Final Results
30/01/2024 17:06
BlackRock Energy and Resources Income Trust plc
LEI: 54930040ALEAVPMMDC31
Annual Report and Financial Statements 30 November 2023
Performance Record
As at As at
30 November 30 November
2023 2022
Net assets (£’000) 1 162,362 194,708
Net asset value per ordinary share (pence) 123.58 144.92
Ordinary share price (mid-market) (pence) 110.40 135.00
Discount to net asset value 2 10.7% 6.8%
For the year For the year
ended ended
30 November 30 November
2023 2022
Performance (with dividends reinvested)
Net asset value per share 2 -11.8% 44.5%
Ordinary share price 2 -15.2% 44.8%
For the year For the year Change
ended ended %
30 November 30 November
2023 2022
Revenue
Net profit on ordinary activities after taxation (£’000) 5,774 6,394 -9.7
Revenue earnings per ordinary share (pence) 3 4.39 4.99 -12.0
Dividends (pence)
1st interim 1.100 1.100 –
2nd interim 1.100 1.100 –
3rd interim 1.100 1.100 –
4th interim 1.125 1.100 2.3
---------------- ---------------- ----------------
Total dividends paid 4.425 4.400 0.6
========== ========== ==========
1 The change in net assets reflects portfolio movements, the issue and
repurchase of shares and dividends paid during the year.
2 Alternative Performance Measures, see Glossary contained within the Annual
Report and Accounts.
3 Further details are given in the Glossary contained within the Annual
Report and Accounts.
CHAIRMAN’S STATEMENT
Dear Shareholder
OVERVIEW
At the start of the year and through into the first half of 2023, markets as a
whole were buoyed up by the technology sector, and optimism that interest
rates might be close to their peak. The global economy performed well at the
start of the year, supported by factors such as falling energy prices, strong
consumer balance sheets and the reopening of the Chinese economy. However,
relatively quickly, positive momentum stalled as global manufacturing activity
receded and China’s economy, usually a major demand engine, delivered a
disappointing rebound. By the end of the first half of the year, many
investors were concerned about recession risk, and most mined commodity prices
had fallen below the level where they started.
All nations attending the 28th United Nations Conference of the Parties
(COP28) climate summit in Dubai formally agreed to transition away from fossil
fuels and rapidly ramp up production of renewable energy. However, it is clear
that traditional commodities and the companies which produce them, whether in
energy or mining, will have a role to play in the transition towards net zero
carbon emissions over the coming decades.
The Energy Transition portion of the portfolio suffered due to the impact of
cost inflation, the challenges faced by companies in this sector and the
pressure from a higher cost of capital arising from interest rate rises, which
caused some dramatic share price falls. These declines have started to present
some opportunities to invest in companies that have strong long-term
fundamentals but were overvalued until recently. Your Company’s portfolio is
well-positioned to take advantage of these trends, as the portfolio managers
increased Traditional Energy exposure slightly through 2023 to 30.6% at the
end of the year, and moved to a higher weighting in the Energy Transition
sector to 24.9% at 30 November 2023.
Our portfolio managers provide a detailed description of the main contributors
and detractors to performance during the period, insight into the positioning
of the portfolio and their views on the outlook for the forthcoming year in
their report which follows and is contained in the Annual Report and Accounts.
I am also pleased to be able to tell you that the Company won the Investment
Week Investment Company of the Year Award 2023 – Commodities and Resources
category. The Company also won the CityWire Investment Trust Award 2023 -
Special Equities Trust. I am sure shareholders will join me in congratulating
the investment team on these achievements.
PERFORMANCE
During the year ended 30 November 2023, the Company’s net asset value (NAV)
per share returned -11.8% and the share price returned -15.2% (both
percentages in Pound Sterling terms with dividends reinvested). The
Company’s objectives are to achieve both an annual dividend target and, over
the long term (see table below), capital growth. Consequently, the Board does
not formally benchmark performance against mining and energy sector indices as
meeting a specific dividend target is not within the scope of these indices.
However, to set the performance above in the context of the market backdrop,
the MSCI ACWI Select Metals & Mining Producers Ex Gold and Silver IMI Net
Index returned -5.5%, the S&P Global Clean Energy Index returned -36.4% and
the MSCI World Energy Index returned -6.8% during the year ended 30 November
2023 (all percentages in Pound Sterling terms with dividends reinvested).
CUMULATIVE PERFORMANCE AS AT 30 NOVEMBER 2023
Performance to 30 November 2023 1 Year 2 Years 3 Years 5 Years Since
change change change change inception 2
% % % % %
Net Asset Value (with dividends reinvested) 1 -11.8 27.5 71.2 103.6 212.1
Share price (with dividends reinvested) 1 -15.2 22.8 73.9 99.2 179.4
1 Alternative Performance Measures. Further details of the calculation of
performance with dividends reinvested are given in the Glossary contained
within the Annual Report and Accounts.
2 The Company was launched on 13 December 2005.
As noted above, the Board does not formally benchmark the Company’s
performance against Mining and Energy sector indices; however, for internal
monitoring purposes, the Board compares the performance of the portfolio
against a bespoke internal Mining and Energy composite index. The neutral
sector weightings of this bespoke index are 40% Mining, 30% Traditional Energy
and 30% Energy Transition.
Further information on investment performance is given in the Investment
Managers’ Report.
REVENUE RETURN AND DIVIDENDS
The Company’s revenue earnings per share for the year to 30 November 2023
was 4.39 pence per share, a 12.0% decrease compared to the prior year revenue
earnings per share of 4.99 pence. The weakening US Dollar contributed to the
reduction in earnings, as many resource company dividends are paid in US
Dollars. The Board’s dividend target for 2023 was to declare quarterly
dividends of at least 1.10 pence per share in the year to 30 November 2023,
making a total of at least 4.40 pence per share for the year as a whole.
However, the Board is cognisant of the importance of dividends to its
shareholders and the need to balance growth in dividend with its
sustainability. Consequently it announced in December 2023 that it would pay a
fourth quarterly dividend for the year to 30 November 2023 of 1.125 pence per
share (making total dividend payment for the year of 4.425 pence per share)
and also increased the annual dividend target for the year to 30 November 2024
to 4.50 pence per share (an increase of 2.3% compared to the previous target).
This target represents a yield of 4.1% based on the share price of 110.40
pence per share as at 30 November 2023, and 4.1% based on the share price at
the close of business on 26 January 2024. This dividend target should not be
interpreted as a profit forecast.
The Company may also write options to generate revenue earnings, although the
portfolio managers’ focus is on investing the portfolio to generate an
optimal level of total return without striving to meet an annual income target
and they will only undertake option transactions to the extent that the
overall expected contribution is beneficial to total return.
GEARING
The Company operates a flexible gearing policy which depends on prevailing
market conditions. It is not intended that gearing will exceed 20% of the
gross assets of the Company. The maximum gearing used during the period was
13.7%, and the level of gearing at 30 November 2023 was 8.1%. Average gearing
over the year to 30 November 2023 was 8.4%. For calculations, see the Glossary
contained within the Annual Report and Accounts.
MANAGEMENT OF SHARE RATING
The Directors recognise the importance to investors that the Company’s share
price should not trade at a significant premium or discount to NAV, and
therefore, in normal market conditions, may use share buybacks, sales of
shares from treasury and share issues to ensure that the share price is
broadly in line with the underlying NAV.
The Company’s shares started the year under review trading at a discount of
6.8%; this narrowed to 3.4% in December 2022 and subsequently the shares moved
to trade fairly consistently at a premium from January 2023 to mid-February
2023. To manage the premium, the Company issued new shares into market demand
in January and February 2023. During the year ended 30 November 2023, the
Company issued 1,230,000 shares for net proceeds of £1,789,000 at an average
premium of 1.6%. At the Company’s Annual General Meeting held on 13 March
2023, the Company was granted authority to allot up to 26,981,238 shares
and/or sell the same amount of shares held in treasury on a non-pre-emptive
basis (being equivalent to 20 per cent of share capital in issue at that
time). Since mid-February 2023 the Company’s shares have been trading at a
discount, which widened in line with many investment trusts. Since 31 May 2023
the discount has widened out again, and during the year, the Company has
bought back 4,200,000 shares for costs of £4,837,000 and at an average
discount of 10.0%. Since the year end and up to 26 January 2024, the Company
bought back 1,800,000 ordinary shares for a net consideration of £2,014,000
at an average discount of 10.6%. As at 26 January 2024 the Company’s shares
were trading at a discount of 11.2%.
BOARD COMPOSITION
The Board supports the increasing focus on independence, tenure and succession
planning set out in the updated Financial Reporting Council’s review of the
UK Corporate Governance Code. Carol Bell, having served nine years on the
board, has advised the Board that she will step down from the Board at the
conclusion of this year’s AGM. I would like to take this opportunity to
thank Carol for the benefit of her expertise and experience and her
contribution to the Board during her tenure. We wish her well for the future.
With this in mind, the Board commenced a search in 2023 to identify a new
director to join the Board, assisted by a third-party recruitment firm,
Cornforth Consulting Limited. Following a detailed evaluation of each of the
candidates, the Board selected Anne Marie Cannon who was subsequently
appointed with effect from 16 January 2024. As at the date of this report the
Board consists of five independent Non-executive Directors. In accordance with
best practice and good corporate governance, the Directors continue to submit
themselves for annual re-election, Anne Marie Cannon will submit herself for
election at this year’s AGM.
Further information on all of the Directors can be found in their biographies
contained within the Annual Report and Accounts. Information on the
recruitment and selection process undertaken and details of the Board’s
policy on director tenure and succession planning can be found in the
Directors’ Report contained within the Annual Report and Accounts.
ANNUAL GENERAL MEETING ARRANGEMENTS
The AGM will be held in person at 12:00 p.m. on Friday, 15 March 2024 at the
offices of BlackRock at 12 Throgmorton Avenue, London EC2N 2DL.
The Board very much looks forward to meeting shareholders and answering any
questions you may have on the day. We hope you can attend this year’s AGM,
light refreshments will be made available to shareholders who have attended
the AGM.
MARKET OUTLOOK AND PORTFOLIO POSITIONING
The continued commitment by governments to address climate change and
decarbonise the energy supply chain remains an important backdrop for the
Company’s three pillars of Traditional Energy, Mining and Energy Transition.
The Board considers that all three sectors have an important role to play as
the energy system transitions to a lower carbon economy. Traditional Energy is
needed to support base load energy to continue to power economies during the
transition. The Mining sector provides the material supply chain for low
carbon technologies from steel for wind turbines to lithium for electric cars.
The path to a lower carbon economy is also expected to disrupt many industries
and business models with scope for the Company to invest directly in
opportunities in the Energy Transition space. Against this backdrop, the
flexibility of the Company’s investment mandate with the ability to shift
exposure between Traditional Energy, Mining and Energy Transition sectors,
means that it is uniquely positioned to serve investors as these sectors
evolve. The Board is confident that the Company remains well-placed to benefit
from these key investment trends over the long term.
I look forward to seeing shareholders at the forthcoming Annual General
Meeting.
ADRIAN BROWN
30 January 2024
INVESTMENT MANAGER’S REPORT
MARKET OVERVIEW
After a very strong performance in 2022, the last twelve months to 30 November
2023 have been tougher in the extractive mining and traditional energy
industries and even harder for many of the companies in the energy transition
sector. Commodity prices pulled back from their prior year highs, especially
in the energy commodities such as natural gas and thermal coal. Whilst some of
this reflected market conditions normalising following the dislocations as a
result of the Russia – Ukraine conflict, as we progressed through the year
greater concerns emerged about the demand outlook both in major Western
economies and in China.
The impact of inflation and higher interest rates was most acutely felt in
some of the industries related to the energy transition sector. The offshore
wind industry saw several high-profile project cancellations or deferrals as
spiralling costs rendered projects uneconomic in the face of higher funding
costs. The explosive growth in electric vehicle sales also slowed, albeit from
exceptional rates of growth to “just” a high rate but consumers in the key
market of the United States of America (US) appear yet to be convinced with
several US manufacturers recently reducing near-term sales targets.
Despite some of these challenges, it was encouraging to see that policy
support and regulation focused on the energy transition did not take backward
steps during the year. Although the methods of implementation are yet to be
announced by individual countries, the agreement at the COP28 meeting in
December 2023 to triple renewable energy capacity globally by 2030 reaffirms
the strong tailwind for growth that companies in this sector would experience
over the coming years.
Whilst it would appear on the surface that broader equity markets did
substantially better over the year than the Company’s areas of focus, it
should be noted that equity market performance has been narrow relative to
historic averages. That is to say that the positive performance was
concentrated in a small number of shares, mainly the “Magnificent 7” in
the technology sector..
Commodity 30 November 30 November % change 2023 on 2022
2023 2022 Average Price %
Change 1
Base Metals (US$/tonne)
Aluminium 2,156 2,448 -11.9 -16.7
Copper 8,388 8,227 2.0 -5.0
Lead 2,092 2,182 -4.1 -0.3
Nickel 16,438 26,892 -38.9 -11.3
Tin 22,984 23,045 -0.3 -20.8
Zinc 2,467 3,050 -19.1 -23.0
---------------- ---------------- ---------------- ----------------
Precious Metals (US$/ounce)
Gold 2,037.8 1,751.9 16.3 6.7
Silver 25.3 21.7 16.6 7.4
Platinum 937.0 1,025.0 -8.6 1.7
Palladium 1,025.0 1,908.0 -46.3 -33.5
---------------- ---------------- ---------------- ----------------
Energy
Oil (West Texas Intermediate) (US$/barrel) 75.6 80.5 -6.0 -17.4
Oil (Brent) (US$/barrel) 81.7 85.6 -4.5 -17.4
Natural Gas (US$/Metric Million British Thermal Unit) 2.8 7.0 -60.7 -55.6
---------------- ---------------- ---------------- ----------------
Bulk Commodities (US$/tonne)
Iron ore 132.5 103.0 28.6 -1.7
Coking coal 285.0 265.0 7.5 -27.4
Thermal coal 129.0 398.5 -67.6 -41.4
---------------- ---------------- ---------------- ----------------
Equity Indices
MSCI ACWI 2 Select Metals & Mining Producers Ex Gold and Silver IMI Net Index (US$) 1,287.5 1,281.7 -3.1 n/a
MSCI ACWI 2 Select Metals & Mining Producers Ex Gold and Silver IMI Net Index (£) 1,656.0 1,752.4 -5.5 n/a
MSCI 3 World Energy Index (US$) 459.9 464.4 -1.0 n/a
MSCI World Energy Index (£) 363.3 389.9 -6.8 n/a
S&P Global Clean Energy Index (US$) 903.5 1,337.1 -32.4 n/a
S&P Global Clean Energy Index (£) 615.3 968.0 -36.4 n/a
========== ========== ========== ==========
Source: Datastream.
1 Average of 1/12/2021-30/11/2022 to 1/12/2022-30/11/2023.
2 Morgan Stanley Capital International All Country Weighted Index.
3 Morgan Stanley Capital International.
PORTFOLIO PERFORMANCE AND INVESTMENT ACTIVITY
It was a more challenging year in 2023 and the Company’s NAV total return
was -11.8% and share price total return was -15.2%.
Although the mining sector had an encouraging start to 2023 as optimism
surrounding the re-opening of the Chinese economy following the COVID-19
policy reversals late in 2022, this optimism faded as we went through the year
and activity levels failed to reach the expectations set earlier in the year.
Whilst we had positioned the Company’s portfolio for the re-opening with
c50% of the net assets in mining companies at the end of February 2023, we
took the view that a strong re-opening was priced in but not assured, so we
reduced the exposure to c44% by the end of April 2023 and to c40% by the end
of May 2023. However, as we entered the final part of the year, although iron
ore and coking coal prices were remarkably strong, the share prices of some of
the larger producers of these commodities did not keep pace with the commodity
prices themselves and free cashflow yields were over 10% in some instances.
This was attractive enough to add back to our mining exposure and we closed
the year with c48% of the net assets exposed to the sector.
The portfolio started the year with 21.9% of the net assets invested in energy
transition companies but by the end of the year this had risen to 24.9%. The
challenges faced by companies in this sector and the pressure from higher cost
of capital caused some dramatic share price falls with the S&P Clean Energy
Index falling 36.4% in the year in Pound Sterling terms. These declines
started to present some opportunities to invest in companies that had strong
long-term fundamentals but where the valuation had been too high until
recently. We started to build some new positions and if interest rates
continue to edge lower then we would expect exposure to energy transition
companies to grow as a proportion of the net assets of the Company.
In the traditional energy sector, the exposure remained fairly steady between
c29% and c35% of net assets as seen in the annual report and accounts.
