Half-year Report
BLACKROCK SUSTAINABLE AMERICAN INCOME TRUST PLC
LEI: 549300WWOCXSC241W468 - Article 5 Transparency Directive, DTR 4.2
Half Yearly Financial Report 30 April 2023
Performance record
| As at 30 April 2023 |
As at 31 October 2022 |
||
| Net assets (£’000)1 | 160,431 | 171,086 | |
| Net asset value per ordinary share (pence) | 199.97 | 213.25 | |
| Ordinary share price (mid-market) (pence) | 193.50 | 197.50 | |
| Discount to cum income net asset value2 | 3.2% | 7.4% | |
| Russell 1000 Value Index3 | 1747.35 | 1824.64 | |
| ========== | ========== |
| For the six months ended 30 April 2023 |
For the year ended 31 October 2022 |
||
| Performance (with dividends reinvested) | |||
| Net asset value per share2 | -4.4% | 7.4% | |
| Ordinary share price2 | 0.0% | 3.6% | |
| Russell 1000 Value Index | -4.2% | 10.7% | |
| ========== | ========== |
| For the six months ended 30 April 2023 |
For the six months ended 30 April 2022 |
Change % |
|
| Revenue | |||
| Net profit on ordinary activities after taxation (£’000) | 1,604 | 1,463 | 9.6 |
| Revenue earnings per ordinary share (pence)3 | 2.00 | 1.82 | 9.9 |
| ---------------- | ---------------- | ---------------- | |
| Interim dividends (pence) | |||
| 1st interim | 2.00 | 2.00 | – |
| 2nd interim | 2.00 | 2.00 | – |
| ---------------- | ---------------- | ---------------- | |
| Total dividends paid/payable | 4.00 | 4.00 | – |
| ========== | ========== | ========== |
Annual performance since launch on 24 October 2012 to 30 April 2023
# Since launch on 24 October 2012 to 31 October 2013.
1 The change in net assets reflects portfolio movements and dividends paid during the period.
2 Alternative Performance Measures, see Glossary in the half yearly report and financial statements.
3 Further details are given in the Glossary in the half yearly report and financial statements.
Sources: BlackRock and Datastream.
Performance figures have been calculated in Sterling terms with dividends reinvested.
Chair’s Statement
Dear Shareholder
Market overview
The backdrop to the start of the Company’s financial year was a difficult market environment for both equities and bonds. Investors had many issues with which to be concerned, including heightened geopolitical stress with the Russian invasion of Ukraine and a subsequent rise in energy prices, China’s zero COVID-19 policies, disrupted supply chains, as well as inflation and soaring interest rates. Heightened inflationary pressures led to central banks hiking interest rates with the most aggressive tightening of monetary policy by the Federal Reserve (the Fed) since the early 1980s.
October and November saw markets stabilise somewhat, as inflation rates appeared to moderate from their multi-decade highs and investors seemed hopeful that the Fed would pause its rate hiking cycle. However, the Fed remained steadfast in its outlook for interest rate hikes and the market sold off in December. An early year stock rally proved short-lived, as the strength of the US labour market and its impact on the outlook for future inflation readings, led the Fed to increase interest rates again.
The collapse of Silicon Valley Bank in mid-March, followed by two other regional banks, caused significant volatility in the financial sector and highlighted the dangers caused by rapid monetary tightening. These failures bear little resemblance to those in the 2008 financial crisis and the problems were unique to these banks rather than systemic. However, central banks are now in a more difficult position, weighing persistently high inflation on the one hand, against strains in the banking sector on the other.
Performance
In the six-months under review to 30 April 2023, the Company’s net asset value per share (NAV) fell by 4.4%, marginally underperforming its reference index, the Russell 1000 Value Index, which returned -4.2%. Over the same period, your Company’s share price remained flat at 0.0% (all figures are in Sterling terms with dividends reinvested). As a broader comparison, the S&P 500 Index fell by 0.5% during the same period.
Since the period end and up to close of business on 26 June 2023, the Company’s NAV has decreased by 1.1% and the share price has fallen by 5.2% (both percentages in Sterling terms with dividends reinvested).
Earnings and dividends
The Company’s earnings per share for the six months ended 30 April 2023 amounted to 2.00p compared with 1.82p for the corresponding period in 2022. Your Board considers that the current policy of quarterly dividends of 2.00p per share is of great value in an environment of soaring inflation and a challenging economic backdrop, which will be supported through both revenue and other distributable reserves.
On 21 March 2023, the Board declared the first quarterly dividend of 2.00p per share which was paid on 28 April 2023. A second quarterly dividend of 2.00p per share has been declared and will be paid on 3 July 2023 to shareholders on the register on 19 May 2023. These are in line with payments made in prior years.
Management of share rating
The Board monitors the Company’s share rating closely and recognises the importance to shareholders that the Company’s shares do not trade at either a significant premium or discount to the underlying NAV. Therefore, where deemed to be in shareholders’ long-term interests, it may exercise its powers to issue shares or buy back shares with the objective of ensuring that an excessive premium or discount does not arise.
During the six months to 30 April 2023, the Company’s share price discount/premium to NAV ranged between a premium of 0.7% and discount of 7.8%. The Company’s discount as at close of business on 26 June 2023 stood at 7.2%. During the period and up to the date of this report, no ordinary shares have been reissued or bought back. The Board will continue to use its authorities to issue and buy back shares when it considers it is in shareholders’ interests to do so.
Board composition
Following the retirement of Christopher Casey, we were delighted to welcome Solomon Soquar to the Board. Solomon was appointed following the Annual General Meeting on 21 March 2023 and has a long and deep experience of over 30 years across investment banking, capital markets and wealth management.
Solomon has worked with several major financial institutions, including Goldman Sachs, Bankers Trust, Merrill Lynch, Citi and Barclays. His most recent executive role has been as CEO of Barclays Investments Solutions Limited. Over the last few years, Solomon has developed a portfolio of roles, including non-executive director of Ruffer Investment Company Limited, chair of Africa Research Excellence Fund and business fellow of Oxford University, Smith School of Economics and Enterprise.
Outlook
Economic outcomes for the US for 2023, much like the rest of the developed world, will be dominated by monetary policy efforts to bring inflation down. The Fed will continue to focus on reducing inflation to its stated target of 2%, but inflation has remained stubbornly elevated due to the tight labour market and rise in disposable incomes. Growth is likely to be muted both in the US and globally, with few exceptions. Geopolitical risks also remain due to the war in Ukraine, and it is not clear how China’s shift away from its zero-COVID-19 policy will impact the global economy.
The current monetary tightening cycle is historic and leaves a narrow path for the economy to escape without a period of recession. Strong household and corporate balance sheets are likely to limit the downturn to a mild recession, but any recession will be a headwind for equity markets as earnings and economic indicators deteriorate. Against this backdrop, your portfolio managers will stay disciplined and continue to focus on companies with solid balance sheets, positive free cash flow and the ability to maintain their earnings growth throughout market cycles.
Alice Ryder
28 June 2023
Investment Manager’s Report
Market overview
Over the six months to 30 April 2023, the Company’s NAV returned -4.4% and the share price returned 0.0%. This compares with a return of -4.2% in the Russell 1000 Value Index (all percentages in Sterling terms with dividends reinvested). Over the same period, US large cap stocks, as represented by the S&P 500 Index, advanced by 8.6% in US Dollar terms. In Sterling terms, US stocks returned -0.5% for the performance period.
The Company underperformed during the period as artificial intelligence began to penetrate equity markets and growth outperformed value. Given the lack of breadth in the market and certain stocks making a strong resurgence, the Company was negatively impacted as we could not own these stocks based on portfolio parameters. The following discussion highlights some of the key market events during the period.
US equities rallied in the fourth quarter of 2022 as inflation pressures continued to ease. Both October and November’s Consumer Price Index prints surprised to the downside, despite persistence in stickier components of the index that have proven harder to address with monetary policy. By December 2022, disappointing economic data and a hawkish Federal Reserve (Fed) led the S&P 500 Index to finish the final quarter of the year with only modest gains. Despite central bank policy efforts, weakening housing data and disappointing economic data, inflation remained firmly embedded in the US economy. This backdrop, combined with anticipation of further rate hikes to come in 2023, fuelled recessionary fears and weighed on market sentiment.
