Half-year Report
24/07/2024 12:04
BlackRock Throgmorton Trust plc
(Legal Entity Identifier: 5493003B7ETS1JEDPF59)
Information disclosed in accordance with Article 5 Transparency Directive and
DTR 4.2
Half Yearly Financial Report 31 May 2024
Performance Record
As at As at
31 May 30 November
2024 2023
Net assets (£’000)(1) 644,498 575,925
Net asset value per ordinary share (pence) 703.55 600.72
Ordinary share price (mid-market) (pence) 639.00 579.00
Benchmark Index(2) 17,182.78 14,713.60
Discount to cum income net asset value(3) (9.2)% (3.6)%
========= =========
For the For the
six months year
ended ended
31 May 30 November
2024 2023
Performance (with dividends reinvested)
Net asset value per share(3) 19.2% (2.3)%
Ordinary share price(3) 12.5% (0.8)%
Benchmark Index(2) 16.8% (6.0)%
Average discount to cum income net asset value for the period/year(3) (8.0)% (5.2)%
========= =========
For the period For the period
since 1 July 2008 since 1 July 2008
to 31 May to 30 November
2024 2023
Performance since 1 July 2008(4) (with dividends reinvested)
Net asset value per share(3) 526.0% 425.1%
Ordinary share price(3) 543.1% 471.7%
Benchmark Index(2) 183.1% 142.4%
========= =========
For the six For the six
months ended months ended
31 May 31 May Change
2024 2023 %
Revenue
Net revenue profit on ordinary activities after taxation (£’000) 8,885 8,544 +4.0%
Revenue earnings per ordinary share (pence)(5) 9.44 8.46 +11.6%
--------------- --------------- ---------------
Dividends per ordinary share (pence)
Interim 3.75 3.30 +13.6%
========= ========= =========
1 The change in net assets reflects portfolio movements, share buybacks
and dividends paid during the period.
2 The Company’s Benchmark Index is the Deutsche Numis Smaller
Companies plus AIM (excluding Investment Companies) Index.
3 Alternative Performance Measures, see Glossary contained within the
half yearly financial report.
4 Since BlackRock's appointment as Investment Manager on 1 July 2008.
5 Further details are given in the Glossary contained within the half
yearly financial report.
Chairman’s Statement
Dear Shareholder
Highlights
· NAV total return of 19.2%, an outperformance of 2.4 percentage
points against the Benchmark Index
· Share price total return underperformed the Benchmark Index by
4.3 percentage points as our share price discount to NAV widened to 9.2% (30
November 2023: 3.6%) and traded at an average discount of 8.0%
· Performance remains strong over the longer term; our NAV has
outperformed the Benchmark Index by 12.2% over five years (share price by
9.9%) and by 89.6% over 10 years (share price by 104.2%)
· Interim dividend of 3.75p per share declared (31 May 2023:
3.30p)
Overview
The Company had a positive first six months of the year, delivering a strong
absolute return during the six months to 31 May 2024 and outperforming our
Benchmark Index by 2.4 percentage points. Earnings per share also rose by
11.6%, enabling the Board to declare an increased interim dividend.
The UK economy has displayed notable resilience and following a shallow
technical recession in the second half of 2023, UK GDP returned to growth in
2024, although to date progress remains relatively modest. Overall market
sentiment was once again heavily influenced by the path of inflation and
interest rates. UK inflation continued its steady trajectory downward during
the period, providing welcome relief to corporates and households alike. The
rate of inflation for the 12 months to 31 May 2024 came in at 2.0% (the lowest
level since July 2021), meeting the Bank of England’s (BoE) inflation target
and increasing the likelihood of a summer cut in the base rate of interest.
Investor sentiment, and importantly risk appetite, appear to have improved
during the period and UK equity markets continued upward with the FTSE 100
Index hitting an all-time high in early May. Market performance has been
supported by a more benign economic backdrop of falling inflation, lower cost
of borrowing, rising consumer confidence, high employment and strong wage
growth. These factors have been positive for our asset class and this momentum
has been reflected in the strong performance of our portfolio in the first six
months of our financial year.
Another feature of the period under review has been continued merger and
acquisition (M&A) activity by those recognising the value on offer in the UK
market. As our portfolio manager, Dan Whitestone, explains in his report which
follows, portfolio performance was boosted by several bids for companies
within our portfolio and this activity is indicative of quite how cheap UK
smaller companies are at the moment.
Post the period end, the Government’s announcement of an early General
Election took many by surprise. The election was held on 4 July with Labour
winning a landslide majority and taking power. There is now likely to be a
great deal of activity as the new government takes the reins and seeks to
implement its policies and reform agenda. Although the market has responded
positively to the news, the immediate impact of the new government on the
economy is likely to be minimal, although the resulting political certainty
and pro-growth policies should aid market sentiment and be broadly positive
for UK equities, in particular those smaller companies exposed to the domestic
economy.
As you will read in his report which follows, our portfolio manager is upbeat
about the opportunities available in UK smaller companies. As a Board we share
his optimism about the outlook for our portfolio and the opportunities
currently available in our asset class.
Performance
Over the six months to 31 May 2024, the Company’s Net Asset Value (NAV)
total return was +19.2% compared to a return of +16.8% from the Company’s
Benchmark Index, an outperformance of 2.4 percentage points. The Company’s
share price returned 12.5%, underperforming the Benchmark Index by 4.3
percentage points as our discount widened during period. Since the period end
and up to the close of business on 19 July 2024, the Company’s NAV has risen
by 0.7%, and the Benchmark Index has risen by 0.2% (all figures with dividends
reinvested).
Over the longer term our performance remains strong. For the five and ten-year
periods to 31 May 2024, the Company’s NAV returned +33.0% and +147.9%, and
the share price returned +30.7% and +162.5%, comparing favourably to the
Benchmark Index returns of +20.8% and +58.3% over the same periods.
Performance record to 31 May 2024 (with dividends reinvested)
1 Year change % 3 Year change % 5 Year change % 10 Year change %
NAV per share 16.4 -16.0 33.0 147.9
Share price 11.6 -24.2 30.7 162.5
Benchmark Index 12.5 -11.7 20.8 58.3
The Board and our portfolio manager remain 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.
Further information on the Company’s performance and 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.
Revenue return and dividends
The revenue return per share for the period amounted to 9.44 pence per share,
compared to 8.46 pence per share earned during the same six-month period last
year, an increase of 11.6%. It is positive to see that the level of income
generated from our investment portfolio has increased.
The Board recognises that, although the Company’s objective is capital
growth, shareholders value consistency of dividends paid by the Company; an
interim dividend of 3.75p per share has therefore been declared (2023: 3.30p
per share), payable on 27 August 2024 to shareholders on the register on 2
August 2024 (the ex-dividend date is 1 August 2024). The interim dividend is
fully covered by revenue generated by the portfolio during the period.
Policy on share price premium/discount
The Board believes that the best way of addressing any discount to NAV over
the longer term is to generate good performance and to create demand for the
Company’s shares in the secondary market through broadening awareness of the
Company’s unique structure and other attractions. In determining whether the
premium/discount to NAV (the share rating) at which the Company’s shares
trade is excessive or otherwise, the Board considers several factors. These
may include but are not limited to whether the share rating is commensurate
with the current demand for UK smaller companies and whether the Company’s
shares were trading in normal market conditions; the ongoing attractiveness of
the investment proposition, in particular the strength of the portfolio
management team and process; and the strong long-term performance delivered
for shareholders, both in absolute and relative terms.
Share buy back activity
During the six months to 31 May 2024, the Company’s share rating ranged
between a discount to NAV of 3.6% at its narrowest (at the start of the
period) to its widest discount of 11.0% in mid-April and ended the period at a
discount of 9.2% (30 November 2023: 3.6%). This compares with the weighted
average discount of the UK smaller companies peer group which ended the period
at an average discount of 10.4%.
During the period under review, the Company bought back a total of 4,265,234
ordinary shares for a total consideration of £25,477,000. Since 31 May 2024
and up to the latest practicable date of 19 July 2024, a further 836,063
shares have been bought back for a total consideration of £5,166,000. As at
19 July 2024, the Company’s shares were trading at a discount of 7.7% versus
an average discount for the rest of the peer group of 10.9%. All shares were
bought back at a discount to the prevailing NAV and were therefore accretive
to existing shareholders.
The Board’s objectives are to seek to minimise share price volatility and
encourage the Company’s share price to trade within as tight a range as
possible, taking into account the various factors described above. However,
despite our consistent and targeted action in support of the share rating, it
was disappointing to see our discount widen during the period. The Board
recognises that shareholders experience the share price performance of the
Company and, in conjunction with our Broker and the Manager, we keep the share
rating under continuous review seeking to understand and address the drivers
of the widening discount.
There are of course several factors which influence the level of
premium/discount at which a Company’s shares trade in the market, many of
which are outside of the Board’s direct scope of control or influence; not
least the pervasive selling we have witnessed since early 2022 which has
depressed share prices in our asset class and acted to widen discounts. It is
important to view the Company’s share rating in the wider market context,
noting that the Investment Trust sector average discount at 31 May 2024 had
widened to 14.1% compared to 12.8% at the end of 2023 and 11.2% at the end of
2022, remaining correlated with Gilt yields. Buy back activity was
significantly elevated across the sector as a whole as boards grappled with
selling pressure. In April (when your Company’s discount was at its widest)
118 investment trusts repurchased shares (representing the highest monthly
figure for the number of investment companies buying back shares since 1996).
Overall, we believe the share buy back activity undertaken has been beneficial
in reducing the volatility of our share rating and delivering NAV accretion.
