Final Results
BlackRock Income and Growth Investment Trust plc
Annual Report and Financial Statements 31 October 2023
Performance record
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| As at | As at |
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| Net assets (£’000)1 | 40,156 | 40,572 |
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| Net asset value per ordinary share (pence) | 194.90 | 191.63 |
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| Ordinary share price (mid-market) (pence) | 178.00 | 171.00 |
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| Discount to net asset value2 | 8.7% | 10.8% |
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| FTSE All-Share Index | 8413.70 | 7945.76 |
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| ======== | ======== |
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| For the year | For the year |
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| Performance (with dividends reinvested) |
|
|
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| Net asset value per share2 | 5.2% | -2.3% |
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| Ordinary share price2 | 8.1% | -7.0% |
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| FTSE All-Share Index | 5.9% | -2.8% |
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| ======== | ======== |
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| For the year | For the year |
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| Revenue |
|
|
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| Net profit on ordinary activities after taxation (£’000) | 1,367 | 1,438 | -4.9 |
| Revenue earnings per ordinary share (pence)3 | 6.54 | 6.77 | -3.4 |
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| -------------- | -------------- | -------------- |
| Dividends (pence) |
|
|
|
| Interim | 2.60 | 2.60 | – |
| Final | 4.80 | 4.70 | +2.1 |
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| -------------- | -------------- | -------------- |
| Total dividends payable/paid | 7.40 | 7.30 | +1.4 |
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| ======== | ======== | ======== |
1 The change in net assets reflects portfolio movements, the purchase of the Company’s own shares and dividends paid during the year.
2 Alternative Performance Measures, see Glossary contained within the Annual Report and Financial Statements for the year ended 31 October 2023
3 Further details are given in the Glossary contained within the Annual Report and Financial Statements for the year ended 31 October 2023
Chairman’s statement
Market overview
In my statement in the Half-Yearly Financial Report, I noted that the picture had been dominated by powerful geopolitical and macroeconomic drivers, with markets focused on the path of inflation and interest rates. This pattern continued through the rest of our financial year to 31 October 2023. Developed market central banks continued to implement tight monetary policy in a bid to bring inflation under control. However, this action was not without consequences and the first signs of stress in the financial system were seen in March 2023, with several regional bank failures in the US and a subsequent Swiss government brokered take-over of Credit Suisse by UBS. The Bank of England (BOE) acted swiftly to ensure there was no contagion to the UK financial system, albeit credit conditions have tightened steadily throughout the year.
The rate of UK inflation, as measured by the Consumer Price Index (CPI), peaked at 11.1% in October 2022, since when it has steadily reduced during this financial year. By 31 October 2023, UK inflation had fallen to 4.60%, bringing some much-needed relief to UK consumers and corporates alike. Inflation had previously been driven by high energy and food prices and although they fell during the year, they remain far higher than in recent years. Robust demand and wage growth have been key factors in the path of inflation this year, and ongoing structural issues also in the UK labour market acted to keep wage settlements high. The BOE continued to implement its policy of monetary tightening throughout most of the year, although in September 2023 the Monetary Policy Committee voted to hold the base rate steady at 5.25%, still the highest level since February 2008. This ended a run of fourteen consecutive rate increases since December 2021, which news was well received by the UK equity market. In December, the US Federal Open Markets Committee voted to hold the base rate of interest steady at 5.25%. It also signalled that interest rate cuts were likely in 2024 which saw markets rise in response. However, the BOE was more hawkish, noting that UK wage demands remained elevated and that the MPC would continue to consider the economic data before a rate cut could be contemplated.
While the market continues to express a somewhat pessimistic view of the outlook for company valuations, our portfolio managers note that trading and, importantly, earnings remain strong for many of the companies within our portfolio. Despite the negative sentiment around the outlook, the UK economy has displayed notable resilience, with household balance sheets and corporate earnings in better shape than many anticipated. In fact, the UK managed to avoid a much feared recession in 2023 and although the economic data indicates our economy shrank in October 2023, it is forecast to return to modest growth in 2024. As a result, the likelihood of a ‘soft landing’ – a slowdown in economic growth that avoids a recession - may well have increased, although this remains to be seen. In any case, the current cycle of monetary policy tightening appears to have peaked, and markets are now focused on if and when interest rates will be cut; an event that may be the catalyst for a broader change in market sentiment towards UK equities.
Another feature of the challenging economic environment this year has been the compounding effect on corporate profit margins of higher input costs and rising wage demands. Our portfolio managers note that this rise in operating costs has, in many cases, been passed on to the consumer. However, as you will read in the Investment Manager’s report which follows, they believe companies may soon find this passthrough more difficult to achieve. Therefore, pricing power will be a key differentiator in 2024.
Notwithstanding the headwinds described, like all good active managers, our portfolio managers view equity market volatility as an opportunity and have been buying into high-quality domestic and mid-cap names at very attractive valuations following share price weakness. They believe there is a marked disconnect between the valuations ascribed to many UK companies and the underlying fundamentals of sales, revenue and future growth prospects. They have also been selectively adding to existing holdings which they believe are well placed to prosper as the economic landscape in the UK evolves.
Performance
During the year the Company’s Net Asset Value (NAV) per share returned +5.2%. By comparison, the Company’s Benchmark Index, the FTSE All-Share Index, returned +5.9%. At the share price level, the Company returned +8.1% over the period as our discount narrowed from 10.8% at the start of the year to 8.7% as at 31 October 2023 (all percentages in Pound Sterling terms with dividends reinvested).
While the performance of the portfolio was ahead of our Benchmark Index for much of 2023, it was disappointing to note that the market downturn in October 2023 reversed much of the relative outperformance, resulting in a marginal underperformance over the financial year to 31 October 2023. However, despite the challenging backdrop this year the Company was able to deliver a positive return in absolute terms. As at 18 December 2023, since the year end the Company’s NAV and share price have increased by 9.1% and 3.1%, respectively (all percentages are in Pound Sterling with dividends reinvested)
Further details of the key contributors and detractors from performance, and the portfolio managers’ views on the outlook for the forthcoming year, can be found in their report which follows below.
Revenue earnings and dividends
I am pleased to report that despite market volatility the Company’s earnings remained relatively stable, with revenue earnings per share for the year ended 31 October 2023 of 6.54 pence compared with 6.77 pence for the previous year. The Directors are mindful of shareholders’ desire for income in addition to capital growth and believe the Company’s dividend is greatly valued by shareholders. The Board is therefore proposing a final dividend per share of 4.80 pence (2022: 4.70 pence) giving total dividends for the year of 7.40 pence per share.
Subject to approval at the Annual General Meeting, the final dividend will be paid on 15 March 2024 to shareholders on the Company’s register at the close of business on 9 February 2024 (ex-dividend date is 8 February 2024). This final dividend, combined with an interim dividend of 2.60 pence per share (2022: 2.60 pence) paid to shareholders on 1 September 2023, gives a total dividend for the year of 7.40 pence, resulting in a yield of 4.2% based on a share price of 178.00 pence as at 31 October 2023.
One of the benefits of the Company’s investment trust structure is that it can retain up to 15% of total revenue each year to build up reserves which may be carried forward and used to pay dividends during leaner times. As at 31 October 2023 the Company held £2,131,000 or 10.34 pence per share in revenue reserves before the payment of final dividend of 4.80 pence for the year ended 31 October 2023.
Policy on share price discount
The Directors recognise the importance to investors that the Company’s share price should not trade at a significant discount to NAV, and therefore, in normal market conditions, may use the Company’s share buy back, sale of shares from treasury and share issuance powers to seek to ensure that the share price does not differ excessively from the underlying NAV.
The Board’s existing authority to buy back up to 14.99% of the Company’s issued share capital (excluding treasury shares) will expire at the conclusion of the 2023 Annual General Meeting and a resolution will be put to shareholders to renew the authority at that meeting. Currently, ordinary shares representing up to 33% of the Company’s issued ordinary share capital can be allotted as new ordinary shares or sold from treasury and the Board will also seek to renew this power.
During the year, a total of 568,428 ordinary shares were purchased at an average price of 182.26 pence per share, for a total consideration (including costs) of £1,036,000 and at an average discount of 11.7%. All ordinary shares bought back were cancelled. No shares were placed in treasury. The average discount for the year to 31 October 2023 was 9.6% and the discount at the year end was 8.7%. To put this in context, the average discount for the investment company sector as a whole has widened substantially this year and exceeded 16.0% as at 31 October 2023, a level not seen since the global financial crisis of 2008. As at 18 December 2023, the average UK Equity Income sector discount had narrowed to 4.1%.
Gearing
One of the advantages of the investment trust structure is that the Company can use gearing with the objective of increasing portfolio returns. The Company operates a flexible gearing policy which depends on prevailing market conditions and is subject to a maximum level of 20% of net assets at the time of investment. Net gearing during the financial year did not exceed such level. As at 31 October 2023, net gearing stood at 7.7%.
At the year end, the Company had a borrowing facility in place of up to £8 million, provided by The Bank of New York Mellon, London Branch. As at the date of this report it is drawn down by £4 million. Subsequent to the year end, the facility was renewed for a further period of 1 year to 20 December 2024.
Board composition
At the date of this report the Board consists of four independent Non-executive Directors, with two of the current Directors having been appointed since 2019. In accordance with best practice and good corporate governance, the Directors continue to submit themselves for annual re-election. Win Robbins advised the Board that she has decided that she will step down from the Board at the conclusion of the next Annual General Meeting. I would like to take this opportunity to thank Win for the benefit of her expertise and experience and her contribution to the Board during her tenure. We wish her well for the future.
The Board has a succession plan in place and will continue to regularly appraise its composition to ensure that a suitable balance of skills, knowledge, experience, independence and diversity is achieved to enable the Board to discharge its duties effectively. As part of these plans, the Board has initiated a search and selection process earlier in the year to identify a suitable candidate to replace Win. Through this process we have identified several high-calibre individuals who possess the necessary skills, experience and expertise to act as a Director of the Company. The Board will announce details of the chosen candidate in due course.
Further information on the Board’s policy on board diversity, director tenure and succession planning can be found in the Directors’ Report contained within the Annual Report and Financial Statements for the year ended 31 October 2023
Corporate governance
The UK Code of Corporate Governance (the UK Code) requires enhanced disclosure setting out how we, as Directors, have fulfilled our duties in taking into account the wider interests of stakeholders in promoting the success of the Company. The Board takes its governance responsibilities very seriously and follows the provisions of the UK Code as closely as possible.
As an investment company, the Company reports against the Association of Investment Companies Code of Corporate Governance (the 2019 AIC Code) which has been endorsed by the Financial Reporting Council as being appropriate for investment companies and fulfils the requirements of the UK Corporate Governance Code, as they are applicable to investment companies.
As it does each year, and as required by the Corporate Governance Code, the Company undertook a comprehensive Board evaluation this year. The overall conclusion was positive in terms of the effectiveness of the Board, and the skills, expertise and commitment of the Directors.
Environmental, Social and Governance (ESG) consideration
Material ESG issues can present both opportunities and risks to long-term investment performance. While the Company does not have a sustainable investment objective or exclude investments based only on ESG criteria, these ethical and sustainability issues are considerations for the Company, and your Board is committed to a diligent oversight of the activities of our Investment Manager in these areas.
We believe that the companies in which the portfolio is invested should operate within a healthy ecosystem of all their stakeholders whether these are shareholders, employees, customers, regulators or suppliers and that this can aid the sustainability of long-term returns. We have also provided information on our Manager's approach to investment stewardship and voting. Further information can be found in the Annual Report and Financial Statements for the year ended 31 October 2023.
Continuation vote
The Company has an arrangement in place whereby at the Annual General Meeting (AGM) held in 2018 and at every fifth AGM of the Company convened thereafter, shareholders shall be asked to approve the continuation of the Company as an investment trust. An ordinary resolution was put to shareholders at the last AGM in March 2023. The resolution was passed with 99.8% of the votes cast in favour. We thank shareholders for their loyalty and support.
Annual general Meeting
This year’s AGM will be held on Thursday, 7 March 2024 at 12.00 noon at the offices of BlackRock at 12 Throgmorton Avenue, London, EC2N 2DL. Details of the business of the meeting are set out in the Notice of Annual General Meeting contained within the Annual Report and Financial Statements for the year ended 31 October 2023
We hope you can attend this year's AGM. The Board very much looks forward to meeting shareholders and answering any questions you may have on the day.
Communication with shareholders
We appreciate how important access to regular information is to our shareholders. To supplement our Company website, we offer shareholders the ability to sign up to the Trust Matters newsletter which includes information on the Company and other news, views and insights. Further information on how to sign up is included within.
Outlook
As you will read in the Investment Manager’s Report which follows, in a world currently dominated by macroeconomic and geopolitical factors, our portfolio managers remain cautiously positioned. They are focused on bottom-up stock selection, assembling a portfolio of high-quality companies, with robust balance sheets, differentiated franchises, and, importantly, pricing power. They also believe their long held focus on well capitalised and cash generative companies will serve the Company well against a backdrop of higher interest rates and a deterioration in the availability and increase in the cost of credit. In addition, they believe that the UK market offers a wealth of opportunity, with valuations at historical lows versus their own history and that of other developed markets.
Your Board remains fully supportive of our Investment Manager’s investment philosophy and approach and have every confidence that they will continue to deliver on the Company’s investment objective as we move into 2024 and beyond.
GRAEME PROUDFOOT
Chairman
20 December 2023
Investment Manager’s report
Performance
For the year ended 31 October 2023, the Company’s NAV returned 5.2%, underperforming its benchmark, the FTSE All-Share Index (the Benchmark Index), which returned 5.9% over the same period (all percentages are in Pound Sterling terms with dividends reinvested).
