Half-year Report
BLACKROCK NORTH AMERICAN INCOME TRUST PLC
LEI: 549300WWOCXSC241W468 - Article 5 Transparency Directive, DTR 4.2
Half Yearly Financial Report for the six months ended 30 April 2019
PERFORMANCE RECORD
FINANCIAL HIGHLIGHTS
| As at 30 April 2019 |
As at 31 October 2018 |
Change % |
|
| Assets | |||
| Net assets (£’000)1 | 127,746 | 120,945 | +5.6 |
| Net asset value per ordinary share (pence) | 177.30 | 175.60 | +1.0 |
| – with dividends reinvested2 | – | – | +3.3 |
| Ordinary share price (mid-market) (pence) | 181.50 | 169.50 | +7.1 |
| – with dividends reinvested2 | – | – | +9.5 |
| Russell 1000 Value Index (total return) | 1,265.15 | 1,196.25 | +5.8 |
| Premium/(discount) to cum income net asset value3 | 2.4% | (3.5%) |
| For the six months ended 30 April 2019 |
For the six months ended 30 April 2018 |
Change % |
|
| Revenue | |||
| Net profit after taxation (£’000) | 2,144 | 1,784 | +20.2 |
| Revenue earnings per ordinary share (pence) | 3.06 | 2.59 | +18.1 |
1 The change in net assets reflects market movements and share issues during the period.
2 This measures the Company’s share price and NAV total return, which assumes dividends paid by the Company have been reinvested. Further details of the calculation of performance with dividends reinvested are given in the Glossary on page 47 of the half yearly financial report.
3 This is the difference between the share price and the NAV per share. Further details are given in the Glossary on pages 44 and 46 of the half yearly financial report.
PERFORMANCE SINCE LAUNCH ON 24 OCTOBER 2012 TO 30 APRIL 2019
NAV |
Russell 1000 Value Index |
Share Price |
|
| 2013# | 17.1 | 27.4 | 16.5 |
| 2014 | 11.8 | 16.9 | 2.4 |
| 2015 | 4.9 | 4.1 | 4.7 |
| 2016 | 34.2 | 34.6 | 43.0 |
| 2017 | 11.4 | 8.3 | 6.3 |
| 2018 | 6.6 | 7.1 | 10.3 |
| 2019* | 3.3 | 5.8 | 9.5 |
# Since launch on 24 October 2012 to 31 October 2013.
* Six month performance.
Source: BlackRock.
Performance figures have been calculated in sterling terms on a total return basis.
CHAIRMAN’S STATEMENT FOR THE SIX MONTHS ENDED 30 APRIL 2019
MARKET OVERVIEW
At the end of 2018 there were escalating concerns that the global economy was beginning to slip into recession after an unusually long period of continuous expansion since the financial crisis in 2008/2009. Chinese data appeared to point to a slowdown, and these fears were reflected in falling share and commodity prices.
An easing of credit conditions in China and a more dovish tone from the U.S. Federal Reserve in early 2019 signalled a reduced likelihood of further increases in U.S. interest rates, at least in the short term. This fuelled a sharp rally in equity markets, recouping the losses incurred in the last quarter of 2018. Notwithstanding an escalation of the U.S./China trade war, equity markets currently remain supported by the prospect of continuing, albeit modest, economic growth and a benign interest rate environment.
PERFORMANCE
For the six months to 30 April 2019, the Company’s net asset value per share (NAV) returned 3.3% compared with a return of 5.8% in the Russell 1000 Value Index. The Company’s share price returned 9.5% over the same period (all figures in sterling terms with dividends reinvested). The movement in the share price relative to its NAV led to the Company trading at a premium to NAV.
Details of the factors which have contributed to, or detracted from, performance are set out in the Investment Manager’s Report.
Since the period end and up to close of business on 24 June 2019, the Company’s NAV has increased by 2.3% and the share price has risen by 5.0% (both percentages in sterling with dividends reinvested).
EARNINGS AND DIVIDENDS
The Company’s revenue return per share for the six months ended 30 April 2019 amounted to 3.06p compared with 2.59p for the six months to 30 April 2018. On 5 March 2019 the Board declared the first quarterly dividend of 2.00p per share which was paid on 12 April 2019. A second quarterly dividend of 2.00p per share has been declared and will be paid on 28 June 2019 to shareholders on the register on 24 May 2019. These are in line with payments made in 2018.
As stated in the Annual Report, the Board has resolved to pay a quarterly dividend of 2.00p per share in the current financial year, a full year distribution of 8.00p per share, which represents a dividend yield of 4.4% based on the share price as at 30 April 2019. A small proportion of the Company’s capital profits are anticipated to be paid out to achieve this.
SHARE ISSUES
During the six months to 30 April 2019 the Company’s share price to NAV ranged between a discount of 0.7% and a premium of 5.2%. The Board is pleased to report that, in the period under review, the Company has reissued 3,175,000 shares from treasury at a premium to the NAV. Since the period end, and up to the date of this report, the Company has reissued a further 1,875,000 shares.
OUTLOOK
Whilst, for the most part, economic indicators continue to point to modest expansion in the U.S. economy, the extension of tariff barriers in the U.S./China trade war continues to have the potential to unsettle sentiment and create unintended economic consequences. Whilst the 2020 Presidential election campaign should provide an incentive for the administration to settle the current dispute, the final outcome remains uncertain. For this reason our Portfolio Managers continue to favour those companies with sound balance sheets and those which have the potential to grow their dividends. The Company also has a slightly higher level of cash holdings, which stand at 7.7% of net assets at the time of writing. Although the portfolio tends to lag the broader market during a sharp rally, the Portfolio Managers believe the higher quality and defensive characteristics of the portfolio should provide superior returns over the cycle.
SIMON MILLER
25 June 2019
INVESTMENT MANAGER’S REPORT
MARKET OVERVIEW
For the six month period ended 30 April 2019, U.S. large cap stocks, as represented by the S&P 500® Index, advanced by 7.3% (in GBP terms). The period was volatile however, as the S&P 500® Index declined by 7.1% in the final two months of 2018 before rebounding sharply in the first four months of 2019. In late 2018, general uncertainty increased as investors weighed the pace of Federal Reserve (Fed) interest rate hikes, persistent trade tensions, less synchronized global growth and a shorter list of potential catalysts for upside surprise. These factors culminated in late-cycle sentiment shifting to recession fears and selling pressure on U.S. stocks through the year-end. Sentiment improved during the first four months of 2019 as investor suspicions of a sharp economic slowdown abated. An increasingly dovish Fed signalled its willingness to keep interest rates stable “for a time†and affirmed their commitment to being patient and flexible in regard to the timing of future rate moves. Robust U.S. jobs data evidenced ongoing strength in the U.S. labour market, while geopolitical and trade concerns had also moderated. These positive factors, combined with less demanding stock valuations at the beginning of the year, formed a recipe for strong year-to-date returns and positive overall performance for U.S. stocks during the semi-annual period.
PORTFOLIO OVERVIEW
The largest contributor to relative performance was stock selection in the energy sector, led by investment decisions in the oil, gas & consumable fuels industry. In consumer staples, stock selection in the beverages and food products industries proved beneficial, as did our underweight to the food & staples retailing industry. Lastly, a combination of stock selection and an overweight to information technology boosted relative returns. Notably, our overweight to the software industry and stock selection in technology hardware and semiconductors positively impacted relative performance.
The primary detractor from relative performance was stock selection in utilities. Stock selection in the electric utilities industry was particularly weak due to the negative impacts from severe California wildfires on portfolio holdings. In health care, an overweight to the health care providers & services industry and stock selection in health care equipment & supplies also weighed on relative returns. Lastly, stock selection and an underweight to industrials hurt relative returns, as did the portfolio’s cash position, which averaged 7.8% for the six month period.
As expected, writing covered call options helped relative performance during the final two months of 2018 amid falling stock prices. Conversely, writing covered call options capped upside returns amid rising U.S. stock prices during the first four months of 2019. In summary, the covered call options detracted from absolute performance for the six month period. As designed, the Company’s option overwrite component enhanced the portfolio’s income during the period.
Below is a comprehensive overview of our allocations (in GBP) at the end of the period and over/underweight positions compared to the benchmark.
