Final Results
20/02/2025 07:00
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 2024
Performance record
As at As at
30 November 30 November
2024 2023
Net assets (£’000)(1) 595,908 575,925
Net asset value per ordinary share (pence) 682.82 600.72
Ordinary share price (mid-market) (pence) 593.00 579.00
Benchmark Index(2) 16,794.26 14,713.60
Discount to cum income net asset value(3) (13.2)% (3.6)%
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. .
For the year For the year
ended ended
30 November 30 November
2024 2023
Performance (with dividends reinvested)
Net asset value per share(3) 16.3% (2.3)%
Ordinary share price(3) 5.0% (0.8)%
Benchmark Index(2) 14.1% (6.0)%
Average discount to cum income net asset value for the year(3) (9.3)% (5.2)%
========= =========
. .
Performance Performance
for the ten years for the ten years
to 30 November to 30 November
2024 2023
Performance since 1 July 2014(4) (with dividends reinvested)
Net asset value per share(3) 150.9% 113.5%
Ordinary share price(3) 163.7% 136.9%
Benchmark Index(2) 62.1% 41.1%
. .
For the year For the year Change
ended ended %
30 November 30 November
2024 2023
Revenue
Net revenue profit on ordinary activities after taxation (£’000) 17,046 16,510 +3.3
Revenue earnings per ordinary share (pence)(5) 18.54 16.56 +12.0
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Dividends per ordinary share (pence)
Interim 3.75 3.30 +13.6
Final 14.25 11.45 +24.5
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Total dividends payable/paid 18.00 14.75 +22.0
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1 The change in net assets reflects portfolio movements, share buybacks and
dividends paid during the year.
2 The Company’s Benchmark Index is the Deutsche Numis Smaller Companies plus
AIM (excluding Investment Companies) Index. With effect from 22 March 2018,
the Deutsche Numis Smaller Companies plus AIM (excluding Investment Companies)
Index replaced the Deutsche 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
Deutsche Numis Smaller Companies excluding AIM (excluding Investment
Companies) Index. Prior to 1 December 2013, the Company’s Benchmark Index
was the Deutsche 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 Since 1 July 2014.
5 Further details are given in the Glossary contained within the annual report
and accounts.
.
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Strategic Report
The Directors present the Strategic Report of the Company for the year ended
30 November 2024.
Chairman’s Statement
2024 in brief
* The year to 30 November 2024 (FY2024) was a very challenging and unusual
year. In particular: * With little demand for UK equities, UK small/mid-cap
valuations started the year weak
* Wealth Manager consolidation and exposure limits led to selling (of both the
Company and likely other UK small/mid cap funds) throughout the year
* Capital Gains Tax planning drove further selling ahead of the tax year end
in April 2024 and the UK Budget in October 2024
* US elections and the UK budget led some investors, in particular UK wealth
managers, to allocate away from the UK and further reduce their UK
small/mid-cap investments
* The Company’s portfolio has therefore been cautiously positioned by your
portfolio manager
* A positive NAV total return of +16.3%, an outperformance of 2.2% vs the
Benchmark, is therefore a pleasing result for a cautiously positioned
portfolio in challenging and unusual year
* Your portfolio manager, Dan Whitestone, has outperformed the benchmark in 9
of the last 10 years. Indeed, since March 2015 when Dan Whitestone became
portfolio manager, he has outperformed the benchmark by 78.7% (generating a
total NAV return up to 30 November 2024 of +130.5% vs a benchmark return of
+51.8%)*
* To keep the share price performance as close as possible to the NAV
performance and keep the discount at a level compatible with the liquidity of
the portfolio, significant buy backs were undertaken during the year
representing 9.4% of our shares in FY2024 (FY2023: 5.3%; since buybacks
started in April 2022: 16.3%). A further 6.6% has been bought back since the
year end (up to the latest available date of 18 February 2025)
* Despite these extensive buy backs, the Company delivered a disappointing
FY2024 share price total return of +5.0%, underperforming the Benchmark by
9.1% and some 11.3% below the NAV performance, as the: * discount widened at
year end to -13.2% (30 November 2023: -3.6%)
* average FY2024 discount was up at -9.3% (FY2023: -5.25%)
* Average FY2024 discount of -9.3% vs a UK Smaller Companies sector average of
-11.1%
* Longer-term NAV and Share Price performance however remains good: * Strong
over 10 years; our NAV has outperformed the Benchmark by 88.8% and the share
price by 101.6%
* Although weaker over 3 and 5 years as the impact of the Ukraine invasion on
our asset class and our underperformance versus our benchmark in 2022 works
through
* Dividends increased by +22%. Total dividends of 18.00p per share for FY2024
(FY2023: 14.75p)
* The Board remains confident in the Manager, the portfolio manager and his
investment philosophy and process, and the rest of the BlackRock Emerging
Companies investment team. The Board therefore believes that when confidence
in the UK returns and demand for UK small/mid-cap funds and equities improves,
BlackRock Throgmorton Trust plc is well positioned to return to its position
as a sector leader
*(Dan Whitestone was co-manager of the portfolio until February 2018 after
which he became sole portfolio manager).
.
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Overview
The year to November 2024 was a challenging one for UK markets. The few green
shoots of recovery seen in the early part of the year wilted as what optimism
there had been around the economic plans of the new UK government faded.
Growth expectations, consumer confidence and business confidence have all
since taken a nasty hit. Given the extent to which your Company’s holdings
are exposed to the domestic economy and against this difficult backdrop, I am
pleased to report that the Company’s NAV generated a positive return of
16.3%, outperforming its benchmark by +2.2%.
One feature of the period under review has been continued merger and
acquisition (M&A) activity in the UK. As our portfolio manager, Dan
Whitestone, explains in his report which follows, this can be beneficial if
you own the companies that are bid for and a detractor from relative
performance if you don’t. As it happens, M&A in the UK small and mid-cap
space has been a material headwind to our relative performance this year. He
expects more of this activity to continue in 2025 given the compelling
long-term value on offer in the UK market. This may act as either a tailwind
or headwind depending upon which companies are acquired and whether or not we
hold them in our portfolio. Overall, he remains optimistic that he can find
long-term opportunities across the market and that he can use your Company’s
ability to short companies to provide some extra returns in the less
compelling areas of the market. In these tricky times we are pleased to have a
manager able to generate alpha from falling valuations as well as rising ones.
As a Board we remain confident in both the outlook for our portfolio and the
opportunities currently available in our asset class, and are resolutely
focused on achieving the Company’s objectives of providing shareholders with
long-term capital growth and an attractive total return through investment in
primarily UK smaller and mid-capitalisation companies.
Performance
Over the year to 30 November 2024, the Company’s Net Asset Value (NAV) total
return was +16.3% compared to a return of +14.1% from the Company’s
Benchmark Index, an outperformance of +2.2%. The Company’s share price
returned +5.0%, underperforming the Benchmark Index by +9.1% as our discount
widened during the period. Since the period end and up to the close of
business on 18 February 2025, the Company’s NAV has fallen by 3.2%, and the
Benchmark Index has fallen by 0.5% (all figures with dividends reinvested).
Over the short and medium term the Company’s discount to NAV has widened, in
large part as result of the fact that UK equities now have been out of favour
for several years. Over the longer term the performance remains strong. For
the five and ten-year periods to 30 November 2024, the Company’s NAV
returned +17.1% and +150.9%, comparing favourably to the Benchmark Index
returns of +14.5% and +62.1%. The share price has returned double the
benchmark over the ten years to 30 November 2024.
Further information on the Company’s performance, the factors that
contributed to performance during the period and the outlook for the second
half of the financial year are set out in the Investment Manager’s Report
below.
Performance fee
The performance fee is calculated over a two-year rolling period. For the
annualised rolling two-year performance period to 30 November 2024, the
Company has outperformed the benchmark by 2.7% as at 30 November 2024 (gross
of fees). A performance fee of £2,982,000 relating to this performance period
has therefore crystallised as at the date of this report (of which £1,389,000
had been accrued in the prior year).
For the annualised rolling two-year performance period to 30 November 2025,
the Company has outperformed the benchmark by 0.6% as at 30 November 2024. A
performance fee of £625,000 relating to this performance period has been
accrued at the date of this report; this does not become payable until 30
November 2025 and is subject to the ongoing performance of the Company.
Further information on management fees can be found in the annual report and
accounts and in Note 4 to the financial statements below.
Revenue return and dividends
The revenue return per share for the period amounted to 18.54 pence per share,
an increase of 12%.
The Directors are pleased to declare a proposed final dividend of 14.25 pence
per share for the year ended 30 November 2024 (2023: 11.45p). This, together
with the interim dividend of 3.75 pence per share paid on 27 August 2024,
gives a total dividend for the year of 18.00 pence per share, increasing the
total dividend distributed to shareholders compared to the prior financial
year by 22.0%. This dividend will be paid on 11 April 2025, subject to
shareholder approval at the forthcoming AGM, to shareholders who are on the
Company’s register on 28 February 2025.
Policy on share price premium/discount
The Board believes that the best way of addressing any long term discount to
NAV over the longer term is both to generate good performance and to drive
demand for the Company’s shares by widening the awareness of the Company’s
attractions. However, the Board also has a policy of buying back shares in the
Company when the discount is excessive, something we consider in relation to
market conditions, performance and the ongoing attractiveness of the
investment proposition.
We were disappointed that during the twelve months to 30 November 2024 the
Company’s share rating ranged between a discount to NAV of -3.6% and -13.7%,
and ended the period at a discount of -13.2% (30 November 2023: -3.6%). This
compares with the weighted average discount of the UK smaller companies sector
which ended the period at an average discount of -11.1% and given that the
Board aims to minimise share price volatility and encourage the Company’s
share price to trade within a tight range, we have felt the need to take
regular and targeted action to support the shares.
It is, of course, not possible to have full control over the discount during a
period in which there is little demand for both investment trust shares and
smaller company shares in the UK and when the UK government, to date, has yet
to convince the markets that its policies will generate the growth it seeks.