Investment approach
In assembling the Company’s portfolio, we adopt a concentrated investment approach to ensure that our best ideas contribute significantly to returns. We believe that it is the role of the portfolio overall to generate an attractive and growing yield alongside capital growth rather than every individual company within the portfolio. This gives the Company increased flexibility to invest where returns are most attractive. This approach results in a portfolio which differs substantially from the Benchmark Index and in any individual year the returns will vary, sometimes significantly from those of the Benchmark Index. Our objective is to achieve returns greater than the Benchmark Index over time. The foundation of the portfolio, approximately 70%, is in ’income generators’ that we believe will sustain strong cash generation and pay an attractive and growing dividend yield whilst aiming to deliver a double-digit total return. Additionally, we look to identify and invest 20% of the portfolio in ‘growth’ companies that have significant barriers to entry and scalable business models that enable them to grow consistently. We also look for turnaround companies, accounting for up to 10% of portfolio, which represent those companies that are out of favour in the market, facing temporary challenges yet offering significant recovery potential.
Market review
Whilst global equity markets made progress during the 12 months to 31 October 2023, the UK market meaningfully lagged global markets during the period. This partially reversed the relative outperformance that the UK enjoyed during 2022 as global equity valuations compressed. The Benchmark Index rose by 5.9% during the year with Consumer Services, Utilities, and Technology being the top performing sectors while Telecommunications and Consumer Goods sectors underperformed. Interest rate policy and inflation stayed on top of the agenda as central banks deliberated on how to respond to a mixed picture from the UK inflation data. As the year progressed, goods inflation eased, however, services sector inflation remained sticky, driven by tight labour markets. The challenge remained pronounced in the UK where inflation reached a 40-year high and the Bank of England delivered fourteen consecutive rate hikes, the most significant monetary tightening carried out since the late 1980s, before holding interest rates flat at 5.25% at the end of the period.
The majority of 2023 was characterised by relatively narrow markets with notable outperformance of large capitalisation companies versus mid and small capitalisation companies. This has been most notable in the United States of America (US) market where the emergence of Artificial Intelligence (AI) has contributed to the remarkable outperformance of seven mega-capitalisation companies. In the UK, this size dynamic was particularly evident as domestically focussed, mid and small capitalisation companies struggled during much of the period as earnings headwinds persisted due to higher inflation in costs but weaker revenues. As we have highlighted before, the UK market continues to trade at notable valuation discount to other developed markets.
The first quarter of 2023 also saw the signs of financial stress as a result of the tightening monetary cycle with a number of bank failures. These were the first ‘bank-runs’ of the digital age and were indeed personified by a breathtakingly fast run on deposits. This led to the collapse of Silicon Valley Bank and First Republic Bank in the US and the eventual rescue of Credit Suisse by UBS. These events have been well contained with little contagion to the broader financial system albeit credit conditions have tightened steadily over the year. Elsewhere, expectations for a strong rebound in China as its economy emerged from COVID-19 related restrictions failed to materialise. Weak consumer spending and a property sector downturn have weighed on the economic backdrop in China. Geopolitics remains topical with the ongoing war in Ukraine, the upcoming elections in Taiwan, US and UK and more recently the conflict between Israel and Hamas.
Contributors to and detractors from performance
While the performance of the portfolio was ahead of the Benchmark Index for much of 2023, the market downturn in October 2023 reversed many of the gains. The portfolio subsequently slightly underperformed its Benchmark Index. We are however, pleased with the positive absolute return of the Company driven by the strong performance from holdings such as 3i Group, Standard Chartered and RELX. As the top positive contributor during the period, 3i Group has continued to report strong results with meaningful net asset value (NAV) growth. 3i Group’s largest portfolio company, the European discount retailer Action, was again the highlight, with impressive growth and cash generation. The shares rose 72% in absolute terms.
Standard Chartered also delivered strong results, beating market expectations as the bank benefited from higher non-interest income and a higher than expected net interest margin (NIM). Credit quality remains strong and provisions for losses were lower than predicted.
The share price of RELX rose strongly during the period reflecting the steady acceleration of its revenue growth across major divisions and for the group as a whole. The company continues to invest in its products and services, with the launch of new AI powered tools being a highlight this year. RELX has been a consistent holding in the Company over the last decade.
Rio Tinto experienced share price volatility given lacklustre economic data out of China earlier in the year and concerns around the health of the property sector. However, the company ended the year higher after posting a steady trading update at the end of the year with production across its mining operations in-line with expectations. Shares in Centrica more than doubled during the year on the back of significant cash generation that led to substantial capital returns. The company was another top positive contributor to performance.
During the year, we saw meaningful impact on the share prices of companies that did not deliver on earnings expectations; Rentokil Initial is an example of this. The company reported a weak trading statement at the end of the year with disappointing organic growth from their US pest control division. This also impacted the margin outlook for the division. The company is making good progress with the integration of its recently acquired Terminix business and the rest of the group is performing strongly. However, the US pest control division is key to the group’s long-term success.
Watches of Switzerland experienced share price weakness after the announcement of the stepping down of its Chief Financial Officer, softer trading in the jewellery business and the announcement by Rolex, one of the world’s largest watch making companies and a key supplier to Watches of Switzerland, of its acquisition of Bucherer, a notable watch retailer. As a result our position was reduced. EuroAPI cut profit expectations due to an issue with documentation at their Budapest site and delivered a weak trading statement later in the year and we have sold the holding. Finally, NatWest detracted from the portfolio after delivering weak results as deposit pricing weighed on the bank’s Net Interest Margin and following the resignation of its CEO, Alison Rose.
Transactions
At the beginning of the year, we identified opportunities in the dislocation in 2022, notably, in the consumer space. In November 2022, we added mid-cap names to the portfolio including Games Workshop and Howden Joinery following significant share price underperformance. We believe that these are advantaged franchises capable of resilient and growing cash generation with robust balance sheets.
During the year, opportunities arose through share price weakness, notably in UK domestic and mid-cap names. We added new positions in Admiral Group, Segro, Spirax-Sarco Engineering and Intermediate Capital Group. Segro, an industrial real estate investment trust, has a high-quality portfolio which we believe has significant rental growth potential and the ability to add value through development. Spirax-Sarco Engineering is a high-quality engineering business with strong structural drivers around energy efficiency where the malaise in the bio-processing and semi-conductor industries has impacted the group’s near-term prospects and valuation. Intermediate Capital Group was owned by the Company in the past, initially bought in the dislocation in March 2020. Having subsequently sold the position in 2021 following the near doubling of the share price, recent weakness had seen its valuation return to attractive levels.
We sold Equifax, Kone and Whitbread following strong performance. Whilst Kone and Equifax were purchased in the second half of 2022, we were pleasantly surprised by their strong performance in a short space of time. Both share prices reached levels where we felt their prospects were well understood and we consequently saw better value elsewhere.
We also sold the holding in BT Group. Whilst we saw progress in the attractive nature of the long-term fibre roll-out, inflationary challenges and higher capital expenditure are undermining the group’s ability to generate cash. With the elevated risk, the returns may come under pressure given the cost of living backdrop.
Gearing
Historically, we have managed the Company with a modest and consistent level of gearing, typically between 5-8% to enhance income generation and capital growth. However, as market volatility picked up, we have been more active over the last two years, varying both the level of gearing and using a broader range (0 - 10%) depending on the opportunities or risks presenting themselves at the time. At 31 October 2023, the Company had employed net gearing of 7.7%.
Outlook
During the course of 2023, central banks continued to unwind ten years of excess liquidity by tightening monetary policy desperate to prevent the entrenchment of higher inflation expectation. Inflation has persisted, driven by resilient demand, supply chain constraints and rising wages. Developed market central banks have responded with aggressive interest rate increases with 11 rate hikes in the US and 14 in the UK so far. Despite these steep rate rises, the impact of high interest rates and the associated transmission of lower liquidity into the global economy has been slow. March 2023 saw the first signs of financial stress with the bankruptcy of Silicon Valley Bank and Signature Bank in the US contributing to a steady deterioration in the availability and cost of credit. This has had a notable impact in specific industries, e.g. biotech, yet, so far, the broad economic impact has been limited. As monetary tightening appears to be slowing, the key question facing markets is whether we will see a soft or a hard landing as the effects of the interest rate fluctuations feed into the economy.
Whilst difficult to predict, and the sectors may vary, we would expect some broader demand weakness into 2024 as the impact of interest rate rises are felt by the economy. The third quarter of 2023 reporting season saw a broadening of demand weakness as consumers began to tighten their spending habits post summer and as excess savings built up during COVID-19 were depleted. Meanwhile industrial companies continued to build backlogs at a slower pace than revenues as supply chains normalised leading companies to destock as their need for excess inventory receded. To guard against lower credit availability and the potential for higher rates for longer, our approach continues to focus on companies with robust balance sheets capable of funding their own growth. We also continue to believe that identifying companies with real pricing power will be a differentiator. As demand weakens and the transitory inflationary pressures continue to fade (e.g. commodity prices, supply chain disruption) then pricing conversations will become more challenging even though wage pressure may prove more persistent. While this does not bode well for margins in aggregate, we believe that 2024 will see greater differentiation as pricing power of companies will become critical.
The UK’s policy during the early part of 2023 diverged from the Group of Seven industrialised countries (G7) in fiscal policy terms as the UK government attempted to create stability after the severe reaction from the “mini-budget” in October 2022. Thereafter, the UK rate policy mirrored others although towards the end of the period the fall in the oil price and the annualisation of previous year’s rate rises combined meaningfully to lower inflation to below 5% bringing the UK back in line with the G7. As we have commented several times before, the UK stock market continues to remain depressed in valuation terms relative to other developed markets offering double-digit discounts across a range of valuation metrics. This valuation ‘anomaly’ saw further reactions from UK corporates with the buyback yield of the UK, at the end of the period, standing at a respectable c.2.5%. Combining this with a dividend yield of c.4%, the cash return of the UK market is attractive in absolute terms and comfortably higher than other developed markets. Although we anticipate further volatility ahead as earnings estimates moderate, we know that in the course of time, risk appetite will return, and opportunities will emerge. As we have stated above, we have identified a number of opportunities with new positions initiated throughout the year in both UK domestic and mid-cap companies.
In summary, we expect geopolitics to continue to be a source of volatility with potentially significant elections in Taiwan, the US and the UK as well as the impact of resolution or escalation of geopolitical conflicts globally.
We continue to focus the portfolio on cash generative businesses with durable, competitive advantages as we believe these companies are best placed to drive returns over the long term. Whilst we anticipate economic and market volatility will persist throughout the year, we are excited by the opportunities this will likely create, by identifying the companies that strengthen their long term prospects as well as attractive turnaround situations.
ADAM AVIGDORI AND DAVID GOLDMAN
BLACKROCK INVESTMENT MANAGEMENT (UK) LIMITED
20 December 2023
Ten largest investments
Together, the ten largest investments represent 48.0% of the Company’s portfolio as at 31 October 2023 (2022: 48.4%).
1 ▲ Shell (2022: 2nd)
Sector: Oil & Gas Producers
Market value: £3,849,000
Share of investments: 8.9% (2022: 8.4%)
Shell is a global oil and gas company. The company operates in both upstream and downstream industries. The upstream division is engaged in searching for and recovering crude oil and natural gas, the liquefaction and transportation of gas. The downstream division is engaged in manufacturing, distribution and marketing activities for oil products and chemicals.
2 ▼ AstraZeneca (2022: 1st)
Sector: Pharmaceuticals & Biotechnology
Market value: £3,118,000
Share of investments: 7.2% (2022: 8.4%)
AstraZeneca is an Anglo-Swedish multinational pharmaceutical group with its headquarters in the UK. It is a science-led biopharmaceutical business with a portfolio of products for major disease areas including cancer, cardiovascular infection, neuroscience and respiration.
3 ▲ Rio Tinto (2022: 6th)
Sector: Mining
Market value: £2,569,000
Share of investments: 5.9% (2022: 4.0%)
Rio Tinto is a metals and mining group operating in approximately 36 countries around the world, producing iron ore, copper, diamonds, gold and uranium.
4 ▼ RELX (2022: 3rd)
Sector: Media
Market value: £2,403,000
Share of investments: 5.5% (2022: 5.8%)
RELX is a global provider of professional information solutions including the publication of scientific, medical, technical and legal journals. It also has the world’s leading exhibitions, conference and events business.
5 ▼ Reckitt (2022: 4th)
Sector: Household Goods & Home Construction
Market value: £2,036,000
Share of investments: 4.7% (2022: 4.7%)
Reckitt is a global leader in consumer health, hygiene and household products. Its products are sold in 200 countries and its 19 most profitable brands are responsible for 70% of net revenues.
6 ▲ 3i Group (2022: 8th)
Sector: Financial Services
Market value: £1,834,000
Share of investments: 4.2% (2022: 3.2%)
3i Group is a leading international investor focused on mid-market private equity and infrastructure. The group invests in mid-market buyouts, growth capital and infrastructure. Sectors invested in are business and financial services, consumer, industrials, energy and health care.
7 ► Unilever (2022: 7th)
Sector: Personal Goods
Market value: £1,499,000
Share of investments: 3.5% (2022: 3.3%)
Unilever is a consumer staples business operating in food, home and personal care and has strong positions in emerging markets, where long-term growth trends in various countries that currently generate the majority of revenues.
8 ▲ BHP (2022: 23rd)
Sector: Mining
Market value: £1,284,000
Share of investments: 3.0% (2022: 1.7%)
The world’s largest diversified mining group by market capitalisation. The group is an important global player in a number of commodities including iron ore, copper, thermal and metallurgical coal, manganese, nickel, silver and diamonds.
9 ▲ Phoenix Group (2022: 13th)
Sector: Life Insurance
Market value: £1,108,000
Share of investments: 2.6% (2022: 2.8%)
Phoenix Group is one of the largest providers of insurance services in the United Kingdom. The company offers a broad range of pensions and savings products to support people across all stages of the savings life cycle.