Financials – 3.0% overweight (25.8% of portfolio)
Financials represent the Company’s largest sector allocation and we remain particularly bullish on the U.S. banks stocks. We believe the U.S. banks are safer and sounder investments today than before the financial crisis. They have stronger balance sheets, revamped company cost structures and greater discipline in loan underwriting has contributed to benign credit trends. Bank valuations remain compelling, especially relative to other cyclical sectors such as industrials. Over time, we believe the banks can demonstrate improved earnings stability, which may merit valuations above current multiples. Potential tailwinds from deregulation and investor-friendly capital return policies also bode well for investors, in our view.
Information Technology – 2.4% overweight (12.4% of portfolio)
The opportunity set within the information technology (IT) sector continues to be attractive. An increasing number of constituents in the sector are what we refer to as “Industrial Techâ€. These firms are competitively insulated from disruptors, well-positioned to take advantage of long-term secular tailwinds, and exhibit growth in earnings and free cash flow. A swelling number of companies in the sector have also adopted dividend payments to shareholders as a viable use of cash, rejecting the notion that IT firms can only add value to investors via their growth potential. We believe this trend is poised to continue, as many mature IT companies are flush with cash and shareholders are increasingly willing to reward management teams for return of capital.
Energy – 1.0% overweight (10.3% of portfolio)
The portfolio maintains a modest overweight to the energy sector. We favour oil-weighted companies over those exposed to natural gas and prefer exposure to large-cap integrated oil and independent oil & gas producers. From a quality standpoint we seek to own companies with experienced management teams, disciplined capital expenditure spending plans and exposure to lower cost resource assets. From a valuation standpoint we seek to own companies with free cash flow generation and margin capture stories that are underappreciated by the investment community. In summary, we believe companies with strong balance sheets and cash flows, production growth visibility, operating specialisation and pricing power at the industry level remain most desirable from an investment perspective.
Health Care – 0.5% overweight (15.0% of portfolio)
Secular growth opportunities in health care are a by-product of demographic trends. Older populations spend more on health care than younger populations and ageing demographics (i.e. people are living longer) is a global trend. In the United States, a combination of greater demand for health care services and rising costs drive a need for increased efficiency within the health care ecosystem. We believe innovation and strong cost control can work hand-in-hand to address this need and companies that can contribute in this regard may be poised to benefit.
On the innovation front, there is a need for newer and more effective medicines and therapies. The U.S. Food and Drug Administration has made this a priority by increasing the volume and speed of drug approvals, which bodes well for pharmaceutical manufacturers that can deliver new drugs to the market. From an investment standpoint, we prefer pharmaceutical companies with a proven ability to generate high research & development productivity versus those that focus on one or two key drugs and rely upon raising their prices to drive growth.
From a cost perspective, health maintenance organisations (HMOs) have an economic incentive to drive down costs as they provide health insurance coverage to constituents. The HMOs have demonstrated a strong ability to manage costs by leveraging their scale and technology to drive efficiencies. The U.S. Government, in turn, is increasingly outsourcing to HMOs as a way to lower costs and balance their budgets. We prefer HMOs with diversified business units, exposure to faster-growing areas of government including Medicare and Medicaid, and opportunities to enhance their profitability through controlling costs.
Consumer Staples – 0.1% underweight (7.7% of portfolio)
The consumer staples sector is a common destination for the conservative equity income investor. Historically, many of these companies have offered investors recognisable brands, diverse revenue streams, exposure to growing end markets and the ability to garner pricing power. These characteristics, in turn, have translated into strong and often stable free cash flow and growing dividends for shareholders. In recent years some of these secular advantages have become challenged, in our view, due to changing consumer preferences, greater end market competition from local brands and disruption from the rapid adoption of online shopping. These challenges, combined with higher than historical valuations, have facilitated our more neutral stance in the sector. Notably, we prefer ownership of companies with underappreciated growth profiles (i.e. buy growth), sticky customer bases, and the ability to cut costs and/or improve profit margins.
Communication Services – 0.9% underweight (6.0% of portfolio)
We are underweight to communication services and our allocation remains concentrated in diversified telecommunication bellwether Verizon Communications. Our stock-specific exposure in the sector is to companies that offer healthy dividend yields and opportunity for steady, longer-term growth.
Materials – 1.6% underweight (2.4% of portfolio)
Our exposure to the materials sector consists of four stocks, including Dow (chemicals), DowDuPont (chemicals), CRH (building materials) and International Paper (paper & packaging). Longer-term secular trends in global population growth can potentially benefit well positioned companies in the agricultural chemical space. We believe DowDuPont, with scale and high-quality assets, is well positioned to deliver future earnings and dividend growth.
Industrials – 1.9% underweight (6.1% of portfolio)
Our selectiveness in the industrials sector is driven by relative valuations, which we view as expensive in many cases, versus other cyclical segments of the U.S. equity market. Notable portfolio positions in the sector include General Electric, Siemens and Johnson Controls. We also continue to maintain exposure to the aerospace & defence industry. From a fundamental and operating model standpoint, we continue to like the profiles of the large-cap aerospace & defence firms. Many of these companies have strong balance sheets, good visibility into sales and earnings, and historically have demonstrated shareholder friendly capital return policies. Furthermore, the three year outlook for defence spending looks strong, thanks to the recently passed 2018-2019 Department of Defense budget.
Consumer Discretionary – 2.2% underweight (3.1% of portfolio)
The balance sheet for U.S. consumers has improved in recent years, aided by a recovering domestic housing market, strong jobs growth and accelerating wages. These factors have also contributed to an increase in consumer confidence. Until recently, these positive tailwinds have failed to translate into stronger retail sales for many brick and mortar stores as changing consumer preferences, technological innovation and new competitors threaten traditional business models. Despite improved retail sales in 2018, we remain cautious within the sector given these disruptive forces. Our positioning in the sector reflects stock-specific opportunities that, in our view, are (1) trading at discounted valuations or (2) somewhat insulated from these disruptive pressures. For example, we are positive on Dollar General, a U.S. dollar store retailer, and Lowe’s Companies, a home improvement retailer.
Utilities – 3.7% underweight (2.6% of portfolio)
Strong investor demand for equity income in recent years has resulted in elevated valuations for many high dividend yielding stocks, including utilities companies. Despite rich valuations at the sector level, we are finding pockets of opportunity in U.S. regulated utilities such as Public Service Enterprise Group (PEG), NextEra Energy (NEE), and FirstEnergy (FE). PEG and NEE add a level of stability and defensiveness to the portfolio through their durable dividend profiles and healthy earnings growth potential. Alternatively, FE offers us exposure to a company with a good underlying regulated franchise with some near-term uncertainties (i.e. merchant business bankruptcy). This uncertainty, in our view, creates opportunity for patient long-term investors who are willing and capable of doing deep analysis on complex investment issues.
Real Estate – 5.0% underweight (0.0% of portfolio)
The real estate sector is our largest underweight position in the Company. We maintain a 0% weighting in the space due to our view that valuations are unattractive at current levels. Furthermore, the returns of real estate stocks relative to the returns of Long Treasury Bonds are highly correlated today. Therefore, we believe the prospects for higher interest rates in the U.S. are a potential headwind for the sector as well.
OUTLOOK AND POSITIONING
We believe the current U.S. economic expansion can continue to move steadily forward in 2019 with low near-term risk of a domestic recession. Our base case is for positive, albeit slowing, U.S. growth with the trajectory of corporate earnings being a key litmus test for the durability of this business cycle. That said, late cycle factors such as slowing growth, tightening financial conditions and pressure on profit margins can make corporate earnings more difficult to forecast.
As we make investment decisions for the strategy, we remain focused on discerning fundamental truths about companies and their future earnings power. We seek attractively valued, competitively advantaged companies with healthy balance sheets and the ability to protect margins, take market share and/or organically grow earnings.
Our largest portfolio exposures are in the financials, health care and technology sectors. In recent months, notable portfolio changes included increasing our allocation to financials, consumer staples and consumer discretionary and reducing our exposure to the health care and utilities sectors. As always, the strategy invests primarily in dividend paying companies and seeks to deliver capital appreciation and current income over time.
