Annual Financial Report
02/02/2024 17:53
BlackRock Throgmorton Trust plc
(Legal Entity Identifier: 5493003B7ETS1JEDPF59)
Information disclosed in accordance with Article 5 Transparency Directive and
DTR 4.1
Annual Results Announcement for the year ended 30 November 2023
Performance record
As at As at
30 November 2023 30 November 2022
Net assets (£’000) 1 575,925 633,357
Net asset value per ordinary share (pence) 600.72 626.10
Ordinary share price (mid-market) (pence) 579.00 595.00
Benchmark Index 2 14,713.60 15,652.96
Discount to cum income net asset value 3 (3.6)% (5.0)%
For the year For the year
ended ended
30 November 2023 30 November 2022
Performance (with dividends reinvested)
Net asset value per share 3 (2.3)% (31.1)%
Ordinary share price 3 (0.8)% (35.5)%
Benchmark Index 2 (6.0)% (17.5)%
Average discount to cum income net asset value for the year 3 (5.2)% (3.5)%
For the year For the year Change
ended ended %
30 November 2023 30 November 2022
Revenue
Net profit on ordinary activities after taxation (£’000) 16,510 13,257 +24.5%
Revenue earnings per ordinary share (pence) 4 16.56 12.95 +27.9%
--------------- --------------- ---------------
Dividends per ordinary share (pence)
Interim 3.30 2.60 +26.9%
Final 11.45 8.50 +34.7%
--------------- --------------- ---------------
Total dividends payable/paid 14.75 11.10 +32.9%
========= ========= =========
Annual performance for the ten years to 30 November 2023
Benchmark Index 1 NAV per share Ordinary share price (mid-market)
2014 (0.6) (1.1) (5.7)
2015 11.9 23.2 27.7
2016 6.3 7.3 (2.1)
2017 21.3 33.9 43.8
2018 (9.0) (2.7) 1.8
2019 8.0 24.4 42.8
2020 3.8 9.1 8.2
2021 24.5 37.0 38.8
2022 (17.5) (31.1) (35.5)
2023 (6.0) (2.3) (0.8)
Annual performance figures to 30 November change %, calculated in Sterling
terms with dividends reinvested.
Sources: BlackRock and Datastream.
1 The change in net assets reflects portfolio movements, dividends paid,
share issues and share buybacks during the year.
2 The Company’s Benchmark Index is the Numis Smaller Companies plus AIM
(excluding Investment Companies) Index. With effect from 22 March 2018, the
Numis Smaller Companies plus AIM (excluding Investment Companies) Index
replaced the Numis Smaller Companies excluding AIM (excluding Investment
Companies) Index as the Company’s Benchmark Index. From 1 December 2013 to
21 March 2018, the Company’s Benchmark Index was the Numis Smaller Companies
excluding AIM (excluding Investment Companies) Index. Prior to 1 December
2013, the Company’s Benchmark Index was the Numis Smaller Companies plus AIM
(excluding Investment Companies) Index. The performance of the Benchmark
Indices during these periods has been blended to reflect these changes.
3 Alternative Performance Measures, see Glossary contained within the Annual
Report and Accounts.
4 Further details are given in the Glossary contained within the Annual
Report and Accounts.
Chairman’s statement
Financial year’s highlights
· NAV outperformed the Benchmark Index over one year by 3.7 percentage
points
· Performance remains strong over the longer term; our NAV has outperformed
the Benchmark Index by 17% over five years (share price by 29.0%) and by 72.5%
over 10 years (share price by 95.8%)
· NAV underperformed the Benchmark Index over three years by 4.3%, and
outperformed over five years by 17% and over 10 years by 72.5%
· Share price narrowed to a 3.6% discount to NAV at the year end and traded
at an average discount of 5.2% to NAV during the financial year
· Final dividend declared of 11.45p per share (2022: 8.50p)
(All returns are in Sterling terms with dividends reinvested).
OVERVIEW
I am pleased to report that the Company outperformed our benchmark index by
3.7% during the twelve months to 30 November 2023. Although it is
disappointing that in absolute terms our Net Asset Value fell by 2.3% for the
year under review, over the longer term, performance remains strong, with the
Company’s NAV return outperforming the benchmark index by 17.0% over five
years and by 72.4% over ten years. At the share price level, the
outperformance was 29.0% and 95.8% over the same periods.
As you will read in the Investment Manager’s report which follows, our
portfolio manager, Dan Whitestone, highlights that UK Smaller Company
valuations are very low, both versus their own history and other asset
classes. 2023 has once again been difficult to navigate, with significant
market volatility and a widening gap between the fortunes of smaller and
larger companies. However, given a macroeconomic backdrop of falling
inflation, rising consumer confidence, and strong wage growth, these factors
may well serve as a potential catalyst for a re-rating of the sector.
Therefore, the outlook for our asset class may be brighter than many
recognise.
Trading and earnings across our portfolio remain robust and the level of
revenue produced by our portfolio has increased by 27.9% This has enabled
the Board to increase our total dividends for the year by an impressive 32.9%
year-on-year.
MARKET OVERVIEW
In my Half-Yearly statement in July, I described how the first six months of
our financial year were dominated by powerful geopolitical and macroeconomic
drivers. Markets were focused on the path of inflation and interest rates,
seemingly above all else and this theme continued through the second half of
the financial year to 30 November 2023.
The rate of UK inflation, as measured by the Consumer Price Index, steadily
reduced during the year, down from 10.7% at the start of our financial year to
3.9% as at 30 November 2023. This brought some welcome relief to UK consumers
and corporates alike. The path of inflation had been driven by high energy and
food prices and although these fell during the year, they remain far higher
than in recent years. Ongoing structural issues in the UK labour market also
kept wage demands high, somewhat offsetting the easing rate of food inflation
and lower energy prices.
The Bank of England (BOE) continued its policy of monetary tightening
throughout most of the year with the Monetary Policy Committee (MPC) voting to
hold the base rate at 5.25% in September 2023. This is the highest level since
February 2008 and ended a run of fourteen consecutive rate increases since
December 2021. It was well-received by the equity markets. In the US, the
Central Bank held the base rate of interest steady at 5.25% signalling
interest rate cuts were likely in 2024. This saw almost all asset classes rise
significantly in a year-end rally in response. In contrast the BOE was more
hawkish, flagging that UK wage growth remained elevated and that the MPC will
continue to consider the economic data before a rate cut was contemplated.
This supports a ‘higher for longer’ narrative and more recently, UK data
has been mixed with wage growth softening but with inflation above
expectations in December at 4.0%, potentially pushing back expectations of an
interest rate cut in early 2024.
Another feature of the year under review was the elevated geo-political risk,
with the focus switching from the conflict in Ukraine to rising tensions in
the Middle East. There is increasing concern around the inflationary impact of
disruption to major shipping routes in the Red Sea and an escalation into a
wider conflict in the region. Looking forward, there are also several
significant elections in 2024, notably in the UK, US and Europe, with a range
of outcomes, all of which could impact market volatility and sentiment.
For a second year running the UK equity market continues to look cheap on a
range of valuation metrics and this gives our portfolio manager cause for
genuine optimism for UK smaller companies. He notes that the trading
environment is more benign, with falling inflation, strong employment data and
wage growth out-pacing inflation for the first time in many years.
Importantly, sales growth and earnings remain robust for many of the companies
within our portfolio, and the revenue generated by our portfolio this year
rose by an impressive 27.9%. This has enabled the Board to increase the total
dividend paid by the Company by 32.9% versus the prior financial year. In
addition, the UK economy has displayed notable resilience, with household
balance sheets and corporate earnings in better shape than many anticipated.
In 2023 the UK avoided a much-feared economic recession and is forecasting
modest growth in 2024. A ‘soft landing’ – a slowdown in economic growth
that avoids a recession – may still be possible, although UK GDP growth was
0.3% in November 2023. In any case, the current cycle of monetary policy
tightening appears to have peaked, and markets are focusing on if and when
interest rates will be cut; an event that may be the catalyst for a broader
change in market sentiment towards UK Smaller Companies and, in particular,
the high-quality growth companies in which we invest.
PERFORMANCE
Over the twelve months to 30 November 2023, the Company’s NAV returned
-2.3%, compared with a total return of -6.0% from the Company’s Benchmark
Index, the Numis Smaller Companies plus AIM (excluding Investment Companies)
Index, an outperformance of 3.7 percentage points. At the share price level,
the return was -0.8% as the Company’s share rating narrowed from a discount
of 5.0% at the start of the financial year to a discount of 3.6% at the year
end.
The longer-term performance remains strong. The Company’s NAV return
underperformed the Benchmark Index by 4.3% over three years, outperformed by
17.0% over five years and by 72.4% over ten years. The share price
underperformed the Benchmark Index by 7.7% over three years, outperformed by
29.0% over five years and by 95.8% over ten years. (All percentages calculated
in Sterling terms with dividends reinvested.)
As at close of business on 31 January 2024, the Company’s NAV had increased
by 8.8%, compared to the Benchmark Index which increased by 5.4%. The share
price over the same period increased by 6.0%. Further information on portfolio
performance, positioning and the outlook for the forthcoming year can be found
in the Investment Manager’s report below.
The Board and our Manager remain focused on achieving the Company’s
objectives of providing shareholders with long-term capital growth and an
attractive total return and remain confident in the investment approach and
process. We thank shareholders for your loyalty and support.
PERFORMANCE FEE
Following an outperformance versus the benchmark during the financial year, a
performance fee accrual of £2,014,000 has been accrued. Our performance fee
is calculated over a two-year rolling period and therefore no fee is payable
to the Manager for the current financial year. Further information on
management fees can be found in Note 4 to the financial statements below.
POLICY ON SHARE PRICE DISCOUNT/PREMIUM
We recognise that a widening of, and volatility in, the Company’s discount
is viewed by some investors as a key disadvantage of investment trusts. The
Board believes that the best way of addressing any discount volatility over
the longer term is to generate good performance and to create demand for the
Company’s shares in the secondary market through broadening awareness of the
Company’s unique structure, strong investment team and robust investment
process, and our long-term investment track record in an attractive sector
that is difficult to navigate.
The Board considers several factors in determining whether the
premium/discount to NAV (the share rating) at which the Company’s shares
trade is excessive or otherwise. These may include but are not limited to:
whether the share rating is commensurate with the current demand for UK
Smaller Companies and whether the Company’s shares are trading in normal
market conditions; the ongoing attractiveness of the investment proposition,
in particular the strength of the portfolio management team and process; and
the strong long-term performance delivered for shareholders, both in absolute
and relative terms.
SHARE BUY BACK ACTIVITY
During the year to 30 November 2023 the Company’s share rating ranged
between a discount of 1.0% to 9.2% and ended the year at 3.6% (30 November
2022: discount of 5.0%). The 12-month average discount at 30 November 2023 was
5.2% (2022: average discount: 3.5%). During the financial year the Company
bought back a total of 5,286,703 ordinary shares into treasury (2022:
2,015,000) for a total consideration of £29,807,000 (2022: £11,544,000). All
shares were bought back at a discount to the prevailing NAV, were therefore
accretive to existing shareholders, and were placed into treasury for future
re-issue. The advantage of holding shares in treasury over cancelling them is
that they remain listed. This means that where there is an opportunity to
re-issue these shares, the Company does not have to pay additional fees for
admission to trading as would be required with an issue of new shares. It is
the Board’s policy that it will generally only take shares into treasury
where it believes there is a reasonable likelihood of re-issue in the future.
Since 30 November 2023 and up to the latest practicable date of 31 January
2024, a further 580,669 shares have been bought back for a total consideration
of £3.519.000. As at this date, the Company’s shares were trading at a
discount of 6.1%. No ordinary shares were issued during the period.
The Board believes that the share buy back activity undertaken has been
effective and has been in shareholders’ interests. Despite what has been a
challenging and volatile year, it is pleasing that the Company’s share
rating has been relatively stable and has traded within a fairly tight range
for most of the year, and at a consistently tighter discount relative to the
peer group average. As we navigate these more volatile and uncertain markets,
your Board will continue to monitor the Company’s share rating and may
deploy its powers to issue or buy back the Company’s shares where it
believes that it is in shareholders’ long-term best interests to do so.
As it does each year, the Board will once again seek at the Company’s Annual
General Meeting (AGM) to renew the authorities granted by shareholders to
issue or buy back shares. We encourage shareholders to vote in favour of these
resolutions which are described in more detail in the Director’s Report
contained within the Annual Report and Accounts.
REVENUE RETURN AND DIVIDENDS
The revenue return per share for the year amounted to 16.56 pence per share,
compared with 12.95 pence per share for the previous year, an increase of
27.9%. The Board recognises that, although the Company’s objective is
capital growth, shareholders value the dividends paid by the Company. The
Directors are therefore pleased to declare a proposed final dividend of 11.45
pence per share for the year ended 30 November 2023 (2022: 8.50p). This,
together with the interim dividend of 3.30 pence per share paid on 1 September
2023, gives a total dividend for the year of 14.75 pence per share, increasing
the total dividend distributed to shareholders in the prior financial year by
32.9%. This dividend will be paid on 28 March 2024, subject to shareholder
approval at the forthcoming AGM, to shareholders on the Company’s register
on 23 February 2024.
BOARD COMPOSITION AND DIVERSITY
The Board regularly considers its composition and that of its committees and
has an ongoing succession plan in place designed to ensure that it retains an
appropriate balance of skills, knowledge, experience, independence, and
diversity that meets or exceeds relevant best practice and the requirements of
the UK Corporate Governance Code, including guidance on tenure and the
composition of the Board’s committees.
We are cognisant of the benefits of a diverse range of skills on the Board and
the Company is compliant with the Parker Review recommendation that FTSE 350
companies have at least one director from an ethnically diverse background by
2024. The Board is also compliant with the recommendations of the FTSE Women
Leaders Review. The review set targets for FTSE 350 companies which are
designed to achieve boards with 40% female representation (previously 33%) and
at least one woman in the role of Chair or Senior Independent Director on the
board by the end of 2025. We have also disclosed data on the breakdown of the
Board by gender and ethnicity. The disclosure can be found within the Annual
Report and Accounts.
The Board is cognisant of the concept of “overboarding” and considers the
time commitment required by the Directors’ other roles, taking into account
their nature and complexity. The Board reviews this information annually, for
each Director, including my own as Chairman of the Board, to ensure that all
Directors have sufficient capacity to carry out their role effectively. Before
recommending a Director for re-election, their independence, attendance record
and ongoing commitment to the affairs of the Company is also considered.
Further information on the Board’s assessment of Directors independence and
other time commitments can be found in the Corporate Governance Statement
contained within the Annual Report and Accounts.
BOARD PERFORMANCE EVALUATION
As a constituent of the FTSE 350, and as recommended by the UK Corporate
Governance Code, the Company undertook a comprehensive, externally
facilitated, Board performance evaluation this financial year. The evaluation
was carried out by a wholly independent third party, Stogdale St James Limited
and included one-to-one interviews with the Board, representatives of the
Manager and service providers, the completion of evaluation questionnaires and
the observation of the Board and its interactions by the evaluator. A separate
evaluation of my performance as Chairman was also undertaken by the
independent evaluator, the results of which were considered by our Senior
Independent Director and circulated to the Board. This process resulted in a
small number of findings and recommendations that the Board will adopt,
notwithstanding that the overall conclusion was very positive in terms of the
effectiveness of the Board, its composition, and the skills, expertise and
commitment of the Directors. We believe that the combination of our ongoing
succession plan and structured search and selection process through which the
Board identifies new appointments, coupled with the annual Board evaluation of
their ongoing performance, allows the Board to confidently assert that its
composition is appropriate for a Company of this size and complexity and that
each Director is effectively discharging their role. Further information on
the evaluation of the performance of the Board can be found within the Annual
Report and Accounts.
Further details of the background and experience the Board of Directors can be
found in their biographies contained within the Annual Report and Accounts.