10 ▲ Mastercard (2022: 15th)
Sector: Support Services
Market value: £1,085,000
Share of investments: 2.5% (2022: 2.4%)
Mastercard is the second-largest payment-processing corporation worldwide and its principal business is to process payments between the banks of merchants and the card-issuing banks or credit unions of the purchasers who use the Mastercard-brand debit, credit and prepaid cards to make purchases.
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 2022.
Distribution of investments as at 31 October 2023
Analysis of portfolio by sector
|
|
| % of investments |
|
| 1 | Oil & Gas Producers | 11.3 | 12.4 |
| 2 | Pharmaceuticals & Biotechnology | 9.2 | 11.0 |
| 3 | Mining | 8.9 | 0.3 |
| 4 | Financial Services | 8.8 | 4.4 |
| 5 | Support Services | 8.5 | 3.1 |
| 6 | Household Goods & Home Construction | 7.7 | 1.0 |
| 7 | Media | 7.1 | 3.9 |
| 8 | Banks | 6.6 | 9.0 |
| 9 | General Retailers | 4.5 | 3.3 |
| 10 | Personal Goods | 4.3 | 0.4 |
| 11 | Non-Life Insurance | 3.0 | 0.8 |
| 12 | Real Estate Investment Trusts | 2.9 | 2.3 |
| 13 | Life Insurance | 2.6 | 2.4 |
| 14 | Food Producers | 2.5 | 0.6 |
| 15 | Electronic & Electrical Equipment | 2.5 | 0.9 |
| 16 | Health Care Equipment & Service | 2.2 | 0.5 |
| 17 | Tobacco | 1.9 | 3.2 |
| 18 | Travel & Leisure | 1.8 | 3.1 |
| 19 | Gas, Water & Multiutilities | 1.7 | 3.7 |
| 20 | Leisure Goods | 1.1 | 0.2 |
| 21 | Industrial Engineering | 0.9 | 0.6 |
Sources: BlackRock and Datastream.
Investment size
|
| Number of | % of investments |
| < £1m | 34 | 47.1 |
| £1m to £2m | 7 | 20.7 |
| £2m to £3m | 3 | 16.1 |
| £3m to £4m | 2 | 16.1 |
Source: BlackRock.
List of investments as at 31 October 2023
|
| Market |
|
| Oil & Gas Producers |
|
|
| Shell | 3,849 | 8.9 |
| BP Group | 722 | 1.7 |
| Woodside Energy Group | 293 | 0.7 |
|
| --------------- | --------------- |
|
| 4,864 | 11.3 |
|
| ========= | ========= |
| Pharmaceuticals & Biotechnology |
|
|
| AstraZeneca | 3,118 | 7.2 |
| Roche Holding1 | 847 | 2.0 |
|
| --------------- | --------------- |
|
| 3,965 | 9.2 |
|
| ========= | ========= |
| Mining |
|
|
| Rio Tinto | 2,569 | 5.9 |
| BHP | 1,284 | 3.0 |
|
| --------------- | --------------- |
|
| 3,853 | 8.9 |
|
| ========= | ========= |
| Financial Services |
|
|
| 3i Group | 1,834 | 4.2 |
| London Stock Exchange Group | 704 | 1.6 |
| Intermediate Capital Group | 510 | 1.2 |
| Ashmore Group | 498 | 1.2 |
| Premier Asset Management Group | 275 | 0.6 |
|
| --------------- | --------------- |
|
| 3,821 | 8.8 |
|
| ========= | ========= |
| Support Services |
|
|
| Mastercard1 | 1,085 | 2.5 |
| Hays | 972 | 2.2 |
| Rentokil Initial | 864 | 2.0 |
| Ashtead Group | 797 | 1.8 |
|
| --------------- | --------------- |
|
| 3,718 | 8.5 |
|
| ========= | ========= |
| Household Goods & Home Construction |
|
|
| Reckitt | 2,036 | 4.7 |
| Berkeley Group | 758 | 1.8 |
| Taylor Wimpey | 543 | 1.2 |
|
| --------------- | --------------- |
|
| 3,337 | 7.7 |
|
| ========= | ========= |
| Media |
|
|
| RELX | 2,403 | 5.5 |
| Pearson | 702 | 1.6 |
|
| --------------- | --------------- |
|
| 3,105 | 7.1 |
|
| ========= | ========= |
| Banks |
|
|
| Standard Chartered | 1,048 | 2.4 |
| HSBC Holdings | 946 | 2.2 |
| Lloyds Banking Group | 498 | 1.2 |
| NatWest | 351 | 0.8 |
|
| --------------- | --------------- |
|
| 2,843 | 6.6 |
|
| ========= | ========= |
| General Retailers |
|
|
| Next | 936 | 2.2 |
| WH Smith | 506 | 1.2 |
| Howden Joinery | 499 | 1.1 |
|
| --------------- | --------------- |
|
| 1,941 | 4.5 |
|
| ========= | ========= |
| Personal Goods |
|
|
| Unilever | 1,499 | 3.5 |
| Watches of Switzerland | 337 | 0.8 |
|
| --------------- | --------------- |
|
| 1,836 | 4.3 |
|
| ========= | ========= |
| Non-Life Insurance |
|
|
| Admiral Group | 738 | 1.7 |
| Hiscox | 583 | 1.3 |
|
| --------------- | --------------- |
|
| 1,321 | 3.0 |
|
| ========= | ========= |
| Real Estate Investment Trusts |
|
|
| Segro | 766 | 1.8 |
| Big Yellow Group | 471 | 1.1 |
|
| --------------- | --------------- |
|
| 1,237 | 2.9 |
|
| ========= | ========= |
| Life Insurance |
|
|
| Phoenix Group | 1,108 | 2.6 |
|
| --------------- | --------------- |
|
| 1,108 | 2.6 |
|
| ========= | ========= |
| Food Producers |
|
|
| Tate & Lyle | 1,082 | 2.5 |
|
| --------------- | --------------- |
|
| 1,082 | 2.5 |
|
| ========= | ========= |
| Electronic & Electrical Equipment |
|
|
| Schneider Electric1 | 555 | 1.3 |
| Oxford Instruments | 502 | 1.2 |
|
| --------------- | --------------- |
|
| 1,057 | 2.5 |
|
| ========= | ========= |
| Health Care Equipment & Services |
|
|
| Smith & Nephew | 959 | 2.2 |
|
| --------------- | --------------- |
|
| 959 | 2.2 |
|
| ========= | ========= |
| Tobacco |
|
|
| British American Tobacco | 812 | 1.9 |
|
| --------------- | --------------- |
|
| 812 | 1.9 |
|
| ========= | ========= |
| Travel & Leisure |
|
|
| Compass Group | 458 | 1.0 |
| Fuller Smith & Turner – A Shares | 339 | 0.8 |
| Patisserie Holdings2 | – | – |
|
| --------------- | --------------- |
|
| 797 | 1.8 |
|
| ========= | ========= |
| Gas, Water & Multiutilities |
|
|
| Centrica | 724 | 1.7 |
|
| --------------- | --------------- |
|
| 724 | 1.7 |
|
| ========= | ========= |
| Leisure Goods |
|
|
| Games Workshop | 494 | 1.1 |
|
| --------------- | --------------- |
|
| 494 | 1.1 |
|
| ========= | ========= |
| Industrial Engineering |
|
|
| Spirax-Sarco Engineering | 393 | 0.9 |
|
| --------------- | --------------- |
|
| 393 | 0.9 |
|
| ========= | ========= |
| Total investments | 43,267 | 100.0 |
|
| ========= | ========= |
1 Non-UK listed investments.
2 Company under liquidation.
All investments are in ordinary shares unless otherwise stated. The total number of investments held at 31 October 2023 was 46 (31 October 2022: 45).
As at 31 October 2023, the Company did not hold any equity interests comprising more than 3% of any company’s share capital.
Strategic report
The Directors present the Strategic Report of the Company for the year ended 31 October 2023.
Investment objective
The Company’s objective is to provide growth in capital and income over the long term through investment in a diversified portfolio of principally UK listed equities.
Business and management of the company
BlackRock Income and Growth Investment Trust plc is an investment trust company that has a premium listing on the London Stock Exchange. Its principal activity is portfolio investment. Investment trusts, like unit trusts and open-ended investment companies (OEICs), are pooled investment vehicles which allow exposure to a diversified range of assets through a single investment thus spreading, although not eliminating, investment risk.
Investment trusts, unlike unit trusts and OEICs, have the ability to borrow for investment purposes and to manage dividend distributions through revenue reserves. They also enjoy, unlike unit trusts and OEICs, the benefit of continuous dealing during market hours.
The Company is an Alternative Investment Fund in accordance with the Alternative Investment Fund Managers Directive (AIFMD). BlackRock Fund Managers Limited (the Manager) is the Company’s Alternative Investment Fund Manager. The management of the investment portfolio and the administration of the Company have been contractually delegated to the Manager. The Manager, operating under guidelines determined by the Board, has direct responsibility for decisions relating to the running of the Company and is accountable to the Board for the investment, financial and operating performance of the Company.
The Company delegates fund accounting services to BlackRock Investment Management (UK) Limited (BIM (UK) or the Investment Manager), which in turn sub-delegates these services to the Fund Accountant, The Bank of New York Mellon (International) Limited, and also sub-delegates registration services to the Registrar, Computershare Investor Services PLC. Other service providers include the Depositary, also performed by The Bank of New York Mellon (International) Limited. Details of the contractual terms with these service providers are set out in the Directors’ Report contained within the Annual Report and Financial Statements for the year ended 31 October 2023.
Business model
The Company invests in accordance with the investment objective. The Board is collectively responsible to shareholders for the long term success of the Company and is its governing body. There is a clear division of responsibility between the Board and the Manager. Matters reserved for the Board include setting the Company’s strategy, including its investment objective and policy, setting limits on gearing, setting the dividend, capital structure, governance, and appointing and monitoring the performance of service providers, including the Manager.
The Company’s business model follows that of an externally managed investment trust, therefore the Company does not have any employees and outsources its activities to third party service providers, including the Manager which is the principal service provider.
Investment strategy and policy
The Company’s policy is that the portfolio will usually consist of approximately 30-60 securities and the Company will invest primarily in the securities of companies listed or admitted to trading in the UK. The Company may invest up to 20% of the gross asset value of the Company in the securities of companies that are not listed or admitted to trading in the UK.
The Company may hold a maximum of 10% of the issued ordinary share capital of any company. No more than 15% of the gross asset value of the Company may be invested in the securities of any one issuer, calculated at the time of any relevant investment. Cash may not exceed 10% of the net asset value of the Company. The performance of the Company is measured by reference to the FTSE All-Share Index (the Benchmark Index) on a total return basis. Non-benchmark securities (including securities that are not listed or admitted to trading in the UK) may not exceed 20% of the gross asset value of the Company. Any non-benchmark securities which are listed or admitted to trading in the UK shall be limited to 10% of the gross asset value of the Company. Each investee company that is a constituent of the Benchmark Index is subject to a lower limit of 0% and an upper limit of plus 4 percentage points of the Company’s gross asset value against such investee company’s weighting in the Index on an ongoing basis, subject to an absolute sector weighting upper limit of 20% of the Company’s net asset value at any time.
The Company may deal in derivatives, including options, futures, contracts for difference and derivatives not traded on or under the rules of a recognised or designated investment exchange for the purpose of efficient portfolio management. Derivatives and exchange traded funds may be dealt in only with the prior consent of the Board.
The Company achieves an appropriate spread of risk by investing in a diversified portfolio of securities.
No material change can be made to the investment policy without the approval of shareholders by ordinary resolution.
Investment approach and process
In assembling the Company’s portfolio, a relatively concentrated approach to investment is adopted to ensure that the fund manager’s best ideas contribute significantly to returns. We believe that it is the role of the portfolio overall to achieve a premium level of yield rather than every individual company within it. This gives increased flexibility to invest where returns are most attractive. This relatively concentrated approach results in a portfolio which differs substantially from the Benchmark Index and in any individual year, the returns will vary, sometimes significantly, from those of the Benchmark Index. Over longer periods the objective is to achieve total returns greater than the Benchmark Index.
Investment approach
The foundation of the portfolio, approximately 70% by value, is in high free cash flow companies that can sustain cash generation and pay a growing yield whilst aiming to deliver a double-digit total return. Additionally, the Investment Manager seeks to identify and invest 20% by value of the portfolio in ‘growth’ companies that have significant barriers to entry and scalable business models that enable them to grow consistently. Turnaround companies are also sought, at around 10% by value, which represent those companies that are out of favour by the market, facing temporary challenges with high yields/very low valuations, but with recovery potential. The return from this segment is expected to contribute meaningfully to returns over time.
Our approach to Environmental, Social and Governance (ESG)
BlackRock believes that sustainability risk – and climate risk in particular – now equates to investment risk, and this will drive a profound reassessment of risk and asset values as investors seek to react to the impact of climate policy changes. This in turn (in BlackRock’s view) is likely to drive a significant reallocation of capital away from traditional carbon intensive industries over the next decade. BlackRock believes that carbon-intensive companies will play an integral role in unlocking the full potential of the energy transition, and to do this, they must be prepared to adapt, innovate and pivot their strategies towards a low carbon economy.
As part of BlackRock’s structured investment process, ESG risks and opportunities (including sustainability/climate risk) are considered within the portfolio management team’s fundamental analysis of companies and industries. ESG factors have been a key consideration of the BlackRock UK Equity Team’s investment process since inception and the Company’s portfolio managers work closely with BlackRock Investment Stewardship (BIS) to assess the governance quality of companies and understand any potential issues, risks or opportunities.