However, within this, the composition of exposure to this sector was varied
over the year. One of the notable areas we invested into after an absence for
many years was the oil services sector. There is now greater discipline in
this industry and some companies that were previously deemed to be too risky
have fixed their balance sheets and offer an exciting risk-reward trade-off
going forward.
INCOME
2023 was another robust year for income for the Company. Despite a lack of
strength in commodity prices, the capital discipline of most companies
favouring shareholder distributions over increasing capital expenditure, meant
that it was still a good year for dividends. However as many of the larger
mining companies have moved towards pay-out ratios over the last few years,
the income received did fall from this group of companies. Fortunately, this
was offset to a degree by a number of our larger energy holdings, such as
Shell and Total, once again increasing their dividends. Overall, total income
fell by 10%, which was a creditable result in a challenging year.
The Company’s option writing was more balanced between call option and put
option writing this year as compared to 2022, where it was skewed towards put
option writing. We also wrote slightly fewer options this year compared to the
previous year.
Fixed interest income fell year on year as some of the bonds we held were
bought back by the issuers and there were fewer compelling opportunities for
new fixed income investments as the interest rate spreads for many issuers in
the mining and energy sectors remained low or tightened during the year.
MINING
The mined commodities saw remarkable dispersion in their prices during 2023
and this was reflected in a wide outcome of share price returns from the
mining companies in the portfolio. At the extreme, iron ore was up almost 30%
during the year, but lithium was down 80% (lithium carbonate price in China).
In the 2022 Annual Report we wrote about lithium prices needing to stay
elevated for a sustained period of time to incentivise investment in new
lithium supplies, so why have prices tumbled?
Whilst some commodities have experienced supply disruptions in 2023, lithium
production saw few notable challenges. At the same time, demand conditions
deteriorated as we progressed through the year. Demand growth cooled in
lithium’s main market of China and in the US a number of the key
manufacturers scaled back the extent of their growth aspirations. This quickly
pushed the lithium market into a surplus situation, which caused the prices to
correct. We still think the longer-term outlook for lithium demand is strong
after a period of consolidation now where inventories will build and then have
to be consumed before a better price environment might reappear.
Iron ore, which is a key ingredient in the steel making process, had a far
better year than most commodities in 2023 even though China’s property
sector – historically the most important driver of the steel market (and
therefore the iron ore market) – continued to struggle. The chart in in the
annual report shows the hit to steel demand/production in China over the last
two years from the declining property market, which has clearly been a
significant headwind. However, what has surprised to the upside has been the
strength in steel demand from the infrastructure sector. This is typically
thought of as traditional infrastructure such as bridges, subway systems etc.
but the demand growth in the last few years has been driven more by investment
in renewable energy and energy transition infrastructure. This once again
reaffirms how commodity intensive the Energy Transition is and also that some
of the commodities (and their producers) that will benefit are not just the
“future facing metals” such as copper but also the traditional building
blocks of the economy like iron ore and steel.
For some of the base metals the combination of the recent price weakness and
the stickiness of operating and capital costs means that prices are now below
the cost of production. This can be seen in the annual report where aluminium
especially has a number of producers in a loss-making position.
Whilst the price falling below the cost of production does not create an
immediate floor in the price of a given commodity, over time supply is forced
out of the market (or demand recovers) and prices stabilise. Looking into 2024
we believe that much of the downside case is already priced into some of the
base metals (such as aluminium) and into the share prices of the companies
producing the base metal.
During the year, some large merger and acquisition transactions that shone a
spotlight on the desirability of energy transition commodities but also
reminded us that less fashionable, but highly cashflow generative assets, are
still sought after. In terms of the former, Vale sold a minority stake in
their base metals business, which includes copper and nickel mines, to a group
of investors including Saudi Arabia’s Public Investment Fund. The price paid
in terms of EV/EBITDA multiple was higher than the multiple at which Vale
shares trade at in the public market, which was a significant positive for the
Company’s holding in Vale. In terms of less fashionable assets, Glencore
emerged as the eventual buyer of Teck Resources’ coking coal assets
following a protracted period of negotiation. The deal also included an
announcement that Glencore intends to split its coal and metals businesses in
a couple of years’ time as it looks to capture the premium valuation for its
transition metals portfolio that other pure play companies in that space
currently enjoy.
ENERGY TRANSITION
After more than a decade of easy monetary policy, the pivot towards more
‘normal’ interest rates in an effort to tame inflation and stave off a
sharp recession saw real US interest rates climb back to levels last seen in
2003-2006. Although policy continued to provide positive tailwinds for the
longer-term outlook for energy transition companies, the rising cost of
capital framed much of this years’ stock price performance. Our colleagues
in the BlackRock Investment Institute have written extensively about a ‘New
Regime’. Given our tenure in markets we would frame this as a ‘return to
normal’.
Despite the rising cost of capital disproportionately impacting a broad swathe
of ‘growth’ stocks particularly in the Energy Transition space, 2023 was
marked by the confirmation of Artificial Intelligence (AI) as a significant
driver of future earnings in the Technology sector – not surprisingly the
NASDAQ Index was amongst the best-performing market segments during the
period.
The only Energy Transition theme to outpace the Traditional Energy and Mining
Sectors was Electric Vehicles (EVs). Yet, this was obfuscated by the inclusion
of Nvidia in the iShares EV & Driving Technology ETF. Stock dispersion within
the EV space was stark. EV charging companies such as ChargePoint (-85%) and
Blink Charging (-77%) faced the prospect of sharply lower demand for charging
networks as many of the US automakers revised down their ambitious EV growth
targets partly on reduced subsidies, but also reflect slower demand growth.
Despite these headwinds, the gap between the leading EV original equipment
manufacturers continued to widen with Stellantis (+39%) and Tesla (+23%) far
outpacing Fisker (-80%), Lucid (-58%) and Rivian (-48%) during the period.
Whilst EV demand growth has slowed from 65% in 2022 to c25% in 2023, it
remains robust and helped drive strong performance from Schneider Electric
(+28%) and ST Microelectronics (+27%), two Energy Transition investments held
by the Company.
In general, stock prices were negatively impacted by rising cost of capital
and sticky cost inflation throughout several of the Energy Transition supply
chains. That said, some challenges were project specific. In the case of
offshore wind, there were several high-profile project cancellations and
material impairment charges taken as historical power price contracts were
insufficient to offset cost overruns and delays. Investor reactions were swift
and negative for wind energy equipment manufacturers and developers alike.
Yet, this overlooks the fact that offshore wind capacity accounts for less
than 10% of the global wind capacity and just 3% of the renewables capacity
overall.
Dispersion was also evident in solar energy stocks. Despite the positive
tailwinds from the Inflation Reduction Act 2022 this was not enough to
counteract the effect of a rising cost of capital and the lagged impact on
consumer affordability. This led to a strong bifurcation between residential
and utility scale solar energy companies. Inverter manufacturers Enphase
(-69%) and SolarEdge (-73%) were down sharply as softening demand in both the
US and Europe created a huge glut of channel inventory that will require
several quarters to work down. Neither were held by the Company during the
period. Elsewhere in the solar space, FirstSolar (held by the Company) held up
better, albeit posting a negative return of -9% as it benefited
disproportionately from US tax credits aimed at boosting domestic content
across solar equipment manufacturing.
The financial year ended on a somewhat brighter note as policy makers pushed
ever harder for faster deployment of clean energy technology at COP28 in
Dubai. Ambitions were confirmed of a tripling of renewable energy capacity by
2030 which should see unconstrained demand for solar and wind continue apace
– the limiting factor will be the regulatory permitting process and supply
chain bottlenecks. With stock prices falling sharply this year and the
longer-term demand outlook for energy transition metals continuing to
strengthen valuations in the Energy Transition space are beginning to show
much better support than in recent years. For example, the iShares Global
Clean Energy ETF 12-month forward price/sales ratio has contracted by 25% in
the last twelve months whilst still offering the prospect of mid-teens year on
year sales growth based on consensus forecasts.
Although oil prices averaged $83/barrel for 2023, this masked a run-up to
$97/barrel from June to August 2023 as ‘OPEC-plus’ enacted the first of
two surprise supply cuts as it sought to manage the market. Both announcements
came as the crude futures structure shifted from backwardation to contango in
June 2023 and again in late November 2023 – a signal of a weakening physical
market Interestingly, cutting production has the effect of increasing spare
capacity in the system – a useful insurance policy should any
politically-driven curtailment surprise the market. Yet, this ignores the
effect of a US Strategic Petroleum Reserve that stands at a 40-year low just
as its military presence is being drawn to both the Middle East and the South
China Sea. It’s worth bearing in mind that had the Biden Administration not
released a record amount of oil (close to 600,000 barrels per day on average
for 2022), the energy price shock could have been far worse. This insurance
policy is no longer available in our view.
Whilst the industry is within sight of a peak in demand, we continue to
believe that the entrenched inertia in the global system, particularly in the
Emerging Markets, means that we may be some years off terminal decline. So, as
much as the market might wish to read into the need for Organisation of
Petroleum Exporting Countries (OPEC) to cut supply to manage the market as a
sign of waning demand – it has been the supply side that has surprised the
markets.
Reflecting back on 2023, demand was the one area that did not surprise in the
aggregate. Per the International Energy Agency’s (IEA) Oil Monthly Market
Report, expectations for demand were marginally up from their initial forecast
in December 2022. China, India and Russian demand expanded by almost 1 million
barrels per day more than the IEA expected at the end of 2022.
Turning to supply, the key surprise was not an unexpected surge in US shale
output (although it too remained more resilient than initial market
expectations), but the sheer resilience of Russian output which delivered 1.3
million barrels per day more than the IEA initially estimated. Iran was the
next largest contributor with an incremental output of 0.5 million barrels per
day – partly reflecting a softening in US sanctions towards the second half
of the year. Although other aging hydrocarbon basins continued to disappoint
against initial expectations (e.g. the North Sea), this was not enough to
offset the upside surprise from Russia and Iran. Eventually, Saudi Arabia had
to step in with near 1 million barrels per day production cuts to rebalance
global markets.
Following a very strong year in 2022, the Traditional Energy outlook for the
new financial year was always going to be more challenging – not least
against a backdrop of the underperformance in growth stocks (inflation fears,
rising interest rates). As the year progressed and the US Federal Reserve
(FED) continued to signal that further tightening was unnecessary, investors
returned en masse to those sectors which had previously underperformed. Just
one US shale production company made it into the top 20 performing Traditional
Energy stocks (Gulfport Resources, +90%), vindicating our decision to lower
exposure significantly to this sub-sector at the tail end of 2022. Amongst the
larger cap Integrated Oil Companies (IOCs), key holding Shell handily outpaced
the broader sector, up 17% during the period.
OUTLOOK
Whilst the medium term outlook remains incredibly strong for investment
opportunities in the Energy Transition, the year ahead will not be easy. We
envisage an abnormally high level of uncertainty – driven on the one hand by
the potential lagged effects on the real economy of higher interest rates as
well as a challenging geopolitical backdrop, the likes of which has not been
seen for several decades. Geopolitical tensions remain high relative to
history (sadly) with no end in sight for conflicts in both Eastern Europe and
the Middle East. The latter remains a key source of supply (and thoroughfare)
for global energy trade. This is to say nothing of persistent tensions between
the US and China, where tariffs continue to be the tool of choice in tackling
the competitive threat of cheaper manufactured goods in the Energy Transition
value chain, as well as the continued threat to Taiwanese independence.
The market will inevitably remain focused on the path of bond yields in the
months ahead, particularly as the FED attempts to engineer an economically
soft landing. The challenges to such a scenario are somewhat similar to this
past year particularly as the lagged effects of quantitative tightening play
out through the real economy. Typically, falling bond yields are supportive
overall for equities, but when the market is adjusting from one regime to the
next, it can be highly volatile. Flexibility will be key to the Company’s
performance in the year ahead.
US election campaigning has already commenced ahead of the November 2024
elections. Ahead of that, elections will also take place for the European
Parliament in early June 2024. In both cases, there is a growing political
divide between energy security, affordability and decarbonisation. There are
several key regulations expected in the year ahead that have the potential to
impact energy and mining markets alike (see Table 1) – all of which we will
be closely monitoring looking for opportunities for the Company.
Whilst the outlook for the year is replete with risk, we also see the
potential opportunities – a direct outcome of the flexibility embedded in
the Company. Policy continues to drive strong demand for investment into the
Energy Transition sector - a tripling in renewables capacity by 2030 agreed at
COP28 will need to be matched with equally ambitious investments into
electricity grids. The harder we attempt to accelerate these investments, the
more capital will be required into the materials required to deliver this
rewiring of the world’s energy system – a positive tailwind for selected
parts of the Mining sector.
Table 1: Key Energy Transition Regulations
Regulations Sector Agency Status Timing
EV Chinese Content Rules US Automobiles Treasury Proposed Mid-2024
Auto Emissions US Automobiles EPA Proposed ~1Q 2024
Clean Hydrogen Subsidy Guidance US Energy Treasury Proposed ~1Q 2024
Methane Capture Requirements US Energy EPA Finalised 2-yrs for compliance
Power Plant Emissions US Energy/Utilities EPA Proposed ~2Q 2024
Particulate Limits US Utilities EPA Proposed Late-2024
Sustainable Aviation Fuel Subsidy Guidance US Transportation Treasury TBC 1 Proposed end of year 2024
EU package on CCUS Energy/Utilities/Materials European Commission Proposed Feb-2024
EU 2040 Climate & GHG Targets All European Commission Proposed Feb-2024
EU Carbon Border Adjustment Mechanism All European Commission Finalised In-progress
Source: Wolfe Equities Research, December 2023. European Commission.
1 To be Confirmed.
There is significant upside skew to traditional energy markets as reinvestment
into new supply remains below where we see demand in the coming years. Spare
capacity has improved, but politically-enforced curtailments may be hard to
manage as evidenced by Russian production since sanctions were imposed. This
situation could be compounded by a dwindling US Strategic Petroleum Reserve.
Rapid consolidation in the Traditional Energy sector continues to underpin
disciplined reinvestment into incrementally lower carbon intensity barrels
paving the way for attractive cash returns and modest, profitable growth.
TOM HOLL AND MARK HUME
BLACKROCK INVESTMENT MANAGEMENT (UK) LIMITED
30 January 2024
Distribution of investments as at 30 November 2023
Asset allocation – Geography
Global 1 57.9%
United States 15.8%
Canada 9.1%
Brazil 4.9%
Germany 3.2%
Latin America 2 3.0%
France 2.5%
Australia 1.3%
Africa 1.0%
United Kingdom 0.8%
Ireland 0.5%
1 Global relates to companies having businesses and operations in
multiple countries and territories.
2 Latin America represents Argentina and Ecuador.
Source: BlackRock.
Asset allocation – Commodity/sub-sectors
Mining 44.5%
Traditional Energy 30.6%
Energy Transition 24.9%
Energy Transition 24.9%
Energy Efficiency 9.2%
Electrification 8.0%
Renewables 4.3%
Transport 3.4%
Traditional Energy 30.6%
Exploration & Production 13.2%
Integrated 12.6%
Distribution 2.4%
Oil Services 1.9%
Refining & Marketing 0.5%
Mining 44.5%
Diversified 23.8%
Copper 6.9%
Gold 3.2%
Industrial Minerals 2.8%
Steel 2.6%
Aluminium 2.1%
Uranium 1.7%
Nickel 1.5%
Platinum Group Metals 0.3%
Tin -0.4%
Source: BlackRock.
TEN LARGEST INVESTMENTS
Together, the ten largest investments represent 36.3% of the Company’s
portfolio as at 30 November 2023 (2022: 36.8%).
1 ► Glencore (2022: 1st)
Diversified mining group
Market value: £8,301,000
Share of investments: 4.8% (2022: 7.3%)
One of the world’s largest globally diversified natural resources groups.
The group’s operations include approximately 150 mining and metallurgical
sites and oil production assets. Glencore’s mined commodity exposure
includes copper, cobalt, nickel, zinc, lead, ferroalloys, aluminium, iron ore
gold and silver.
2 ▲ BHP (2022: 3rd)
Diversified mining group
Market value: £8,210,000
Share of investments: 4.7% (2022: 4.2%)
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. BHP also has significant interests in oil, gas and liquefied natural
gas.
3 ▼ Vale (2022: 2nd)
Diversified mining group
Market value: £8,032,000
Share of investments: 4.6%1 (2022: 4.4%)
One of the largest mining groups in the world, with operations in 30
countries. Vale is the world’s largest producer of iron ore and iron ore
pellets, and the world’s largest producer of nickel. The group also produces
manganese ore, ferroalloys, metallurgical and thermal coal, copper, platinum
group metals, gold, silver, cobalt, potash, phosphates and other fertiliser
nutrients.