The Board’s policy on Board diversity and associated disclosures can be
found in the Corporate Governance Statement within the Annual Report and
Accounts.
OUR APPROACH TO ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG) INTEGRATION
Consideration of material ESG issues is built into our Manager’s investment
process and climate risk is considered to be a key part of investment risk, an
approach your Board supports. The style of our Investment Manager naturally
steers away from companies with weak balance sheets and poor cash flow which
is a common characteristic of the few resource stocks in the Benchmark Index.
It should be noted that the Company does not have an explicit mandate for
sustainable, ESG or impact-focused investment, nor has it adopted exclusionary
screens. The Investment Manager’s integration of ESG factors into his
analysis is, though, an important lens through which to identify long term
winners, just as poor ESG outcomes provide a useful tool in establishing
candidates for the short book.
Further information on the Manager's approach to responsible investing can be
found within the Annual Report and Accounts.
ANNUAL GENERAL MEETING
The Board is pleased to announce that the Company’s Annual General Meeting
(AGM) will be held in person on Tuesday, 19 March 2024 at 12.00 p.m. at the
offices of BlackRock at 12 Throgmorton Avenue, London, EC2N 2DL. Details of
the business of the meeting are set out in the Notice of Annual General
Meeting contained within the Annual Report and Accounts.
Prior to the formal business of the meeting, our Investment Manager will make
a presentation to shareholders. This will be followed by a question and answer
session. Shareholders who are unable to attend the meeting in person but who
wish to follow the AGM proceedings can do so via a live webinar this year.
Details on how to register, together with access details, will be available
shortly on the Company’s website at: www.blackrock.com/uk/thrg or by
contacting the Company Secretary at cosec@blackrock.com. It is not possible to
attend, speak or vote via this medium and it is solely intended to provide
shareholders with the ability to watch the proceedings.
Additionally, if you are unable to attend you can exercise your right to vote
by proxy or appoint a proxy to attend in your place. Details of how to do this
are included on the AGM Proxy Card provided to shareholders with the annual
report. If you hold your shares through a platform or nominees, you will need
to contact them and ask them to appoint you as a proxy in respect of your
shares in order to attend, speak and vote at the AGM. Further information on
the business of this year's AGM can be found in the Notice of the AGM
contained within the Annual Report and Accounts.
SHAREHOLDER COMMUNICATION AND ENGAGEMENT
We appreciate how important access to regular information is to our
shareholders. To supplement our Company website, we offer shareholders the
ability to sign up to the Trust Matters newsletter which includes information
on the Company as well as news, views and insights on the investment trust
market. Information on how to sign up is included on the inside front cover of
the Annual Report and Accounts.
Following positive feedback and greater attendance and participation at the
Company’s AGM last year, I have once again sought to engage with
shareholders who hold their shares through an intermediary or platform via the
provisions of Section 793 of the Companies Act 2006. The Board encourages all
shareholders to either attend the AGM or exercise your right to vote by proxy.
The Board is aware that certain execution only investment platforms are now
providing shareholders with the ability to vote electronically. The Board
encourages shareholders to take advantage of this functionality where it is
available to you.
The Board takes its responsibilities very seriously and is committed to
exercising the highest standard of corporate governance. It also regularly
considers the views of its major shareholders, offering to meet with them
annually, and seeks to engage with all shareholders where possible. Should you
wish to contact me, you can do so via our Company Secretary whose details are
set out within the Annual Report and Accounts.
OUTLOOK
As you will read in his report which follows, our portfolio manager is
optimistic about the future. He highlights what he believes is a significant
mis-pricing of UK Small Cap companies, evidenced by the disconnect between the
growth in corporate sales and earnings and the valuations ascribed by the
market. UK smaller companies are currently trading at valuations which look
very cheap versus other asset classes, and compared with their historical
averages. In addition, our portfolio highlights in his report the differential
between the performance of UK small-cap and large cap equities, the widest
since the Global Financial Crisis. With a gradually improving macroeconomic
backdrop and several potential catalysts for a re-rating of the sector, not
least a cut in interest rates, he believes the opportunity set presented by
our asset class is highly compelling for the medium-term investor.
Our Investment Manager’s fundamental philosophy remains unchanged, with a
continued focus on financially strong companies with innovative business
models and differentiated offerings which are capable of delivering sustained
growth over time. This approach has served the Company well over many years
and the Board remains fully supportive of our Investment Manager and his
approach.
CHRISTOPHER SAMUEL
Chairman
2 February 2024
INVESTMENT MANAGER’S REPORT FOR YEAR ENDED 30 NOVEMBER 2023
MARKET REVIEW AND OVERALL INVESTMENT PERFORMANCE
Interest rate policy and inflation remained top of minds during the second
half of the financial year, with markets heavily influenced on a
month-by-month basis by the latest inflation figures and rhetoric from central
banks around the world. Thankfully, inflation has been coming down throughout
the year, and most recently we have seen a stark change in narrative from
higher for longer to peak rates and imminent central bank pivot. This has not
been a consistent narrative throughout the past six months, with spikes in
volatility caused by concerns for the growth outlook for China, mixed economic
data fuelling the “higher for longer” narrative, fears of the
‘inevitable’ hard recession, geopolitical conflict, and mixed earnings, to
name a few. And whilst the most recent change in sentiment has provided a
supportive backdrop for the Company, it does continue the trend of heightened
volatility within markets.
PERFORMANCE REVIEW
For the second half of 2023, the Company’s NAV outperformed the benchmark by
+1.3%, falling by 2.4% in absolute terms versus our benchmark which fell by
3.7%. In terms of the underlying portfolio performance, the long book, before
fees, lost 2.9% whilst the short book had a strong period generating 0.9% for
the six months ended 30 November 2023 (for the full year, before fees, the
long portfolio contributed -2.0% and the short portfolio contributed +0.4%
respectively to NAV returns).
This takes the Company’s total return for the financial year of 2023 to
-2.3%, and although disappointing to report a loss it should be noted that the
Company outperformed its benchmark by +3.7% over this same period, indeed
outperforming in both the first half and the second half of our financial
year.
For the purposes of this performance review we think it more instructive to
comment specifically on the second half to avoid repeating the detailed write
up of the first half presented in our interim financial statements. More
detail in respect of performance attribution is set out in the table in the
glossary contained within the Annual Report and Accounts.
The second consecutive year of losses for our benchmark reflects the
significant negative sentiment that clouds UK and small and medium sized
companies in particular. This is reflected in the fund flow data which shows
November 2023 marked the 28th consecutive month of outflows in UK small and
mid-caps. It is my view that this pervasive selling pressure has resulted in a
significant mispricing within UK small and mid-caps, evidenced by the low
price-to-earnings ratio for the small and mid-cap universe (FTSE 250 10.5x and
FTSE Small Cap 8.3x) but also the extent of relative underperformance versus
the FTSE 100. To put this into context, the FTSE 250 has underperformed the
FTSE 100 in 17 of the last 24 months, and now is the largest and longest
period of relative underperformance on record, far exceeding the Great
Financial Crisis.
However, despite the bearish views, persistently high inflation, a recession,
and a collapse in corporate profitability, the second half of 2023 has given
cause for more optimism reflecting falling inflation, strong employment and
increasing consumer confidence. The underlying fundamentals (i.e. sales
growth, margins, balance sheet strength, free cash generation) of many of the
Company’s holdings remain robust and company updates on the whole have been
supportive. Of course, in any given year there will be disappointments, and
this year is no exception, but in aggregate, I think the earnings of the
Company’s holdings and the broader small and mid-cap investment universe
have proved far more resilient than many predicted.
Focusing on the biggest contributors and detractors for the second half, the
largest contributor was Ergomed which announced a recommended cash offer from
the Private Equity firm Permira at a 28% premium to the previous day’s
closing price. Whilst helpful to this period's performance we are incredibly
disappointed to lose another of our genuinely differentiated and exciting UK
mid-cap growth companies which we have had the privilege of owning for many
years. We congratulate Miro Reljanovic (Founder and CEO) for all he has
delivered and wish him the best. However, in our view Ergomed is a great
example of the inherent value within the broader UK mid-cap complex (and our
long book!), where many predominantly international earners, with strong
balance sheets continue to grow, yet trade on significant valuation discounts
to their US listed peers.
The second biggest contributor was our short position in a UK listed software
company. After a meteoric rise, fuelled by news flow about very large contract
wins, the shares were suspended earlier this year upon the detection of a
fraud. After an independent investigation, it transpired most of those
contract wins did not exist and 90% of bookings were fake. Revenues, rather
than growing, were actually falling. After coming within days of running out
of cash, the company completed a restructuring and rescue fund raising in
July. We closed out our short in the placing 96% below the suspension price.
The third biggest contributor was from our long position in Computacenter
which has continued to trade well, reporting a 24% year-over-year increase in
organic gross invoice income at their interims, reflecting strong end market
dynamics (digital transformation, cyber security etc) and continued market
share gains. Other notable contributors include Tatton Asset Management, Games
Workshop, Baltic Classified Group, and Hill & Smith, all of which delivered
successive positive updates throughout the period and ended with earnings
higher than predicted at the start of the year.
Turning to the detractors, the biggest was from our long position in CVS
Group, which fell sharply on the news that the Competition and Markets
Authority (CMA) are launching an inquiry into how “veterinary services are
bought and sold amid concerns that pet owners may not be getting a good deal
or receiving the information needed to make good choices”. Whilst we have
spoken to management at length and also have experience of CMA inquiries into
other industries, due to the sensitivity of this we feel it imprudent to
comment now. We still own this stock, which at the time of writing, accounts
for around 2.5% of NAV.
The second largest detractor was WH Smith which despite reporting continued
solid trading throughout the period, fell back either due to the lack of an
upgrade to full-year guidance or just general aversion to UK mid-cap growth
companies. WH Smith remains a top 10 holding at the time of writing. The third
largest detractor was SigmaRoc which also continued to deliver solid trading
results throughout the period, reporting like-for-like revenue growth of 13%
and a double-digit profit increase, yet the shares languished on 7x current
year's earnings.
PORTFOLIO POSITIONING AND OUTLOOK
2023 saw a continuation of many themes of uncertainty carried forward from
2022, and the market continued to grapple with the interplay between
inflation, monetary and fiscal policy and corporate earnings. The overall
positioning of the Company reflects our outlook which has not changed
significantly over the last six months. As discussed in our interim report, my
view remains that interest rates had peaked and inflation would fall markedly.
As the year-on-year impact on inflation rolled over, the impending fall in
utility bills would offer some meaningful shelter to those still to
re-mortgage to a new higher priced fixed deal. Over a third of homeowners
mortgage free, and a large percentage of the mortgage book having re-mortgaged
earlier in 2023, there are many who will benefit from strong employment,
falling utility costs and higher interest on cash. Indeed, many banks have
upgraded their household cash flow forecasts through 2023 as a consequence and
consumer confidence continues to remain robust. Generally speaking, financial
conditions are not too stretched; corporates and consumers are reasonably well
capitalised, and banks have plenty of capital. As such, the path of employment
will dictate the consumer outlook, but we continue to expect the trough to be
shallower than in previous downturns.
For UK domestic focused PLCs, 2024 will likely see growing dispersion in
financial returns as those with strong market share stories (digital, trading
down, new product verticals, etc) will outperform and grow despite a more
challenging backdrop. Input costs have now reversed for many and so the
attention will focus on top line and in particular underlying volume growth as
price will become a far less significant lever to flex. The converging
valuations of many UK consumer shares has been a source of immense frustration
for us, with well-capitalised market share winners, with high gross margins
trading on similar price to earnings ratios and free cash flow yields to their
far inferior peer group. We hope 2024 will mark the year of more dispersion in
valuations between winners and losers which should benefit this Company well.
Housebuilding and RMI (Repair, Maintenance and Improvement) has had a tough
2023, but I continue to believe the outlook is far better than it was in
September 2022, despite valuations in a similar place. In recent weeks I have
added to housebuilders as well as RMI related plays, as in my view valuations
are close to trough on earnings that are also close to trough so the recovery
potential in both earnings and multiple is substantial. With positioning so
extreme, we have seen only in recent days and weeks what implications that can
have on these types of shares as falling borrowing costs, a steadying housing
market and strong employment have forced a reappraisal.
We retain a significant exposure to industrials and our approach remains
selective. Though industrial activity moderated in 2023, there have been many
cross currents and dispersion between companies and sub-sectors and
geographies. Destocking has been a big theme in the sector, with supply chain
issues initially leading to overordering, and then in turn overstocking (as
supply chain issues resolved); this then led many businesses to destock,
cutting orders and resulting in a slowdown in revenues. The stop-start nature
of these supply chain issues throughout the year has impacted a range of
geographies and sub-sectors differently, as they are all at different points
in the cycle. We got some of these dynamics right and some wrong in 2023.
Within General Industrial we noticed that quite a few of our companies flagged
a recent pick up in their book-to-bill ratios in November and December 2023.
Perhaps there is some genuine emerging evidence that several have turned a
corner and growth can accelerate through 2024. Reshoring in the US, as well as
several Government programmes (Chips, IRA) continues to provide additional
tailwinds of growth for quite a few US focused, but UK listed, small and
mid-caps we have exposure to e.g. Hill & Smith.
There is much that can be debated about the economic outlook, but we think the
valuation of UK small and mid-cap companies is compelling. It is therefore
with some sadness, that the great de-equitization of UK public sector
continues. Non-market participants are seemingly taking a very different view
on the value of company equity and thereby their associated cash flows, and
this is evidenced by i) corporate share buy-backs (the majority of our
investments are buying back their equity), ii) Corporate M&A (e.g. Deutsche's
cash-bid for Numis), and iii) Private Equity (e.g. Permira’s acquisition of
Ergomed, and EQT's acquisition of Dechra Pharmaceuticals). These were 3
holdings of the Company we were very sorry to see depart, and in the case of
Ergomed and Dechra are the loss of holdings this Company has owned for many
years. Alas, we expect this is a trend that will continue; private equity
continues to sit on near record levels of cash (we estimate circa US$438
billion in Europe) which they are keen to deploy. A challenge for us will be
to ensure we don’t let the significant disconnect in valuations away from
strong fundamentals and future cash flow growth enable others to realise the
inherent value available in our home market, denying us of compelling future
returns just for a cash bid today. My hope is that this focuses the market on
the opportunities in front of us and catalyses a re-rating.
Looking ahead to 2024, market volatility is unlikely to abate, and 2024 will
mark a significant year for Elections worldwide which may well inject further
turbulence into the macro backdrop. However, there are reasons for optimism.
We enter 2024 with inflation and mortgage rates falling, whilst productivity
and factory construction and corporate profits are rising. Labour markets are
showing signs of softness but remain robust, and with low levels of
unemployment many are experiencing the benefits of real wage growth for the
first time in years, which should in time lead to higher services PMIs.
Inventory balances are low after a prolonged period of destocking and so our
hope is that manufacturing PMIs turn upwards which will boost the outlook for
growth. As for inflation, we believe pressure will ease this year with
deflationary pressures gaining traction during the course of 2024. Oil and gas
prices are low (at the time of writing) amidst concerns of oversupply which
will continue to alleviate pressure on corporate input costs and consumer
wallets. In the US, the indications over recent weeks are that the Fed is
likely to hold rates (with a bias to cut). As we’ve seen in the last couple
of months, we think this has the potential to catalyse a broadening out of
market leadership away from some very narrow areas of outperformance, both in
the US and the UK, which overall should be a net positive for our positioning.
In summary, the picture we see is one of a gradual recovery, and in our view
this is not reflected in valuations of UK small and medium sized companies
which we think offer compelling value in both absolute and relative terms.
Indeed, the Company now possesses many companies on single digit price to
earnings ratios, with double digit Free Cash Flow yields, but unlike so many
archetypical “value” sectors, have far superior growth prospects. As a
result, the net market exposure of the Company is slowly increasing and is now
around 106%, while the gross is c.114%.