As part of their approach to ESG integration, the portfolio managers use ESG information when conducting research and due diligence on new investments and again when monitoring investments in the portfolio. In particular, portfolio managers now have access to 1,200 key ESG performance indicators in Aladdin (BlackRock’s proprietary trading system) from third-party data providers. BlackRock’s internal sustainability research framework scoring is also available alongside third-party ESG scores in core portfolio management tools. BlackRock’s analyst’s sector expertise and local market knowledge allows it to engage with companies through direct interaction with management teams and conducting site visits. In conjunction with the portfolio management team, BIS meets with boards of companies frequently to evaluate how they are strategically managing their longer-term issues, including those surrounding ESG and the potential impact these may have on company financials. BIS’s and the portfolio management team’s understanding of ESG issues is further supported by BlackRock’s Sustainable Investment Team (BSI). BSI look to advance ESG research and integration, active engagement and the development of sustainable investment solutions across the firm.
The Company does not meet the criteria for Article 8 or 9 products under the EU Sustainable Finance Disclosure Regulation (SFDR) and the investments underlying this financial product do not take into account the EU criteria for environmentally sustainable economic activities.
Further information on the Manager’s approach to ESG and Socially Responsible Investing can be found in the Strategic Report below.
Gearing and borrowings
The appropriate use of gearing can add value and the Company may, from time to time, use borrowings to achieve this. The Board is responsible for the level of gearing in the Company and reviews the position at every meeting. Gearing, including borrowings and gearing through the use of derivatives (which requires prior Board approval), when aggregated with underwriting participations, will not exceed 20% of the net asset value at the time of investment, drawdown or participation. There are no derivative positions at 31 October 2023. Any borrowing, except for short-term liquidity purposes, is used for investment purposes or to fund the purchase of the Company’s own shares.
At the prior year end, the Company had in place a two-year unsecured Pound Sterling revolving credit facility of £4 million, provided by ING Luxembourg S.A. The facility matured on 31 December 2022 and was repaid. The Company has put in place a replacement borrowing facility with a limit of £8 million, extended to the Company by The Bank of New York Mellon, London Branch. At the date of this report the facility was drawn down in the sum of £4 million.
Performance
The Board also reviews regularly the Company’s performance attribution analysis to understand how performance was achieved. This provides an understanding of how components such as sector exposure, stock selection and asset allocation impact performance. The table below provides performance information for the current and prior year.
Details of the Company’s performance for the year are also given in the Chairman’s Statement above. The Investment Manager’s Report above includes a review of the main developments during the year, together with information on investment activity within the Company’s portfolio.
Results and dividends
The Company’s revenue earnings for the year amounted to 6.54p per share (2022: 6.77p per share). The total net profit for the year, after taxation, was £2,150,000 (2022: loss of £949,000) of which the net revenue profit amounted to £1,367,000 (2022: £1,438,000) and the net capital profit amounted to £783,000 (2022: loss of £2,387,000). Details of dividends paid and declared in respect of the year are set out in the Chairman’s Statement above.
Key performance indicators
At each Board meeting, the Directors consider a number of performance measures to assess the Company’s success in achieving its objectives. The key performance indicators (KPIs) used to measure the progress and performance of the Company over time, and which are comparable to other investment trusts, are set out in the following table. As indicated in the footnote to the table, some of these KPIs fall within the definition of ‘Alternative Performance Measures’ under guidance issued by the European Securities and Markets Authority (ESMA) and additional information explaining how these are calculated is set out in the Glossary contained within the Annual Report and Financial Statements for the year ended 31 October 2023.
Additionally, the Board regularly reviews the performance of the portfolio, the net asset value, share price, discount to NAV and ongoing charges of the Company and compares this against various companies and indices. The Board also reviews the performance of the portfolio against a benchmark index, the FTSE All-Share Index. Information on the Company’s performance is given in the Chairman’s Statement.
The principal KPIs are described below.
Performance against the benchmark
The performance of the portfolio together with the performance of the Company’s net asset value and share price are reviewed at each Board meeting and compared to the return of the Company’s benchmark, the FTSE All-Share Index.
Premium/discount to NAV
At each meeting the Board monitors the level of the Company’s premium or discount to NAV and considers strategies for managing any premium or discount. Further details of the discount policy are provided in the Chairman’s statement above. In the year to 31 October 2023, the Company’s share price to NAV traded in the range of a discount of 3.2% to 14.0%, both on a cum income basis. The Company bought back a total of 568,428 ordinary shares during the year at an average discount of 11.7% and at an average price of 182.26p per share. The total consideration (including costs) was £1,036,000. No ordinary shares were reissued from treasury during the year.
Ongoing charges
The Board reviews the ongoing charges and monitors the expenses incurred by the Company at each meeting. The Board also compares the level of ongoing charges against those of its peers.
|
| Year ended | Year ended |
| NAV per share1 | 194.90p | 191.63p |
| Share price2 | 178.00p | 171.00p |
| Net asset value total return3, 4 | +5.2% | -2.3% |
| Share price total return3, 4 | +8.1% | -7.0% |
| Change in Benchmark Index5 | +5.9% | -2.8% |
| Discount to net asset value4 | 8.7% | 10.8% |
| Revenue earnings per share | 6.54p | 6.77p |
| Dividends per share | 7.40p | 7.30p |
| Ongoing charges4, 6 | 1.28% | 1.18% |
|
| ========= | ========= |
1 Calculated in accordance with accounting policies adopted by the Company and AIC guidelines.
2 Mid-market share price.
3 This measures the Company’s share price and NAV total return, which assumes dividends paid by the Company have been reinvested.
4 Alternative Performance Measures, see Glossary contained within the Annual Report and Financial Statements for the year ended 31 October 2023.
5 FTSE All-Share Index (total return).
6 Ongoing charges represent the management fee and all other operating expenses, excluding finance costs, direct transaction costs, custody transaction charges, VAT recovered, taxation, prior year expenses written back and certain non-recurring items as a % of average daily net assets.
Performance against the Company’s peers
Whilst the principal objective is to achieve growth in capital and income relative to the benchmark, the Board also monitors performance relative to a range of competitor funds, particularly those also within the AIC UK Equity Income sector.
Principal risks
The Company is exposed to a variety of risks and uncertainties. As required by the UK Corporate Governance Code, the Board has undertaken a robust assessment of the principal and emerging risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity.
In making this assessment, the Board has considered, amongst other factors, the impact of the conflicts in Ukraine and the Middle East and their impact on the global economy. Emerging risks are considered by the Board as they come into view and are incorporated into the existing review of the Company’s risk register. There has been no material change in the risks faced by the Company as identified and assessed during the year.
A core element of this process is the Company’s risk register which identifies the risks facing the Company and assesses the likelihood and potential impact of each risk and the controls established for mitigation. A residual risk rating is then calculated for each risk. The risk register is regularly reviewed and the risks reassessed. The risk environment in which the Company operates is also monitored and regularly appraised. New risks are also added to the register as they are identified which ensures that the document continues to be an effective risk management tool. The risk register, its method of preparation and the operation of key controls in the Investment Manager’s and third-party service providers, systems of internal control are reviewed on a regular basis by the Audit Committee.
Additionally, the Investment Manager considers emerging risks in numerous forums and the Risk and Quantitative Analysis team produces an annual risk survey. Any material risks of relevance to the Company identified through the annual risk survey will be communicated to the Board.
In order to gain a more comprehensive understanding of the Investment Manager’s and other third-party service providers’ risk management processes and how these apply to the Company’s business, the Audit Committee periodically receives presentations from BlackRock’s Internal Audit and Risk & Quantitative Analysis functions. The Audit Committee also reviews Service Organisation Control (SOC 1) reports from the Company’s service providers.
The current risk register includes a range of risks which are categorised under the following headings:
·investment performance;
·income/dividend;
·gearing;
·legal, regulatory and tax compliance;
·operational;
·market; and
·financial.
The principal risks identified are described in detail within the table below, together with an explanation of how they are managed and mitigated. The Board will continue to assess these risks on an ongoing basis.
Investment performance
Principal risk
The Board is responsible for:
· setting the investment strategy to fulfil the Company’s objective; and
· monitoring the performance of the Investment Manager and the implementation of the investment strategy.
An inappropriate investment strategy may lead to:
· poor performance compared to the Benchmark Index and the Company’s peer group;
· a widening discount to NAV;
· a reduction or permanent loss of capital; and
· dissatisfied shareholders and reputational damage.
The Board is also aware of the long-term risk to performance from inadequate attention to ESG issues and in particular the impact of climate change.
Mitigation/Control
To manage this risk the Board:
· regularly reviews investment performance;
· regularly reviews the Company’s investment mandate and long term strategy;
· is required to provide prior consent to the use of derivatives and exchange traded funds;
· has set investment restrictions and guidelines which the Investment Manager monitors and regularly reports on;
· reviews changes in gearing and the rationale for the composition of the investment portfolio;
· monitors the maintenance of an adequate spread of investments in order to minimise the risks associated with factors specific to particular sectors, based on the diversification requirements inherent in the investment policy; and
· monitors the discount to NAV and use of the granted buy back powers.
ESG analysis is integrated into the Manager’s investment process. This is monitored by the Board.
Income/dividend
Principal risk
The amount of dividends and future dividend growth will depend on the Company’s underlying portfolio and the dividends paid by the underlying investee companies.
Changes in the composition of the portfolio and any change in the tax treatment of the dividends or interest received by the Company may alter the level of dividends received by shareholders.
Mitigation/Control
The Board monitors this risk through the receipt of detailed income forecasts and considers the level of income at each meeting. The Company also has a revenue reserve and powers to pay dividends from capital which could potentially be used to support the Company’s dividend if required.
Gearing
Principal risk
The Company’s investment strategy may involve the use of gearing to enhance investment returns.
Gearing may be generated through borrowing money or increasing levels of market exposure through the use of derivatives. The Company currently has an unsecured revolving credit facility provided by The Bank of New York Mellon, London Branch. The use of gearing exposes the Company to the risks associated with borrowing.
Mitigation/Control
To manage this risk the Board has limited gearing, including borrowings and gearing through the use of derivatives, to 20% of NAV at the time of investment, drawdown or participation.
The Investment Manager will only use gearing when confident that market conditions and opportunities exist to enhance investment returns.
Legal, regulatory and tax compliance
Principal risk
The Company has been approved by HM Revenue & Customs as an investment trust, subject to meeting the relevant eligibility conditions and operating as an investment trust in accordance with Sections 1158 and 1159 of the Corporation Tax Act 2010. As such, the Company is exempt from capital gains tax on the profits realised from the sale of its investments. Any breach of the relevant eligibility conditions could lead to the Company losing investment trust status and being subject to corporation tax on capital gains realised within the Company’s portfolio.
The Company is required to comply with the provisions of the Companies Act 2006, the Alternative Investment Fund Managers Directive (the ‘AIMFD’), the Market Abuse Regulation, the UK Listing Rules and the FCA’s Disclosure Guidance & Transparency Rules.
Any serious breach could result in the Company and/or the Directors being fined or the subject of criminal proceedings or the suspension of the Company’s shares which would in turn lead to a breach of the Corporation Tax Act 2010.
Mitigation/Control
Compliance with the accounting rules affecting investment trusts are regularly monitored.
The Investment Manager monitors investment movements, the level and type of forecast income and expenditure and the amount of proposed dividends, if any, to ensure that the provisions of Chapter 4 of Part 24 of the Corporation Tax Act 2010 are not breached. The results are reported to the Board at each meeting. The Board is aware of the risk of potential changes in law and taxation post Brexit and will continue to monitor this closely.
The Company Secretary and the Company’s professional advisers provide regular reports to the Board in respect of compliance with all applicable rules and regulation.
The Company and its appointed Alternative Investment Fund Manager (AIFM and/or Manager) are subject to the risks that the requirements of AIFMD are not correctly complied with. The Board and the Manager also monitor changes in government policy and legislation which may have an impact on the Company.
The Market Abuse Regulation came into force on 3 July 2016. The Board has taken steps to ensure that individual Directors (and their Persons Closely Associated) are aware of their obligations under the regulation and has updated internal processes, where necessary, to ensure the risk of non-compliance is effectively mitigated.
Operational
Principal risk
In common with most other investment trust companies, the Company has no employees. The Company therefore relies upon the services provided by third parties and is dependent on the control systems of BlackRock (the Investment Manager and AIFM), and of The Bank of New York Mellon (International) Limited (the Depositary and Fund Accountant), which ensures safe custody of the Company’s assets and maintains the Company’s accounting records. The Company’s share register is maintained by the Registrar, Computershare Investor Services PLC.
Failure by any service provider to carry out its obligations to the Company could have a material adverse effect on the Company’s performance. Disruption to the accounting, payment systems or custody records, as a result of a cyber-attack or otherwise, could impact the monitoring and reporting of the Company’s financial position.
The security of the Company’s assets, dealing procedures, accounting records and maintenance of regulatory and legal requirements, depend on the effective operation of these systems.
Mitigation/Control
Due diligence is undertaken before contracts are entered into with third party service providers. Thereafter, the performance of the provider is subject to regular review and reports to the Board.
The Bank of New York Mellon’s and BlackRock’s internal control processes are regularly tested and monitored throughout the year and are evidenced through their Service Organisation Control (SOC 1) reports, which are subject to review by an Independent Service Assurance Auditor. The SOC 1 reports provide assurance in respect of the effective operation of internal controls. These reports are regularly reviewed by the Audit Committee.
The Company’s assets are subject to a strict liability regime and in the event of a loss of assets, the Depositary must return assets of an identical type or the corresponding amount, unless able to demonstrate the loss was a result of an event beyond its reasonable control.
The Board reviews the overall performance of the Manager, Investment Manager and all other third party service providers on a regular basis and compliance with the Investment Management Agreement regularly. The Board also considers the business continuity arrangements of the Company’s key service providers.
The Board considers succession arrangements for key employees of the Investment Manager and the Board also considers the business continuity arrangements of the Company’s key service providers on an ongoing basis and reviews these as part of its review of the Company’s risk register. Having considered these arrangements and reviewed service levels since the crisis has evolved, the Board is confident that a good level of service has and will be maintained.