4 ▲ Rio Tinto (2022: 59th)
Diversified mining group
Market value: £7,729,000
Share of investments: 4.4%2 (2022: 0.4%)
One of the world’s leading mining companies. The group’s primary product
is iron ore, but it also produces aluminium, copper, diamonds, gold,
industrial minerals and energy products.
5 ▲ Shell (2022: 6th)
Integrated oil group
Market value: £6,581,000
Share of investments: 3.8% (2022: 3.2%)
Shell is one of the largest integrated energy companies globally with five
main operating segments: Integrated Gas, Upstream, Marketing, Chemicals and
Products, and Renewables and Energy Solutions. The company has a high-quality,
gas/liquified natural gas (LNG)-weighted portfolio. Shell owns the largest
portfolio of global LNG supplies, which is a critical long-term bridge to help
the world abate from highly polluting coal power generation. Under its
‘Powering Progress’ strategy, Shell is committing a third or more of its
capital expenditure into renewables and energy solutions. These include
electrical charging platforms, wind power generation and nature-based carbon
offsetting.
6 ▲ ExxonMobil (2022: n/a)
Integrated oil group
Market value: £6,537,000
Share of investments: 3.7% (2022: n/a)
An American multinational oil and gas corporation. They continue to evolve to
meet growing global demand for oil, natural gas and refined products and plan
to play a role in the energy transition.
7 ▲ NextEra Energy (2022: 9th)
Electrification
Market value: £4,769,000
Share of investments: 2.7% (2022: 2.5%)
NextEra Energy is America’s premier clean energy leader and the world’s
largest producer of wind and solar energy. The company has a dominant market
share in a structurally growing renewables market.
8 ▲ Canadian Natural Resources (2022: 10th)
Exploration & Production
Market value: £4,758,000
Share of investments: 2.7% (2022: 2.5%)
A senior Canadian oil and natural gas company. The company has a diversified
portfolio of assets in North America, the UK North Sea and Offshore Africa.
9 ▲ RWE (2022: 20th)
Electrification
Market value: £4,356,000
Share of investments: 2.5% (2022: 1.9%)
A multinational energy company that generates and trades electricity in the
Asia-Pacific region, Europe and the United States. The company is Germany’s
leading clean energy utility company, with a massive pivot to renewables. The
company is purchasing renewable power assets and selling its legacy fossil
fuel business. RWE has a clear strategy to continue to increase exposure to
renewable energy.
10 ▲ Hess (2022: 15th)
Exploration & Production
Market value: £4,161,000
Share of investments: 2.4% (2022: 2.0%)
An American global independent energy company, involved in the exploration and
production of crude oil and natural gas.
1 1.3% relates to interest in Vale shareholder debentures.
2 (0.1)% relates to an equity option in Rio Tinto.
All percentages reflect the value of the holding as a percentage of total
investments.
Arrows indicate the change in relative ranking of the position in the
portfolio compared to its ranking as at 30 November 2022.
Percentages in brackets represent the value of the holding as at 30 November
2022.
INVESTMENTS AS AT 30 NOVEMBER 2023
Main Market % of
geographic value investments
exposure £’000
Mining
Diversified
Glencore Global 8,301 4.8
BHP Global 8,210 4.7
Vale Debentures* Brazil 5,685 } 4.6
Vale Brazil 2,347
Rio Tinto Global 7,839 } 4.4
Rio Tinto Put Option 19/01/24 Global (110)
Teck Resources Global 3,625 2.1
Abaxx Technologies Global 3,438 2.0
Trident Global 1,391 0.8
Anglo American Global 665 0.4
---------------- ----------------
41,391 23.8
========== ==========
Copper
Filo Mining Latin America 3,887 2.2
First Quantum Minerals 6.875% 15/10/27 Global 1,326 } 1.9
First Quantum Minerals Global 814
First Quantum Minerals 6.875% 01/03/26 Global 778
First Quantum Minerals 7.5% 01/04/25 Global 188
Ivanhoe Electric United States 1,826 1.0
Solaris Resources Latin America 1,348 0.8
Freeport-McMoRan United States 1,152 0.7
Develop Global Australia 555 0.3
---------------- ----------------
11,874 6.9
========== ==========
Gold
Barrick Gold Global 2,463 1.4
Allied Gold Corporation 8.75% 07/09/2028 Africa 1,730 1.0
Wheaton Precious Metals Global 1,436 0.8
---------------- ----------------
5,629 3.2
========== ==========
Industrial Minerals
Albemarle Global 1,550 0.9
Nutrien United States 1,369 0.8
Bunge Global 1,090 0.6
Lynas Corporation Australia 916 0.5
CF Industries United States 45 –
---------------- ----------------
4,970 2.8
========== ==========
Steel
ArcelorMittal Global 2,375 1.4
Steel Dynamics United States 2,170 1.2
---------------- ----------------
4,545 2.6
========== ==========
Aluminium
Norsk Hydro Global 2,873 1.6
Alcoa Corp Global 804 0.5
---------------- ----------------
3,677 2.1
========== ==========
Uranium
Cameco Canada 2,898 1.7
---------------- ----------------
2,898 1.7
========== ==========
Nickel
Lifezone Metals Global 1,744 1.0
Nickel Mines Australia 858 0.5
---------------- ----------------
2,602 1.5
========== ==========
Platinum Group Metals
Bravo Mining Brazil 570 0.3
---------------- ----------------
570 0.3
========== ==========
Tin
LME Tin Future Dec 23 Global (780) (0.4)
---------------- ----------------
(780) (0.4)
========== ==========
Total Mining 77,376 44.5
========== ==========
Traditional Energy
Exploration & Production
Canadian Natural Resources Canada 4,758 2.7
Hess Global 4,161 2.4
ConocoPhillips Global 3,902 2.2
Arc Resources Canada 3,321 1.9
EOG Resources United States 2,806 1.6
Tourmaline Oil Canada 2,779 1.6
Orron Energy Global 725 0.4
Kosmos Energy United States 714 0.4
---------------- ----------------
23,166 13.2
========== ==========
Integrated
Shell Global 6,581 3.8
ExxonMobil Global 6,537 3.7
TotalEnergies Global 3,343 1.9
BP Global 2,317 1.3
Cenovus Energy Canada 2,159 1.2
Galp Energia Global 1,296 0.7
Gazprom** Russian Federation – –
---------------- ----------------
22,233 12.6
========== ==========
Distribution
Cheniere Energy United States 4,138 2.4
---------------- ----------------
4,138 2.4
========== ==========
Oil Services
Tenaris Global 807 0.5
TechnipFMC Global 775 0.4
Weatherford International Global 748 0.4
NOV Global 708 0.4
Patterson-UTI Energy United States 335 0.2
---------------- ----------------
3,373 1.9
========== ==========
Refining & Marketing
Valero Energy United States 926 0.5
---------------- ----------------
926 0.5
========== ==========
Total Traditional Energy 53,836 30.6
========== ==========
Energy Transition
Energy Efficiency
Schneider Electric Global 3,102 1.8
Ingersoll-Rand United States 2,787 1.6
Analog Devices Global 2,691 1.5
Trane Technologies United States 2,055 1.2
Johnson Controls Global 1,875 1.1
Soitec France 1,100 0.6
Kingspan Group Ireland 909 0.5
Texas Instruments Global 841 0.5
Nidec Corp Global 619 0.4
---------------- ----------------
15,979 9.2
========== ==========
Electrification
NextEra Energy United States 4,769 2.7
RWE Germany 4,356 2.5
EDP Renováveis Global 3,020 1.7
Sempra Energy United States 1,879 1.1
---------------- ----------------
14,024 8.0
========== ==========
Renewables
Vestas Wind Global 3,314 1.9
First Solar Global 2,173 1.2
SSE United Kingdom 1,317 0.8
Sunnova Energy International United States 659 0.4
---------------- ----------------
7,463 4.3
========== ==========
Transport
STMicroelectronics France 3,352 1.9
Samsung SDI Global 1,314 0.8
Infineon Technologies Germany 1,306 0.7
---------------- ----------------
5,972 3.4
========== ==========
Total Energy Transition 43,438 24.9
========== ==========
Total Portfolio 174,650 100.0
========== ==========
Comprising:
Equity and debt investments 175,540 100.5
Derivative financial instruments – written options (110) (0.1)
Derivative financial instruments – commodity futures (780) (0.4)
---------------- ----------------
174,650 100.0
========== ==========
* The investment in the Vale debenture is illiquid and has been valued using
secondary market pricing information provided by the Brazilian Financial and
Capital Markets Association (ANBIMA).
** The investment in Gazprom has been valued at a nominal value of £0.01 as
secondary listings of the depositary receipts on Russian companies have been
suspended from trading.
All investments are ordinary shares unless otherwise stated. The total number
of holdings (including options and commodity futures) at 30 November 2023 was
78 (2022: 68).
There was one open option (2022: one) and one open future (2022: none) as at
30 November 2023.
The equity and fixed income investment total of £175,540,000 (2022:
£206,394,000) above before the deduction of the negative option valuation of
£110,000 (2022: £55,000) and the negative futures contract valuation of
£780,000 (2022: £nil) represents the Group’s total investments held at
fair value as reflected in the Consolidated and Parent Company Statements of
Financial Position below. The table above excludes cash and gearing; the level
of the Group’s gearing may be determined with reference to the bank
overdraft of £17,862,000 (2022: £14,345,000) and cash and cash equivalents
of £5,276,000 (2022: £6,214,000) that are also disclosed in the Consolidated
and Parent Company Statements of Financial Position. Details of the AIC
methodology for calculating gearing are given in the Glossary contained within
the Annual Report and Accounts.
As at 30 November 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
30 November 2023. The aim of the Strategic Report is to provide shareholders
with the information required to enable them to assess how the Directors have
performed in their duty to promote the success of the Company for the
collective benefit of shareholders.
The Chairman’s Statement together with the Investment Manager’s Report and
the Section 172 Statement set out how the Directors promote the success of the
Company below form part of the Strategic Report. The Strategic Report was
approved by the Board at its meeting on 30 January 2024.
BUSINESS AND MANAGEMENT OF THE COMPANY
BlackRock Energy and Resources Income Trust plc (the Company) is an investment
trust company that has a premium listing on the London Stock Exchange. Its
principal activity is portfolio investment and option writing. The Company’s
wholly owned subsidiary is BlackRock Energy and Resources Securities Income
Company Limited (together ‘the Group’). Its principal activity is
investment dealing.
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. In accordance with the Alternative Investment
Fund Managers’ Directive (AIFMD) the Company is an Alternative Investment
Fund (AIF). BlackRock Fund Managers Limited (the Manager) is the Company’s
Alternative Investment Fund Manager (AIFM). 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 the Manager, which in turn
subdelegates these services to the Fund Accountant, The Bank of New York
Mellon (International) Limited. The Company 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 Accounts.
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. There is a clear division of responsibility between the Board and the
Manager. Matters reserved for the Board include setting the Company’s
strategy, including its investment objective and policy, setting limits on
gearing, capital structure, governance, and appointing and monitoring of the
performance of service providers, including the Manager. As the Company’s
business model follows that of an externally managed investment trust, it does
not have any employees and outsources its activities to third party service
providers including the Manager who is the principal service provider.
INVESTMENT OBJECTIVE
The Company’s objectives are to achieve an annual dividend target and, over
the long term, capital growth by investing primarily in securities of
companies operating in the mining and energy sectors.
INVESTMENT POLICY AND STRATEGY
The Company seeks to achieve its objectives through a focused portfolio,
consisting of approximately thirty to one hundred and fifty securities.
Although the Company has the flexibility to invest within this range, at 30
November 2023 the portfolio consisted of 72 investments (including one open
option contract and one open future contract), and the detailed portfolio
listing is provided above.
There are no restrictions on investment in terms of geography or sub-sector
and, in addition to equities, other types of securities, such as convertible
bonds and debt issued primarily by mining or energy companies, may be
acquired. Although most securities will be quoted, listed or traded on an
investment exchange, up to 10% of the gross assets of the Group, at the time
of investment, may be invested in unquoted securities. Investment in
securities may be either direct or through other funds, including other funds
managed by BlackRock or its associates, with up to 15% of the portfolio being
invested in other listed investment companies, including listed investment
trusts. In order to comply with the current Listing Rules, the Company will
not invest more than 10% of its gross asset value in other listed closed-ended
investment funds which themselves may invest more than 15% of their gross
assets in other listed closed-ended investment funds. This restriction does
not form part of the Company’s investment policy. Up to 10% of the gross
assets of the Group, at the time of investment, may be invested in physical
assets, such as gold and in securities of companies that operate in the
commodities sector other than the mining and energy sectors.
No more than 15% of the gross assets of the Group will be invested in any one
company as at the date any such investment is made and the portfolio will not
own more than 15% of the issued shares of any one company, other than the
Company’s subsidiary. The Group may deal in derivatives, including options
and futures, up to a maximum of 30% of the Group’s assets for the purposes
of efficient portfolio management and to enhance portfolio returns. In
addition, the Group is also permitted to enter into stock lending arrangements
up to a maximum of 33.3% of the total asset value of the portfolio.
The Group may, from time to time, use borrowings to gear its investment policy
or in order to fund the market purchase of its own ordinary shares. This
gearing typically is in the form of an overdraft or short-term facility, which
can be repaid at any time. Under the Company’s Articles of Association, the
Board is obliged to restrict the borrowings of the Company to an aggregate
amount equal to 40% of the value of the gross assets of the Group. However,
borrowings are not anticipated to exceed 20% of gross assets at the time of
drawdown of the relevant borrowings.
The Group’s financial statements are maintained in British Pound Sterling.
Although many investments are denominated and quoted in currencies other than
British Pound Sterling, the Company does not intend to employ a hedging policy
against fluctuations in exchange rates but may do so in the future if
circumstances warrant implementing such a policy.
No material change will be made to the investment policy without shareholder
approval.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG) IMPACT
The Board’s ESG approach is set out in the Annual Report and Accounts. The
direct impact of the Company’s activities is minimal as it has no employees,
premises, physical assets or operations either as a producer or a provider of
goods or services. Neither does it have customers. Its indirect impact occurs
through the investments that it makes, and this is managed through
BlackRock’s approach to ESG integration.
PERFORMANCE
Details of the Company’s performance for the year are 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 4.39p per share
(2022: 4.99p). Details of dividends paid and declared in respect of the year,
together with the Company’s dividend policy, are set out in the Chairman’s
Statement.
FUTURE PROSPECTS
The Board’s main focus is the achievement of an annual dividend target and,
over the long term, capital growth. The future of the Company is dependent
upon the success of the investment strategy. The outlook for the Company is
discussed in both the Chairman’s Statement on above and in the Investment
Manager’s Report above.
EMPLOYEES, SOCIAL, COMMMUNITY AND HUMAN RIGHTS ISSUES
The Company has no employees, and all the Directors are non-executive,
therefore, there are no disclosures to be made in respect of employees. The
Company believes that it is in shareholders’ interests to consider
environmental, social and governance factors and human rights issues when
selecting and retaining investments. Details of the Company’s policy on
socially responsible investment are set out in the Annual Report and Accounts.
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. 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 AND GENDER REPRESENTATION
The Directors of the Company are set out in the Governance structure and
Directors’ biographies contained within the Annual Report and Accounts. All
the Directors held office throughout the year with the exception of Mrs Anne
Marie Cannon (who was appointed to the Board on 16 January 2024). The Board
consists of two male Directors and three female Directors.
KEY PERFORMANCE INDICATORS
A number of performance indicators (KPIs) are used to monitor and assess the
Company’s success in achieving its objectives and to measure its progress
and performance. The principal KPIs are described below:
PERFORMANCE
At each meeting the Board reviews the performance of the portfolio as well as
the net asset value and share price for the Company and compares this to the
performance of other companies in the peer group. The Company does not have a
benchmark; however, the Board also reviews performance in the context of the
blended performance of the MSCI ACWI Metals and Mining Index, MSCI World
Energy Index and the S&P Global Clean Energy Index and a 40:30:30 composite of
the three indices effective from 1 August 2023. The Board also monitors
performance relative to a peer group of commodities and natural resources
focused funds and also regularly reviews the Company’s performance
attribution analysis to understand how performance was achieved. This provides
an understanding of how components such as sector exposure, stock selection
and asset allocation impacted performance. Information on the Company’s
performance is given in the performance record contained within the Annual
Report and Accounts and the Chairman’s Statement and Investment Manager’s
Report above.