Your Board will continue to monitor the Company’s share rating and may
deploy its powers to support it by issuing or buying back the Company’s
shares where it believes that it is in shareholders’ long-term best
interests to do so.
Corporate governance
The Board takes its governance responsibilities very seriously and follows
best practice requirements as closely as possible. As I reported in our Annual
Report, we have complied with all applicable regulation and guidance with
regard to matters of board diversity such as the FTSE Women Leaders Review and
the recommendations of the Parker Review, now enshrined in the UK Listing
Rules. The Board remains committed to exercising the highest standards of good
governance and, as we do each year, will report to shareholders in the Annual
Report on our compliance with the UK Code of Corporate Governance and other
matters of good governance.
Change of advisor
Following a competitive process, and as announced on 18 June 2024, the Board
resolved to appoint Winterflood Securities Limited as sole corporate broker
and financial adviser.
On behalf of the Board I would like to thank our previous broker, Stifel, who
played a key role in 2018 during a period of pivotal strategic change for the
Company and supported our growth and subsequent ascent into the FTSE 250
Index. We thank the team for their service to the Company over many years.
Shareholder communication
As we do each year, our Senior Independent Director and I recently met with
several of our largest shareholders to answer any questions they had and
encourage candid feedback on the Company. We believe both parties find this
direct engagement insightful and beneficial. As a Board, we would of course
like to hear the views of all shareholders. With this in mind, should you have
any questions or feedback for the Board, you can write to me at our registered
office address (given within the half yearly financial report) or by email at:
cosec@blackrock.com.
We appreciate how important access to regular information is to our
shareholders. To supplement our Company website, we offer shareholders the
ability to sign up to the BlackRock Trust Matters newsletter which includes
information on the Company as well as news, views and insights on the
investment trust market. Information on how to sign up is included on the
inside cover of the half yearly financial report.
Outlook
As you will read in his report which follows, Dan describes a more promising
environment for growth. He is optimistic about the future and emboldened by
what he believes is a significant mispricing within UK small and mid-caps,
driven by pervasive outflows of capital from the UK small-cap market over
several years. This can be seen in the disconnect between the sales and
earnings growth delivered by companies and the prevailing share price.
Therefore, he believes our asset class currently presents investors with a
clear and compelling investment opportunity, the like of which has not been
seen for many years.
Our portfolio manager’s fundamental approach has not changed. He focuses on
identifying financially strong, cash generative companies, those which have
innovative and disruptive business models and market leading offerings that
can compound returns over time. The Board remains fully supportive of his
investment approach and philosophy, moreover we share his enthusiasm around
the opportunities available in UK smaller companies.
CHRISTOPHER SAMUEL
Chairman
24 July 2024
Investment Manager’s Report For the six months ended 31 May 2024
Market review and overall investment performance
For the first half of 2024, the Company’s NAV delivered a positive return
(net of fees) of +19.2%, outperforming the Benchmark Index by +2.4%. The
Company’s share price returned +12.5%. Despite the omnipresent dark cloud of
negative sentiment that envelopes this exciting and differentiated universe,
it was somewhat heartening to witness a meaningful period of positive returns.
It may surprise some to see that the returns of our Benchmark Index (+16.8%),
the FTSE 250 Index (+15.6%) and the FTSE Small Cap Index (+15.0%) don’t look
out of place alongside the Nasdaq Composite Index (+17.6%) which itself has
benefitted from the inexorable growth of Nvidia which accounted for 31% of
that return. My own hope (belief) is that this is just the start, reflecting a
combination of i) continued resilient trading, ii) low valuations (versus
their own history, versus large caps, and versus their own prospects for
profit and cash flow growth), iii) an improving macro environment (falling
inflation, increasing consumer confidence and household cash flows, high
savings rates, and real wage growth), iv) strong balance sheets, and v)
elevated levels of merger and acquisition (M&A) activity underpinning the
valuation argument. I dare put forward a sixth point, which is the election of
the Labour Government would herald not only a period of political stability
but also a “pro-growth” agenda which could benefit many holdings in the
Company.
Whilst the last six months witnessed another period of fund outflows for UK
small and medium sized companies, May 2024 marked the first monthly net inflow
since May 2021. That’s an incredible statistic really; the first monthly
inflow after 35 consecutive months of outflows. Indeed, those 35 months of
outflows total to around $16.5 billion, which in our view has acted as a
significant drag on returns, overpowering fundamentals. Accordingly, the value
of any listed UK small and medium sized company has increasingly been dictated
by the clearing price of an outflow, a trend that looks to be ameliorating at
long last, reflecting the slowdown in outflows through the period and finally
the inflow in May. Maybe this is in part because so many market participants
have effectively given up on the UK? Thinking about the UK more broadly, the
allocation from UK pension funds to the UK stock market has shrunk from 52% in
1990 down to circa 4% now, which represents a withdrawal of circa £1.9
trillion from UK listed equities over the last 25 years. Our discussions with
UK Wealth Managers suggest a similar path, and I would suspect the retail
platforms of direct investments too. Maybe there’s just not much left to
sell now? The challenges and industry concentration of the FTSE 100 Index are
well understood, but the UK small and mid-cap market is a much more diverse
and differentiated opportunity set comprised of many idiosyncratic compelling
investment cases. One should not overlook the comparable returns that UK small
and mid-sized companies have delivered in the last six months versus the US
indices, so to go a step further, with such an extreme change in investor
positioning, any improvement in the macro-economic backdrop that lifts
sentiment could see the recent rally really accelerate considering how extreme
positioning has now become.
Performance review
For the Company, stock specifics were the dominant driver of returns for the
period, so we take some assurance that we got more things right than wrong and
the returns were not driven by one big thematic bet or factor move. Assessing
the impact of the increasing levels of M&A activity we have seen in recent
months is complicated with several considerations. If M&A helps underpin
valuations more broadly in the sector that is a positive, but short term
returns today need to be judged against the long term opportunity cost we may
forgo. Value is in the eye of the beholder, to us some of the recently
announced bids feel very opportunistic, others more perplexing. Over this six
month period the Company has benefitted from Mattioli Woods and to a lesser
extent Spirent, but we have also experienced a headwind of around 1% from not
owning other shares in our benchmark that have been bid for in the period. We
continue to run with a small number of short positions versus history to
protect against increasing levels of M&A activity and also because we believe
that in aggregate the sector is simply far too cheap and due a re-rating. If
we are right in our views on recovery then history would suggest that will
lead to another fertile period for shorting as a rising tide will lift all
boats including some with large structural flaws, or an over exuberant or
complacent crew, or indeed those exposed to changing currents if we were to
stretch the analogy further.
The top contributor to performance was 4imprint rising over 50% in the period
on the back of successive strong financial updates with positive revisions to
forecasts. Despite a broader slowdown in the wider US promotional products
market, 4Imprint has continued to deliver impressive revenue growth reflecting
ongoing market share gains (helps when you have a differentiated business
model but have less than 5% market share) and expanding profit margins on
increased marketing efficiencies. We remain long term supporters but have
taken advantage of the share price rally to reduce our holding at all-time
highs, which gives us the flexibility to buy more on any pull back.
The second biggest contributor was SigmaRoc, which has continued to trade
strongly delivering full year 2023 results ahead of expectations and
subsequently delivering a strong quarter one of 2024 trading update. Shares in
SigmaRoc hit a valuation of around 6x current year’s earnings towards the
end of last year, one of many examples of some of the valuation opportunities
that this market has thrown up. Gamma Communications rose after the company
delivered another set of robust results, showing over 9% organic revenue
growth. Highlighting their resilience as UK corporate demand for cloud
telecoms remains positive. With over 10% of their market cap in net cash the
company’s board has recently initiated a share buyback programme.
Turning to the detractors, the biggest was WH Smith which fell despite
“in-line” results. The contentious issue is the mix of profits with UK
better and US worse reflecting timing of store opening programme,
refurbishments and also a slowdown in their In-Motion business (weaker product
cycle). As the US is the key driver of future profit growth we understand the
concerns, albeit see the slowdown as temporary, not structural, whilst
Management continue to deliver an impressive rate of contract wins in the US
which should lead to a materially higher profit base in time. The second
biggest detractor was Watches of Switzerland which issued a profit warning in
January. As I covered this in some detail in our January monthly update I will
merely reiterate that we reduced the position significantly back then
reflecting the evolving investment case and now have an effective benchmark
weight as we weigh up valuation and long term opportunity versus near term
uncertainty. Shares in CVS Group fell in response to an announcement from the
Competition and Markets Authority (CMA) that they would be progressing to a
full Market Investigation into the veterinary market in the UK. The CMA had
announced an initial review in September last year and we reduced the position
to reflect uncertainty then. With a circa 18 month investigation hanging over
the company we have reduced the position size further.
Portfolio positioning
The portfolio continues to be built from a myriad of idiosyncratic investment
opportunities where we see a compelling runway for growth. However, no
investment can be viewed without some broader macro context, and as consumer
and industrial shares are two of the biggest areas of exposure, I thought it
instructive to share some thoughts here. To summarise briefly, I believe the
operating environment for the majority of the UK small and medium-sized
complex is likely to improve through the year, something still to be reflected
in consensus forecasts and valuations. My argument is broadly two fold:
· First is that the economic backdrop is better than feared and
there are several reasons why this should improve further, which I’ve
outlined below.
· Second is that many of our consumer and industrial companies
have done a better job than appreciated in mitigating the reduction in like
for like volumes they’ve experienced through price increases, cost
re-engineering, and further market share gains. Therefore, we think many of
our holdings are in a position to achieve far higher levels of profitability
in the recovery which could drive a significant increase in valuation and in
some specific cases drive a higher cross-cycle multiple of earnings.