Market
Principal risk
Market risk arises from volatility in the prices of the Company’s investments. It represents the potential loss the Company might suffer through realising investments at a time of negative market movements.
There is also the potential for the Company to suffer loss through holding investments in a period of negative market movements.
Mitigation/Control
The Board considers the diversification of the portfolio, asset allocation, stock selection, and levels of gearing on a regular basis and has set investment restrictions and guidelines which are monitored and reported on by the Investment Manager.
The Board monitors the implementation and results of the investment process with the Investment Manager.
The Board also recognises the benefits of a closed-end fund structure in extremely volatile markets such as those experienced with the conflict in Ukraine and, more recently, the hostilities in the Middle East and their impact on markets. Unlike open-ended counterparts, closed-end funds are not obliged to sell-down portfolio holdings at low valuations to meet liquidity requirements for redemptions. During times of elevated volatility and market stress, the ability of a closed-end fund structure to remain invested for the long term enables the Investment Manager to adhere to disciplined fundamental analysis from a bottom-up perspective.
Financial
Principal risk
The Company’s investment activities expose it to a variety of financial risks that include market risk.
Mitigation/Control
Details of these risks are disclosed in note 16 to the financial statements, together with a summary of the policies for managing these risks.
Viability statement
In accordance with provision 31 of the UK Corporate Governance Code, the Directors have assessed the prospects of the Company over a longer period than the twelve months referred to by the ‘Going Concern’ guidelines. The Company is an investment trust with the objective of achieving capital growth and income.
The Directors believe that five years is an appropriate investment horizon to assess the viability of the Company. This is based on the Company’s long-term mandate, the low turnover in the portfolio and the investment holding period investors generally consider while investing in the UK market. This period has also been selected as it is aligned to the Company’s objective of achieving long-term growth in capital and income. The Board is aware of the ongoing uncertainty surrounding the potential duration of the conflicts in Ukraine and the Middle East, their impact on the global economy, and the prospects for many of the Company’s portfolio holdings. Notwithstanding the impact of these events, and given the factors stated below, the Board expects the Company to continue to meet its liabilities as they fall due for the foreseeable future.
The Board conducted its review for the period up to the AGM in 2028, being a five-year period from the date that this annual report will be laid before shareholders for approval. In making this assessment the Board has considered the following factors:
· the Company’s principal risks as set out above;
· the ongoing relevance of the Company’s investment objective in the current environment;
·the level of demand for the Company’s shares;
·the performance of the Company versus its benchmark index;
·good communication with major shareholders. At the present time there has been no indication that the continuation vote will not be successful; and
·at the close of business on 18 December 2023 the Company’s shares were trading at a discount to NAV of 13.7%.
As part of its assessment the Board has also considered:
·the level of ongoing charges, both current and historical;
·the level at which the shares trade relative to NAV;
·the level of income generated; and
·future income forecasts.
The Board has concluded that the Company would be able to meet its ongoing operating costs and net current liabilities as they fall due as a consequence of:
·a liquid portfolio; and
·overheads which comprise a small percentage of net assets.
Therefore, the Board has concluded that even in exceptionally stressed operating conditions, the Company would comfortably be able to meet its ongoing operating costs as they fall due.
However, investment companies may face other challenges. These include regulatory changes, changes to the tax treatment of investment trusts, a significant decrease in size due to poor investment performance or substantial share buy back activity, which may result in the Company no longer being of sufficient market capitalisation to represent a viable investment proposition or no longer being able to continue in operation.
Based on the results of their analysis, the Directors have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment.
Future prospects
The Board’s main focus is the achievement of income and capital growth. The future performance of the Company is dependent upon the success of the investment strategy.
The outlook for the Company is discussed in the Chairman’s Statement and in the Investment Manager’s Report above.
Social, community and human rights issues
As an investment trust, the Company has no direct social or community responsibilities.
However, the Company believes that it is in shareholders’ interests to consider environmental, social and governance factors and human rights issues when selecting and retaining investments. Details of the Company’s approach to socially responsible investment are set out in the Annual Report and Financial Statements for the year ended 31 October 2023
Modern slavery act
As an investment vehicle the Company does not provide goods or services in the normal course of business and does not have customers. Accordingly, the Directors consider that the Company is not required to make any slavery or human trafficking statement under the Modern Slavery Act 2015. In any event, the Board considers the Company’s supply chain, dealing predominantly with professional advisers and service providers in the financial services industry, to be low risk in relation to this matter.
Directors, gender representation and employees
The Directors of the Company on 31 October 2023, all of whom held office throughout the year, are set out in the Governance Structure and Directors’ biographies contained within the Annual Report and Financial Statements for the year ended 31 October 2023
The Board recognises the importance of having a range of experienced Directors with the right skills and knowledge to enable it to fulfil its obligations. As at 31 October 2023, the Board consisted of three male Directors and one female Director, resulting in 25% female board representation. The Company does not have any employees.
Promoting the success of BlackRock Income and Growth Investment Trust plc
The Companies (Miscellaneous Reporting) Regulations 2018 require directors to explain more fully how they have discharged their duties under Section 172(1) of the Companies Act 2006 in promoting the success of their companies for the benefit of members as a whole. This enhanced disclosure covers how the Board has engaged with and understands the views of stakeholders and how stakeholders’ needs have been taken into account, the outcome of this engagement and the impact that it has had on the Board’s decisions.
As the Company is an externally managed investment company and does not have any employees or customers, the Board considers the main stakeholders in the Company to be the shareholders, key service providers (being the Manager and Investment Manager, the Custodian, Depositary, Registrar and Broker) and investee companies. The reasons for this determination, and the Board’s overarching approach to engagement, are set out below.
Stakeholders
Shareholders
Continued shareholder support and engagement are critical to the continued existence of the Company and the successful delivery of its long-term strategy. The Board is focused on fostering good working relationships with shareholders and on understanding the views of shareholders in order to incorporate them into the Board’s strategy and objectives in delivering long-term growth and income.
Manager and Investment Manager
The Board’s main working relationship is with the Manager, who is responsible for the Company’s portfolio management (including asset allocation, stock and sector selection) and risk management, as well as ancillary functions such as administration, secretarial, accounting and marketing services.
The Manager has sub-delegated portfolio management to the Investment Manager. Successful management of shareholders’ assets by the Investment Manager is critical for the Company to deliver successfully its investment strategy and meet its objective. The Company is also reliant on the Manager as AIFM to provide support in meeting relevant regulatory obligations under the AIFMD and other relevant legislation.
Other key service providers
In order for the Company to function as an investment trust with a listing on the premium segment of the official list of the FCA and trade on the London Stock Exchange’s (LSE) main market for listed securities, the Board relies on a diverse range of service providers and advisors for support in meeting relevant obligations and safeguarding the Company’s assets. For this reason the Board considers the Company’s Custodian, Depositary, Registrar and Broker to be stakeholders. The Board maintains regular contact with its key external providers and receives regular reporting from them through the Board and committee meetings, as well as outside of the regular meeting cycle.
Investee companies
Portfolio holdings are ultimately shareholders’ assets, and the Board recognises the importance of good stewardship and communication with investee companies in meeting the Company’s investment objective and strategy. The Board monitors the Investment Manager’s stewardship activities and receives regular feedback from the Investment Manager in respect of meetings with the management of portfolio companies.
A summary of the key areas of engagement undertaken by the Board with its key stakeholders in the year under review and how Directors have acted upon this to promote the long-term success of the Company are set out in the table below.
Area of Engagement
Investment mandate and objective
Issue
The Board is committed to promoting the role and success of the Company in delivering on its investment mandate to shareholders over the long term. Consideration of sustainable investment is a key part of the investment process and must be factored in when making investment decisions. The Board also has responsibility to shareholders to ensure that the Company’s portfolio of assets is invested in line with the stated investment objective and in a way that ensures an appropriate balance between spread of risk and portfolio returns.
Engagement
The Board believes that responsible investment and sustainability are important to the longer-term delivery of growth in capital and income and has worked very closely with the Manager throughout the year to review regularly the Company’s performance, investment strategy and underlying policies and to understand how sustainability considerations are integrated into the investment process.
The Manager’s approach to the consideration of ESG factors in respect of the Company’s portfolio, as well as its engagement with investee companies to encourage the adoption of sustainable business practices which support long-term value creation, are kept under review by the Board. The Manager reports to the Board in respect of its consideration of ESG factors and how these are integrated into the investment process.
Impact
The portfolio activities undertaken by the Investment Manager and the performance delivered for shareholders during the year can be found in the Investment Manager’s Report above.
The Board believes the buy back activity undertaken during the year has been effective in reducing the discount, both on a cum income basis.
Discount strategy
Issue
The Board believes that strong performance and an attractive dividend yield enhances demand for the Company’s shares, which will help to narrow the Company’s discount of share price to NAV over time.
Engagement
The Manager reports total return performance statistics to the Board on a regular basis, along with the portfolio yield and the impact of dividends paid on brought forward distributable reserves.
The Board reviews the Company’s discount/premium to NAV on a regular basis and holds regular discussions with the Manager and the Company’s broker regarding the discount/premium level.
The Board has authority to buy back up to 14.99% of the Company’s issued share capital (excluding treasury shares) and has an active buy back programme in place. The Company bought back a total of 568,428 ordinary shares during the year at an average discount of 11.7% and at an average price of 182.26p per share. As at the financial year end, the Company’s shares were trading at a discount to NAV of 8.7%.
The Manager provides the Board with feedback and key performance statistics regarding the success of the Company’s marketing initiatives which include messaging to highlight the dividends.
The Board also reviews feedback from shareholders in respect of the level of dividend.
Impact
The average discount for the year to 31 October 2023 was 9.6%. During the year the Company’s share price has traded at a minimum discount of 3.2% to a maximum discount of 14.0%.
Service levels of third party providers
Issue
The Board acknowledges the importance of ensuring that the Company’s principal suppliers are providing a suitable level of service: including the Manager in respect of investment performance and delivering on the Company’s investment mandate; the Custodian and Depositary in respect of their duties towards safeguarding the Company’s assets; the Registrar in its maintenance of the Company’s share register and dealing with investor queries and the Company’s Brokers in respect of the provision of advice and acting as a market maker for the Company’s shares.
Engagement
The Manager reports to the Board on the Company’s performance on a regular basis. The Board carries out a robust annual evaluation of the Manager’s performance, their commitment and available resources.
The Board performs an annual review of the service levels of all third party service providers and concludes on their suitability to continue in their role.
The Board receives regular updates from the AIFM, Depositary, Registrar and Brokers.
The Board has worked closely with the Manager to gain comfort that relevant business continuity plans are operating effectively for all of the Company’s service providers.
Impact
Performance evaluations were performed on a timely basis and the Board concluded that all third party service providers, including the Manager, Custodian, Depositary and Fund Administrator were operating effectively and providing a good level of service.
The Board has received updates in respect of business continuity planning from the Manager, Custodian, Depositary, Fund Administrator, Brokers and Registrar, and is confident that arrangements are in place to ensure that a good level of service will continue to be provided in the event of disruption, for example the COVID-19 pandemic.
Board composition
Issue
The Board is committed to ensuring that its own composition brings an appropriate balance of knowledge, experience, diversity and skills, and that it is compliant with best corporate governance practice under the UK Code of Corporate Governance, including guidance on tenure and the composition of the Board’s committees.
Engagement
Over recent years the Board undertook a review of succession planning arrangements and identified the need for action given that, if no action were taken, a majority of Board Directors would have had tenure in excess of nine years. The Board, discharging the duties of a Nomination Committee, agreed the selection criteria and the method of selection, recruitment and appointment. Board diversity, including gender, was taken into account when establishing the criteria. 50% of the Board was appointed after 2019.
All Directors are subject to a formal evaluation process on an annual basis (more details and the conclusions in respect of the 2023 evaluation process are given in the Annual Report and Financial Statements for the year ended 31 October 2023. All Directors stand for re-election by shareholders annually. Shareholders may attend the AGM and raise any queries in respect of Board composition or individual Directors in person, or may contact the Company Secretary or the Chairman using the details provided in the Annual Report and Financial Statements for the year ended 31 October 2023 if they wish to raise any issues.
Impact
The Board recognises the benefits of diversity and a structured process of ongoing refreshment and will continue to consider regularly its composition.
The Directors are not aware of any issues that have been raised directly by shareholders in respect of Board composition in 2023. Through its Manager and Corporate Broker, there is regular contact with major shareholders. Shareholders are able to raise any concerns in this regard at the AGM or alternatively they may write to the Chairman of the Board. Details of the proxy voting results in favour and against individual Directors’ re-election at the 2023 AGM are given on the Company’s website at www.blackrock.com/uk/brig. Historical proxy voting results can be found under the ‘Further Literature’ tab.
Shareholders
Issue
Continued shareholder support and engagement are critical to the continued existence of the Company and the successful delivery of its long-term strategy.
Engagement
The Board is committed to maintaining open channels of communication and to engage with shareholders. The Company welcomes and encourages attendance and participation from shareholders at its Annual General Meetings. Shareholders therefore have the opportunity to meet the Directors and Investment Manager and to address questions to them directly.
The Annual Report and Half-Yearly Financial Report are available on the BlackRock website and are also circulated to shareholders either in printed copy or via electronic communications. In addition, regular updates on performance, monthly factsheets, the daily NAV and other information are also published on the website at www.blackrock.com/uk/brig.
The Company also has an arrangement in place whereby at every fifth Annual General Meeting of the Company, shareholders shall be asked to approve the continuation of the Company as an investment trust by ordinary resolution. This mechanism provides shareholders with a regular opportunity at which they can realise the value of there shares. The Board, through its Manager and corporate advisers, engaged with major shareholders on the continuation vote held in March this year and it was confirmed that there was no dissatisfaction and that they would support continuation. The vote was subsequently passed with 99.8% in favour of continuation.