SHARE RATING
The Board monitors the level of the Company’s premium or discount to NAV on
an ongoing basis and considers strategies for managing any premium or
discount. In the year to 30 November 2023, the Company’s share price to NAV
traded in the range of a discount of 13.0% to a premium of 3.6% on a cum
income basis. The average discount for the year was 6.4%. A total of 1,230,000
new shares were issued during the year and further details are given in the
Chairman’s Statement. 4,200,000 shares were bought back into treasury during
the year. Details of shares issued or bought back since the year end date are
given in note 16 contained within the Annual Report and Accounts.
Further details setting out how the discount or premium at which the
Company’s shares trade is calculated are included in the Glossary contained
within the Annual Report and Accounts.
ONGOING CHARGES
The ongoing charges represent the Company’s management fee and all other
recurring operating expenses, excluding finance costs, direct transaction
costs, custody transaction charges, VAT recovered, taxation, prior year
expenses written back and certain non-recurring items, expressed as a
percentage of average daily net assets. The ongoing charges are based on
actual costs incurred in the year as being the best estimate of future costs.
The Company’s Manager has also agreed to cap ongoing charges by rebating a
portion of the management fee to the extent that the Company’s ongoing
charges exceed 1.25% of average net assets. The Board reviews the ongoing
charges and monitors the expenses incurred by the Company on an ongoing basis.
A definition setting out in detail how the ongoing charges ratio is calculated
is included in the Glossary contained within the Annual Report and Accounts.
The Company’s ongoing charges was 1.19% for the year ended 30 November 2023
(there was no management fee rebate due for the year).
DIVIDEND TARGET AND INCOME GENERATION
The level of income is considered at each meeting and the Board receives
detailed income forecasts. The Board also monitors the risks and returns from
option writing, and regularly reviews the Company’s levels of distributable
reserves.
The table below sets out the key KPIs for the Company. These KPIs fall within
the definition of ‘Alternative Performance Measures’ (APMs) 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 Accounts.
Key Performance Indicators Year ended Year ended
30 November 30 November
2023 2022
Net asset value total return 1,2 -11.8% 44.5%
Share price total return 1,2 -15.2% 44.8%
Discount to net asset value (at year end) 2,3 10.7% 6.8%
Revenue return per share 4.39p 4.99p
Dividends per share 4.425p 4.400p
Ongoing charges 2, 4 1.19% 1.13%
1 This measures the Company’s NAV and share price total returns, which
assumes dividends paid by the Company have been reinvested.
2 Alternative Performance Measures, see Glossary contained within the Annual
Report and Accounts.
3 This is the difference between the share price and the cum-income NAV per
share.
4 Ongoing charges represent the management fee and all other recurring
operating expenses excluding finance costs, direct transaction costs, custody
transaction charges, VAT recovered, taxation, prior year expenses written back
and certain non-recurring items, expressed as a percentage of average daily
net assets.
PRINCIPAL RISKS
The Company is exposed to a variety of risks and uncertainties. The Board has
in place a robust process to identify, assess and monitor the principal risks
of the Company. A core element of this process is the Company’s risk
register which identifies the risks facing the Company and assesses the
likelihood and potential impact of each risk and the controls established for
mitigation. A residual risk rating is then calculated for each risk.
The risk register is regularly reviewed, and the risks reassessed. The risk
environment in which the Company operates is also monitored and regularly
appraised. New risks are also added to the register as they are identified
which ensures that the document continues to be an effective risk management
tool.
The risk register, its method of preparation and the operation of key controls
in the Manager’s and third-party service providers’ systems of internal
control are reviewed on a regular basis by the Audit and Management Engagement
Committee. In order to gain a more comprehensive understanding of the
Manager’s and other third-party service providers’ risk management
processes, and how these apply to the Company’s business, BlackRock’s
internal audit department provides an annual presentation to the Audit and
Management Engagement Committee Chairman setting out the results of testing
performed in relation to BlackRock’s internal control processes. The Audit
and Management Engagement Committee also periodically receives presentations
from BlackRock’s Risk & Quantitative Analysis teams, and reviews Service
Organisation Control (SOC 1) reports from BlackRock and other key service
providers. The Custodian is appointed by the Company’s Depositary and does
not have a direct contractual relationship with the Company.
The Board has undertaken a robust assessment of both the principal and
emerging risks facing the Company, including those that would threaten its
business model, future performance, solvency or liquidity. The risk that
unforeseen or unprecedented events including (but not limited to) heightened
geo-political tensions such as the war in Ukraine, high inflation and the
current cost of living crisis has had a significant impact on global markets.
The Board has taken into consideration the risks posed to the Company by these
events and incorporated them into the Company’s risk register. The risks
identified by the Board have been described in the table that follows,
together with an explanation of how they are managed and mitigated. Emerging
risks are considered by the Board as they come into view and are incorporated
into the existing review of the Company’s risk register. Additionally, the
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. The Board will continue to assess these risks on an
ongoing basis. In relation to the UK Code, the Board is confident that the
procedures that the Company has put in place are sufficient to ensure that the
necessary monitoring of risks and controls has been carried out throughout the
reporting period.
The principal risks and uncertainties faced by the Company during the
financial year, together with the potential effects, controls and mitigating
factors are set out in the following table.
INVESTMENT PERFORMANCE
Principal risk
The returns achieved are reliant primarily upon the performance of the
portfolio.
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;
· widening discount;
· a reduction or permanent loss of capital; and
· dissatisfied shareholders and reputational damage.
The Board is also cognisant of the long-term risk to performance from
inadequate attention to ESG issues, and in particular the impact of climate
change. More detail in respect of these risks can be found in the AIFMD Fund
Disclosures document available on the Company’s website at
www.blackrock.com/uk/individual/literature/policies/itc-disclosure-blackrock-energy-and-resources-income-trust-plc.pdf.
Mitigation/Control
To manage this risk the Board:
· regularly reviews the Company’s investment mandate and long-term
strategy;
· where necessary, the Board seeks shareholder approval to both buyback and
issue shares to help control the level of discount/premium at which the shares
trade;
· has set investment restrictions and guidelines which the Investment
Manager monitors and regularly reports on;
· receives from the Investment Manager a regular explanation of stock
selection decisions, portfolio exposure, gearing and any changes in gearing
and the rationale for the composition of the investment portfolio; and
· 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.
ESG analysis is integrated in the Manager’s investment process, as set out
in the Annual Report and Accounts. This is monitored by the Board.
INCOME/DIVIDEND
Principal risk
The ability to pay dividends, and future dividend growth, is dependent on a
number of factors including the level of dividends earned from the portfolio
and income generated from the option writing strategy. Income returns from the
portfolio are dependent, among other things, upon the Company successfully
pursuing its investment policy.
Any change in the tax treatment of dividends or interest received by the
Company including as a result of withholding taxes or exchange controls
imposed by jurisdictions in which the Company invests may reduce 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 has the ability to make dividend distributions out of special
reserves and capital reserves as well as revenue reserves to support any
dividend target. These reserves totalled £91.0 million at 30 November 2023.
In setting the dividend target each year, the Board is mindful of the balance
of shareholder returns between income and capital.
GEARING
Principal risk
The Company’s investment strategy may involve the use of gearing, including
borrowings.
Gearing may be generated through borrowing money or increasing levels of
market exposure through the use of derivatives. The Company currently has an
overdraft facility with The Bank of New York Mellon (International) Limited.
The use of gearing exposes the Company to the risk associated with borrowing.
Gearing provides an opportunity for greater returns where the return on the
Company’s underlying assets exceeds the cost of borrowing. It is likely to
have the opposite effect where the return on the underlying assets is below
the cost of borrowings. Consequently, the use of borrowings by the Company may
increase the volatility of the NAV.
Mitigation/Control
The Company’s Articles of Association limit borrowings to an aggregate
amount equal to 40% of the value of the gross assets of the Company. However,
to further manage this risk the Board does not anticipate borrowings will
exceed 20% of gross assets at the time of drawdown.
The use of derivatives, including options and futures has been limited to a
maximum of 30% of the Group’s assets.
The Investment Manager will only use gearing when confident that market
conditions and opportunities exist to enhance investment returns.
The Investment Manager reports to the Board on a regular basis the levels of
gearing in place as compared to limits set by the Board under the investment
policy and by the Manager as Alternative Investment Fund Manager (AIFM) under
the Alternative Investment Fund Managers’ Directive, as retained and
onshored in the UK (AIFMD).
The Board monitors gearing levels and will raise any queries or concerns in
respect of changes in the gearing level with the Investment Manager.
LEGAL AND REGULATORY COMPLIANCE
Principal risk
The Company has been approved by HM Revenue & Customs as an investment trust,
subject to continuing to meet the relevant eligibility conditions and operates
as an investment trust in accordance with Chapter 4 of Part 24 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.
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.
Amongst other relevant laws and regulations, the Company is required to comply
with the provisions of the Companies Act 2006, the Alternative Investment Fund
Managers’ Directive, the Market Abuse Regulation, the UK Listing Rules,
international sanctions and the FCA’s Disclosure Guidance and Transparency
Rules.
Mitigation/Control
The Investment Manager monitors investment movements 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.
Compliance with the accounting rules affecting investment trusts is carefully
and regularly monitored.
The Company Secretary and the Company’s professional advisers provide
regular reports to the Board for their review in respect of compliance with
all applicable rules and regulations.
Following authorisation under the AIFMD, the Company and its appointed AIFM
are subject to the risks that the requirements of this Directive are not
correctly complied with.
The Board and the AIFM also monitor changes in government policy and
legislation which may have an impact on the Company.
The Market Abuse Regulation came into force 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
The Company relies on the services provided by third parties.
Accordingly, it is dependent on the control systems of the Manager and The
Bank of New York Mellon (International) Limited (who act as both Depositary,
Custodian and Fund Accountant and who maintain the Company’s assets,
settlement and accounting records). The Company’s share register is
maintained by the Registrar, Computershare Investor Services PLC. The security
of the Company’s assets, dealing procedures, accounting records and
adherence to regulatory and legal requirements depend on the effective
operation of the systems of the third-party service providers.
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 could prevent
the accurate reporting and monitoring of the Company’s financial position.
Inadequate succession arrangements, particularly of the Manager, could disrupt
the level of service provided.
Mitigation/Control
The Fund Accountant’s and the Manager’s internal control processes are
regularly tested and monitored throughout the year and are evidenced through
their 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 provided to the
Audit and Management Engagement Committee.
The Company’s financial 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.
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.
The Board considers the Manager’s succession plans in so far as they affect
the services provided to the Company.
MARKET
Principal risk
Market risk arises from volatility in the prices of the Company’s
investments. The price of shares of companies in the mining, traditional
energy and energy transition sectors can be volatile and this may be reflected
in the NAV and market price of the Company’s shares.
The Company invests in the mining, traditional energy and energy transition
sectors in many countries globally and will also be subject to
country-specific risk. A lack of growth in world or country-specific
industrial production may adversely affect metal and energy prices.
Companies operating within the sectors in which the Company invests will be
impacted by climate change and by new legislation governing climate change and
environmental issues, which may have a negative impact on their valuation and
share price. Market risk includes the potential impact of events which are
outside the Company’s control, including (but not limited to) heightened
geo-political tensions and military conflict, a global pandemic and high
inflation.
There is the potential for the Company to suffer loss through holding
investments in the face 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.
Under the Company’s investment policy, the Investment Manager has the
ability to invest in energy transition stocks and is mindful of the impact of
any shift in energy consumption towards less carbon intensive energy supply.
This is taken into account by the Investment Manager in building a well
diversified portfolio.
The Board also recognises the benefits of a closed-end fund structure in
extremely volatile markets such as those experienced with the Russia- Ukraine
conflict, and more recently, the conflict in the Middle East. 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, restrictions and impacts on
securities and markets following the Russian invasion of the Ukraine and
market stress, the ability of a closed-end fund structure to remain invested
for the long term enables the Portfolio Managers to adhere to disciplined
fundamental analysis from a bottom-up perspective and be ready to respond to
dislocations in the market as opportunities present themselves.
FINANCIAL
Principal risk
The Company’s investment activities expose it to a variety of financial
risks that include interest rate risk and foreign currency risk.
The Company invests in both British Pound Sterling and non-British Pound
Sterling denominated securities. Consequently, the value of investments in the
portfolio made in non-British Pound Sterling currencies will be affected by
currency movements.
Mitigation/Control
Details of these risks are disclosed in note 18 to the Financial Statements,
together with a summary of the policies for managing these risks.
Viability statement
In accordance with provision 31 of the 2018 UK Corporate Governance Code, the
Directors have assessed the prospects of the Company over a longer period than
the twelve months referred to by the ‘Going Concern’ guidelines. The Board
is cognisant of the uncertainty surrounding the potential duration of the
conflicts in Russia-Ukraine and Middle East, its impact on the global economy
and the prospects for many of the Company’s portfolio holdings.
Notwithstanding these crises, and given the factors stated below, the Board
expects the Company to continue for the foreseeable future and has therefore
conducted this review for a period of five years. This is generally the
investment holding period investors consider while investing in the sector.
The Board conducted this review for the period up to the AGM in 2029.
The Board has also considered a number of other factors in its assessment,
including:
· portfolio liquidity;
· setting the investment strategy to fulfill the Company’s objective; and
monitoring the performance of the Investment Manager and the implementation of
the investment strategy. The Board regularly reviews the Company’s
investment mandate and long-term strategy; it has set investment restrictions
and guidelines which the Investment Manager monitors and regularly reports to
the Board;
· the Company’s revenue and expense forecasts. The Board is confident that
the Company’s business model remains viable and that there are sufficient
resources to meet all liabilities as they fall due for the period under
review;
· the Company’s borrowing facility and the fact that the Company continues
to meet its financial covenants in respect of this facility;
· the long-term risk to performance from inadequate attention to ESG issues,
and in particular the impact of climate change. ESG analysis is integrated in
the Manager’s investment process. This is monitored by the Board;
· the principal risks and uncertainties as set out above and the fact that
the Company has appropriate controls and processes in place to manage these
and to maintain its operating model;
· the operational resilience of the Company and its key service providers
and their ability to continue to provide a good level of service for the
foreseeable future;
· the effectiveness of business continuity plans in place for the Company
and key service providers; and
· the level of income generated by the Company and future income forecasts.
In its assessment of the viability of the Company the Directors have noted
that:
· the Company predominantly invests in highly liquid, large listed companies
so its assets are readily realisable;
· the Company has gearing facilities in place and no concerns around
facilities, headroom or covenants;
· the Company’s forecasts for revenues, expenses and liabilities are
relatively stable, it has largely fixed overheads which comprise a small
percentage of net assets and ongoing charges are capped at 1.25% of average
net asset value; and
· the business model should remain attractive for longer than five years
unless there is significant economic or regulatory change.
The Directors have also reviewed:
· the impact of a significant fall in global commodity equity markets on the
value of the Company’s investment portfolio;
· the ability of portfolio companies to pay dividends, and the Company’s
portfolio yield and ability to meet its dividend target over the longer term;
· the ongoing relevance of the Company’s investment objective, business
model and investment policy in the current environment; and
· the level of demand for the Company’s shares.
Based on the results of their analysis, the Directors have concluded that
there is 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.
SECTION 172 STATEMENT: PROMOTING THE SUCCESS OF BLACKROCK ENERGY AND RESOURCES
INCOME TRUST PLC
The Companies (Miscellaneous Reporting) Regulations 2018 require Directors to
explain in detail how they have discharged their duties under Section 172(1)
of the Companies Act 2006 in promoting the success of their companies for the
benefit of members as a whole. This enhanced disclosure covers how the Board
has engaged with and understands the views of stakeholders and how
stakeholders’ needs have been taken into account, the outcome of this
engagement and the impact that it has had on the Board’s decisions.
As the Company is an externally managed investment company and does not have
any employees or customers, the Board considers the main stakeholders in the
Company to be the shareholders, key service providers (being the Manager and
Investment Manager, the Custodian, Depositary, Registrar and Broker) and
investee companies. The reasons for this determination, and the Board’s
overarching approach to engagement, are set out in the table below.
Stakeholders
Shareholders
Continued shareholder support and engagement are critical to the continued
existence of the Company and the successful delivery of its long-term
strategy. The Board is focused on fostering good working relationships with
shareholders and on understanding the views of shareholders in order to
incorporate them into the Board’s strategy and objectives in delivering
long-term growth and income.
Manager and Investment Manager
The Board’s main working relationship is with the Manager, who is
responsible for the Company’s portfolio management (including asset
allocation, stock and sector selection) and risk management, as well as
ancillary functions such as administration, secretarial, accounting and
marketing services. The Manager has sub-delegated portfolio management to the
Investment Manager. Successful management of shareholders’ assets by the
Investment Manager is critical for the Company to successfully deliver 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 Financial Conduct Authority
(FCA) and trade on the London Stock Exchange’s (LSE) main market for listed
securities, the Board relies on a diverse range of 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 service 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 Manager’s stewardship activities and receives regular
feedback from the 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.