Nonetheless, we remain convinced that our share buy back activity has been
beneficial in reducing the volatility of our share rating and delivering NAV
accretion.
Your Board will continue to deploy its powers to support the share price by
buying back the Company’s shares where it believes that it is in
shareholders’ best interests to do so.
Share buy back activity
During the period under review, the Company bought back a total of 8,600,297
ordinary shares for a total consideration of £52,098,000. Since 30 November
2024 and up to the latest practicable date of 18 February 2025, a further
5,850,000 shares have been bought back for a total consideration of
£34,228,000. As at 18 February 2025, the Company’s shares were trading at a
discount of 10.6% versus an average discount for the rest of the peer group of
11.9%. All shares were bought back at a discount to the prevailing NAV and
were therefore accretive to existing shareholders.
Renewal of buy back authority
At the Company’s annual general meeting in March 2024, the Directors were
given authority to make market purchases of up to 14,276,699 Ordinary Shares,
representing 14.99 per cent. of the issued Ordinary Share capital (excluding
treasury shares).
The Board concluded that this authority could be fully utilised before the
Company’s next annual general meeting and accordingly resolved to convene a
General Meeting of the Company to renew the expiring authority. A Circular and
Notice of Meeting was issued to shareholders on 31 January 2025 and the
General Meeting was held on 17 February at which the resolution to grant a
renewal of existing authority was duly passed.
As it does each year, the Board will also be seeking to renew the authority
from shareholders once again at the AGM to issue new shares (or to reissue
shares held in treasury) and to buy back shares. The Board believes this
action is in shareholders’ best interests. Further information can be found
in the Directors’ Report contained within the annual report and accounts.
Cancellation of the share premium
The share premium account is a non-distributable reserve and the Company is
therefore unable to use it, amongst other things, for making distributions to
shareholders or the purchase by the Company and cancellation of its own
shares. As at 30 November 2024, the Company had distributable reserves of
approximately £336,721,000; the amount standing to the credit of the
Company’s share premium account as of 18 February 2025 is £242,122,000.
Accordingly, the Company is seeking shareholder approval at the AGM to cancel
the Company’s share premium account. If approved by shareholders and
subsequently by the Court, this will result in an increase of the Company’s
distributable reserves and so a greater ability to pay dividends and buy back
shares.
Please refer to the Directors’ Report contained within the annual report and
accounts for further detail.
Investment Guidelines
Given the Company’s small and mid-cap investment mandate, the Board has long
had in place internal guidelines preventing investment in FTSE 100 securities
but permitting the manager to continue to hold a portfolio company that has
moved into the FTSE 100, for a period of up to 12 months after its
promotion. Following a review by Winterflood Securities and consultation
with major shareholders, the Board has, while retaining the restriction on
investing in FTSE 100 securities, removed the 12-month divestment requirement
for portfolio companies promoted into the FTSE 100, as long as such holdings
do not exceed 5% of the Company’s gross assets.
Corporate governance
After nearly nine years on the Board and nearly eight as Chairman, I will not
be seeking re-election at the Company’s AGM on 25 March 2025 and so will be
stepping down from the Board with effect from the close of the meeting. It has
been a privilege to chair the Company over nearly eight years and I would like
to thank shareholders, Board colleagues over the years and all at BlackRock
for their help and support during my tenure as Chairman.
As a result of my forthcoming retirement, the Board undertook a search process
under the leadership of the Company’s Senior Independent Director, Louise
Nash, to identify a new Director and my successor. I am therefore delighted to
welcome Mr James Will to the Board with effect from 1 January 2025; James will
be appointed Chairman following the AGM. He also serves as a member of the
Company’s Audit, Nomination and Management Engagement Committees. James is
an experienced Chair and non-executive director as well as a well-regarded
former lawyer with an extensive knowledge of the investment company sector.
Further details of James’s background can be found within the annual report
and accounts.
Mr Glen Suarez retired from the Board on 9 August 2024 after he advised the
Board that, due to the increasing demands of his other business commitments,
he was no longer able to give his role on the Board the time it merited. I
would like to thank Glen for his contribution to the Board during his tenure.
We wish him well for the future.
The Company is compliant with the recommendations of the FTSE Women Leaders
Review (which states that boards should be at least 40% female and have at
least one woman in the role of Chair or Senior Independent Director on the
board). However, following Glen’s retirement the Company no longer meets the
ethnic diversity recommendations of the Parker Review. Since Glen’s
departure occurred during the search for my successor, the Board decided to
complete the appointment of my successor before starting a search for Glen’s
replacement so the new Chairman could run this process. As a result, the
process to ensure the Board meets the recommendations of the Parker Review
will start shortly.
Further information on the Board’s policy on board diversity, director
tenure and succession planning can be found in the Directors’ Report
contained within the annual report and accounts. We have also disclosed data
on the breakdown of the Board by gender and ethnicity which can be found
within the annual report and accounts. The Board has also reported to
shareholders on our compliance with the UK Code of Corporate Governance and
other matters of good governance contained within the annual report and
accounts.
As it does each year and as required by the Corporate Governance Code, the
Company, with the assistance of an independent third-party evaluator,
undertook a comprehensive Board evaluation. The conclusion was positive in
terms of the effectiveness of the Board and the skills, expertise and
commitment of the individual Directors; the Board remains confident that each
Director is discharging their role and that the Board and its committees are
functioning effectively.
Annual General Meeting
The Company’s Annual General Meeting (AGM) will be held in person on 25
March 2025 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 and then lunch and the opportunity to speak with the
directors and with our portfolio manager.
Shareholders who are unable to attend the meeting in person but who wish to
follow the proceedings, can do so via a live webinar. Details on how to
register will be available shortly on the Company’s website at
www.blackrock.com/uk/thrg or from the Company Secretary at
cosec@blackrock.com. While it is not possible to speak or vote via this
medium, I trust shareholders will once again find this facility helpful.
All shareholders, in particular those who are unable to attend, are encouraged
to exercise their right to vote. Details of how to do this are included within
the annual report and accounts.
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
As we do each year, our Senior Independent Director and I met with several of
our largest shareholders to answer any questions they had and seek feedback.
As a Board, we would also very much like to hear the views of all shareholders
so if you have questions or feedback, please write to me or my successor,
James Will, at our registered offices (12 Throgmorton Avenue, London EC2N 2DL)
or by email at: cosec@blackrock.com. If you are happy with our activities,
we’d like to know; if you are not, we would also like to know!
Can I once again encourage all shareholders to sign up to the BlackRock Trust
Matters newsletter for news, views and insights on your company and the
investment trust market. See the inside cover of the annual report for details
on how to do this.
Outlook
As you will read in our portfolio manager’s report below, the economic
environment is a little dispiriting. However, using all the tools at his
disposal to manage the portfolio, he has reduced exposure to those areas of
the domestic market which he believes may suffer most as a result of the
Budget measures and added short positions to those sectors and holdings which
he believes will be disproportionately impacted. The portfolio manager also
notes that there are some reasons to be positive. It may have its detractors,
but the UK offers a huge universe of high-quality undervalued companies with
compelling growth prospects, all of which he is able to invest in on your
behalf.
The Board remains confident in the Manager, the portfolio manager and his
investment philosophy and process, and the rest of the BlackRock Emerging
Companies investment team. Moreover the Board believes that when confidence in
the UK returns and demand for UK small/mid-cap funds and equities improves,
BlackRock Throgmorton Trust plc is well positioned to return to its position
as a sector leader.
The Board looks forward to the future of the Company with confidence.
CHRISTOPHER SAMUEL
Chairman
19 February 2025
Investment Manager’s Report for the 12 months ended 30 November 2024
Market review and investment performance
The Company delivered a positive return of 16.3% net of fees over the 2024
financial year, outperforming the benchmark by +2.2%. Performance in absolute
and relative terms was weighted towards the first half of the year. The
Company delivered a return (net of fees) of +19.2%, outperforming the
Benchmark Index by +2.4% in the first half of the year and in the second half
of the year returned -2.4% versus the Benchmark return of -2.3%. This
reflected the disappointing end to the year in response to Labour’s drumbeat
of negativity in the lead up to the budget and then of course the budget
itself. What a difference a year can make; after a protracted period of
subdued returns from the UK small & mid cap market which started in 2022, it
really felt like things were turning up during the first half of this year. We
started the second half with real optimism, with low inflation, strong
employment, and economic growth, and improving business and consumer
confidence. What a backdrop for Labour to build on with their “pro-growth”
mandate! Unfortunately, defeat was soon snatched from the jaws of victory and
the year finished on a very weak note.
The Company’s outperformance during the first half of the year can be
attributed to a number of strong stock specifics across a broad range of
companies such as IntegraFin, Gamma Communications and Morgan Sindall (see
table below for the top 10 contributors and detractors to performance during
the year). 2024 has been one of the most difficult years to navigate in the 10
years I have managed the Company’s portfolio. Outflows in the asset class
have continued, pressuring share prices and valuations of thinly traded
shares, where valuation alone was an insufficient catalyst for a reversal of
performance, despite in many cases far more robust trading than their
valuations would suggest. Meanwhile, mergers and acquisitions (“M&A”) in
UK small and medium sized companies continues at pace as private equity and
international companies take advantage of weaker GBP and depressed valuations.
This is only good news if you own the shares (though then there is a debate
about whether one is selling out on the cheap and forgoing future capital
growth for a cash bid today), but for Throgmorton in 2024 the M&A activity
cost around 300 basis points (“bps”) of relative performance in the year
(i.e. companies being acquired in the benchmark that Throgmorton didn’t
own), a material headwind to relative performance. I expect 2025 to be another
year of elevated M&A activity, so only time will tell if that is a tailwind or
headwind to relative and absolute performance this year.