As a team, we believe the operating environment is better than feared and
there is a strong case why this should improve further. Inflation in the UK
has fallen materially through 2024, and whilst each inflation print is
scrutinised (some beats, some misses, some noticeable lags such as Services)
the big picture is that it continues to fall and is indeed running closer to
the 2% level if we annualise the last few months. Oil and gas looks less of a
risk to inflation (at the time of writing), whilst food continues to fall.
Services continues to lag but we hope falls in the months ahead. Wage
inflation certainly has the capacity to upend the broader trend in inflation,
however, we observe from many of our interactions with management teams that
there are reasons for optimism. This reflects growing first hand evidence that
although wage inflation is running ahead of the Consumer Price Index, it
reflects the timing of wage settlements still to annualise, whilst labour
availability is improving as job vacancies fall and companies have been able
to revise their internal budgets for staff costs.
Contrary to what you might think, consumer confidence in the UK is now running
at the highest in over 20 years, whereas the ASDA Income tracker (a proxy for
household cash flow) has reached a 30 month high with quite an extraordinary
positive reading in May at 16% year over year. Despite the consensus view that
the UK’s savings rate would be depleted through 2023 in a cost of living
crisis, it actually increased so the average UK consumer has more money to
spend and feels confident. This no doubt reflects that many are experiencing
real wage growth for the first time in decades and retain a high degree of job
security. Business conditions continue to improve, see the Purchasing
Managers’ Index or the Lloyds Business Survey as exemplars, which in turn
should help drive economic growth from its current low level. The election of
the Labour Government removed a prolonged period of uncertainty and could
hopefully usher in a period of stability which will promote business
confidence further, allied to a pro-growth agenda which could be particularly
beneficial for our positions in housebuilders, construction and the supply
chain.
In terms of positioning, Consumer and Industrials are the two biggest areas of
gross exposure, reflecting where we see some of the most compelling stock
specific opportunities. Many of our investments here have not only protected
profitability better than expected, but have also developed an impressive
track record of shareholder returns. So depressed valuations, a protected
profit base which can grow meaningfully from here, combined with a permanently
reduced share count is an attractive proposition which could reward the
Company handsomely in time.
We have continued to add to heavy construction and aggregates (e.g. Breedon)
on the back of an improving demand backdrop and an industry structure that has
seen 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,
so 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” we
own, and so thinking more broadly the recovery could translate into
better-than-expected profit recovery across a range of companies, benefitting
the likes of the brick manufacturers, or the “repair, maintenance and
improve” (RMI) sector. In many cases we find these investments trading on
close to trough multiples on trough earnings and accordingly we have continued
to add to our exposure here believing the risk/reward to be particularly
compelling.
We have also continued to build up our exposure to housebuilders in the last 6
months from very low levels, a sector we feel will consolidate further in the
pursuit of landbank and operational synergies to deliver faster profit
recovery. Indeed, the sector has had a torrid time in the last couple of years
with housing starts down almost 25% in 2023 and now running at roughly half
the level to reach the governments targets. This malaise has spread into
associated industries, for example brick dispatches are at a low not seen
outside the financial crisis. Compounding this, and I am sure something you
can all relate to, the last 6 months has seen the wettest weather in the UK
since the 1870’s! Current trading across the sector therefore has been poor,
as it has for the supply chain and the light industrial RMI space as so many
home improvement projects have stalled on weather related issues. However
there are genuine green shoots emerging, with housebuilders reporting interest
levels and sales rates increasing slowly as swap rates come down and mortgages
become more affordable. No one denies the importance of housebuilding as a
national industry and in time we would expect volumes to recover towards
200,000 new houses per annum and, with the right policy support (Labour’s
proposed supply-side reforms could make a real difference) potentially some
way beyond. For context we really need to be building somewhere in the order
of 500,000 new houses per annum for some years to really address the UK’s
supply imbalance.
Another area we have been adding to is Property. We think Great Portland’s
capital raise, whilst calling the bottom of the prime London office market is
noteworthy when trading on a 40% discount to net asset value. Yield
compression would of course be additive, but isn’t required in our view to
make the investment case work considering the outlook for rental rates (supply
constraints high occupancy) and expanding development profits on cost. This is
a share we have added to in addition to Workspace, another company that has
recently called the trough whilst trading at a +30% discount to a depressed
cyclical low net asset value, whilst delivering 10% like for like rent roll
growth.
Reflecting on our non-domestic exposure, this tends to lean towards
Industrials where despite a broader moderation in activity levels, there have
been many cross currents and high levels of dispersion between companies and
sub-sectors and geographies. Destocking has been a big theme in the sector,
with supply chain issues initially leading to overordering, and then in turn
overstocking (as supply chain issues resolved); this then led many businesses
to destock, cutting orders and resulting in a slowdown in revenues. The
stop-start nature of these supply chain issues throughout the year has
impacted a range of geographies and sub-sectors differently, as they are all
at different points in the cycle. We got some of these dynamics right and some
wrong in 2023 and the same is true in 2024. On the whole, within General
Industrial we have noticed an improvement in the book-to-bill ratios as many
have turned a corner and can hopefully accelerate through second half of 2024
and into the financial year 2025. Reshoring in the US, as well as several
Government programmes (Chips, Inflation Reduction Act) continue to provide
additional tailwinds of growth for quite a few US focused but UK listed small
and mid caps we have exposure to e.g. Oxford Instruments, Rotork, Hill &
Smith.
Outlook
Looking ahead to 2024 market volatility is unlikely to abate and clearly this
marks a significant year for elections worldwide, which may inject further
turbulence into the macro backdrop. As I’ve outlined above, I think the
valuation case for UK small and medium sized companies remains compelling,
with many of the holdings in the Company trading on single digit price to
earnings ratios and high Free Cash Flow yields but unlike so many archetypical
“value” sectors, have far superior growth prospects. Whilst our global
facing companies trade on higher valuations, these look low to us compared to
their prospects for growth and certainly against their US listed counterparts
despite similar growth rates and end market exposures. We’ve long maintained
the view that flows have been the primary headwind to valuations, and so any
change in the flow picture could prompt a material valuation rebound. The
progress of the assets class against this flow backdrop in the last six months
should not be underestimated and maybe May’s month of inflows might just
herald in a new dawn. Time will tell. But the bigger picture for us is one of
a gradual recovery, and in our view this is not reflected in valuations so
remains the biggest risk/reward opportunity for us.
DAN WHITESTONE
BlackRock Investment Management (UK) Limited
24 July 2024
Portfolio of investments
1. ▲ Oxford Instruments (2023: 3rd)
Electronic & Electrical Equipment
Market value: £20,161,000
Share of net assets: 3.1% (2023: 2.8%)
Designer and manufacturer of tools and systems for industry and research
2. ▼ Breedon (2023: 1st)
Construction & Materials
Market value: £19,219,000
Share of net assets: 3.0% (2023: 3.3%)
Supplier of construction materials
3. ▼ Gamma Communications* (2023: 2nd)
Mobile Telecommunications
Market value: £18,499,000
Share of net assets: 2.9% (2023: 3.0%)
Provider of communication services to UK businesses
4. ► Grafton Group (2023: 4th)
Support Services
Market value: £17,316,000
Share of net assets: 2.7% (2023: 2.8%)
Builders’ merchants in the UK, Ireland and Netherlands
5. ▲ IntegraFin (2023: 15th)
Financial Services
Market value: £16,604,000(1)
Share of net assets: 2.6% (2023: 1.8%)
UK savings platform for financial advisors
6. ▲ Hill & Smith Holdings (2023: 12th)
Industrial Metals & Mining
Market value: £15,989,000
Share of net assets: 2.5% (2023: 2.2%)
Supplier of infrastructure products and galvanizing services
7. ► Rotork (2023: 7th)
Electronic & Electrical Equipment
Market value: £15,881,000
Share of net assets: 2.5% (2023: 2.5%)
Manufacturer of industrial flow equipment
8. ► WH Smith (2023: 8th)
General Retailers
Market value: £15,270,000
Share of net assets: 2.4% (2023: 2.5%)
Retailer of books, stationery, magazines, newspapers and confectionary
9. ▲ Tatton Asset Management* (2023: 11th)
Financial Services
Market value: £14,988,000
Share of net assets: 2.3% (2023: 2.2%)
Provision of discretionary fund management services to the IFA market
10. ▼ 4imprint Group (2023: 6th)
Media
Market value: £14,859,000
Share of net assets: 2.3% (2023: 2.7%)
Supplier of promotional merchandise in the US
* 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 Baltic Classifieds Group 13,962 2.2 Operator of online classified businesses in the Baltics
Software & Computer Services
12 GlobalData* 13,100¹ 2.0 Data analytics and consulting
Media