TONY DeSPIRITO, FRANCO TAPIA and DAVID ZHAO
BlackRock Investment Management LLC
25 June 2019
TEN LARGEST INVESTMENTS AS AT 30 APRIL 2019
Verizon Communications: 4.6% (2018: 4.2%) is one of the largest providers of wireline and wireless communications in the U.S. The company’s wireless customer base is very sizeable and continues to grow. Verizon remains in a strong financial position and exhibits a sustainable dividend yield above 4%. Going forward, we expect continued expansion in wireless, long distance and high speed services to drive company growth.
JPMorgan Chase: 4.0% (2018: 4.3%) is a U.S. based diversified financial company. JPMorgan’s capital base is one of the strongest in the banks industry and it provides a measure of safety and financial flexibility. Overall, JPMorgan is a well-managed, quality global franchise with above average organic growth and returns relative to industry peers.
Citigroup: 3.7% (2018: 3.5%) is a U.S. based money center bank with a global footprint. We believe Citigroup is attractively valued on both a price-to-earnings and book value basis, has self-help opportunities within its consumer banking segment and offers the potential for dividend growth.
Wells Fargo: 3.7% (2018: 3.6%) is a U.S. bank which operates in three segments including community banking, wholesale banking and wealth & investment management. Wells Fargo has a strong deposit franchise and we are encouraged by the company’s history of strong investment returns and prudent credit risk management. In our view, shares of the company are underappreciated today in an environment characterised by low credit losses and ample access to liquidity.
Bank of America: 3.2% (2018: 3.1%) is one of the largest financial institutions in the U.S. with lending operations in the consumer, small-business and corporate markets, in addition to asset management and investment banking divisions. Bank of America boasts leading franchises in retail & commercial banking, has delivered consistent results over the last year, and continues to return increasing levels of capital to shareholders.
Oracle: 2.8% (2018: 2.8%) is a vertically integrated software company that offers both applications and underlying database software. Oracle’s database and enterprise markets are sticky in terms of customer retention, which we like. In addition, we are positive on Oracle’s ability to successfully convert customers from an on-premise licensing model (i.e. customers pay for an upfront license and ongoing maintenance) to a higher margin, cloud based subscription model (i.e. delivery of software and services over the internet).
Microsoft: 2.7% (2018: 2.5%) is a global technology leader that is engaged in developing and licensing both software and hardware products & services. We view Microsoft as an attractive long-term investment given the firm’s overall ‘ecosystem’, which historically has resulted in pricing power and efficient free cash flow generation over time. We are bullish on the stock given the firm’s dominant position in business and enterprise software and the opportunity for greater client engagement and usage by shifting from on-premise to a cloud distribution model (i.e. delivery of software and services over the internet).
BP Group: 2.7% (2018: 2.2%) is a UK-based integrated oil & gas company. The stock screens attractively on a valuation basis and we anticipate BP’s cash flow inflecting higher from a combination of new project start-ups and a decline in payments related to the Deepwater Horizon oil spill. Paired together, these elements should help to fund BP’s dividend organically.
Pfizer: 2.4% (2018: 4.1%) is a diversified pharmaceutical firm based in the U.S. In our view, Pfizer trades at an attractive valuation, offers investors a healthy drug pipeline and has the balance sheet flexibility to deliver long-term shareholder value through a variety of avenues.
Koninklijke Philips: 2.3% (2018: 2.0%) is an industry leader in three segments including personal health, diagnostics and health informatics. Philips competes with consumer packaged goods companies in the personal health segment, General Electric and Siemens within diagnostics and health-tech companies in informatics. Importantly, the stock trades at a meaningful discount to all three peer subsets. Furthermore, we believe Philips has the opportunity for margin expansion through the firm’s corporate restructuring and cost cutting programme.
All percentages reflect the value of the holding as a percentage of total investments. Percentages in brackets represent the value of the holding as at 31 October 2018. Together, the ten largest investments represent 32.1% of the Company’s portfolio (31 October 2018: 33.5%).
PORTFOLIO ANALYSIS AS AT 30 APRIL 2019
Sectors |
% Canada |
% China |
% Denmark |
% France |
% Germany |
% Ireland |
% Netherlands |
% Switzerland |
% United Kingdom |
% United States |
% Cash |
% Total 30.04.19 |
% Total 31.10.18 |
| Financials | – | – | – | – | – | – | – | – | – | 25.8 | – | 25.8 | 24.9 |
| Health Care | – | – | 0.5 | – | 0.6 | 2.0 | 2.1 | 1.1 | 1.4 | 7.3 | – | 15.0 | 18.2 |
| Information Technology | 0.5 | – | – | – | – | – | – | – | – | 11.9 | – | 12.4 | 10.7 |
| Energy | 0.7 | – | – | 0.4 | – | – | – | – | 2.4 | 6.8 | – | 10.3 | 11.1 |
| Consumer Staples | – | – | – | – | – | – | 0.8 | 1.3 | 0.7 | 4.9 | – | 7.7 | 6.8 |
| Industrials | – | – | – | – | 0.9 | – | – | – | 1.1 | 4.1 | – | 6.1 | 7.8 |
| Communication Services | 0.2 | – | – | – | – | – | – | – | – | 5.8 | – | 6.0 | 6.1 |
| Consumer Discretionary | – | – | – | – | – | – | – | – | – | 3.1 | – | 3.1 | 1.8 |
| Utilities | – | – | – | – | – | – | – | – | – | 2.6 | – | 2.6 | 4.9 |
| Materials | – | – | – | – | – | 0.7 | – | – | – | 1.7 | – | 2.4 | 1.9 |
| Cash | – | – | – | – | – | – | – | – | – | – | 8.6 | 8.6 | 5.8 |
| % Portfolio 30.04.19 | 1.4 | – | 0.5 | 0.4 | 1.5 | 2.7 | 2.9 | 2.4 | 5.6 | 74.0 | 8.6 | 100.0 | |
| ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | |
| % Portfolio 31.10.18 | 2.9 | 0.4 | 0.7 | 0.5 | 1.1 | 2.5 | 2.5 | 1.2 | 5.3 | 77.1 | 5.8 | 100.0 | |
| ========= | ========= | ========= | ========= | ========= | ========= | ========= | ========= | ========= | ========= | ========= | ========= | ========= |
INVESTMENTS AS AT 30 APRIL 2019
Company |
Country |
Sector |
Securities |
Market value £’000 |
% of total portfolio |
|||
| Verizon Communications | United States | Communication Services | Ordinary shares | 5,372 | } | 4.6 | ||
| Options | (3) | |||||||
| JPMorgan Chase | United States | Financials | Ordinary shares | 4,684 | } | 4.0 | ||
| Options | (31) | |||||||
| Citigroup | United States | Financials | Ordinary shares | 4,347 | 3.7 | |||
| Wells Fargo | United States | Financials | Ordinary shares | 4,306 | 3.7 | |||
| Bank of America | United States | Financials | Ordinary shares | 3,844 | } | 3.2 | ||
| Options | (26) | |||||||
| Oracle | United States | Information Technology | Ordinary shares | 3,308 | } | 2.8 | ||
| Options | (12) | |||||||
| Microsoft | United States | Information Technology | Ordinary shares | 3,205 | } | 2.7 | ||
| Options | (31) | |||||||
| BP Group | United Kingdom | Energy | Ordinary shares | 3,155 | } | 2.7 | ||
| Options | (5) | |||||||
| Pfizer | United States | Health Care | Ordinary shares | 2,797 | } | 2.4 | ||
| Options | (1) | |||||||
| Koninklijke Philips | Netherlands | Health Care | Ordinary shares | 2,722 | } | 2.3 | ||
| Options | (15) | |||||||
| Williams Companies | United States | Energy | Ordinary shares | 2,618 | } | 2.2 | ||
| Options | (8) | |||||||
| Medtronic | Ireland | Health Care | Ordinary shares | 2,608 | } | 2.2 | ||
| Options | (14) | |||||||
| American International Group | United States | Financials | Ordinary shares | 2,481 | 2.1 | |||
| MetLife | United States | Financials | Ordinary shares | 2,474 | } | 2.1 | ||
| Options | (19) | |||||||
| Oneok | United States | Energy | Ordinary shares | 2,328 | } | 2.0 | ||
| Options | (4) | |||||||
| Comcast Corporation | United States | Communication Services | Ordinary shares | 2,130 | } | 1.8 | ||
| Options | (16) | |||||||