DAN WHITESTONE
BlackRock Investment Management (UK) Limited
2 February 2024
PORTFOLIO OF INVESTMENTS
1 ▲ Breedon (2022: 12th)
Construction & Materials
Market value: £18,919,000
Share of net assets: 3.3% (2022: 2.4%)
Supplier of construction materials
2 ▲ Gamma Communications* (2022: 7th)
Mobile Telecommunications
Market value: £17,506,000
Share of net assets: 3.0% (2022: 2.8%)
Provider of communication services to UK businesses
3 ▼ Oxford Instruments (2022: 2nd)
Electronic & Electrical Equipment
Market value: £15,989,000
Share of net assets: 2.8% (2022: 3.1%)
Designer and manufacturer of tools and systems for industry and research
4 ▲ Grafton Group (2022: 13th)
Support Services
Market value: £15,915,000
Share of net assets: 2.8% (2022: 2.1%)
Builders’ merchants in the UK, Ireland and Netherlands
5 ▲ YouGov* (2022: 11th)
Media
Market value: £15,642,000
Share of net assets: 2.7% (2022: 2.4%)
Provider of survey data and specialist data analytics
6 ▼ 4imprint Group (2022: 3rd)
Media
Market value: £15,344,000
Share of net assets: 2.7% (2022: 3.1%)
Supplier of promotional merchandise in the US
7 ▲ Rotork (2022: 23rd)
Electronic & Electrical Equipment
Market value: £14,498,000
Share of net assets: 2.5% (2022: 1.6%)
Manufacturer of industrial flow equipment
8 ▲ WH Smith (2022: 9th)
General Retailers
Market value: £14,285,000
Share of net assets: 2.5% (2022: 2.6%)
Retailer of books, stationery, magazines, newspapers and confectionary
9 ▲ Computacenter (2022: 16th)
Software & Computer Services
Market value: £13,978,0001
Share of net assets: 2.4% (2022: 2.0%)
Computer services
10 ▼ CVS Group* (2022: 5th)
General Retailers
Market value: £13,924,000
Share of net assets: 2.4% (2022: 2.9%)
Operator of veterinary surgeries
* Traded on the Alternative Investment Market (AIM) of the London Stock
Exchange.
1 Includes long derivative positions.
Percentages shown are the share of net assets.
The market value shown is the gross exposure to the shares through equity
investments and long derivative positions. For equity investments, the market
value is the fair value of the shares. For long derivative positions, it is
the market value of the underlying shares to which the portfolio is exposed
via the contract.
Percentages in brackets represent the portfolio holding as at 30 November
2022. Arrows indicate the change in relative ranking of the position in the
portfolio compared to its ranking as at 30 November 2022.
# Company £’000^ % Description
11 Tatton Asset Management* Financial Services 12,693 2.2 Provision of discretionary fund management services to the IFA market
12 Hill & Smith Holdings Industrial Metals & Mining 12,513 2.2 Supplier of infrastructure products and galvanizing services
13 Sigmaroc* Construction & Materials 12,318 2.1 Buy-and-build group targeting construction materials assets in the UK and Northern Europe
14 Moneysupermarket.com Software & Computer Services 10,737 1 1.9 Provider of price comparison website specialising in financial services
15 IntegraFin Financial Services 10,617 1 1.8 UK savings platform for financial advisors
16 Workspace Group Real Estate Investment Trusts 10,540 1.8 Supply of flexible workspace to businesses in London
17 Dunelm Group General Retailers 10,383 1.8 Retailer of homeware products
18 Watches of Switzerland Personal Goods 10,314 1.8 Retailer of luxury watches
19 Bytes Technology Software & Computer Services 9,791 1.7 Specialist in software, security and cloud services
20 Qinetiq Group Aerospace & Defence 9,737 1.7 Provider of scientific and technological services to the defence, security and aerospace markets
21 Boku* Support Services 9,685 1.7 Digital payments platform
22 Mattioli Woods* Financial Services 9,410 1.6 Provider of wealth management services
23 Chemring Group Aerospace & Defence 9,245 1.6 Provider of technology products and services to aerospace, defence and security markets
24 Morgan Sindall Construction & Materials 8,930 1 1.6 Supplier of office fit out, construction and urban regeneration services
25 TT Electronics Electronic & Electrical Equipment 8,913 1 1.5 Global manufacturer of electronic components
26 Baltic Classifieds Group Software & Computer Services 8,905 1 1.5 Operator of online classified businesses in the Baltics
27 SIG Industrial Support Services 8,526 1.5 Supplier of building, roofing and insulation products
28 Future Media 8,068 1.4 Multi-platform media business covering technology, entertainment, creative arts, home interest and education
29 JET2* Travel & Leisure 7,791 1.4 Low cost tour operator and airline
30 GlobalData* Media 7,177 1 1.2 Data analytics and consulting
31 Howden Joinery Group General Retailers 7,010 1 1.2 Kitchen and joinery product supplier
32 Next Fifteen Communications* Media 6,947 1.2 Provider of digital communication products and services
33 Indivior PLC Pharmaceuticals & Biotechnology 6,807 1.2 Pharmaceuticals business specialising in addiction and mental health treatments
34 Deliveroo Software & Computer Services 6,783 1.2 Online food delivery business
35 Vesuvius Industrial Engineering 6,564 1 1.1 British engineered ceramics company
36 Intermediate Capital Group Investment Banking & Brokerage 6,147 1.1 Private equity business
37 Luceco Electronic & Electrical Equipment 6,131 1.1 Supplier & manufacturer of high quality LED lighting products
38 Alfa Financial Software Software & Computer Services 6,126 1.1 Provider of software to the finance industry
39 FTSE 250 Index Future Financial Services 5,844 1 1.0 Index future
40 Robert Walters Support Services 5,813 1.0 Provider of specialist recruitment services
41 Cranswick Food Producers 5,802 1.0 Producer of premium, fresh and added-value food products
42 Londonmetric Property Real Estate Investment Trusts 5,787 1 1.0 Investor in, and developer of property
43 Serica Energy* Oil, Gas & Coal 5,685 1.0 Oil and gas producer
44 Ascential Software & Computer Services 5,498 1.0 Specialist information and data analytics company
45 Bellway Household Goods and Home Construction 5,429 0.9 UK housebuilder
46 Kier Group Support Services 5,318 0.9 UK construction, services and property group
47 Euronext & Financial Services 5,283 1 0.9 European stock exchange
48 Young & Co’s Brewery Travel & Leisure 5,234 0.9 Owner and operator of pubs mainly in the London area
49 Lok’nStore* Real Estate Investment & Services 5,200 0.9 Provider of self-storage space in the UK
50 Hunting Oil Equipment and Services 5,066 1 0.9 Oil services business
51 Hiscox Non-life Insurance 5,024 1 0.9 Provision of insurance services
52 Sirius Real Estate Real Estate Investment & Services 4,961 0.9 Owner and operator of business parks, offices and industrial complexes in Germany
53 Auction Technology Group General Retailers 4,861 0.8 Operator of marketplaces for curated online auctions
54 OSB Group Financial Services 4,831 0.8 Specialist lending business
55 Judges Scientific* Electronic & Electrical Equipment 4,719 0.8 Designer and producer of scientific instruments
56 Xero* & Software & Computer Services 4,685 1 0.8 Software company specialising in accounting for small businesses
57 Games Workshop Leisure Goods 4,630 0.8 Developer, publisher and manufacturer of miniature war games
58 Herc Holdings & Industrial Transportation 4,609 1 0.8 Equipment rental business
59 Porvair Industrial Engineering 4,601 0.8 Specialist filtration and environmental technology
60 AB Dynamics* Industrial Engineering 4,400 0.8 Developer and supplier of specialist automotive testing systems
61 Zotefoams Chemicals 4,370 1 0.8 Manufacturer of polyolefin foams used in sport, construction, marine, automation, medical equipment and aerospace
62 Clarkson Industrial Transportation 4,297 0.7 Provider of shipping services
63 Victorian Plumbing* Home Improvement Retailers 4,024 1 0.7 Online retailer of bathroom products
64 Polar Capital Holdings Financial Services 3,984 0.7 Provider of investment management services
65 Senior Plc Aerospace & Defence 3,961 0.7 Specialist engineering business
66 Crest Nicholson Household Goods and Home Construction 3,959 0.7 UK housebuilder
67 Babcock International Group Aerospace & Defence 3,956 0.7 British aerospace, defence and nuclear engineering services company
68 Ashtead* Oil, Gas & Coal 3,914 0.7 International equipment rental business
69 TP ICAP Investment Banking & Brokerage 3,736 0.6 Inter-dealer broker
70 Permanent TSB Banks 3,729 0.6 Irish bank
71 Redrow Household Goods and Home Construction 3,491 0.6 UK housebuilder
72 Marshalls Construction & Materials 3,443 1 0.6 British construction materials group
73 MJ Gleeson Household Goods and Home Construction 3,301 0.6 UK housebuilder
74 SThree Support Services 3,258 0.6 Provider of specialist professional recruitment services
75 Restore* Support Services 3,251 0.6 Records management business
76 Eckoh* Software & Computer Services 3,166 0.5 Global provider of secure payments products
77 GPE Real Estate Investment Trusts 3,142 1 0.5 Owner of commercial real estate in central London
78 Spectris Electronic & Electrical Equipment 3,133 0.5 Supplier of productivity enhancing instrumentation and controls
79 Aston Martin Automobiles & Parts 3,129 0.5 Luxury sports car manufacturer
80 Accesso Technology* Software & Computer Services 3,128 1 0.5 Provider of ticketing and virtual queuing solutions
81 DiscoverIE Electronic & Electrical Equipment 3,025 0.5 International designer, manufacturer and supplier of customised electronics
82 Renishaw Electronic & Electrical Equipment 3,016 0.5 Engineering and scientific technology company
83 Safestore Real Estate Investment Trusts 2,957 0.5 Provider of self-storage units
84 Rambus & Technology Hardware & Equipment 2,929 1 0.5 US listed chip and silicone IP producer
85 Medpace Holdings & Pharmaceuticals & Biotechnology 2,878 1 0.5 Clinical research organization (CRO) conducting global clinical research for the development of drugs and medical devices
86 Cerillion* Software & Computer Services 2,838 0.5 Provider of billing, charging and customer management systems
87 Ashmore Group Financial Services 2,726 1 0.5 Emerging market focused investment manager
88 Kainos Group Software & Computer Services 2,676 1 0.5 Provider of digital technology solutions
89 PayPoint Industrial Support Services 2,619 1 0.5 Digital payments business
90 Impax Asset Management* Financial Services 2,595 0.5 Provider of asset management services
91 Dechra Pharmaceuticals Pharmaceuticals & Biotechnology 2,442 0.4 Developer and supplier of pharmaceutical and other products focused on the veterinary market
92 Advanced Medical Solutions* Healthcare Equipment & Services 2,401 1 0.4 Developer and manufacturer of advanced wound care solutions
93 The Pebble Group* Media 2,357 0.4 Designer and manufacturer of promotional goods
94 Oxford Biomedica Pharmaceuticals & Biotechnology 2,252 1 0.4 Gene cell therapy
95 Spirent Technology Hardware & Equipment 2,224 0.4 Multinational telecommunications testing
96 Animalcare Group* Pharmaceuticals & Biotechnology 2,024 0.4 Veterinary pharmaceuticals business
97 XP Power Electronic & Electrical Equipment 1,874 0.3 Leading provider of power solutions
98 MaxCyte* Pharmaceuticals & Biotechnology 1,816 0.3 Clinical-stage global cell-based therapies and life sciences company
99 Big Technologies* Software & Computer Services 1,684 0.3 Provider of remote personal monitoring products
100 Gooch & Housego* Electronic & Electrical Equipment 1,506 0.3 Designer and manufacturer of advanced photonic systems
101 Team17* Leisure Goods 1,504 0.3 Video game developer and publisher
102 Vivendum Industrial Engineering 912 1 0.2 Manufacturer of hardware and software for the film industry
--------------- ---------------
Long investment positions (excluding BlackRock’s Institutional Cash Series plc - Sterling Liquidity Fund) 641,715 111.4
======== ========
Short investment positions (22,086) (3.8)
========= =========
1 Includes long derivative positions
* Traded on the Alternative Investment Market (AIM) of the London Stock
Exchange
& Holdings listed on exchanges outside of the UK
^ The market value shown is the gross exposure to the shares through equity
investments and long derivative positions. For equity investments, the market
value is the fair value of the shares. For long derivative positions, it is
the market value of the underlying shares to which the portfolio is exposed
via the contract
Percentages shown are the share of net assets
At 30 November 2023, the Company held equity interests in six companies
comprising more than 3% of a company’s share capital as follows: Tatton
Asset Management (4.1%); Sigmaroc (3.7%); TT Electronics (3.4%); Luceco
(3.1%); Eckoh (3.1%); and Mattioli Woods (3.0%).
FAIR VALUE AND GROSS MARKET EXPOSURE OF INVESTMENTS AS AT 30 NOVEMBER 2023
Fair value 1 Gross market Gross market exposure as a %
exposure 2, 3 of net assets 2
£’000 £’000 2023 2022
Long equity investment positions (excluding BlackRock’s Institutional Cash Series plc – Sterling Liquidity Environmentally Aware Fund) 557,594 557,594 96.8 91.1
Long derivative positions (1,120) 84,121 14.6 15.7
--------------- --------------- --------------- ---------------
Subtotal of Long investment positions 556,474 641,715 111.4 106.8
========= ========= ========= =========
Short investment positions 368 (22,086) (3.8) (2.5)
--------------- --------------- --------------- ---------------
Subtotal of Long and Short investment positions 556,842 619,629 107.6 104.3
========= ========= ========= =========
Cash and cash equivalents 24,022 (38,764) (6.7) (3.5)
Other net current liabilities (4,940) (4,940) (0.9) (0.8)
--------------- --------------- --------------- ---------------
Net assets 575,924 575,925 100.0 100.0
========= ========= ========= =========
The Company uses gearing through the use of long and short derivative
positions. Gross and Net Gearing as at 30 November 2023 were 115.2% and 107.6%
respectively (2022: 109.3% and 104.3% respectively). Gross and Net Gearing are
Alternative Performance Measures, see Glossary contained within the Annual
Report and Accounts.
1 Fair value is determined as follows:
– Long equity investment positions are valued at bid prices where
available, otherwise at latest market traded quoted prices.
– The exposure to securities held through long derivative positions
directly in the market would have amounted to £85,241,000 at the time of
purchase, and subsequent movement in market prices have resulted in unrealised
losses on the long derivative positions of £(1,120,000) resulting in the
value of the total long derivative market exposure to the underlying
securities decreasing to £84,121,000 as at 30 November 2023. If the long
positions had been closed on 30 November 2023, this would have resulted in a
loss of £(1,120,000) for the Company.
– The notional exposure of selling the securities gained via the short
derivative positions would have been £(22,454,000) at the time of entering
into the contract, and subsequent movement in market prices have resulted in
unrealised gains on the short derivative positions of £368,000 resulting in
the value of the total short derivative market exposure of these investments
increasing to £(22,086,000) at 30 November 2023. If the short positions had
been closed on 30 November 2023, this would have resulted in a gain of
£368,000 for the Company.
2 Gross market exposure for equity investments is the same as fair value; bid
prices are used where available and, if unavailable, latest market traded
quoted prices are used. For both long and short derivative positions, the
gross market exposure is the market value of the underlying shares to which
the portfolio is exposed via the contract.
3 The gross market exposure column for cash and cash equivalents has been
adjusted to assume the Company traded direct holdings, rather than exposure
being gained through long and short derivative positions.