13 Chemring Group 12,243 1.9 Provider of technology products and services to aerospace, defence and security markets
Aerospace & Defence
14 Boku* 11,932 1.9 Digital payments platform
Support Services
15 Workspace Group 11,559 1.8 Supply of flexible workspace to businesses in London
Real Estate Investment Trusts
16 Computacenter 10,935 1.7 Computer services
Software & Computer Services
17 FTSE 250 Index Future 9,619¹ 1.5 Index future
Financial Services
18 GPE 9,608¹ 1.5 Owner of commercial real estate in central London
Real Estate Investment Trusts
19 Morgan Sindall 9,485¹ 1.5 Supplier of office fit out, construction and urban regeneration services
Construction & Materials
20 Hunting 9,438¹ 1.5 Oil services business
Oil Equipment and Services
21 Next Fifteen Communications* 9,283 1.4 Provider of digital communication products and services
Media
22 TT Electronics 9,111¹ 1.4 Global manufacturer of electronic components
Electronic & Electrical Equipment
23 Vesuvius 9,064¹ 1.4 British engineered ceramics company
Industrial Engineering
24 Bellway 8,647 1.3 UK housebuilder
Household Goods and Home Construction
25 Intermediate Capital Group 8,460 1.3 Private equity business
Investment Banking & Brokerage
26 Indivior PLC 8,267 1.3 Pharmaceuticals business specialising in addiction and mental health treatments
Pharmaceuticals & Biotechnology
27 SIG 8,226 1.3 Supplier of building, roofing and insulation products
Industrial Support Services
28 JET2* 8,168 1.3 Low cost tour operator and airline
Travel & Leisure
29 Dunelm Group 7,960 1.2 Retailer of homeware products
General Retailers
30 Luceco 7,783 1.2 Supplier and manufacturer of high quality LED lighting products
Electronic & Electrical Equipment
31 Zotefoams 7,644¹ 1.2 Manufacturer of polyolefin foams used in sport, construction, marine, automation, medical equipment and aerospace
Chemicals
32 Alfa Financial Software 7,265 1.1 Provider of software to the finance industry
Software & Computer Services
33 Victorian Plumbing* 7,197¹ 1.1 Online retailer of bathroom products
Home Improvement Retailers
34 IG Group Holdings 7,151 1.1 Online provider of spread betting and CFD trading services
Financial Services
35 Porvair 7,024¹ 1.1 Specialist filtration and environmental technology
Industrial Engineering
36 Cranswick 6,978 1.1 Producer of premium, fresh and added-value food products
Food Producers
37 MJ Gleeson 6,969 1.1 UK housebuilder
Household Goods and Home Construction
38 CVS Group* 6,927 1.1 Operator of veterinary surgeries
General Retailers
39 Genuit 6,867 1.1 Manufacturer of plastic piping systems
Construction & Materials
40 Lok’nStore* 6,760 1.0 Provider of self-storage space in the UK
Real Estate Investment & Services
41 TP ICAP 6,689 1.0 Inter-dealer broker
Investment Banking & Brokerage
42 FRP Advisory Group PLC* 6,658 1.0 Provider of forensics, corporate finance, debt and financial advisory services
Support Services
43 Kier Group 6,642 1.0 UK construction, services and property group
Support Services
44 Clarkson 6,566 1.0 Provider of shipping services
Industrial Transportation
45 SigmaRoc* 6,431 1.0 Buy-and-build group targeting construction materials assets in the UK and Northern Europe
Construction & Materials
46 Moneysupermarket.com 6,379¹ 1.0 Provider of price comparison website specialising in financial services
Software & Computer Services
47 Cairn Homes(&) 6,322¹ 1.0 Builder of community apartments and homes
Household Goods and Home Construction
48 Robert Walters 6,188 1.0 Provider of specialist recruitment services
Support Services
49 Xero(&) 6,121¹ 0.9 Software company specialising in accounting for small businesses
Software & Computer Services
50 Judges Scientific* 5,977 0.9 Designer and producer of scientific instruments
Electronic & Electrical Equipment
51 Euronext* 5,932¹ 0.9 European stock exchange
Financial Services
52 Balfour Beatty 5,778 0.9 Multinational infrastructure group
Construction & Materials
53 Senior Plc 5,717 0.9 Specialist engineering business
Aerospace & Defence
54 YouGov* 5,570 0.9 Provider of survey data and specialist data analytics
Media
55 Ibstock 5,563 0.9 Manufacturer of clay bricks and concrete products
Construction & Materials
56 AB Dynamics* 5,554 0.9 Developer and supplier of specialist automotive testing systems
Industrial Engineering
57 Sirius Real Estate 5,529 0.9 Owner and operator of business parks, offices and industrial complexes in Germany
Real Estate Investment & Services
58 Ashtead* 5,411 0.8 International equipment rental business
Oil, Gas & Coal
59 Spectris 5,287 0.8 Supplier of productivity enhancing instrumentation and controls
Electronic & Electrical Equipment
60 SThree 5,179 0.8 Provider of specialist professional recruitment services
Support Services
61 Zegona Communications 5,121 0.8 Provider of telecommunications services
Mobile Telecommunications
62 DiscoverIE 5,015 0.8 International designer, manufacturer and supplier of customised electronics
Electronic & Electrical Equipment
63 Polar Capital Holdings* 4,920 0.8 Provider of investment management services
Financial Services
64 Future 4,841 0.8 Multi-platform media business covering technology, entertainment, creative arts, home interest and education
Media
65 Crest Nicholson 4,752 0.7 UK housebuilder
Household Goods and Home Construction
66 Applied Industrial Technologies(&) 4,591¹ 0.7 Provider of fluid power solutions
Industrial Support Services
67 Londonmetric Property 4,591¹ 0.7 Investor in, and developer of property
Real Estate Investment Trusts
68 Young & Co’s Brewery* 4,569 0.7 Owner and operator of pubs mainly in the London area
Travel & Leisure
69 Oxford Biomedica 4,455¹ 0.7 Gene cell therapy
Pharmaceuticals & Biotechnology
70 Serica Energy* 4,369 0.7 Oil and gas producer
Oil, Gas & Coal
71 Renishaw 4,338 0.7 Engineering and scientific technology company
Electronic & Electrical Equipment
72 Accesso Technology* 4,305¹ 0.7 Provider of ticketing and virtual queuing solutions
Software & Computer Services
73 Kainos Group 4,275¹ 0.7 Provider of digital technology solutions
Software & Computer Services
74 Auction Technology Group 4,162 0.6 Operator of marketplaces for curated online auctions
General Retailers
75 OSB Group 4,143 0.6 Specialist lending business
Financial Services
76 Medpace Holdings(&) 4,088¹ 0.6 Clinical research organization (CRO) conducting global clinical research for the development of drugs and medical devices
Pharmaceuticals & Biotechnology
77 Lundin Mining(&) 3,865¹ 0.6 Diversified base metals miner
Industrial Metals & Mining
78 Central Asia Metals* 3,803¹ 0.6 Production of base metals with operations in Kazakhstan and North Macedonia
Industrial Metals & Mining
79 Ashmore Group 3,802¹ 0.6 Emerging market focused investment manager
Financial Services
80 XP Power 3,791 0.6 Leading provider of power solutions
Electronic & Electrical Equipment
81 TI Fluid Systems 3,767 0.6 Manufacturer of thermal management and fluid handling systems
Automobiles & Parts
82 Glenveagh Properties(&) 3,761¹ 0.6 Builder of community apartments and homes
Household Goods and Home Construction
83 Babcock International Group 3,745 0.6 British aerospace, defence and nuclear engineering services company
Aerospace & Defence
84 Deliveroo 3,616 0.6 Online food delivery business
Software & Computer Services
85 Cerillion* 3,561 0.6 Provider of billing, charging and customer management systems
Software & Computer Services
86 Restore* 3,472 0.5 Records management business
Support Services
87 Safestore 3,469 0.5 Provider of self-storage units
Real Estate Investment Trusts
88 Rambus(&) 3,464¹ 0.5 US listed chip and silicon IP producer
Technology Hardware & Equipment
89 Inficon(&) 3,442¹ 0.5 Provider of innovative instrumentation and critical sensor technologies
Electronic & Electrical Equipment
90 Gooch & Housego* 3,392 0.5 Designer and manufacturer of advanced photonic systems
Electronic & Electrical Equipment
91 Bytes Technology 3,284 0.5 Specialist in software, security and cloud services
Software & Computer Services
92 Eckoh* 3,256 0.5 Global provider of secure payments products
Software & Computer Services
93 Forterra 3,170 0.5 Manufacturer of building products
Construction & Materials
94 RHI Magnesita 3,165 0.5 Supplier of refractory products, systems and services
Chemicals
95 Marshalls 3,088¹ 0.5 British construction materials group
Construction & Materials
96 PayPoint 3,051¹ 0.5 Digital payments business
Industrial Support Services
97 Herc Holdings* 3,029¹ 0.5 Equipment rental business
Industrial Transportation
98 Hiscox 3,004¹ 0.5 Provision of insurance services
Non-life Insurance
99 Creo Medical Group PLC* 2,989¹ 0.4 Manufacturer of medical devices
Medical Equipment and Services
100 Permanent TSB 2,981 0.4 Irish bank
Banks
101 BE Semiconductor& 2,913¹ 0.4 Manufacturer of semiconductor equipment
Technology Hardware & Equipment
102 Wetherspoon (J.D) 2,891 0.4 Ownership and management of pubs in the UK
Travel & Leisure
103 Domino’s 2,881 0.4 Multinational pizza restaurant chain
Travel & Leisure
104 Dowlais Group 2,846 0.4 Provider of specialist automotive engineering services
Automobiles & Parts
105 Team17* 2,773 0.4 Video game developer and publisher
Leisure Goods
106 RH(&) 2,612¹ 0.4 Retailer of home furnishings
General Retailers
107 Animalcare Group* 2,513 0.4 Veterinary pharmaceuticals business
Pharmaceuticals & Biotechnology
108 Watches of Switzerland 2,510 0.4 Retailer of luxury watches
Personal Goods
109 Videndum 2,447¹ 0.4 Provider of media hardware products and software solutions
Industrial Engineering
110 The Pebble Group* 2,302 0.4 Designer and manufacturer of promotional goods
Media
111 Maxcyte* 1,767 0.3 Clinical-stage global cell-based therapies and life sciences company
Media
112 Trainline 1,685¹ 0.3 Provider of online rail and train ticketing services
Travel & Leisure
113 Advanced Medical Solutions* 1,293¹ 0.2 Developer and manufacturer of advanced wound care solutions
Healthcare Equipment & Services
114 Funding Circle Holdings 185 – Provider of funding services to small businesses
Financial Services
--------------- ---------------
Long investment positions (excluding BlackRock’s Institutional Cash Series plc – Sterling Liquid Environmentally Aware Fund) 742,031 115.2
========= =========
Short investment positions (14,544) (2.3)
========= =========
1 Includes long derivative positions.
* Traded on the Alternative Investment Market (AIM) of the London
Stock Exchange.
