during most of 2020 and 2021. We would expect procedures and thus sales to rebound strongly once the COVID-19 crisis fades given that underlying patient demand is as strong as ever and that the company is well placed to benefit from this normalisation in activity.
In contrast, Reckitt Benckiser benefitted significantly from the growth in sales of disinfectants during 2020, and the market has consistently struggled to analyse the ‘true’ underlying earnings power of the business throughout 2021. Further, the company’s decision to reinvest this COVID-19 induced windfall has depressed earnings in the short term but, we expect, should lead to a meaningful acceleration in revenue growth over the medium-term. Again, we continue to hold the shares given the attractive medium-term growth on offer and expect better evidence of this into 2022 and 2023. Elsewhere, THG Holdings, the online retailer, which had delivered strong trading updates since its IPO was hit as the market became concerned by its ability to deliver against very strong 2020 comparators that had benefited from COVID-19 led behavioural changes. We are encouraged to see the company improve its governance, announcing the search for an independent executive chairperson, removing the golden share and improving disclosure.
Positively, a number of positions bought or increased during the crisis performed strongly during the year. Next and Intermediate Capital Group have both returned c.90% since purchase contributing significantly during the year. Grafton, the specialist building merchant, which we bought in late 2019 and increased throughout 2020, was the top contributor to performance during the period rising over 100%. The company repeatedly upgraded guidance as renovation spend surged, boosted by the significant increase in housing transactions. We would expect the company to use its strong free cash flow to continue to support its roll-out in Europe and extend its growth opportunities. John Laing Group was another top contributor following the bid for the company by the private equity firm KKR. We had owned John Laing Group in the Company since shortly after its IPO in 2015; in this time, the position had generated c.260 basis points of out-performance for the Company. We sold John Laing Group following the bid.
RELX reported excellent interim results with revenue growth continuing to accelerate. The process of transition that began a decade ago when growth was 2% per annum has now led to the group growing at c.5%. Whilst the Exhibitions division continues to be impacted by the pandemic, the Risk, Scientific, Technical & Medicinal and Legal businesses have all accelerated.
TRANSACTIONS
Following on from an active 2020, we have continued to be more active than usual in the last financial year as the tumultuous investment environment has presented significant opportunities. We continue to run a relatively balanced portfolio where the focus remains on stock-specific fundamental research.
We added to cyclical exposure in preparation for the upcoming recovery at the start of the financial year. New purchases included Smiths Group, an Industrial that consists of four high quality engineering businesses where we believe the end markets are improving and that the sale of its non-core medical division will highlight the attractive valuation on offer. We bought Hays, the recruiter, in anticipation of a recovery in employment markets driven by increased employee confidence and mobility. We added considerably to financials, buying new positions in IntegraFin and Legal & General Group whilst increasing 3i Group and Phoenix Group. IntegraFin is a technology provider for Independent Financial Advisors whose premium offering is taking share in this attractive and growing market. In contrast, we sold defensive holdings such as National Grid, GlaxoSmithKline and United Utilities.
The rise of IPOs in the UK market allowed us to seek out idiosyncratic opportunities such as Moonpig Group and Oxford Nanopore Technologies. Moonpig Group, the online retailer, has built an enviable position in the UK greeting card market. Following exceptional growth during the pandemic, the company is well set to benefit from structurally higher customer numbers and frequency while transaction values should benefit from the development of its gifting range. Oxford Nanopore Technologies offers innovative DNA genome sequencing technology; we see the opportunity for the company to develop its market share in this fast-growing industry.
Towards the end of the financial period, we began to sell some of the holdings that we had bought at the height of the COVID-19 crisis in March/April 2020 given the strong recovery in share prices. This included Intermediate Capital Group, where the shares have nearly doubled over the last 18 months and where it is difficult to see further upside. We also sold Bodycote as the shares had recovered strongly and yet their end markets remain challenged by inflationary and supply chain pressures.
INTERNATIONAL INVESTING
One of the advantages we enjoy at BlackRock is our access to a research platform with over 200 investors or analysts across the world. We have the ability to incorporate the research and idea generation from our colleagues to complement both our research on UK companies, as well as generate investment opportunities outside the UK market. We believe that the opportunity to invest internationally is a positive one for the Company. By doing so, we are able to access investment opportunities that are unavailable in the UK which can be accretive both to the Company’s income generation and capital growth.
The Company is now permitted to have up to a 20% allocation to overseas holdings. We participated in the IPO of Hemnet, which is the leading residential property portal in Sweden and is well placed to grow through developing its product suite. We subsequently sold the company given the share price doubled since purchase and we felt there was no more upside to the valuation. We also purchased a new holding in Adobe Systems, which is exposed to the structural shift towards digitalisation. The group’s software enables companies to enhance their digital capabilities with a particular focus on creativity, document handling and cloud capabilities. Adobe Systems is a fast growing, capital light company with high returns where we believe that the duration and quantum of growth has been underestimated by the market. We ended the year with approximately 8% of the portfolio in international equities.
GEARING
Our general approach to gearing is that we aim to run the Company with a modest and consistent level of gearing in the Company to enhance income generation and capital growth; accordingly, the Company has been 5-10% geared throughout the period. At 31 October 2021, the Company had employed net gearing of 6%.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG)
We believe that companies that promote healthy relationships with all stakeholders are better positioned to create opportunities and mitigate risks to sustain financial returns over the long-term. ESG factors are integrated into our detailed company analysis and we aim to engage with the management of the companies that we invest in to advocate for sound corporate governance and sustainable business practices that may result in long-term value creation for shareholders. As portfolio managers, we work very closely with, and are supported by the extensive ESG resources at BlackRock, which includes BlackRock’s Investment Stewardship and Sustainable Investing teams.
OUTLOOK
Notwithstanding the emergence of the Omicron variant, as the world approaches some sort of post-COVID-19 normalisation and economies reopen, many opportunities and risks are being presented. We are closely monitoring how earnings react to factors including the retraction of government stimulus, changes in consumer spending and behaviours. Much like the structural change of digitisation that arose in the throes of COVID-19, we monitor these factors and others for signs of structural change.
We expect the strain on supply chains with specific industry shortages to continue well into 2022 and expect inflationary pressures to persist as a result. We are mindful of the potential impact on companies’ margins and have thus sought to concentrate the portfolio on those businesses with pricing power which are able to protect margins over the medium and long-term.
After five years under a Brexit-induced cloud, the relative position of the UK in the eyes of global investors appears to have improved, helped by the vaccination programme, and evidenced by the resurgence in takeover activity as bidders look to capitalise on the discount at which UK equities trade relative to global peers. Specifically, we have seen acquisitions of real assets and a desire to find free cash flow.
Amidst market normalisation, we have seen cash generation improving and dividend payments recovering strongly, almost back to pre-COVID-19 levels. We have been positively surprised by how quickly dividends have come back albeit this includes large contributions from the mining sector where the likes of Rio Tinto and BHP have paid large special dividends. Although these special dividends may not persist, we view the outlook for ordinary dividends for the UK market with increased optimism as most companies have emerged from the COVID-19 crisis with appropriate dividend policies.
We continue to have conviction in cash-generative companies that have delivered for the portfolio and we foresee delivering into the future. As always, we are focused on stock-specifics and identifying those shares that are best-placed to perform well amidst market normalisation. We are excited by the holdings in the Company and their potential to deliver strong capital and dividend growth over the long term.
ADAM AVIGDORI AND DAVID GOLDMAN
BLACKROCK INVESTMENT MANAGEMENT (UK) LIMITED
12 January 2022
TEN LARGEST INVESTMENTS
1 =
AstraZeneca (2020: 1st)
Sector: Pharmaceuticals & Biotechnology
Market value of investment holdings: £3,322,000
Percentage of portfolio: 7.2% (2020: 7.1%)
AstraZeneca is an Anglo-Swedish multinational pharmaceutical group 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 respiration.
2 + RELX (2020: 4th)
Sector: Media
Market value of investment holdings: £2,397,000
Percentage of portfolio: 5.2% (2020: 5.0%)
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.
3 + Royal Dutch Shell ‘B’ (2020: 9th)
Sector: Oil & Gas Producers
Market value of investment holdings: £2,159,000
Percentage of portfolio: 4.7% (2020: 2.9%)
Royal Dutch Shell is a global oil and gas group. The company operates in both Upstream and Downstream industries. Upstream is engaged in searching for and recovering crude oil and natural gas and the liquefaction and transportation of gas. Downstream is engaged in manufacturing, distribution and marketing activities for oil products and chemicals.
4 -
Reckitt Benckiser (2020: 3rd)
Sector: Household Goods & Home Construction
Market value of investment holdings: £2,069,000
Percentage of portfolio: 4.5% (2020: 5.0%)
Reckitt Benckiser is a global leader in consumer health, hygiene and home products. Its products are sold in 200 countries.
5 -
Unilever (2020: 2nd)
Sector: Food Producers
Market value of investment holdings: £1,814,000
Percentage of portfolio:
3.9% (2020: 5.8%)
Unilever is a global supplier of food, home and personal care products with more than 400 brands focused on health and well-being.