Positive contributors to performance in the second half of the year were well
spread across sectors. Our largest position, aggregates business Breedon,
delivered resilient results despite adverse weather and subdued market
conditions. Breedon continues to be impacted by negative volumes but has
continued to make headway with pricing increases and cost efficiencies to grow
profitability while it waits for a volume recovery in the market. Morgan
Sindall’s “fit out” division, another large holding within the
portfolio, won several large contracts during the year, resulting in upgrades.
Morgan Sindall is the number one player in the market and post the recent
demise (bankruptcy) of the number 2 player, this favourable evolution of
market structure should lead to improved returns and further market share
gains from here. Shares in tour operator Jet2 rose after the company upgraded
guidance having seen record passengers during the first half of its financial
year. Demand increased for both package holidays and flight only options as
consumers prioritised overseas vacations despite a more challenging economic
backdrop. Industry capacity remains constrained, whilst Jet2’s stronger
balance sheet and fleet additions leave them well placed to grow market share
and support pricing/mix in margin accretive holiday packages. In the
technology sector a notable contributor during the period included Baltic
Classifieds which experienced strong growth in its market leading Real Estate,
Autos and Jobs & Services divisions. Within the financial sector Tatton Asset
Management and IntegraFin both saw positive inflows and benefitted from
overall strength in financial markets.
Detractors during the period were a combination of negative stock specifics
(i.e. shares falling in response to negative trading developments), shares
that fell despite a lack of negative news, and also shares we did not own in
the benchmark that performed well, either through trading or by being
acquired. As mentioned at the start, we estimate M&A has cost the Company in
terms of relative performance in 2024. The largest detractor was Next 15, a
media company, which delivered a material profit warning in the period as a
5-year contract with a Middle Eastern client was cancelled after only 3 years,
resulting in a significant hit to profits for the full year. We had already
been reducing the position and subsequently fully exited by the end of the
year given the large contribution of this one client and the broader slowdown
in spending that Next 15 is experiencing from some of its technology clients.
Shares in Zotefoams drifted lower during the period despite resilient trading.
We ascribe the weakness to broader concerns around European industrials
(especially those with Chinese exposure), in addition to weakness at its key
customer, Nike, which accounts for around a quarter of group revenues. Other
notable detractors included shares we didn’t own that performed well in the
period, such as gaming software provider Playtech and media business Ascential
(acquired by its peer Informer for a +50% premium).
Largest contributors
Stock Fund Benchmark Effect on
Weighting Weighting Fund return
INTEGRAFIN HOLDINGS PLC 2.29% 0.52% 0.71%
GAMMA COMMUNICATIONS PLC 2.63% 0.65% 0.71%
MORGAN SINDALL GROUP PLC 1.55% 0.60% 0.65%
BALTIC CLASSIFIEDS GROUP PLC 1.76% 0.61% 0.56%
SIGMAROC PLC 1.18% 0.22% 0.53%
CLOSE BROTHERS GROUP PLC 0.00% 0.34% 0.52%
BREEDON GROUP PLC 2.87% 0.63% 0.52%
Short Position -0.23% 0.67% 0.44%
4IMPRINT GROUP PLC 2.07% 0.75% 0.43%
TATTON ASSET MANAGEMENT PLC 2.22% 0.18% 0.42%
Largest detractors
Stock Fund Benchmark Effect on
Weighting Weighting Fund return
YOUGOV PLC 1.10% 0.43% -0.53%
SIG PLC 1.14% 0.15% -0.52%
WATCHES OF SWITZERLAND GROUP PLC 0.57% 0.41% -0.51%
TT ELECTRONICS PLC 1.24% 0.12% -0.49%
CVS GROUP PLC 1.02% 0.41% -0.46%
INDIVIOR PLC 0.88% 0.69% -0.46%
NEXT 15 GROUP PLC 0.97% 0.36% -0.44%
PLAYTECH PLC 0.00% 0.79% -0.44%
AJ BELL PLC 0.21% 0.74% -0.42%
WH SMITH PLC 2.34% 0.00% -0.39%
Portfolio positioning and outlook
It’s frustrating that only a few months ago I was writing about “robust”
UK macro data, falling mortgage rates and a positive outlook for 2025. For as
Keynes said “when the facts change, I change my mind”. Unfortunately, the
UK Budget has had a chilling effect on UK economic momentum; the CITI Economic
surprise index, which peaked at over +50 in the summer has fallen to -34,
close to trough levels, UK GDP data has been revised down to close to 0 in
quarter 3 with little growth expected in quarter 4, retail sales slowed to
0.4% growth in quarter 4, and business confidence has fallen sharply.
Though the absolute amount of spending in the budget was not wildly different
from our expectations, the mix of policies is definitely worse. The changes to
National Insurance are a case in point, most expected the 1.2% higher rate for
employer contributions which had been well trailed. The change to lower the
threshold at which NI is paid was, however, unexpected and will
disproportionately affect those in part time work and impose large costs on
the businesses that employ them. Companies are telling us that they will
respond to these inflationary impulses by reducing staff and seeking
efficiency savings, which suggests the outlook for UK employment is weaker.
For Industrials, to remain competitive, they will have to either absorb or
mitigate mechanical NI costs should they wish to remain price competitive
against global rivals, however, they should get a significant boost from
weaker sterling which continues to depreciate against both the US Dollar and
major European currencies too.
Despite Bank of England (“BoE”) cuts through quarter 4, bond yields are
higher, with the 30-year bond at its highest level since 1998, and swap
spreads, crucial for mortgage pricing, following suit. The outlook for the
housebuilding sector and supply chain has darkened as funding rates
appreciate. Labour will need to move at an even faster rate with supply side
reforms if they want to stimulate a housing recovery. In recent days bond
yields have pushed even higher, eroding the Chancellor’s fiscal headroom and
raising speculation of another adjustment at the March Budget and spending
review. Just like when banks state that their capital position is “very
strong”, the sight of the Chancellor telling journalists her fiscal rules
are “non-negotiable” does little to inspire confidence. The U.K.’s twin
deficit combined with a weakening growth outlook doesn’t inspire external
investment, which this country badly needs.
We have tried to reflect this evolving situation in the Company’s
positioning, liquidity permitting. We have reduced long exposure in UK
domestics with rate sensitivity where valuations don’t reflect this new
reality. We have also introduced and/or added to shorts in several areas,
particularly those companies with incremental cost pressure, or where there
was already evidence of their business model creaking in 2024. We increased
shorts in retailers who are heavily exposed to sourcing in Dollars as well as
in the technology sector where we see budgetary pressures amongst small and
medium enterprises who will be disproportionately hit by this budget, as well
as those where the Government is a large customer. We are nervous about adding
too much in the short book as 1) share prices are down significantly since the
Budget and in many cases are on cross-cycle trough valuation metrics, 2) 2024
witnessed significant M&A activity and we think 2025 will be no different, and
3) not that we are betting the house on the BoE but the weaker growth might
accelerate rate cuts despite the near term concerns of stickier inflation.
We have not made significant changes to our positioning in UK international
earning companies set to benefit from weaker sterling and limited UK domestic
cyclicality. We still favour domestic US exposure where we see long term
roadmaps for growth in infrastructure and data centre capex, which should
benefit holdings such as Hill & Smith and Rotork to name but two. As for
general industrial, 2024 saw further moderation in activity levels as
destocking continued longer than many hoped. 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 2024, but overall,
within General Industrials we have noticed an improvement in the book-to-bill
ratios, accelerating through the second half of 2024 and into the financial
year 2025. For many companies trading on depressed cross-cycle multiples this
is particularly encouraging, and as discussed earlier, weak Sterling will help
both their competitive position as well as from a translational earnings
perspective.
A core holding like Breedon offers exposure to both UK and US infrastructure,
where we have witnessed the permanent withdrawal of capacity which has been
reflected in strong pricing to offset volume reductions. Consequently, profits
have still demonstrated impressive year on year growth despite the reduction
in volumes, and with a reengineered cost base, profits in the next cycle could
reach new highs as volumes recover. Indeed, we expect 2024 to mark the trough
for volumes, not just for Breedon but for many other “growth cyclicals”
despite the absence of an overall “V” shaped recovery in 2025. In many
cases we find these investments trading on close to trough multiples on trough
earnings and we have continued to add to our exposure here believing the
risk/reward to be particularly compelling. We added to some select real estate
companies, which may sound counterintuitive in the face of weakening macro and
rising bond yields, but yet again we think valuations are compelling. Great
Portland, for example, is now at an almost 50% discount to Net Asset Value.
We’ve also averaged down in U.K housebuilder Bellway, now at circa 0.7x its
tangible book value, and still believe that 2024 will mark the trough for
housing volumes.
It’s frustrating but it’s hard to get too constructive on the UK small and
midcap universe right now, given the domestic fiscal environment I have
depicted. But before we get too despondent and talk ourselves into a bearish
frenzy, it is important to put some of the UK macro data into context: UK
construction PMIs have come off the peak, but are still the strongest in
Europe; Mortgage volumes fell 3.5% month on month in November but ended the
year +40% on 2023 (and the -3.5% compares with three consecutive months of
-10% following the Truss debacle); aggregate employment is still strong;
Asda’s disposable income tracker is still growing roughly 10% on an
annualised basis in November; the savings rate is 10%, significantly higher
than the pre covid 20 year average of 7%; Service sector PMIs remain hovering
above 50, even as business confidence has fallen. Lastly, and perhaps key, is
that the BoE’s own view on inflation is much more sanguine than financial
markets, leaving more scope to cut faster than currently expected.
We think a deep recession is unlikely, but our hopes for a V shaped recovery
in 2025 have been squashed. Our base case now is a return to the environment
of 2023, subdued demand and anaemic growth. Downside risks from a further
fiscal mis-step or further punishment by the bond market are clear. Normally
by the time the bond market moves make the mainstream press and the
commentariat starts decrying the state of the pound, its closer to the end
than the start. Remember all the calls for the £ to be at parity with the
Dollar in 2022? Ultimately, we have moved from a situation of economic
strength and financial markets looking supportive to one where economic data
has weakened and UK fiscal policy looks increasingly at the whim of financial
markets.