& Holdings listed on exchanges outside of the UK.
^ The market value shown is the gross exposure to the shares through
equity investments and long derivative positions. For equity investments, the
market value is the fair value of the shares. For long derivative positions,
it is the market value of the underlying shares to which the portfolio is
exposed via the contract.
Percentages shown are the share of net assets.
At 31 May 2024, the Company held equity interests in three companies
comprising more than 3% of a company’s share capital as follows: Tatton
Asset Management (4.0%); TT Electronics (3.4%); and Eckoh (3.1%).
Fair value and gross market exposure of investments as at 31 May 2024
Gross market Gross market exposure as a %
of net assets(2)
Fair value(1) exposure(2,3) 31 May 31 May 30 November
£’000 £’000 2024 2023 2023
Long equity investment positions (excluding BlackRock’s Institutional Cash Series plc - Sterling Liquid Environmentally Aware Fund) 612,126 612,126 95.0 98.3 96.8
Long derivative positions 2,230 129,905 20.2 13.6 14.6
--------------- --------------- --------------- --------------- ---------------
Subtotal of long investment positions 614,356 742,031 115.2 111.9 111.4
========= ========= ========= ========= =========
Short investment positions (354) (14,544) (2.3) (3.6) (3.8)
--------------- --------------- --------------- --------------- ---------------
Subtotal of long and short investment positions 614,002 727,487 112.9 108.3 107.6
========= ========= ========= ========= =========
Cash and cash equivalents 43,517 (69,968) (10.9) (7.8) (6.7)
Other net current liabilities (13,021) (13,021) (2.0) (0.5) (0.9)
--------------- --------------- --------------- --------------- ---------------
Net assets 644,498 644,498 100.0 100.0 100.0
========= ========= ========= ========= =========
The Company was geared through the use of long and short derivative positions.
Gross and net gearing as at 31 May 2024 was 117.4% and 112.9% respectively (31
May 2023: 115.5% and 108.3%; 30 November 2023: 115.2% and 107.6%
respectively). Gross and net gearing are Alternative Performance Measures, see
Glossary contained within the half yearly financial report.
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 £127,675,000 at the time of
purchase, and subsequent movement in market prices have resulted in unrealised
gains on the long derivative positions of £2,230,000 resulting in the value
of the total long derivative market exposure to the underlying securities
increasing to £129,905,000 as at 31 May 2024. If the long positions had been
closed on 31 May 2024, this would have resulted in a gain of £2,230,000 for
the Company.
– The notional exposure of selling the securities via the short
derivative positions would have been £14,190,000 at the time of entering into
the contract, and subsequent movement in market prices have resulted in
unrealised losses on the short derivative positions of £354,000 resulting in
the value of the total short derivative market exposure of these investments
decreasing to £14,544,000 as at 31 May 2024. If the short positions had been
closed on 31 May 2024, this would have resulted in a loss of £354,000 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 31 May 2024
Sector % of % of % of net
long portfolio short portfolio portfolio
Oil, Gas & Coal 1.3 0.0 1.3
Oil Equipment & Services 1.3 0.0 1.3
--------------- --------------- ---------------
Oil & Gas 2.6 0.0 2.6
========= ========= =========
Chemicals 1.5 0.0 1.5
Industrial Metals & Mining 3.2 0.0 3.2
--------------- --------------- ---------------
Basic Materials 4.7 0.0 4.7
========= ========= =========
Aerospace & Defence 3.0 0.0 3.0
Construction & Materials 8.2 (0.3) 7.9
Electronic & Electrical Equipment 11.6 0.0 11.6
Industrial Engineering 3.3 0.0 3.3
Industrial Support Services 2.2 (0.1) 2.1
Industrial Transportation 1.3 (0.3) 1.0
Support Services 7.9 0.0 7.9
--------------- --------------- ---------------
Industrials 37.5 (0.7) 36.8
========= ========= =========
Food Producers 1.0 0.0 1.0
Personal Goods 0.3 0.0 0.3
--------------- --------------- ---------------
Consumer Staples 1.3 0.0 1.3
========= ========= =========
Healthcare Equipment & Services 0.2 0.0 0.2
Pharmaceuticals & Biotechnology 2.9 (0.3) 2.6
Medical Equipment and Services 0.4 0.0 0.4
--------------- --------------- ---------------
Health Care 3.5 (0.3) 3.2
========= ========= =========
Automobiles & Parts 0.9 0.0 0.9
General Retailers 5.1 (0.3) 4.8
Home Improvement Retailers 1.0 0.0 1.0
Household Goods and Home Construction 4.2 0.0 4.2
Leisure Goods 0.4 0.0 0.4
Media 6.9 0.0 6.9
Travel & Leisure 2.8 0.0 2.8
--------------- --------------- ---------------
Consumer Discretionary 21.3 (0.3) 21.0
========= ========= =========
Banks 0.4 0.0 0.4
Financial Services 9.3 0.0 9.3
Investment Banking & Brokerage 2.1 0.0 2.1
Non-life Insurance 0.4 0.0 0.4
--------------- --------------- ---------------
Financials 12.2 0.0 12.2
========= ========= =========
Real Estate Investment & Services 1.7 0.0 1.7
Real Estate Investment Trusts 4.0 0.0 4.0
--------------- --------------- ---------------
Real Estate 5.7 0.0 5.7
========= ========= =========
Software & Computer Services 9.2 (0.4) 8.8
Technology Hardware & Equipment 0.9 (0.3) 0.6
--------------- --------------- ---------------
Technology 10.1 (0.7) 9.4
========= ========= =========
Mobile Telecommunications 3.1 0.0 3.1
--------------- --------------- ---------------
Telecommunications 3.1 0.0 3.1
========= ========= =========
Total Investments 102.0 (2.0) 100.0
========= ========= =========
The above percentages are calculated on the net portfolio as at 31 May 2024.
The net portfolio is calculated as long equity and derivative positions, less
short derivative positions as at 31 May 2024.
Analysis of the Portfolio
Market capitalisation as at 31 May 2024
Long positions(1)% of net portfolio Short positions% of net portfolio
£5bn – £10bn 4.1% 0.0%
£2.5bn – £5bn 11.5% -0.6%
£2bn – £2.5bn 2.6% 0.0%
£1.5bn – £2bn 15.6% -0.1%
£1bn – £1.5bn 27.7% -0.5%
£500m – £1bn 19.0% -0.6%
£0m – £500m 20.7% -0.2%
(1) The above investments may comprise exposures to long equity and long
derivative positions.
Source: BlackRock
Position size as at 31 May 2024
Market value Long positions(1) Short positions
£20m+ 1 0
£15m – £20m 7 0
£10m – £15m 8 0
£5m – £10m 46 0
£2.5m – £5m 46 -1
£0m – £2.5m 6 -8
(1) The above investments may comprise exposures to long equity and long
derivative positions.
Source: BlackRock.
Portfolio holdings within Key Indices as at 31 May 2024
Gross Basis(1) Net Basis(2)
FTSE 250 55.9% 55.3%
FTSE AIM 26.1% 27.0%
FTSE Small Cap 10.2% 10.6%
Other 6.7% 5.9%
FTSE 100 1.1% 1.2%
Portfolio holdings within Benchmark Index (the Deutsche Numis Smaller
Companies plus AIM
(excluding Investment Companies) Index)
Gross Basis(1,3) Net Basis(2,3)
Within Benchmark 83.5% 80.7%
Off-Benchmark 16.5% 19.3%
Source: BlackRock.
(1 )Long exposure plus short exposure as a percentage of the portfolio in
aggregate excluding investment in BlackRock’s Institutional Cash Series plc
– Sterling Liquid Environmentally Aware Fund.
(2) Long exposure less short exposure as a percentage of the portfolio
excluding investment in BlackRock’s Institutional Cash Series plc –
Sterling Liquid Environmentally Aware Fund.
(3) Holdings included within the Benchmark Index as at 30 November 2023 were
68.2% on a Gross Basis and 70.4% on a Net Basis.
Interim Management Report and Responsibility Statement
The Chairman’s Statement and the Investment Manager’s Report above give
details of the important events which have occurred during the period and
their impact on the financial statements.
Principal risks and uncertainties
The principal risks faced by the Company can be divided into various areas as
follows:
· Performance;
· Market;
· Income/dividend;
· Financial;
· Operational; and
· Regulatory.
The Board reported on the principal risks and uncertainties faced by the
Company in the Annual Report and Financial Statements for the year ended 30
November 2023. A detailed explanation can be found in the Strategic Report on
pages 43 to 46 and in note 16 on pages 111 to 122 of the Annual Report and
Financial Statements which are available on the website maintained by
BlackRock at www.blackrock.com/uk/thrg.
The Directors have also assessed the impact of market conditions arising from
the conflicts in Russia/Ukraine and the Middle East on the Company’s ability
to meet its investment objective. Based on the latest available information,
the Company continues to be managed in line with its investment objective,
with no disruption to its operations.
In the view of the Board, there have not been any changes to the fundamental
nature of the principal risks and uncertainties since the previous report and
these are equally applicable to the remaining six months of the financial year
as they were to the six months under review.