6 +
3i Group (2020: 8th)
Sector: Financial Services
Market value of investment holdings: £1,749,000
Percentage of portfolio: 3.8% (2020: 3.0%)
3i Group is a private equity and venture capital group based in London. 3i Group invests in mid-market buyouts, growth capital and infrastructure. Sectors invested in are business and financial services, consumer, industrials and energy and health care.
7 - Rio Tinto (2020: 6th)
Sector: Mining
Market value of investment holdings: £1,701,000
Percentage of portfolio: 3.7% (2020: 3.9%)
Rio Tinto is a metals and mining group operating in approximately 36 countries around the world, producing iron ore, copper, diamonds, gold and uranium.
8 -
British American Tobacco (2020: 5th)
Sector: Tobacco
Market value of investment holdings: £1,684,000
Percentage of portfolio: 3.7% (2020: 4.6%)
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.
9 +
Electrocomponents (2020: 36th)
Sector: Support Services
Market value of investment holdings: £1,589,000
Percentage of portfolio: 3.4% (2020: 1.2%)
Electrocomponents is a distributor of industrial and electronics products, serving customers in more than 80 countries. The company distributes over 500,000 products, including electronic components, electrical, automation and control and test and measurement equipment, and engineering tools and consumables.
10 +
Ferguson (2020: 15th)
Sector: Support Services
Market value of investment holdings: £1,585,000
Percentage of portfolio: 3.4% (2020: 2.4%)
Ferguson is a leading distributor of plumbing and heating products. With a large presence in North America, the company principally serves the repair, maintenance and improvement markets and holds leading positions in many of these markets.
All percentages reflect the value of the holding as a percentage of total investments as at 31 October 2021.
Together, the ten largest investments represent 43.5% of total investments (ten largest investments as at 31 October 2020: 43.4%).
DISTRIBUTION OF INVESTMENTS AS AT 31 OCTOBER 2021
ANALYSIS OF PORTFOLIO BY SECTOR
| % of investments by market value |
Benchmark |
||
| 1 | Support Services | 13.0 | 4.7 |
| 2 | Pharmaceuticals & Biotechnology | 9.2 | 9.4 |
| 3 | Financial Services | 8.9 | 4.4 |
| 4 | Household Goods & Home Construction | 8.0 | 1.5 |
| 5 | Media | 6.5 | 3.1 |
| 6 | Oil & Gas Producers | 6.0 | 8.5 |
| 7 | Mining | 5.6 | 0.5 |
| 8 | Banks | 5.3 | 7.8 |
| 9 | Life Insurance | 5.2 | 3.2 |
| 10 | Food Producers | 4.6 | 0.6 |
| 11 | Non-Life Insurance | 3.9 | 0.8 |
| 12 | Tobacco | 3.7 | 3.0 |
| 13 | General Retailers | 3.4 | 3.3 |
| 14 | Health Care Equipment & Services | 2.8 | 0.7 |
| 15 | Travel & Leisure | 2.8 | 3.5 |
| 16 | Electronic & Electrical Equipment | 2.5 | 1.1 |
| 17 | Food & Drug Retailers | 2.4 | 7.2 |
| 18 | General Industrials | 1.4 | 1.9 |
| 19 | Software & Computer Services | 1.3 | 1.5 |
| 20 | Electricity | 0.9 | 0.8 |
| 21 | Real Estate Investment Trusts | 0.8 | 2.6 |
| 22 | Technology Hardware & Equipment | 0.8 | 0.1 |
| 23 | Industrial Engineering | 0.6 | 0.7 |
| 24 | Personal Goods | 0.4 | 0.5 |
Sources: BlackRock and Datastream.
INVESTMENT SIZE
|
Number of investments |
% of investments by market value |
|
| <£1m | 28 | 30.9 |
| £1m to £2m | 16 | 47.5 |
| £2m to £3m | 3 | 14.4 |
| £3m to £4m | 1 | 7.2 |
Source: BlackRock.
INVESTMENTS AS AT 31 OCTOBER 2021
|
|
Market value £000 |
% of investments |
| Support Services | ||
| Electrocomponents | 1,589 | 3.4 |
| Ferguson | 1,585 | 3.4 |
| Rentokil Initial | 1,256 | 2.7 |
| Hays | 1,082 | 2.3 |
| Grafton | 561 | 1.2 |
| -------------- | -------------- | |
| 6,073 | 13.0 | |
| ======== | ======== | |
| Pharmaceuticals & Biotechnology | ||
| AstraZeneca | 3,322 | 7.2 |
| Sanofi1 | 824 | 1.8 |
| Oxford Nanopore Technologies | 71 | 0.2 |
| -------------- | -------------- | |
| 4,217 | 9.2 | |
| ======== | ======== | |
| Financial Services | ||
| 3i Group | 1,749 | 3.8 |
| Mastercard1 | 1,076 | 2.3 |
| Premier Asset Management Group | 768 | 1.7 |
| IntegraFin | 495 | 1.1 |
| -------------- | -------------- | |
| 4,088 | 8.9 | |
| ======== | ======== | |
| Household Goods & Home Construction | ||
| Reckitt Benckiser | 2,069 | 4.5 |
| Taylor Wimpey | 1,016 | 2.2 |
| Berkeley Group | 600 | 1.3 |
| -------------- | -------------- | |
| 3,685 | 8.0 | |
| ======== | ======== | |
| Media | ||
| RELX | 2,397 | 5.2 |
| Pearson | 577 | 1.3 |
| -------------- | -------------- | |
| 2,974 | 6.5 | |
| ======== | ======== | |
| Oil & Gas Producers | ||
| Royal Dutch Shell ‘B’ | 2,159 | 4.7 |
| BP Group | 583 | 1.3 |
| -------------- | -------------- | |
| 2,742 | 6.0 | |
| ======== | ======== | |
| Mining | ||
| Rio Tinto | 1,701 | 3.7 |
| BHP | 882 | 1.9 |
| -------------- | -------------- | |
| 2,583 | 5.6 | |
| ======== | ======== | |
| Banks | ||
| Standard Chartered | 1,409 | 3.1 |
| Lloyds Banking Group | 1,023 | 2.2 |
| -------------- | -------------- | |
| 2,432 | 5.3 | |
| ======== | ======== | |
| Life Insurance | ||
| Legal & General Group | 1,416 | 3.1 |
| Phoenix Group | 961 | 2.1 |
| -------------- | -------------- | |
| 2,377 | 5.2 | |
| ======== | ======== | |
| Food Producers | ||
| Unilever | 1,814 | 3.9 |
| Tate & Lyle | 331 | 0.7 |
| -------------- | -------------- | |
| 2,145 | 4.6 | |
| ======== | ======== | |
| Non-Life Insurance | ||
| Direct Line Group | 1,137 | 2.5 |
| Hiscox | 641 | 1.4 |
| -------------- | -------------- | |
| 1,778 | 3.9 | |
| ======== | ======== | |
| Tobacco | ||
| British American Tobacco | 1,684 | 3.7 |
| -------------- | -------------- | |
| 1,684 | 3.7 | |
| ======== | ======== | |
| General Retailers | ||
| Next | 671 | 1.5 |
| WH Smith | 467 | 1.0 |
| Moonpig Group | 415 | 0.9 |
| -------------- | -------------- | |
| 1,553 | 3.4 | |
| ======== | ======== | |
| Health Care Equipment & Services | ||
| Smith & Nephew | 1,304 | 2.8 |
| -------------- | -------------- | |
| 1,304 | 2.8 | |
| ======== | ======== | |
| Travel & Leisure | ||
| Whitbread | 863 | 1.9 |
| Fuller Smith & Turner - A Shares | 398 | 0.9 |
| Patisserie Holdings2 | – | – |
| -------------- | -------------- | |
| 1,261 | 2.8 | |
| ======== | ======== | |
| Electronic & Electrical Equipment | ||
| Oxford Instruments | 619 | 1.3 |
| Schneider Electric1 | 565 | 1.2 |
| -------------- | -------------- | |
| 1,184 | 2.5 | |
| ======== | ======== | |
| Food & Drug Retailers | ||
| Tesco | 1,109 | 2.4 |
| -------------- | -------------- | |
| 1,109 | 2.4 | |
| ======== | ======== | |
| General Industrials | ||
| Smiths Group | 636 | 1.4 |
| -------------- | -------------- | |
| 636 | 1.4 | |
| ======== | ======== | |
| Software & Computer Services | ||
| Adobe Systems1 | 337 | 0.7 |
| Auction Technology Group | 298 | 0.6 |
| -------------- | -------------- | |
| 635 | 1.3 | |
| ======== | ======== | |
| Electricity | ||
| Drax Group | 429 | 0.9 |
| -------------- | -------------- | |
| 429 | 0.9 | |
| ======== | ======== | |
| Real Estate Investment Trusts | ||
| Big Yellow Group | 378 | 0.8 |
| -------------- | -------------- | |
| 378 | 0.8 | |
| ======== | ======== | |
| Technology Hardware & Equipment | ||
| Analog Devices1 | 374 | 0.8 |
| -------------- | -------------- | |
| 374 | 0.8 | |
| ======== | ======== | |
| Industrial Engineering | ||
| Chart Industries1 | 259 | 0.6 |
| -------------- | -------------- | |
| 259 | 0.6 | |
| ======== | ======== | |
| Personal Goods | ||
| THG Holdings | 180 | 0.4 |
| -------------- | -------------- | |
| 180 | 0.4 | |
| ======== | ======== | |
| Total investments | 46,080 | 100.0 |
| ======== | ======== |
1 Non-UK listed investments.
2 Company under liquidation.
All investments are in ordinary shares unless otherwise stated. The total number of investments held at 31 October 2021 was 48 (31 October 2020: 48).