DISTRIBUTION OF INVESTMENTS AS AT 30 NOVEMBER 2023
Sector % of % of % of
long portfolio short portfolio net portfolio
Oil, Gas & Coal 1.6 0.0 1.6
Oil Equipment and Services 0.8 0.0 0.8
--------------- --------------- ---------------
Oil & Gas 2.4 0.0 2.4
========= ========= =========
Chemicals 0.7 0.0 0.7
Industrial Metals & Mining 2.0 0.0 2.0
--------------- --------------- ---------------
Basic Materials 2.7 0.0 2.7
========= ========= =========
Aerospace & Defence 4.4 0.0 4.4
Construction & Materials 7.0 (0.4) 6.6
Electronic & Electrical Equipment 10.1 0.0 10.1
Industrial Engineering 2.7 0.0 2.7
Industrial Support Services 1.8 (0.2) 1.6
Industrial Transportation 1.4 (0.3) 1.1
Support Services 7.0 (0.2) 6.8
--------------- --------------- ---------------
Industrials 34.4 (1.1) 33.3
========= ========= =========
Food Producers 1.0 0.0 1.0
Personal Goods 1.7 0.0 1.7
--------------- --------------- ---------------
Consumer Staples 2.7 0.0 2.7
========= ========= =========
Healthcare Equipment & Services 0.4 0.0 0.4
Pharmaceuticals & Biotechnology 2.9 (0.2) 2.7
--------------- --------------- ---------------
Health Care 3.3 (0.2) 3.1
========= ========= =========
Automobiles & Parts 0.5 0.0 0.5
Consumer Services 0.0 0.0 0.0
General Retailers 8.2 (0.7) 7.5
Home Improvement Retailers 0.6 0.0 0.6
Household Goods and Home Construction 2.6 0.0 2.6
Leisure Goods 1.0 0.0 1.0
Media 9.0 0.0 9.0
Travel & Leisure 2.1 0.0 2.1
--------------- --------------- ---------------
Consumer Discretionary 24.0 (0.7) 23.3
========= ========= =========
Banks 0.6 0.0 0.6
Closed End Investments 0.0 (0.2) (0.2)
Financial Services 9.4 (0.6) 8.8
Investment Banking & Brokerage 1.6 (0.4) 1.2
Non-life Insurance 0.8 0.0 0.8
--------------- --------------- ---------------
Financials 12.4 (1.2) 11.2
========= ========= =========
Real Estate Investment & Services 1.6 0.0 1.6
Real Estate Investment Trusts 3.6 0.0 3.6
--------------- --------------- ---------------
Real Estate 5.2 0.0 5.2
========= ========= =========
Software & Computer Services 12.9 (0.4) 12.5
Technology Hardware & Equipment 0.8 0.0 0.8
--------------- --------------- ---------------
Technology 13.7 (0.4) 13.3
========= ========= =========
Mobile Telecommunications 2.8 0.0 2.8
--------------- --------------- ---------------
Telecommunications 2.8 0.0 2.8
========= ========= =========
Total Investments 103.6 (3.6) 100.0
========= ========= =========
The above percentages are calculated on the net portfolio as at 30 November
2023. The net portfolio is calculated as long equity and derivative positions,
less short derivative positions as at 30 November 2023.
Analysis of the portfolio
Market capitalisation as at 30 November 2023
Long positions 1 % of net portfolio Short positions % of net portfolio
£5bn – £10bn 2.5% 0.0%
£2.5bn – £5bn 12.2% -0.7%
£2bn – £2.5bn 4.8% 0.0%
£1.5bn – £2bn 11.7% -0.7%
£1bn – £1.5bn 30.3% -0.5%
£500m – £1bn 15.4% -1.0%
£0m – £500m 26.7% -0.7%
1 The above investments may comprise exposures to long equity and long
derivative positions.
Source: BlackRock
Position size as at 30 November 2023
Market value Long positions 1 Short positions
£15m – £20m 6 0
£10m – £15m 12 0
£5m – £10m 33 0
£2.5m – £5m 39 0
£0m – £2.5m 12 -13
1 The above investments may comprise exposures to long equity and long
derivative positions.
Source: BlackRock.
Portfolio holdings within Key Benchmark Indices
Gross Basis 1 Net Basis 2
FTSE 250 55.5% 53.7%
FTSE AIM 29.5% 30.8%
FTSE Small Cap 8.7% 9.4%
Other 4.5% 4.2%
FTSE 100 1.8% 1.9%
Portfolio holdings within Benchmark Index (the Numis Smaller Companies plus
AIM
(excluding Investment Companies) Index)
Gross Basis 1,3 Net Basis 2,3
Within Benchmark 68.2% 70.4%
Off-Benchmark 31.8% 29.6%
Source: BlackRock.
1 Long exposure plus short exposure as a percentage of the portfolio in
aggregate excluding investment in BlackRock’s Institutional Cash Series plc
– Sterling Liquid Environmentally Aware Fund.
2 Long exposure less short exposure as a percentage of the portfolio excluding
investment in BlackRock’s Institutional Cash Series plc – Sterling Liquid
Environmentally Aware Fund.
3 Holdings included within the Benchmark Index as at 30 November 2022 were
58.6% on a Gross Basis and 56.8% on a Net Basis.
STRAGETIC REPORT
The Directors present the Strategic Report of the Company for the year ended
30 November 2023.
PRINCIPAL ACTVITIES
The Company is a public company limited by shares which carries on business as
an investment trust and its principal activity is portfolio investment.
OBJECTIVE
The Company’s objective is to provide shareholders with long-term capital
growth and an attractive total return through investment primarily in UK
smaller and mid-capitalisation companies traded on the London Stock Exchange.
STRATEGY, BUSINESS MODEL, INVESTMENT POLICY AND INVESTMENT PROCESS
The Company invests in accordance with the objective given above. The Board is
collectively responsible to shareholders for the long-term success of the
Company and is its governing body. There is a clear division of responsibility
between the Board and the Manager, BlackRock Fund Managers Limited (BFM).
Matters for the Board include setting the Company’s strategy, including its
investment objective and policy, setting limits on gearing (both bank
borrowings and the effect of derivatives), capital structure, governance, and
appointing and monitoring of performance of service providers, including the
Manager.
The Company’s business model follows that of an externally managed
investment trust; therefore the Company does not have any employees and
outsources its activities to third party service providers, including the
Manager who is the principal service provider.
The management of the investment portfolio and the administration of the
Company have been contractually delegated to BFM. The Manager, operating under
guidelines determined by the Board, has direct responsibility for the
decisions relating to the day-to-day running of the Company and is accountable
to the Board for the investment, financial and operating performance of the
Company.
Other service providers include the Depositary and the Fund Accountant, The
Bank of New York Mellon (International) Limited, and the Registrar,
Computershare Investor Services PLC. Details of the contractual terms with
third party service providers are set out in the Directors’ Report contained
within the Annual Report and Accounts.
INVESTMENT POLICY
The Company’s performance is measured against the Numis Smaller Companies
plus AIM (excluding Investment Companies) Index (the Benchmark Index). The
Investment Manager, BlackRock Investment Management (UK) Limited (BIM (UK)),
may invest in companies outside the Benchmark Index without restriction,
subject to the following limits.
The Company may hold up to 15% of its gross assets, at the time of
acquisition, in securities of companies which are listed or traded on a stock
exchange outside the UK.
In addition to the normal long only portfolio, the Company will likely hold a
mixture of long and short contracts for difference (CFDs) and/or comparable
equity derivatives that would result in a typical net market exposure of
between 100% and 115%. In extremis, the Company could deploy the full 30% of
permissible leverage into short CFDs and/or comparable equity derivatives,
thereby reducing its overall net market exposure to 70%.
The Company may also invest up to 2.5% of its net assets (measured at the time
of investment) in unquoted securities, including securities issued by
companies incorporated outside the United Kingdom. However, the Company may
invest more than 2.5%, but no more than 3.75%, of its net assets (both
measured at the time of investment), in unquoted securities in circumstances
where such investment is in an existing investee company and, in the
Investment Manager’s opinion, a failure of the Company to make such
investment would have a material adverse effect on the value of the
Company’s investment in such investee company.
In addition, the Company is permitted to employ leverage up to 30% of net
assets, which it does primarily through the use of CFDs and/or comparable
equity derivatives, rather than bank borrowings, therefore enabling the
Company to have a maximum net market exposure of 130%.
In normal circumstances the Company will likely hold a mixture of long and
short CFDs and/or comparable equity derivatives that would result in a typical
net market exposure of between 100% and 115%*.
Portfolio risk will be mitigated by investment in a diversified portfolio of
holdings. No more than 5% of the Company’s gross assets, at the time of
acquisition, may be invested in any one single holding, excluding holdings in
cash or money market funds, where up to 10% of the Company’s gross assets
may be held. The Company may also invest in collective investment vehicles.
However, the Company will not invest more than 10% of its gross assets, at the
time of the acquisition, in other listed closed-ended investment funds, unless
such companies have a stated investment policy not to invest more than 15% of
their gross assets in other listed closed-ended investment funds, in which
case the limit is 15% of gross assets.
The Board’s policy is that net gearing, borrowings less cash, should not
exceed 20% of gross assets. The Company expects to employ any leverage
primarily through its use of CFDs and/or comparable equity derivatives.
No material change will be made to the investment objective and policy without
shareholder approval.
INVESTMENT PROCESS
A unique feature of the Company is that it has the ability to go both long and
short up to approximately 30% of the Company’s net assets.
Notwithstanding recent positive returns from UK small and mid-capitalisation
companies, while the sector has generated positive returns over the long term,
there can be significant volatility. Such an environment provides an
attractive opportunity to add value via both long and short positions which
can exploit share price moves whether up or down. As the maximum short
portfolio exposure through derivatives is 30% of net assets, the Company will
at all times retain an exposure to the market, as shown in the chart contained
within the Annual Report and Accounts. In the course of their research the
investment management team comes across companies which they judge are likely
to underperform; the ability to take short positions therefore enhances the
opportunity to make money for shareholders. This is not possible in a
conventional or long only portfolio.
When markets are expected to rise in the medium term, the long/short strategy
is used to generate additional market exposure through ensuring that the long
exposure exceeds the short exposure in a range between 0% to 15% of the net
assets of the Company. Rising or ‘bull’ markets have historically (in the
UK) persisted for longer than falling or ‘bear’ markets. A typical net
market exposure might therefore be between 100% and 115%. This is lower than
the ‘gross exposure’, which is the combination of the long equity
positions, plus the net of long and short derivative positions expressed as a
percentage of net assets.
ESG INTEGRATION
The Manager defines Environmental, Social and Governance (ESG) integration as
the practice of incorporating material ESG information and consideration of
sustainability risks into investment decisions in order to enhance
risk-adjusted returns. This statement does not imply that the Company has an
ESG-aligned investment objective, but rather describes how ESG information is
considered as part of the overall investment process.
Of course, ESG information is not the sole consideration for investment
decisions; instead, the Manager assesses a variety of economic and financial
indicators which include ESG considerations in combination with other
information in the research phase of the investment process to make investment
decisions appropriate to their client’s objectives. This may also include
relevant third party insight, as well as internal engagement commentary and
input from BlackRock Investment Stewardship (BIS) on governance issues. The
Investment Manager conducts regular portfolio reviews with the BlackRock Risk
and Quantitative Analysis (RQA) team. These reviews include discussion of the
portfolio's exposure to material ESG risks, as well as exposure to
sustainability-related business involvements, climate-related metrics,
traditional financial risks and other factors.
The Manager’s approach to ESG integration is to broaden the total amount of
information its investment professionals consider in order to improve
investment analysis, seeking to meet or exceed economic return and financial
risk targets. ESG factors can be useful and relevant indicators for investment
purposes and can help portfolio managers with their decision-making through
identifying potentially negative events or corporate behaviour. The Investment
Manager works closely with BIS to assess the governance quality of companies
and understand any potential issues, risks or opportunities.
The Manager’s research team monitors differing levels of risk throughout the
process and believes that avoiding major downside events can generate
significant outperformance over the long-term. Inputs from the RQA team are an
integral part of the investment process. The RQA team analyse market and
portfolio risk factors including stress tests, correlations, factor returns,
cross-sectional volatility and attributions. The Manager’s evaluation
procedures and financial analysis of the companies within the portfolio also
take into account environmental, social and governance matters and other
business issues.
The Company 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. The Investment Manager has
access to a range of data sources, including principal adverse indicator (PAI)
data, when making decisions on the selection of investments. However, whilst
BlackRock considers ESG risks for all portfolios and these risks may coincide
with environmental or social themes associated with the PAIs, the Company does
not commit to considering PAIs in driving the selection of its investments.
Further information on the Manager’s approach to ESG and sustainability can
be found in the report on Responsible Investing contained within the Annual
Report and Accounts.
* The AIC measures gearing at gross level, rather than net market exposure
level (i.e. gearing is calculated as borrowings + long CFDs and/or comparable
equity derivatives + short CFDs and/or comparable equity derivatives) and
therefore the published gearing figures will be higher than the typical net
market exposure of between 100% and 115%.
PERFORMANCE
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 results for the Company are set out in the Statement of Comprehensive
Income below. The total loss for the year, after taxation, was £15,749,000
(2022: a loss of £295,888,000) of which the revenue return amounted to
£16,510,000 (2022: £13,257,000) and a capital loss of £32,259,000 (2022:
loss of £309,145,000).
Details of the dividends declared in respect of the year are set out in the
Chairman’s Statement above.
KEY PERFORMANCE INDICATORS
At each Board meeting, the Directors consider a number of performance measures
to assess the Company’s success in achieving its objectives. The key
performance indicators (KPIs) used to measure the progress and performance of
the Company over time, and which are comparable to those reported by other
investment trusts, are set out in the table below. 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.
The Board monitors the KPIs at each meeting. Additionally, it regularly
reviews a number of indices and ratios to understand the impact on the
Company’s relative performance of the various components such as asset
allocation and stock selection. This includes an assessment of the Company’s
performance and ongoing charges against its peer group of investment trusts
with similar investment objectives.
Year ended Year ended
30 November 2023 30 November 2022
Net asset value total return 1,2 (2.3)% (31.1)%
Share price total return 1,2 (0.8)% (35.5)%
Benchmark Index total return 3 (6.0)% (17.5)%
Discount to cum income net asset value 2 3.6% 5.0%
Revenue return per share 16.56p 12.95p
Total dividend per share 14.75p 11.10p
Ongoing charges 2,4 0.54% 0.54%
Ongoing charges including performance fees 2,5 0.87% 0.54%
1 This measures the Company’s share price and NAV total return, which
assumes dividends paid by the Company have been reinvested.
2 Alternative Performance Measures, see Glossary contained within the Annual
Report and Accounts.
3 The Company's Benchmark Index is the Numis Smaller Companies plus AIM
(excluding Investment Companies) Index.
4 Ongoing charges represent the management fee and all other operating
expenses, excluding the performance fee, finance costs, direct transaction
costs, custody transaction charges, VAT recovered, taxation, prior year
expenses written back and certain non-recurring items as a % of average daily
net assets.
5 Ongoing charges represent the management fee, performance fee and all other
operating expenses, excluding finance costs, direct transaction costs, custody
transaction charges, VAT recovered, taxation, prior year expenses written back
and certain non-recurring items as a % of average daily net assets. Further
information on the management fees paid by the Company can be found in Note 4
to the financial statements below.
SHARE PRICE DISCOUNT/PREMIUM
The Directors recognise that it is in the long-term interests of shareholders
that the Company’s shares do not trade at an excessive discount or premium
to their prevailing NAV for any material length of time. In the year under
review the discount/premium to NAV of the ordinary shares on a cum income
basis has ranged between a discount of 9.2% and 1.0%, with the average being a
discount of 5.2%. The shares ended the year at a discount of 3.6% on a cum
income basis. As at 31 January 2024 the discount was 6.1%.
As it does each year, the Board will also be seeking to renew the authority
from shareholders at the AGM to issue new shares (or to reissue shares held in
treasury) and to buy back shares. Further information on these powers and the
Board's policy in this respect can also be found in the Chairman’s Statement
above.
PRINCIPAL RISKS
As required by the UK Code of Corporate Governance, the Board has in place a
robust, ongoing process to identify, assess and monitor the principal and
emerging risks of the Company, including those that they consider would
threaten its business model, future performance, solvency or liquidity.