We will continue to invest in companies with strong balance sheets, and
growing cash flows and seek idiosyncratic investment opportunities where we
see a compelling runway for growth and an asymmetric risk/reward opportunity.
Even though there may be more clouds on a short-term horizon the valuations of
what we consider to be the highest quality UK domestic assets are back at
trough levels and very attractive on a medium-term view, and trading remains
solid despite the backdrop. We remain alive to the data and more importantly
what companies are telling us and will adjust our positioning accordingly. In
conclusion, we enter 2025 somewhat apprehensively and that is reflected in a
gross exposure that is now down to around 110%, and a net exposure that is
around 105%.
DAN WHITESTONE
BLACKROCK INVESTMENT MANAGEMENT (UK) LIMITED
19 February 2025
Portfolio of investments
1 Breedon (2023: 1st)
Construction & Materials
Market value: £19,820,000
Share of net assets: 3.3% (2023: 3.3%)
Supplier of construction materials
2 IntegraFin (2023: 15th)
Financial Services
Market value: £18,223,000¹
Share of net assets: 3.1% (2023: 1.8%)
UK savings platform for financial advisors
3 Tatton Asset Management* (2023: 11th)
Financial Services
Market value: £16,616,000
Share of net assets: 2.8% (2023: 2.2%)
Provision of discretionary fund management services to the IFA market
4 Rotork (2023: 7th)
Electronic & Electrical Equipment
Market value: £16,449,000
Share of net assets: 2.8% (2023: 2.5%)
Manufacturer of industrial flow equipment
5 Grafton Group (2023: 4th)
Support Services
Market value: £16,358,000
Share of net assets: 2.7% (2023: 2.8%)
Builders merchants in the UK, Ireland and Netherlands
6 Hill & Smith Holdings (2023: 12th)
Industrial Metals & Mining
Market value: £16,279,000
Share of net assets: 2.7% (2023: 2.2%)
Supplier of infrastructure products and galvanizing services
7 Gamma Communications* (2023: 2nd)
Mobile Telecommunications
Market value: £15,630,000
Share of net assets: 2.6% (2023: 3.0%)
Provider of communication services to UK businesses
8 GPE (2023: 77th)
Real Estate Investment Trusts
Market value: £15,256,000¹
Share of net assets: 2.6% (2023: 0.5%)
Owner of commercial real estate in central London
9 Workspace Group (2023: 16th)
Real Estate Investment Trusts
Market value: £14,854,000
Share of net assets: 2.5% (2023: 1.8%)
Supply of flexible workspace to businesses in London
10 Oxford Instruments (2023: 3rd)
Electronic & Electrical Equipment
Market value: £14,422,000
Share of net assets: 2.4% (2023: 2.8%)
Designer and manufacturer of tools and systems for industry and research
* 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
2023. Arrows indicate the change in relative ranking of the position in the
portfolio compared to its ranking as at 30 November 2023.
# Company £’000^ % Description
11 Ibstock 14,409 2.4 Manufacturer of clay bricks and concrete products
Construction & Materials
12 FTSE 250 Index Future 14,282(1) 2.4 Index future
Financial Services
13 WH Smith 14,055 2.4 Retailer of books, stationery, magazines, newspapers and confectionery
General Retailers
14 Jet2* 13,763 2.3 Low cost tour operator and airline
Travel & Leisure
15 Morgan Sindall 12,765 2.1 Supplier of office fit out, construction and urban regeneration services
Construction & Materials
16 Boku* 12,153 2.0 Digital payments platform
Support Services
17 Baltic Classifieds Group 10,995 1.8 Operator of online classified businesses in the Baltics
Software & Computer Services
18 GlobalData* 10,802¹ 1.8 Data analytics and consulting
Industrial Support Services
19 Bellway 10,685 1.8 UK housebuilder
Household Goods and Home Construction
20 Dunelm Group 10,645 1.8 Retailer of homeware products
General Retailers
21 Chemring Group 9,569 1.6 Provider of technology products and services to aerospace, defence and security markets
Aerospace & Defence
22 Victorian Plumbing* 9,293¹ 1.6 Online retailer of bathroom products
Home Improvement Retailers
23 Alfa Financial Software 8,996 1.5 Provider of software to the finance industry
Software & Computer Services
24 FRP Advisory Group PLC* 8,933 1.5 Provider of forensics, corporate finance, debt and financial advisory services
Support Services
25 Cairn Homes(&) 8,654¹ 1.4 Builder of community apartments and homes
Household Goods and Home Construction
26 Trainline 8,441¹ 1.4 Provider of online rail and train ticketing services
Travel & Leisure
27 4imprint Group 8,425 1.4 Supplier of promotional merchandise in the US
Media
28 Xero(&) 7,741¹ 1.3 Software company specialising in accounting for small businesses
Software & Computer Services
29 IG Group Holdings 7,629 1.3 Online provider of spread betting and CFD trading services
Financial Services
30 TP ICAP 7,385 1.2 Inter-dealer broker
Financial Services
31 Cranswick 6,964 1.2 Producer of premium, fresh and added-value food products
Food Producers
32 Luceco 6,685 1.1 Supplier & manufacturer of high quality LED lighting products
Electronic & Electrical Equipment
33 Vesuvius 6,565 1.1 British engineered ceramics company
Industrial Engineering
34 Porvair 6,522¹ 1.1 Specialist filtration and environmental technology
Electronic & Electrical Equipment
35 Balfour Beatty 6,417 1.1 Multinational infrastructure group
Construction & Materials
36 MJ Gleeson 6,392 1.1 UK housebuilder
Household Goods and Home Construction
37 Hunting 6,234¹ 1.0 Oil services business
Oil Equipment and Services
38 Elementis 6,233¹ 1.0 Speciality chemicals company
Chemicals
39 Deliveroo 6,163 1.0 Online food delivery business
Software & Computer Services
40 Clarkson 5,962 1.0 Provider of shipping services
Industrial Transportation
41 Zegona Communications 5,920 1.0 Provider of telecommunications services
Telecommunication Services
42 Derwent London 5,855 1.0 British property investment company
Real Estate Investment Trusts
43 Oxford Biomedica 5,785¹ 1.0 Gene cell therapy
Pharmaceuticals & Biotechnology
44 Hammerson 5,755 1.0 Property investment company
Real Estate Investment Trusts
45 GB Group* 5,628 0.9 Developer and supplier of identity verification solutions
Software & Computer Services
46 Morgan Advanced Materials 5,491 0.9 Advanced materials manufacturer
Electronic & Electrical Equipment
47 Genuit 5,457 0.9 Manufacturer of plastic piping systems
Construction & Materials
48 AJ Bell 5,364 0.9 UK savings platform for financial advisors & individual investors
Financial Services
49 Kier Group 5,339 0.9 UK construction, services and property group
Construction & Materials
50 Robert Walters 5,199 0.9 Provider of specialist recruitment services
Support Services
51 AB Dynamics* 5,149 0.9 Developer and supplier of specialist automotive testing systems
Industrial Engineering
52 Glenveagh Properties(&) 5,018¹ 0.8 Builder of community apartments and homes
Household Goods and Home Construction
53 Sirius Real Estate 4,924 0.8 Owner and operator of business parks, offices and industrial complexes in Germany
Real Estate Investment & Services
54 Craneware* 4,907 0.8 Provider of financial business software for US hospitals
Healthcare Equipment & Services
55 Zotefoams 4,869¹ 0.8 Manufacturer of polyolefin foams used in sport, construction, marine, automation, medical equipment and aerospace
Chemicals
56 Polar Capital Holdings* 4,831 0.8 Provider of investment management services
Financial Services
57 DiscoverIE 4,710 0.8 International designer, manufacturer and supplier of customised electronics
Electronic & Electrical Equipment
58 Ashmore Group 4,670¹ 0.8 Emerging market focused investment manager
Financial Services
59 PayPoint 4,565¹ 0.8 Digital payments business
Industrial Support Services
60 Young & Co’s Brewery* 4,502 0.8 Owner and operator of pubs mainly in the London area
Travel & Leisure
61 Londonmetric Property(#) 4,364¹ 0.7 Investor in, and developer of property
Real Estate Investment Trusts
62 Future 4,330 0.7 Multi-platform media business covering technology, entertainment, creative arts, home interest and education
Media
63 SThree 4,245 0.7 Provider of specialist professional recruitment services
Support Services
64 SIG 4,214 0.7 Supplier of building, roofing and insulation products
Industrial Support Services
65 SigmaRoc* 4,208 0.7 Buy-and-build group targeting construction materials assets in the UK and Northern Europe
Construction & Materials
66 TT Electronics 3,916 0.7 Global manufacturer of electronic components
Electronic & Electrical Equipment
67 Plus500 Ltd 3,883 0.6 Online trading platform provider
Financial Services
68 Restore* 3,696 0.6 Records management business
Support Services
69 SPS Commerce(&) 3,661¹ 0.6 Cloud-based supply chain management software provider
Software & Computer Services
70 Cerillion* 3,505 0.6 Provider of billing, charging and customer management systems
Software & Computer Services
71 Lundin Mining(&) 3,303¹ 0.6 Diversified base metals miner
Industrial Metals & Mining
72 Euronext(&) 3,225¹ 0.5 European stock exchange
Financial Services
73 Medpace Holdings(&) 3,131¹ 0.5 Clinical research organization (CRO) conducting global clinical research for the development of drugs and medical devices
Pharmaceuticals & Biotechnology
74 Alpha Group International 3,089 0.5 Foreign exchange risk management and banking solutions provider
Financial Services
75 Senior PLC 3,008 0.5 Specialist engineering business
Aerospace & Defence
76 Bloomsbury Publishing 2,941 0.5 Independent publishing house
Media
77 Marshalls 2,939¹ 0.5 British construction materials group