Related party disclosure and transactions with the Investment Manager
BlackRock Fund Managers Limited (BFM) was appointed as the Company’s
Alternative Investment Fund Manager (AIFM) with effect from 2 July 2014. BFM
has (with the Company’s consent) delegated certain portfolio and risk
management services, and other ancillary services, to BlackRock Investment
Management (UK) Limited (BIM (UK)). Both BFM and BIM (UK) are regarded as
related parties under the Listing Rules. Details of the fees payable are set
out in note 4 and note 11 of the financial statements.
The related party transactions with the Directors are set out in note 12 of
the financial statements.
Going concern
The Board remains mindful of the ongoing uncertainty surrounding the potential
duration of the conflicts in Russia/ Ukraine and the Middle East and its
longer-term effects on the global economy and the current heightened
geopolitical risk. Nevertheless, the Directors, having considered the nature
and liquidity of the portfolio, the Company’s investment objective and the
Company’s projected income and expenditure, are satisfied that the Company
has adequate resources to continue in operational existence for the
foreseeable future and is financially sound.
The Company has a portfolio of investments which are predominantly readily
realisable and is able to meet all its liabilities from these assets.
Accounting revenue and expense forecasts are maintained and reported to the
Board regularly and it is expected that the Company will be able to meet all
its obligations. Ongoing charges for the year ended 30 November 2023 were
0.54% of net assets and it is expected that this is unlikely to change
significantly going forward.
Based on the above, the Board is satisfied that it is appropriate to continue
to adopt the going concern basis in preparing the financial statements.
Directors’ responsibility statement
The Disclosure Guidance and Transparency Rules (DTR) of the UK Listing
Authority require the Directors to confirm their responsibilities in relation
to the preparation and publication of the Interim Management Report and
Financial Statements.
The Directors confirm to the best of their knowledge that:
· the condensed set of financial statements contained within
the Half Yearly Financial Report has been prepared in accordance with
International Accounting Standard 34, Interim Financial Reporting; and
· the Interim Management Report, together with the Chairman’s
Statement and Investment Manager’s report, include a fair review of the
information required by 4.2.7R and 4.2.8R of the FCA’s Disclosure Guidance
and Transparency Rules.
The Half Yearly Financial Report has not been audited or reviewed by the
Company’s Auditor.
The Half Yearly Financial Report was approved by the Board on 24 July 2024 and
the above responsibility statement was signed on its behalf by the Chairman.
CHRISTOPHER SAMUEL
For and on behalf of the Board
24 July 2024
Statement of Comprehensive Income for the six months ended 31 May 2024
Notes Six months ended Six months ended Year ended
31 May 2024 31 May 2023 30 November 2023
(unaudited) (unaudited) (audited)
Revenue Capital Total Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000
Income from investments held at fair value through profit or loss 3 8,240 518 8,758 7,869 — 7,869 15,981 — 15,981
Net income from derivatives 3 768 — 768 655 — 655 830 — 830
Other income 3 625 — 625 754 — 754 1,139 — 1,139
--------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- ---------------
Total income 9,633 518 10,151 9,278 — 9,278 17,950 — 17,950
========= ========= ========= ========= ========= ========= ========= ========= =========
Net profit/(loss) on investments held at fair value through profit or loss — 83,772 83,772 — (4,300) (4,300) — (28,389) (28,389)
Net loss on foreign exchange — (43) (43) — (42) (42) — (114) (114)
Net profit/(loss) from derivatives — 15,517 15,517 — (980) (980) — 242 242
--------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- ---------------
Total 9,633 99,764 109,397 9,278 (5,322) 3,956 17,950 (28,261) (10,311)
========= ========= ========= ========= ========= ========= ========= ========= =========
Expenses
Investment management fee and performance fees 4 (321) (3,713) (4,034) (325) (2,461) (2,786) (629) (3,903) (4,532)
Other operating expenses 5 (406) (11) (417) (405) (10) (415) (792) (20) (812)
--------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- ---------------
Total operating expenses (727) (3,724) (4,451) (730) (2,471) (3,201) (1,421) (3,923) (5,344)
========= ========= ========= ========= ========= ========= ========= ========= =========
Net profit/(loss) on ordinary activities before finance costs and taxation 8,906 96,040 104,946 8,548 (7,793) 755 16,529 (32,184) (15,655)
Finance costs (11) (34) (45) (10) (30) (40) (25) (75) (100)
--------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- ---------------
Net profit/(loss) on ordinary activities before taxation 8,895 96,006 104,901 8,538 (7,823) 715 16,504 (32,259) (15,755)
========= ========= ========= ========= ========= ========= ========= ========= =========
Taxation (charge)/credit (10) – (10) 6 – 6 6 – 6
--------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- ---------------
Net profit/(loss) on ordinary activities after taxation 8,885 96,006 104,891 8,544 (7,823) 721 16,510 (32,259) (15,749)
--------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- ---------------
Earnings/(loss) per ordinary share (pence) 7 9.44 101.97 111.41 8.46 (7.75) 0.71 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 period. All
income is attributable to the equity holders of the Company.
The Company does not have any other comprehensive income/(loss). The net
profit/(loss) for the period disclosed above represents the Company’s total
comprehensive income/(loss).
Statement of Changes in Equity for the six months ended 31 May 2024
Note Called Share Capital Special Capital Revenue Total
up share Premium Redemption reserve reserves reserve £’000
capital account reserve £’000 £’000 £’000
£’000 £’000 £’000
For the six months ended 31 May 2024 (unaudited)
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 — — — — 96,006 8,885 104,891
Transactions with owners, recorded directly to equity:
Ordinary shares bought back into treasury — — — (7,821) (17,529) — (25,350)
Share purchase costs — — — (47) (80) — (127)
Transfer of special reserve — — — 4,637 (4,637) — —
Dividends paid(1) 6 — — — — — (10,841) (10,841)
--------------- --------------- --------------- --------------- --------------- --------------- ---------------
At 31 May 2024 5,160 242,122 11,905 — 369,384 15,927 644,498
========= ========= ========= ========= ========= ========= =========
For the six months ended 31 May 2023 (unaudited)
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 period — — — — (7,823) 8,544 721
Transactions with owners, recorded directly to equity:
Ordinary shares bought back into treasury — — — (5,053) — — (5,053)
Share purchase costs — — — (23) — — (23)
Dividends paid(2) — — — — — (8,595) (8,595)
--------------- --------------- --------------- --------------- --------------- --------------- ---------------
At 31 May 2023 5,160 242,122 11,905 27,962 320,060 13,198 620,407
========= ========= ========= ========= ========= ========= =========
For the year ended 30 November 2023 (audited)
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 — — — (29,646) — — (29,646)
Share purchase costs — — — (161) — — (161)
Dividends paid(3) — — — — — (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.
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.
3 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.
For information on the Company’s distributable reserves, please refer to
note 9 below.
Statement of Financial Position as at 31 May 2024
Notes 31 May 31 May 30 November
2024 2023 2023
(unaudited) (unaudited) (audited)
£’000 £’000 £’000
Non current assets
Investments held at fair value through profit or loss 10 612,126 610,447 557,594
--------------- --------------- ---------------
Current assets
Other receivables 3,503 3,169 2,280
Derivative financial assets held at fair value through profit or loss 10 3,022 1,460 703
Current tax asset 451 315 365
Cash collateral pledged with brokers 380 1,060 775
Cash and cash equivalents 43,520 12,983 24,328
--------------- --------------- ---------------
Total current assets 50,876 18,987 28,451
========= ========= =========
Total assets 663,002 629,434 586,045
========= ========= =========
Current liabilities
Other payables (14,677) (5,629) (7,740)
Derivative financial liabilities held at fair value through profit or loss 10 (1,146) (1,088) (1,454)
Bank overdraft (3) – (306)
Liability for cash collateral received (2,678) (2,310) (620)
--------------- --------------- ---------------
Total current liabilities (18,504) (9,027) (10,120)
========= ========= =========
Net assets 644,498 620,407 575,925
========= ========= =========
Total equity
Called up share capital 8 5,160 5,160 5,160
Share premium account 242,122 242,122 242,122
Capital redemption reserve 11,905 11,905 11,905
Special reserve — 27,962 3,231
Capital reserves 369,384 320,060 295,624
Revenue reserve 15,927 13,198 17,883
--------------- --------------- ---------------
Total shareholders’ funds 644,498 620,407 575,925
========= ========= =========
Net asset value per ordinary share (pence) 7 703.55 618.58 600.72
========= ========= =========
Cash Flow Statement for the six months ended 31 May 2024
Six months Six months Year
ended ended ended
31 May 31 May 30 November
2024 2023 2023
(unaudited) (unaudited) (audited)
£’000 £’000 £’000
Operating activities
Net profit/(loss) on ordinary activities after taxation 104,901 715 (15,755)
Add back finance costs 45 40 100
Net (profit)/loss on investments held at fair value through profit or loss (including transaction costs) (83,772) 4,300 28,389
Net (profit)/loss from derivatives (including transaction costs) (15,517) 980 (242)
Financing costs on derivatives (1,604) (1,218) (2,324)
Net loss on foreign exchange 43 42 114
Sales of investments held at fair value through profit or loss 149,070 96,831 207,680
Purchases of investments held at fair value through profit or loss (119,830) (134,807) (216,892)
Net receipts on closure of derivatives 14,494 2,464 5,915
Increase in other receivables (1,082) (721) (470)
Increase in other payables 2,861 2,301 2,892
(Increase)/decrease in amounts due from brokers (141) 683 1,321
Increase in amounts due to brokers 4,001 208 2,365
Net movement in cash collateral received/(pledged) 2,453 (4,620) (6,025)
--------------- --------------- ---------------
Net cash inflow/(outflow) from operating activities before taxation 55,922 (32,802) 7,068
========= ========= =========
Taxation paid (96) (135) (185)
--------------- --------------- ---------------
Net cash inflow/(outflow) from operating activities 55,826 (32,937) 6,883
========= ========= =========
Financing activities
Interest paid (45) (40) (100)
Cash paid for ordinary shares bought back into treasury (25,402) (4,196) (29,564)
Dividends paid (10,841) (8,595) (11,876)
--------------- --------------- ---------------
Net cash outflow from financing activities (36,288) (12,831) (41,540)
========= ========= =========
Increase/(decrease) in cash and cash equivalents 19,538 (45,768) (34,657)
Effect of foreign exchange rate changes (43) (42) (114)
--------------- --------------- ---------------
Change in cash and cash equivalents 19,495 (45,810) (34,771)
========= ========= =========
Cash and cash equivalents at start of period/year 24,022 58,793 58,793
--------------- --------------- ---------------
Cash and cash equivalents at end of the period/year 43,517 12,983 24,022
========= ========= =========
Comprised of:
Cash at bank 872 129 —
Bank overdraft (3) — (306)
Cash Fund(1) 42,648 12,854 24,328
--------------- --------------- ---------------
43,517 12,983 24,022
========= ========= =========
(1 )Cash Fund represents funds held on deposit with the BlackRock
Institutional Cash Series plc - Sterling Liquid Environmentally Aware Fund.