The Board also works closely with the Investment Manager to develop the Company’s marketing strategy, with the aim of ensuring effective communication with shareholders in respect of the investment mandate and objective. Unlike trading companies, one-to-one shareholder meetings usually take the form of a meeting with the Investment Manager as opposed to members of the Board. As well as attending regular investor meetings the Investment Manager holds regular discussions with wealth management desks and offices to build on the case for, and understanding of, long-term investment opportunities in the UK market.
The Investment Manager also coordinates public relations activity, including meetings with relevant industry publications to set out their vision for the portfolio strategy and outlook for the UK equity market. The Investment Manager releases monthly portfolio updates to the market to ensure that investors are kept up to date in respect of performance and other portfolio developments, and maintains a website on behalf of the Company that contains relevant information in respect of the Company’s investment mandate and objective. If shareholders wish to raise issues or concerns with the Board, they are welcome to do so at any time.
The Chairman is available to meet directly with shareholders periodically to understand their views on governance and the Company’s performance. He may be contacted via the Company Secretary whose details are given in the Annual Report and Financial Statements for the year ended 31 October 2023.
Impact
The Board values any feedback and questions from shareholders ahead of and during Annual General Meetings in order to gain an understanding of their views and will take action when and as appropriate.
Feedback and questions will also help the Company evolve its reporting, aiming to make reports more transparent and understandable. Feedback from all substantive meetings between the Investment Manager and shareholders will be shared with the Board. The Directors will also receive updates from the Company’s broker on any feedback from shareholders, as well as share trading activity, share price performance and an update from the Investment Manager.
The Board’s approach to Sustainability and ESG
Material environmental, social and governance (ESG) issues can present both opportunities and threats to long-term investment performance. These ethical and sustainability issues are a key focus of the Board and your Board is committed to a diligent oversight of the activities of the Manager in these areas. The Board believes effective engagement with management is, in most cases, the most effective way of driving meaningful change in the behaviour of investee company management. This is particularly true for the Company’s Manager given the extent of BlackRock’s shareholder engagement. The Board believes that BlackRock is well placed as Manager to fulfil these requirements due to the integration of ESG into its investment processes, the emphasis it places on sustainability, its approach in its investment stewardship activities and its position in the industry as one of the largest suppliers of sustainable investment products in the global market. More information on BlackRock’s approach to responsible investing is set out in the Annual Report and Financial Statements for the year ended 31 October 2023
BY ORDER OF THE BOARD
KEVIN MAYGER
FOR AND ON BEHALF OF
BLACKROCK INVESTMENT MANAGEMENT (UK) LIMITED
Company Secretary
20 December 2023
Related Party Transactions
BlackRock Fund Managers Limited (BFM) provides management and administration services to the Company under a contract which is terminable on six months’ notice. BFM has (with the Company’s consent) delegated certain portfolio and risk management services, and other ancillary services, to BlackRock Investment Management (UK) Limited (BIM (UK)). Further details of the investment management contract are disclosed in the Directors’ Report on page 47 of the Annual Financial Report.
The investment management fee is levied quarterly, based on 0.60% per annum of the Company’s market capitalisation. The investment management fee due for the year ended 31 October 2023 amounted to £235,000 (2022: £237,000). At the year end, £175,000 was outstanding in respect of the management fee (2022: £118,000).
In addition to the above services, BIM (UK) has provided the Company with marketing services. The total fees paid or payable for these services for the year ended 31 October 2023 amounted to £14,000 including VAT (2022: £13,000). At the year end, £24,000 including VAT was outstanding in respect of marketing fees (2022: £11,000).
The Company holds an investment in the BlackRock Institutional Cash Series plc - Sterling Liquid Environmentally Aware Fund of £1,066,000 (2022: £2,604,000) which for the year ended 31 October 2023 and 31 October 2022 has been presented in the financial statements as a cash equivalent. This 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.
The Board currently consists of four non-executive Directors, all of whom are independent of the Company’s Manager. None of the Directors has a service contract with the Company. For the year ended 31 October 2023, the Chairman received an annual fee of £31,750, the Chairman of the Audit Committee received an annual fee of £26,000 and each of the other Directors received an annual fee of £22,500. Directors’ fees were last increased with effect from 1 November 2022.
Disclosures of the Directors’ interests in the ordinary shares of the Company and fees and expenses payable to the Directors are set out in the Directors’ Remuneration Report in the Annual Report and Financial Statements. At 31 October 2023, £9,000 (2022: £8,000) was outstanding in respect of Directors’ fees.
As at 31 October 2023 and 2022, the Directors’ interests in the Company’s ordinary shares were as follows:
|
| As at | As at |
| Graeme Proudfoot (Chairman) | 60,000 | 60,000 |
| Nicholas Gold | 43,175 | 20,000 |
| Charles Worsley1 | 987,539 | 987, 539 |
| Win Robbins | 12,106 | 12,106 |
1. Including a non-beneficial interest in 655,500 ordinary shares.
All of the holdings of the Directors are beneficial, other than where stated in the footnote above. No changes to these holdings have been notified up to the date of this report.
The information in the table above has been audited.
Statement of Directors’ responsibilities in respect of the Annual Report and Financial Statements
The Directors are responsible for preparing the Annual Report and Financial Statements in accordance with applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law they have elected to prepare the financial statements in accordance with applicable law and United Kingdom Generally Accepted Accounting Practice, including FRS 102 The Financial Reporting Standard applicable in the UK and Ireland.
Under company law, the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company as at the end of each financial year and of the profit or loss of the Company for that year.
In preparing these financial statements, the Directors are required to:
·present fairly the financial position, financial performance and cash flows of the Company;
·select suitable accounting policies in accordance with United Kingdom Generally Accepted Accounting Practice and apply them consistently;
·present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;
·make judgements and estimates that are reasonable and prudent;
·state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and
·prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors are also responsible for preparing the Strategic Report, the Directors’ Report, the Directors’ Remuneration Report, the Corporate Governance Statement and the Report of the Audit Committee in accordance with the Companies Act 2006 and applicable regulations, including the requirements of the Listing Rules and the Disclosure Guidance and Transparency Rules.
The Directors have delegated responsibility to the Manager for the maintenance and integrity of the Company’s corporate and financial information included on the BlackRock website.
Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Each of the Directors, whose names are listed n the Annual Report and Financial Statements for the year ended 31 October 2023 confirm to the best of their knowledge that:
·the financial statements, prepared in accordance with applicable accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and
·the Strategic Report contained in the Annual Report and Financial Statements includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces.
The 2018 UK Corporate Governance Code requires Directors to ensure that the Annual Report and Financial Statements are fair, balanced and understandable. In order to reach a conclusion on this matter, the Board has requested that the Audit Committee advise on whether it considers that the Annual Report and Financial Statements fulfils these requirements. The process by which the Audit Committee has reached these conclusions is set out in the Audit Committee’s report contained within the Annual Report and Financial Statements for the year ended 31 October 2023. As a result, the Board has concluded that the Annual Report and Financial Statements for the year ended 31 October 2023, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company’s position and performance, business model and strategy.
FOR AND ON BEHALF OF THE BOARD
GRAEME PROUDFOOT
Chairman
20 December 2023
Income statement for the year ended 31 October 2023
|
|
| 2023 | 2022 | ||||
|
|
| Revenue | Capital | Total | Revenue | Capital | Total |
| Gains/(losses) on investments held at fair value through profit or loss |
| – | 1,119 | 1,119 | – | (2,328) | (2,328) |
| Gains on foreign exchange |
| – | 2 | 2 | – | 5 | 5 |
| Income from investments held at fair value through profit or loss | 3 | 1,723 | 7 | 1,730 | 1,742 | 169 | 1,911 |
| Other income | 3 | 81 | – | 81 | 28 | – | 28 |
|
|
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- |
| Total income/(loss) |
| 1,804 | 1,128 | 2,932 | 1,770 | (2,154) | (384) |
|
|
| ========= | ========= | ========= | ========= | ========= | ========= |
| Expenses |
|
|
|
|
|
|
|
| Investment management fee | 4 | (59) | (176) | (235) | (59) | (178) | (237) |
| Other operating expenses | 5 | (317) | (6) | (323) | (265) | (6) | (271) |
|
|
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- |
| Total operating expenses |
| (376) | (182) | (558) | (324) | (184) | (508) |
|
|
| ========= | ========= | ========= | ========= | ========= | ========= |
| Net profit/(loss) on ordinary activities before finance costs and taxation |
| 1,428 | 946 | 2,374 | 1,446 | (2,338) | (892) |
| Finance costs | 6 | (54) | (163) | (217) | (16) | (49) | (65) |
|
|
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- |
| Net profit/(loss) on ordinary activities before taxation |
| 1,374 | 783 | 2,157 | 1,430 | (2,387) | (957) |
| Taxation (charge)/credit |
| (7) | – | (7) | 8 | – | 8 |
|
|
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- |
| Net profit/(loss) on ordinary activities after taxation | 8 | 1,367 | 783 | 2,150 | 1,438 | (2,387) | (949) |
|
|
| ========= | ========= | ========= | ========= | ========= | ========= |
| Earnings/(loss) per ordinary share (pence) | 8 | 6.54 | 3.75 | 10.29 | 6.77 | (11.24) | (4.47) |
|
|
| ========= | ========= | ========= | ========= | ========= | ========= |
The total columns of this statement represent the Company’s profit and loss account. 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 year. All income is attributable to the equity holders of the Company.
The net profit/(loss) on ordinary activities for the year disclosed above represents the Company’s total comprehensive income/(loss).
Statement of changes in equity for the year ended 31 October 2023
|
|
| Called | Share | Capital |
|
|
|
|
| For the year ended 31 October 2023 |
|
|
|
|
|
|
|
|
| At 31 October 2022 |
| 313 | 14,819 | 236 | 9,483 | 13,427 | 2,294 | 40,572 |
| Total comprehensive income: |
|
|
|
|
|
|
|
|
| Net profit for the year |
| – | – | – | 783 | – | 1,367 | 2,150 |
| Transactions with owners, recorded directly to equity: |
|
|
|
|
|
|
|
|
| Ordinary shares purchased for cancellation | 9,10 | (6) | – | 6 | – | (1,029) | – | (1,029) |
| Share purchase costs | 10 | – | – | – | – | (7) | – | (7) |
| Dividends paid1 | 7 | – | – | – | – | – | (1,530) | (1,530) |
|
|
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- |
| At 31 October 2023 |
| 307 | 14,819 | 242 | 10,266 | 12,391 | 2,131 | 40,156 |
|
|
| ========= | ========= | ========= | ========= | ========= | ========= | ========= |
| For the year ended 31 October 2022 |
|
|
|
|
|
|
|
|
| At 31 October 2021 |
| 315 | 14,819 | 234 | 11,870 | 13,843 | 2,387 | 43,468 |
| Total comprehensive (loss)/income: |
|
|
|
|
|
|
|
|
| Net (loss)/profit for the year |
| – | – | – | (2,387) | – | 1,438 | (949) |
| Transactions with owners, recorded directly to equity: |
|
|
|
|
|
|
|
|
| Ordinary shares purchased for cancellation |
| (2) | – | 2 | – | (414) | – | (414) |
| Share purchase costs |
| – | – | – | – | (2) | – | (2) |
| Dividends paid2 | 7 | – | – | – | – | – | (1,531) | (1,531) |
|
|
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- |
| At 31 October 2022 |
| 313 | 14,819 | 236 | 9,483 | 13,427 | 2,294 | 40,572 |
|
|
| ========= | ========= | ========= | ========= | ========= | ========= | ========= |
1 Interim dividend paid in respect of the six months ended 30 April 2023 of 2.60p per share was declared on 21 June 2023 and paid on 1 September 2023. Final dividend paid in respect of the year ended 31 October 2022 of 4.70p per share was declared on 2 February 2023 and paid on 15 March 2023.
2 Interim dividend paid in respect of the six months ended 30 April 2022 of 2.60p per share was declared on 22 June 2022 and paid on 1 September 2022. Final dividend paid in respect of the year ended 31 October 2021 of 4.60p per share was declared on 13 January 2022 and paid on 17 March 2022.