| Morgan Stanley | United States | Financials | Ordinary shares | 2,055 | } | 1.7 | ||
| Options | (12) | |||||||
| Anthem | United States | Health Care | Ordinary shares | 2,012 | } | 1.7 | ||
| Options | (6) | |||||||
| Cognizant Technology Solutions | United States | Information Technology | Ordinary shares | 1,996 | } | 1.7 | ||
| Options | (18) | |||||||
| Samsung Electronics | United States | Information Technology | Ordinary shares | 1,850 | 1.6 | |||
| AstraZeneca | United Kingdom | Health Care | Ordinary shares | 1,851 | } | 1.6 | ||
| Options | (4) | |||||||
| FirstEnergy | United States | Utilities | Ordinary shares | 1,825 | } | 1.6 | ||
| Options | (6) | |||||||
| Altria Group | United States | Consumer Staples | Ordinary shares | 1,715 | } | 1.5 | ||
| Options | (4) | |||||||
| Qualcomm | United States | Information Technology | Ordinary shares | 1,701 | 1.4 | |||
| Nestlé | Switzerland | Consumer Staples | Ordinary shares | 1,676 | } | 1.4 | ||
| Options | (10) | |||||||
| Marathon Petroleum | United States | Energy | Ordinary shares | 1,642 | } | 1.4 | ||
| Options | (13) | |||||||
| Willis Towers Watson | United States | Financials | Ordinary shares | 1,605 | } | 1.4 | ||
| Options | (9) | |||||||
| Dollar General | United States | Consumer Discretionary | Ordinary shares | 1,589 | } | 1.3 | ||
| Options | (12) | |||||||
| Travelers Companies | United States | Financials | Ordinary shares | 1,396 | } | 1.2 | ||
| Options | (10) | |||||||
| DowDuPont | United States | Materials | Ordinary shares | 1,354 | } | 1.1 | ||
| Options | (4) | |||||||
| State Street Corp | United States | Financials | Ordinary shares | 1,340 | } | 1.1 | ||
| Options | (2) | |||||||
| Anadarko Petroleum | United States | Energy | Ordinary shares | 1,350 | } | 1.1 | ||
| Options | (75) | |||||||
| Arthur J. Gallagher & Co | United States | Financials | Ordinary shares | 1,276 | } | 1.1 | ||
| Options | (11) | |||||||
| Humana | United States | Health Care | Ordinary shares | 1,236 | } | 1.0 | ||
| Options | (2) | |||||||
| Pepsico | United States | Consumer Staples | Ordinary shares | 1,218 | } | 1.0 | ||
| Options | (33) | |||||||
| Marsh & McLennan | United States | Financials | Ordinary shares | 1,179 | } | 1.0 | ||
| Options | (3) | |||||||
| CVS Health Corporation | United States | Health Care | Ordinary shares | 1,150 | 1.0 | |||
| General Electric | United States | Industrials | Ordinary shares | 1,144 | } | 1.0 | ||
| Options | (1) | |||||||
| Siemens | Germany | Industrials | Ordinary shares | 1,127 | } | 0.9 | ||
| Options | (14) | |||||||
| Motorola Solutions | United States | Information Technology | Ordinary shares | 1,121 | } | 0.9 | ||
| Options | (12) | |||||||
| AXA Equitable | United States | Financials | Ordinary shares | 1,090 | } | 0.9 | ||
| Options | (9) | |||||||
| Unilever | Netherlands | Consumer Staples | Ordinary shares | 1,075 | } | 0.9 | ||
| Options | (10) | |||||||
| Johnson Controls | United States | Industrials | Ordinary shares | 1,054 | } | 0.9 | ||
| Options | (8) | |||||||
| Alcon | Switzerland | Health Care | Ordinary shares | 982 | 0.8 | |||
| Diageo | United Kingdom | Consumer Staples | Ordinary shares | 956 | } | 0.8 | ||
| Options | (12) | |||||||
| Procter & Gamble | United States | Consumer Staples | Ordinary shares | 925 | } | 0.8 | ||
| Options | (7) | |||||||
| Suncor Energy | Canada | Energy | Ordinary shares | 919 | } | 0.8 | ||
| Options | (2) | |||||||
| Goldman Sachs | United States | Financials | Ordinary shares | 912 | } | 0.8 | ||
| Options | (6) | |||||||
| Lowe’s Companies | United States | Consumer Discretionary | Ordinary shares | 886 | } | 0.7 | ||
| Options | (3) | |||||||
| Marvell Tech Group | United States | Information Technology | Ordinary shares | 877 | } | 0.7 | ||
| Options | (12) | |||||||
| BAE Systems | United Kingdom | Industrials | Ordinary shares | 870 | } | 0.7 | ||
| Options | (7) | |||||||
| NextEra Energy | United States | Utilities | Ordinary shares | 868 | } | 0.7 | ||
| Options | (12) | |||||||
| McKesson | United States | Health Care | Ordinary shares | 838 | 0.7 | |||
| CRH | Ireland | Materials | Ordinary shares | 844 | } | 0.7 | ||
| Options | (8) | |||||||
| Taiwan Semiconductor Manufacturing | United States | Information Technology | Ordinary shares | 803 | } | 0.7 | ||
| Options | (3) | |||||||
| Bayer | Germany | Health Care | Ordinary shares | 770 | 0.7 | |||
| Constellation Brands | United States | Consumer Staples | Ordinary shares | 793 | } | 0.6 | ||
| Options | (30) | |||||||
| Lockheed Martin | United States | Industrials | Ordinary shares | 754 | } | 0.6 | ||
| Options | (12) | |||||||
| Conagra Brands | United States | Consumer Staples | Ordinary shares | 716 | } | 0.6 | ||
| Options | (4) | |||||||
| General Motors | United States | Consumer Discretionary | Ordinary shares | 683 | } | 0.6 | ||
| Options | *– | |||||||
| Kellogg Co | United States | Consumer Staples | Ordinary shares | 673 | } | 0.6 | ||
| Options | (3) | |||||||
| Dow | United States | Materials | Ordinary shares | 665 | } | 0.6 | ||
| Options | *– | |||||||
| 3M | United States | Industrials | Ordinary shares | 651 | } | 0.6 | ||
| Options | *– | |||||||
| Newell Brands | United States | Consumer Discretionary | Ordinary shares | 648 | 0.6 | |||
| Constellation Software | Canada | Information Technology | Ordinary shares | 636 | } | 0.5 | ||
| Options | (2) | |||||||
| Novo Nordisk | Denmark | Health Care | Ordinary shares | 628 | } | 0.5 | ||
| Options | (1) | |||||||
| Quest Diagnostics | United States | Health Care | Ordinary shares | 612 | } | 0.5 | ||
| Options | (11) | |||||||
| Public Service Enterprise Group | United States | Utilities | Ordinary shares | 594 | } | 0.5 | ||
| Options | (3) | |||||||
| Union Pacific | United States | Industrials | Ordinary shares | 583 | } | 0.5 | ||
| Options | (6) | |||||||
| Northrop Grumman | United States | Industrials | Ordinary shares | 571 | } | 0.5 | ||
| Options | (3) | |||||||
| UnitedHealth Group | United States | Health Care | Ordinary shares | 557 | } | 0.5 | ||
| Options | (1) | |||||||
| Baker Hughes | United States | Energy | Ordinary shares | 537 | } | 0.5 | ||
| Options | (1) | |||||||
| Schwab (Charles) | United States | Financials | Ordinary shares | 493 | } | 0.4 | ||
| Options | (2) | |||||||
| Apple | United States | Information Technology | Ordinary shares | 495 | } | 0.4 | ||
| Options | (5) | |||||||
| Total | France | Energy | Ordinary shares | 478 | } | 0.4 | ||
| Options | (1) | |||||||
| Pentair | United Kingdom | Industrials | Ordinary shares | 471 | } | 0.4 | ||
| Options | (2) | |||||||
| Novartis | Switzerland | Health Care | Ordinary shares | 445 | } | 0.4 | ||
| Options | (5) | |||||||
| Mondelez International | United States | Consumer Staples | Ordinary shares | 399 | } | 0.3 | ||
| Options | (4) | |||||||
| Marathon Oil | United States | Energy | Ordinary shares | 391 | } | 0.3 | ||
| Options | (1) | |||||||
| Masco Corporation | United States | Industrials | Ordinary shares | 329 | } | 0.3 | ||
| Options | (2) | |||||||
| BCE | Canada | Communication Services | Ordinary shares | 292 | } | 0.2 | ||
| Options | (1) | |||||||
| International Paper | United States | Materials | Ordinary shares | 290 | } | 0.2 | ||
| Options | (3) | |||||||
| Honeywell International | United States | Industrials | Ordinary shares | 287 | } | 0.2 | ||
| Options | (1) | |||||||
| Mattel | United States | Consumer Discretionary | Ordinary shares | 257 | } | 0.2 | ||
| Options | (1) | |||||||
| ------------------ | ------------------ | |||||||
| Portfolio | 117,734 | 100.0 | ||||||
| ========== | ========== | |||||||
| Comprising: | ||||||||
| Equity investments | 118,384 | 100.6 | ||||||
| Derivative financial instruments – written options | (650) | (0.6) | ||||||
| ------------------ | ------------------ | |||||||
| 117,734 | 100.0 | |||||||
| ========== | ========== | |||||||
* Market value less than £1,000
All investments are in ordinary shares unless otherwise stated. The number of holdings as at 30 April 2019 was 84 (31 October 2018: 89). The total number of individual open options as at 30 April 2019 was 237 (31 October 2018: 195).