However, the Board recognises that the sectors in which the Company invests
are undergoing structural changes, with a shift in the energy sector away from
carbon-based energy supplies towards alternative and renewable energy sources.
The extractive industries in which the companies in the Company’s investment
universe operate are facing ethical and sustainability issues that cannot be
ignored by asset managers and investment companies alike. More than ever,
consideration of material ESG information and sustainability risks is an
important element of the investment process. 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 integral
to the longer-term delivery of growth in capital and income and has worked
very closely with the Manager throughout the year to regularly review the
Company’s performance, investment strategy and underlying policies to ensure
that the Company’s investment objective continues to be met in an effective,
responsible way that is transparent to current and future investors.
In addition to six scheduled Board meetings a year, the Board holds a Strategy
Day which is dedicated to an in depth review of the Company’s strategy in
conjunction with key advisors including the Company’s broker, public
relations and marketing teams and members of BlackRock’s portfolio
management and risk analytics teams.
The Manager’s approach to the consideration of ESG factors in respect of the
Company’s portfolio, as well as its engagement with investee companies to
encourage the adoption of sustainable business practices which support
long-term value creation, are kept under review by the Board.
The Manager reports to the Board in respect of its consideration of ESG
factors and how these are integrated into the investment process; a summary of
BlackRock’s approach to ESG integration is set out in the Annual Report and
Accounts.
Impact
The portfolio activities undertaken by the Investment Manager can be found in
the Investment Manager’s Report above.
The Board does not formally benchmark the Company’s performance against
mining and energy sector indices because meeting a specific dividend target is
not within the scope of these indices and also because no index appropriately
reflects the Company’s blended exposure to the Energy (including the energy
transition) and mining sectors. For internal monitoring purposes, however, the
Board compares the performance of the portfolio against a bespoke internal
mining and energy composite index.
Details regarding the Company’s Key Performance Indicators can be found in
this Strategic Report.
Management of Share Rating
Issue
The Board recognises the importance to shareholders that the market price of
the Company’s shares should not trade at either a significant discount or
premium to the NAV. One of the Board’s long-term strategic aspirations is
that the Company’s shares should trade consistently at a price close to the
NAV per share.
Engagement
The Board monitors the Company’s discount on an ongoing basis and meets with
the Manager and the Company’s Broker on a regular basis to discuss methods
to manage the discount. A range of discount control mechanisms have been
considered and the benefits and disadvantages of these have been discussed at
length.
The Board is also prepared to issue shares into the market to meet demand as
required and avoid shares moving to trade at an excessive premium. The
Company’s shares moved to trade at a sustained premium in the first half of
2023, and the Company issued new shares into market demand to manage this
following consultation with the manager and the broker. Where necessary, the
Board sought shareholder approval to both buy-backs and issuance. Resolutions
were proposed, and passed, at the Annual General Meeting on 13 March 2023 and
a General Meeting on 3 March 2023.
The Board notes that all share issues have been and will continue to be made
at premiums to the prevailing NAV per share, such that all such transactions
are accretive to the NAV and NAV per share so that existing shareholders are
protected from any value/economic dilution.
In addition, the Board has worked closely with the Manager to develop the
Company’s marketing strategy, with the aim of ensuring effective
communication with existing shareholders and to attract new shareholders to
the Company in order to improve liquidity in the Company’s shares and to
sustain the share rating of the Company.
Impact
The Company’s average discount for the year to 30 November 2023 was 6.4%
(year to 30 November 2022: 2.9%) and as at 26 January 2024 the discount stood
at 11.2%. This compares to an average discount for the AIC Commodities and
Natural resources sector of 13.7% at 30 November 2023 and 12.7% at 31
December 2023.
The share issuance transactions in the year under review resulted in an
increase of £1.8 million (2022: an increase of £22.6 million) in the
Company’s assets under management.
However, the Company has bought back 4,200,000 shares to be held in treasury
for a total consideration of £4,837,000 at an average discount of 10.0%.
Collectively, this share buyback activity undertaken in 2023 contributed 0.3%
to the NAV per share return over the year. The share buyback transactions in
the year resulted in a decrease of £4.8 million in the Company’s assets
under management.
The Company contributed during the year to a focused investment trust sales
and marketing initiative operated by BIM (UK) on behalf of the investment
trusts under its management. For the year ended 30 November 2023, the
Group’s contribution to the consortium element of the initiative, which
enables the trusts to achieve efficiencies by combining certain sales and
marketing activities, represented 0.025% per annum of its net assets (£184.9
million) as at 31 December 2022, and this contribution was matched by BIM
(UK). This marketing activity was one factor contributing to increased demand
for the Company’s shares, enabling it to grow in size and resulting in a
lower operating charges ratio and greater liquidity.
Dividend target
Issue
A key element of the Company’s investment objective is to achieve an annual
dividend target. The Board is cognisant that portfolio investments with a high
yield may have lower capital growth, and that seeking to ensure that any
dividend target is covered by current year dividend revenue may result in a
lower total return. Conversely, a move to invest a higher proportion of the
portfolio in higher growth investments (including certain energy transition
stocks) may result in a lower yielding portfolio.
Engagement
The Board reviews income forecasts and option writing activity in conjunction
with the Manager to determine the most effective approach for meeting the
dividend target whilst generating the optimal level of total return for
shareholders.
The Board aims to meet the annual target dividend primarily from a mix of
dividend income from the portfolio and revenue reserves, although this will be
supported by the distribution of the Company’s other substantial
distributable reserves (£86.4 million at 30 November 2023) if required.
Impact
Since the year end, the Board has announced that the annual dividend target
will increase to 4.500 pence per share for the year to 30 November 2024.
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: this includes
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 Broker 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, its 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
Broker on an ongoing basis.
Impact
All performance evaluations were performed on a timely basis and the Board
concluded that all key third-party service providers, including the Manager
were operating effectively and providing a good level of service.
Board composition
Issue
The Board is committed to ensuring that its own composition brings an
appropriate balance of knowledge, experience and skills, and that it is
compliant with best corporate governance practice under the UK Code, including
guidance on tenure and the composition of the Board’s committees.
Engagement
The Board reviews succession planning on an ongoing basis. A new Director,
Anne Marie Cannon, was appointed after the year end as part of a recruitment
process that was initiated in 2023. As part of this process, the 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. The services of an external search
consultant, Cornforth Consulting Limited, was used to identify potential
candidates.
The Board remain focused on best Corporate Governance Practice, and in
particular the recommendation under the UK Code that Directors’ tenure is
limited to nine years. While the Board does not have a formal limit on tenure,
Dr Bell will not be standing for re-election at the Annual General Meeting to
be held on 20 March 2024, noting that her tenure would exceed nine years with
effect from December 2023.
Impact
The Board appointed Mrs Anne Marie Cannon as a Director of the Company with
effect from 16 January 2024. Mrs Cannon’s biography is set out in the Annual
Report and Accounts. Details of each Director’s contribution to the success
and promotion of the Company are set out in the Directors’ Report contained
within the Annual Report and Accounts.
All Directors currently serving on the Board have tenure below the nine years
maximum limit recommended under the UK Code (with the exception of Dr Bell who
will be standing down as a director of the Company at the conclusion of the
AGM which is to be held on 15 March 2024).
The Board’s composition currently meets all targets recommended under the
Parker Review and enshrined in recent changes to the FCA’s Listing Rules
(which set new diversity targets and associated disclosure requirements for UK
companies listed on the London Stock Exchange).
Environmental, Social And Governance Approach
The Board’s approach
Environmental, social and governance (ESG) issues can present both
opportunities and risks to long-term investment performance. The Company’s
investment universe comprises sectors that are undergoing significant
structural change and are likely to be highly impacted by increasing
regulation as a result of climate change and other social and governance
factors. Your Board is committed to ensuring that we have appointed a manager
that integrates ESG considerations into its investment process and has the
skill and vision to navigate the structural transition that the Company’s
investment universe is undergoing.
The Board believes multi-year engagement with management is, in most cases,
the most constructive way of building our understanding of a company’s
approach to addressing material business risks and opportunities. Engagement
can lead to stronger relationships with companies and more constructive
outcomes for shareholders and businesses alike.
More information on BlackRock’s global approach to ESG integration, as well
as activity specific to the BlackRock Energy and Resources Income Trust plc
portfolio, is set out below. BlackRock has defined ESG integration as the
practice of incorporating financially material ESG information and
consideration of sustainability risks into investment decisions in order to
enhance risk-adjusted returns. ESG integration does not change the Company’s
investment objective or constrain the Investment Manager’s investable
universe and does not mean that an ESG or impact focused investment strategy
or any exclusionary screens have been or will be adopted by the Company.
Similarly, ESG integration does not determine the extent to which the Company
may be impacted by sustainability risks. More information on sustainability
risks may be found in the AIFMD Fund Disclosures document of the Company
available on the Company’s website at
www.blackrock.com/uk/individual/literature/policies/itc-disclosure-blackrock-energy-andresources-income-trust-plc.pdf.
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.
1 Source: BlackRock Investment Stewardship 2023 Global Voting Spotlight
report
(https://www.blackrock.com/corporate/literature/publication/2023-investment-stewardship-voting-spotlight.pdf)
and BlackRock Investment Stewardship website
www.blackrock.com/corporate/about-us/investment-stewardship#engagement-and-voting-history
BlackRock Investment Stewardship Engagement with portfolio companies in the
year ended 30 November 2023
Given the Board’s belief in the importance of engagement and communication
with portfolio companies, they receive regular updates from the Manager in
respect of activity undertaken for the year under review. The Board notes that
over the year to 30 November 2023, 97 total company engagements were held with
the management teams of 36 portfolio companies representing 50% of the
portfolio by % of holdings at 30 November 2023. To put this into context,
there were 72 companies in the BlackRock Energy and Resources Income Trust plc
portfolio at 30 November 2023. Additional information is set out in the table
below as well as the key engagement themes for the meetings held in respect of
the Company’s portfolio holdings.
BlackRock Energy and Resources Income Trust plc –
year ended 30 November 2023
Number of engagements held 97
Number of companies met 36
% of equity investments covered 50
Shareholder meetings voted at 66
Number of proposals voted on 945
Number of votes against management 17
% of total votes represented by votes against management 1.71
=========
The importance and challenges of considering ESG when engaging with investee
companies in the Natural Resources Sector and BlackRock’s global approach to
ESG integration
Environmental
BlackRock’s approach to climate risk and opportunities and the global energy
transition is based on our role as a fiduciary to our clients. As the world
works toward a transition to a low-carbon economy, BlackRock are interested in
hearing from companies about their strategies and plans for responding to the
challenges and capturing the opportunities that this transition creates. When
companies consider climate-related risks, it is likely that they will also
assess their impact and dependence on natural capital.
Social
BlackRock Investment Stewardship’s Global Principles underscore the belief
that companies are best placed to deliver value for long-term shareholders
like BlackRock’s clients when they also consider the interests of their
other key stakeholders, which generally will include workers, business
partners (such as suppliers and distributors), clients and consumers,
government, and the communities in which they operate.
In BlackRock’s experience, companies that build strong relationships with
their stakeholders are more likely to meet their own strategic objectives,
while poor relationships may create adverse impacts that expose a company to
legal, regulatory, operational, and reputational risks and jeopardize their
ability to deliver sustainable, long-term financial performance.
Corporate Governance
As with all companies, good corporate governance is especially critical for
natural resources companies. In BlackRock’s experience, the sound
governance, in terms of both process and practice, is critical to the success
of a company, the protection of shareholders’ interests, and long-term
shareholder value creation.
Governance issues, including the management of material sustainability issues
that have a significant impact for natural resource companies, all require
effective leadership and oversight from a company’s board.
BlackRock believes that companies with experienced, engaged and diverse
directors, who are effective in actively advising and overseeing management as
a board, are well-positioned to deliver long-term value creation.
BlackRock’s approach to ESG integration
BlackRock believes that sustainability risks including climate risk are
investment risks. As a fiduciary, we manage material risks and opportunities
that could impact portfolios. Sustainability can be a driver of investment
risks and opportunities, and we incorporate them in our firm wide processes
when they are material. 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 Natural
Resources Team’s investment process since inception and the Company’s
portfolio managers work closely with 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,
BlackRock Investment Stewardship’s (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
and Transition Solutions (STS). STS look to advance ESG research and
integration, active engagement and the development of sustainable investment
solutions across the firm.
Investment Stewardship
Consistent with BlackRock’s fiduciary duty as an asset manager, BIS seeks to
support investee companies in their efforts to deliver long-term financial
performance on behalf of our clients. These clients include public and private
pension plans, governments, insurance companies, endowments, universities,
charities and, ultimately, individual investors, among others. BIS serves as a
link between BlackRock’s clients and the companies they invest in. Clients
depend on BlackRock to help them meet their investment goals; the business and
governance decisions that companies make will have a direct impact on
BlackRock’s clients’ long-term investment outcomes and financial
well-being.
Global Principles
The BIS Global Principles, regional voting guidelines, and engagement
priorities (collectively, the ‘BIS policies’) set out the core elements of
corporate governance that guide BIS’ efforts globally and within each
regional market, including when engaging with companies and voting at
shareholder meetings when authorised to do so on behalf of clients. Each year,
BIS reviews its policies and updates them as necessary to reflect changes in
market standards and regulations, insights gained over the year through
third-party and its own research, and feedback from clients and companies.
BIS’ Global Principles are available on its website at
https://www.blackrock.com/corporate/literature/fact-sheet/blk-responsible-investment-engprinciples-global.pdf.
Regional voting guidelines
BIS’ voting guidelines are intended to help clients and companies understand
its thinking on key governance matters. They are the benchmark against which
it assesses a company’s approach to corporate governance and the items on
the agenda to be voted on at the shareholder meeting. BIS applies its
guidelines pragmatically, taking into account a company’s unique
circumstances where relevant. BlackRock informs voting decisions through
research and engages as necessary. BIS reviews its voting guidelines annually
and updates them as necessary to reflect changes in market standards, evolving
governance practice and insights gained from engagement over the prior year.
BIS’ regional voting guidelines are available on its website at
www.blackrock.com/corporate/insights/investment-stewardship#stewardship-policies.
BlackRock is committed to transparency in terms of disclosure of its
stewardship activities on behalf of clients. BIS publishes its stewardship
policies – such as the BIS Global Principles, regional voting guidelines and
engagement priorities – to help BlackRock’s clients understand its work to
advance their interests as long-term investors in public companies.
Additionally, BIS publishes both annual and quarterly reports detailing its
stewardship activities, as well as vote bulletins that describe its rationale
for certain votes at high profile shareholder meetings. More detail in respect
of BIS reporting can be found at
www.blackrock.com/corporate/insights/investment-stewardship.
BlackRock’s reporting and disclosures
In terms of its own reporting, BlackRock believes that the Sustainability
Accounting Standards Board provides a clear set of standards for reporting
sustainability information across a wide range of issues, from labour
practices to data privacy to business ethics. For evaluating and reporting
climate-related risks, as well as the related governance issues that are
essential to managing them, the Task Force on Climate-related Financial
Disclosures (TCFD) provides a valuable framework. BlackRock recognises that
reporting to these standards requires significant time, analysis and effort.
BlackRock’s 2022 TCFD report can be found at
www.blackrock.com/corporate/literature/continuous-disclosure-and-important-information/tcfd-report-2022-blkinc.pdf.
The above forms part of the Strategic Report.
By order of the Board
GRAHAM VENABLES
FOR AND ON BEHALF OF
BLACKROCK INVESTMENT MANAGEMENT (UK) LIMITED
30 January 2024
RELATED PARTY TRANSACTIONS AND TRANSACTIONS WITH THE AIFM AND THE INVESTMENT
MANAGER
BlackRock Fund Managers Limited (BFM) provides management and administrative
services to the Group under a contract which is terminable on six months’
notice. BFM has (with the Group’s consent) delegated certain portfolio and
risk 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 Accounts.
The investment management fee due for the year ended 30 November 2023 amounted
to £1,549,000 (2022: £1,358,000). At the year end, £742,000 was outstanding
in respect of the management fee (2022: £728,000).
The Company is entitled to a rebate from the investment management fee charged
by the Manager in the event the Company’s ongoing charges exceeds the cap of
1.25% per annum of average daily net assets. The amount of rebate accrued to
30 November 2023 amounted to £nil (2022: £nil).
Further details in respect of the management fee and rebate are given in note
4 below.
In addition to the above services, BIM (UK) has provided the Group with
marketing services. The total fees paid or payable for these services for the
year ended 30 November 2023 amounted to £84,000 excluding VAT (2022:
£45,000). Marketing fees of £106,000 excluding VAT (2022: £22,000) were
outstanding as at the year end.