Construction & Materials
78 Costain Group 2,930 0.5 Construction and engineering company
Industrial Support Services
79 Safestore 2,876 0.5 Provider of self-storage units
Real Estate Investment Trusts
80 Savills 2,870 0.5 Provision of specialist real estate services
Real Estate Investment & Services
81 TI Fluid Systems 2,839 0.5 Manufacturer of thermal management and fluid handling systems
Automobiles & Parts
82 Yellow Cake PLC* 2,808¹ 0.5 Uranium investment company
Industrial Metals & Mining
83 Permanent TSB(&) 2,788 0.5 Irish bank
Banks
84 Central Asia Metals* 2,772¹ 0.5 Production of base metals with operations in Kazakhstan and North Macedonia
Industrial Metals & Mining
85 Watches of Switzerland 2,685 0.5 Retailer of luxury watches
Personal Goods
86 Forterra 2,684 0.5 Manufacturer of building products
Construction & Materials
87 Moneysupermarket.com 2,622 0.4 Provider of price comparison website specialising in financial services
Software & Computer Services
88 Judges Scientific* 2,607 0.4 Designer and producer of scientific instruments
Electronic & Electrical Equipment
89 Animalcare Group* 2,555 0.4 Veterinary pharmaceuticals business
Pharmaceuticals & Biotechnology
90 Accesso Technology* 2,336¹ 0.4 Provider of ticketing and virtual queuing solutions
Software & Computer Services
91 Videndum 2,292¹ 0.4 Provider of media hardware products and software solutions
Industrial Engineering
92 CVS Group* 2,275 0.4 Operator of veterinary surgeries
General Retailers
93 Inficon(&) 2,266¹ 0.4 Provider of innovative instrumentation and critical sensor technologies
Electronic & Electrical Equipment
94 Indivior PLC 2,214¹ 0.4 Pharmaceuticals business specialising in addiction and mental health treatments
Pharmaceuticals & Biotechnology
95 Raspberry Pi Holdings PLC 2,114 0.4 Single-board computer manufacturer
Technology Hardware & Equipment
96 Rosebank* 2,100 0.4 Industrial company with a “Buy, improve, sell” strategy
Financial Services
97 OSB Group 2,024 0.3 Specialist lending business
Financial Services
98 Creo Medical Group PLC* 1,977¹ 0.3 Manufacturer of medical devices
Medical Equipment and Services
99 Eckoh* 1,836 0.3 Global provider of secure payments products
Software & Computer Services
100 Gooch & Housego* 1,768 0.3 Designer and manufacturer of advanced photonic systems
Electronic & Electrical Equipment
101 Team17* 1,656 0.3 Video game developer and publisher
Leisure Goods
102 The Pebble Group* 1,597 0.3 Designer and manufacturer of promotional goods
Media
103 Computacenter 1,498 0.3 Computer services
Software & Computer Services
104 Advanced Medical Solutions 1,272¹ 0.2 Developer and manufacturer of advanced wound care solutions
Healthcare Equipment & Services
105 XP Power 1,167 0.2 Leading provider of power solutions
Electronic & Electrical Equipment
106 Maxcyte* 337 0.1 Clinical-stage global cell-based therapies and life sciences company
Pharmaceuticals & Biotechnology
107 Cohort PLC* 129 – Defence and security technology company
Aerospace & Defence
--------------- -----------
Long investment positions (excluding BlackRock’s Institutional Cash Series plc – Sterling Liquid Environmentally Aware Fund) 667,154 112.0
========= =======
Short investment positions (20,120) (3.4)
========= =======
1 Includes long derivative positions.
* Traded on the Alternative Investment Market (AIM) of the London
Stock Exchange.
# Traded on the FTSE 100 Index 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 2024, the Company held equity interests in two companies
comprising more than 3% of a company’s share capital as follows: Tatton
Asset Management and Luceco.
Fair value and gross market exposure of investments as at 30 November 2024
Fair value(1) Gross market Gross market exposure as a %
£’000 exposure(2,3) of net assets(2)
£’000
2024 2023
Long equity investment positions (excluding BlackRock’s Institutional Cash Series plc – Sterling Liquid Environmentally Aware Fund) 557,602 557,602 93.6 96.8
Long derivative positions 1,281 109,552 18.4 14.6
--------------- --------------- --------------- ---------------
Subtotal of long investment positions 558,883 667,154 112.0 111.4
Short investment positions 532 (20,120) (3.4) (3.8)
--------------- --------------- --------------- ---------------
Subtotal of long and short investment positions 559,415 647,034 108.6 107.6
Cash and cash equivalents 43,889 (43,730) (7.3) (6.7)
Other net current liabilities (7,396) (7,396) (1.3) (0.9)
--------------- --------------- --------------- ---------------
Net assets 595,908 595,908 100.0 100.0
========= ========= ========= =========
The Company was geared through the use of long and short derivative positions.
Gross and net gearing as at 30 November 2024 were 115.4% and 108.6%
respectively (2023: 115.2% and 107.6% 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 £108,271,000 at the time of
purchase, and subsequent movement in market prices have resulted in unrealised
gains on the long derivative positions of £1,281,000 resulting in the value
of the total long derivative market exposure to the underlying securities
increasing to £109,552,000 as at 30 November 2024. If the long positions had
been closed on 30 November 2024, this would have resulted in a gain of
£1,281,000 for the Company.
– The notional exposure of selling the securities gained via the short
derivative positions would have been £(20,652,000) 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 £532,000 resulting in
the value of the total short derivative market exposure of these investments
increasing to £(20,120,000) at 30 November 2024. If the short positions had
been closed on 30 November 2024, this would have resulted in a gain of
£532,000 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 2024
Sector % of % of % of
long portfolio short portfolio net portfolio
Oil Equipment and Services 1.0 0.0 1.0
--------------- --------------- ---------------
Oil & Gas 1.0 0.0 1.0
========= ========= =========
Chemicals 1.7 0.0 1.7
Industrial Metals & Mining 3.9 0.0 3.9
--------------- --------------- ---------------
Basic Materials 5.6 0.0 5.6
========= ========= =========
Aerospace & Defence 2.0 0.0 2.0
Construction & Materials 11.4 (0.3) 11.1
Electronic & Electrical Equipment 10.2 (0.3) 9.9
Industrial Engineering 2.2 0.0 2.2
Industrial Support Services 3.5 (0.2) 3.3
Industrial Transportation 0.9 0.0 0.9
Support Services 7.8 0.0 7.8
--------------- --------------- ---------------
Industrials 38.0 (0.8) 37.2
========= ========= =========
Food Producers 1.1 (0.2) 0.9
Personal Goods 0.4 0.0 0.4
--------------- --------------- ---------------
Consumer Staples 1.5 (0.2) 1.3
========= ========= =========
Medical Equipment and Services 0.3 0.0 0.3
Healthcare Equipment & Services 1.0 0.0 1.0
Pharmaceuticals & Biotechnology 2.2 (0.3) 1.9
--------------- --------------- ---------------
Health Care 3.5 (0.3) 3.2
========= ========= =========
Automobiles & Parts 0.4 0.0 0.4
General Retailers 4.2 (0.3) 3.9
Home Improvement Retailers 1.4 0.0 1.4
Household Goods and Home Construction 4.8 0.0 4.8
Leisure Goods 0.3 0.0 0.3
Media 2.7 (0.3) 2.4
Travel & Leisure 4.1 0.0 4.1
--------------- --------------- ---------------
Consumer Discretionary 17.9 (0.6) 17.3
========= ========= =========
Banks 0.4 0.0 0.4
Financial Services 14.4 0.0 14.4
--------------- --------------- ---------------
Financials 14.8 0.0 14.8
========= ========= =========
Real Estate Investment & Services 1.2 0.0 1.2
Real Estate Investment Trusts 7.6 (0.2) 7.4
--------------- --------------- ---------------
Real Estate 8.8 (0.2) 8.6
========= ========= =========
Software & Computer Services 8.5 (0.7) 7.8
Technology Hardware & Equipment 0.3 (0.4) (0.1)
--------------- --------------- ---------------
Technology 8.8 (1.1) 7.7
========= ========= =========
Mobile Telecommunications 2.4 0.0 2.4
Telecommunications Services 0.9 0.0 0.9
--------------- --------------- ---------------
Telecommunications 3.3 0.0 3.3
========= ========= =========
Total Investments 103.2 (3.2) 100.0
========= ========= =========
The above percentages are calculated on the net portfolio as at 30 November
2024. The net portfolio is calculated as long equity and derivative positions,
less short derivative positions as at 30 November 2024.
Analysis of the portfolio
Market capitalisation as at 30 November 2024
Long positions(1)% of net portfolio Short positions% of net portfolio
£10bn – £20bn 1.2% 0.0%
£5bn – £10bn 2.0% 0.0%
£2.5bn – £5bn 10.2% -0.6%
£2bn – £2.5bn 5.1% -0.3%
£1.5bn – £2bn 22.8% -0.3%
£1bn – £1.5bn 19.4% -1.1%
£500m – £1bn 20.5% -0.8%
£0m – £500m 21.9% -0.0%
1 The above investments may comprise exposures to long equity and long
derivative positions.
Source: BlackRock.
Position size as at 30 November 2024
Market value Long positions(1) Short positions
£15m – £20m 8 0
£10m – £15m 12 0
£5m – £10m 32 0
£2.5m – £5m 37 0
£0m – £2.5m 18 -11
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)
FTSE 250 52.2%
FTSE AIM 20.3%
Other 17.2%
FTSE Small Cap 9.7%
FTSE 100 0.6%
Net Basis(2)
FTSE 250 55.0%
FTSE AIM 21.6%
Other 12.5%
FTSE Small Cap 10.3%
FTSE 100 0.6%
Portfolio holdings within Benchmark Index (the Numis Smaller Companies plus
AIM (excluding Investment Companies) Index)
Gross Basis(1)
Within Benchmark 82.5%
(2023: 68.2%)
Off-Benchmark 17.5%
(2023: 31.8%)
Net Basis(2)
Within Benchmark 78.3%
(2023: 70.4%)
Off-Benchmark 21.7%
(2023: 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.