For the first two months of 2023, US equities rallied broadly as the market continued to digest unexpectedly strong economic data and weakening headline inflation, which fell to 6.0% in February 2023. By March, we saw the first real economic ramifications from the Fed’s tightening cycle as regulators announced the government rescue of depositors at Silicon Valley Bank (SVB). Shortly after, Signature Bank, another regional bank based out of New York, also collapsed in the wake of SVB’s failure. While this initially sent shockwaves through the market, US equities eventually stabilised. Concerns around the banking sector remain reasonably contained for the time being. By April, the S&P 500 Index finished higher as investors continue to anticipate an end to the Fed’s rate-hiking cycle.
Portfolio overview
The largest contributor to relative performance was stock selection in health care. Within the sector, our stock selection within the pharmaceuticals industry accounted for the majority of relative outperformance in this sector. In utilities, stock selection and a modest overweight allocation to the multi-utilities industry boosted relative returns. Furthermore, stock selection in financials proved beneficial mainly due to stock selection within the insurance industry.
The largest detractor from relative performance was stock selection and allocation decisions in communication services. Having no exposure to the interactive media & services industry accounted for the majority of relative underperformance. In information technology (IT), both stock selection and allocation decisions within the IT services industry proved detrimental, as did our decision to not invest in semiconductors & semiconductor equipment companies. Other modest detractors from relative results included allocation decisions within industrials and stock selection in the aerospace & defence industry.
Below is a comprehensive overview of our allocations (in Sterling) at the end of the period.
Health Care: 4.8% overweight (21.3% of the portfolio)
Secular growth opportunities in health care are a byproduct of demographic trends. Older populations spend more on health care than younger populations. In the US, a combination of greater demand for health care services and rising costs facilitates a need for increased efficiency within the health care ecosystem. We believe innovation and strong cost control can work together to address this need and companies that can contribute to this outcome may be poised to benefit. On the innovation front we are finding opportunities in pharmaceuticals and among companies in the health care equipment & supplies industry. We prefer to invest in pharma companies with a proven ability to generate high research & development (R&D) productivity versus those that focus on one or two key drugs and rely upon raising their prices to drive growth. Outside of pharma, our search for attractively priced innovators is more stock specific; we recently initiated a position in Baxter International, (2.9% of the portfolio) a health care company focused on products to treat kidney disease and other chronic medical conditions. We believe the company is poised to do well as margin pressures from temporary inflation (logistics and shipping) suppress and the economy continues to reopen. From a cost perspective, health maintenance organisations (HMOs) have an economic incentive to drive down costs as they provide health insurance coverage to constituents. These efforts ultimately help to make health care insurance affordable to more people and the HMOs also play a substantial role in improving the access to and quality of health care its members receive. Fundamentally, we believe our holdings in the space can benefit from downward pressure on cost-trend, new membership growth and further industry consolidation over time. Furthermore, they trade at meaningfully discounted valuations versus peers, offering us an attractive risk versus reward opportunity.
Information Technology (IT): 7.2% overweight (14.6% of the portfolio)
An increasing number of companies in the technology sector are what we refer to as “industrial tech”. 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 (FCF). Strong earnings growth and FCF generation is also translating to an increasing number of companies paying growing dividends to shareholders. This is in stark contrast to the dot-com era where growth was often prioritised over shareholder return. We believe this trend is poised to continue. Our preferred exposures in the sector include IT services and communications equipment companies with sticky revenue streams such as Cognizant Technology Solutions (2.6% of the portfolio) and Cisco Systems (2.7% of the portfolio). We also continue to invest in software companies with capital-lite business models such as Microsoft (2.8% of the portfolio). IT broadly scores well on ESG metrics given the generally lower environmental impact than other sectors, with our selection of companies including a mix of ESG leaders and ESG improvers.
Financials: 1.0% underweight (19.3% of the portfolio)
Financials represent our portfolio’s largest absolute sector allocation and we prefer companies in the banking, insurance and wealth management industries. We believe the US banks offer investors a combination of strong balance sheets (their capital levels are meaningfully higher post financial crisis), attractive valuations and the potential for relative upside versus the broader market from inflation and higher interest rates. Secondly, we continue to like insurers and insurance brokers as these companies operate relatively stable businesses and trade at attractive valuations. We categorise most of our holdings in this space as ESG improvers, with opportunities for company managements to enact stronger corporate governance and human capital development policies. Lastly, we have also identified stock specific investments in wealth management as companies such as Charles Schwab (0.6% of the portfolio) stand out from peers due to their differentiated investment platforms, proximity to end customers and runways for long-term growth.
Consumer Discretionary: 4.0% overweight (9.9% of the portfolio)
Within the sector, our preferred areas of investment include household durables, textiles and apparel, and firms with auto-related exposure. Disruption risks persist in the sector and we believe these risks are best mitigated through identifying stock-specific investment opportunities that either trade at discounted valuations or have business models that are somewhat insulated from disruptive pressures. For example, we believe companies such as General Motors (autos; 1.7% of the portfolio) and Ralph Lauren (apparel; 0.7% of the portfolio) offer investors exposure to underappreciated franchises at discounted valuations. From a sustainability standpoint, our selection of companies includes a mix of ESG leaders such as Panasonic (2.0% of the portfolio), as well as ESG improvers with clear roadmaps for better ESG adherence and disclosures (i.e. General Motors’ commitment to electric vehicles and Ralph Lauren’s Global Citizen initiative).
Consumer Staples: 1.2% underweight (6.5% of the 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. Notable portfolio holdings include Mondelez International (2.3% of the portfolio) and Kraft Heinz (2.3% of the portfolio). We view each of these businesses as ESG leaders and improvers: Mondelez International stands out for securing GFSI (Global Food Safety Initiative)-benchmarked certification for their manufacturing sites which provides audits of suppliers and routine tests for final products limiting product and reputational risks. Kraft Heinz is an ESG improver as they have committed to a 50% reduction in GHG (greenhouse gas) emissions across all 3 scopes by 2030 and net zero by 2050.
Energy: 0.5% overweight (8.6% of the portfolio)
The portfolio currently invests in five energy stocks and we have a neutral weight in the sector relative to the reference index. Our focus on sustainability places a high hurdle for energy companies to be included in the portfolio, but we believe the sector remains investable, as more traditional oil and gas operators are critical in the energy transition towards less carbon intensive sources. For example, natural gas is 40-60% less carbon-intensive to produce and combust versus coal and oil. We view natural gas as a key “bridge fuel” and like companies such as Shell (2.8% of the portfolio) and EQT (1.3% of the portfolio). Fundamentally, we generally seek to invest in attractively priced operators with good resource assets that have the opportunity to improve upon environmental issues or demonstrate clear leadership in sustainability (i.e. through their exposure to renewables or commitments to net zero/carbon neutral outcomes). We also prefer to target companies with experienced management teams, low financial leverage and disciplined capex spending plans, as these elements can contribute to positive free cash flow generation over time.
Materials: 0.7% underweight (3.7% of the portfolio)
Our exposure to the materials sector is stock specific as we are only invested in the chemicals and containers and packaging industries. Within the chemicals industry, we have a position in PPG Industries (2.2% of the portfolio), a global supplier of paints, coatings and specialty materials. We believe PPG Industries’ improving cost dynamics will lead to better earnings and the company will regain its “quality compounder” status as volumes continue to recover from pandemic-related headwinds. Within the containers & packaging industry, our position in Sealed Air (1.5% of the portfolio) offers a relatively stable growth outlook. Sealed Air operates a high return business and has good pricing power. From a sustainability standpoint, plastic packagers generally score poorly on waste and water stress. The key issue for plastic is how to improve circularity and management has pledged to have 100% recyclable/reusable solutions and 50% average recycled/renewable content by 2025, which is well ahead of peers.
Utilities: 1.5% underweight (4.1% of the portfolio)
The portfolio currently invests in only two utility stocks and we have a slight underweight in the sector relative to the reference index. Portfolio exposures are stock specific as we are finding pockets of investment opportunity among US regulated utilities, which add a level of stability and defensiveness to the portfolio through their durable earnings and dividend profiles. Our investments in the sector primarily focus on ESG leaders that have specific targets for reduction in carbon emissions and maintain significant exposure to renewables or generate power through cleaner means such as natural gas.