The ultimate holding company of the Manager and the Investment Manager is
BlackRock, Inc., a company incorporated in Delaware USA.
At the date of this report, the Board consists of five 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 for the year
ended 30 November 2023. At 30 November 2023, £11,000 (2022: £11,000) was
outstanding in respect of Directors’ fees.
STATEMENT OF DIRECTORS’ RESPONSIBILITIES IN RESPECT OF THE ANNUAL REPORT
AND FINANCIAL STATEMENTS
The Directors are responsible for preparing the Annual Report and the
Financial Statements in accordance with applicable United Kingdom law and
regulations.
Company law requires the Directors to prepare financial statements for each
financial year. Under that law, the Directors have elected to prepare the
Group and Parent Company financial statements in accordance with UK-adopted
International Accounting Standards (IFRSs). 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 Group and the Company
and of the profit or loss of the Group and the Company for that period.
In preparing these financial statements, the Directors are required to:
· select suitable accounting policies in accordance with IAS 8 Accounting
Policies, Changes in Accounting Estimates and Errors and then 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;
· in respect of the Group financial statements, state whether UK-adopted
International Accounting Standards have been followed, subject to any material
departures disclosed and explained in the financial statements;
· provide additional disclosures when compliance with the specific
requirements in IFRSs is insufficient to enable users to understand the impact
of particular transactions, other events and conditions on the Group and
Company financial position and financial performance;
· in respect of the Parent Company financial statements, state whether
UK-adopted International 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 Group and/or the Company will continue in
business.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Group’s and the Company’s transactions
and disclose with reasonable accuracy at any time the financial position of
the Group and the Company and enable them to ensure that the Group and Company
financial statements comply with the Companies Act 2006.
They are also responsible for safeguarding the assets of the Group and Parent
Company and hence for taking reasonable steps for the prevention and detection
of fraud and other irregularities.
Under applicable law and regulations, the Directors are also responsible for
preparing a Strategic Report, Directors’ Report, Directors’ Remuneration
Report, Corporate Governance Statement and the Report of the Audit and
Management Engagement Committee that comply with that law and those
regulations. The Directors have delegated responsibility to the Manager for
the maintenance and integrity of the Group’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.
The Directors confirm, to the best of their knowledge:
· that the consolidated financial statements prepared in accordance with
UK-adopted International Accounting Standards, give a true and fair view of
the assets, liabilities, financial position and profit of the Parent Company
and undertakings included in the consolidation taken as a whole;
· that the annual report, including the strategic report, includes a fair
review of the development and performance of the business and the position of
the Company and undertakings included in the consolidation taken as a whole,
together with a description of the principal risks and uncertainties that they
face; and
· that they consider the annual report, taken as a whole, is fair, balanced
and understandable and provides the information necessary for shareholders to
assess the company’s position, performance, business model and strategy.
In order to reach a conclusion on this matter, the Board has requested that
the Audit and Management Engagement Committee advise on whether it considers
that the Annual Report and Financial Statements fulfils these requirements.
The process by which the Committee has reached these conclusions is set out in
the Audit and Management Engagement Committee’s Report contained within the
Annual Report and Accounts. As a result, the Board has concluded that the
Annual Report for the year ended 30 November 2023, taken as a whole, is fair,
balanced and understandable and provides the information necessary for
shareholders to assess the Group’s and the Company’s position,
performance, business model and strategy.
FOR AND ON BEHALF OF THE BOARD
ADRIAN BROWN
Chairman
30 January 2024
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 NOVEMBER
2023
2023 2022
Notes Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
Income from investments held at fair value through profit or loss 3 6,258 79 6,337 6,969 – 6,969
Other income 3 1,218 – 1,218 1,343 – 1,343
--------------- --------------- --------------- --------------- --------------- ---------------
Total Revenue 7,476 79 7,555 8,312 – 8,312
========= ========= ========= ========= ========= =========
Net (loss)/profit on investments and derivatives held at fair value through profit or loss – (27,606) (27,606) – 51,394 51,394
Net profit on foreign exchange – 6 6 – 4 4
--------------- --------------- --------------- --------------- --------------- ---------------
Total 7,476 (27,521) (20,045) 8,312 51,398 59,710
========= ========= ========= ========= ========= =========
Expenses
Investment management fees 4 (387) (1,162) (1,549) (339) (1,019) (1,358)
Other operating expenses 5 (535) (16) (551) (886) (11) (897)
--------------- --------------- --------------- --------------- --------------- ---------------
Total operating expenses (922) (1,178) (2,100) (1,225) (1,030) (2,255)
========= ========= ========= ========= ========= =========
Net profit/(loss) on ordinary activities before finance costs and taxation 6,554 (28,699) (22,145) 7,087 50,368 57,455
Finance costs 6 (196) (588) (784) (49) (147) (196)
--------------- --------------- --------------- --------------- --------------- ---------------
Net profit/(loss) on ordinary activities before taxation 6,358 (29,287) (22,929) 7,038 50,221 57,259
Taxation (charge)/credit (584) 117 (467) (644) 162 (482)
--------------- --------------- --------------- --------------- --------------- ---------------
Net profit/(loss) on ordinary activities after taxation 5,774 (29,170) (23,396) 6,394 50,383 56,777
========= ========= ========= ========= ========= =========
Earnings/(loss) per ordinary share (pence) 4.39 (22.17) (17.78) 4.99 39.28 44.27
========= ========= ========= ========= ========= =========
The total columns of this statement represent the Group’s Statement of
Comprehensive Income, prepared in accordance with UK-adopted International
Accounting Standards (IAS). 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 Group.
The Group does not have any other comprehensive income/(loss) (2022: £nil).
The net profit/(loss) for the year disclosed above represents the Group’s
total comprehensive income.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 NOVEMBER
2023
Group Notes Called Share Special Capital Revenue Total
For the year ended 30 November 2023 up share premium reserve reserves reserve £’000
capital account £’000 £’000 £’000
£’000 £’000
At 30 November 2022 1,344 68,203 70,937 47,803 6,421 194,708
Total comprehensive (loss)/income:
Net (loss)/profit for the year – – – (29,170) 5,774 (23,396)
Transaction with owners, recorded directly to equity:
Ordinary share issues 10 12 1,781 – – – 1,793
Share issue costs 10 – (4) – – – (4)
Ordinary shares bought back into treasury 10 – – (4,802) – – (4,802)
Share buyback costs 10 – – (35) – – (35)
Share reissue costs written back – – – 27 – 27
Dividends paid 1 9 – – – – (5,929) (5,929)
--------------- --------------- --------------- --------------- --------------- ---------------
At 30 November 2023 1,356 69,980 66,100 18,660 6,266 162,362
========= ========= ========= ========= ========= =========
For the year ended 30 November 2022
At 30 November 2021 1,190 47,727 68,852 (2,548) 5,607 120,828
Total comprehensive income:
Net profit for the year – – – 50,383 6,394 56,777
Transactions with owners, recorded directly to equity:
Ordinary share issues 154 19,563 – – – 19,717
Share issue costs – (110) – – – (110)
Ordinary shares reissued from treasury – 1,023 2,091 – – 3,114
Share reissue costs – – (6) (32) – (38)
Dividends paid 2 9 – – – – (5,580) (5,580)
--------------- --------------- --------------- --------------- --------------- ---------------
At 30 November 2022 1,344 68,203 70,937 47,803 6,421 194,708
========= ========= ========= ========= ========= =========
1 4th interim dividend of 1.100p per share for the year ended 30 November
2022, declared on 7 December 2022 and paid on 13 January 2023; 1st interim
dividend of 1.100p per share for the year ended 30 November 2023, declared on
13 March 2023 and paid on 19 April 2023; 2nd interim dividend of 1.100p per
share for the year ended 30 November 2023, declared on 7 June 2023 and paid on
14 July 2023 and 3rd interim dividend of 1.100p per share for the year ended
30 November 2023, declared on 20 September 2023 and paid on 27 October 2023.
2 4th interim dividend of 1.100p per share for the year ended 30 November
2021, declared on 8 December 2021 and paid on 14 January 2022; 1st interim
dividend of 1.100p per share for the year ended 30 November 2022, declared on
15 March 2022 and paid on 21 April 2022; 2nd interim dividend of 1.100p per
share for the year ended 30 November 2022, declared on 7 June 2022 and paid on
15 July 2022 and 3rd interim dividend of 1.100p per share for the year ended
30 November 2022, declared on 12 September 2022 and paid on 20 October 2022.
Parent company statement of changes in equity
Company Notes Called Share Special Capital Revenue Total
up share premium reserve reserves reserve £’000
capital account £’000 £’000 £’000
£’000 £’000
For the year ended 30 November 2023
At 30 November 2022 1,344 68,203 70,937 50,437 3,787 194,708
Total comprehensive (loss)/income:
Net (loss)/profit for the year – – – (30,170) 6,774 (23,396)
Transactions with owners, recorded directly to equity:
Ordinary share issues 12 1,781 – – – 1,793
Share issue costs – (4) – – – (4)
Ordinary shares bought back into treasury – – (4,802) – – (4,802)
Share buyback costs – – (35) – – (35)
Share reissue costs written back – – – 27 – 27
Dividends paid 1 9 – – – – (5,929) (5,929)
--------------- --------------- --------------- --------------- --------------- ---------------
At 30 November 2023 1,356 69,980 66,100 20,294 4,632 162,362
========= ========= ========= ========= ========= =========
For the year ended 30 November 2022
At 30 November 2021 1,190 47,727 68,852 436 2,623 120,828
Total comprehensive income:
Net profit for the year – – – 50,033 6,744 56,777
Transactions with owners, recorded directly to equity:
Ordinary share issues 154 19,563 – – – 19,717
Share issue costs – (110) – – – (110)
Ordinary shares reissued from treasury – 1,023 2,091 – – 3,114
Share reissue costs – – (6) (32) – (38)
Dividends paid 2 9 – – – – (5,580) (5,580)
--------------- --------------- --------------- --------------- --------------- ---------------
At 30 November 2022 1,344 68,203 70,937 50,437 3,787 194,708
========= ========= ========= ========= ========= =========
1 4th interim dividend of 1.100p per share for the year ended 30 November
2022, declared on 7 December 2022 and paid on 13 January 2023; 1st interim
dividend of 1.100p per share for the year ended 30 November 2023, declared on
13 March 2023 and paid on 19 April 2023; 2nd interim dividend of 1.100p per
share for the year ended 30 November 2023, declared on 7 June 2023 and paid on
14 July 2023 and 3rd interim dividend of 1.100p per share for the year ended
30 November 2023, declared on 20 September 2023 and paid on 27 October 2023.
2 4th interim dividend of 1.100p per share for the year ended 30 November
2021, declared on 8 December 2021 and paid on 14 January 2022; 1st interim
dividend of 1.100p per share for the year ended 30 November 2022, declared on
15 March 2022 and paid on 21 April 2022; 2nd interim dividend of 1.100p per
share for the year ended 30 November 2022, declared on 7 June 2022 and paid on
15 July 2022 and 3rd interim dividend of 1.100p per share for the year ended
30 November 2022, declared on 12 September 2022 and paid on 20 October 2022.
For information on the Company’s distributable reserves please refer to note
17 contained within the Annual Report and Accounts.
Consolidated and parent company statements of financial position as at 30
November 2023
30 November 2023 30 November 2022
Notes Group Company Group Company
£’000 £’000 £’000 £’000
Non current assets
Investments held at fair value through profit or loss 175,540 177,995 206,394 209,849
--------------- --------------- --------------- ---------------
Current assets
Other receivables 618 3,359 1,980 4,721
Current tax asset 130 130 103 103
Cash collateral pledged with brokers 11 1,538 1,538 285 285
Cash and cash equivalents 11 5,276 80 6,214 18
--------------- --------------- --------------- ---------------
Total current assets 7,562 5,107 8,582 5,127
========= ========= ========= =========
Total assets 183,102 183,102 214,976 214,976
========= ========= ========= =========
Current liabilities
Other payables (1,988) (1,988) (5,868) (5,868)
Derivative financial liabilities held at fair value through profit or loss (890) (890) (55) (55)
Bank overdraft 11 (17,862) (17,862) (14,345) (14,345)
--------------- --------------- --------------- ---------------
Total current liabilities (20,740) (20,740) (20,268) (20,268)
========= ========= ========= =========
Net assets 162,362 162,362 194,708 194,708
========= ========= ========= =========
Equity attributable to equity holders
Called up share capital 10 1,356 1,356 1,344 1,344
Share premium account 69,980 69,980 68,203 68,203
Special reserve 66,100 66,100 70,937 70,937
Capital reserves
At 1 December 47,803 50,437 (2,548) 436
Net (loss)/profit for the year (29,170) (30,170) 50,383 50,033
Transactions with owners recorded directly to equity 27 27 (32) (32)
--------------- --------------- --------------- ---------------
At 30 November 18,660 20,294 47,803 50,437
========= ========= ========= =========
Revenue reserve
At 1 December 6,421 3,787 5,607 2,623
Net profit for the year 5,774 6,774 6,394 6,744
Dividends paid (5,929) (5,929) (5,580) (5,580)
At 30 November 6,266 4,632 6,421 3,787
--------------- --------------- --------------- ---------------
Total equity 162,362 162,362 194,708 194,708
========= ========= ========= =========
Net asset value per ordinary share (pence) 123.58 123.58 144.92 144.92
========= ========= ========= =========
CONSOIDATED AND PARENT COMPANY CASH FLOW STATEMENTS FOR THE YEAR ENDED 30
NOVEMBER 2023
30 November 2023 30 November 2022
Group Company Group Company
£’000 £’000 £’000 £’000
Operating activities
Net (loss)/profit on ordinary activities after taxation (22,929) (22,929) 57,259 57,259
Add back finance costs 784 784 196 196
Net loss/(profit) on investments and derivatives held at fair value through profit or loss (including transaction costs) 27,606 28,606 (51,394) (51,045)
Net profit on foreign exchange (6) – (4) –
Sales of investments held at fair value through profit or loss 97,330 97,330 126,788 126,788
Purchases of investments held at fair value through profit or loss (93,247) (93,247) (153,949) (153,949)
Increase in other receivables (134) (134) (18) (18)
Increase in other payables 471 471 230 230
Decrease in amounts due from brokers 1,496 1,496 2,916 2,916
(Decrease)/increase in amounts due to brokers (4,269) (4,269) 40 40
Net movement in cash collateral held with brokers (1,253) (1,253) (285) (285)
--------------- --------------- --------------- ---------------
Net cash inflow/(outflow) from operating activities before taxation 5,849 6,855 (18,221) (17,868)
Taxation on investment income included within gross income (494) (494) (528) (528)
--------------- --------------- --------------- ---------------
Net cash inflow/(outflow) from operating activities 5,355 6,361 (18,749) (18,396)
========= ========= ========= =========
Financing activities
Interest paid (784) (784) (196) (196)
Receipts from share issues 1,793 1,793 19,717 19,717
Share issue costs paid (59) (59) (60) (60)
Proceeds from shares reissued from treasury – – 3,108 3,108
Shares bought back into treasury (4,802) (4,802) – –
Share buyback costs (35) (35) – –
Dividends paid (5,929) (5,929) (5,580) (5,580)
--------------- --------------- --------------- ---------------
Net cash (outflow)/inflow from financing activities (9,816) (9,816) 16,989 16,989
========= ========= ========= =========
Decrease in cash and cash equivalents (4,461) (3,455) (1,760) (1,407)
Effect of foreign exchange rate changes 6 – 4 –
--------------- --------------- --------------- ---------------
Change in cash and cash equivalents (4,455) (3,455) (1,756) (1,407)
Cash and cash equivalents at start of year (8,131) (14,327) (6,375) (12,920)
--------------- --------------- --------------- ---------------
Cash and cash equivalents at end of year (12,586) (17,782) (8,131) (14,327)
========= ========= ========= =========
Comprised of:
Cash at bank 5,276 80 6,214 18
Bank overdraft (17,862) (17,862) (14,345) (14,345)
--------------- --------------- --------------- ---------------
(12,586) (17,782) (8,131) (14,327)
========= ========= ========= =========
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 NOVEMBER 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. The
Company was incorporated on 4 November 2005 and this is the seventeenth Annual
Report.
2. Accounting Policies
The principal accounting policies adopted by the Group and Company are set out
below.
(a) Basis of Preparation
On 31 December 2020, International Financial Reporting Standards as adopted by
the European Union at that date was brought into UK law and became UK-adopted
International Accounting Standards (IAS), with future changes being subject to
endorsement by the UK Endorsement Board and with the requirements of the
Companies Act 2006 as applicable to companies reporting under those standards.