Business Review
Principal activities
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.
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.
* 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%.
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.
While the UK Smaller Companies 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.
Idea generation can come from anywhere, though the primary focus is on meeting
companies, speaking to management teams, and seeking to gain an in-depth
understanding of the business and the industry in which they operate. This is
the greatest source of idea generation. Our portfolio manager focuses on
identifying strong management teams with clarity of strategic vision, in
growing markets with attractive industry dynamics, where they have a leading
market position supported by a differentiated product offering, giving them
pricing power and strong margins. These characteristics are then combined with
strong financial structures. We seek to avoid indebted companies, therefore we
look for companies that have strong balance sheets, and importantly those with
high levels of cash conversion, where cash can be reinvested back into the
business at a high rate of return. From here our manager constructs a
diversified portfolio of high quality, growth companies, while also
identifying stock specific shorting opportunities in companies that do not
meet the above criteria. These are often in industries under significant
pressure or companies with weak financial structures (i.e. too much debt and
not enough cash flow).
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.
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 profit for the year, after taxation, was £86,322,000
(2023: loss of £15,749,000) of which the net revenue profit amounted to
£17,046,000 (2023: £16,510,000) and the net capital profit amounted to
£69,276,000 (2023: loss of £32,259,000).
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 30 November
2024 2023
Net asset value total return(1,2) 16.3% (2.3)%
Share price total return(1,2) 5.0% (0.8)%
Benchmark Index total return(3) 14.1% (6.0)%
Discount to cum income net asset value(2) 13.2% 3.6%
Revenue return per share 18.54p 16.56p
Ongoing charges(2,4) 0.56% 0.54%
Ongoing charges including performance fees(2,5) 0.82% 0.87%
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 to NAV of the ordinary shares on a cum income basis has
ranged between a discount of 3.5% and 13.7%, with the average being a discount
of 9.3%. The shares ended the year at a discount of 13.2% on a cum income
basis. As at 18 February 2025 the discount was 10.6%.
Following the financial year end, the Board convened a General Meeting of its
shareholders held on 17 February 2025. The purpose of the meeting was to seek
to renew the power taken at the last AGM to buy back up to 14.99% of the
Company’s shares.
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 Board has undertaken a robust assessment of both the principal and
emerging risks facing the Company, including those that would threaten its
business model, future performance, solvency or liquidity. For instance, the
risk that unforeseen or unprecedented events (including heightened
geo-political tensions, a global pandemic, hyperinflation, stagflation, a
liquidity event or significant changes in technology and the evolution of
artificial intelligence (AI)) may have a significant negative impact on global
markets (notably through increased commodity and labour price volatility,
driving inflation and impacting global trade) and consequently a negative
impact on the Company’s NAV, performance and discount. The Board has taken
into consideration the risks posed to the Company by these events and
incorporated them into the Company’s risk register.
Emerging risks are considered by the Board as they come into view and are
incorporated into the existing review of the Company’s risk register.
Additionally, the Manager considers emerging risks in numerous forums and the
Risk and Quantitative Analysis team produces an annual risk survey. Any
material risks of relevance to the Company identified through the annual risk
survey will be communicated to the Board.
Emerging risks that have been considered by the Board over the year include
the impact of escalating geo-political conflict, technological advances and
issues around shareholder voting against a backdrop of heightened activism
across the UK investment companies sector.
The key emerging risks identified are as follows:
Geo-political risk: Escalating geo-political tensions (including, but not
limited to tensions in the Middle East and the ongoing war in Ukraine, or
deteriorating relations between China and the US/other countries) have a
significant negative impact on global markets, with an increasing use of
tariffs and domestic regulations making global trade more complex and driving
economic fragmentation.
Artificial Intelligence (‘AI’): Advances in computing power means that AI
has become a powerful tool that will impact a huge range of areas and with a
wide range of applications that have the potential to dislocate established
business models and disrupt labour markets, creating uncertainty in corporate
valuations. The significant energy required to power this technological
revolution will create further pressure on environmental resources and carbon
emissions.
Shareholder voting: There has been an increase in activist activity across the
UK closed end funds sector, with general meetings being requisitioned on a
number of UK investment trusts to change the composition of the board, and
potentially the manager and investment policy. Some investors may find it
difficult to vote at general meetings, and against this backdrop of heightened
activity there is a risk that low voting turnout at AGMs and GMs may result
either in changes being made that are not in all shareholders’ best
interests or in the failure to implement changes that are in the best
interests of shareholders.
The Board will continue to assess these risks on an ongoing basis. In relation
to the UK Code, the Board is confident that the procedures that the Company
has put in place are sufficient to ensure that the necessary monitoring of
risks and controls has been carried out throughout the reporting period.
The principal risks and uncertainties faced by the Company during the
financial year, together with the potential effects, controls and mitigating
factors, are set out in the table 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;
· reduced demand for the Company’s shares;
· 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;
· considers the risk of incapacitation of the portfolio manager
or his departure from the Manager; 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 including
heightened geo-political tensions as set out above, which may have a
significant negative impact on global markets and consequently a negative
impact on the Company’s NAV, performance and discount. Companies operating
within the sectors in which the Company invests may be impacted by new
legislation governing climate change and environmental issues, which may have
a negative impact on their valuation and share price.
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. Unlike open-ended counterparts, closed-end funds
are not obliged to sell down portfolio holdings at low valuations to meet
liquidity requirements for redemptions. Although the Board has taken
shareholder authority to buy back shares to manage the discount, it retains
the discretion to decide whether to implement buy backs and the timing and
degree to which this is done. During times of elevated volatility and market
stress, this discretion and the ability of a closed-end fund structure to
remain invested for the longer-term potentially 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, counterparty risk and
interest rate risk. At 30 November 2024, the Company had approximately 22.3%
of its gross asset value invested in AIM traded equity securities and 12.4% 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 (contained within 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.
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 risk that a bank the Company
has deposits with will fail and the Company will not recover monies deposited
with such bank.
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.
The creditworthiness of financial institutions is assessed by BlackRock’s
Portfolio Management Group (“PMG”) Fundamental Fixed Income Credit
Research Team prior to entering into any banking arrangements. The Company has
restricted the amount of cash which may be held with any one financial
institution, and cash balances are monitored daily and any significant surplus
cash is invested substantially in BlackRock’s UCITS compliant Cash Fund to
diversify risk.
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 2030, 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 0.56% excluding performance fees, 0.82% including
performance fees in 2024. 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 stake-holders 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 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 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 in 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 2024 was 9.3%. During the
year the Company’s share price has traded between a discount of 3.5% and
13.7%.
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 2024 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 2024. Details for the proxy
voting results in favour and against individual Directors’ re-election at
the 2024 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. Sustainability-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.
BlackRock structures its approach around three main pillars: investment
processes, material insights and transparency. These pillars underpin ESG
integration at BlackRock and they are supported by equipping BlackRock
employees with investment relevant E, S and/or G data, tools, and education.
More information in respect of BlackRock’s approach to ESG integration can
be found at
https://www.blackrock.com/corporate/literature/publication/blk-esg-investment-statement-web.pdf.
BlackRock’s reporting and disclosures
In terms of its own reporting, BlackRock believes that the Sustainability
Accounting Standards Board provides a clear set of standards for reporting
sustainability information across a wide range of issues, from labour
practices to data privacy to business ethics. For evaluating and reporting
climate-related risks, as well as the related governance issues that are
essential to managing them, the Task Force on Climate-related Financial
Disclosures (TCFD) provides a valuable framework. BlackRock recognises that
reporting to these standards requires significant time, analysis, and effort.
BlackRock’s 2023 TCFD report can be found at
www.blackrock.com/corporate/literature/continuous-disclosure-and-important-information/tcfd-report-2023-blkinc.pd
(http://www.blackrock.com/corporate/literature/continuous-disclosure-and-important-information/tcfd-report-2023-blkinc.pdf)f.
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 2024, 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 2024, the Board consisted of two men and three women,
resulting in 60% female representation. Following the appointment of Mr Will
on 1 January 2025 the ratio was 50:50. 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 19 February
2025.
BY ORDER OF THE BOARD
KEVIN MAYGER
FOR AND ON BEHALF OF
BLACKROCK INVESTMENT MANAGEMENT (UK) LIMITED
COMPANY SECRETARY
19 February 2025
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 2024 amounted
to £2,575,000 (2023: £2,518,000). At the year end, £1,906,000 (2023:
£1,864,000) was outstanding in respect of management fees.
The performance fee payable for the year ended 30 November 2024 amounted to
£2,982,000 (2023: £nil). The total accrual of performance fee for all
rolling two year performance periods amounted to £3,607,000 (2023:
£2,014,000), calculated as follows:
· For the annualised rolling two-year performance period to 30
November 2024, the Company has outperformed the benchmark by 2.7% as at 30
November 2024. A performance fee of £2,982,000 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 2025, the Company has outperformed the benchmark by 0.6% as at 30
November 2024. A performance fee of £625,000 to this performance period has
been accrued at the date of this report, which does not become payable until
30 November 2025, subject to the ongoing performance of the Company.
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 2024 amounted to £175,000 excluding VAT (2023: £149,000). Marketing
fees of £124,000 (2023: £269,000) were outstanding at the year end.
The Company has an investment in the BlackRock Institutional Cash Series plc -
Sterling Liquid Environmentally Aware Fund of £43,477,000 (2023:
£24,328,000) which for the year ended 30 November 2024 and 30 November 2023
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 2024, the Board consisted of five 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. With effect from 1 January
2025, the number of non-executive Directors increased to six with the addition
of Mr James Will to the Board. For the year ended 30 November 2024, the
Chairman received an annual fee of £48,800, the Chairman of the Audit and
Management Engagement Committee received an annual fee of £38,700, the Senior
Independent Director received an annual fee of £34,100 and each other
Director received an annual fee of £33,100. With effect from 1 December
2024 the Chairman will receive an annual fee of £50,250, the Chairman of the
Audit and Management Engagement Committee will receive an annual fee of
£40,000, the Senior Independent Director will receive an annual fee of
£36,100 and each other Director will receive an annual fee of £34,100.