Notes to the financial statements for the six months ended 31 May 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. Basis of presentation
The half yearly financial statements for the six month period ended 31 May
2024 have been prepared in accordance with the Disclosure Guidance and
Transparency Rules sourcebook of the Financial Conduct Authority and with the
UK-adopted International Accounting Standard 34 (IAS 34), Interim Financial
Reporting. The half yearly financial statements should be read in conjunction
with the Company’s Annual Report and Financial Statements for the year ended
30 November 2023, which have been prepared in accordance with UK-adopted
International Accounting Standards (IAS) in conformity with the requirements
of the Companies Act 2006.
Insofar as the Statement of Recommended Practice (SORP) for investment trust
companies and venture capital trusts, issued by the Association of Investment
Companies (AIC) in October 2019 and updated in July 2022, is compatible with
UK-adopted IAS, the financial statements have been prepared in accordance with
guidance set out in the SORP.
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.
This standard did not have any impact on the Company as it has no insurance
contracts.
IAS 12 - Deferred tax related to assets and liabilities arising from a single
transaction (effective 1 January 2023). The IASB has amended IAS 12 Income
Taxes to require companies to recognise deferred tax on particular
transactions that, on initial recognition, give rise to equal amounts of
taxable and deductible temporary differences. According to the amended
guidance, a temporary difference that arises on initial recognition of an
asset or liability is not subject to the initial recognition exemption if that
transaction gave rise to equal amounts of taxable and deductible temporary
differences. These amendments might have a significant impact on the
preparation of financial statements by companies that have substantial
balances of right-of-use assets, lease liabilities, decommissioning,
restoration and similar liabilities. The impact for those affected would be
the recognition of additional deferred tax assets and liabilities.
The amendment of this standard did not have any significant impact on the
Company.
IAS 8 - Definition of accounting estimates (effective 1 January 2023). The
IASB has amended IAS 8 Accounting Policies, Changes in Accounting Estimates
and Errors to help distinguish between accounting policies and accounting
estimates, replacing the definition of accounting estimates.
IAS 1 and IFRS Practice Statement 2 - Disclosure of accounting policies
(effective 1 January 2023). The IASB has amended IAS 1 Presentation of
Financial Statements to help preparers in deciding which accounting policies
to disclose in their financial statements by stating that an entity is now
required to disclose material accounting policies instead of significant
accounting policies.
IAS 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.
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.
None of the standards that have been issued, but are not yet effective, are
expected to have a material impact on the Company.
3. Income
Six months Six months Year
ended ended ended
31 May 31 May 30 November
2024 2023 2023
(unaudited) (unaudited) (audited)
£’000 £’000 £’000
Investment income:
UK dividends 6,466 5,121 12,201
UK special dividends 404 1,175 1,464
UK REIT dividends 335 293 610
Overseas dividends 890 — 1,706
Overseas special dividends — 1,280 —
Overseas REIT dividends 145 — —
--------------- --------------- ---------------
Total investment income(1) 8,240 7,869 15,981
========= ========= =========
Net income from derivatives 768 655 830
--------------- --------------- ---------------
Other income:
Deposit interest 8 3 3
Interest from Cash Fund 603 718 1,083
Collateral interest 14 33 53
--------------- --------------- ---------------
625 754 1,139
========= ========= =========
Total income 9,633 9,278 17,950
========= ========= =========
(1 )UK and overseas dividends are presented based on the country of domicile
of the respective underlying portfolio company.
Dividends and interest received in cash in the six months ended 31 May 2024
amounted to £7,463,000 and £521,000 (six months ended 31 May 2023:
£7,007,000 and £835,000; year ended 30 November 2023: £15,499,000 and
£1,191,000).
Special dividends of £518,000 have been recognised in capital in the six
months ended 31 May 2024 (six months ended 31 May 2023: £nil; year ended 30
November 2023: £nil).
4. Investment management and performance fees
Six months ended Six months ended Year ended
31 May 2024 31 May 2023 30 November 2023
(unaudited) (unaudited) (audited)
Revenue Capital Total Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000
Investment management fee 321 964 1,285 325 974 1,299 629 1,889 2,518
Performance fee — 2,749 2,749 — 1,487 1,487 — 2,014 2,014
--------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- ---------------
Total 321 3,713 4,034 325 2,461 2,786 629 3,903 4,532
========= ========= ========= ========= ========= ========= ========= ========= =========
Investment management fees
The investment management fee is calculated at the rate of 0.35% per annum on
month end Gross Assets. For the purposes of this note, Gross Assets are
defined as the value of the portfolio of the Company, including uninvested
cash, with the portfolio valuation based on value at risk (with value at risk
being the gross asset value of the long-only portfolio plus the gross value of
the underlying equities, long and short, to which the Company is exposed
through derivatives including CFDs and index futures). The management fee is
charged 25% to the revenue account and 75% to the capital account of the
Statement of Comprehensive Income. There is no additional fee for company
secretarial and administration services.
Performance fees
The performance fee is calculated at the rate of 15% of the outperformance of
the Company. For the purpose of this note, outperformance is defined as the
amount by which the annualised percentage Net Asset Value total return of the
Company arithmetically exceeds the annualised percentage return of the
Benchmark Index, measured over a rolling two-year performance period. This
rate is applied to the average Gross Assets, in that rolling two-year
performance period. Outperformance is the amount by which the Net Asset Value
total return arithmetically exceeds the Benchmark Index total return.
There is a cap on the annual total management and performance fees of 1.25%
per financial year of the average Gross Assets over the rolling two-year
performance period (the “Cap” or “Capped Amount”) which has the effect
of capping the annual performance fees at circa 0.9% of average Gross Assets
and which means that the performance fee from any performance period will not
exceed 0.9% of average Gross Assets for the relevant performance period.
The performance fee is calculated daily for the rolling two-year performance
period ending 30 November 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 2023, the carried
forward unpaid net outperformance, net of prior period shortfall returns,
available to offset against future shortfall returns was 4.8% (1 December
2022: 10.7%).
On the first day of the financial year, due to the application of the Cap in
the prior financial year, any performance fee for the ongoing rolling two-year
performance period not yet recognised is accrued in the daily NAV released to
the London Stock Exchange on that day.
Performance fees have been wholly allocated to the capital account of the
Statement of Comprehensive Income as the performance has been predominantly
generated through capital returns from the investment portfolio. The total
accrual of performance fee for all rolling two-year performance periods
amounted to £4,763,000 as at 31 May 2024 (31 May 2023: £1,487,000; 30
November 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 3.2% as at 31 May
2024. A performance fee of £3,569,000 relating to this performance period has
been accrued at the date of this report, which does not become payable until
30 November 2024 subject to the ongoing performance of the Company. Of this,
an amount of £2,014,000 was recognised during the year ended 30 November
2023.
· For the annualised rolling two-year performance period to 30
November 2025, the Company has outperformed the benchmark by 1.0% as at 31 May
2024. A performance fee of £1,194,000 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
Six months Six months Year
ended ended ended
31 May 31 May 30 November
2024 2023 2023
(unaudited) (unaudited) (audited)
£’000 £’000 £’000
Allocated to revenue:
Custody fees 3 3 7
Auditor’s remuneration(1) 35 32 58
Registrar’s fees 21 17 44
Directors’ emoluments 111 115 224
Broker fees 18 18 36
Depositary fees 35 36 70
Marketing fees 68 71 149
FCA fees 13 15 27
Printing and postage fees 21 22 43
AIC fees 11 11 21
Stock exchange listing fees 18 16 31
Write back of prior year expenses(2) (13) (9) (12)
Other administrative costs 65 58 94
--------------- --------------- ---------------
406 405 792
========= ========= =========
Allocated to capital:
Custody transaction charges(3) 11 10 20
--------------- --------------- ---------------
417 415 812
========= ========= =========
(1) In the six months ended 31 May 2024, no non-audit services were
provided by the auditors (six months ended 31 May 2023 none; year ended 30
November 2023: none).
(2) Relates to Director’s expenses, legal fees, professional fees
and miscellaneous fees written back during the period (six months ended 31 May
2023: Directors’ recruitment fees; year ended 30 November 2023: Directors’
recruitment fees, miscellaneous fees and postage fees).
(3) For the six month period ended 31 May 2024, expenses of £11,000
(six months ended 31 May 2023: £10,000; year ended 30 November 2023:
£20,000) were charged to the capital account of the Statement of
Comprehensive Income. This relates to transaction costs charged by the
custodian on sale and purchase trades.