Real Estate: 3.0% underweight (1.5% of the portfolio)
The portfolio has an underweight allocation to real estate, as we are finding few companies in the sector with both attractive valuations and strong or improving fundamentals. For example, retail REITs are facing challenges due to e-commerce and its negative impact on traditional brick and mortar retailers. Meanwhile, data center and logistics companies have strong fundamentals, but we view their valuations as unattractive. Our lone portfolio holding is CBRE Group (1.5% of the portfolio), the world’s largest commercial real estate services firm. The company is trading at a wide discount relative to peers and ranks well on ESG metrics versus peers. CBRE Group signed the Climate Pledge in 2021 to reach net zero by 2040.
Communication Services: 4.4% underweight (4.4% of the portfolio)
The portfolio has an underweight to communication services. Our underweight is driven by expensive valuations and a lack of dividend payers in the entertainment and interactive media & services industries. Meanwhile, the portfolio is overweight to the diversified telecom services and media industries. Notable portfolio holdings include Verizon Communications (diversified telecom; 2.6% of the portfolio) and Comcast (media; 1.8% of the portfolio). Verizon Communications trades at a reasonable price relative to the quality and stability of its business and acts as a key enabler for smart cities, with potential to reduce energy consumption, increase safety and provide other social benefits. Comcast also trades at a very reasonable valuation due to competition in broadband and in media. As the leading broadband provider in the US, Comcast is a key enabler of digital interactions and provides some of the key infra-structure that enables remote work (which reduces commuting related emissions).
Industrials: 4.7% underweight (6.1% of the portfolio)
The portfolio is meaningfully underweight to the industrials sector. Our selectivity is driven by relative valuations, which we view as expensive, in many cases, versus other cyclical value segments of the US equity market. Notable positions include Union Pacific, one of two Class 1 freight railroads operating on the US West Coast (2.3% of the portfolio), and Komatsu (1.9% of the portfolio), a Japanese manufacturer of construction and mining equipment. We view both companies as ESG leaders in their respective domains. Union Pacific has the best physical footprint among US railroads and requires less public infrastructure spending compared to trucking. Additionally, railroads emit circa 1/3 as much CO2 as trucks to move an equivalent amount of cargo. Komatsu has set meaningful targets for reduced CO2 emissions from its products by 2030 and to achieve carbon neutrality by 2050.
Market outlook
The start of 2023 finally showed the effects of the fastest Fed tightening cycle since 1980. The bank closures of Silicon Valley Bank, Signature Bank and First Republic Bank illustrated the increased challenges of operating in a high inflation, high interest rate economy and the fallout in our view is unlikely to change that. With regional banks remaining under pressure, we see consumer lending continuing to slow, which may further tighten financial conditions. Investors should remain mindful that we are only just over a year removed from the first Fed rate hike, meaning financial conditions were already set to tighten before March’s banking events. From a market perspective, this may create additional volatility if we see more negative outcomes related to a sluggish US economy. Despite a more challenging macro environment, we do not see the Fed cutting rates this year as core inflation proves to be resilient. We feel the Fed should prioritise curbing inflation as a premature interest rate cut could create additional economic challenges. Looking ahead, we continue to focus on resiliency by investing in high-quality businesses with strong fundamentals as we look for the economy to stabilise. While we see short-term choppiness ahead, we remain constructive of US equities in the long term.
Tony DeSpirito, David Zhao and Lisa Yang
BlackRock Investment Management LLC
28 June 2023
Ten largest investments 30 April 2023
1 + Laboratory Corporation of America (2022: 6th)
Sector: Health Care
Market value: £4,711,000
Share of investments: 3.0% (2022: 2.8%)
ESG Leader Laboratory Corporation of America, commonly known as LabCorp, operates in two segments including a low-cost, high quality national provider of laboratory services and a contract research organisation, which supports clinical research through administering trials and lab testing. LabCorp is able to offer a high quality service at a materially lower cost due to scale. Diagnostic testing is vital to generating positive health outcomes and LabCorp supports low-cost testing services, helping drive testing accessibility nationally.
2 + Baxter International (2022: 23rd)
Sector: Health Care
Market value: £4,618,000
Share of investments: 2.9% (2022: 1.9%)
ESG Improver Baxter International markets devices and drugs used to treat kidney disease and other chronic and acute medical conditions. The company is the number one player in Peritoneal Dialysis (PD) with dominant positions in medical fluids/delivery systems and strong market positions across a wide range of medical equipment and devices. The company’s PD technology helps improve access to care for high-risk patients with kidney disease.
3 = Willis Towers Watson (2022: 3rd)
Sector: Financials
Market value: £4,606,000
Share of investments: 2.9% (2022: 2.9%)
ESG Improver Willis Towers Watson (WTW) is a British-American multinational insurance advisor company. WTW’s revenue breakdown is approximately 55% consulting related and 45% insurance brokerage related. WTW’s valuation relative to peers is at historically wide levels. The board of WTW has seen many positive changes since late 2021 and we believe this will improve the company’s sustainability rating over time.
4 + Shell (2022: 11th)
Sector: Energy
Market value: £4,437,000
Share of investments: 2.8% (2022: 2.5%)
ESG Leader Shell is one of the largest integrated energy companies globally with five main operating segments: Integrated Gas, Upstream, Marketing, Chemicals & Products and Renewables & Energy Solutions. The company has a high-quality, gas/liquefied natural gas (LNG)-weighted portfolio with marketing and optimisation opportunities superior to most of its oil major peers. Shell is an ESG leader, having adopted an internal net-zero strategy by 2050 to be Paris-aligned, which is not adopted by most US-based oil major peers.
5 + Microsoft (2022: 26th)
Sector: Information Technology
Market value: £4,356,000
Share of investments: 2.8% (2022: 1.9%)
ESG Leader Microsoft is a dominant software company with strong market positions across multiple segments: intelligent cloud (36% of revenue), productivity & business processes (32% of revenue) and personal computing (32% of revenue). The company has a reasonable valuation for the long growth runway and the cloud transition should lead to high revenue and profit growth. The company invests heavily in carbon-neutral data centers powered by renewable energy sources.
6 - Cisco Systems (2022: 5th)
Sector: Information Technology
Market value: £4,274,000
Share of investments: 2.7% (2022: 2.8%)
ESG Leader Cisco Systems is the world’s largest networking equipment vendor, with leading positions in most of its core end markets. As one of the largest suppliers of network security solutions, Cisco System’s products help customers to enhance data security and privacy. Despite market concerns regarding competition and cloud migration, we believe they can still deliver sustainable revenue and earnings growth.
7 + Cognizant Technology Solutions (2022: 9th)
Sector: Information Technology
Market value: £4,119,000
Share of investments: 2.6% (2022: 2.6%)
ESG Leader Cognizant Technology Solutions is an IT Services company with a diversified revenue base across industry verticals and geographies. They help enterprise and small and medium business clients transition to cloud infrastructure, which is more efficient versus sub-scale in-house data centers. The company also exhibits strong governance as evidenced by an independent chairman, an independent majority and a gender diverse board.
8 - Verizon Communications (2022: 4th)
Sector: Communication Services
Market value: £4,100,000
Share of investments: 2.6% (2022: 2.8%)
ESG Leader Verizon Communications is the leading wireless company in the US. We believe the company trades at a reasonable price relative to the quality and stability of the business due to competitive dynamics that have somewhat abated, as T-Mobile has pivoted to a margin growth strategy (from a share gain strategy). Verizon Communications also has some optionality on new types of revenue enabled by 5th generation networks.
9 - Sanofi (2022: 1st)
Sector: Health Care
Market value: £4,043,000
Share of investments: 2.6% (2022: 2.9%)
ESG Leader Sanofi is a French multinational pharmaceutical and health care company that operates in three segments including pharmaceuticals, vaccines and consumer health. Sanofi is a leader in diabetes, immunology and cardiovascular management and also maintains strong consumer brands such as Allegra, IcyHot, GoldBond and Rolaids. The company also has a wide portfolio of vaccines including a leading influenza vaccine business. With the newly appointed CEO who we know well from Novartis, we believe the company’s R&D and innovation track record can be turned around.