As at 31 October 2021, the Company did not hold any equity interests comprising more than 3% of any company’s share capital.
STRATEGIC REPORT
The Directors present the Strategic Report of the Company for the year ended 31 October 2021.
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, also performed by 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, setting the dividend, 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 the Company will invest primarily in the securities of companies listed or admitted to trading in the UK. The Company may invest up to 20% of the gross asset value of the Company in the securities of companies that are not listed or admitted to trading 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 may not exceed 10% of the net asset value of the Company. The performance of the Company is measured by reference to the FTSE All-Share Index (the Benchmark Index) on a total return basis. Non-benchmark securities (including securities that are not listed or admitted to trading in the UK) may not exceed 20% of the gross asset value of the Company. Any non-benchmark securities which are listed or admitted to trading in the UK shall be limited to 10% of the gross asset value of the Company. Each investee company that is a constituent of the Benchmark Index is subject to a lower limit of 0% and an upper limit of plus 4 percentage points of the Company’s gross asset value against such investee company’s weighting in the Index on an ongoing basis, subject to an absolute sector weighting upper limit of 20% of the Company’s net asset value 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 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 Benchmark Index and in any individual year, the returns will vary, sometimes significantly, from those of the Benchmark Index. Over longer periods the objective is to achieve total returns greater than the Benchmark Index.
INVESTMENT APPROACH
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 Manager seeks 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 BlackRock Investment Stewardship (BIS) team engages with portfolio companies, and proxy votes on clients’ behalf, to promote corporate governance standards and sustainable business models that we believe contribute to the durable, long-term profitability BlackRock’s clients depend on to meet their financial goals. The Investment Manager works closely with the BIS team to assess the governance quality of companies and assess any potential ESG risks or opportunities. Through this combination of quantitative and qualitative assessment, BlackRock ensures that its understanding of the portfolio’s investments is thorough, reliable and up to date.
EMBEDDED RISK MANAGEMENT FRAMEWORK
The Investment Manager’s research team monitors differing levels of risk throughout the process and believes that avoiding major downside events can generate significant outperformance over the long-term. Inputs from BlackRock’s Risk & Quantitative Analysis Team (RQA) are an integral part of the investment process. 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. There are no derivative positions at 31 October 2021. 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. The facility was renewed for a further two years via an amendment to the Agreement executed in October 2020 and expires in October 2022. At the date of this report the new facility is fully drawn down.
PERFORMANCE
The Board also reviews regularly 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.
Details of the Company’s performance for the year are also given in the Chairman’s Statement above. The Investment Manager’s report above 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 7.10p per share (2020: 5.43p per share). The total net profit for the year, after taxation, was £10,621,000 (2020: loss of £7,450,000) of which the net revenue profit amounted to £1,557,000 (2020: £1,234,000) and the net capital profit amounted to £9,064,000 (2020: loss of £8,684,000). Details of dividends paid and declared in respect of the year are set out in the Chairman’s Statement above.
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 2021, the Company’s share price to NAV traded in the range of a discount of 15.8% to a premium of 0.4%, both on a cum income basis. The Company bought back a total of 1,112,783 ordinary shares during the year at an average discount of 8.5% and at an average price of 177.30p per share. The total consideration (including costs) was £1,973,000. No ordinary shares were reissued from treasury during the year.
ONGOING CHARGES
Ongoing charges represent the Company’s management fee and all other operating expenses, excluding finance costs, direct transaction costs, custody transaction charges, VAT recovered, taxation and certain non-recurring items, expressed as a percentage of average daily 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.
|
|
Year ended 31 October 2021 |
Year ended 31 October 2020 |
| NAV per share1 | 203.13p | 161.70p |
| Share price2 | 191.00p | 162.50p |
| Net asset value total return3, 6 | +30.4% | -16.7% |
| Share price total return3, 6 | +22.2% | -14.8% |
| Change in Benchmark Index4 | +35.4% | -18.6% |
| (Discount)/premium to net asset value6 | (6.0)% | 0.5% |
| Revenue earnings per share | 7.10p | 5.43p |
| Dividends per share | 7.20p | 7.20p |
| Ongoing charges5, 6 | 1.21% | 1.19% |
| ======== | ======== |
1 Calculated in accordance with accounting policies adopted by the Company and 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 management fee and all other operating expenses, excluding finance costs, direct transaction costs, custody transaction charges, VAT recovered, taxation and certain non-recurring items as a % of average daily 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 and emerging risks of the Company, including those that they consider would threaten its business model, future performance, solvency or liquidity. The COVID-19 pandemic has given rise to unprecedented challenges for businesses across the globe and the Board has taken into consideration the risks posed to the Company by the crisis and incorporated these into the Company’s risk register. Emerging risks are considered by the Board as they come into view and are incorporated into the existing review of the Company’s risk register. Additionally, the Investment Manager considers emerging risks in numerous forums and the Risk and Quantitative Analysis team produces an annual risk survey. Any material risks of relevance to the Company identified through the annual risk survey will be communicated to the Board.
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 Investment 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 Investment 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 (2018 Code), the Board has undertaken a robust assessment of the principal and emerging 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
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 and the dividends paid by the underlying investee companies. Changes in the composition of the portfolio and 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. |
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, regulatory and tax 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 Board is aware of the risk of potential changes in law and taxation post Brexit and will continue to monitor this closely. 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. The Company and its appointed Alternative Investment Fund Manager (AIFM and/or Manager) are subject to the risks that the requirements of this Directive are not correctly complied with. The Board and the Manager 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
In common with most other investment trust companies, the Company has no employees. The Company therefore relies upon the services provided by third parties and is dependent on the control systems of BlackRock (the Investment Manager and AIFM), and of The Bank of New York Mellon (International) Limited (the Depositary and Fund Accountant), which ensures safe custody of the Company’s assets and maintains the Company’s accounting records. The Company’s share register is maintained by the Registrar, Computershare Investor Services PLC. Failure by any service provider to carry out its obligations to the Company could have a material adverse effect on the Company’s performance. Disruption to the accounting, payment systems or custody records, as a result of a cyber-attack or otherwise, could impact the monitoring and reporting of the Company’s financial position. The security of the Company’s assets, dealing procedures, accounting records and maintenance of regulatory and legal requirements, depend on the effective operation of these systems. |
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. The Board considers succession arrangements for key employees of the Investment Manager and the Board also considers the business continuity arrangements of the Company’s key service providers on an ongoing basis and reviews these as part of its review of the Company’s risk register. In respect of the unprecedented and emerging risks posed by the COVID-19 pandemic in terms of the ability of service providers to function effectively, the Board has received reports from key service providers setting out the measures that they have put in place to address the crisis, in addition to their existing business continuity framework. Having considered these arrangements and reviewed service levels since the crisis has evolved, the Board is confident that a good level of service has and will be maintained. |
|
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. The Board also recognises the benefits of a closed-end fund structure in extremely volatile markets such as those experienced with the COVID-19 pandemic. Unlike open-ended counterparts, closed-end funds are not obliged to sell-down portfolio holdings at low valuations to meet liquidity requirements for redemptions. During times of elevated volatility and market stress, the ability of a closed-end fund structure to remain invested for the long-term enables the Investment Manager to adhere to disciplined fundamental analysis from a bottom-up perspective. |
|
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 to the financial statements in the Annual Report and Financial Statements, together with a summary of the policies for managing these risks. |
VIABILITY STATEMENT
In accordance with provision 31 of the 2018 UK Corporate Governance Code, the Directors have assessed the prospects of the Company over a longer period than the twelve months referred to by the ‘Going Concern’ guidelines. The Company is an investment trust with the objective of achieving capital growth. The Directors expect the Company to continue for the foreseeable future and have conducted this review for the period up to the Annual General Meeting in 2027. The Directors believe that five years is an appropriate investment horizon to assess the viability of the Company. This is based on the Company’s long-term mandate. The Board is aware of the ongoing uncertainty surrounding the potential duration of the COVID-19 pandemic, its impact on the global economy and the prospects for many of the Company’s portfolio holdings. Notwithstanding the impact of the ongoing pandemic, and given the factors stated below, the Board expects the Company to continue to meet its liabilities as they fall due for the foreseeable future and has therefore conducted this review for a period of five years. This period has been selected as it is aligned to the Company’s objective of achieving long-term growth in capital and income.
The Board conducted this review for the period up to the AGM in 2027, being a five-year period from the date that this annual report will be laid before shareholders for approval. 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 11 January 2022 the Company’s shares were trading at a discount to NAV of 6.3%.