The negative valuation of £650,000 in respect of options held represents the notional cost of repurchasing the contracts at market prices as at 30 April 2019 (31 October 2018: £334,000).
At 30 April 2019, the Company did not hold any equity interests comprising more than 3% of any company’s share capital.
Interim management report and responsibility statement
The Chairman’s Statement and the Investment Manager’s Report give details of the important events which have occurred during the period and their impact on the financial statements.
PRINCIPAL RISKS AND UNCERTAINTIES
The principal risks faced by the Company can be divided into various areas as follows:
-
Counterparty;
-
Investment performance;
-
Legal & Compliance;
-
Market;
-
Operational;
-
Financial; and
- Marketing.
The Board reported on the principal risks and uncertainties faced by the Company in the Annual Report and Financial Statements for the year ended 31 October 2018. A detailed explanation can be found in the Strategic Report on pages 9 to 11 and in note 14 on pages 59 to 69 of the Annual Report and Financial Statements which are available on the website maintained by BlackRock at blackrock.co.uk/brna.
In the view of the Board, there have not been any changes to the fundamental nature of these risks since the previous report and these principal risks and uncertainties are equally applicable to the remaining six months of the financial year as they were to the six months under review.
GOING CONCERN
The Directors, having considered the nature and liquidity of the portfolio, the Company’s investment objective and the Company’s projected income and expenditure, are satisfied that the Company has adequate resources to continue in operational existence for the foreseeable future and is financially sound. For this reason, they continue to adopt the going concern basis in preparing the financial statements. The Company has a portfolio of investments which are considered to be readily realisable and is able to meet all of its liabilities from its assets and income generated from these assets. Ongoing charges were 1.06% of net assets for the year ended 31 October 2018 and it is expected that this is unlikely to change significantly going forward.
RELATED PARTY DISCLOSURE AND TRANSACTIONS WITH THE MANAGER
BlackRock Fund Managers Limited (BFM) was appointed as the Company’s AIternative Investment Fund Manager (AIFM) with effect from 2 July 2014. BFM has (with the Company’s consent) delegated certain portfolio and risk management services, and other ancillary services, to BlackRock Investment Management (UK) Limited (BIM (UK)). Both BFM and BIM (UK) are regarded as related parties under the Listing Rules. Details of the fees payable are set out in note 4 and note 10.
The related party transactions with the Directors are set out in note 11.
DIRECTORS’ RESPONSIBILITY STATEMENT
The Disclosure Guidance and Transparency Rules (DTR) of the UK Listing Authority require the Directors to confirm their responsibilities in relation to the preparation and publication of the Interim Management Report and Financial Statements.
The Directors confirm to the best of their knowledge that:
-
the condensed set of financial statements contained within the half yearly financial report has been prepared in accordance with applicable International Accounting Standard 34 – ‘Interim Financial Reporting’; and
- the Interim Management Report, together with the Chairman’s Statement and Investment Manager’s Report, include a fair review of the information required by 4.2.7R and 4.2.8R of the FCA’s Disclosure Guidance and Transparency Rules.
This half yearly financial report has not been audited or reviewed by the Company’s auditors.
The half yearly financial report was approved by the Board on 25 June 2019 and the above responsibility statement was signed on its behalf by the Chairman.
SIMON MILLER
For and on behalf of the Board
25 June 2019
STATEMENT OF COMPREHENSIVE INCOME FOR THE SIX MONTHS ENDED 30 APRIL 2019
Notes |
Revenue £’000 | Capital £’000 | Total £’000 | |||||||
| Six months ended 30.04.19 (unaudited) |
Six months ended 30.04.18 (unaudited) |
Year ended 31.10.18 (audited) |
Six months ended 30.04.19 (unaudited) |
Six months ended 30.04.18 (unaudited) |
Year ended 31.10.18 (audited) |
Six months ended 30.04.19 (unaudited) |
Six months ended 30.04.18 (unaudited) |
Year ended 31.10.18 (audited) |
||
| Income from investments held at fair value through profit or loss | 3 | 1,718 | 1,396 | 2,968 | – | – | – | 1,718 | 1,396 | 2,968 |
| Other income | 3 | 1,029 | 989 | 1,793 | – | – | – | 1,029 | 989 | 1,793 |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | ||
| Total revenue | 2,747 | 2,385 | 4,761 | – | – | – | 2,747 | 2,385 | 4,761 | |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | ||
| Net profit/(loss) on investments held at fair value through profit or loss | – | – | – | 2,414 | (3,131) | 4,458 | 2,414 | (3,131) | 4,458 | |
| Net (loss)/profit on foreign exchange | – | – | – | (160) | (245) | 158 | (160) | (245) | 158 | |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | ||
| Total | 2,747 | 2,385 | 4,761 | 2,254 | (3,376) | 4,616 | 5,001 | (991) | 9,377 | |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | ||
| Expenses | ||||||||||
| Investment management fee | 4 | (114) | (109) | (224) | (343) | (325) | (671) | (457) | (434) | (895) |
| Other operating expenses | 5 | (188) | (184) | (374) | (10) | (10) | (16) | (198) | (194) | (390) |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | ||
| Total operating expenses | (302) | (293) | (598) | (353) | (335) | (687) | (655) | (628) | (1,285) | |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | ||
| Net profit/(loss) on ordinary activities before finance costs and taxation | 2,445 | 2,092 | 4,163 | 1,901 | (3,711) | 3,929 | 4,346 | (1,619) | 8,092 | |
| Taxation | (301) | (308) | (607) | 65 | 62 | 127 | (236) | (246) | (480) | |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | ||
| Profit/(loss) for the period | 2,144 | 1,784 | 3,556 | 1,966 | (3,649) | 4,056 | 4,110 | (1,865) | 7,612 | |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | ||
| Earnings/(loss) per ordinary share (pence) | 7 | 3.06 | 2.59 | 5.16 | 2.81 | (5.30) | 5.89 | 5.87 | (2.71) | 11.05 |
| ========= | ========= | ========= | ========= | ========= | ========= | ========= | ========= | ========= | ||
The total column of this statement represents the Company’s Statement of Comprehensive Income, prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union (EU). 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 disposed of during the period. All income is attributable to the equity holders of the Company.
The net profit/(loss) for the period disclosed above represents the Company’s total comprehensive income/(loss). The Company does not have any other comprehensive income.