10 + Citigroup (2022: 13th)
Financials
Market value: £4,012,000
Share of investments: 2.5% (2022: 2.4%)
ESG Leader Citigroup is a multinational investment bank and financial services corporation with a larger international footprint and smaller US retail footprint compared to its large US bank peers. Citigroup scores similarly to its large US bank peers with a strong score in Financing Environmental Impact, which will be increasingly important.
All percentages reflect the value of the holding as a percentage of total investments.
Percentages in brackets represent the value of the holding as of 31 October 2022.
Together, the ten largest investments represent 27.4% of the Company’s portfolio (31 October 2022: 27.4%).
Portfolio analysis as at 30 April 2023
Sector Exposure
| 2023 portfolio1 |
2022 portfolio2 |
2023 reference index1,3 |
|
| Communication Services | 4.4% | 4.4% | 8.8% |
| Consumer Discretionary | 9.9% | 10.0% | 5.9% |
| Consumer Staples | 6.5% | 5.4% | 7.7% |
| Energy | 8.6% | 8.7% | 8.1% |
| Financials | 19.3% | 21.9% | 20.3% |
| Health Care | 21.3% | 20.4% | 16.5% |
| Industrials | 6.1% | 5.5% | 10.8% |
| Information Technology | 14.6% | 13.9% | 7.4% |
| Materials | 3.7% | 4.3% | 4.4% |
| Real Estate | 1.5% | 1.3% | 4.5% |
| Utilities | 4.1% | 4.2% | 5.6% |
1 Represents exposure at 30 April 2023.
2 Represents exposure at 31 October 2022.
3 Russell 1000 Value Index at 30 April 2023.
Geographic Exposure1
As at 30 April 2023
| United States of America | 81.5% |
| United Kingdom | 7.8% |
| Other2 | 4.2% |
| Japan | 3.9% |
| France | 2.6% |
As at 31 October 2022
| United States of America | 81.2% |
| United Kingdom | 7.7% |
| Other2 | 4.6% |
| Japan | 3.6% |
| France | 2.9% |
1 Based on the principal place of operation of each investment.
2 Consists of Australia, Canada and Denmark.
Investments as at 30 April 2023
Company |
Country |
Sector |
Securities |
Market value £’000 |
% of total portfolio |
| Laboratory Corporation of America | United States | Health Care | Ordinary shares | 4,711 | 3.0 |
| Baxter International | United States | Health Care | Ordinary shares | 4,618 | 2.9 |
| Willis Towers Watson | United States | Financials | Ordinary shares | 4,606 | 2.9 |
| Shell | United Kingdom | Energy | Ordinary shares | 4,437 | 2.8 |
| Microsoft | United States | Information Technology (IT) | Ordinary shares | 4,356 | 2.8 |
| Cisco Systems | United States | IT | Ordinary shares | 4,274 | 2.7 |
| Cognizant Technology Solutions | United States | IT | Ordinary shares | 4,119 | 2.6 |
| Verizon Communications | United States | Communication Services | Ordinary shares | 4,100 | 2.6 |
| Sanofi | France | Health Care | Ordinary shares | 4,043 | 2.6 |
| Citigroup | United States | Financials | Ordinary shares | 4,012 | 2.5 |
| Wells Fargo | United States | Financials | Ordinary shares | 3,828 | 2.4 |
| American International | United States | Financials | Ordinary shares | 3,708 | 2.3 |
| Mondelez International | United States | Consumer Staples | Ordinary shares | 3,693 | 2.3 |
| Dollar Tree | United States | Consumer Discretionary | Ordinary shares | 3,609 | 2.3 |
| Cardinal Health | United States | Health Care | Ordinary shares | 3,583 | 2.3 |
| Kraft Heinz | United States | Consumer Staples | Ordinary shares | 3,563 | 2.3 |
| Union Pacific | United States | Industrials | Ordinary shares | 3,562 | 2.3 |
| PPG Industries | United States | Materials | Ordinary shares | 3,448 | 2.2 |
| Public Service Enterprise Group | United States | Utilities | Ordinary shares | 3,420 | 2.2 |
| Cigna | United States | Health Care | Ordinary shares | 3,379 | 2.1 |
| Fidelity National Information Services | United States | IT | Ordinary shares | 3,367 | 2.1 |
| Panasonic | Japan | Consumer Discretionary | Ordinary shares | 3,214 | 2.0 |
| Anthem | United States | Health Care | Ordinary shares | 3,105 | 2.0 |
| Komatsu | Japan | Industrials | Ordinary shares | 3,025 | 1.9 |
| AstraZeneca | United Kingdom | Health Care | Ordinary shares | 3,014 | 1.9 |
| Exelon | United States | Utilities | Ordinary shares | 2,995 | 1.9 |
| Cheniere Energy | United States | Energy | Ordinary shares | 2,980 | 1.9 |
| JPMorgan Chase | United States | Financials | Ordinary shares | 2,958 | 1.9 |
| Comcast | United States | Communication Services | Ordinary shares | 2,849 | 1.8 |
| Prudential | United Kingdom | Financials | Ordinary shares | 2,816 | 1.8 |
| General Motors | United States | Consumer Discretionary | Ordinary shares | 2,700 | 1.7 |
| Woodside Energy Group | Australia | Energy | Ordinary shares | 2,693 | 1.7 |
| Western Digital | United States | IT | Ordinary shares | 2,476 | 1.6 |
| Citizens Financial Group | United States | Financials | Ordinary shares | 2,466 | 1.6 |
| Sealed Air | United States | Materials | Ordinary shares | 2,447 | 1.5 |
| CBRE Group | United States | Real Estate | Ordinary shares | 2,342 | 1.5 |
| Zebra Technologies | United States | IT | Ordinary shares | 2,233 | 1.4 |
| Zimmer Biomet | United States | Health Care | Ordinary shares | 2,207 | 1.4 |
| Gildan Activewear | Canada | Consumer Discretionary | Ordinary shares | 2,185 | 1.4 |
| Reckitt Benckiser Group | United Kingdom | Consumer Staples | Ordinary shares | 2,106 | 1.3 |
| EQT | United States | Energy | Ordinary shares | 2,052 | 1.3 |
| Avantor | United States | Health Care | Ordinary shares | 1,899 | 1.2 |
| L3Harris Technologies | United States | Industrials | Ordinary shares | 1,756 | 1.1 |
| Novo Nordisk | Denmark | Health Care | Ordinary shares | 1,684 | 1.1 |
| Lear | United States | Consumer Discretionary | Ordinary shares | 1,593 | 1.0 |
| Visa | United States | IT | Ordinary shares | 1,490 | 0.9 |
| First American | United States | Financials | Ordinary shares | 1,478 | 0.9 |
| Kosmos Energy | United States | Energy | Ordinary shares | 1,464 | 0.9 |
| Eli Lilly | United States | Health Care | Ordinary shares | 1,298 | 0.8 |
| Fidelity National | United States | Financials | Ordinary shares | 1,249 | 0.8 |
| Newell Brands | United States | Consumer Discretionary | Ordinary shares | 1,236 | 0.8 |
| Pentair | United States | Industrials | Ordinary shares | 1,213 | 0.8 |
| Ralph Lauren | United States | Consumer Discretionary | Ordinary shares | 1,105 | 0.7 |
| Invesco | United States | Financials | Ordinary shares | 985 | 0.6 |
| Molson Coors | United States | Consumer Staples | Ordinary shares | 944 | 0.6 |
| Charles Schwab | United States | Financials | Ordinary shares | 852 | 0.6 |
| Ciena | United States | IT | Ordinary shares | 846 | 0.5 |
| Goldman Sachs | United States | Financials | Ordinary shares | 817 | 0.5 |
| Raymond James | United States | Financials | Ordinary shares | 792 | 0.5 |
| ---------------- | ---------------- | ||||
| Portfolio | 158,000 | 100.0 | |||
| ========== | ========== |
All investments are in ordinary shares unless otherwise stated. The number of holdings as at 30 April 2023 was 59 (31 October 2022: 57).
At 30 April 2023, 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 Chair’s Statement and the Investment Manager’s Report above 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 & Regulatory 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 2022. A detailed explanation can be found in the Strategic Report on pages 38 to 41 and in note 15 on pages 93 to 101 of the Annual Report and Financial Statements which are available on the website maintained by BlackRock at www.blackrock.com/uk/brsa.