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
On 31 January 2020 the United Kingdom (the “UK”) formally withdrew and ceased being a member of the European Union (the “EU”). Following this, the UK entered into a transition period which lasted for the remainder of 2020, during which period the UK was subject to applicable EU laws and regulations. The transition period expired on 31 December 2020 and EU law no longer applies in the UK. On 30 December 2020, the UK and the EU signed a UK/EU Trade and Cooperation Agreement (“UK/EU Trade Agreement”), which applied from 1 January 2021 and set out the foundation of the economic and legal framework for trade between the UK and the EU.
The UK’s exit from the EU has resulted in additional trade costs and disruptions in the trading relationship with EU members. While the UK/EU Trade Agreement provides for the free trade of goods, it provides only general commitments on market access in services together with a “most favoured nation” provision which is subject to many exceptions. Furthermore, there is the possibility that either party may impose tariffs on trade in the future in the event that regulatory standards between the EU and the UK diverge. The terms of the future relationship may cause continued uncertainty in the global financial markets, and adversely affect the performance of the Company. Volatility resulting from this uncertainty may mean that the returns of the Company’s investments are affected by market movements, the potential decline in the value of Sterling or Euro and the potential downgrading of UK sovereign credit rating.
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 legal, fiscal and regulatory landscape following the BREXIT process, 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 will be materially impeded in achieving the Company’s investment objective. The longer-term process of implementing the political, economic and legal framework relating to the relationship 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 above.
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 approach to 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 2021, 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 2021, the Board consisted of three male Directors and one female Director, resulting in 25% female board representation. The Company does not have any employees.
PROMOTING THE SUCCESS OF THE BLACKROCK INCOME AND GROWTH INVESTMENT TRUST PLC
The Companies (Miscellaneous Reporting) Regulations 2018 require directors to explain more fully how they have discharged their duties under Section 172(1) of the Companies Act 2006 in promoting the success of their companies for the benefit of members as a whole. This enhanced disclosure covers how the Board has engaged with and understands the views of stakeholders and how stakeholders’ needs have been taken into account, the outcome of this engagement and the impact that it has had on the Board’s decisions.
As the Company is an externally managed investment company and does not have any employees or customers, the Board considers the main stakeholders in the Company to be the shareholders, key service providers (being the Manager and Investment Manager, the Custodian, Depositary, Registrar and Broker) and investee companies. The reasons for this determination, and the Board’s overarching approach to engagement, are set out in the table below.
| Stakeholders | |||
|
Shareholders
Continued shareholder support and engagement are critical to the continued existence of the Company and the successful delivery of its long-term strategy. The Board is focused on fostering good working relationships with shareholders and on understanding the views of shareholders in order to incorporate them into the Board’s strategy and objectives in delivering long-term growth and income. |
Manager and Investment Manager
The Board’s main working relationship is with the Manager, who is responsible for the Company’s portfolio management (including asset allocation, stock and sector selection) and risk management, as well as ancillary functions such as administration, secretarial, accounting and marketing services. The Manager has sub-delegated portfolio management to the Investment Manager. Successful management of shareholders’ assets by the Investment Manager is critical for the Company to deliver successfully its investment strategy and meet its objective. The Company is also reliant on the Manager as AIFM to provide support in meeting relevant regulatory obligations under the AIFMD and other relevant legislation. |
Other key service providers
In order for the Company to function as an investment trust with a listing on the premium segment of the official list of the FCA and trade on the London Stock Exchange’s (LSE) main market for listed securities, the Board relies on a diverse range of service providers and advisors for support in meeting relevant obligations and safeguarding the Company’s assets. For this reason the Board considers the Company’s Custodian, Depositary, Registrar and Broker to be stakeholders. The Board maintains regular contact with its key external providers and receives regular reporting from them through the Board and committee meetings, as well as outside of the regular meeting cycle. |
Investee companies
Portfolio holdings are ultimately shareholders’ assets, and the Board recognises the importance of good stewardship and communication with investee companies in meeting the Company’s investment objective and strategy. The Board monitors the Investment Manager’s stewardship arrangements and receives regular feedback from the Investment Manager in respect of meetings with the management of portfolio companies. |
A summary of the key areas of engagement undertaken by the Board with its key stakeholders in the year under review and how Directors have acted upon this to promote the long-term success of the Company are set out in the table below.
| Area of Engagement | Issue | Engagement | Impact |
| Investment mandate and objective | The Board is committed to promoting the role and success of the Company in delivering on its investment mandate to shareholders over the long-term. Consideration of sustainable investment is a key part of the investment process and must be factored in when making investment decisions. The Board also has responsibility to shareholders to ensure that the Company’s portfolio of assets is invested in line with the stated investment objective and in a way that ensures an appropriate balance between spread of risk and portfolio returns. | The Board believes that responsible investment and sustainability are important to the longer-term delivery of growth in capital and income and has worked very closely with the Manager throughout the year to review regularly the Company’s performance, investment strategy and underlying policies and to understand how ESG considerations are integrated into the investment process. The Manager’s approach to the consideration of ESG factors in respect of the Company’s portfolio, as well as its engagement with investee companies to encourage the adoption of sustainable business practices which support long-term value creation, are kept under review by the Board. The Manager reports to the Board in respect of its consideration of ESG factors and how these are integrated into the investment process. A summary of BlackRock’s approach to ESG and sustainability is set out in the Annual Report and Financial Statements. |
The portfolio activities undertaken by the Investment Manager can be found in the Investment Manager’s Report above. |
| Discount strategy | The Board believes that strong performance and an attractive dividend yield enhances demand for the Company’s shares, which will help to narrow the Company’s discount of share price to NAV over time. | The Manager reports total return performance statistics to the Board on a regular basis, along with the portfolio yield and the impact of dividends paid on brought forward distributable reserves. The Board reviews the Company’s discount/premium to NAV on a regular basis and holds regular discussions with the Manager and the Company’s broker regarding the discount/premium level. The Manager provides the Board with feedback and key performance statistics regarding the success of the Company’s marketing initiatives which include messaging to highlight the dividends. The Board also reviews feedback from shareholders in respect of the level of dividend. |
The average discount for the year to 31 October 2021 was 7.4%. During the year the Company’s share price has traded at a maximum discount of 15.8% and a maximum premium of 0.4%. |
| Service levels of third party providers | The Board acknowledges the importance of ensuring that the Company’s principal suppliers are providing a suitable level of service: including the Manager in respect of investment performance and delivering on the Company’s investment mandate; the Custodian and Depositary in respect of their duties towards safeguarding the Company’s assets; the Registrar in its maintenance of the Company’s share register and dealing with investor queries and the Company’s Brokers in respect of the provision of advice and acting as a market maker for the Company’s shares. | The Manager reports to the Board on the Company’s performance on a regular basis. The Board carries out a robust annual evaluation of the Manager’s performance, their commitment and available resources. The Board performs an annual review of the service levels of all third party service providers and concludes on their suitability to continue in their role. The Board receives regular updates from the AIFM, Depositary, Registrar and Brokers. In light of the challenges presented by the COVID-19 pandemic to the operation of business across the globe, the Board has worked closely with the Manager to gain comfort that relevant business continuity plans are operating effectively for all of the Company’s service providers. |
Performance evaluations were performed on a timely basis and the Board concluded that all third party service providers, including the Manager, Custodian, Depositary and Fund Administrator were operating effectively and providing a good level of service. The Board has received updates in respect of business continuity planning from the Manager, Custodian, Depositary, Fund Administrator, Brokers and Registrar, and is confident that arrangements are in place to ensure that a good level of service will continue to be provided despite the ongoing impact of the COVID-19 pandemic. |
| Board composition | The Board is committed to ensuring that its own composition brings an appropriate balance of knowledge, experience, diversity and skills, and that it is compliant with best corporate governance practice under the UK Code of Corporate Governance, including guidance on tenure and the composition of the Board’s committees. | Over recent years the Board undertook a review of succession planning arrangements and identified the need for action given that, if no action were taken, a majority of Board Directors would have had tenure in excess of nine years. The Board, discharging the duties of a Nomination Committee, agreed the selection criteria and the method of selection, recruitment and appointment. Board diversity, including gender, was taken into account when establishing the criteria. All Directors are subject to a formal evaluation process on an annual basis (more details and the conclusions in respect of the 2021 evaluation process are given in the Annual Report and Financial Statements). All Directors stand for re-election by shareholders annually. Shareholders may, subject to any COVID-19 restrictions, attend the AGM and raise any queries in respect of Board composition or individual Directors in person, or may contact the Company Secretary or the Chairman using the details provided in the Annual Report and Financial Statements if they wish to raise any issues. |