STATEMENT OF CHANGES IN EQUITY FOR THE SIX MONTHS ENDED 30 APRIL 2019
| Note |
Called up share capital £’000 |
Share premium account £’000 |
Capital redemption reserve £’000 |
Special reserve £’000 |
Capital reserves £’000 |
Revenue reserve £’000 |
Total £’000 |
|
| For the six months ended 30 April 2019 (unaudited) | ||||||||
| At 31 October 2018 | 1,004 | 36,774 | 1,460 | 24,943 | 54,249 | 2,515 | 120,945 | |
| Total comprehensive income: | ||||||||
| Net profit for the period | – | – | – | – | 1,966 | 2,144 | 4,110 | |
| Transaction with owners, recorded directly to equity: | ||||||||
| Ordinary shares reissued from treasury | – | – | – | 5,510 | – | – | 5,510 | |
| Share issue costs | – | – | – | (27) | – | – | (27) | |
| Dividends paid(a) | 6 | – | – | – | – | (1,047) | (1,745) | (2,792) |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | ||
| At 30 April 2019 | 1,004 | 36,774 | 1,460 | 30,426 | 55,168 | 2,914 | 127,746 | |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | ||
| For the six months ended 30 April 2018 (unaudited) | ||||||||
| At 31 October 2017 | 1,004 | 36,774 | 1,460 | 24,910 | 51,743 | 2,404 | 118,295 | |
| Total comprehensive income: | ||||||||
| Net (loss)/profit for the period | – | – | – | – | (3,649) | 1,784 | (1,865) | |
| Transaction with owners, recorded directly to equity: | ||||||||
| Share purchase costs written back | – | – | – | 33 | – | – | 33 | |
| Dividends paid(b) | – | – | – | – | (517) | (1,722) | (2,239) | |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | ||
| At 30 April 2018 | 1,004 | 36,774 | 1,460 | 24,943 | 47,577 | 2,466 | 114,224 | |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | ||
| For the year ended 31 October 2018 (audited) | ||||||||
| At 31 October 2017 | 1,004 | 36,774 | 1,460 | 24,910 | 51,743 | 2,404 | 118,295 | |
| Total comprehensive income: | ||||||||
| Net profit for the year | – | – | – | – | 4,056 | 3,556 | 7,612 | |
| Transaction with owners, recorded directly to equity: | ||||||||
| Share purchase costs written back | – | – | – | 33 | – | – | 33 | |
| Dividends paid(c) | – | – | – | – | (1,550) | (3,445) | (4,995) | |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | ||
| At 31 October 2018 | 1,004 | 36,774 | 1,460 | 24,943 | 54,249 | 2,515 | 120,945 | |
| ========= | ========= | ========= | ========= | ========= | ========= | ========= |
(a) 4th interim dividend of 2.00p per share for the year ended 31 October 2018, declared on 1 November 2018 and paid on 4 January 2019 and 1st interim dividend of 2.00p per share for the year ending 31 October 2019, declared on 5 March 2019 and paid on 12 April 2019.
(b) 4th interim dividend of 1.25p per share for the year ended 31 October 2017, declared on 2 November 2017 and paid on 5 January 2018 and 1st interim dividend of 2.00p per share for the year ended 31 October 2018, declared on 6 March 2018 and paid on 13 April 2018.
(c) 4th interim dividend of 1.25p per share for the year ended 31 October 2017, declared on 2 November 2017 and paid on 5 January 2018; 1st interim dividend of 2.00p per share for the year ended 31 October 2018, declared on 6 March 2018 and paid on 13 April 2018; 2nd interim dividend of 2.00p per share for the year ended 31 October 2018, declared on 2 May 2018 and paid on 29 June 2018; and 3rd interim dividend of 2.00p per share for the year ended 31 October 2018, declared on 7 August 2018 and paid on 1 October 2018.
Costs relating to the acquisition and disposal of investments amounted to £31,000 and £12,000 respectively for the six months ended 30 April 2019 (six months ended 30 April 2018: £36,000 and £10,000; year ended 31 October 2018: £66,000 and £22,000).
The share premium account and capital redemption reserve are not distributable profits under the Companies Act 2006. The special reserve may be used as distributable profits for all purposes and, in particular, for the repurchase by the Company of its ordinary shares and for payment as dividends. In accordance with the Company’s Articles of Association, net capital reserves may be distributed by way of the repurchase by the Company of its ordinary shares and for payment as dividends.
STATEMENT OF FINANCIAL POSITION AS AT 30 APRIL 2019
| Notes |
30 April 2019 £’000 (unaudited) |
30 April 2018 £’000 (unaudited) |
31 October 2018 £’000 (audited) |
|
| Non-current assets | ||||
| Investments held at fair value through profit or loss | 118,384 | 110,204 | 114,843 | |
| --------------- | --------------- | --------------- | ||
| Current assets | ||||
| Other receivables | 257 | 1,168 | 158 | |
| Cash and cash equivalents | 11,069 | 4,755 | 7,017 | |
| --------------- | --------------- | --------------- | ||
| 11,326 | 5,923 | 7,175 | ||
| --------------- | --------------- | --------------- | ||
| Total assets | 129,710 | 116,127 | 122,018 | |
| --------------- | --------------- | --------------- | ||
| Current liabilities | ||||
| Other payables | (1,314) | (1,596) | (739) | |
| Derivative financial liabilities held at fair value through profit or loss | (650) | (307) | (334) | |
| --------------- | --------------- | --------------- | ||
| (1,964) | (1,903) | (1,073) | ||
| --------------- | --------------- | --------------- | ||
| Net assets | 127,746 | 114,224 | 120,945 | |
| ========= | ========= | ========= | ||
| Equity attributable to equity holders | ||||
| Called up share capital | 8 | 1,004 | 1,004 | 1,004 |
| Share premium account | 36,774 | 36,774 | 36,774 | |
| Capital redemption reserve | 1,460 | 1,460 | 1,460 | |
| Special reserve | 30,426 | 24,943 | 24,943 | |
| Capital reserves | 55,168 | 47,577 | 54,249 | |
| Revenue reserve | 2,914 | 2,466 | 2,515 | |
| --------------- | --------------- | --------------- | ||
| Total equity | 127,746 | 114,224 | 120,945 | |
| ========= | ========= | ========= | ||
| Net asset value per ordinary share (pence) | 7 | 177.30 | 165.84 | 175.60 |
| ========= | ========= | ========= |
CASH FLOW STATEMENT FOR THE SIX MONTHS ENDED 30 APRIL 2019
| Six months ended 30 April 2019 £’000 (unaudited) |
Six months ended 30 April 2018 £’000 (unaudited) |
Year ended 31 October 2018 £’000 (audited) |
|
| Operating activities | |||
| Net profit/(loss) before taxation | 4,346 | (1,619) | 8,092 |
| Net (profit)/loss on investments and options held at fair value through profit or loss (including transaction costs) | (2,414) | 3,131 | (4,458) |
| Net loss/(profit) on foreign exchange | 160 | 245 | (158) |
| Sales of investments held at fair value through profit or loss | 46,164 | 43,877 | 88,952 |
| Purchases of investments held at fair value through profit or loss | (46,973) | (43,203) | (85,301) |
| Increase in other receivables | (96) | (42) | (26) |
| Decrease in other payables | (18) | (213) | (396) |
| Decrease/(increase) in amounts due from brokers | 11 | (645) | 347 |
| Increase/(decrease) in amounts due to brokers | 574 | (1,534) | (2,195) |
| --------------- | --------------- | --------------- | |
| Net cash inflow/(outflow) from operating activities before taxation | 1,754 | (3) | 4,857 |
| --------------- | --------------- | --------------- | |
| Taxation on investment income included within gross income | (233) | (267) | (512) |
| --------------- | --------------- | --------------- | |
| Net cash inflow/(outflow) from operating activities | 1,521 | (270) | 4,345 |
| --------------- | --------------- | --------------- | |
| Financing activities | |||
| Proceeds from ordinary shares reissued from treasury | 5,510 | – | – |
| Share issue costs paid | (27) | – | – |
| Dividends paid | (2,792) | (2,239) | (4,995) |
| --------------- | --------------- | --------------- | |
| Net cash inflow/(outflow) from financing activities | 2,691 | (2,239) | (4,995) |
| --------------- | --------------- | --------------- | |
| Increase/(decrease) in cash and cash equivalents | 4,212 | (2,509) | (650) |
| Effect of foreign exchange rate changes | (160) | (245) | 158 |
| --------------- | --------------- | --------------- | |
| Change in cash and cash equivalents | 4,052 | (2,754) | (492) |
| Cash and cash equivalents at start of period/year | 7,017 | 7,509 | 7,509 |
| --------------- | --------------- | --------------- | |
| Cash and cash equivalents at end of period/year | 11,069 | 4,755 | 7,017 |
| --------------- | --------------- | --------------- | |
| Comprised of: | |||
| Cash at bank | 11,069 | 4,755 | 7,017 |
| ========= | ========= | ========= |
NOTES TO THE FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 30 APRIL 2019
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. BASIS OF PRESENTATION
The half yearly financial statements have been prepared using the same accounting policies as set out in the Company’s Annual Report and Financial Statements for the year ended 31 October 2018 (which were prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union (EU) and as applied in accordance with the provisions of the Companies Act 2006) and in accordance with International Accounting Standard 34, ‘Interim Financial Reporting’. Insofar as the Statement of Recommended Practice (SORP) for investment trust companies and venture capital trusts issued by the Association of Investment Companies (AIC), revised in November 2014 and updated in January 2017 and February 2018 is compatible with IFRS, the financial statements have been prepared in accordance with guidance set out in the SORP.