In the view of the Board, there have not been any changes to the fundamental nature of the principal risks and uncertainties since the previous report and these 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. The Board is mindful of the continuing uncertainty surrounding the current environment of heightened geopolitical risk given the war in Ukraine. The Board believes that the Company and its key third-party service providers have in place appropriate business continuity plans and these services have continued to be supplied without interruption.
The Company has a portfolio of investments which are predominantly readily realisable and is able to meet all its liabilities from its assets and income generated from these assets. Accounting revenue and expense forecasts are maintained and reported to the Board regularly and it is expected that the Company will be able to meet all its obligations. Borrowings under the overdraft facility shall at no time exceed £20 million or 20% of the Company’s net assets (calculated at the time of draw down), although the Board intends only to utilise borrowings representing 10% of net assets at the time of draw down, and this covenant was complied with during the period. Ongoing charges for the year ended 31 October 2022 were 1.01% of net assets.
Based on the above, the Board is satisfied that it is appropriate to continue to adopt the going concern basis in preparing the financial statements.
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 11 below.
The related party transactions with the Directors are set out in note 12 below.
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 Chair’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 28 June 2023 and the above responsibility statement was signed on its behalf by the Chair.
Alice Ryder
For and on behalf of the Board
28 June 2023
Statement of Comprehensive Income for the six months ended 30 April 2023
| Six months ended 30 April 2023 (unaudited) |
Six months ended 30 April 2022 (unaudited) |
Year ended 31 October 2022 (audited) |
||||||||
Notes |
Revenue £’000 |
Capital £’000 |
Total £’000 |
Revenue £’000 |
Capital £’000 |
Total £’000 |
Revenue £’000 |
Capital £’000 |
Total £’000 |
|
| Income from investments held at fair value through profit or loss | 3 | 2,265 | – | 2,265 | 1,961 | 47 | 2,008 | 4,255 | 55 | 4,310 |
| Other income | 3 | 3 | – | 3 | – | – | – | 3 | – | 3 |
| ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ||
| Total income | 2,268 | – | 2,268 | 1,961 | 47 | 2,008 | 4,258 | 55 | 4,313 | |
| ========== | ========== | ========== | ========== | ========== | ========== | ========== | ========== | ========== | ||
| Net (loss)/profit on investments and options held at fair value through profit or loss | – | (8,581) | (8,581) | – | 9,038 | 9,038 | – | 10,423 | 10,423 | |
| Net profit/(loss) on foreign exchange | – | 6 | 6 | – | (199) | (199) | – | (433) | (433) | |
| ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ||
| Total | 2,268 | (8,575) | (6,307) | 1,961 | 8,886 | 10,847 | 4,258 | 10,045 | 14,303 | |
| ========== | ========== | ========== | ========== | ========== | ========== | ========== | ========== | ========== | ||
| Expenses | ||||||||||
| Investment management fee | 4 | (145) | (435) | (580) | (148) | (444) | (592) | (299) | (898) | (1,197) |
| Other operating expenses | 5 | (238) | (1) | (239) | (153) | 2 | (151) | (412) | 2 | (410) |
| ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ||
| Total operating expenses | (383) | (436) | (819) | (301) | (442) | (743) | (711) | (896) | (1,607) | |
| ========== | ========== | ========== | ========== | ========== | ========== | ========== | ========== | ========== | ||
| Net profit/(loss) on ordinary activities before finance costs and taxation | 1,885 | (9,011) | (7,126) | 1,660 | 8,444 | 10,104 | 3,547 | 9,149 | 12,696 | |
| Finance costs | (13) | (38) | (51) | (4) | (11) | (15) | (17) | (52) | (69) | |
| ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ||
| Net profit/(loss) on ordinary activities before taxation | 1,872 | (9,049) | (7,177) | 1,656 | 8,433 | 10,089 | 3,530 | 9,097 | 12,627 | |
| Taxation | (268) | – | (268) | (193) | – | (193) | (449) | (8) | (457) | |
| ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ||
| Profit/(loss) for the period/year | 1,604 | (9,049) | (7,445) | 1,463 | 8,433 | 9,896 | 3,081 | 9,089 | 12,170 | |
| ========== | ========== | ========== | ========== | ========== | ========== | ========== | ========== | ========== | ||
| Earnings/(loss) per ordinary share (pence) | 7 | 2.00 | (11.28) | (9.28) | 1.82 | 10.51 | 12.33 | 3.84 | 11.33 | 15.17 |
| ========== | ========== | ========== | ========== | ========== | ========== | ========== | ========== | ========== | ||
The total columns of this statement represent the Company’s Statement of Comprehensive Income, prepared in accordance with UK-adopted International Accounting Standards (IASs). The supplementary revenue and capital accounts 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 period. All income is attributable to the equity holders of the Company.
The Company does not have any other comprehensive income/(loss) (30 April 2022: £nil; 31 October 2022: £nil). The net profit/(loss) for the period disclosed above represents the Company’s total comprehensive income/(loss).
Statement of Changes in Equity for the six months ended 30 April 2023
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 2023 (unaudited) | ||||||||
| At 31 October 2022 | 1,004 | – | 1,460 | 82,963 | 84,940 | 719 | 171,086 | |
| Total comprehensive (loss)/income: | ||||||||
| Net (loss)/profit for the period | – | – | – | – | (9,049) | 1,604 | (7,445) | |
| Transactions with owners, recorded directly to equity: | ||||||||
| Dividends paid1 | 6 | – | – | – | – | (1,195) | (2,015) | (3,210) |
| ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ||
| At 30 April 2023 | 1,004 | – | 1,460 | 82,963 | 74,696 | 308 | 160,431 | |
| ========== | ========== | ========== | ========== | ========== | ========== | ========== | ||
| For the six months ended 30 April 2022 (unaudited) | ||||||||
| At 31 October 2021 | 1,004 | 44,873 | 1,460 | 38,090 | 79,369 | 538 | 165,334 | |
| Total comprehensive income: | ||||||||
| Net profit for the period | – | – | – | – | 8,433 | 1,463 | 9,896 | |
| Transactions with owners, recorded directly to equity: | ||||||||
| Dividends paid2 | 6 | – | – | – | – | (1,394) | (1,815) | (3,209) |
| ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ||
| At 30 April 2022 | 1,004 | 44,873 | 1,460 | 38,090 | 86,408 | 186 | 172,021 | |
| ========== | ========== | ========== | ========== | ========== | ========== | ========== | ||
| For the year ended 31 October 2022 (audited) | ||||||||
| At 31 October 2021 | 1,004 | 44,873 | 1,460 | 38,090 | 79,369 | 538 | 165,334 | |
| Total comprehensive income: | ||||||||
| Net profit for the year | – | – | – | – | 9,089 | 3,081 | 12,170 | |
| Transactions with owners, recorded directly to equity: | ||||||||
| Transfer of share premium to special reserve3 | – | (44,873) | – | 44,873 | – | – | – | |
| Dividends paid4 | – | – | – | – | (3,518) | (2,900) | (6,418) | |
| ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ||
| At 31 October 2022 | 1,004 | – | 1,460 | 82,963 | 84,940 | 719 | 171,086 | |
| ========== | ========== | ========== | ========== | ========== | ========== | ========== |
1 4th interim dividend of 2.00p per share for the year ended 31 October 2022, declared on 2 November 2022 and paid on 3 January 2023 and 1st interim dividend of 2.00p per share for the year ending 31 October 2023, declared on 22 March 2023 and paid on 28 April 2023.
2 4th interim dividend of 2.00p per share for the year ended 31 October 2021, declared on 3 November 2021 and paid on 4 January 2022 and 1st interim dividend of 2.00p per share for the year ending 31 October 2022, declared on 22 March 2022 and paid on 29 April 2022.
3 The Company’s share premium account was cancelled pursuant to shareholders’ approval of a special resolution at the Company’s Annual General Meeting on 22 March 2022 and Court approval on 19 July 2022. The share premium account which totalled £44,873,000 was transferred to a special reserve. This action was taken, in part, to ensure that the Company had sufficient distributable reserves.
4 4th interim dividend of 2.00p per share for the year ended 31 October 2021, declared on 3 November 2021 and paid 4 January 2022; 1st interim dividend of 2.00p per share for the year ended 31 October 2022, declared on 22 March 2022 and paid on 29 April 2022; 2nd interim dividend of 2.00p per share for the year ended 31 October 2022, declared on 11 May 2022 and paid on 1 July 2022; and 3rd interim dividend of 2.00p per share for the year ended 31 October 2022, declared on 4 August 2022 and paid on 3 October 2022.