Emerging risks are considered by the Board as they come into view and are
incorporated into the Company’s risk register where applicable.
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.
A core element of this process is the Company’s risk register, which
identifies the risks facing the Company and the likelihood and potential
impact of each risk, together with the controls established for mitigation. A
residual risk rating is calculated for each risk, which allows the effect of
any mitigating procedures to be reflected in the register. The current risk
register includes a range of risks spread between investment performance risk,
income/dividend risk, legal & regulatory risk, counterparty risk, operational
risk, market risk, political risk and financial risk.
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 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, the Audit Committee periodically receives
presentations from BlackRock’s Internal Audit and Risk & Quantitative
Analysis teams. Where produced, the Audit Committee also reviews summaries of
the Service Organisation Control (SOC1) reports from the Company’s service
providers.
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 below.
INVESTMENT PERFORMANCE
Principal risk
The Board is responsible for:
· setting the investment policy to fulfil the Company’s objectives; and
· monitoring the performance of the Company’s Investment Manager and the
strategy adopted.
An inappropriate policy or strategy may lead to:
· poor performance compared to the Company’s Benchmark Index, peer group
or shareholder expectations;
· a widening discount to NAV;
· a reduction or permanent loss of capital; and
· dissatisfied shareholders and reputational damage.
Mitigation/Control
To manage these risks the Board:
· regularly reviews the Company’s investment mandate and long-term
strategy;
· has set, and regularly reviews, the investment guidelines and has put in
place appropriate limits on levels of gearing and the use of derivatives;
· receives from the Investment Manager a regular explanation of stock
selection decisions, portfolio gearing and any changes in gearing and the
rationale for the composition of the investment portfolio;
· receives from the Investment Manager regular reporting on the
portfolio’s exposure through derivatives, including the extent to which the
portfolio is geared in this manner and the value of any short positions;
· monitors the maintenance of an adequate spread of investments in order to
minimise the risks associated with particular sectors, based on the
diversification requirements inherent in the Company’s investment policy;
and
· monitors the share price discount or premium to NAV.
MARKET RISK
Principal risk
Market risk arises from changes to the prices of the Company’s investments.
It represents the potential loss the Company might suffer through holding
investments and derivatives. Market risk includes the potential impact of
events which are outside the scope of the Company’s control, such as
Russia's invasion of Ukraine, the hostilities in the Middle East, and the
impacts of climate change.
Mitigation/Control
The Board carefully considers the diversification of the portfolio, asset
allocation, stock selection, unquoted investments 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, and key market risk factors are discussed.
The Board also recognises the benefits of a closed-end fund structure in
extremely volatile markets such as those experienced with the COVID-19
pandemic and more recently the impact of Russia’s invasion of Ukraine and
the potential impact of the hostilities in the Middle East on the global
economy. Unlike open-ended counterparts, closed-end funds are not obliged to
sell down portfolio holdings at low valuations to meet liquidity requirements
for redemptions. During times of elevated volatility and market stress, the
ability of a closed-end fund structure to remain invested for the long-term
enables the Investment Manager to adhere to disciplined fundamental analysis
from a bottom-up perspective and be ready to respond to dislocations in the
market as opportunities present themselves.
INCOME/DIVIDEND RISK
Principal risk
The amount of dividends and future dividend growth will depend on the
performance of the Company’s underlying portfolio holdings. Changes in the
composition of the portfolio and any change in the tax treatment of the
dividends or interest received by the Company 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 also has a
revenue reserve and powers to pay dividends from capital which could
potentially be used to support the Company’s dividend if required.
FINANCIAL RISK
Principal risk
The Company’s investment activities expose it to a variety of financial
risks that include market risk, foreign currency risk and interest rate risk.
At 30 November 2023, the Company had approximately 29.5% of its gross asset
value invested in AIM traded equity securities and 4.5% of its gross assets in
international markets, and, by the very nature of its investment objective,
largely invests in smaller companies. Liquidity in these securities can from
time to time become constrained, making these investments difficult to realise
at or near published prices.
Mitigation/Control
The Company is not materially exposed to foreign currency and interest rate
risk. For mitigation of market risk, see above. There are also risks linked to
the Company’s use of derivative transactions including long and short
investment positions. Details are disclosed in note 11 of the Annual Report
and Accounts, together with a summary of the policies for managing and
controlling these risks in note 16 of the Annual Report and Accounts.
OPERATIONAL RISK
Principal risk
In common with most other investment trust companies, the Company has no
employees. The Company therefore relies upon the services provided by
BlackRock (the Manager and AIFM) and The Bank of New York Mellon
(International) Limited (the Depositary and Fund Accountant) who maintain the
Company’s accounting records.
Failure by any service provider to carry out its obligations to the Company
could have a material adverse effect on the Company’s performance.
Disruption to the accounting, payment systems or custody records, as a result
of a cyber-attack or otherwise, could impact the monitoring and reporting of
the Company’s financial position.
The security of the Company’s assets, dealing procedures, accounting records
and maintenance of regulatory and legal requirements, depend on the effective
operation of these systems.
Mitigation/Control
The Board reviews the overall performance of the Manager, Investment Manager
and all other third party service providers and compliance with the investment
management agreement on a regular basis.
The Fund Accountant’s and the Manager’s internal control processes are
regularly tested and monitored throughout the year and are evidenced through
their Service Organisation Control (SOC 1) reports, which are subject to
review by an Independent Service Assurance Auditor. The SOC 1 reports provide
assurance in respect of the effective operation of internal controls.
The Company’s financial instruments held in custody are subject to a strict
liability regime and in the event of a loss of such financial instruments held
in custody, the Depositary must return assets of an identical type or the
corresponding amount, unless able to demonstrate that the loss was a result of
an event beyond its reasonable control.
The Board considers succession arrangements for key employees of the Manager
and the Board also considers the business continuity arrangements of the
Company’s key service providers on an ongoing basis and reviews these as
part of its review of the Company’s risk register. In respect of the
unprecedented risks posed by the COVID-19 pandemic in terms of the ability of
service providers to function effectively, the Board has received reports from
key service providers setting out the measures that they have put in place to
address the crisis, in addition to their existing business continuity
framework. Having considered these arrangements and reviewed service levels
since the crisis has evolved, the Board is confident that a good level of
service has and will be maintained.
The Board also receives regular updates from BlackRock’s internal audit
function and the Company’s Audit Committee Chairman attends an annual
briefing from the head of BlackRock’s internal audit function once a year.
This is supplemented by a written report which describes the progress made
against the current internal audit plan, any issues identified and the plan
for the forthcoming year.
LEGAL AND REGULATORY RISK
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 its investment trust status and being subject to corporation tax on
capital gains realised within the Company’s portfolio. In such event the
investment returns of the Company may be adversely affected. Any serious
breach could result in the Company and/or the Directors being fined or the
subject of criminal proceedings or the suspension of the Company’s shares
which would in turn lead to a breach of the Corporation Tax Act 2010.
Mitigation/Control
The Investment Manager monitors investment movements, the level of forecast
income and expenditure and the amount of proposed dividends, if any, to ensure
that the provisions of Chapter 4 of Part 24 of the Corporation Tax Act 2010
are not breached, and the results are reported to the Board at each meeting.
Following authorisation under the Alternative Investment Fund Managers’
Directive as retained and onshored in the UK (AIFMD), the Company and its
appointed Alternative Investment Fund Manager (AIFM) are subject to the risks
that the requirements of the AIFMD 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.
Compliance with the accounting standards applicable to quoted companies and
those applicable to investment trusts are also regularly monitored to ensure
compliance.
RISK OF REGULATORY CHANGE
Principal risk
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 (as retained and onshored in the UK), the Market Abuse
Regulation (also as retained and onshored in the UK), the UK Listing Rules and
the Disclosure Guidance and Transparency Rules.
Mitigation/Control
The Company Secretary and the Company’s professional advisers monitor
developments in relevant laws and regulations and provide regular reports to
the Board in respect of the Company’s compliance.
The Market Abuse Regulation came into force across the EU on 3 July 2016 and
has been retained and onshored in the UK following Brexit. 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.
COUNTERPARTY
Principal risk
The potential loss that the Company could incur if a counterparty is unable
(or unwilling) to perform on its commitments. The Company’s investment
policy also permits the use of both exchange-traded and over-the-counter
derivatives (including contracts for difference).
Mitigation/Control
Due diligence is undertaken before contracts are entered into and exposures
are diversified across a number of counterparties. The Board reviews the
controls put in place by the Investment Manager to monitor and to minimise
counterparty exposure, which include intra-day monitoring of exposures to
ensure that these are within set limits.
The Depositary is liable for restitution for the loss of financial instruments
held in custody, unless it is able to demonstrate that the loss was due to an
event beyond its reasonable control.
VIABILITY STATEMENT
The Directors have assessed the prospects of the Company over a longer period
than the 12 months referred to by the “Going Concern” guidelines.
The Board conducted this review for the period up to the AGM in 2029, being a
five-year period from the date that this Annual Report will be approved by
shareholders. This is generally the investment holding period investors
consider while investing in the smaller companies’ sector. The Board is
cognisant of the uncertainty surrounding the potential duration of the
Russia/Ukraine conflict and the hostilities in the Middle East, their impact
on the global economy, and the prospects for the Company’s portfolio
holdings. In making its assessment the Board has also considered the following
factors:
· the Company’s principal risks as set out above;
· the impact of a significant fall in UK equity markets on the value of the
Company’s investment portfolio in the light of the heightened volatility
resulting from the ongoing Russia/Ukraine conflict, the hostilities in the
Middle East, and any potential impact on the global economy, and the path of
inflation and interest rates in the UK;
· the ongoing relevance of the Company’s investment objective; and
· the level of demand for the Company’s shares.
The Directors have also considered the Company’s revenue and expense
forecasts and the fact that expenses and liabilities are relatively stable.
The Company also has a portfolio of investments which provides a level of cash
receipts in the form of dividends and which are considered to be relatively
realisable if required.
The Directors reviewed the assumptions and considerations underpinning the
Company’s existing going concern assertion (please see the disclosure in the
Directors’ Report contained within the Annual Report and Accounts), which
are based on:
· processes for monitoring costs;
· key financial ratios;
· evaluation of risk management and controls;
· compliance with the investment objective;
· the Company’s ability to meet its liabilities as they fall due;
· portfolio risk profile;
· share price discount to NAV;
· gearing;
· counterparty exposure and liquidity risk;
· 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; and
· the effectiveness of business continuity plans in place for the Company
and key service providers.
The Company has a relatively liquid portfolio and largely fixed overheads
(excluding any applicable performance fees) which comprise a very small
percentage of net assets 0.54% excluding performance fees, 0.87% including
performance fees in 2023. The effective performance fee cap in the event that
the NAV return exceeds the Benchmark Index return over the performance period
is circa 0.90% of the average gross assets over the two years and the
applicable percentage to be applied to the outperformance of the NAV total
return over the Benchmark Index return is 15%. In addition, the maximum cap on
total management and performance fees is 1.25% of average gross assets
(measured over a rolling two-year period). Therefore, the Board has concluded
that the Company would be able to meet its ongoing operating costs as they
fall due.
The Directors have also considered the impact of potential changes in law,
regulation and taxation and the matter of foreign exchange risk. They have
determined that although there are a number of potential risks associated with
the legal, fiscal and regulatory landscape they do not believe that this
represents a material threat to the Company’s strategy and business model,
nor do they believe that the Investment Manager will be materially impeded in
achieving the Company’s investment objective.
Based on the results of their analysis, the Directors have a reasonable
expectation that the Company will be able to continue in operation and meet
its liabilities as they fall due over the period of their assessment.
SECTION 172 STATEMENT: PROMOTING THE SUCCESS OF BLACKROCK THROGMORTON TRUST
PLC
The Companies (Miscellaneous Reporting) Regulations 2018 require directors to
explain more fully how they have discharged their duties under Section 172(1)
of the Companies Act 2006 in promoting the success of their companies for the
benefit of members as a whole. This enhanced disclosure covers how the Board
has engaged with and understands the views of stakeholders and how
stakeholders’ needs have been taken into account, the outcome of this
engagement and the impact that it has had on the Board’s decisions.
As the Company is an externally managed investment company and does not have
any employees or customers, the Board considers the main stakeholders in the
Company to be the shareholders and the key service providers (being the
Manager and Investment Manager, the Custodian, Depositary, Registrar and
Broker). 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.
In turn, 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.
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 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, either directly or through the Manager, maintains regular contact
with its key external providers and receives regular reporting from them
through the Board and Committee meetings, as well as outside of the regular
meeting cycle.
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.
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. 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 works closely with the Investment Manager throughout the year in
further developing our investment strategy and underlying policies, not simply
for the purpose of achieving the Company’s investment objective but in the
interests of shareholders and future investors.
The Board is kept advised in respect of the Manager’s consideration of ESG
factors as part of the investment process; a summary of BlackRock’s approach
to ESG matters is set out within the Annual Report and Accounts.
Impact
Details regarding the Company’s NAV and share price performance can be found
in the Chairman’s Statement and in the Strategic Report above.
The portfolio activities undertaken by the Manager can be found in the
Investment Manager’s Report above.
MANAGEMENT OF THE SHARE RATING
Issue
The Board believes that the best way of addressing the discount over the
longer term is to continue to generate good performance and to create demand
for the Company’s shares in the secondary market through broadening
awareness of the Company’s unique structure. The Board believes that it is
in shareholders’ interests that the share price does not trade at an
excessive premium or discount to NAV. Therefore, where deemed to be in
shareholders’ long-term interests, it may exercise its powers to issue
shares or buy back shares with the objective of ensuring that an excessive
premium or discount does not arise.
Engagement
The Manager reports total return performance statistics to the Board on a
regular basis, along with the portfolio yield and the impact of dividends paid
on brought forward distributable reserves.
The Board reviews the Company’s discount/premium to NAV on a regular basis
and holds regular discussions with the Manager and the Company’s broker
regarding the discount/premium level.
The Board believes that the best way of maintaining the share rating at an
optimal level over the long-term is to create demand for the shares in the
secondary market. To this end the Investment Manager is devoting considerable
effort to broadening the awareness of the Company, particularly to wealth
managers and to the wider retail shareholder market.
The Manager provides the Board with feedback and key performance statistics
regarding the success of the Company’s marketing initiatives.
Impact
The average discount for the year to 30 November 2023 was 5.2%. During the
year the Company’s share price has traded between a discount of 9.2% and
1.0%.
SERVICE LEVELS OF THIRD PARTY PROVIDERS
Issue
The Board acknowledges the importance of ensuring that the Company’s
principal suppliers are providing a suitable level of service including: the
Manager in respect of investment performance and delivering on the Company’s
investment mandate; the Depositary in respect of its duties towards
safeguarding the Company’s assets; the Registrar in its maintenance of the
Company’s share register and dealing with investor queries and the
Company’s Brokers in respect of the provision of advice and acting as a
market maker for the Company’s shares.
Engagement
The Manager reports to the Board on the Company’s performance on a regular
basis. The Board carries out a robust annual evaluation of the Manager’s
performance, their commitment and available resources.
The Board performs an annual review of the service levels of all third party
service providers and concludes on their suitability to continue in their
role.
The Board has received updates in respect of business continuity planning from
the Company’s Manager, Depositary, Fund Administrator, Brokers, Registrar
and Printers, and is confident that arrangements are in place to ensure that a
good level of service will continue to be provided.
Impact
Performance evaluations were performed on a timely basis and the Board
concluded that all third party service providers, including the Manager,
Depositary and Fund Administrator 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 Corporate
Governance Code, including guidance on tenure and the composition of the
Board’s committees.
Engagement
During the year the Board undertook a review of succession planning
arrangements and identified the need for action to ensure that the composition
of the Board remained appropriate and that there was an ongoing process of
refreshment, bringing in new ideas and different perspectives. The Board,
through its Nomination Committee, agreed the selection criteria and the method
of selection, recruitment and appointment. Board diversity, including factors
such as age, ethnicity, and gender, was taken into account when establishing
the criteria.