As at 30 November 2024, all members of the Board held shares in the Company.
Christopher Samuel held 67,263 ordinary shares, Louise Nash held 5,500
ordinary shares, Angela Lane held 11,749 ordinary shares, Nigel Burton held
16,986 ordinary shares and Merryn Somerset Webb held 3,750 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’ responsibilities 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 2024, 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
19 February 2025
Statement of Comprehensive Income for the year ended 30 November 2024
2024 2023
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 16,070 518 16,588 15,981 – 15,981
Net income from derivatives 3 1,024 – 1,024 830 – 830
Other income 3 1,569 – 1,569 1,139 – 1,139
--------------- --------------- --------------- --------------- --------------- ---------------
Total income 18,663 518 19,181 17,950 – 17,950
========= ========= ========= ========= ========= =========
Net profit/(loss) on investments held at fair value through profit or loss – 59,598 59,598 – (28,389) (28,389)
Net loss on foreign exchange – (61) (61) – (114) (114)
Net profit from derivatives – 12,839 12,839 – 242 242
--------------- --------------- --------------- --------------- --------------- ---------------
Total 18,663 72,894 91,557 17,950 (28,261) (10,311)
========= ========= ========= ========= ========= =========
Expenses
Investment management and performance fees 4 (644) (3,524) (4,168) (629) (3,903) (4,532)
Other operating expenses 5 (922) (21) (943) (792) (20) (812)
--------------- --------------- --------------- --------------- --------------- ---------------
Total operating expenses (1,566) (3,545) (5,111) (1,421) (3,923) (5,344)
========= ========= ========= ========= ========= =========
Net profit/(loss) on ordinary activities before finance costs and taxation 17,097 69,349 86,446 16,529 (32,184) (15,655)
Finance costs (24) (73) (97) (25) (75) (100)
--------------- --------------- --------------- --------------- --------------- ---------------
Net profit/(loss) on ordinary activities before taxation 17,073 69,276 86,349 16,504 (32,259) (15,755)
Taxation (charge)/credit (27) – (27) 6 – 6
--------------- --------------- --------------- --------------- --------------- ---------------
Profit/(loss) for the year 17,046 69,276 86,322 16,510 (32,259) (15,749)
========= ========= ========= ========= ========= =========
Earnings/(loss) per ordinary share (pence) 7 18.54 75.37 93.91 16.56 (32.36) (15.80)
========= ========= ========= ========= ========= =========
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) (2023: £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 2024
Notes Called Share Capital Special Capital Revenue Total
up share premium redemption reserve reserves reserve
capital account reserve
£’000 £’000 £’000 £’000 £’000 £’000 £’000
For the year ended 30 November 2024
At 30 November 2023 5,160 242,122 11,905 3,231 295,624 17,883 575,925
Total comprehensive income:
Net profit for the year – – – – 69,276 17,046 86,322
Transactions with owners, recorded directly to equity:
Ordinary shares bought back into treasury 8, 9 – – – (3,213) (48,620) – (51,833)
Share buyback costs 8, 9 – – – (18) (247) – (265)
Dividends paid(1) 6 – – – – – (14,241) (14,241)
--------------- --------------- --------------- --------------- --------------- --------------- ---------------
At 30 November 2024 5,160 242,122 11,905 – 316,033 20,688 595,908
========= ========= ========= ========= ========= ========= =========
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, 9 – – – (29,646) – – (29,646)
Share buyback costs 8, 9 – – – (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
========= ========= ========= ========= ========= ========= =========
1 Final dividend of 11.45p per share for the year ended 30 November
2023, declared on 2 February 2024 and paid on 28 March 2024 and interim
dividend of 3.75p per share for the year ended 30 November 2024, declared on
24 July 2024 and paid on 27 August 2024.
2 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.
Statement of Financial Position as at 30 November 2024
Notes 2024 2023
£’000 £’000
Non current assets
Investments held at fair value through profit or loss 557,602 557,594
--------------- ---------------
Current assets
Other receivables 1,536 2,280
Derivative financial assets held at fair value through profit or loss 10 2,173 703
Current tax asset 400 365
Cash collateral pledged with brokers 10 700 775
Cash and cash equivalents – cash at bank 10 43,889 24,328
--------------- ---------------
Total current assets 48,698 28,451
========= =========
Total assets 606,300 586,045
========= =========
Current liabilities
Other payables (8,262) (7,740)
Derivative financial liabilities held at fair value through profit or loss 10 (360) (1,454)
Cash and cash equivalents – bank overdraft – (306)
Liability for cash collateral received 10 (1,770) (620)
--------------- ---------------
Total current liabilities (10,392) (10,120)
========= =========
Net assets 595,908 575,925
========= =========
Equity
Called up share capital 8 5,160 5,160
Share premium account 9 242,122 242,122
Capital redemption reserve 9 11,905 11,905
Special reserve 9 – 3,231
Capital reserves 9 316,033 295,624
Revenue reserve 9 20,688 17,883
--------------- ---------------
Total shareholders’ funds 595,908 575,925
========= =========
Net asset value per ordinary share (pence) 7 682.82 600.72
========= =========
Cash Flow Statement for the year ended 30 November 2024
2024 2023
£’000 £’000
Operating activities
Net profit/(loss) on ordinary activities before taxation(1) 86,349 (15,755)
Add back finance costs 97 100
Net (profit)/loss on investments held at fair value through profit or loss (including transaction costs) (59,598) 28,389
Net profit from derivatives (including transaction costs) (12,839) (242)
Financing costs on derivatives (3,230) (2,324)
Net loss on foreign exchange 61 114
Sales of investments held at fair value through profit or loss 310,643 207,680
Purchases of investments held at fair value through profit or loss (251,053) (216,892)
Net receipts on closure of derivatives 13,505 5,915
Decrease/(increase) in other receivables 63 (470)
Increase in other payables 1,499 2,892
Decrease in amounts due from brokers 681 1,321
(Decrease)/increase in amounts due to brokers (734) 2,365
Net movement in cash collateral held with brokers 1,225 (6,025)
--------------- ---------------
Net cash inflow from operating activities before taxation 86,669 7,068
Taxation paid (62) (185)
--------------- ---------------
Net cash inflow from operating activities 86,607 6,883
========= =========
Financing activities
Interest paid (97) (100)
Cash paid for ordinary shares bought back into treasury (52,341) (29,564)
Dividends paid (14,241) (11,876)
--------------- ---------------
Net cash outflow from financing activities (66,679) (41,540)
========= =========
Increase/(decrease) in cash and cash equivalents 19,928 (34,657)
Effect of foreign exchange rate changes (61) (114)
--------------- ---------------
Change in cash and cash equivalents 19,867 (34,771)
Cash and cash equivalents at start of year 24,022 58,793
--------------- ---------------
Cash and cash equivalents at end of year 43,889 24,022
========= =========
Comprised of:
Cash at bank 412 –
Bank overdraft – (306)
Cash Fund(2) 43,477 24,328
--------------- ---------------
43,889 24,022
========= =========
1 Dividends and interest received in cash during the year amounted to
£15,643,000 and £1,459,000 respectively (2023: £15,499,000 and
£1,191,000).
2 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 2024
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
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 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. 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 30 November 2026, 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.
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 17 – Insurance contracts (effective 1 January 2023). This standard
replaced IFRS 4 and applies to all types of insurance contracts. IFRS 17
provides a consistent and comprehensive model for insurance contracts covering
all relevant accounting aspects.
IAS 12 – Deferred tax related to assets and liabilities arising from a
single transaction (effective 1 January 2023). The International Accounting
Standards Board (IASB) has amended IAS 12 Income Taxes to require companies to
recognise deferred tax on particular transactions that, on initial
recognition, give rise to equal amounts of taxable and deductible temporary
differences. According to the amended guidance, a temporary difference that
arises on initial recognition of an asset or liability is not subject to the
initial recognition exemption if that transaction gave rise to equal amounts
of taxable and deductible temporary differences. These amendments might have a
significant impact on the preparation of financial statements by companies
that have substantial balances of right-of-use assets, lease liabilities,
decommissioning, restoration and similar liabilities. The impact for those
affected would be the recognition of additional deferred tax assets and
liabilities.
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 12 – International Tax Reform Pillar Two Model Rules (effective 1
January 2023). The IASB has published amendments to IAS 12 Income Taxes to
respond to stakeholders’ concerns about the potential implications of the
imminent implementation of the OECD pillar two rules on the accounting for
income taxes. The amendment is an exception to the requirements in IAS 12 that
an entity does not recognise and does not disclose information about deferred
tax assets as liabilities related to the OECD pillar two income taxes and a
requirement that current tax expenses must be disclosed separately to pillar
two income taxes.
The amendment of these standards did not have any significant impact on the
Company.
Relevant International Accounting Standards that have yet to be adopted:
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 1 – Non current liabilities with covenants (effective 1 January 2024).
The IASB has amended IAS 1 Presentation of Financial Statements to introduce
additional disclosures for liabilities with covenants within 12 months of the
reporting period. The additional disclosures include the nature of covenants,
when the entity is required to comply with covenants, the carrying amount of
related liabilities and circumstances that may indicate that the entity will
have difficulty complying with the covenants.
IAS 21 – Lack of exchangeability (effective 1 January 2025). The IASB issued
amendments to IAS 21 The Effects of Changes in Foreign Exchange Rates to
specify how an entity should assess whether a currency is exchangeable and how
it should determine a spot exchange rate when exchangeability is lacking. The
amendments also require disclosure of information that enables users of its
financial statements to understand how the currency not being exchangeable
into the other currency affects, or is expected to affect, the entity’s
financial performance, financial position and cash flows.