In December 2020 the Board announced the appointment of a new Director, Mrs Robbins. Mr Luckraft, a long serving Director, also advised the Board that he would stand down as a Director from the conclusion of the AGM in March 2021. The Board recognises the benefits of diversity and a structured process of ongoing refreshment and will continue to consider regularly its composition. The Directors are not aware of any issues that have been raised directly by shareholders in respect of Board composition in 2021. Details of the proxy voting results in favour and against individual Directors’ re-election at the 2021 AGM are given on the Company’s website at www.blackrock.com/uk/brig. |
| Shareholders | Continued shareholder support and engagement are critical to the continued existence of the Company and the successful delivery of its long-term strategy. | The Board is committed to maintaining open channels of communication and to engage with shareholders. Notwithstanding the ongoing impact of the COVID-19 pandemic, in normal operating circumstances the Company welcomes and encourages attendance and participation from shareholders at its Annual General Meetings. Shareholders therefore have the opportunity to meet the Directors and Investment Manager and to address questions to them directly. The Annual Report and Half-yearly Financial Report are available on the BlackRock website and are also circulated to shareholders either in printed copy or via electronic communications. In addition, regular updates on performance, monthly factsheets, the daily NAV and other information are also published on the website at www.blackrock.com/uk/brig. The Board also works closely with the Investment Manager to develop the Company’s marketing strategy, with the aim of ensuring effective communication with shareholders in respect of the investment mandate and objective. Unlike trading companies, one-to-one shareholder meetings usually take the form of a meeting with the Investment Manager as opposed to members of the Board. As well as attending regular investor meetings the Investment Manager holds regular discussions with wealth management desks and offices to build on the case for, and understanding of, long-term investment opportunities in the UK market. The Investment Manager also coordinates public relations activity, including meetings with relevant industry publications to set out their vision for the portfolio strategy and outlook for the UK equity market. The Investment Manager releases monthly portfolio updates to the market to ensure that investors are kept up to date in respect of performance and other portfolio developments, and maintains a website on behalf of the Company that contains relevant information in respect of the Company’s investment mandate and objective. If shareholders wish to raise issues or concerns with the Board, they are welcome to do so at any time. The Chairman is available to meet directly with shareholders periodically to understand their views on governance and the Company’s performance. He may be contacted via the Company Secretary whose details are given in the Annual Report and Financial Statements. |
The Board values any feedback and questions from shareholders ahead of and during Annual General Meetings in order to gain an understanding of their views and will take action when and as appropriate. Feedback and questions will also help the Company evolve its reporting, aiming to make reports more transparent and understandable. Feedback from all substantive meetings between the Investment Manager and shareholders will be shared with the Board. The Directors will also receive updates from the Company’s broker on any feedback from shareholders, as well as share trading activity, share price performance and an update from the Investment Manager. The portfolio managers attended 536 professional investor meetings in respect of the Company during the year under review. |
THE BOARD'S APPROACH TO SUSTAINABILITY AND ESG
Environmental, social and governance (ESG) issues can present both opportunities and threats to long-term investment performance. These ethical and sustainability issues are a key focus of the Board and your Board is committed to a diligent oversight of the activities of the Manager in these areas. The Board believes effective engagement with management is, in most cases, the most effective way of driving meaningful change in the behaviour of investee company management. This is particularly true for the Company’s Manager given the extent of BlackRock’s shareholder engagement. As well as the influence afforded by its sheer scale, the Board believes that BlackRock is well placed as Manager to fulfil these requirements due to the integration of ESG into its investment processes, the emphasis it places on sustainability, its collaborative approach in its investment stewardship activities and its position in the industry as one of the largest suppliers of sustainable investment products in the global market. More information on BlackRock’s approach to sustainability is set out below.
BY ORDER OF THE BOARD
KEVIN MAYGER
FOR AND ON BEHALF OF
BLACKROCK INVESTMENT MANAGEMENT (UK) LIMITED
COMPANY SECRETARY
12 January 2022
The following report has been prepared by the Company’s Manager and sets out its approach to responsible investing.
Responsible ownership: BlackRock’s approach to sustainable investing
Responsible ownership – BlackRock’s approach
As a fiduciary to its clients, BlackRock has built its business to protect and grow the value of clients’ assets. From BlackRock’s perspective, business-relevant sustainability issues can contribute to a company’s long-term financial performance, and thus further incorporating these considerations into the investment research, portfolio construction, and investment stewardship process can help support long-term risk adjusted returns. By expanding access to data, insights and learning on material ESG risks and opportunities in investment processes across BlackRock’s diverse platform, BlackRock believes that the investment process is greatly enhanced. The Company’s Investment Manager works closely with the BIS team to assess the governance quality of companies and assess any potential ESG risks or opportunities. The Investment Manager uses ESG information when conducting research and due diligence on new investments and again when monitoring investments in the portfolio.
BlackRock’s approach to sustainable investing
Considerations about sustainability have been at the centre of BlackRock’s investment approach for many years and the firm offers more than 200 sustainable products and solutions. BlackRock believes that climate change is now a defining factor in companies’ long-term prospects, and that it will have a significant and lasting impact on economic growth and prosperity. BlackRock believes that climate risk equates to investment risk, and this will drive a profound reassessment of risk and asset values as investors seek to react to the impact of climate policy changes. This in turn is likely to drive a significant reallocation of capital away from traditional carbon intensive industries over the next decade. BlackRock also announced in January 2021 that it was committed to supporting the goal of ‘net zero’ (building an economy that emits no more carbon dioxide than it removes from the atmosphere) by 2050 (the scientifically-established threshold necessary to keep global warming well below 2ºC). BlackRock is taking a number of steps to help investors prepare their portfolios for a net zero world, including capturing opportunities created by the net zero transition.
More information on BlackRock’s policies on Corporate Sustainability can be found on BlackRock’s website at: www.blackrock.com/corporate/sustainability
Investment Stewardship
BlackRock also places a strong emphasis on sustainability in its stewardship activities. As a fiduciary, BlackRock has a responsibility to its clients to make sure investee companies are adequately managing and disclosing ESG risks and opportunities that can impact their ability to generate long-term financial performance, and to signal our concerns if they are not.
The BIS team – one of the largest, most skilled and diverse teams in the industry – engages with portfolio companies, and proxy votes on clients’ behalf, to promote corporate governance standards and sustainable business models that we believe contribute to the durable, long-term profitability BlackRock’s clients depend on to meet their financial goals. Each year, the BIS team prioritizes its work around several engagement themes that enables it to provide feedback to companies and build mutual understanding about corporate governance and sustainable business models. In 2021, the BIS engagement priorities reflected a continued emphasis on board effectiveness alongside the impact of sustainability-related factors on a company’s ability to generate long-term financial returns. BIS mapped its priorities to specific United Nations Sustainable Development Goals, such as Gender Equality and Clean and Affordable Energy, and provided high level, globally relevant Key Performance Indicators (KPIs) for each priority so companies are aware of BlackRock’s expectations. Further information on our engagement priorities for 2022 can be found at the following link: https://www.blackrock.com/corporate/about-us/investment-stewardship#engagement-priorities
BlackRock is committed to transparency in terms of disclosure on its engagement with companies and voting rationales. During the twelve months to 30 June 2021, BlackRock held over 3,600 engagements with companies based in 55 markets and voted on clients’ behalf on more than 165,000 management and shareholder proposals across 71 voting markets. Voting is how BIS signals support for or raises concerns over a company’s corporate governance or business model. Where BIS has concerns, the team may vote against directors or other management proposals, or in support of a shareholder proposal. BIS employs votes against directors more frequently since that is a globally available signal of concern. During the 2020-21 proxy year (1 July 2020 through 30 June 2021), BIS voted on more than 64,000 director elections, voting against 10% for falling short of the team’s expectations. BIS voted against one or more directors at over 3,400 companies globally. Corporate governance concerns — including lack of board independence, insufficient diversity, and executive compensation — prompted most of the votes against directors’ elections, and other director-related proposals, globally. Our engagement and voting disclosure can be found at: https://www.blackrock.com/corporate/about-us/investment-stewardship#engagement-and-voting-history
In line with BlackRock’s investment conviction that climate risk is investment risk, in 2020 the BIS team identified 244 companies that, on its assessment, were not adequately addressing their exposure to or management of climate risk.1 In 2021, BIS expanded the climate focus universe to over 1,000 carbon intensive public companies that represent 90% of the global scope 1 and 2 greenhouse gas (GHG) emissions of our clients’ public equity holdings with BlackRock.2 Further information on climate risk can be found at: https://www.blackrock.com/corporate/literature/publication/blk-climate-focus-universe.pdf. The increasing demand from investors for more complete and comparable sustainability reporting, and from companies for clarity on what to report, led BlackRock to ask, in January 2020, that companies publish reports aligned with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), supplemented by industry specific metrics such as those identified by the Sustainability Accounting Standards Board (SASB). BIS communicated its position throughout the past two years that BlackRock expects companies to demonstrate how climate and sustainability-related risks are considered and integrated into their strategy. If a company does not provide adequate public disclosures for BlackRock to assess how material risks are addressed, we may conclude that those issues are not appropriately managed and mitigated. In the 2020-21 proxy year, BIS voted against 255 directors and against 319 companies for climate-related concerns that could negatively affect long-term shareholder value.3 More details about BlackRock’s investment stewardship process can be found on BlackRock’s website at www.blackrock.com/corporate/about-us/investment-stewardship.