All Directors are subject to a formal evaluation process on an annual basis
(more details and the conclusions in respect of the 2023 evaluation process
are given within the Annual Report and Accounts). All Directors stand for
re-election by shareholders annually. Shareholders may attend the AGM and
raise any queries in respect of Board composition or individual Directors in
person or may contact the Company Secretary or the Chairman using the details
provided within the Annual Report and Accounts if they wish to raise any
issues.
Impact
The Directors are not aware of any issues that have been raised directly by
shareholders in respect of Board composition in 2023. Details for the proxy
voting results in favour and against individual Directors’ re-election at
the 2023 AGM are given on the Company’s website at
www.blackrock.com/uk/thrg.
SHAREHOLDERS
Issue
Continued shareholder support and engagement are critical to the continued
existence of the Company and the successful delivery of its long-term
strategy.
The dividend is funded out of current year revenue and, where deemed
appropriate, may be supported from revenue reserves if current year revenue is
insufficient. The Company does not have a policy of seeking income, however,
the portfolio has, to date, continued to deliver a level of income such that
the Board is able to pay an attractive dividend.
Engagement
The Board is committed to maintaining open channels of communication and to
engaging with shareholders and welcomes and encourages attendance and
participation from shareholders at its Annual General Meetings. Shareholders
therefore have the opportunity to meet the Directors and Investment Manager
and to address questions to them directly. The Chairman and Senior Independent
Director also meet directly with shareholders providing a forum for canvassing
their views and enabling the Board to be aware of any issues of concern.
The Annual Report and Half Yearly financial report are available on the
BlackRock website and are also circulated to shareholders either in printed
copy or via electronic communications. In addition, regular updates on
performance, monthly factsheets, the daily NAV and other information are also
published on the website at www.blackrock.com/uk/thrg.
The Board also works closely with the Manager to develop the Company’s
marketing strategy, with the aim of ensuring effective communication with
shareholders in respect of the investment mandate and objective. Unlike
trading companies, shareholder meetings usually take the form of a meeting
with the Investment Manager as opposed to members of the Board. As well as
attending regular investor meetings the Investment Manager holds regular
discussions with wealth management desks and offices to build on the case for,
and understanding of, long-term investment opportunities in the UK smaller
companies’ sector.
However, the Board is ultimately responsible for communication with
shareholders and all substantive matters arising from such communication are
referred to the Board.
The Manager also coordinates public relations activity, including meetings
between the Investment Manager and relevant industry publications to set out
their vision for the portfolio strategy and outlook for the UK equity market.
The Manager releases the daily NAV and monthly portfolio updates to the market
to ensure that investors are kept up to date in respect of performance and
other portfolio developments and maintains a website on behalf of the Company
that contains relevant information in respect of the Company’s investment
mandate and objective. If shareholders wish to raise issues or concerns with
the Board, they are welcome to do so at any time.
The Chairman is available to meet directly with shareholders periodically to
understand their views on governance and the Company’s performance where
they wish to do so. He may be contacted via the Company Secretary whose
details are given within the Annual Report and Accounts.
Impact
The Board values any feedback and questions from shareholders ahead of and
during Annual General Meetings in order to gain an understanding of their
views and will take action when and as appropriate. Feedback and questions
will also help the Company evolve its reporting, aiming to make reports more
transparent and understandable.
Feedback from all substantive meetings between the Investment Manager and
shareholders will be shared with the Board. The Directors will also receive
updates from the Company’s broker on any feedback from shareholders, as well
as share trading activity, share price performance and an update from the
Investment Manager.
The Investment Manager attended professional investor meetings and held
discussions with a range of different wealth management desks and offices in
respect of the Company during the year under review. Investors were also
impressed with the wide pool of resource available through BlackRock’s
Emerging Companies team, and the rigorous ‘bottom-up’ investment approach.
RESPONSIBLE INVESTING
Issue
Consideration of material Environmental, Social and Governance (ESG)
information and sustainability risks are considered when making investment
decisions. Sustainbility-related risks, including climate-related risks, are
becoming a defining factor in companies’ long-term prospects across the
investment spectrum, with significant and lasting implications for economic
growth and prosperity.
Engagement
The Board believes that responsible investment and sustainability are integral
to the longer-term delivery of the Company’s success. The Board works
closely with the Investment Manager 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 and sustainable way in the interests of shareholders and future
investors.
The Investment Manager’s approach to the consideration of ESG factors in
respect of the Company’s information and consideration of sustainability
risks are kept under review by the Board.
The Investment Manager reports to the Board in respect of its consideration of
sustainability risks and these are integrated into the investment process; a
summary of BlackRock’s approach to ESG integration is set out within the
Annual Report and Accounts. The Investment Manager’s engagement and voting
policy is detailed within the Annual Report and Accounts.
Impact
The Investment Manager believes there is often a positive correlation between
good ESG practices on the part of portfolio companies and investment
performance. Details of the Company’s performance in the year are given in
the Chairman’s Statement above and the Performance Record contained within
the Annual Report and Accounts.
THE BOARD’S APPROACH TO ESG
Environmental, Social and Governance (ESG) issues can present both
opportunities and risks to long-term investment performance. The Company does
not have an ESG mandate (and accordingly does not have an ESG or impact
focused investment strategy and has not adopted any exclusionary screens) but
our Investment Manager does take ESG factors into account as part of the
investment process as these elements can significantly influence a company’s
valuation. These ESG issues are a key focus of the Board, and the Board is
committed to a diligent oversight of the activities of the Manager in these
areas. The Board is aware of the Company’s long-term underweight position in
extractive industries, where innovative and disruptive business models are
rare and the non-participation in some capital raises where ESG factors have
been a concern.
The Board believes multi-year engagement and dialogue with management is, in
most cases, the most constructive way of building understanding of an investee
company's approach to addressing material business risks and opportunities.
This is particularly true for our Manager given the extent of BlackRock's
shareholder engagement. Further detail of how our Manager has voted and
engaged with the companies in our portfolio can be found within the Annual
Report and Accounts.
As well as the understanding afforded by its sheer scale, the Board believes
that BlackRock is well placed as Manager to fulfil these requirements due to
its approach to ESG integration and its application of this to the Company’s
investment processes, the emphasis it places on sustainability, its investment
stewardship approach and its position in the industry as one of the largest
suppliers of sustainable investment products in the global market. More
information on BlackRock’s approach to sustainability and investment
stewardship is set out within the Annual Report and Accounts.
Future prospects
The Board’s main focus is on the achievement of capital growth and the
future of the Company is dependent upon the success of the investment
strategy. The outlook for the Company is discussed in the Chairman’s
Statement and in the Investment Manager’s Report above.
Social, community and human rights issues
As an investment trust, the Company has no direct social or community
responsibilities. However, the Company believes that it is in shareholders’
interests to consider human rights issues, and environmental, social and
governance factors when selecting and retaining investments. Details of the
Company’s approach to socially responsible investment is set out above and
within 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, gender representation and employees
The Directors of the Company on 30 November 2023, all of whom held office
throughout the year, are set out within the Annual Report and Accounts. The
Board recognises the importance of having a range of experienced Directors
who, both individually and collectively, possess a suitable balance of skills,
knowledge, independence and diversity to enable it to fulfil its obligations.
As at 30 November 2023, the Board consisted of three men and three women,
resulting in 50% female representation. The Company has no employees, and all
of its Directors are non-executive. Therefore, there are no disclosures to be
made in respect of employees.
The Chairman’s Statement and the Investment Manager’s Report above form
part of this Strategic Report.
The Strategic Report was approved by the Board at its meeting on 2 February
2024.
BY ORDER OF THE BOARD
KEVIN MAYGER
FOR AND ON BEHALF OF
BLACKROCK INVESTMENT MANAGEMENT (UK) LIMITED
Company Secretary
2 February 2024
RELATED PARTY AND TRANSACTIONS WITH THE INVESTMENT MANAGER AND AIFM
BlackRock Fund Managers Limited (BFM) provides management and administration
services to the Company under a contract which is terminable on six months’
notice. BFM has (with the Company’s consent) delegated certain portfolio and
risk management services, and other ancillary services, to BlackRock
Investment Management (UK) Limited (BIM (UK)). Further details of the
investment management contract are disclosed 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 £2,518,000 (2022: £3,025,000). At the year end, £1,864,000 was
outstanding in respect of management fees.
For the year ended 30 November 2023, there was no performance fee payable
(2022: £nil). The total accrual of performance fee for all rolling two year
performance periods amounted to £2,014,000 (2022: £nil;), calculated as
follows:
• For the annualised rolling two-year performance period
to 30 November 2023, the Company has underperformed the benchmark by 5.9% as
at 30 November 2023. No performance fee relating to this performance period
has been accrued at the date of this report.
• For the annualised rolling two-year performance period
to 30 November 2024, the Company has outperformed the benchmark by 1.9% as at
30 November 2023. A performance fee of £2,014,000 relating to this
performance period has been accrued at the date of this report.
In addition to the above services, BIM (UK) has provided marketing services.
The total fees paid or payable for these services for the year ended 30
November 2023 amounted to £149,000 excluding VAT (2022: £153,000). Marketing
fees of £269,000 (2022: £120,000) were outstanding at the year end.
The Company has an investment in the BlackRock Institutional Cash Series plc -
Sterling Liquid Environmentally Aware Fund of £24,328,000 (2022:
£58,690,000) which for the year ended 30 November 2023 and 30 November 2022
has been presented in the financial statements as a cash equivalent.
The ultimate holding company of the Manager and the Investment Manager is
BlackRock, Inc., a company incorporated in Delaware USA.
As at 30 November 2022, the Board consisted of six non-executive Directors,
all of whom were considered to be independent by the Board*. None of the
Directors has a service contract with the Company. For the year ended 30
November 2023, the Chairman received an annual fee of £46,700, the Chairman
of the Audit and Management Engagement Committee received an annual fee of
£35,359 and each other Director received an annual fee of £31,700. With
effect from 1 December 2023 the Chairman will receive an annual fee of
£48,800, the Chairman of the Audit and Management Engagement Committee will
receive an annual fee of £38,700, the Senior Independent Director will
receive an annual fee of £34,100 and each other Director will receive an
annual fee of £33,100.
As at 30 November 2023, all members of the Board held shares in the Company.
Christopher Samuel held 65,606 ordinary shares, Louise Nash held 3,900
ordinary shares, Angela Lane held 11,673 ordinary shares, Nigel Burton held
16,570 ordinary shares, Merryn Somerset Webb held 3,727 ordinary shares and
Glen Suarez held 4,800 ordinary shares.
All of the holdings of the Directors are beneficial. Since the year end there
have been no further changes to the Directors’ share interests.
STATEMENT OF DIRECTORS’ RESPONSIBILTIES IN RESPECT OF THE ANNUAL REPORT AND
FINANCIAL STATEMENTS
The Directors are responsible for preparing the Annual Report and Financial
Statements, (including the Directors’ Remuneration Report) 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 are required to prepare the
financial statements in accordance with international accounting standards in
conformity with the requirements of the Companies Act 2006. Under company law
the Directors must not approve the financial statements unless they are
satisfied that they give a true and fair view of the state of affairs of the
Company and of the profit or loss of the Company for that period.
In preparing these Financial Statements, the Directors are required to:
· present fairly the financial position, financial performance and cash
flows of the Company;
· select suitable accounting policies in accordance with 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;
· state whether the Financial Statements have been prepared in accordance
with international accounting standards in conformity with the requirements of
the Companies Act 2006, subject to any material departures disclosed and
explained in the Financial Statements;
· provide additional disclosures when compliance with the specific
requirements in international accounting standards in conformity with the
requirements of the Companies Act 2006, is insufficient to enable users to
understand the impact of particular transactions, other events and conditions
on the Company’s financial position and financial performance; and
· prepare the Financial Statements on the going concern basis unless it is
inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Company’s transactions and disclose with
reasonable accuracy at any time the financial position of the Company and
enable them to ensure that the Financial Statements comply with the Companies
Act 2006. They are also responsible for safeguarding the assets of the Company
and hence for taking reasonable steps for the prevention and detection of
fraud and other irregularities. The Directors are also responsible for
preparing the Strategic Report, the Directors’ Report, the Directors’
Remuneration Report and the Corporate Governance Statement in accordance with
the Companies Act 2006 and applicable regulations, including the requirements
of the Listing Rules and the Disclosure Guidance and Transparency Rules. The
Directors have delegated responsibility to the Investment Manager and the AIFM
for the maintenance and integrity of the Company’s corporate and financial
information included on BlackRock’s website. Legislation in the United
Kingdom governing the preparation and dissemination of Financial Statements
may differ from legislation in other jurisdictions.
Each of the Directors, whose names are listed within the Annual Report and
Accounts, confirms to the best of his or her knowledge that:
· the Financial Statements, which have been prepared in accordance with
international accounting standards in conformity with the requirements of the
Companies Act 2006, give a true and fair view of the assets, liabilities,
financial position and net loss of the Company; and
· the Annual Report and Financial Statements include a fair review of the
development and performance of the business and the position of the Company,
together with a description of the principal risks and uncertainties that it
faces.
The 2018 UK Corporate Governance Code also requires Directors to ensure that
the Annual Report and Financial Statements are fair, balanced and
understandable. In order to reach a conclusion on this matter, the Board has
requested that the Audit Committee advise on whether it considers that the
Annual Report and Financial Statements fulfil these requirements. The process
by which the Committee has reached these conclusions is set out in the Audit
Committee’s report contained within the Annual Report and Accounts. As a
result, the Board has concluded that the Annual Report and Financial
Statements for the year ended 30 November 2023, taken as a whole, are fair,
balanced and understandable and provided the information necessary for
shareholders to assess the Company’s position, performance, business model
and strategy.
FOR AND ON BEHALF OF THE BOARD
CHRISTOPHER SAMUEL
Chairman
2 February 2024
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 15,981 – 15,981 12,585 91 12,676
Net income from derivatives 3 830 – 830 1,526 – 1,526
Other income 3 1,139 – 1,139 749 – 749
--------------- --------------- --------------- --------------- --------------- ---------------
Total income 17,950 – 17,950 14,860 91 14,951
========= ========= ========= ========= ========= =========
Net loss on investments held at fair value through profit or loss – (28,389) (28,389) – (250,583) (250,583)
Net loss on foreign exchange – (114) (114) – (676) (676)
Net profit/(loss) from derivatives – 242 242 – (55,673) (55,673)
--------------- --------------- --------------- --------------- --------------- ---------------
Total 17,950 (28,261) (10,311) 14,860 (306,841) (291,981)
========= ========= ========= ========= ========= =========
Expenses
Investment management and performance fees 4 (629) (3,903) (4,532) (756) (2,269) (3,025)
Other operating expenses 5 (792) (20) (812) (843) (20) (863)
--------------- --------------- --------------- --------------- --------------- ---------------
Total operating expenses (1,421) (3,923) (5,344) (1,599) (2,289) (3,888)
========= ========= ========= ========= ========= =========
Net profit/(loss) on ordinary activities before finance costs and taxation 16,529 (32,184) (15,655) 13,261 (309,130) (295,869)
Finance costs (25) (75) (100) (5) (15) (20)
--------------- --------------- --------------- --------------- --------------- ---------------
Net profit/(loss) on ordinary activities before taxation 16,504 (32,259) (15,755) 13,256 (309,145) (295,889)
Taxation 6 – 6 1 – 1
--------------- --------------- --------------- --------------- --------------- ---------------
Net profit/(loss) on ordinary activities after taxation 16,510 (32,259) (15,749) 13,257 (309,145) (295,888)
========= ========= ========= ========= ========= =========
Earnings/(loss) per ordinary share (pence) 7 16.56 (32.36) (15.80) 12.95 (302.05) (289.10)
========= ========= ========= ========= ========= =========
The total columns of this statement represent the Company’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 Company.