For information on the Company’s distributable reserves, please refer to note 9 below.
Statement of Financial Position as at 30 April 2023
Notes |
30 April 2023 (unaudited) £’000 |
30 April 2022 (unaudited) £’000 |
31 October 2022 (audited) £’000 |
|
| Non current assets | ||||
| Investments held at fair value through profit or loss | 10 | 158,000 | 176,665 | 175,425 |
| ---------------- | ---------------- | ---------------- | ||
| Current assets | ||||
| Current tax asset | 132 | 99 | 145 | |
| Other receivables | 348 | 332 | 3,287 | |
| Cash and cash equivalents | 3,450 | 60 | 58 | |
| ---------------- | ---------------- | ---------------- | ||
| Total current assets | 3,930 | 491 | 3,490 | |
| ========== | ========== | ========== | ||
| Total assets | 161,930 | 177,156 | 178,915 | |
| ========== | ========== | ========== | ||
| Current liabilities | ||||
| Current tax liability | (6) | – | (6) | |
| Other payables | (1,493) | (1,389) | (3,969) | |
| Bank overdraft | – | (3,746) | (3,854) | |
| ---------------- | ---------------- | ---------------- | ||
| Total current liabilities | (1,499) | (5,135) | (7,829) | |
| ========== | ========== | ========== | ||
| Net assets | 160,431 | 172,021 | 171,086 | |
| ========== | ========== | ========== | ||
| Equity attributable to equity holders | ||||
| Called up share capital | 8 | 1,004 | 1,004 | 1,004 |
| Share premium account | – | 44,873 | – | |
| Capital redemption reserve | 1,460 | 1,460 | 1,460 | |
| Special reserve | 82,963 | 38,090 | 82,963 | |
| Capital reserves | 74,696 | 86,408 | 84,940 | |
| Revenue reserve | 308 | 186 | 719 | |
| ---------------- | ---------------- | ---------------- | ||
| Total equity | 160,431 | 172,021 | 171,086 | |
| ========== | ========== | ========== | ||
| Net asset value per ordinary share (pence) | 7 | 199.97 | 214.41 | 213.25 |
| ========== | ========== | ========== |
Cash Flow Statement for the six months ended 30 April 2023
| Six months ended 30 April 2023 (unaudited) £’000 |
Six months ended 30 April 2022 (unaudited) £’000 |
Year ended 31 October 2022 (audited) £’000 |
|
| Operating activities | |||
| Net (loss)/profit on ordinary activities before taxation | (7,177) | 10,089 | 12,619 |
| Add back finance costs | 51 | 15 | 69 |
| Net loss/(profit) on investments and options held at fair value through profit or loss (including transaction costs) | 8,581 | (9,038) | (10,423) |
| Net (profit)/loss on foreign exchange | (6) | 199 | 433 |
| Sales of investments held at fair value through profit or loss | 52,732 | 50,798 | 107,169 |
| Purchases of investments held at fair value through profit or loss | (43,888) | (53,454) | (107,200) |
| Increase in other receivables | (103) | (116) | (23) |
| Increase/(decrease) in other payables | 353 | 173 | (76) |
| Decrease/(increase) in amounts due from brokers | 3,042 | 2,021 | (1,021) |
| (Decrease)/increase in amounts due to brokers | (2,829) | (2,000) | 829 |
| ---------------- | ---------------- | ---------------- | |
| Net cash inflow/(outflow) from operating activities before taxation | 10,756 | (1,313) | 2,376 |
| ========== | ========== | ========== | |
| Taxation paid | (255) | (190) | (492) |
| ---------------- | ---------------- | ---------------- | |
| Net cash inflow/(outflow) from operating activities | 10,501 | (1,503) | 1,884 |
| ========== | ========== | ========== | |
| Financing activities | |||
| Interest paid | (51) | (15) | (69) |
| Dividends paid | (3,210) | (3,209) | (6,418) |
| ---------------- | ---------------- | ---------------- | |
| Net cash outflow from financing activities | (3,261) | (3,224) | (6,487) |
| ========== | ========== | ========== | |
| Increase/(decrease) in cash and cash equivalents | 7,240 | (4,727) | (4,603) |
| Effect of foreign exchange rate changes | 6 | (199) | (433) |
| ---------------- | ---------------- | ---------------- | |
| Change in cash and cash equivalents | 7,246 | (4,926) | (5,036) |
| Cash and cash equivalents at start of period/year | (3,796) | 1,240 | 1,240 |
| ---------------- | ---------------- | ---------------- | |
| Cash and cash equivalents at end of period/year | 3,450 | (3,686) | (3,796) |
| Comprised of: | |||
| Cash at bank | 273 | 60 | 58 |
| Bank overdraft | – | (3,746) | (3,854) |
| Cash Fund1 | 3,177 | – | – |
| ---------------- | ---------------- | ---------------- | |
| 3,450 | (3,686) | (3,796) | |
| ========== | ========== | ========== |
1 Cash Fund represents funds invested in the BlackRock Institutional Cash Series plc – US Dollar Liquid Environmentally Aware Fund.
Notes to the Financial Statements for the six months ended 30 April 2023
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 for the period ended 30 April 2023 have been prepared in accordance with the Disclosure Guidance and Transparency Rules sourcebook of the Financial Conduct Authority and with the UK-adopted International Accounting Standard 34 (IAS 34) Interim Financial Reporting. The half yearly financial statements should be read in conjunction with the Company’s Annual Report and Financial Statements for the year ended 31 October 2022, which have been prepared in accordance with UK-adopted International Accounting Standards (IASs) in conformity with the requirements of the Companies Act 2006.
Insofar as the Statement of Recommended Practice (SORP) for investment trust companies and venture capital trusts, issued by the Association of Investment Companies (AIC) in October 2019 and updated in July 2022, is compatible with UK-adopted IASs, the financial statements have been prepared in accordance with the guidance set out in the SORP.
Relevant International Accounting Standards that have yet to be adopted:
IFRS 17 – Insurance contracts (effective 1 January 2023). This standard replaces IFRS 4, which currently permits a wide range of accounting practices in accounting for insurance contracts. IFRS 17 will fundamentally change the accounting by all entities that issue insurance contracts and investment contracts with discretionary participation features.
This standard is unlikely to have any impact on the Company as it does not issue insurance contracts.
IAS 12 – Deferred tax related to assets and liabilities arising from a single transaction (effective 1 January 2023). The International Accounting Standards Board (IASB) has amended IAS 12 Income Taxes to require companies to recognise deferred tax on particular transactions that, on initial recognition, give rise to equal amounts of taxable and deductible temporary differences. According to the amended guidance, a temporary difference that arises on initial recognition of an asset or liability is not subject to the initial recognition exemption if that transaction gave rise to equal amounts of taxable and deductible temporary differences. These amendments might have a significant impact on the preparation of financial statements by companies that have substantial balances of right–of–use assets, lease liabilities, decommissioning, restoration and similar liabilities. The impact for those affected would be the recognition of additional deferred tax assets and liabilities.
The amendment of this standard is unlikely to have any significant impact on the Company.
None of the standards that have been issued but are not yet effective are expected to have a material impact on the Company.
3. Income
| Six months ended 30 April 2023 (unaudited) £’000 |
Six months ended 30 April 2022 (unaudited) £’000 |
Year ended 31 October 2022 (audited) £’000 |
|
| Investment income: | |||
| UK dividends | 196 | 148 | 234 |
| Overseas dividends | 2,048 | 1,764 | 3,926 |
| Overseas special dividends | – | 8 | 27 |
| Overseas REIT dividends | – | 41 | 68 |
| Interest from Cash Fund | 21 | – | – |
| ---------------- | ---------------- | ---------------- | |
| Total investment income | 2,265 | 1,961 | 4,255 |
| ========== | ========== | ========== | |
| Deposit interest | 3 | – | 3 |
| ---------------- | ---------------- | ---------------- | |
| Total income | 2,268 | 1,961 | 4,258 |
| ========== | ========== | ========== |
Dividends and interest received in cash during the period amounted to £1,888,000 and £12,000 (six months ended 30 April 2022: £1,659,000 and £nil; year ended 31 October 2022: £3,662,000 and £3,000).