In terms of its own reporting, BlackRock believes that the SASB provides a clear set of standards for reporting sustainability information across a wide range of issues, from labour practices to data privacy to business ethics. For evaluating and reporting climate-related risks, as well as the related governance issues that are essential to managing them, the TCFD provides a valuable framework. BlackRock recognise that reporting to these standards requires significant time, analysis, and effort. BlackRock’s own SASB-aligned disclosure is available on its website at: www.blackrock.com/corporate/literature/continuous-disclosure-and-important-information/blackrock-2020-sasb-disclosure.pdf and BlackRock is committed to publishing a detailed TCFD-aligned report in 2022 on its 2021 activities.
1 See the BIS special report, Our approach to sustainability, that outlines BIS’ engagement approach and voting on climate risk and other sustainability topics.
2 Based on MSCI data. This list includes companies that were on the 2020 BIS Climate Watchlist and those that are constituents of the Climate Action 100+ focus universe, in addition to other companies that BlackRock held an equity position in on behalf of our clients as of the end of 2020.
3 Votes against unique companies on climate include: 1) votes against or abstain on director elections and director-related proposals, and 2) votes in support or abstain on climate-related shareholder proposals.
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 2021 amounted to £240,000 (2020: £237,000). At the year end, £180,000 was outstanding in respect of the management fee (2020: £111,000).
The Company holds an investment in the BlackRock Institutional Cash Series plc – Sterling Liquid Environmentally Aware Fund of £1,299,000 (2020: £1,575,000) which for the year ended 31 October 2021 and 31 October 2020 has been presented in the financial statements as a cash equivalent.
In addition to the above services, BIM (UK) has provided the Company with marketing services. The total fees paid or payable for these services for the year ended 31 October 2021 amounted to £11,000 including VAT (2020: £18,000). Marketing fees of £11,000 including VAT were outstanding at 31 October 2021 (2020: £12,000).
The ultimate holding company of the Manager and the Investment Manager is BlackRock, Inc., a company incorporated in Delaware USA.
The Board currently consists of four non-executive Directors, all of whom are independent of the Company’s Manager. None of the Directors has a service contract with the Company. For the year ended 31 October 2021, the Chairman received an annual fee of £29,750, the Chairman of the Audit Committee received an annual fee of £24,000 and each of the other Directors received an annual fee of £20,500. Directors’ fees were last increased with effect from 1 November 2019.
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 2021, £8,000 (2020: £8,000) was outstanding in respect of Directors’ fees.
As at 31 October 2021 and 2020, the Directors’ interests in the Company’s ordinary shares were as follows:
|
As at 31 October 2021 |
As at 31 October 2020 |
|
| Graeme Proudfoot (Chairman) | 60,000 | 20,000 |
| Nicholas Gold | 20,000 | 20,000 |
| George Luckraft | N/A | Nil |
| Charles Worsley1 | 987,5391 | 987,5391 |
| Win Robbins | 12,106 | N/A |
1. Including a non-beneficial interest in 655,500 ordinary shares.
All of the holdings of the Directors are beneficial, other than where stated in the footnote above. No changes to these holdings have 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 in accordance with United Kingdom Generally Accepted Accounting Practice 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 2018 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 2021, 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
GRAEME PROUDFOOT
Chairman
12 January 2022
INCOME STATEMENT FOR THE YEAR ENDED 31 OCTOBER 2021
| Revenue | Capital | Total | |||||
|
|
Notes |
2021 £000 |
2020 £000 |
2021 £000 |
2020 £000 |
2021 £000 |
2020 £000 |
| Gains/(losses) on investments held at fair value through profit or loss | – | – | 8,980 | (8,439) | 8,980 | (8,439) | |
| Losses on foreign exchange | – | – | (3) | (21) | (3) | (21) | |
| Income from investments held at fair value through profit or loss | 3 | 1,919 | 1,562 | 303 | – | 2,222 | 1,562 |
| Other income | 3 | 8 | 8 | – | – | 8 | 8 |
| -------------- | -------------- | -------------- | -------------- | -------------- | -------------- | ||
| Total income/(loss) | 1,927 | 1,570 | 9,280 | (8,460) | 11,207 | (6,890) | |
| ======== | ======== | ======== | ======== | ======== | ======== | ||
| Expenses | |||||||
| Investment management fee | 4 | (60) | (59) | (180) | (178) | (240) | (237) |
| Other operating expenses | 5 | (284) | (259) | (6) | (6) | (290) | (265) |
| -------------- | -------------- | -------------- | -------------- | -------------- | -------------- | ||
| Total operating expenses | (344) | (318) | (186) | (184) | (530) | (502) | |
| ======== | ======== | ======== | ======== | ======== | ======== | ||
| Net profit/(loss) on ordinary activities before finance costs and taxation | 1,583 | 1,252 | 9,094 | (8,644) | 10,677 | (7,392) | |
| Finance costs | 6 | (10) | (13) | (30) | (40) | (40) | (53) |
| Net profit/(loss) on ordinary activities before taxation | 1,573 | 1,239 | 9,064 | (8,684) | 10,637 | (7,445) | |
| Taxation | (16) | (5) | – | – | (16) | (5) | |
| Net profit/(loss) on ordinary activities after taxation | 8 | 1,557 | 1,234 | 9,064 | (8,684) | 10,621 | (7,450) |
| Earnings/(loss) per ordinary share (pence) | 8 | 7.10 | 5.43 | 41.35 | (38.24) | 48.45 | (32.81) |
| ======== | ======== | ======== | ======== | ======== | ======== | ||
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) on ordinary activities for the year disclosed above represents the Company’s total comprehensive income/(loss).
STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 OCTOBER 2021
|
|
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 2021 | ||||||||
| At 31 October 2020 | 326 | 14,819 | 223 | 2,806 | 15,816 | 2,411 | 36,401 | |
| Total comprehensive income: | ||||||||
| Net profit for the year | – | – | – | 9,064 | – | 1,557 | 10,621 | |
| Transactions with owners, recorded directly to equity: | ||||||||
| Ordinary shares purchased for cancellation | 9,10 | (11) | – | 11 | – | (1,961) | – | (1,961) |
| Share purchase costs | 10 | – | – | – | – | (12) | – | (12) |
| Dividends paid1 | 7 | – | – | – | – | – | (1,581) | (1,581) |
| -------------- | -------------- | -------------- | -------------- | -------------- | -------------- | -------------- | ||
| At 31 October 2021 | 315 | 14,819 | 234 | 11,870 | 13,843 | 2,387 | 43,468 | |
| ======== | ======== | ======== | ======== | ======== | ======== | ======== | ||
| For the year ended 31 October 2020 | ||||||||
| At 31 October 2019 | 329 | 14,819 | 220 | 11,490 | 16,542 | 2,814 | 46,214 | |
| Total comprehensive (loss)/income: | ||||||||
| Net (loss)/profit for the year | – | – | – | (8,684) | – | 1,234 | (7,450) | |
| Transactions with owners, recorded directly to equity: | ||||||||
| Ordinary shares purchased into treasury | – | – | – | – | (236) | – | (236) | |
| Ordinary shares purchased for cancellation | (3) | – | 3 | – | (506) | – | (506) | |
| Ordinary shares reissued from treasury | – | – | – | – | 21 | – | 21 | |
| Share purchase costs | – | – | – | – | (5) | – | (5) | |
| Dividends paid2 | 7 | – | – | – | – | – | (1,637) | (1,637) |
| -------------- | -------------- | -------------- | -------------- | -------------- | -------------- | -------------- | ||
| At 31 October 2020 | 326 | 14,819 | 223 | 2,806 | 15,816 | 2,411 | 36,401 | |
| ======== | ======== | ======== | ======== | ======== | ======== | ======== |
1 Interim dividend paid in respect of the six months ended 30 April 2021 of 2.60p per share was declared on 23 June 2021 and paid on 1 September 2021. Final dividend paid in respect of the year ended 31 October 2020 of 4.60p per share was declared on 1 February 2021 and paid on 17 March 2021.
2 Interim dividend paid in respect of the six months ended 30 April 2020 of 2.60p per share was declared on 24 June 2020 and paid on 1 September 2020. Final dividend paid in respect of the year ended 31 October 2019 of 4.60p per share was declared on 23 December 2019 and paid on 19 March 2020.
For information on the Company’s distributable reserves please refer to note 15 in the Annual Report and Financial Statements.