The Company does not have any other comprehensive income/(loss) (2022: £nil).
The net profit/(loss) for the year disclosed above represents the Company’s
total comprehensive income/(loss).
STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 NOVEMBER 2023
Notes Called Share Capital Special Capital Revenue Total
up share premium redemption reserve reserves reserve £’000
capital account reserve £’000 £’000 £’000
£’000 £’000 £’000
For the year ended 30 November 2023
At 30 November 2022 5,160 242,122 11,905 33,038 327,883 13,249 633,357
Total comprehensive (loss)/income:
Net (loss)/profit for the year – – – – (32,259) 16,510 (15,749)
Transactions with owners, recorded directly to equity:
Ordinary shares bought back into treasury 8 – – – (29,646) – – (29,646)
Share buyback costs 8 – – – (161) – – (161)
Dividends paid 1 6 – – – – – (11,876) (11,876)
--------------- --------------- --------------- --------------- --------------- --------------- ---------------
At 30 November 2023 5,160 242,122 11,905 3,231 295,624 17,883 575,925
========= ========= ========= ========= ========= ========= =========
For the year ended 30 November 2022
At 30 November 2021 5,072 225,660 11,905 44,582 637,028 10,901 935,148
Total comprehensive (loss)/income:
Net (loss)/profit for the year – – – – (309,145) 13,257 (295,888)
Transactions with owners, recorded directly to equity:
Ordinary shares issued 88 16,479 – – – – 16,567
Share issue costs – (17) – – – – (17)
Ordinary shares bought back into treasury – – – (11,487) – – (11,487)
Share purchase costs – – – (57) – – (57)
Dividends paid 1 6 – – – – – (10,909) (10,909)
--------------- --------------- --------------- --------------- --------------- --------------- ---------------
At 30 November 2022 5,160 242,122 11,905 33,038 327,883 13,249 633,357
========= ========= ========= ========= ========= ========= =========
1 Final dividend of 8.50p per share for the year ended 30 November 2022,
declared on 10 February 2023 and paid on 31 March 2023 and interim dividend of
3.30p per share for the year ended 30 November 2023, declared on 27 July 2023
and paid on 1 September 2023.
2 Final dividend of 8.00p per share for the year ended 30 November 2021,
declared on 7 February 2022 and paid on 31 March 2022 and interim dividend of
2.60p per share for the year ended 30 November 2022, declared on 20 July 2022
and paid on 26 August 2022.
For information on the Company’s distributable reserves please refer to note
15 contained within the Annual Report and Accounts.
STATEMENT OF FINANCIAL POSITION AS AT 30 NOVEMBER 2023
Notes 2023 2022
£’000 £’000
Non current assets
Investments held at fair value through profit or loss 557,594 576,771
--------------- ---------------
Current assets
Other receivables 2,280 3,131
Derivative financial assets held at fair value through profit or loss 703 4,800
Current tax asset 365 174
Cash collateral pledged with brokers 775 –
Cash and cash equivalents 24,328 58,793
--------------- ---------------
Total current assets 28,451 66,898
========= =========
Total assets 586,045 643,669
========= =========
Current liabilities
Other payables (7,740) (2,240)
Derivative financial liabilities held at fair value through profit or loss (1,454) (2,202)
Bank overdraft (306) –
Liability for cash collateral received (620) (5,870)
--------------- ---------------
Total current liabilities (10,120) (10,312)
========= =========
Net assets 575,925 633,357
========= =========
Equity attributable to equity holders
Called up share capital 8 5,160 5,160
Share premium account 242,122 242,122
Capital redemption reserve 11,905 11,905
Special reserve 3,231 33,038
Capital reserves 295,624 327,883
Revenue reserve 17,883 13,249
--------------- ---------------
Total equity 575,925 633,357
========= =========
Net asset value per ordinary share (pence) 7 600.72 626.10
========= =========
CASH FLOW STATEMENT FOR THE YEAR ENDED 30 NOVEMBER 2023
2023 2022
£’000 £’000
Operating activities
Net loss on ordinary activities after taxation (15,755) (295,889)
Add back finance costs 100 20
Net loss on investments held at fair value through profit or loss (including transaction costs) 28,389 250,583
Net (profit)/loss from derivatives (including transaction costs) (242) 55,673
Financing costs on derivatives (2,324) (1,101)
Net loss on foreign exchange 114 676
Sales of investments held at fair value through profit or loss 207,680 325,600
Purchases of investments held at fair value through profit or loss (216,892) (231,750)
Net receipts/(payments) on closure of derivatives 5,915 (65,886)
Increase in other receivables (470) (279)
Increase/(decrease) in other payables 2,892 (8,169)
Decrease/(increase) in amounts due from brokers 1,321 (998)
Increase/(decrease) in amounts due to brokers 2,365 (2,599)
Net cash collateral (pledged)/received (6,025) 13,250
--------------- ---------------
Net cash inflow from operating activities before taxation 7,068 39,131
Taxation paid (185) (92)
--------------- ---------------
Net cash inflow from operating activities 6,883 39,039
========= =========
Financing activities
Interest paid (100) (20)
Cash proceeds from ordinary shares issued – 17,680
Cash paid for ordinary shares bought back into treasury (29,564) (11,544)
Dividends paid (11,876) (10,909)
--------------- ---------------
Net cash outflow from financing activities (41,540) (4,793)
========= =========
(Decrease)/increase in cash and cash equivalents (34,657) 34,246
Effect of foreign exchange rate changes (114) (676)
--------------- ---------------
Change in cash and cash equivalents (34,771) 33,570
========= =========
Cash and cash equivalents at start of year 58,793 25,223
Cash and cash equivalents at end of year 24,022 58,793
--------------- ---------------
Comprised of:
Cash at bank – 103
Bank overdraft (306) –
Cash Fund 1 24,328 58,690
--------------- ---------------
24,022 58,793
========= =========
1 Cash Fund represents funds held on deposit with the BlackRock Institutional
Cash Series plc – Sterling Liquid Environmentally Aware Fund.
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 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.
2. ACCOUNTING POLICIES
The principal accounting policies adopted by the Company have been applied
consistently, other than where new policies have been adopted and are set out
below.
(a) Basis of preparation
On 31 December 2020, International Financial Reporting Standards (IFRS) 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 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 Company’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
the guidance set out in the SORP.
Substantially all of the assets of the Company consist of securities that are
readily realisable and, accordingly, the Directors are satisfied that the
Company has adequate resources to continue in operational existence for the
foreseeable future for the period to 2 February 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 the 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 note 16 of the Financial
Statements.
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.
None of the Company’s other assets and liabilities were considered to be
potentially impacted by climate change.
The Company’s Financial Statements are presented in Sterling, which is the
functional currency of the Company and the currency of the primary economic
environment in which the Company operates. All values are rounded to the
nearest thousand pounds (£’000) except where otherwise indicated.
Adoption of new and amended International Accounting Standards and
interpretations:
IFRS 9 – Fees in the ’10 per cent’ Test for Derecognition of Financial
Liabilities (effective 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 Company 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.
The amendment of this standard is unlikely to have any significant impact on
the Company.
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.
None of the standards that have been issued but are not yet effective are
expected to have a material impact on the Company.
(b) Presentation of the 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 Statement of Comprehensive Income between items of a revenue and
a capital nature has been presented alongside the Statement of Comprehensive
Income.
(c) Segmental reporting
The Directors are of the opinion that the Company is engaged in a single
segment of business being investment business.
(d) Income
Dividends receivable on equity shares are 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.
Deposit interest receivable is accounted for on an accruals basis. Interest
income from the Cash Fund is accounted for on an accruals basis.
Where the Company has elected to receive its dividends in the form of
additional shares rather than in cash, the cash equivalent of the dividend is
recognised as income. Any excess in the value of the shares received over the
amount of the cash dividend is recognised in capital.
(e) Expenses
All expenses, including finance costs, are accounted for on an accruals basis.
Expenses have been charged wholly to the revenue column of the Statement of
Comprehensive Income, except as follows:
· expenses which are incidental to the acquisition or sale of an investment
are charged to the capital column of the Statement of Comprehensive Income.
Details of transaction costs on the purchases and sales of investments are
disclosed within note 10 to 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;
· the investment management fee and finance costs have been allocated 25% to
the revenue account and 75% to the capital account column of the Statement of
Comprehensive Income in line with the Board’s expected long term split of
returns, in the form of capital gains and income, respectively, from the
investment portfolio; and
· performance fees are allocated 100% to the capital column of the Statement
of Comprehensive Income as fees are generated in connection with enhancing the
value of the investment portfolio.
(f) Taxation
The tax expense represents the sum of the tax currently payable and deferred
tax. The tax currently payable is based on the taxable profit for the year.
Taxable profit differs from net profit as reported in the 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 Company’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 taxation 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.
(g) Investments held at fair value through profit or loss
In accordance with IFRS 9, the Company 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 Company.
Changes in the value of investments held at fair value through profit or loss
and gains and losses on disposal are recognised in the Statement of
Comprehensive Income as “Net profit/(loss) on investments held at fair value
through profit or 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 (e.g.,
discounted cash flow analysis and option pricing models making use of
available and supportable market data where possible). See note 2(o) below.
(h) Derivatives
The Company can hold long and short positions in contracts for difference
(CFDs) and index futures which are held at fair value based on the bid prices
of the underlying securities in respect of long positions and the offer prices
of the underlying securities in respect of short positions.
Profits and losses on derivative transactions are recognised in the Statement
of Comprehensive Income. They are shown in the capital column of the Statement
of Comprehensive Income if they are of a capital nature and are shown in the
revenue column of the Statement of Comprehensive Income if they are of a
revenue nature. To the extent that any profits or losses are of a mixed
revenue and capital nature, they are apportioned between revenue and capital
accordingly. Derivative assets and derivative liabilities that are subject to
netting arrangements are offset in the Statement of Financial Position.
(i) 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.
(j) 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 Statement of
Changes in Equity.
(k) 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 Sterling at the
rate ruling on the financial reporting date. Foreign exchange differences
arising on translation are recognised in the 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 gain on investments held at fair value through profit or loss in the
Statement of Comprehensive Income.
(l) Cash and cash equivalents
Cash comprises cash in hand 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.
The Cash Fund is managed by BlackRock Asset Management Ireland Limited and is
subject to fees and expenses which are capped at 0.03% of the NAV. The
investment is managed as part of the Company’s cash and cash equivalents as
defined under IAS 7 and is presented as a cash equivalent in the Financial
Statements.
(m) Bank borrowings
Bank overdrafts are recorded as the proceeds received. Finance charges,
including any premium payable on settlement or redemption and direct issue
costs, are accounted for on an accruals basis in the 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.
(n) Share repurchases, share reissues and new share issues
Shares repurchased and subsequently cancelled – share capital is reduced by
the nominal value of the shares repurchased, and the capital redemption
reserve is correspondingly increased in accordance with Section 733 of the
Companies Act 2006. The full cost of the repurchase is charged to the special
reserve.
Shares repurchased and held in treasury – the full cost of the repurchase is
charged to the special reserve.
Where treasury shares are subsequently re-issued:
· amounts received to the extent of the repurchase price are credited to the
special reserve; and
· any surplus received in excess of the repurchase price is taken to the
share premium account.
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.
(o) Critical accounting estimates and judgements
The Directors of the Company make 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. There are no critical accounting estimates or
judgements.
3. INCOME
2023 2022
£’000 £’000
Investment income:
UK dividends 12,201 9,654
UK special dividends 1,464 839
UK REIT dividends 610 509
Overseas dividends 1,706 1,515
UK stock dividends – 68
--------------- ---------------
Total investment income 1 15,981 12,585
========= =========
Net income from derivatives 830 1,526
Other income:
Deposit interest 3 111
Interest from Cash Fund 1,083 594
Collateral interest 53 44
1,139 749
--------------- ---------------
Total income 17,950 14,860
========= =========
1 UK and overseas dividends are presented based on the country of domicile of
the respective underlying portfolio company.
Dividends and interest received in cash during the year amounted to
£15,499,000 and £1,191,000 (2022: £12,223,000 and £615,000).
No special dividends have been recognised in capital during the year (2022:
£91,000).
4. INVESTMENT MANAGEMENT AND PERFORMANCE FEES
2023 2022
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
Investment management fee 629 1,889 2,518 756 2,269 3,025
Performance fee – 2,014 2,014 – – –
--------------- --------------- --------------- --------------- --------------- ---------------
Total 629 3,903 4,532 756 2,269 3,025
========= ========= ========= ========= ========= =========
Investment Management fees
The investment management fee is calculated at the rate of 0.35% per annum on
month end Gross Assets. For the purposes of this note, Gross Assets are
defined as the value of the portfolio of the Company, including uninvested
cash, with the portfolio valuation based on value at risk (with value at risk
being the gross asset value of the long-only portfolio plus the gross value of
the underlying equities, long and short, to which the Company is exposed
through derivatives including CFDs and index futures). The management fee is
charged 25% to the revenue account and 75% to the capital account of the
Statement of Comprehensive Income. There is no additional fee for company
secretarial and administration services.
Performance fees
The performance fee is calculated at the rate of 15% of the outperformance of
the Company. For the purpose of this note, outperformance is defined as the
amount by which the annualised percentage Net Asset Value total return of the
Company arithmetically exceeds the annualised percentage return of the
Benchmark Index, measured over a rolling two-year performance period. This
rate is applied to the average Gross Assets, in that rolling two-year
performance period. Outperformance is the amount by which the Net Asset Value
total return arithmetically exceeds the Benchmark Index total return.
There is a cap on the annual total management and performance fees of 1.25%
per financial year of the average Gross Assets over the rolling two-year
performance period (the “Cap” or “Capped Amount”) which has the effect
of capping the annual performance fees at circa 0.9% of average Gross Assets
and which means that the performance fee from any performance period will not
exceed 0.9% of average Gross Assets for the relevant performance period.
The performance fee is calculated daily for the rolling two-year performance
period ending 30 November 2023 and the rolling two-year performance period
ending 30 November 2024 and, accruals are made in the NAV subject to the Cap.
The performance fee is payable on 30 November each year in relation to the
rolling two-year performance period ending on that date. The accrual is
calculated applying the following assumptions:
· The Benchmark Index remains unchanged;
· The Net Asset Value total return performs in line with the Benchmark Index
total return for the remainder of the respective rolling two-year performance
periods ending 30 November 2023 and 30 November 2024; and
· The future value of Gross Assets for performance fee purposes is the same
at the balance sheet date.
The amount of outperformance on which a performance fee has not been paid in a
financial year due to the application of the Cap will be carried forward to
offset against future shortfall returns. As at 1 December 2023, the carried
forward unpaid net outperformance, net of prior period shortfall returns,
available to offset against future shortfall returns was 4.8% (1 December
2022: 10.7%). On the first day of the financial year, due to the application
of the Cap in the prior financial year, any performance fee for the ongoing
rolling two-year performance period not yet recognised is accrued in the daily
NAV released to the London Stock Exchange on that day.
Performance fees have been wholly allocated to the capital account of the
Statement of Comprehensive Income as the performance has been predominantly
generated through capital returns from the investment portfolio. For the year
ended 30 November 2023, the total accrual of performance fee for all rolling
two-year performance periods amounted to £2,014,000 (2022: £nil), calculated
as follows:
· For the annualised rolling two-year performance period to 30 November
2023, the Company has underperformed the benchmark by 5.9% as at 30 November
2023. No performance fee relating to this performance period has been accrued
at the date of this report.