No special dividends have been recognised in capital during the period (six months ended 30 April 2022: £47,000; year ended 31 October 2022: £55,000).
4. Investment management fee
| Six months ended 30 April 2023 (unaudited) |
Six months ended 30 April 2022 (unaudited) |
Year ended 31 October 2022 (audited) |
|||||||
| Revenue £’000 |
Capital £’000 |
Total £’000 |
Revenue £’000 |
Capital £’000 |
Total £’000 |
Revenue £’000 |
Capital £’000 |
Total £’000 |
|
| Investment management fee | 145 | 435 | 580 | 148 | 444 | 592 | 299 | 898 | 1,197 |
| ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | ---------------- | |
| Total | 145 | 435 | 580 | 148 | 444 | 592 | 299 | 898 | 1,197 |
| ========== | ========== | ========== | ========== | ========== | ========== | ========== | ========== | ========== | |
The investment management fee is payable in quarterly arrears, calculated at the rate of 0.70% of the Company’s net assets. The investment management fee is allocated 25% to the revenue account and 75% to the capital account.
There is no additional fee for company secretarial and administration services.
5. Other operating expenses
| Six months ended 30 April 2023 (unaudited) £’000 |
Six months ended 30 April 2022 (unaudited) £’000 |
Year ended 31 October 2022 (audited) £’000 |
|
| Allocated to revenue: | |||
| Custody fee | 1 | 1 | 3 |
| Auditors’ remuneration – audit services1 | 17 | 19 | 38 |
| Registrar’s fee | 11 | 15 | 32 |
| Directors’ emoluments | 68 | 82 | 165 |
| Broker fees | 20 | 20 | 40 |
| Depositary fees | 8 | 8 | 16 |
| Printing fees | 18 | 16 | 32 |
| Legal and professional fees | 18 | 17 | 35 |
| Marketing fees | 26 | 17 | 49 |
| AIC fees | 6 | 5 | 11 |
| FCA fees | 5 | 4 | 9 |
| Write back of prior year expenses2 | (11) | (87) | (101) |
| Other administration costs | 51 | 36 | 83 |
| ---------------- | ---------------- | ---------------- | |
| 238 | 153 | 412 | |
| ========== | ========== | ========== | |
| Allocated to capital: | |||
| Custody transaction charges3 | 1 | 5 | 5 |
| Write back of prior year expenses3,4 | – | (7) | (7) |
| ---------------- | ---------------- | ---------------- | |
| 239 | 151 | 410 | |
| ========== | ========== | ========== |
1 No non-audit services were provided by the Company’s auditors for the six months ended 30 April 2023 (six months ended 30 April 2022: none; year ended 31 October 2022: none).
2 Relates to prior year accruals for legal fees written back during the period (six months ended 30 April 2022: Directors’ fees, Directors’ expenses and legal fees; year ended 31 October 2022: Directors’ fees, Directors’ expenses, Employer’s NI, legal fees and printing fees).
3 For the six month period ended 30 April 2023, an expense of £1,000 (six months ended 30 April 2022: an expense of £5,000 and a write back of prior year accruals of £7,000; year ended 31 October 2022: an expense of £5,000 and a write back of prior year accruals of £7,000) was charged to the capital account of the Statement of Comprehensive Income. This relates to transaction costs charged by the custodian on sale and purchase trades.
4 No prior year accruals for custody transaction charges were written back during the period (six months ended 30 April 2022: £7,000; year ended 31 October 2022: £7,000).
The transaction costs incurred on the acquisition of investments amounted to £7,000 for the six months ended 30 April 2023 (six months ended 30 April 2022: £26,000; year ended 31 October 2022: £66,000). Costs relating to the disposal of investments amounted to £6,000 for the six months ended 30 April 2023 (six months ended 30 April 2022: £8,000; year ended 31 October 2022: £16,000). All transaction costs have been included within capital reserves.
6. Dividends
On 11 May 2023, the Directors declared a second quarterly interim dividend of 2.00p per share. The dividend will be paid on 3 July 2023 to shareholders on the Company’s register on 19 May 2023. This dividend has not been accrued in the financial statements for the six months ended 30 April 2023 as, under IAS, interim dividends are not recognised until paid. Dividends are debited directly to reserves.
Dividends paid on equity shares during the period were:
| Six months ended 30 April 2023 (unaudited) £’000 |
|
| Fourth interim dividend for the year ended 31 October 2022 of 2.00p per ordinary share paid on 3 January 2023 | 1,605 |
| First interim dividend for the year ended 31 October 2023 of 2.00p per ordinary share paid on 28 April 2023 | 1,605 |
| ---------------- | |
| 3,210 | |
| ========== | |
| Second interim dividend for the year ended 31 October 2023 of 2.00p per ordinary share payable on 3 July 2023 | 1,605 |
| ---------------- | |
| 4,815 | |
| ========== |
1 Based on 80,229,044 ordinary shares in issue on 18 May 2023 (the ex-dividend date).
7. Earnings and net asset value per ordinary share
Total revenue, capital (loss)/earnings and net asset value per ordinary share are shown below and have been calculated using the following:
| Six months ended 30 April 2023 (unaudited) |
Six months ended 30 April 2022 (unaudited) |
Year ended 31 October 2022 (audited) |
|
| Net revenue profit attributable to ordinary shareholders (£’000) | 1,604 | 1,463 | 3,081 |
| Net capital (loss)/profit attributable to ordinary shareholders (£’000) | (9,049) | 8,433 | 9,089 |
| ---------------- | ---------------- | ---------------- | |
| Total (loss)/profit attributable to ordinary shareholders (£’000) | (7,445) | 9,896 | 12,170 |
| ========== | ========== | ========== | |
| Equity shareholders’ funds (£’000) | 160,431 | 172,021 | 171,086 |
| ========== | ========== | ========== | |
| The weighted average number of ordinary shares in issue during the period on which the earnings per ordinary share was calculated was: | 80,229,044 | 80,229,044 | 80,229,044 |
| The actual number of ordinary shares in issue at the period end on which the net asset value per ordinary share was calculated was: | 80,229,044 | 80,229,044 | 80,229,044 |
| ---------------- | ---------------- | ---------------- | |
| Earnings per ordinary share | |||
| Revenue earnings per share (pence) – basic and diluted | 2.00 | 1.82 | 3.84 |
| Capital (loss)/earnings per share (pence) – basic and diluted | (11.28) | 10.51 | 11.33 |
| ---------------- | ---------------- | ---------------- | |
| Total (loss)/earnings per share (pence) – basic and diluted | (9.28) | 12.33 | 15.17 |
| ========== | ========== | ========== |
| As at 30 April 2023 (unaudited) |
As at 30 April 2022 (unaudited) |
As at 31 October 2022 (audited) |
|
| Net asset value per ordinary share (pence) | 199.97 | 214.41 | 213.25 |
| Ordinary share price (pence) | 193.50 | 210.00 | 197.50 |
| ========== | ========== | ========== |
There were no dilutive securities at the period end (six months ended 30 April 2022: none; year ended 31 October 2022: none).
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 2022 | 80,229,044 | 20,132,261 | 100,361,305 | 1,004 |
| ---------------- | ---------------- | ---------------- | ---------------- | |
| At 30 April 2023 | 80,229,044 | 20,132,261 | 100,361,305 | 1,004 |
| ========== | ========== | ========== | ========== |
During the six months ended 30 April 2023, no ordinary shares were reissued from treasury (six months ended 30 April 2022 and year ended 31 October 2022: no shares were reissued from treasury).
During the six months ended 30 April 2023, no shares were bought back and transferred into treasury (six months ended 30 April 2022 and year ended 31 October 2022: no shares were bought back and transferred into treasury).
Since 30 April 2023 and up to the date of this report, no ordinary shares have been reissued from treasury and no ordinary shares have been bought back and transferred into treasury.
9. Reserves
The share premium 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 such as dividends. In accordance with the Company’s Articles of Association, the special reserve, capital reserve and revenue reserve may be distributed by way of dividend. The loss on the capital reserve arising on the revaluation of investments of £1,745,000 (six months ended 30 April 2022: gain of £19,243,000; year ended 31 October 2022: gain of £11,680,000) 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.