BALANCE SHEET AS AT 31 OCTOBER 2021
|
|
Notes |
2021 £000 |
2020 £000 |
| Fixed assets | |||
| Investments held at fair value through profit or loss | 46,080 | 39,016 | |
| Current assets | |||
| Current tax asset | 11 | – | |
| Debtors | 324 | 1,147 | |
| Cash and cash equivalents | 1,362 | 1,644 | |
| -------------- | -------------- | ||
| Total current assets | 1,697 | 2,791 | |
| ======== | ======== | ||
| Creditors – amounts falling due within one year | |||
| Bank loan | (4,000) | (4,000) | |
| Other creditors | (309) | (1,406) | |
| -------------- | -------------- | ||
| Total current liabilities | (4,309) | (5,406) | |
| ======== | ======== | ||
| Net current liabilities | (2,612) | (2,615) | |
| Net assets | 43,468 | 36,401 | |
| Capital and reserves | |||
| Called up share capital | 9 | 315 | 326 |
| Share premium account | 10 | 14,819 | 14,819 |
| Capital redemption reserve | 10 | 234 | 223 |
| Capital reserve | 10 | 11,870 | 2,806 |
| Special reserve | 10 | 13,843 | 15,816 |
| Revenue reserve | 10 | 2,387 | 2,411 |
| -------------- | -------------- | ||
| Total shareholders’ funds | 8 | 43,468 | 36,401 |
| ======== | ======== | ||
| Net asset value per ordinary share (pence) | 8 | 203.13 | 161.70 |
| ======== | ======== |
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 OCTOBER 2021
| 2021 | 2020 | ||
| Note | £000 | £000 | |
| Operating activities | |||
| Net profit/(loss) before taxation | 10,637 | (7,445) | |
| Add back finance costs | 40 | 53 | |
| (Gains)/losses on investments held at fair value through profit or loss | (8,980) | 8,439 | |
| Net losses on foreign exchange | 3 | 21 | |
| Sales of investments | 22,755 | 22,561 | |
| Purchases of investments | (21,084) | (20,983) | |
| (Increase)/decrease in other debtors | (89) | 64 | |
| Increase/(decrease) in other creditors | 60 | (206) | |
| Taxation on investment income | (27) | 2 | |
| -------------- | -------------- | ||
| Net cash generated from operating activities | 3,315 | 2,506 | |
| ======== | ======== | ||
| Financing activities | |||
| Ordinary shares purchased for cancellation | (1,961) | (506) | |
| Ordinary shares purchased into treasury | – | (236) | |
| Ordinary shares reissued from treasury | – | 21 | |
| Share purchase costs paid | (12) | (5) | |
| Interest paid | (40) | (53) | |
| Dividends paid | 7 | (1,581) | (1,637) |
| -------------- | -------------- | ||
| Net cash used in financing activities | (3,594) | (2,416) | |
| ======== | ======== | ||
| (Decrease)/increase in cash and cash equivalents | (279) | 90 | |
| Cash and cash equivalents at the start of the year | 1,644 | 1,575 | |
| Effect of foreign exchange rate changes | (3) | (21) | |
| Cash and cash equivalents at end of the year | 1,362 | 1,644 | |
| Comprised of: | |||
| Cash at bank | 63 | 69 | |
| Cash Fund1 | 1,299 | 1,575 | |
| -------------- | -------------- | ||
| 1,362 | 1,644 | ||
| ======== | ======== |
1 Cash Fund represents funds held on deposit with the BlackRock Institutional Cash Series plc – Sterling Liquid Environmentally Aware Fund.
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 OCTOBER 2021
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 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 October 2019 and the provisions of the Companies Act 2006.
The financial statements have been prepared on a going concern basis. The Directors have considered any potential impact of the COVID-19 pandemic, its potential longer-term effects on the global economy and the mitigation measures which key service providers, including the Manager, have in place to maintain operational resilience on the going concern of the Company. The Directors have reviewed compliance with the covenants associated with the bank loan facility, income and expense projections and the liquidity of the investment portfolio in making their assessment. Accordingly, the Directors believe that the Company has adequate resources to meet its obligations and repay current liabilities as they fall due and to continue in operational existence for the foreseeable future, being a period of at least one year from the date of approval of the financial statements, and therefore consider the going concern assumption to be appropriate.
The principal accounting policies adopted by the Company are set out below. Unless specified otherwise, the policies have been applied consistently throughout the year and are consistent with those applied in the preceding year. All of the Company’s operations are of a continuing nature.
The Company’s financial statements are presented in 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 Income Statement
In order better 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 or 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. Interest income from the Cash Fund 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, including finance costs, are accounted for on an accruals basis. Expenses have been charged wholly to the revenue column of the 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;
· expenses are treated as capital where a connection with the maintenance or enhancement of the value of the investments can be demonstrated; and
· the investment management fee and finance costs have 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) Taxation
The tax expense represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on the taxable profit for the year. Taxable profit differs from net profit as reported in the Income Statement because it excludes items of income or expenses that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Company’s liability for current tax is calculated using tax rates that were applicable at the balance sheet date.
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.
(g) Investments held at fair value through profit or loss
The Company’s investments are classified as held at fair value through profit or loss in accordance with Section 11 and 12 of FRS 102 and are managed and evaluated on a fair value basis in accordance with its investment strategy.
All investments are classified 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.
(h) Debtors
Debtors include sales for future settlement, other debtors and prepayments 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.
(i) 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.
(j) Dividends payable
Under Section 32 of FRS 102, final dividends should not be accrued in the financial statements unless an obligation exists at the end of the reporting period. 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.
(k) Cash and cash equivalents
Cash comprises cash in hand and on 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.
(l) 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.
(m) Share repurchases and share reissues
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:
· amounts received to the extent of the repurchase price are credited to the special reserve; and
· any surplus received in excess of the repurchase price is taken to the share premium account.
(n) Bank borrowings
Bank loans are recorded as the proceeds received. Finance charges are accounted for on an accruals basis in the Income Statement.
(o) Critical accounting estimates and judgements
The Board makes estimates and assumptions concerning the future. The resulting accounting estimates and assumptions will, by definition, seldom equal the related actual results. Estimates and judgments are regularly evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The Directors do not believe that any accounting judgments or estimates have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities within the next financial year.
3. INCOME
|
|
2021 £000 |
2020 £000 |
| Investment income: | ||
| UK dividends | 1,503 | 1,464 |
| UK scrip dividends | 19 | 31 |
| UK special dividends | 226 | 61 |
| UK REIT dividends | 9 | 3 |
| Overseas dividends | 162 | 3 |
| -------------- | -------------- | |
| Total investment income | 1,919 | 1,562 |
| ======== | ======== | |
| Other income: | ||
| Interest from Cash Fund | 1 | 8 |
| Underwriting commission | 7 | – |
| -------------- | -------------- | |
| Total income | 1,927 | 1,570 |
| ======== | ======== |
Dividends and interest received in cash during the year amounted to £1,771,000 and £1,000 respectively (2020: £1,595,000 and £10,000).
In addition to the above, special dividends of £303,000 have been recognised in capital during the year (2020: £nil).
4. INVESTMENT MANAGEMENT FEE
| 2021 | 2020 | |||||
|
|
Revenue £000 |
Capital £000 |
Total £000 |
Revenue £000 |
Capital £000 |
Total £000 |
| Investment management fee | 60 | 180 | 240 | 59 | 178 | 237 |
| -------------- | -------------- | -------------- | -------------- | -------------- | -------------- | |
| Total | 60 | 180 | 240 | 59 | 178 | 237 |
| ======== | ======== | ======== | ======== | ======== | ======== | |
Under the terms of the investment management agreement, 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
|
|
2021 £000 |
2020 £000 |
| Allocated to revenue: | ||
| Custody fees | 1 | 1 |
| Depositary fees | 5 | 5 |
| Audit fees1 | 29 | 27 |
| Registrars’ fee | 24 | 26 |
| Directors’ emoluments2 | 100 | 100 |
| Marketing fees | 11 | 18 |
| Printing and postage fees | 32 | 26 |
| Legal and professional fees | 32 | 9 |
| London Stock Exchange fee | 10 | 10 |
| FCA fee | 7 | 6 |
| Other administration costs | 33 | 31 |
| -------------- | -------------- | |
| 284 | 259 | |
| ======== | ======== | |
| Allocated to capital: | ||
| Custody transaction costs3 | 6 | 6 |
| -------------- | -------------- | |
| 290 | 265 | |
| ======== | ======== | |
| The Company’s ongoing charges4, calculated as a percentage of average daily net assets and using the management fee and all other operating expenses, excluding finance costs, direct transaction costs, custody transaction charges, VAT recovered, taxation and certain non-recurring items were: | 1.21% | 1.19% |
| ======== | ======== |
1 No non-audit services were provided by the Company’s auditors.
2 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.
3 For the year ended 31 October 2021, expenses of £6,000 (2020: £6,000) were charged to the capital column of the Income Statement. These relate to transaction costs charged by the Custodian on sale and purchase trades.
4 Alternative Performance Measure, see Glossary in the Annual Report and Financial Statements.
6. FINANCE COSTS
| 2021 | 2020 | |||||
|
|
Revenue £000 |
Capital £000 |
Total £000 |
Revenue £000 |
Capital £000 |
Total £000 |
| Interest on Sterling bank loan | 10 | 30 | 40 | 13 | 40 | 53 |
| -------------- | -------------- | -------------- | -------------- | -------------- | -------------- | |
| 10 | 30 | 40 | 13 | 40 | 53 | |
| ======== | ======== | ======== | ======== | ======== | ======== | |
Finance costs have been allocated 75% to the capital column and 25% to the revenue column of the Statement of Comprehensive Income.