IFRS 18 – Presentation and disclosure in financial statements (effective 1
January 2027). The IASB issued IFRS 18, which replaces IAS 1 Presentation of
Financial Statements. IFRS 18 introduces new requirements for presentation
within the statement of profit or loss, including specified totals and
subtotals. Furthermore, entities are required to classify all income and
expenses within the statement of profit or loss into one of five categories:
operating, investing, financing, income taxes and discontinued operations,
whereof the first three are new. It also requires disclosure of newly defined
management defined performance measures, subtotals of income and expenses, and
includes new requirements for aggregation and disaggregation of financial
information based on the identified ‘roles’ of the primary financial
statements and the notes.
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
2024 2023
£’000 £’000
Investment income:
UK dividends 12,887 12,168
UK special dividends 575 1,464
UK property income distributions 803 610
Dividends from UK REITs(1) 169 33
Overseas dividends 1,346 1,706
Overseas property income distributions 118 –
Dividends from overseas REITs(1) 172 –
--------------- ---------------
Total investment income(2) 16,070 15,981
========= =========
Net income from derivatives 1,024 830
Other income:
Deposit interest 14 3
Interest from Cash Fund 1,530 1,083
Collateral interest 25 53
--------------- ---------------
Total other income 1,569 1,139
========= =========
Total income 18,663 17,950
========= =========
1 REITs – real estate investment trusts.
2 UK and overseas dividends are presented based on the country of
domicile of the respective underlying portfolio company.
Special dividends of £518,000 have been recognised in capital during the year
(2023: £nil).
4. Investment management and performance fees
2024 2023
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
Investment management fee 644 1,931 2,575 629 1,889 2,518
Performance fee – 1,593 1,593 – 2,014 2,014
--------------- --------------- --------------- --------------- --------------- ---------------
Total 644 3,524 4,168 629 3,903 4,532
========= ========= ========= ========= ========= =========
Investment management fee
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 fee
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 2024 and the rolling two-year performance period
ending 30 November 2025, 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 2024 and 30 November 2025; 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 2024, the carried
forward unpaid net outperformance, net of prior period shortfall returns,
available to offset against future shortfall returns was 4.8% (1 December
2023: 4.8%).
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 2024, the total accrual of the performance fee for all
rolling two-year performance periods amounted to £3,607,000 (2023:
£2,014,000), calculated as follows:
· For the annualised rolling two-year performance period to 30
November 2024, the Company outperformed the benchmark by 2.7% as at 30
November 2024. A performance fee of £2,982,000 relating to this performance
period was accrued at the date of this report; and
· For the annualised rolling two-year performance period to 30
November 2025, the Company has outperformed the benchmark by 0.6% as at 30
November 2024. A performance fee of £625,000 relating to this performance
period has been accrued at the date of this report, which does not become
payable until 30 November 2025, subject to the ongoing performance of the
Company.
5. Other operating expenses
2024 2023
£’000 £’000
Allocated to revenue:
Custody fee 7 7
Auditor’s remuneration(1) 70 58
Registrar’s fee 44 44
Directors’ emoluments(2) 211 224
Broker fees 48 36
Depositary fees 70 70
Marketing fees 175 149
FCA fees 29 27
Printing and postage fees 55 43
Directors search fees 51 –
Directors evaluation fees 30 –
AIC fees 22 21
Stock exchange listing fees 36 31
Write back of prior year expenses(3) (27) (12)
Other administrative costs 101 94
--------------- ---------------
Total revenue expenses 922 792
========= =========
Allocated to capital:
Custody transaction charges(4) 21 20
--------------- ---------------
Total 943 812
========= =========
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: 0.56% 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, 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: 0.82% 0.87%
========= =========
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 audit fees, printing fees, legal fees, professional fees,
miscellaneous fees and Directors’ expenses written back during the year
(2023: Directors’ recruitment fees, miscellaneous fees and postage fees).
4 For the year ended 30 November 2024, expenses of £21,000 (2023:
£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 2024 2023
£’000 £’000
Final dividend of 11.45p per share for the year ended 30 November 2023 (2022: 8.50p) 23 February 2024 28 March 2024 10,841 8,595
Interim dividend of 3.75p per share for the year ended 30 November 2024 (2023: 3.30p) 2 August 2024 27 August 2024 3,400 3,281
--------------- ---------------
Total 14,241 11,876
========= =========
The total dividends payable in respect of the year ended 30 November 2024
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: 2024 2023
£’000 £’000
Interim dividend of 3.75p per share for the year ended 30 November 2024 (2023: 3.30p) 3,400 3,281
Final dividend of 14.25p per share for the year ended 30 November 2024(1) (2023: 11.45p) 11,603 10,911
--------------- ---------------
Total 15,003 14,192
========= =========
1 Based on 81,421,864 ordinary shares in issue on 18 February 2025.
7. Earnings/(loss) and net asset value per ordinary share
Total revenue, capital earnings/(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
2024 2023
Net revenue profit attributable to ordinary shareholders (£’000) 17,046 16,510
Net capital profit/(loss) attributable to ordinary shareholders (£’000) 69,276 (32,259)
--------------- ---------------
Total profit/(loss) attributable to ordinary shareholders (£’000) 86,322 (15,749)
========= =========
Equity shareholders’ funds (£’000) 595,908 575,925
========= =========
The weighted average number of ordinary shares in issue during the year on which the earnings per ordinary share was calculated was: 91,924,583 99,704,909
The actual number of ordinary shares in issue at the end of the year on which the net asset value per ordinary share was calculated was: 87,271,864 95,872,161
--------------- ---------------
Earnings/(loss) per ordinary share
Revenue earnings per share (pence) – basic and diluted 18.54 16.56
Capital earnings/(loss) per share (pence) – basic and diluted 75.37 (32.36)
--------------- ---------------
Total earnings/(loss) per share (pence) – basic and diluted 93.91 (15.80)
========= =========
As at As at
30 November 30 November
2024 2023
Net asset value per ordinary share (pence) 682.82 600.72
Ordinary share price (pence) 593.00 579.00
========= =========
There were no dilutive securities at the year end.
8. Called up share capital
Ordinary Treasury Total Nominal
shares shares shares value
in issue number number £’000
number
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
=========== =========== =========== ===========
Ordinary shares bought back into treasury (8,600,297) 8,600,297 – –
------------------ ------------------ ------------------ ------------------
At 30 November 2024 87,271,864 15,938,000 103,209,864 5,160
=========== =========== =========== ===========
During the year ended 30 November 2024, the Company bought back 8,600,297
shares into treasury (2023: 5,286,703) for a total consideration of
£52,098,000 (2023: £29,807,000) including costs.
Since 30 November 2024 and up to 18 February 2025, 5,850,000 shares have been
bought back into treasury for a total consideration of £34,228,000.
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 2023 242,122 11,905 3,231 322,729 (27,105) 17,883
Movement during the year:
Total comprehensive income:
Net profit for the year – – – 895 68,381 17,046
Transactions with owners, recorded directly to equity:
Ordinary shares bought back into treasury – – (3,213) (48,620) – –
Share buyback costs – – (18) (247) – –
Dividends paid – – – – – (14,241)
--------------- --------------- --------------- --------------- --------------- ---------------
At 30 November 2024 242,122 11,905 – 274,757 41,276 20,688
========= ========= ========= ========= ========= =========
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):
Net 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
========= ========= ========= ========= ========= =========
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. At 30 November 2024, the gain on capital reserve arising
on the revaluation of investments of £41,276,000 (2023: no gain) 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 2024 Level 1 Level 2 Level 3 Total
£’000 £’000 £’000 £’000
Assets:
Equity investments 557,602 – – 557,602
Contracts for difference (fair value) – 2,173 – 2,173
--------------- --------------- --------------- ---------------
Liabilities:
Contracts for difference (fair value) – (72) – (72)
Index future (288) – – (288)
--------------- --------------- --------------- ---------------
Total 557,314 2,101 – 559,415
========= ========= ========= =========
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)
--------------- --------------- --------------- ---------------
Total 557,492 (649) – 556,843
========= ========= ========= =========
There were no transfers between levels for financial assets and financial
liabilities during the year recorded at fair value as at 30 November 2024 and
30 November 2023. The Company did not hold any Level 3 securities throughout
the financial year or as at 30 November 2024 (2023: 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 2024, £16,000 (2023: £18,000) 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).
Total % of shares Total % of shares held by Number of Significant
held by Related Significant Investors who Investors who
BlackRock Funds are not affiliates of are not affiliates of
BlackRock Group or BlackRock Group or
BlackRock, Inc. BlackRock, Inc.
As at 30 November 2024 1.2 n/a n/a
As at 30 November 2023 1.3 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 2024 amounted
to £2,575,000 (2023: £2,518,000). At the year end, £1,906,000 (2023:
£1,864,000) was outstanding in respect of management fees.
The performance fee payable for the year ended 30 November 2024 amounted to
£2,982,000 (2023: £nil). The total accrual of the performance fee for all
rolling two year performance periods amounted to £3,607,000 (2023:
£2,014,000), calculated as follows:
· For the annualised rolling two-year performance period to 30
November 2024, the Company has outperformed the benchmark by 2.7% as at 30
November 2024. A performance fee of £2,982,000 relating to this performance
period has been accrued at the date of this report; and
· For the annualised rolling two-year performance period to 30
November 2025, the Company has outperformed the benchmark by 0.6% as at 30
November 2024. A performance fee of £625,000 to this performance period has
been accrued at the date of this report, which does not become payable until
30 November 2025, subject to the ongoing performance of the Company.
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 2024 amounted to £175,000 excluding VAT (2023: £149,000). Marketing
fees of £124,000 (2023: £269,000) were outstanding at the year end.
The Company has an investment in the BlackRock Institutional Cash Series plc -
Sterling Liquid Environmentally Aware Fund of £43,477,000 (2023:
£24,328,000) which for the year ended 30 November 2024 and 30 November 2023
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 2024 (2023: 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 2024 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 2024 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 2023, 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, 25 March 2025 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
19 February 2024
12 Throgmorton Avenue
London EC2N 2DL
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