For information on the Company’s distributable reserves please refer to note 10 below
Balance sheet as at 31 October 2023
|
|
| 2023 | 2022 |
| Fixed assets |
|
|
|
| Investments held at fair value through profit or loss |
| 43,267 | 41,557 |
| Current assets |
|
|
|
| Current tax asset |
| 27 | 16 |
| Debtors |
| 133 | 589 |
| Cash and cash equivalents |
| 1,110 | 2,657 |
|
|
| --------------- | --------------- |
| Total current assets |
| 1,270 | 3,262 |
|
|
| ========= | ========= |
| Creditors – amounts falling due within one year |
|
|
|
| Bank loan |
| (4,000) | (4,000) |
| Other creditors |
| (381) | (247) |
|
|
| --------------- | --------------- |
| Total current liabilities |
| (4,381) | (4,247) |
|
|
| ========= | ========= |
| Net current liabilities |
| (3,111) | (985) |
|
|
| ========= | ========= |
| Net assets |
| 40,156 | 40,572 |
|
|
| ========= | ========= |
| Capital and reserves |
|
|
|
| Called up share capital | 9 | 307 | 313 |
| Share premium account | 10 | 14,819 | 14,819 |
| Capital redemption reserve | 10 | 242 | 236 |
| Capital reserve | 10 | 10,266 | 9,483 |
| Special reserve | 10 | 12,391 | 13,427 |
| Revenue reserve | 10 | 2,131 | 2,294 |
|
|
| --------------- | --------------- |
| Total shareholders’ funds | 8 | 40,156 | 40,572 |
|
|
| ========= | ========= |
| Net asset value per ordinary share (pence) | 8 | 194.90 | 191.63 |
|
|
| ========= | ========= |
Statement of cash flows for the year ended 31 October 2023
|
| 2023 | 2022 |
| Operating activities |
|
|
| Net profit/(loss) on ordinary activities before taxation | 2,157 | (957) |
| Add back finance costs | 217 | 65 |
| (Gains)/losses on investments held at fair value through profit or loss | (1,119) | 2,328 |
| Gains on foreign exchange | (2) | (5) |
| Special dividends allocated to capital | (7) | (169) |
| Sales of investments held at fair value through profit or loss | 11,482 | 17,494 |
| Purchases of investments held at fair value through profit or loss | (11,632) | (15,424) |
| Decrease in other debtors | 22 | 29 |
| Increase/(decrease) in other creditors | 134 | (62) |
| Taxation on investment income | (18) | 3 |
|
| --------------- | --------------- |
| Net cash generated from operating activities | 1,234 | 3,302 |
|
| ========= | ========= |
| Financing activities |
|
|
| Ordinary shares purchased for cancellation | (1,029) | (414) |
| Share purchase costs paid | (7) | (2) |
| Interest paid | (217) | (65) |
| Dividends paid | (1,530) | (1,531) |
|
| --------------- | --------------- |
| Net cash used in financing activities | (2,783) | (2,012) |
|
| ========= | ========= |
| (Decrease)/increase in cash and cash equivalents | (1,549) | 1,290 |
| Cash and cash equivalents at the beginning of the year | 2,657 | 1,362 |
| Effect of foreign exchange rate changes | 2 | 5 |
|
| --------------- | --------------- |
| Cash and cash equivalents at end of the year | 1,110 | 2,657 |
|
| ========= | ========= |
| Comprised of: |
|
|
| Cash at bank | 44 | 53 |
| Cash Fund1 | 1,066 | 2,604 |
|
| --------------- | --------------- |
|
| 1,110 | 2,657 |
|
| ========= | ========= |
1 Cash Fund represents funds held on deposit with the BlackRock Institutional Cash Series plc – Sterling Liquid Environmentally Aware Fund.
Notes to the financial statements for the year ended 31 October 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. Accounting policies
The principal accounting policies adopted by the Company are set out below.
(a) Basis of preparation
The financial statements have been prepared on a going concern basis in accordance with The Financial Reporting Standard applicable in the UK and Republic of Ireland (FRS 102) and the revised Statement of Recommended Practice – Financial Statements of Investment Trust Companies and Venture Capital Trusts (SORP) issued by the Association of Investment Companies (AIC) in October 2019, and updated in July 2022, and the provisions of the Companies Act 2006.
Substantially, all of the assets of the Company consist of securities that are readily realisable and, accordingly, the Directors are satisfied that the Company has adequate resources to continue in operational existence for a period of at least 12 months from the date of approval of the financial statements, and therefore consider the going concern assumption to be appropriate. The Directors have reviewed compliance with the covenants associated with the bank loan facility, income and expense projections and the liquidity of the investment portfolio in making their assessment.
The Directors have considered the impact of climate change on the value of the investments included in the Financial Statements and have concluded that:
– there was no further impact of climate change to be considered as the investments are valued based on market pricing as required by FRS 102; and
– the risk is adequately captured in the assumptions and inputs used in measurement of Level 3 assets, if any, as noted in note 16 of the Financial Statements in the Company's Annual Report and Financial Statements for the year ended 31 October 2023.
None of the Company’s other assets and liabilities were considered to be potentially impacted by climate change.
The principal accounting policies adopted by the Company are set out below. Unless specified otherwise, the policies have been applied consistently throughout the year and are consistent with those applied in the preceding year. All of the Company’s operations are of a continuing nature.
The Company’s financial statements are presented in Pound Sterling, which is the functional currency of the Company and the primary economic environment in which the Company operates. All values are rounded to the nearest thousand pounds (£’000) except where otherwise indicated.
(b) Presentation of Income Statement
In order to better reflect the activities of an investment trust company and in accordance with guidance issued by the AIC, supplementary information which analyses the Income Statement between items of a revenue and a capital nature has been presented alongside the Income Statement.
(c) Segmental reporting
The Directors are of the opinion that the Company is engaged in a single segment of business being investment business.
(d) Income
Dividends receivable on equity shares are treated as revenue for the year on an ex-dividend basis. Where no ex-dividend date is available, dividends receivable on or before the year end are treated as revenue for the year. Provisions are made for dividends not expected to be received.
Special dividends are recognised on an ex-dividend basis and treated as capital or revenue depending on the facts or circumstances of each particular dividend.
Dividends are accounted for in accordance with Section 29 of FRS 102 on the basis of income actually receivable, without adjustment for tax credits attaching to the dividend. Dividends from overseas companies continue to be shown gross of withholding tax.
Deposit interest receivable is accounted for on an accruals basis. Interest income from the Cash Fund is accounted for on an accruals basis. Underwriting commission is recognised when the issue underwritten closes.
Where the Company has elected to receive its dividends in the form of additional shares rather than in cash, the cash equivalent of the dividend is recognised as revenue. Any excess in the value of the shares received over the amount of the cash dividend is recognised in capital.
(e) Expenses
All expenses, including finance costs, are accounted for on an accruals basis. Expenses have been charged wholly to the revenue account of the Income Statement, except as follows:
·expenses which are incidental to the acquisition or disposal of an investment are treated as capital. Details of transaction costs on the purchases and sales of investments are disclosed in note 10 contained within the Annual Report and Financial Statements for the year ended 31 October 2023.
·expenses are treated as capital where a connection with the maintenance or enhancement of the value of the investments can be demonstrated; and
·the investment management fee and finance costs have been allocated 25% to the revenue account and 75% to the capital account of the Income Statement in line with the Board’s expected long-term split of returns, in the form of capital gains and income respectively, from the investment portfolio.
(f) Taxation
The tax expense represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on the taxable profit for the year. Taxable profit differs from net profit as reported in the Income Statement because it excludes items of income or expenses that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Company’s liability for current tax is calculated using tax rates that were applicable at the balance sheet date.
The current tax effect of different items of expenditure is allocated between capital and revenue on the marginal basis using the Company’s effective rate of corporation tax for the accounting period.
Deferred taxation is recognised in respect of all timing differences at the financial reporting date, where transactions or events that result in an obligation to pay more taxation in the future or right to less taxation in the future have occurred at the balance sheet date. Deferred taxation is measured on a non-discounted basis, at the average tax rates that are expected to apply in the periods in which the timing differences are expected to reverse based on tax rates and laws that have been enacted or substantively enacted by the balance sheet date. This is subject to deferred taxation assets only being recognised if it is considered more likely than not that there will be suitable profits from which the future reversal of the timing differences can be deducted.
(g) Investments held at fair value through profit or loss
The Company’s investments are classified as held at fair value through profit or loss in accordance with Section 11 and 12 of FRS 102 and are managed and evaluated on a fair value basis in accordance with its investment strategy.
All investments are classified upon initial recognition as held at fair value through profit or loss. Purchases of investments are recognised on a trade date basis. Sales are recognised at the trade date of the disposal and the proceeds are measured at fair value, which is regarded as the proceeds of the sale less any transaction costs.
The fair value of the financial investments is based on their quoted bid price at the balance sheet date on the exchange on which the investment is quoted, without deduction for the estimated future selling costs. Unquoted investments are valued by the Directors at fair value using International Private Equity and Venture Capital Valuation Guidelines. This policy applies to all current and non-current asset investments of the Company.
Changes in the value of investments held at fair value through profit or loss and gains and losses on disposal are recognised in the Income Statement as ‘Gains or losses on investments held at fair value through profit or loss’. Also included within this heading are transaction costs in relation to the purchase or sale of investments.
The fair value hierarchy consists of the following three levels:
Level 1 – Quoted market price for identical instruments in active markets.
Level 2 – Valuation techniques using observable inputs.
Level 3 – Valuation techniques using significant unobservable inputs.
(h) Debtors
Debtors include sales for future settlement, other debtors and prepayments and accrued income in the ordinary course of business. If collection is expected in one year or less, they are classified as current assets. If not, they are presented as non-current assets.
(i) Creditors
Creditors include purchases for future settlement, interest payable, share buyback costs and accruals in the ordinary course of business. Creditors are classified as creditors – amounts due within one year if payment is due within one year or less (or in the normal operating cycle of business if longer). If not, they are presented as creditors – amounts due after more than one year.
(j) Dividends payable
Under Section 32 of FRS 102, final dividends should not be accrued in the financial statements unless they have been approved by shareholders before the balance sheet date. Dividends payable to equity shareholders are recognised in the Statement of Changes in Equity when they have been approved by shareholders and have become a liability of the Company. Interim dividends are only recognised in the financial statements in the period in which they are paid.
(k) Cash and cash equivalents
Cash comprises cash in hand and on demand deposits. Cash equivalents include bank overdrafts repayable on demand and short-term, highly liquid investments, that are readily convertible to known amounts of cash and that are subject to an insignificant risk of changes in value.
(l) Foreign currency translation
In accordance with Section 30 of FRS 102, the Company is required to nominate a functional currency being the currency in which the Company predominately operates. The functional and reporting currency is Pound Sterling, reflecting the primary economic environment in which the Company operates. Transactions in foreign currencies are translated into Pound Sterling at the rates of exchange ruling on the date of the transaction. Foreign currency monetary assets and liabilities and non-monetary assets held at fair value are translated into Pound Sterling at the rates of exchange ruling at the balance sheet date. Profits and losses thereon are recognised in the capital account of the Income Statement and taken to the capital reserve.
(m) Share repurchases, share reissues and new share issues
Shares repurchased and subsequently cancelled – share capital is reduced by the nominal value of the shares repurchased and the capital redemption reserve is correspondingly increased in accordance with Section 733 of the Companies Act 2006. The full cost of the repurchase is charged to the special reserve.
Shares repurchased and held in treasury – the full cost of the repurchase is charged to the special reserve.
Where treasury shares are subsequently reissued:
· amounts received to the extent of the repurchase price are credited to the special reserve and capital reserve based on a weighted average basis of amounts utilised from these reserves on repurchases; and
· any surplus received in excess of the repurchase price is taken to the share premium account.
Where new shares are issued, the par value is taken to called up share capital and amounts received to the extent of any surplus received in excess of the par value are taken to the share premium account.
Costs on issuance of new shares are charged to the share premium account. Costs on share reissues are charged to the special reserve and capital reserve.
(n) Bank borrowings
Bank loans are recorded as the proceeds received. Finance charges are accounted for on an accruals basis in the Income Statement.
(o) Critical accounting judgement and key sources of estimation uncertainty
The Board makes estimates and assumptions concerning the future. The resulting accounting estimates and assumptions will, by definition, seldom equal the related actual results. Estimates and judgements are regularly evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. There are no critical accounting judgements or estimates and the Directors do not believe that any accounting judgements or estimates have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities within the next financial year.
3. Income
|
| 2023 | 2022 |
| Investment income: |
|
|
| UK dividends | 1,494 | 1,447 |
| UK special dividends | 27 | 96 |
| UK property income distributions | 19 | 11 |
| Overseas dividends | 183 | 188 |
|
| --------------- | --------------- |
| Total investment income | 1,723 | 1,742 |
|
| ========= | ========= |
| Other income: |
|
|
| Interest from Cash Fund | 80 | 28 |
| Deposit interest | 1 | – |
|
| --------------- | --------------- |
| Total income | 1,804 | 1,770 |
|
| ========= | ========= |
Dividends and interest received in cash during the year amounted to £1,789,000 and £83,000 respectively (2022: £1,838,000 and £23,000).
Special dividends of £7,000 have been recognised in capital during the year (2022: £169,000).
4. Investment management fee
|
| 2023 | 2022 | ||||
|
| Revenue | Capital | Total | Revenue | Capital | Total |
| Investment management fee | 59 | 176 | 235 | 59 | 178 | 237 |
|
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- |
| Total | 59 | 176 | 235 | 59 | 178 | 237 |
|
| ========= | ========= | ========= | ========= | ========= | ========= |
Under the terms of the investment management agreement, BFM is entitled to a fee of 0.6% per annum of the Company’s quarter end market capitalisation. 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
|
| 2023 | 2022 |
| Allocated to revenue: |
|
|
| Custody fees | 1 | 1 |
| Depositary fees | 5 | 5 |
| Audit fees1 | 29 | 29 |
| Registrars’ fee | 26 | 27 |
| Directors’ emoluments2 | 103 | 99 |
| Marketing fees | 14 | 13 |
| Printing and postage fees | 32 | 35 |
| Legal and professional fees | 56 | 12 |
| London Stock Exchange fee | 12 | 10 |
| FCA fee | 7 | 7 |
| Prior year expenses written back3 | (3) | (2) |
| Other administration costs | 35 | 29 |
|
| --------------- | --------------- |
|
| 317 | 265 |
|
| ========= | ========= |
| Allocated to capital: |
|
|
| Custody transaction costs4 | 6 | 6 |
|
| --------------- | --------------- |
|
| 323 | 271 |
|
| ========= | ========= |
| The Company’s ongoing charges5, calculated as a percentage of average daily net assets and using the management fee and all other operating expenses, excluding finance costs, direct transaction costs, custody transaction charges, VAT recovered, taxation, prior year expenses written back and certain non-recurring items were: |
|
|
|
| ========= | ========= |
1 No non-audit services were provided by the Company’s auditors (2022: none).
2 Further information on Directors’ emoluments can be found in the Directors’ Remuneration Report contained within the Annual Report and Financial Statements for the year ended 31 October 2023. The Company has no employees.
3 Relates to audit fees and other administration costs written back in the year ended 31 October 2023 (2022: other administration costs).
4 For the year ended 31 October 2023, expenses of £6,000 (2022: £6,000) were charged to the capital account of the Income Statement. These relate to transaction costs charged by the custodian on sale and purchase trades.