7. DIVIDENDS
|
Dividends paid on equity shares |
Record date |
Payment date |
2021 £000 |
2020 £000 |
| 2019 Final dividend of 4.60p | 7 February 2020 | 19 March 2020 | – | 1,051 |
| 2020 Interim dividend of 2.60p | 24 July 2020 | 1 September 2020 | – | 586 |
| 2020 Final dividend of 4.60p | 12 February 2021 | 17 March 2021 | 1,015 | – |
| 2021 Interim dividend of 2.60p | 23 July 2021 | 1 September 2021 | 566 | – |
| -------------- | -------------- | |||
| 1,581 | 1,637 | |||
| ======== | ======== |
The Directors have proposed a final dividend of 4.60p per share in respect of the year ended 31 October 2021. The final dividend will be paid, subject to shareholders’ approval, on 17 March 2022 to shareholders on the Company’s register on 4 February 2022. 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.
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 2021, meets the relevant requirements as set out in this legislation.
|
Dividends paid or declared on equity shares: |
2021 £000 |
2020 £000 |
| Interim paid of 2.60p (2020: 2.60p) | 566 | 586 |
| Final proposed of 4.60p1 (2020: 4.60p) | 981 | 1,015 |
| -------------- | -------------- | |
| 1,547 | 1,601 | |
| ======== | ======== |
1 Based on 21,321,283 ordinary shares (excluding treasury shares) in issue on 11 January 2022.
All dividends paid or payable are distributed from the Company’s current year profit and brought forward revenue reserves.
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:
| 2021 | 2020 | |
| Net revenue profit attributable to ordinary shareholders (£000) | 1,557 | 1,234 |
| Net capital profit/(loss) attributable to ordinary shareholders (£000) | 9,064 | (8,684) |
| -------------- | -------------- | |
| Total profit/(loss) attributable to ordinary shareholders (£000) | 10,621 | (7,450) |
| ======== | ======== | |
| Total shareholders’ funds (£000) | 43,468 | 36,401 |
| ======== | ======== | |
| 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: | 21,920,081 | 22,709,469 |
| The actual number of ordinary shares in issue at the year end on which the net asset value was calculated was: | 21,398,842 | 22,511,625 |
| The number of ordinary shares in issue, including treasury shares at the year end was: | 31,480,374 | 32,593,157 |
| Calculated on weighted average number of ordinary shares: | ||
| Revenue earnings per share (pence) – basic and diluted | 7.10 | 5.43 |
| Capital earnings/(loss) per share (pence) – basic and diluted | 41.35 | (38.24) |
| -------------- | -------------- | |
| Total earnings/(loss) per share (pence) – basic and diluted | 48.45 | (32.81) |
| ======== | ======== |
|
|
As at 31 October 2021 |
As at 31 October 2020 |
| Net asset value per ordinary share (pence) | 203.13 | 161.70 |
| Ordinary share price (mid-market) (pence) | 191.00 | 162.50 |
| ======== | ======== |
There were no dilutive securities at the year end.
9. CALLED UP SHARE CAPITAL
|
|
Ordinary shares number |
Treasury shares number |
Total shares number |
Nominal value £000 |
| Allotted, called up and fully paid share capital comprised: | ||||
| Ordinary shares of 1 pence each: | ||||
| At 31 October 2020 | 22,511,625 | 10,081,532 | 32,593,157 | 326 |
| Shares purchased for cancellation | (1,112,783) | – | (1,112,783) | (11) |
| -------------- | -------------- | -------------- | -------------- | |
| At 31 October 2021 | 21,398,842 | 10,081,532 | 31,480,374 | 315 |
| ======== | ======== | ======== | ======== |
During the year, no ordinary shares (2020: 117,500) were purchased and held in treasury for a total consideration of £nil (2020: £236,000) and 1,112,783 ordinary shares (2020: 340,775) were purchased and subsequently cancelled for a total consideration including costs of £1,973,000 (2020: £511,000).
Furthermore, no ordinary shares (2020: 11,800) were reissued from treasury for a total consideration of £nil (2020: £21,000).
The number of ordinary shares in issue at the year end was 31,480,374 (2020: 32,593,157) of which 10,081,532 (2020: 10,081,532) were held in treasury.
10. RESERVES
| Distributable reserves | ||||||
|
|
Share premium account £000 |
Capital redemption reserve £000 |
Capital reserve (arising on investments sold) £000 |
Capital reserve (arising on revaluation of investments held) £000 |
Special reserve £000 |
Revenue reserve £000 |
| At 31 October 2020 | 14,819 | 223 | 4,661 | (1,855) | 15,816 | 2,411 |
| Movement during the year: | ||||||
| Total comprehensive income: | ||||||
| Net profit for the year | – | – | 2,447 | 6,617 | – | 1,557 |
| Transactions with owners, recorded directly to equity: | ||||||
| Ordinary shares purchased for cancellation | – | 11 | – | – | (1,961) | – |
| Share purchase costs | – | – | – | – | (12) | – |
| Dividends paid during the year | – | – | – | – | – | (1,581) |
| -------------- | -------------- | -------------- | -------------- | -------------- | -------------- | |
| At 31 October 2021 | 14,819 | 234 | 7,108 | 4,762 | 13,843 | 2,387 |
| ======== | ======== | ======== | ======== | ======== | ======== | |
The share premium account and capital redemption reserve are not distributable reserves under the Companies Act 2006. In accordance with ICAEW Technical Release 02/17BL on Guidance on Realised and Distributable Profits under the Companies Act 2006, the special reserve and capital reserve may be used as distributable reserves for all purposes and, in particular, the repurchase by the Company of its ordinary shares and for payments as dividends. In accordance with the Company’s Articles of Association, special reserves, capital reserves and revenue reserves may be distributed by way of dividend. The capital reserve arising on the revaluation of investments of £4,762,000 (2020: loss of £1,855,000) is subject to fair value movements and may not be readily realisable at short notice, as such it may not be entirely distributable. The investments are subject to financial risks; as such capital reserves (arising on investments sold) and the revenue reserve may not be entirely distributable if a loss occurred during the realisation of these investments.
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 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 2021 |
Level 1 £000 |
Level 2 £000 |
Level 3 £000 |
Total £000 |
| Equity investments | 46,080 | – | – | 46,080 |
| ======== | ======== | ======== | ======== |
|
Financial assets at fair value through profit or loss at 31 October 2020 |
Level 1 £000 |
Level 2 £000 |
Level 3 £000 |
Total £000 |
| Equity investments | 39,016 | – | – | 39,016 |
| ======== | ======== | ======== | ======== |
There were no transfers between levels for financial assets and financial liabilities during the year recorded at fair value as at 31 October 2021 (2020: none). The Company held no Level 3 securities during the financial year or as at 31 October 2021 (2020: none).
12. TRANSACTIONS WITH THE MANAGER AND INVESTMENT MANAGER
BlackRock Fund Managers Limited (BFM) provides management and administration services to the Company under a contract which is terminable on six months’ notice. BFM has (with the Company’s consent) delegated certain portfolio and risk management services, and other ancillary services, to BlackRock Investment Management (UK) Limited (BIM (UK)). Further details of the investment management contract are disclosed in the 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 2021 amounted to £240,000 (2020: £237,000). At the year end, £180,000 was outstanding in respect of the management fee (2020: £111,000).
The Company holds an investment in the BlackRock Institutional Cash Series plc – Sterling Liquid Environmentally Aware Fund of £1,299,000 (2020: £1,575,000) which for the year ended 31 October 2021 and 31 October 2020 has been presented in the financial statements as a cash equivalent.
In addition to the above services, BIM (UK) has provided the Company with marketing services. The total fees paid or payable for these services for the year ended 31 October 2021 amounted to £11,000 including VAT (2020: £18,000). Marketing fees of £11,000 including VAT were outstanding at 31 October 2021 (2020: £12,000).
The ultimate holding company of the Manager and the Investment Manager is BlackRock, Inc., a company incorporated in Delaware USA.
13. RELATED PARTY DISCLOSURE
At the date of this report, the Board consists of four non-executive Directors, all of whom are considered to be independent of the Manager by the Board.
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 2021, £8,000 (2020: £8,000) was outstanding in respect of Directors’ fees.
Significant holdings
The following investors are:
a. funds managed by the BlackRock Group or are affiliates of BlackRock Inc. (“Related BlackRock Funds”); or
b. investors (other than those listed in (a) above) who held more than 20% of the voting shares in issue in the Company and are as a result, considered to be related parties to the Company (“Significant Investors”).
As at 31 October 2021
|
Total % of shares held by Related BlackRock Funds |
Total % of shares held by Significant Investors who are not affiliates of BlackRock Group or BlackRock, Inc. | Number of Significant Investors who are not affiliates of BlackRock Group or BlackRock, Inc. |
| Nil | n/a | n/a |
As at 31 October 2020
|
Total % of shares held by Related BlackRock Funds |
Total % of shares held by Significant Investors who are not affiliates of BlackRock Group or BlackRock, Inc. | Number of Significant Investors who are not affiliates of BlackRock Group or BlackRock, Inc. |
| Nil | n/a | n/a |
14. CONTINGENT LIABILITIES
There were no contingent liabilities at 31 October 2021 (2020: nil).
15. 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 2021 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 2021 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 2020, 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.
16. 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.
17. ANNUAL GENERAL MEETING
The Annual General Meeting of the Company will be held at 12 Throgmorton Avenue, London EC2N 2DL on Tuesday, 8 March 2022 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
13 January 2022
12 Throgmorton Avenue
London
EC2N 2DL
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