The Group and Company financial statements have been prepared under the
historic cost convention modified by the revaluation of certain financial
assets and financial liabilities held at fair value through profit or loss and
in accordance with UK-adopted IAS. All of the Group’s operations are of a
continuing nature.
Insofar as the Statement of Recommended Practice (SORP) for investment trust
companies and venture capital trusts issued by the Association of Investment
Companies (AIC) in October 2019, and updated in July 2022, is compatible with
UK-adopted IAS, the financial statements have been prepared in accordance with
guidance set out in the SORP.
Substantially, all of the assets of the Group consist of securities that are
readily realisable and, accordingly, the Directors are satisfied that the
Group has adequate resources to continue in operational existence for the
foreseeable future for the period to 30 November 2025, being a period of at
least twelve 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
overdraft 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 IFRS 13; and
· the risk is adequately captured in the assumptions and inputs used in
measurement of Level 3 assets, if any, as noted in the Financial Statements.
None of the Group’s other assets and liabilities were considered to be
potentially impacted by climate change.
The Group’s financial statements are presented in British Pound Sterling,
which is the functional currency of the Group and the currency of the primary
economic environment in which the Group operates. All values are rounded to
the nearest thousand pounds (£’000) except when otherwise indicated.
Adoption of new and amended International Accounting Standards and
interpretations:
IFRS 9 – Fees in the ‘10 per cent’ Test for Derecognition of Financial
Liabilities (annual periods beginning on or after 1 January 2022). The
International Accounting Standards Board (IASB) has amended IFRS 9 Financial
Instruments to clarify the fees that a company includes when assessing whether
the terms of a new or modified financial liability are substantially different
from the terms of the original financial liability.
Relevant International Accounting Standards that have yet to be adopted:
IFRS 17 – Insurance contracts (effective 1 January 2023). This standard
replaces IFRS 4, which currently permits a wide range of accounting practices
in accounting for insurance contracts. IFRS 17 will fundamentally change the
accounting by all entities that issue insurance contracts and investment
contracts with discretionary participation features.
This standard is unlikely to have any impact on the Group as it has no
insurance contracts.
IAS 12 – Deferred tax related to assets and liabilities arising from a
single transaction (effective 1 January 2023). The IASB has amended IAS 12
Income Taxes to require companies to recognise deferred tax on particular
transactions that, on initial recognition, give rise to equal amounts of
taxable and deductible temporary differences. According to the amended
guidance, a temporary difference that arises on initial recognition of an
asset or liability is not subject to the initial recognition exemption if that
transaction gave rise to equal amounts of taxable and deductible temporary
differences. These amendments might have a significant impact on the
preparation of financial statements by companies that have substantial
balances of right-of-use assets, lease liabilities, decommissioning,
restoration and similar liabilities. The impact for those affected would be
the recognition of additional deferred tax assets and liabilities.
IAS 8 – Definition of accounting estimates (effective 1 January 2023). The
IASB has amended IAS 8 Accounting Policies, Changes in Accounting Estimates
and Errors to help distinguish between accounting policies and accounting
estimates, replacing the definition of accounting estimates.
IAS 1 and IFRS Practice Statement 2 – Disclosure of accounting policies
(effective 1 January 2023). The IASB has amended IAS 1 Presentation of
Financial Statements to help preparers in deciding which accounting policies
to disclose in their financial statements by stating that an entity is now
required to disclose material accounting policies instead of significant
accounting policies.
IAS 1 Classification of liabilities as current or non-current (effective 1
January 2024). The IASB has amended IAS 1 Presentation of Financial Statements
to clarify its requirement for the presentation of liabilities depending on
the rights that exist at the end of the reporting period. The amendment
requires liabilities to be classified as non-current if the entity has a
substantive right to defer settlement for at least 12 months at the end of the
reporting period. The amendment no longer refers to unconditional rights.
IAS 12 – International Tax Reform Pillar Two Model Rules (effective 1
January 2023). The IASB has published amendments to IAS 12 Income Taxes to
respond to stakeholders’ concerns about the potential implications of the
imminent implementation of the OECD pillar two rules on the accounting for
income taxes. The amendment is an exception to the requirements in IAS 12 that
an entity does not recognise and does not disclose information about deferred
tax assets as liabilities related to the OECD pillar two income taxes and a
requirement that current tax expenses must be disclosed separately to pillar
two income taxes.
The amendment of these standards are unlikely to have any significant impact
on the Group. None of the standards that have been issued but are not yet
effective are expected to have a material impact on the Group.
(b) Basis of consolidation
The Group’s financial statements are made up to 30 November each year and
consolidate the financial statements of the Company and its wholly owned
subsidiary, which is registered and operates in England and Wales, BlackRock
Energy and Resources Securities Income Company Limited (together ‘the
Group’).
Subsidiaries are consolidated from the date of their acquisition, being the
date on which the Company obtains control, and continue to be consolidated
until the date that such control ceases. The financial statements of
subsidiaries used in the preparation of the consolidated financial statements
are based on consistent accounting policies. All intra-group balances and
transactions, including unrealised profits arising therefrom, are eliminated.
(c) Presentation of the Consolidated Statement of Comprehensive Income
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 Consolidated Statement of Comprehensive Income between items of a
revenue and a capital nature has been presented alongside the Consolidated
Statement of Comprehensive Income.
(d) Segmental reporting
The Directors are of the opinion that the Group is engaged in a single segment
of business being investment business.
(e) Income
Dividends receivable on equity shares are recognised 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.
Provision is made for any dividends not expected to be received. Special
dividends, if any, are treated as a capital or a revenue receipt depending on
the facts or circumstances of each particular case. The return on a debt
security is recognised on a time apportionment basis so as to reflect the
effective yield on the debt security.
Options may be purchased or written over securities held in the portfolio for
generating or protecting capital returns, or for generating or maintaining
revenue returns. Where the purpose of the option is the generation of income,
the premium is treated as a revenue item. Where the purpose of the option is
the maintenance of capital, the premium is treated as a capital item.
Option premium income is recognised as revenue evenly over the life of the
option contract and included in the revenue account of the Consolidated
Statement of Comprehensive Income unless the option has been written for the
maintenance and enhancement of the Group’s investment portfolio and
represents an incidental part of a larger capital transaction, in which case
any premia arising are allocated to the capital account of the Consolidated
Statement of Comprehensive Income.
Deposit interest receivable is accounted for on an accruals basis.
Where the Group 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.
(f) Expenses
All expenses, including finance costs, are accounted for on an accruals basis.
Expenses have been charged wholly to the revenue account of the Consolidated
Statement of Comprehensive Income, except as follows:
· expenses which are incidental to the acquisition or sale of an investment
are charged to the capital account of the Consolidated Statement of
Comprehensive Income. Details of transaction costs on the purchases and sales
of investments are disclosed within the financial statements contained within
the Annual Report and Accounts;
· 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 Consolidated
Statement of Comprehensive Income in line with the Board’s expectations of
the long term split of returns, in the form of capital gains and income,
respectively, from the investment portfolio. The investment management fee
rebate accrued as a result of the application of the cap on ongoing charges of
1.25% per annum of average daily net assets is offset against management fees
and is allocated between revenue and capital in the ratio of total ongoing
charges allocated between revenue and capital during the year.
Finance costs incurred by the Subsidiary are charged 100% to revenue.
(g) Taxation
The Group accounts do not reflect any adjustment for group relief between the
Company and the Subsidiary.
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 Consolidated
Statement of Comprehensive Income 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 Group’s liability for
current tax is calculated using tax rates that were applicable at the balance
sheet date.
Where expenses are allocated between capital and revenue accounts, any tax
relief in respect of expenses is allocated between capital and revenue returns
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 temporary differences that
have originated but not reversed at the financial reporting date, where
transactions or events that result in an obligation to pay more taxation in
the future or right to pay less tax in the future have occurred at the
financial reporting 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 temporary differences
can be deducted. Deferred taxation assets and liabilities are measured at the
rates applicable to the legal jurisdictions in which they arise.
(h) Investments held at fair value through profit or loss
In accordance with IFRS 9, the Group classifies its investments at initial
recognition as held at fair value through profit or loss and are managed and
evaluated on a fair value basis in accordance with its investment strategy and
business model.
All investments are measured initially and subsequently at fair value through
profit or loss. Purchases of investments are recognised on a trade date basis.
Sales of investments are recognised at the trade date of the disposal.
The fair value of the financial investments is based on their quoted bid price
at the financial reporting date, without deduction for the estimated selling
costs. This policy applies to all current and non-current asset investments
held by the Group.
The fair value of the investment in the subsidiary is calculated based on the
net asset value of the underlying balances within the subsidiary.
Changes in the value of investments held at fair value through profit or loss
and gains and losses on disposal are recognised in the Consolidated Statement
of Comprehensive Income as ‘Net profit/(loss) on investments and options
held at fair value through profit of loss’. Also included within the heading
are transaction costs in relation to the purchase or sale of investments.
For all financial instruments not traded in an active market, the fair value
is determined by using various valuation techniques. Valuation techniques
include market approach (i.e., using recent arm’s length market transactions
adjusted as necessary and reference to the current market value of another
instrument that is substantially the same) and the income approach (i.e.,
discounted cash flow analysis and option pricing models making use of
available and supportable market data as possible). See note 2(p) below.
(i) Options
Options are held at fair value through profit or loss based on the bid/offer
prices of the options written to which the Group is exposed. The value of the
option is subsequently marked-to-market to reflect the fair value through
profit or loss of the option based on traded prices. Where the premium is
taken to revenue, an appropriate amount is shown as capital return such that
the total return reflects the overall change in the fair value of the option.
When an option is exercised, the gain or loss is accounted for as a capital
gain or loss. Any cost on closing out an option is transferred to revenue
along with any remaining unamortised premium.
(j) Other receivables and other payables
Other receivables and other payables do not carry any interest and are
short-term in nature and are accordingly stated on an amortised cost basis.
(k) Dividends payable
Under IAS, final dividends should not be accrued in the financial statements
unless they have been approved by shareholders before the financial reporting
date. Interim dividends should not be recognised in the financial statements
unless they have been paid.
Dividends payable to equity shareholders are recognised in the Consolidated
Statement of Changes in Equity.
(l) Foreign currency translation
Transactions involving foreign currencies are converted at the rate ruling at
the date of the transaction. Foreign currency monetary assets and liabilities
and non-monetary assets held at fair value are translated into British Pound
Sterling at the rate ruling on the financial reporting date. Foreign exchange
differences arising on translation are recognised in the Consolidated
Statement of Comprehensive Income as a revenue or capital item depending on
the income or expense to which they relate. For investment transactions and
investments held at the year end, denominated in a foreign currency, the
resulting gains or losses are included in the net profit/(loss) on investments
and options held at fair value through profit or loss in the Consolidated
Statement of Comprehensive Income.
(m) Cash and cash equivalents
Cash comprises cash in hand, bank overdrafts and on demand deposits. Cash
equivalents are 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.
(n) Bank borrowings
Bank overdrafts are recorded as the proceeds received. Finance charges are
accounted for on an accruals basis in the Consolidated Statement of
Comprehensive Income using the effective interest rate method and are added to
the carrying amount of the instruments to the extent that they are not settled
in the period in which they arise.
(o) Share repurchases and share reissues
Shares repurchased and subsequently cancelled – share capital is reduced by
the nominal value of the shares repurchased, and the capital redemption
reserve is correspondingly increased in accordance with Section 733 of the
Companies Act 2006. The full cost of the repurchase is charged to the special
reserve.
Shares repurchased and held in treasury – the full cost of the repurchase is
charged to the special reserve.
Where treasury shares are subsequently reissued:
· amounts received to the extent of the repurchase price are credited to the
special reserve and capital reserves 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.
Share issue costs are charged to the share premium account. Costs on share
reissues are charged to the special reserve and capital reserves.
(p) Critical accounting estimates and judgements
The Group 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.
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
£’000 £’000
Investment income:
UK dividends 608 613
UK special dividends – 67
Fixed income 453 625
Overseas dividends 4,578 4,604
Overseas special dividends 619 1,060
--------------- ---------------
Total investment income 6,258 6,969
========= =========
Other income:
Bank interest 2 1
Interest on collateral received 7 –
Option premium income 1,209 1,342
--------------- ---------------
1,218 1,343
========= =========
Total income 7,476 8,312
========= =========
During the year, the Group received option premium income in cash totalling
£1,209,000 (2022: £1,342,000) for writing covered call and put options for
the purposes of revenue generation.
Option premium income is amortised evenly over the life of the option contract
and accordingly, during the year, option premiums of £1,209,000 (2022:
£1,342,000) were amortised to revenue.
At 30 November 2023, there was one open option position (2022: one) with an
associated liability of £110,000 (2022: £55,000).
Dividends and interest received in cash during the year amounted to
£5,107,000 and £482,000 (2022: £5,609,000 and £437,000).
Special dividends of £79,000 have been recognised in capital during the year
(2022: £nil).
4. Investment Management Fee
2023 2022
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
Investment management fee 387 1,162 1,549 339 1,019 1,358
--------------- --------------- --------------- --------------- --------------- ---------------
Total 387 1,162 1,549 339 1,019 1,358
========= ========= ========= ========= ========= =========
The investment management fee is levied at 0.80% of gross assets per annum.
Gross assets for the purposes of calculating the management fee equate to the
value of the portfolio’s gross assets held on the relevant date as valued on
the basis of applicable accounting policies, less the value of any investments
in in-house funds.
The fee is allocated 25% to the revenue account and 75% to the capital account
of the Consolidated Statement of Comprehensive Income. There is no additional
fee for company secretarial and administration services.
The Company is entitled to a rebate from the investment management fee charged
by the Manager in the event the Company’s ongoing charges exceed the cap of
1.25% per annum of average daily net assets. No rebate was payable for the
year ended 30 November 2023 (2022: £nil). The rebate, if any, is offset
against management fees and is allocated between revenue and capital in the
ratio of total ongoing charges (as defined in the glossary contained within
the Annual Report and Accounts) allocated between revenue and capital during
the year.
5. Other Operating Expenses
2023 2022
£’000 £’000
Allocated to revenue:
Custody fee 9 8
Auditor’s remuneration – audit services 1 48 46
Registrars’ fee 35 31
Directors’ emoluments 2 133 139
Broker fees 24 25
Depositary fees 17 15
Marketing fees 84 45
Printing and postage fees 39 42
Legal and professional fees 26 20
Directors search fees 38 18
Bank charges 14 12
Stock exchange listing fees 3 14 53
Other administration costs 75 52
Provision for doubtful debts 4 – 380
Write back of prior year expenses 5 (21) –
--------------- ---------------
535 886
========= =========
Allocated to capital:
Custody transaction charges 6 16 11
--------------- ---------------
551 897
========= =========
The Company’s ongoing charges 7 , 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: 1.19% 1.13%
========= =========
1 No non-audit services are 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
Accounts. The Company has no employees.
3 For the year ended 30 November 2022, this included one-off block listing
fees of £49,000.
4 For the year ended 30 November 2022, the provision for doubtful debts
relate to dividend income from Gazprom ADR which has not been received due to
measures imposed by the Russian authorities in response to the sanctions that
have been imposed on Russia as a result of the invasion of Ukraine.
5 Relates to miscellaneous fees, external Director evaluation fees, legal
fees and legal and professional fees (2022: none).
6 For the year ended 30 November 2023, expenses of £16,000 (2022: £11,000)
were charged to the capital account of the Statement of Comprehensive Income.
These relate to transaction costs charged by the custodian on sale and
purchase trades.
7 Alternative Performance Measure, see Glossary contained within the Annual
Report and Accounts.
The Company’s ongoing charges, as defined in the Annual Report and Accounts
(including the investment management fee), are capped at 1.25% per annum of
average daily net assets. The Company is entitled to a rebate from the
investment management fee charged by the Manager in the event the Company’s
ongoing charges exceed the cap.
The overall cap on ongoing charges and any applicable rebate is calculated and
accrued on a daily basis and will be adjusted in the investment management
fees charged up to 30 November every year. See note 4 above.
6. Finance Costs
2023 2022
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
Interest paid on bank overdraft 196 588 784 49 147 196
--------------- --------------- --------------- --------------- --------------- ---------------
Total 196 588 784 49 147 196
========= ========= ========= ========= ========= =========
Finance costs for the Company are charged 25% to the revenue account and 75%
to the capital account of the Consolidated Statement of Comprehensive Income.
Subsidiary finance costs are charged 100% to the revenue account of the
Consolidated Statement of Comprehensive Income.