· For the annualised rolling two-year performance period to 30 November
2024, the Company has outperformed the benchmark by 1.9% as at 30 November
2023. A performance fee of £2,014,000 relating to this performance period has
been accrued at the date of this report, which does not become payable until
30 November 2024, subject to the ongoing performance of the Company.
5. OTHER OPERATING EXPENSES
2023 2022
£’000 £’000
Allocated to revenue:
Custody fee 7 8
Auditor’s remuneration 1 58 52
Registrar’s fee 44 45
Directors’ emoluments 2 224 205
Broker fees 36 35
Depositary fees 70 83
Marketing fees 149 153
FCA fees 27 28
Printing and postage fees 43 42
AIC fees 21 21
Stock exchange listing fees 31 102
Write back of prior year expenses 3 (12) (26)
Other administrative costs 94 95
--------------- ---------------
792 843
========= =========
Allocated to capital:
Custody transaction charges 4 20 20
--------------- ---------------
812 863
========= =========
The Company’s ongoing charges 5 , calculated as a percentage of average daily net assets and using the management fee and all other operating expenses, excluding performance fees, finance costs, direct transaction costs, custody transaction charges, VAT recovered, taxation, prior year expenses written back and certain non-recurring items, were: 0.54% 0.54%
The Company’s ongoing charges 5 , calculated as a percentage of average daily net assets and using the management fee and all other operating expenses and including performance fees but excluding finance costs, direct transaction costs, custody transaction charges, VAT recovered, taxation, prior year expenses written back and certain non-recurring items, were: 0.87% 0.54%
========= =========
1 No non-audit services were provided by the Company’s auditors.
2 Further information on Directors’ emoluments can be found in the
Directors’ Remuneration Report contained within the Annual Report and
Accounts. The Company has no employees.
3 Relates to Directors’ recruitment fees, miscellaneous fees and postage
fees written back during the year (2022: Directors’ expenses, legal fees,
registration fees and miscellaneous fees).
4 For the year ended 30 November 2023, expenses of £20,000 (2022: £20,000)
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.
5 Alternative Performance Measures, see Glossary contained within the Annual
Report and Accounts.
6. DIVIDENDS
Dividends paid on equity shares: Record date Payment date 2023 2022
£’000 £’000
Final dividend of 8.50p per share for the year ended 30 November 2022 (2021: 8.00p) 24 February 2023 31 March 2023 8,595 8,255
Interim dividend of 3.30p per share for the year ended 30 November 2023 (2022: 2.60p) 4 August 2023 1 September 2023 3,281 2,654
--------------- ---------------
11,876 10,909
========= =========
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 proposed, meet the
relevant requirements as set out in this legislation.
Dividends paid or declared on equity shares: 2023 2022
£’000 £’000
Interim dividend of 3.30p per share for the year ended 30 November 2023 (2022: 2.60p) 3,281 2,654
Final dividend of 11.45p per share for the year ended 30 November 2023 1 (2022: 8.50p) 10,911 8,595
--------------- ---------------
14,192 11,249
========= =========
1 Based on 95,291,492 ordinary shares in issue on 31 January 2024.
7. EARNINGS AND NET ASSET VALUE PER ORDINARY SHARE
Total revenue, capital loss and net asset value per ordinary share are shown
below and have been calculated using the following:
Year ended Year ended
30 November 30 November
2023 2022
Net revenue profit attributable to ordinary shareholders (£’000) 16,510 13,257
Net capital loss attributable to ordinary shareholders (£’000) (32,259) (309,145)
--------------- ---------------
Total loss attributable to ordinary shareholders (£’000) (15,749) (295,888)
========= =========
Equity shareholders’ funds (£’000) 575,925 633,357
--------------- ---------------
The weighted average number of ordinary shares in issue during the year on which the earnings per ordinary share was calculated was: 99,704,909 102,346,782
The actual number of ordinary shares in issue at the year end on which the net asset value per ordinary share was calculated was: 95,872,161 101,158,864
--------------- ---------------
Loss per ordinary share
Revenue earnings per share (pence) – basic and diluted 16.56 12.95
Capital loss per share (pence) – basic and diluted (32.36) (302.05)
--------------- ---------------
Total loss per share (pence) - basic and diluted (15.80) (289.10)
========= =========
As at As at
30 November 30 November
2023 2022
Net asset value per ordinary share (pence) 600.72 626.10
Ordinary share price (pence) 579.00 595.00
========= =========
There were no dilutive securities at the year end.
8. CALLED UP SHARE CAPIAL
Ordinary shares Treasury Total Nominal
in issue shares shares value
number number number £’000
Allotted, called up and fully paid share capital comprised:
Ordinary shares of 5 pence each
At 30 November 2022 101,158,864 2,051,000 103,209,864 5,160
Ordinary shares bought back into treasury (5,286,703) 5,286,703 – –
--------------- --------------- --------------- ---------------
At 30 November 2023 95,872,161 7,337,703 103,209,864 5,160
========= ========= ========= =========
During the year ended 30 November 2023, the Company bought back 5,286,703
shares into treasury (2022: 2,051,000) for a total consideration of
£29,807,000 (2022: £11,544,000) including costs.
During the year ended 30 November 2023, no new shares were issued (2022:
1,773,900 new shares for a total consideration of £16,550,000 including
costs).
Since 30 November 2023 and up to 31 January 2024, no shares have been
reissued. 580,669 shares have been bought back into treasury for a total
consideration of £3,519,000.
The ordinary shares give shareholders voting rights, the entitlement to all of
the capital growth in the Company’s assets and to all income from the
Company that is resolved to be distributed.
9. RESERVES
Distributable reserves
Share Capital Special Capital Capital Revenue
premium redemption reserve reserve reserve reserve
account reserve £’000 arising on arising on £’000
£’000 £’000 investments revaluation
sold of
£’000 investments
held
£’000
At 30 November 2022 242,122 11,905 33,038 321,274 6,609 13,249
Movement during the year:
Total comprehensive income/(loss):
Profit/(loss) for the year – – – 1,455 (33,714) 16,510
Transactions with owners, recorded directly to equity:
Ordinary shares bought back into treasury – - (29,646) – – –
Share buyback costs – – (161) – – –
Dividends paid – – – – – (11,876)
--------------- --------------- --------------- --------------- --------------- ---------------
At 30 November 2023 242,122 11,905 3,231 322,729 (27,105) 17,883
========= ========= ========= ========= ========= =========
Distributable reserves
Share Capital Special Capital Capital Revenue
premium redemption reserve reserve reserve reserve
account reserve £’000 arising on arising on £’000
£’000 £’000 investments revaluation
sold of
£’000 investments
held
£’000
At 30 November 2021 225,660 11,905 44,582 398,865 238,163 10,901
Movement during the year:
Total comprehensive (loss)/income:
(Loss)/profit for the year – – – (77,591) (231,554) 13,257
Transactions with owners, recorded directly to equity:
Ordinary shares issued 16,479 – – – – –
Share issue costs (17) – – – – –
Ordinary shares bought back into treasury – – (11,487) – – –
Share purchase costs – – (57) – – –
Dividends paid – – – – – (10,909)
--------------- --------------- --------------- --------------- --------------- ---------------
At 30 November 2022 242,122 11,905 33,038 321,274 6,609 13,249
========= ========= ========= ========= ========= =========
The share premium account and capital redemption reserves are not
distributable reserves under the Companies Act 2006. In accordance with ICAEW
Technical Release 02/17BL on Guidance on Realised and Distributable Profits
under the Companies Act 2006, the special reserve and capital reserves may be
used as distributable reserves for all purposes and, in particular, the
repurchase by the Company of its ordinary shares and for payments such as
dividends. In accordance with the Company’s Articles of Association, the
special reserve, capital reserves and the revenue reserve may be distributed
by way of dividend. As 30 November 2023, there was no gain on capital reserve
arising on the revaluation of investments (2022: gain of £6,609,000). The
gain on revaluation of investments is subject to fair value movements and may
not be readily realisable at short notice, as such any gains 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.
10. VALUATION OF FINANCIAL INSTRUMENTS
Financial assets and financial liabilities are either carried in the Statement
of Financial Position at their fair value (investments and derivatives) or at
an amount which is a reasonable approximation of fair value (due from brokers,
dividends and interest receivable, due to brokers, accruals, cash at bank and
bank overdrafts). IFRS 13 requires the Company to classify fair value
measurements using a fair value hierarchy that reflects the significance of
inputs used in making the measurements. The valuation techniques used by the
Company are explained in the accounting policies note 2(g) to the Financial
Statements above.
Categorisation within the hierarchy has been determined on the basis of the
lowest level input that is significant to the fair value measurement of the
relevant asset or liability.
The fair value hierarchy has the following levels:
Level 1 – Quoted market price for identical instruments in active markets
A financial instrument is regarded as quoted in an active market if quoted
prices are readily available from an exchange, dealer, broker, industry group,
pricing service or regulatory agency and those prices represent actual and
regularly occurring market transactions on an arm’s length basis. The
Company does not adjust the quoted price for these instruments.
Level 2 – Valuation techniques using observable inputs
This category includes instruments valued using quoted prices for similar
instruments in markets that are considered less 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.
As at the year end the long and short derivative positions were valued using
the underlying equity bid price (offer price in respect of short positions)
and the contract price at the inception of the trade or at the trade reset
date. There have been no changes to the valuation technique since the previous
year or as at the date of this report.
Contracts for difference have been classified as Level 2 investments as their
valuation has been based on market observable inputs represented by the market
prices of the underlying quoted securities to which these contracts expose the
Company.
Level 3 – Valuation techniques using significant unobservable inputs
This category includes all instruments where the valuation technique includes
inputs not based on market data and these inputs could have a significant
impact on the instrument’s valuation.
This category also includes instruments that are valued based on quoted prices
for similar instruments where significant entity determined adjustments or
assumptions are required to reflect differences between the instruments and
instruments for which there is no active market. The Investment Manager
considers observable data to be that market data that is readily available,
regularly distributed or updated, reliable and verifiable, not proprietary,
and provided by independent sources that are actively involved in the relevant
market.
The level in the fair value hierarchy within which the fair value measurement
is categorised in its entirety is determined on the basis of the lowest level
input that is significant to the fair value measurement. If a fair value
measurement uses observable inputs that require significant adjustment based
on unobservable inputs, that measurement is a Level 3 measurement.
Assessing the significance of a particular input to the fair value measurement
in its entirety requires judgement, considering factors specific to the asset
or liability including an assessment of the relevant risks including but not
limited to credit risk, market risk, liquidity risk, business risk and
sustainability risk. The determination of what constitutes ‘observable’
inputs requires significant judgement by the Investment Manager and these
risks are adequately captured in the assumptions and inputs used in
measurement of Level 3 assets or liabilities.
Fair values of financial assets and financial liabilities
The table below sets out fair value measurements using the IFRS 13 fair value
hierarchy.
Financial assets/(liabilities) at fair value through profit or loss at 30 November 2023 Level 1 Level 2 Level 3 Total
£’000 £’000 £’000 £’000
Assets:
Equity investments 557,594 – – 557,594
Contracts for difference (fair value) – 703 – 703
--------------- --------------- --------------- ---------------
Liabilities: –
Contracts for difference (fair value) – (1,352) – (1,352)
Index future (102) – – (102)
--------------- --------------- --------------- ---------------
557,492 (649) – 556,843
========= ========= ========= =========
Financial assets/(liabilities) at fair value through profit or loss at 30 November 2022 Level 1 Level 2 Level 3 Total
£’000 £’000 £’000 £’000
Assets:
Equity investments 576,771 – – 576,771
Contracts for difference (fair value) – 4,800 – 4,800
--------------- --------------- --------------- ---------------
Liabilities:
Contracts for difference (fair value) – (2,202) – (2,202)
--------------- --------------- --------------- ---------------
576,771 2,598 – 579,369
========= ========= ========= =========
There were no transfers between levels for financial assets and financial
liabilities during the year recorded at fair value as at 30 November 2023 and
30 November 2022. The Company did not hold any Level 3 securities throughout
the financial year or as at 30 November 2023 (2022: nil).
For exchange listed equity investments, the quoted price is the bid price.
Contracts for difference are valued based on the bid price of the underlying
quoted securities that the contracts relate to. Substantially, all investments
are valued based on unadjusted quoted market prices. Where such quoted prices
are readily available in an active market, such prices are not required to be
assessed or adjusted for any price related risks, including climate risk, in
accordance with the fair value related requirements of the Company’s
financial reporting framework.
11. RELATED PARTY DISCLOSURE
Directors’ emoluments
At the date of this report, the Board consists of six 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 £18,000 (2022: £17,000) 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.
1.34 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.
1.84 n/a n/a
12. TRANSACTIONS WITH THE INVESTMENT MANAGER AND AIFM
BlackRock Fund Managers Limited (BFM) provides management and administration
services to the Company under a contract which is terminable on six months’
notice. BFM has (with the Company’s consent) delegated certain portfolio and
risk management services, and other ancillary services, to BlackRock
Investment Management (UK) Limited (BIM (UK)). Further details of the
investment management contract are disclosed 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 £2,518,000 (2022: £3,025,000). At the year end, £1,864,000 was
outstanding in respect of management fees.
For the year ended 30 November 2023, there was no performance fee payable
(2022: £nil). The total accrual of performance fee for all rolling two-year
performance periods amounted to £2,014,000 (2022: £nil), calculated as
follows:
· For the annualised rolling two-year performance period to 30 November
2023, the Company has underperformed the benchmark by 5.9% as at 30 November
2023. No performance fee relating to this performance period has been accrued
at the date of this report.
· For the annualised rolling two-year performance period to 30 November
2024, the Company has outperformed the benchmark by 1.9% as at 30 November
2023. A performance fee of £2,014,000 relating to this performance period has
been accrued at the date of this report.
In addition to the above services, BIM (UK) has provided marketing services.
The total fees paid or payable for these services for the year ended 30
November 2023 amounted to £149,000 excluding VAT (2022: £153,000). Marketing
fees of £269,000 (2022: £120,000) were outstanding at the year end.
The Company has an investment in the BlackRock Institutional Cash Series plc -
Sterling Liquid Environmentally Aware Fund of £24,328,000 (2022:
£58,690,000) which for the year ended 30 November 2023 and 30 November 2022
has been presented in the financial statements as a cash equivalent.
The ultimate holding company of the Manager and the Investment Manager is
BlackRock, Inc., a company incorporated in Delaware USA.
13. CONTINGENT LIABILITIES
There were no contingent liabilities at 30 November 2023 (2022: none).
14. PUBLICATION OF NON-STATUTORY ACCOUNTS
The financial information contained in this announcement does not constitute
statutory accounts as defined in the Companies Act 2006. The Annual Report
and Financial Statements for the year ended 30 November 2023 will be filed
with the Registrar of Companies after the Annual General Meeting.
The figures set out above have been reported upon by the auditor, whose report
for the year ended 30 November 2023 contains no qualification or statement
under section 498(2) or (3) of the Companies Act 2006.
The comparative figures are extracts from the audited financial statements of
BlackRock Throgmorton Trust plc for the year ended 30 November 2022, which
have been filed with the Registrar of Companies. The report of the auditor
on those financial statements contained no qualification or statement under
Section 498 of the Companies Act.
15. ANNUAL REPORT
Copies of the Annual Report and Financial Statements will be sent to members
shortly and will be available from the registered office, c/o The Company
Secretary, BlackRock Throgmorton Trust plc, 12 Throgmorton Avenue, London EC2N
2DL.
16. ANNUAL GENERAL MEETING
The Annual General Meeting of the Company will be held at 12 Throgmorton
Avenue, London EC2N 2DL on Tuesday, 19 March 2024 at 12:00 p.m.
ENDS
The Annual Report will also be available on the BlackRock website at
blackrock.com/uk/thrg. Neither the contents of the Manager’s website nor
the contents of any website accessible from hyperlinks on the Manager’s
website (or any other website) is incorporated into, or forms part of, this
announcement.
FOR FURTHER INFORMATION, PLEASE CONTACT:
Sarah Beynsberger, Director, Closed End Funds, BlackRock Investment Management
(UK) Limited
Tel: 020 7743 3000
Press Enquiries:
Ed Hooper, Lansons Communications – Tel: 0207 294 3616
E-mail: edh@lansons.com; BlackRockInvestmentTrusts@lansons.com
2 February 2024
12 Throgmorton Avenue
London EC2N 2DL
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