Adoption of new and amended standards and interpretations
IFRS 9 Financial instruments
The classification and measurement requirements of IFRS 9 have been adopted retrospectively as of the date of initial application on 1 November 2018; however, the Company has chosen to take advantage of the option not to restate comparatives. Therefore, the 2018 comparative figures are presented and measured under IAS 39. All financial assets previously held at fair value continue to be measured at fair value and accordingly there has been no impact as a result of the adoption of IFRS 9. All financial assets that were classified as loans and receivables and measured at amortised cost continue to be so.
IFRS 15 Revenue from contracts with customers
The Company adopted IFRS 15 as of the date of initial application of 1 November 2018. IFRS 15 replaces IAS 18 Revenue and establishes a five-step model to account for revenue arising from contracts with customers. In addition, guidance on interest and dividend income has been moved from IAS 18 to IFRS 9 without significant changes to the requirements. Therefore, there was no impact of adopting IFRS 15 for the Company.
3. INCOME
| Six months ended 30 April 2019 £’000 (unaudited) |
Six months ended 30 April 2018 £’000 (unaudited) |
Year ended 31 October 2018 £’000 (audited) |
|
| Investment income: | |||
| UK dividends | 154 | 109 | 223 |
| Overseas dividends | 1,550 | 1,287 | 2,745 |
| Overseas special dividends | 14 | – | – |
| --------------- | --------------- | --------------- | |
| 1,718 | 1,396 | 2,968 | |
| --------------- | --------------- | --------------- | |
| Other income: | |||
| Deposit interest | 92 | 31 | 79 |
| Option premium income | 937 | 958 | 1,714 |
| --------------- | --------------- | --------------- | |
| 1,029 | 989 | 1,793 | |
| --------------- | --------------- | --------------- | |
| Total income | 2,747 | 2,385 | 4,761 |
| ========= | ========= | ========= |
During the period, the Company received premiums totalling £917,000 (six months ended 30 April 2018: £935,000; year ended 31 October 2018: £1,778,000) for writing covered call options for the purposes of revenue generation. Option premiums of £937,000 (six months ended 30 April 2018: £958,000; year ended 31 October 2018: £1,714,000) were amortised to income. All derivative transactions were based on constituent stocks in the Russell 1000 Value Index. At 30 April 2019, there were 237 open positions with an associated liability of £650,000 (six months ended 30 April 2018: 225 open positions with an associated liability of £307,000; year ended 31 October 2018: 195 open positions with an associated liability of £334,000).
Dividends and interest received in cash during the period amounted to £1,620,000 and £92,000 (six months ended 30 April 2018: £1,350,000 and £31,000; year ended 31 October 2018: £2,935,000 and £79,000) respectively.
Special dividends of £nil have been recognised in capital (six months ended 30 April 2018: £3,000; year ended 31 October 2018: £459,000).
4. INVESTMENT MANAGEMENT FEE
| Six months ended 30 April 2019 (unaudited) | Six months ended 30 April 2018 (unaudited) | Year ended 31 October 2018 (audited) |
|||||||
| Revenue £’000 |
Capital £’000 |
Total £’000 |
Revenue £’000 |
Capital £’000 |
Total £’000 |
Revenue £’000 |
Capital £’000 |
Total £’000 |
|
| Investment management fee | 114 | 343 | 457 | 109 | 325 | 434 | 224 | 671 | 895 |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | |
| Total | 114 | 343 | 457 | 109 | 325 | 434 | 224 | 671 | 895 |
| ========= | ========= | ========= | ========= | ========= | ========= | ========= | ========= | ========= | |
The investment management fee is payable quarterly in arrears, calculated at the rate of 0.75% of the Company’s net assets.
5. OTHER OPERATING EXPENSES
| Six months ended 30 April 2019 £’000 (unaudited) |
Six months ended 30 April 2018 £’000 (unaudited) |
Year ended 31 October 2018 £’000 (audited) |
|
| Allocated to revenue: | |||
| Custody fee | 3 | 2 | 5 |
| Auditors' remuneration – audit services | 15 | 14 | 28 |
| Registrar’s fee | 13 | 12 | 28 |
| Directors’ emoluments | 60 | 58 | 127 |
| Broker fees | 20 | 20 | 40 |
| Depositary fees | 6 | 7 | 14 |
| Marketing fees | 14 | 10 | 25 |
| Printing expenses | 10 | 11 | 20 |
| Legal and professional fees | 8 | 8 | 18 |
| Other administration costs | 39 | 42 | 69 |
| --------------- | --------------- | --------------- | |
| 188 | 184 | 374 | |
| --------------- | --------------- | --------------- | |
| Allocated to capital: | |||
| Custody transaction charges | 10 | 10 | 16 |
| --------------- | --------------- | --------------- | |
| 198 | 194 | 390 | |
| ========= | ========= | ========= |
6. DIVIDENDS
The Directors have declared a second quarterly interim dividend of 2.00p per share. The dividend will be paid on 28 June 2019 to shareholders on the Company’s register on 24 May 2019. This dividend has not been accrued in the financial statements for the six months ended 30 April 2019, as under IFRS, interim dividends are not recognised until paid. Dividends are debited directly to reserves.
Dividends on equity shares during the period and their payment from current period revenue income and capital reserves were as follows:
| Six months ended 30 April 2019 (unaudited) | |||
| Revenue £’000 |
Capital £’000 |
Total £’000 |
|
| Fourth interim dividend for the year ended 31 October 2018 of 2.00p per ordinary share paid on 4 January 2019 | 864 | 518 | 1,382 |
| First interim dividend for the year ending 31 October 2019 of 2.00p per ordinary share paid on 12 April 2019 | 881 | 529 | 1,410 |
| --------------- | --------------- | --------------- | |
| 1,745 | 1,047 | 2,792 | |
| Second interim dividend for the year ending 31 October 2019 of 2.00p per ordinary share payable on 28 June 2019* | 909 | 546 | 1,455 |
| --------------- | --------------- | --------------- | |
| 2,654 | 1,593 | 4,247 | |
| ========= | ========= | ========= | |
* Based on 72,749,044 ordinary shares in issue on 24 May 2019 (the record date).
7. EARNINGS AND NET ASSET VALUE PER ORDINARY SHARE
Total revenue return, capital return and net asset value per share are shown below and have been calculated using the following:
| Six months ended 30 April 2019 (unaudited) |
Six months ended 30 April 2018 (unaudited) |
Year ended 31 October 2018 (audited) |
|
| Net revenue profit attributable to ordinary shareholders (£’000) | 2,144 | 1,784 | 3,556 |
| Net capital profit/(loss) attributable to ordinary shareholders (£’000) | 1,966 | (3,649) | 4,056 |
| -------------------- | -------------------- | -------------------- | |
| Total profit/(loss) attributable to ordinary shareholders (£’000) | 4,110 | (1,865) | 7,612 |
| -------------------- | -------------------- | -------------------- | |
| Equity shareholders’ funds (£’000) | 127,746 | 114,224 | 120,945 |
| -------------------- | -------------------- | -------------------- | |
| The weighted average number of ordinary shares in issue during the period on which the earnings per ordinary share was calculated was: | 70,051,946 | 68,874,044 | 68,874,044 |
| -------------------- | -------------------- | -------------------- | |
| The actual number of ordinary shares in issue at the end of each period on which the net asset value per ordinary share was calculated was: | 72,049,044 | 68,874,044 | 68,874,044 |
| -------------------- | -------------------- | -------------------- | |
| Earnings per share | |||
| Revenue earnings per share (pence) | 3.06 | 2.59 | 5.16 |
| Capital earnings/(loss) per share (pence) | 2.81 | (5.30) | 5.89 |
| -------------------- | -------------------- | -------------------- | |
| Total earnings/(loss) per share (pence) | 5.87 | (2.71) | 11.05 |
| ============ | ============ | ============ |
There were no dilutive securities at the period end (six months ended 30 April 2018: nil; year ended 31 October 2018: nil).