7. Dividends
Dividends paid on equity shares Record date Payment date 2023 2022
£’000 £’000
4th interim dividend of 1.100p per share for the year ended 30 November 2022 (2021: 1.100p) 15 December 2022 13 January 2023 1,478 1,278
1st interim dividend of 1.100p per share for the year ended 30 November 2023 (2022: 1.100p) 23 March 2023 19 April 2023 1,491 1,376
2nd interim dividend of 1.100p per share for the year ended 30 November 2023 (2022: 1.100p) 15 June 2023 14 July 2023 1,491 1,448
3rd interim dividend of 1.100p per share for the year ended 30 November 2023 (2022: 1.100p) 28 September 2023 27 October 2023 1,469 1,478
--------------- ---------------
Accounted for in the financial statements 5,929 5,580
========= =========
The total dividends payable in respect of the year ended 30 November 2023
which form the basis of Section 1158 of the Corporation Tax Act 2010 and
Section 833 of the Companies Act 2006, and the amounts declared, meet the
relevant requirements as set out in this legislation.
Dividends paid on equity shares 2023 2022
£’000 £’000
1st interim dividend of 1.100p per share for the year ended 30 November 2023 (2022: 1.100p) 1,491 1,376
2nd interim dividend of 1.100p per share for the year ended 30 November 2023 (2022: 1.100p) 1,491 1,448
3rd interim dividend of 1.100p per share for the year ended 30 November 2023 (2022: 1.100p) 1,469 1,478
4th interim dividend of 1.125p per share for the year ended 30 November 2023 (2022: 1.100p) 1,464 1,478
--------------- ---------------
5,915 5,780
========= =========
8. (Loss)/Earnings and Net Asset Value Per Ordinary Share
Total revenue, capital (loss)/earnings and net asset value per ordinary share
are shown below and have been calculated using the following:
2023 2022
Net revenue profit attributable to ordinary shareholders (£’000) 5,774 6,394
Net capital (loss)/profit attributable to ordinary shareholders (£’000) (29,170) 50,383
----------------- -----------------
Total (loss)/profit attributable to ordinary shareholders (£’000) (23,396) 56,777
========== ==========
Equity shareholders’ funds (£’000) 162,362 194,708
========== ==========
The weighted average number of ordinary shares in issue during the year on which the earnings per ordinary share was calculated was: 131,610,148 128,248,137
The actual number of ordinary shares in issue at the end of the year on which the net asset value per ordinary share was calculated was: 131,386,194 134,356,194
----------------- -----------------
(Loss)/earnings per share
Revenue earnings per share (pence) – basic and diluted 4.39 4.99
Capital (loss)/earnings per share (pence) – basic and diluted (22.17) 39.28
----------------- -----------------
Total (loss)/earnings per share (pence) – basic and diluted (17.78) 44.27
========== ==========
As at As at
30 November 30 November
2023 2022
Net asset value per share (pence) 123.58 144.92
Ordinary share price (pence) 110.40 135.00
========= =========
There were no securities in issue at the year end that have any dilutive
effect on earnings per share.
9. Called Up Share Capital
Number of Treasury Total Nominal
shares in issue shares shares value
£’000
Allotted, called up and fully paid share capital comprised:
Ordinary shares of 1 pence each
At 30 November 2022 134,356,194 – 134,356,194 1,344
Ordinary share issues 1,230,000 – 1,230,000 12
Ordinary shares bought back into treasury (4,200,000) 4,200,000 – –
----------------- ----------------- ----------------- -----------------
At 30 November 2023 131,386,194 4,200,000 135,586,194 1,356
========== ========== ========== ==========
During the year ended 30 November 2023, 4,200,000 shares were bought back into
treasury for a net consideration after costs of £4,837,000 (2022: no shares
were bought back into treasury).
During the year ended 30 November 2023, the Company issued 1,230,000 shares
(2022: 15,390,194) for a net consideration after costs of £1,789,000 (2022:
£19,607,000).
During the year ended 30 November 2023, no shares were reissued from treasury
(2022: 2,747,643 shares were reissued for a net consideration after costs of
£3,108,000).
Since the year end, and as at 26 January 2024 a further 1,800,000 ordinary
shares have been issued for a net consideration of £2,014,000.
10. Reserves
Group Share Special Capital Capital Revenue
premium reserve reserve reserve reserve
account £’000 arising on arising on £’000
£’000 investments revaluation
sold of
£’000 investments
held
£’000
At 30 November 2022 68,203 70,937 (1,350) 49,153 6,421
Movement during the year:
Total comprehensive income/(loss):
Net profit/(loss) for the year – – 4,533 (33,703) 5,774
Transactions with owners recorded directly to equity:
Ordinary share issues 1,781 – – – –
Share issue costs (4) – – – –
Ordinary shares bought back into treasury – (4,802) – – –
Share buyback costs – (35) – – –
Share reissue costs written back – – 27 – –
Dividends paid – – – – (5,929)
--------------- --------------- --------------- --------------- ---------------
At 30 November 2023 69,980 66,100 3,210 15,450 6,266
========= ========= ========= ========= =========
Distributable reserves
Company Share Special Capital Capital Revenue
premium reserve reserve reserve reserve
account £’000 arising on arising on £’000
£’000 investments revaluation
sold of
£’000 investments
held
£’000
At 30 November 2022 68,203 70,937 (2,168) 52,605 3,787
Movement during the year:
Total comprehensive income/(loss):
Net profit/(loss) for the year – – 4,533 (34,703) 6,774
Transactions with owners recorded directly to equity:
Ordinary share issues 1,781 – – – –
Share issue costs (4) – – – –
Ordinary shares bought back into treasury – (4,802) – – –
Share buyback costs – (35) – – –
Share reissue costs written back – – 27 – –
Dividends paid – – – – (5,929)
--------------- --------------- --------------- --------------- ---------------
At 30 November 2023 69,980 66,100 2,392 17,902 4,632
========= ========= ========= ========= =========
Group Share Special Capital Capital Revenue
premium reserve reserve reserve reserve
account £’000 arising on arising on £’000
£’000 investments revaluation
sold of
£’000 investments
held
£’000
At 30 November 2021 47,727 68,852 (26,149) 23,601 5,607
Movement during the year:
Total comprehensive income:
Net profit for the year – – 24,831 25,552 6,394
Transactions with owners recorded directly to equity:
Ordinary share issues 19,563 – – – –
Share issue costs (110) – – – –
Ordinary shares reissued from treasury 1,023 2,091 – – –
Share reissue costs – (6) (32) – –
Dividends paid – – – – (5,580)
--------------- --------------- --------------- --------------- ---------------
At 30 November 2022 68,203 70,937 (1,350) 49,153 6,421
========= ========= ========= ========= =========
Distributable reserves
Company Share Special Capital Capital Revenue
premium reserve reserve reserve reserve
account £’000 arising on arising on £’000
£’000 investments revaluation
sold of
£’000 investments
held
£’000
At 30 November 2021 47,727 68,852 (26,967) 27,403 2,623
Movement during the year:
Total comprehensive income:
Net profit for the year – – 24,831 25,202 6,744
Transactions with owners recorded directly to equity:
Ordinary share issues 19,563 – – – –
Share issue costs (110) – – – –
Ordinary shares reissued from treasury 1,023 2,091 – – –
Share reissue costs – (6) (32) – –
Dividends paid – – – – (5,580)
--------------- --------------- --------------- --------------- ---------------
At 30 November 2022 68,203 70,937 (2,168) 52,605 3,787
========= ========= ========= ========= =========
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 of the Parent
Company may be used as distributable reserves for all purposes and, in
particular, the repurchase by the Parent 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 Parent Company’s capital gains of
£20,294,000 (2022: capital gains of £50,437,000) comprise a gain on capital
reserve arising on investments sold of £2,392,000 (2022: loss of
£2,168,000), a gain on capital reserve arising on revaluation of listed
investments of £15,447,000 (2022: gain of £49,150,000) and a revaluation
gain on the investment in the subsidiary of £2,455,000 (2022: gain of
£3,455,000). The gain on capital reserve arising on the revaluation of
investments of £15,447,000 (2022: £49,150,000) is subject to fair value
movements and may not be readily realisable at short notice, as such it may
not be entirely distributable. The investments are subject to financial risks,
as such capital reserves (arising on investments sold) and the revenue reserve
may not be entirely distributable if a loss occurred during the realisation of
these investments. The reserves of the subsidiary company are not
distributable until distributed as a dividend to the Parent Company.
11. Valuation of Financial Instruments
Financial assets and financial liabilities are either carried in the
Consolidated and Parent Company Statements of Financial Position at their fair
value (investments and derivatives) or at an amount which is a reasonable
approximation of fair value (due from brokers, dividends and interest
receivable, due to brokers, accruals, cash at bank and bank overdrafts). IFRS
13 requires the Group 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 Group are explained in the
accounting policies note 2(h) to the Financial Statements.
Categorisation within the hierarchy has been determined on the basis of the
lowest level input that is significant to the fair value measurement of the
relevant asset.
The fair value hierarchy has the following levels:
Level 1 – Quoted market price for identical instruments in active markets
A financial instrument is regarded as quoted in an active market if quoted
prices are readily 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 Group
does not adjust the quoted price for these instruments.
Level 2 – Valuation techniques using observable inputs
This category includes instruments valued using quoted prices for similar
instruments in markets that are considered less than active, or other
valuation techniques where all significant inputs are directly or indirectly
observable from market data.
Valuation techniques used for non-standardised financial instruments such as
options, currency swaps and other over-the-counter derivatives include the use
of comparable recent arm’s length transactions, reference to other
instruments that are substantially the same, discounted cash flow analysis,
option pricing models and other valuation techniques commonly used by market
participants making the maximum use of market inputs and relying as little as
possible on entity specific inputs.
Over-the-counter derivative option contracts have been classified as Level 2
investments as their valuation has been based on market observable inputs
represented by the underlying quoted securities to which these contracts
expose the Group.
Level 3 – Valuation techniques using significant unobservable inputs
This category includes all instruments where the valuation technique includes
inputs not based on market data and these inputs could have a significant
impact on the instrument’s valuation.
This category includes instruments that are valued based on quoted prices for
similar instruments where significant entity determined adjustments or
assumptions are required to reflect differences between the instruments and
instruments for which there is no active market. The Investment Manager
considers observable data to be that market data that is readily available,
regularly distributed or updated, reliable and verifiable, not proprietary,
and provided by independent sources that are actively involved in the relevant
market.
The level in the fair value hierarchy within which the fair value measurement
is categorised in its entirety is determined on the basis of the lowest level
input that is significant to the fair value measurement. If a fair value
measurement uses observable inputs that require significant adjustment based
on unobservable inputs, that measurement is a Level 3 measurement.
Assessing the significance of a particular input to the fair value measurement
in its entirety requires judgement, considering factors specific to the 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
measurement of Level 3 assets or liabilities.
The investment in the subsidiary is classified within Level 3 since the
subsidiary is not a listed entity. The fair value of the investment in the
subsidiary is calculated based on the net asset value of the underlying
balances within the subsidiary. Therefore, no sensitivity analysis has been
presented.
Fair values of financial assets and financial liabilities
The table below sets out fair value measurements using the IFRS 13 fair value
hierarchy.
Financial assets at fair value through profit or loss at Level 1 Level 2 Level 3 Total
30 November 2023 – Group £’000 £’000 £’000 £’000
Assets:
Equity investments 169,171 – – 169,171
Fixed income investments 4,022 2,347 – 6,369
Liabilities:
Derivative financial instruments – written options (110) – – (110)
Derivative financial instruments – commodity futures (780) – – (780)
--------------- --------------- --------------- ---------------
172,303 2,347 – 174,650
========= ========= ========= =========
Financial assets at fair value through profit or loss at Level 1 Level 2 Level 3 Total
30 November 2023 – Company £’000 £’000 £’000 £’000
Assets:
Equity investments 169,171 – 2,455 171,626
Fixed income investments 4,022 2,347 – 6,369
Liabilities:
Derivative financial instruments – written options (110) – – (110)
Derivative financial instruments – commodity futures (780) – – (780)
--------------- --------------- --------------- ---------------
172,303 2,347 2,455 177,105
========= ========= ========= =========
Financial assets at fair value through profit or loss at Level 1 Level 2 Level 3 Total
30 November 2022 – Group £’000 £’000 £’000 £’000
Assets:
Equity investments 198,500 – – 198,500
Fixed income investments 5,629 2,265 – 7,894
Liabilities:
Derivative financial instruments – written options (55) – – (55)
--------------- --------------- --------------- ---------------
204,074 2,265 – 206,339
========= ========= ========= =========
Financial assets at fair value through profit or loss at Level 1 Level 2 Level 3 Total
30 November 2022 – Company £’000 £’000 £’000 £’000
Assets:
Equity investments 198,500 – 3,455 201,955
Fixed income investments 5,629 2,265 – 7,894
Liabilities:
Derivative financial instruments – written options (55) – – (55)
--------------- --------------- --------------- ---------------
204,074 2,265 3,455 209,794
========= ========= ========= =========
In addition to the investment in the subsidiary, the Company held one other
Level 3 security as at 30 November 2023 (2022: nil).
A reconciliation of fair value measurement in Level 3 is set out below.
Level 3 Financial assets fair value through profit or loss at 30 November – Company 2023 2022
£’000 £’000
Opening fair value 3,455 3,804
Transfers from Level 1 – 1
Total gains or losses included in profit/(loss) on investments in the Consolidated Statement of Comprehensive Income:
– assets held at the end of the year (1,000) (350)
--------------- ---------------
Closing balance 2,455 3,455
========= =========
As at 30 November 2023, the investment in Gazprom has been valued at a nominal
value of RUB0.01 due to lack of access to the Moscow Stock Exchange as a
result of sanctions against Russia following the invasion of Ukraine.
Following the suspension of the secondary listings of depositary receipts of
Russian companies, the investment in Gazprom ADRs was transferred from Level 1
to Level 3. Towards the year end, the ADRs in Gazprom were converted into
equity shares of Gazprom. As at the year-end, this investment is considered a
Level 3 financial asset.
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 any price related
risks, including climate risk, in accordance with the fair value related
requirements of the Company’s financial reporting framework.
12. Related Party Disclosure
Directors’ emoluments
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 within the Annual Report and
Accounts. At 30 November 2023, £11,000 (2022: £11,000) 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 30 November 2023
Total % of shares held by Related Total % of shares held by Significant Number of Significant Investors who
BlackRock Funds Investors who are not affiliates of are not affiliates of BlackRock Group or
BlackRock Group or BlackRock, Inc. BlackRock, Inc.
0.7 n/a n/a
As at 30 November 2022
Total % of shares held by Related Total % of shares held by Significant Number of Significant Investors who
BlackRock Funds Investors who are not affiliates of are not affiliates of BlackRock Group or
BlackRock Group or BlackRock, Inc. BlackRock, Inc.
1.3 n/a n/a
13. Transactions with the Investment Manager and AIFM
BlackRock Fund Managers Limited (BFM) provides management and administrative
services to the Group under a contract which is terminable on six months’
notice. BFM has (with the Group’s consent) delegated certain portfolio and
risk 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 Accounts.
The investment management fee due for the year ended 30 November 2023 amounted
to £1,549,000 (2022: £1,358,000). At the year end, £742,000 was outstanding
in respect of the management fee (2022: £728,000).
The Company is entitled to a rebate from the investment management fee charged
by the Manager in the event the Company’s ongoing charges exceeds the cap of
1.25% per annum of average daily net assets. The amount of rebate accrued to
30 November 2023 amounted to £nil (2022: £nil).
Further details in respect of the management fee and rebate are given in note
4 above.
In addition to the above services, BIM (UK) has provided the Group with
marketing services. The total fees paid or payable for these services for the
year ended 30 November 2023 amounted to £84,000 excluding VAT (2022:
£45,000). Marketing fees of £106,000 excluding VAT (2022: £22,000) were
outstanding as at the year end.
The ultimate holding company of the Manager and the Investment Manager is
BlackRock, Inc., a company incorporated in Delaware USA.
14. Contingent Liabilities
There were no contingent liabilities at 30 November 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 2023 Annual
Report and Financial Statements will be filed with the Registrar of Companies
shortly.
The report of the auditor for the year ended 30 November 2023 contains no
qualification or statement under Section 498(2) or (3) of the Companies Act
2006.
This announcement was approved by the Board of Directors on 30 January 2024.
16. Annual Report
Copies of the Annual Report will be sent to members shortly and will be
available from the registered office c/o The Company Secretary, BlackRock
Energy and Resources Income 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 Friday, 15 March 2024 at 12.00 pm.
For further information, please contact:
Sarah Beynsberger, Director, Investment Companies, BlackRock Investment
Management (UK) Limited
Tel: 020 7743 3000
Press enquiries:
Lansons Communications
Email: BlackRockInvestmentTrusts@lansons.com
Tel: 020 7490 8828
30 January 2024
12 Throgmorton Avenue
London EC2N 2DL
END
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