The Company’s share premium account was cancelled pursuant to shareholders’ approval of a special resolution at the Company’s Annual General Meeting on 22 March 2022 and Court approval on 19 July 2022. The share premium account which totalled £44,873,000 was transferred to a special reserve. This action was taken, in part, to ensure that the Company had sufficient distributable reserves.
10. Financial risks and valuation of financial instruments
The Company’s investment activities expose it to the various types of risk which are associated with the financial instruments and markets in which it invests. The risks are substantially consistent with those disclosed in the previous annual financial statements with the exception of those outlined below.
Market risk arising from price risk
Price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices (other than those arising from interest rate risk or currency risk), whether those changes are caused by factors specific to the individual financial instrument or its issuer, or factors affecting similar financial instruments traded in the market. Local, regional or global events such as war, acts of terrorism, the spread of infectious illness or other public health issues, recessions, climate change or other events could have a significant impact on the Company and its investments.
The current environment of heightened geopolitical risk given the war in Ukraine has undermined investor confidence and market direction. In addition to the tragic and devastating events in Ukraine, the war has constricted supplies of key commodities, pushing prices up and creating a level of market uncertainty and volatility which is likely to persist for some time.
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 on pages 85 and 86 of the Company’s Annual Report and Financial Statements for the year ended 31 October 2022.
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 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 all significant inputs are directly or indirectly observable from market data.
Valuation techniques used for non-standardised financial instruments such as options, currency swaps and other over-the-counter derivatives include the use of comparable recent arm’s length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, option pricing models and other valuation techniques commonly used by market participants making the maximum use of market inputs and relying as little as possible on entity specific inputs.
Level 3 – Valuation techniques using significant unobservable inputs
This category includes all instruments where the valuation technique includes inputs not based on market data and these inputs could have a significant impact on the instrument’s valuation.
This category 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 Level 3 asset or liability including an assessment of the relevant risks including but not limited to credit risk, market risk, liquidity risk, business risk and sustainability risk. The determination of what constitutes ‘observable’ inputs requires significant judgement by the Investment Manager and these risks are adequately captured in the assumptions and inputs used in the measurement of Level 3 assets or liabilities.
Fair values of financial assets and financial liabilities
The table below sets out fair value measurements using the IFRS 13 fair value hierarchy.
| Financial assets at fair value through profit or loss at 30 April 2023 (unaudited) |
Level 1 £’000 |
Level 2 £’000 |
Level 3 £’000 |
Total £’000 |
| Assets: | ||||
| Equity investments | 158,000 | – | – | 158,000 |
| ---------------- | ---------------- | ---------------- | ---------------- | |
| 158,000 | – | – | 158,000 | |
| ========== | ========== | ========== | ========== |
| Financial assets at fair value through profit or loss at 30 April 2022 (unaudited) |
Level 1 £’000 |
Level 2 £’000 |
Level 3 £’000 |
Total £’000 |
| Assets: | ||||
| Equity investments | 176,665 | – | – | 176,665 |
| ---------------- | ---------------- | ---------------- | ---------------- | |
| 176,665 | – | – | 176,665 | |
| ========== | ========== | ========== | ========== |
| Financial assets at fair value through profit or loss at 31 October 2022 (audited) |
Level 1 £’000 |
Level 2 £’000 |
Level 3 £’000 |
Total £’000 |
| Assets: | ||||
| Equity investments | 175,425 | – | – | 175,425 |
| ---------------- | ---------------- | ---------------- | ---------------- | |
| 175,425 | – | – | 175,425 | |
| ========== | ========== | ========== | ========== |
For exchange listed equity investments, the quoted price is the bid price. Substantially all investments are valued based on unadjusted quoted market prices. Where such quoted prices are readily available in an active market, such prices are not required to be assessed or adjusted for any business risks, including climate change risk, in accordance with the fair value related requirements of the Company’s financial reporting framework.
There were no transfers between levels for financial assets and financial liabilities recorded at fair value as at 30 April 2023, 30 April 2022 and 31 October 2022. The Company did not hold any Level 3 securities throughout the financial period under review or as at 30 April 2023, 30 April 2022 and 31 October 2022.
11. Related party disclosure
Directors’ emoluments
The Board consists of four non-executive Directors, all of whom are considered to be independent of the Manager by the Board. None of the Directors has a service contract with the Company. The Chair receives an annual fee of £43,000, the Audit and Management Engagement Committee Chairman receives an annual fee of £36,000 and each of the Directors receives an annual fee of £30,000. At 30 April 2023, an amount of £14,000 (six months ended 30 April 2022: £14,000; year ended 31 October 2022: £14,000) was outstanding in respect of Directors’ fees.
At 30 April 2023, interests of the Directors in the ordinary shares of the Company are as set out below:
| Six months ended 30 April 2023 (unaudited) |
Six months ended 30 April 2022 (unaudited) |
Year ended 31 October 2022 (audited) |
|
| Alice Ryder (Chair)1 | 9,047 | 9,047 | 9,047 |
| David Barron | 5,000 | – | 5,000 |
| Melanie Roberts | 10,000 | – | 10,000 |
| Solomon Soquar2 | – | n/a | n/a |
| Christopher Casey3 | n/a | 19,047 | 19,047 |
| Simon Miller4 | n/a | 38,094 | 38,094 |
| ========== | ========== | ========== |
1 Appointed as Chair on 1 November 2022.
2 Appointed on 21 March 2023.
3 Retired on 21 March 2023.
4 Retired as Chairman on 31 October 2022.
Since the period end and up to the date of this report there have been no changes in Directors’ holdings.
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 30 April 2023
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. |
| 0.9 | n/a | n/a |
As at 30 April 2022
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. |
| 1.7 | n/a | n/a |
12. Transactions with the Investment Manager and AIFM
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 on page 49 of the Directors’ Report in the Company’s Annual Report and Financial Statements for the year ended 31 October 2022.
The investment management fee is payable quarterly in arrears, calculated at the rate of 0.70% of the Company’s net assets. The investment management fee is allocated 25% to the revenue account and 75% to the capital account. The investment management fee due for the six months ended 30 April 2023 amounted to £580,000 (six months ended 30 April 2022: £592,000; year ended 31 October 2022: £1,197,000). At the period end, £1,186,000 was outstanding in respect of the investment management fee (six months ended 30 April 2022: £1,177,000; year ended 31 October 2022: £899,000).
In addition to the above services, BIM (UK) has provided the Company with marketing services. The total fees paid or payable for these services to 30 April 2023 amounted to £26,000 excluding VAT (six months ended 30 April 2022: £17,000; year ended 31 October 2022: £49,000). Marketing fees of £56,000 excluding VAT (30 April 2022: £46,000; 31 October 2022: £29,000) were outstanding as at 30 April 2023.
The Company has an investment in the BlackRock Institutional Cash Series plc - US Dollar Liquid Environmentally Aware Fund of £3,177,000 (30 April 2022: £nil; 31 October 2022: £nil) as at 30 April 2023, which is a fund managed by a company within the BlackRock Group.
The ultimate holding company of the Manager and the Investment Manager is BlackRock, Inc., a company incorporated in Delaware, USA.
13. Contingent liabilities
There were no contingent liabilities at 30 April 2023 (six months ended 30 April 2022: none; year ended 31 October 2022: none).
14. 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 2023 and 30 April 2022 has not been audited.
The information for the year ended 31 October 2022 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 those financial statements contained no qualifications or statement under Sections 498(2) or 498(3) of the Companies Act 2006.
15. Annual results
The Board expects to announce the annual results for the year ending 31 October 2023 in late January 2024.
Copies of the annual results announcement can be obtained from the Secretary on 0207 743 3000 or cosec@blackrock.com. The Annual Report and Financial Statements should be available by the beginning of February 2024 with the Annual General Meeting being held in March 2024.
FOR FURTHER INFORMATION, PLEASE CONTACT:
Melissa Gallagher, Managing Director, Investment Trusts, BlackRock Investment Management (UK) Limited - Tel: 020 7743 3000
Press enquiries:
Lansons Communications – Tel: 020 7294 3689
E-mail: BlackRockInvestmentTrusts@lansons.com
28 June 2023
12 Throgmorton Avenue
London EC2N 2DL
END
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