5 Alternative Performance Measure, see Glossary contained within the Annual Report and Financial Statements for the year ended 31 October 2023
6. Finance costs
|
| 2023 | 2022 | ||||
|
| Revenue | Capital | Total | Revenue | Capital | Total |
| Interest on Sterling bank loan | 53 | 161 | 214 | 16 | 49 | 65 |
| Loan facility fees | 1 | 2 | 3 | – | – | – |
|
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- |
|
| 54 | 163 | 217 | 16 | 49 | 65 |
|
| ========= | ========= | ========= | ========= | ========= | ========= |
Finance costs have been allocated 25% to the revenue account and 75% to the capital account of the Income Statement.
7. Dividends
|
|
|
| 2023 | 2022 |
| 2021 Final dividend of 4.60p | 4 February 2022 | 17 March 2022 | – | 981 |
| 2022 Interim dividend of 2.60p | 22 July 2022 | 1 September 2022 | – | 550 |
| 2022 Final dividend of 4.70p | 10 February 2023 | 15 March 2023 | 986 | – |
| 2023 Interim dividend of 2.60p | 21 July 2023 | 1 September 2023 | 544 | – |
|
|
|
| --------------- | --------------- |
|
|
|
| 1,530 | 1,531 |
|
|
|
| ========= | ========= |
The Directors have proposed a final dividend of 4.80p per share in respect of the year ended 31 October 2023. The final dividend will be paid, subject to shareholders’ approval, on 15 March 2024 to shareholders on the Company’s register on 9 February 2024. The proposed final dividend has not been included as a liability in these financial statements as final dividends are only recognised in the financial statements when they have been approved by shareholders.
The total dividends payable in respect of the year which form the basis of determining retained income for the purpose of Section 1158 of the Corporation Tax Act 2010 and Section 833 of the Companies Act 2006, and the amount proposed for the year ended 31 October 2023, meet the relevant requirements as set out in this legislation.
|
| 2023 | 2022 |
| Interim paid of 2.60p (2022: 2.60p) | 544 | 550 |
| Final proposed of 4.80p1 (2022: 4.70p) | 986 | 986 |
|
| --------------- | --------------- |
|
| 1,530 | 1,536 |
|
| ========= | ========= |
1 Based on 20,541,536 ordinary shares (excluding treasury shares) in issue on 18 December 2024.
All dividends paid or payable are distributed from the Company’s current year revenue profits and, if required, from brought forward revenue reserves.
8. Earnings/(loss) and net asset value per ordinary share
Revenue, capital earnings/(loss) and net asset value per ordinary share are shown below and have been calculated using the following:
|
| 2023 | 2022 |
| Net revenue profit attributable to ordinary shareholders (£’000) | 1,367 | 1,438 |
| Net capital profit/(loss) attributable to ordinary shareholders (£’000) | 783 | (2,387) |
|
| --------------- | --------------- |
| Total profit/(loss) attributable to ordinary shareholders (£’000) | 2,150 | (949) |
|
| ========= | ========= |
| Total shareholders’ funds (£’000) | 40,156 | 40,572 |
|
| ========= | ========= |
| Earnings per share |
|
|
| The weighted average number of ordinary shares in issue during the year on which the earnings per ordinary share was calculated was: | 20,913,124 | 21,244,153 |
| The actual number of ordinary shares in issue at the year end on which the net asset value per ordinary share was calculated was: | 20,603,486 | 21,171,914 |
|
| --------------- | --------------- |
| Calculated on weighted average number of ordinary shares: |
|
|
| Revenue earnings per share (pence) – basic and diluted | 6.54 | 6.77 |
| Capital earnings/(loss) per share (pence) – basic and diluted | 3.75 | (11.24) |
|
| --------------- | --------------- |
| Total earnings/(loss) per share (pence) – basic and diluted | 10.29 | (4.47) |
|
| ========= | ========= |
|
| As at | As at |
| Net asset value per ordinary share (pence) | 194.90 | 191.63 |
| Ordinary share price (mid-market) (pence) | 178.00 | 171.00 |
|
| ========= | ========= |
There were no dilutive securities at the year end (2022: nil).
|
| --------------- | --------------- |
|
| 133 | 589 |
|
| ========= | ========= |
|
| ========= | ========= |
9. Called up share capital
|
| Ordinary | Treasury | Total | Nominal |
| Allotted, called up and fully paid share capital comprised: |
|
|
|
|
| Ordinary shares of 1 pence each: |
|
|
|
|
| At 31 October 2022 | 21,171,914 | 10,081,532 | 31,253,446 | 313 |
| Shares purchased for cancellation | (568,428) | – | (568,428) | (6) |
|
| --------------- | --------------- | --------------- | --------------- |
| At 31 October 2023 | 20,603,486 | 10,081,532 | 30,685,018 | 307 |
|
| ========= | ========= | ========= | ========= |
During the year 568,428 ordinary shares (2022: 226,928) were purchased and subsequently cancelled for a total consideration including expenses of £1,036,000 (2022: £416,000).
The number of ordinary shares in issue at the year end was 30,685,018 (2022: 31,253,446) of which 10,081,532 (2022: 10,081,532) were held in treasury.
10. Reserves
|
|
|
| Distributable reserves | |||
|
|
|
|
| Capital |
|
|
| At 31 October 2022 | 14,819 | 236 | 7,997 | 1,486 | 13,427 | 2,294 |
| Movement during the year: |
|
|
|
|
|
|
| Total comprehensive (loss)/income: |
|
|
|
|
|
|
| Net (loss)/profit for the year | – | – | (524) | 1,307 | – | 1,367 |
| Transactions with owners, recorded directly to equity: |
|
|
|
|
|
|
| Ordinary shares purchased for cancellation | – | 6 | – | – | (1,029) | – |
| Share purchase costs | – | – | – | – | (7) | – |
| Dividends paid during the year | – | – | – | – | – | (1,530) |
|
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- |
| At 31 October 2023 | 14,819 | 242 | 7,473 | 2,793 | 12,391 | 2,131 |
|
| ========= | ========= | ========= | ========= | ========= | ========= |
|
|
|
| Distributable reserves | |||
|
|
|
|
| Capital |
|
|
| At 31 October 2021 | 14,819 | 234 | 7,108 | 4,762 | 13,843 | 2,387 |
| Movement during the year: |
|
|
|
|
|
|
| Total comprehensive income/(loss): |
|
|
|
|
|
|
| Net profit/(loss) for the year | – | – | 889 | (3,276) | – | 1,438 |
| Transactions with owners, recorded directly to equity: |
|
|
|
|
|
|
| Ordinary shares purchased for cancellation | – | 2 | – | – | (414) | – |
| Share purchase costs | – | – | – | – | (2) | – |
| Dividends paid during the year | – | – | – | – | – | (1,531) |
|
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- |
| At 31 October 2022 | 14,819 | 236 | 7,997 | 1,486 | 13,427 | 2,294 |
|
| ========= | ========= | ========= | ========= | ========= | ========= |
The Company’s share premium account was cancelled pursuant to shareholders’ approval of a special resolution at the Company’s Annual General Meeting in 2002 and Court approval on 24 January 2002. The share premium account which totalled £61,852,000 was transferred to a special reserve. This action was taken, in part, to ensure that the Company had sufficient distributable reserves.
The share premium account and capital redemption reserve are not distributable reserves under the Companies Act 2006. In accordance with ICAEW Technical Release 02/17BL on Guidance on Realised and Distributable Profits under the Companies Act 2006, the special reserve and capital reserves 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 reserves and the revenue reserve may be distributed by way of dividend. The gain on the capital reserve arising on the revaluation of investments of £2,793,000 (2022: gain of £1,486,000) is subject to fair value movements and may not be readily realisable at short notice, as such it may not be entirely distributable. The investments are subject to financial risks; as such capital reserves (arising on investments sold) and the revenue reserve may not be entirely distributable if a loss occurred during the realisation of these investments.
11. Valuation of financial instruments
Financial assets and financial liabilities are either carried in the Balance Sheet at their fair value (investments) or at an amount which is a reasonable approximation of fair value (due from brokers, dividends and interest receivable, due to brokers, accruals, cash at bank, bank overdrafts and bank loans). Section 34 of FRS 102 requires the Company to classify fair value measurements using a fair value hierarchy that reflects the significance of inputs used in making the measurements. The valuation techniques used by the Company are explained in the accounting policies note to the Financial Statements are in the Financial Statements above.
Categorisation within the hierarchy has been determined on the basis of the lowest level input that is significant to the fair value measurement of the relevant asset.
The fair value hierarchy has the following levels:
Level 1 – Quoted market price for identical instruments in active markets
A financial instrument is regarded as quoted in an active market if quoted prices are readily available from an exchange, dealer, broker, industry group, pricing service or regulatory agency and those prices represent actual and regularly occurring market transactions on an arm’s length basis. The Company does not adjust the quoted price for these instruments.
Level 2 – Valuation techniques using observable inputs
This category includes instruments valued using quoted prices for similar instruments in markets that are considered less active, or other valuation techniques where significant inputs are directly or indirectly observable from market data.
Level 3 – Valuation techniques using significant unobservable inputs
This category includes all instruments where the valuation technique includes inputs not based on market data and these inputs could have a significant impact on the instrument’s valuation.
This category also includes instruments that are valued based on quoted prices for similar instruments where significant entity determined adjustments or assumptions are required to reflect differences between the instruments and instruments for which there is no active market. The Investment Manager considers observable data to be that market data that is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market.
The level in the fair value hierarchy within which the fair value measurement is categorised in its entirety is determined on the basis of the lowest level input that is significant to the fair value measurement. If a fair value measurement uses observable inputs that require significant adjustment based on unobservable inputs, that measurement is a Level 3 measurement.
Assessing the significance of a particular input to the fair value measurement in its entirety requires judgement, considering factors specific to the asset or liability 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 is an analysis of the Company’s financial instruments measured at fair value at the balance sheet date.
|
| Level 1 | Level 2 | Level 3 | Total |
| Equity investments | 43,267 | – | – | 43,267 |
|
| ========= | ========= | ========= | ========= |
|
| Level 1 | Level 2 | Level 3 | Total |
| Equity investments | 41,557 | – | – | 41,557 |
|
| ========= | ========= | ========= | ========= |
The Company held one Level 3 security as at 31 October 2023 (2022: one).
The investment in Patisserie Holdings has been valued at £nil as the company is under liquidation.
There were no transfers between levels of financial assets and financial liabilities recorded at fair value during the year ended 31 October 2023 (2022: none).
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 price related risks, including climate risk, in accordance with the fair value related requirements of the Company’s financial reporting framework.
12. Transactions with the Manager and Investment Manager
BlackRock Fund Managers Limited (BFM) provides management and administration services to the Company under a contract which is terminable on six months’ notice. BFM has (with the Company’s consent) delegated certain portfolio and risk management services, and other ancillary services, to BlackRock Investment Management (UK) Limited (BIM (UK)). Further details of the investment management contract are disclosed in the Directors’ Report contained within the Annual Report and Financial Statements.
The investment management fee is levied quarterly, based on 0.60% per annum of the Company’s market capitalisation. The investment management fee due for the year ended 31 October 2023 amounted to £235,000 (2022: £237,000). At the year end, £175,000 was outstanding in respect of the management fee (2022: £118,000).
In addition to the above services, BIM (UK) has provided the Company with marketing services. The total fees paid or payable for these services for the year ended 31 October 2023 amounted to £14,000 including VAT (2022: £13,000). At the year end, £24,000 including VAT was outstanding in respect of marketing fees (2022: £11,000).
The Company holds an investment in the BlackRock Institutional Cash Series plc - Sterling Liquid Environmentally Aware Fund of £1,066,000 (2022: £2,604,000) which for the year ended 31 October 2023 and 31 October 2022 has been presented in the financial statements as a cash equivalent. This 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. Related party disclosure
At the date of this report, the Board consists of four non-executive Directors, all of whom are considered to be independent of the Manager by the Board.
Disclosures of the Directors’ interests in the ordinary shares of the Company and fees and expenses payable to the Directors are set out in the Directors’ Remuneration Report contained in the Annual Report and Financial Statements for the year ended 31 October 2023. At 31 October 2023, £9,000 (2022: £8,000) was outstanding in respect of Directors’ fees.
Significant holdings
The following investors are:
a. funds managed by the BlackRock Group or are affiliates of BlackRock Inc. (Related BlackRock Funds); or
b. investors (other than those listed in (a) above) who held more than 20% of the voting shares in issue in the Company and are as a result, considered to be related parties to the Company (Significant Investors).
As at 31 October 2023
|
| Total % of shares held by Significant | Number of Significant Investors who |
| nil | n/a | n/a |
As at 31 October 2022
|
| Total % of shares held by Significant | Number of Significant Investors who |
| nil | n/a | n/a |
|
|
|
|
14. Contingent liabilities
There were no contingent liabilities at 31 October 2023 (2022: nil).
15. Publication of Non- Statutory Accounts
The financial information contained in this announcement does not constitute statutory accounts as defined in the Companies Act 2006. The Annual Report and Financial Statements for the year ended 31 October 2023 will be filed with the Registrar of Companies after the Annual General Meeting. The figures set out above have been reported upon by the auditor, whose report for the year ended 31 October 2023 contains no qualification or statement under Section 498(2) or (3) of the Companies Act 2006.
The comparative figures are extracts from the audited financial statements of BlackRock Income and Growth Investment Trust plc for the year ended 31 October 2022, which have been filed with the Registrar of Companies, unless otherwise stated. The report of the auditor on those financial statements contained no qualification or statement under Section 498 of the Companies Act.
16. Annual Reports
Copies of the Annual Report will be sent to members shortly and will be available from the registered office c/o The Company Secretary, BlackRock Income and Growth Investment Trust plc, 12 Throgmorton Avenue, London EC2N 2DL.
17. Annual General Meeting
The Annual General Meeting of the Company will be held at 12 Throgmorton Avenue, London EC2N 2DL on Thursday, 7 March 2024 at 12.00 noon.
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