| As at 30 April 2019 (unaudited) |
As at 30 April 2018 (unaudited) |
As at 31 October 2018 (audited) |
|
| Net asset value per ordinary share (pence) | 177.30 | 165.84 | 175.60 |
| --------------- | --------------- | --------------- | |
| Ordinary share price (pence) | 181.50 | 154.50 | 169.50 |
| ========= | ========= | ========= |
8. CALLED UP SHARE CAPITAL
(unaudited) |
Ordinary shares in issue (number) |
Treasury shares (number) |
Total shares (number) |
Nominal value £’000 |
| Allotted, called up and fully paid share capital comprised: | ||||
| Ordinary shares of 1 pence each: | ||||
| At 31 October 2018 | 68,874,044 | 31,487,261 | 100,361,305 | 1,004 |
| Ordinary shares reissued from treasury in the period | 3,175,000 | (3,175,000) | – | – |
| -------------------- | -------------------- | -------------------- | -------------------- | |
| At 30 April 2019 | 72,049,044 | 28,312,261 | 100,361,305 | 1,004 |
| ============ | ============ | ============ | ============ |
During the period to 30 April 2019, 3,175,000 ordinary shares were reissued from treasury for a total gross consideration of £5,510,000 (period ended 30 April 2018: nil; year ended 31 October 2018: nil).
No treasury shares were cancelled during the period (six months ended 30 April 2018: nil; year ended 31 October 2018: nil).
Since 30 April 2019 and up to the date of this report, 1,875,000 ordinary shares have been reissued from treasury.
9. VALUATION OF FINANCIAL INSTRUMENTS
Financial assets and financial liabilities are either carried in the Statement of Financial Position at their fair value (investments and derivatives) or at an amount which is a reasonable approximation of fair value (due from brokers, dividends and interest receivable, due to brokers, accruals, cash at bank and bank overdrafts). IFRS 13 requires the 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 2(g) as set out in the Company’s Annual Report and Financial Statements for the year ended 31 October 2018.
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 as follows.
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 than active, or other valuation techniques where all significant inputs are directly or indirectly observable from market data. Valuation techniques used for non-standardised financial instruments such as options, currency swaps and other over-the-counter derivatives include the use of comparable recent arm’s length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, option pricing models and other valuation techniques commonly used by market participants making the maximum use of market inputs and relying as little as possible on entity specific inputs.
Level 3 – Valuation techniques using significant unobservable inputs
This category includes all instruments where the valuation technique includes inputs not based on observable 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.
Over-the-counter derivative option contracts have been classified as Level 2 investments as their valuation has been based on market observable inputs represented by the underlying quoted securities to which these contracts expose the Company.
The table below sets out fair value measurements using the IFRS 13 fair value hierarchy.
| Financial assets/(liabilities) at fair value through profit or loss at 30 April 2019 (unaudited) |
Level 1 £’000 |
Level 2 £’000 |
Level 3 £’000 |
Total £’000 |
| Assets: | ||||
| Equity investments | 118,384 | – | – | 118,384 |
| Liabilities: | ||||
| Derivative financial instruments – written options | – | (650) | – | (650) |
| --------------- | --------------- | --------------- | --------------- | |
| 118,384 | (650) | – | 117,734 | |
| ========= | ========= | ========= | ========= |
| Financial assets/(liabilities) at fair value through profit or loss at 30 April 2018 | Level 1 £’000 |
Level 2 £’000 |
Level 3 £’000 |
Total £’000 |
| (unaudited) | ||||
| Assets: | ||||
| Equity investments | 110,204 | – | – | 110,204 |
| Liabilities: | ||||
| Derivative financial instruments – written options | – | (307) | – | (307) |
| --------------- | --------------- | --------------- | --------------- | |
| 110,204 | (307) | – | 109,897 | |
| ========= | ========= | ========= | ========= |
| Financial assets/(liabilities) at fair value through profit or loss at 31 October 2018 | Level 1 £’000 |
Level 2 £’000 |
Level 3 £’000 |
Total £’000 |
| (audited) | ||||
| Assets: | ||||
| Equity investments | 114,843 | – | – | 114,843 |
| Liabilities: | ||||
| Derivative financial instruments – written options | – | (334) | – | (334) |
| --------------- | --------------- | --------------- | --------------- | |
| 114,843 | (334) | – | 114,509 | |
| ========= | ========= | ========= | ========= |
There were no transfers between levels for financial assets and financial liabilities during the period/year recorded at fair value as at 30 April 2019, 30 April 2018 and 31 October 2018. The Company did not hold any Level 3 securities throughout the financial period under review or as at 30 April 2019, 30 April 2018 and 31 October 2018.
10. TRANSACTIONS WITH THE AIFM AND INVESTMENT MANAGER
BlackRock Fund Managers Limited (BFM) is the Company’s Alternative Investment Fund Manager (AIFM). 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)).
The investment management fee due to BFM for the six months ended 30 April 2019 amounted to £457,000 (six months ended 30 April 2018: £434,000; year ended 31 October 2018: £895,000). At the period end £456,000 was outstanding in respect of the investment management fee (six months ended 30 April 2018: £657,000; year ended 31 October 2018: £462,000).
In addition to the above services, BlackRock has provided the Company with marketing services. The total fees paid or payable for these services for the period ended 30 April 2019 amounted to £14,000 excluding VAT (six months ended 30 April 2018: £10,000; year ended 31 October 2018: £25,000). Marketing fees of £39,000 excluding VAT (period ended 30 April 2018: £35,000; year ended 31 October 2018: £25,000) were outstanding as at 30 April 2019.
11. RELATED PARTY DISCLOSURE
The Board consists of four non-executive Directors, all of whom are considered to be independent by the Board. None of the Directors has a service contract with the Company. With effect from 1 April 2019, the remuneration of the Chairman was increased from £36,000 to £42,000, the remuneration of the Chairman of the Audit and Management Engagement Committee was increased from £30,000 to £35,000 and for the other Directors the remuneration was increased from £25,000 to £29,000. At 30 April 2019, an amount of £10,000 (six months ended 30 April 2018: £10,000; year ended 31 October 2018: £10,000) was outstanding in respect of Directors’ fees.
At 30 April 2019, interests of the Directors in the ordinary shares of the Company were as set out below:
| Six months ended 30 April 2019 (unaudited) |
Six months ended 30 April 2018 (unaudited) |
Year ended 31 October 2018 (audited) |
|
| Simon Miller (Chairman) | 38,094 | 38,094 | 38,094 |
| Christopher Casey | 19,047 | 19,047 | 19,047 |
| Andrew Irvine | 38,094 | 38,094 | 38,094 |
| Alice Ryder | 9,047 | 9,047 | 9,047 |
Since the period end and up to the date of this report there have been no changes in Directors’ holdings.
12. CONTINGENT LIABILITIES
There were no contingent liabilities at 30 April 2019 (six months ended 30 April 2018 and year ended 31 October 2018: nil).
13. PUBLICATION OF NON STATUTORY ACCOUNTS
The financial information contained in this half yearly financial report does not constitute statutory accounts as defined in section 435 of the Companies Act 2006. The financial information for the six months ended 30 April 2019 and 30 April 2018 has not been reviewed or audited by the Company’s auditor.
The information for the year ended 31 October 2018 has been extracted from the latest published audited financial statements which have been filed with the Registrar of Companies. The report of the auditors on these financial statements contained no qualification or statement under sections 498(2) or 498(3) of the Companies Act 2006.
14. ANNUAL RESULTS
The Board expects to announce the annual results for the year ending 31 October 2019 in January 2020.
Copies of the annual results announcement can be obtained from the Secretary on 020 7743 3000 or cosec@blackrock.com. The Annual Report and Financial Statements should be available by the beginning of February 2020 with the Annual General Meeting being held in March 2020.
FOR FURTHER INFORMATION, PLEASE CONTACT:
Simon White, Managing Director, Investment Trusts, BlackRock Investment Management (UK) Limited
Tel: 020 7743 5284
Press enquiries:
Lucy Horne, Lansons Communications – Tel: 020 7294 3689
E-mail: lucyh@lansons.com
25 June 2019
12 Throgmorton Avenue
London EC2N 2DL
END
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