The transaction costs incurred on the acquisition of investments amounted to
£555,000 for the six months ended 31 May 2024 (six months ended 31 May 2023:
£652,000; year ended 30 November 2023: £975,000). Costs relating to the
disposal of investments amounted to £107,000 for the six months ended 31 May
2024 (six months ended 31 May 2023: £66,000; year ended 30 November 2023:
£141,000). All transaction costs have been included within capital reserves.
6. Dividends
The Board has declared an interim dividend of 3.75p per share payable on 27
August 2024 to shareholders on the register at 2 August 2024 (six months ended
31 May 2023: interim dividend of 3.30p per share paid on 1 September 2023 to
shareholders on the register at 4 August 2023). This dividend has not been
accrued in the financial statements for the six months ended 31 May 2024 as,
under IAS, interim dividends are not recognised until paid. Dividends are
debited directly to reserves.
7. Earnings/(loss) and net asset value per ordinary share
Revenue, capital earnings/(loss) and net asset value per ordinary share are
shown below and have been calculated using the following:
Six months Six months Year
ended ended ended
31 May 31 May 30 November
2024 2023 2023
(unaudited) (unaudited) (audited)
Net revenue profit attributable to ordinary shareholders (£’000) 8,885 8,544 16,510
Net capital profit/(loss) attributable to ordinary shareholders (£’000) 96,006 (7,823) (32,259)
--------------- --------------- ---------------
Total profit/(loss) attributable to ordinary shareholders (£’000) 104,891 721 (15,749)
========= ========= =========
Total shareholders’ funds (£’000) 644,498 620,407 575,925
========= ========= =========
The weighted average number of ordinary shares in issue during the period on which the earnings per ordinary share was calculated was: 94,149,841 100,992,473 99,704,909
The actual number of ordinary shares in issue at the period end on which the net asset value per ordinary share was calculated was: 91,606,927 100,295,785 95,872,161
--------------- --------------- ---------------
Earnings/(loss) per ordinary share
Revenue earnings per share (pence) – basic and diluted 9.44 8.46 16.56
Capital earnings/(loss) per share (pence) - basic and diluted 101.97 (7.75) (32.36)
--------------- --------------- ---------------
Total earnings/(loss) per share (pence) - basic and diluted 111.41 0.71 (15.80)
========= ========= =========
As at As at As at
31 May 31 May 30 November
2024 2023 2023
(unaudited) (unaudited) (audited)
Net asset value per ordinary share (pence) 703.55 618.58 600.72
Ordinary share price (pence) 639.00 587.00 579.00
========= ========= =========
There were no dilutive securities at the period end (six months ended 31 May
2023: none; year ended 30 November 2023 none).
8. Called up share capital
(unaudited) 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 2023 95,872,161 7,337,703 103,209,864 5,160
Ordinary shares bought back into treasury (4,265,234) 4,265,234 – –
--------------- --------------- --------------- ---------------
At 31 May 2024 91,606,927 11,602,937 103,209,864 5,160
========= ========= ========= =========
During the six months ended 31 May 2024, the Company bought back 4,265,234
shares into treasury (six months ended 31 May 2023: 863,079; year ended 30
November 2023: 5,286,703) for a total consideration of £25,477,000 (six
months ended 31 May 2023: £5,076,000; year ended 30 November 2023:
£29,807,000) including costs.
Since 31 May 2024 and up to the date of this report, 836,063 shares have been
bought back into treasury for a total consideration of £5,166,000.
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
The share premium account and capital redemption reserve are not distributable
reserves under the Companies Act 2006. In accordance with ICAEW Technical
Release 02/17BL on Guidance on Realised and Distributable Profits under the
Companies Act 2006, the special reserve and capital reserves may be used as
distributable reserves for all purposes and, in particular, the repurchase by
the Company of its ordinary shares and for payments such as dividends. In
accordance with the Company’s Articles of Association, the special reserve,
capital reserve and revenue reserve may be distributed by way of dividend. The
gain on the capital reserve arising on the revaluation of investments of
£54,473,000 (six months ended 31 May 2023: gain of £9,770,000; year ended 30
November 2023: no gain) is subject to fair value movements and may not be
readily realisable at short notice, as such it may not be entirely
distributable. The investments are subject to financial risks, as such capital
reserves (arising on investments sold) and the revenue reserve may not be
entirely distributable if a loss occurred during the realisation of these
investments.
10. Financial risks and valuation of financial instruments
The Company’s investment activities expose it to the various types of risk
which are associated with the financial instruments and markets in which it
invests. The risks are substantially consistent with those disclosed in the
previous annual financial statements with the exception of those outlined
below.
Market risk arising from price risk
Price risk is the risk that the fair value or future cash flows of a financial
instrument will fluctuate because of changes in market prices (other than
those arising from interest rate risk or currency risk), whether those changes
are caused by factors specific to the individual financial instrument or its
issuer, or factors affecting similar financial instruments traded in the
market. Local, regional or global events such as war, acts of terrorism, the
spread of infectious illness or other public health issues, recessions,
climate change or other events could have a significant impact on the Company
and the market price of its investments and could result in increased premiums
or discounts to the Company’s net asset value.
Valuation of financial instruments
Financial assets and financial liabilities are either carried in the Statement
of Financial Position at their fair value (investments and derivatives) or at
an amount which is a reasonable approximation of fair value (due from brokers,
dividends and interest receivable, due to brokers, accruals, cash at bank and
bank overdrafts). IFRS 13 requires the Company to classify fair value
measurements using a fair value hierarchy that reflects the significance of
inputs used in making the measurements. The valuation techniques used by the
Company are explained in the accounting policies note 2(g) as set out on page
100 in the Company’s Annual Report and Financial Statements for the year
ended 30 November 2023.
Categorisation within the hierarchy has been determined on the basis of the
lowest level input that is significant to the fair value measurement of the
relevant asset.
The fair value hierarchy has the following levels:
Level 1 – Quoted market price for identical instruments in active markets
A financial instrument is regarded as quoted in an active market if quoted
prices are readily available from an exchange, dealer, broker, industry group,
pricing service or regulatory agency and those prices represent actual and
regularly occurring market transactions on an arm’s length basis. The
Company does not adjust the quoted price for these instruments.
Level 2 – Valuation techniques using observable inputs
This category includes instruments valued using quoted prices for similar
instruments in markets that are considered less 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 period 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 31 May 2024 (unaudited) Level 1 Level 2 Level 3 Total
£’000 £’000 £’000 £’000
Assets:
Equity investments 612,126 – – 612,126
Contracts for difference (fair value) – 2,527 – 2,527
Index future 495 – – 495
--------------- --------------- --------------- ---------------
Liabilities:
Contracts for difference (fair value) – (1,146) – (1,146)
--------------- --------------- --------------- ---------------
612,621 1,381 – 614,002
========= ========= ========= =========
Financial assets/(liabilities) at fair value through profit or loss at 31 May 2023 (unaudited) Level 1 Level 2 Level 3 Total
£’000 £’000 £’000 £’000
Assets:
Equity investments 610,447 – – 610,447
Contracts for difference (fair value) – 1,460 – 1,460
--------------- --------------- --------------- ---------------
Liabilities:
Contracts for difference (fair value) – (1,088) – (1,088)
--------------- --------------- --------------- ---------------
610,447 372 – 610,819
========= ========= ========= =========
Financial assets/(liabilities) at fair value through profit or loss at 30 November 2023 (audited) Level 1 Level 2 Level 3 Total
£’000 £’000 £’000 £’000
Assets:
Equity investments 557,594 – – 557,594
Contract for difference (fair value) – 703 – 703
--------------- --------------- --------------- ---------------
Liabilities:
Contract for difference (fair value) – (1,352) – (1,352)
Index future (102) – – (102)
--------------- --------------- --------------- ---------------
557,492 (649) – 556,843
========= ========= ========= =========
There were no transfers between levels for financial assets and financial
liabilities recorded at fair value during the six months ended 31 May 2024,
six months ended 31 May 2023 or year ended 30 November 2023. The Company did
not hold any Level 3 securities during the period ended 31 May 2024 (six
months ended 31 May 2023: none; year ended 30 November 2023: none).
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 business risks, including climate change risk, in
accordance with the fair value related requirements of the Company’s
Financial Reporting Framework.
11. Transactions with the Investment Manager and AIFM
BlackRock Fund Managers Limited (BFM) provides management and administration
services to the Company under a contract which is terminable on six months’
notice. BFM has (with the Company’s consent) delegated certain portfolio and
risk management services, and other ancillary services, to BlackRock
Investment Management (UK) Limited (BIM (UK)). Further details of the
investment management contract are disclosed on pages 56 and 57 of the
Directors’ Report in the Company’s Annual Report and Financial Statements
for the year ended 30 November 2023.
The investment management fee due for the six months ended 31 May 2024
amounted to £1,285,000 (six months ended 31 May 2023: £1,299,000; year ended
30 November 2023: £2,518,000). At the period end, £1,869,000 was outstanding
in respect of management fees (31 May 2023: £1,906,000; 30 November 2023:
£1,864,000).
The total accrual of performance fee for all rolling two-year performance
periods amounted to £4,763,000 as at 31 May 2024 (31 May 2023: £1,487,000;
30 November 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 3.2% as at 31 May
2024. A performance fee of £3,569,000 has been accrued at the date of this
report. Of this, an amount of £2,014,000 was recognised during the year ended
30 November 2023.
· For the annualised rolling two-year performance period to 30
November 2025, the Company has outperformed the benchmark by 1.0% as at 31 May
2024. A performance fee of £1,194,000 has been accrued at the date of this
report.
In addition to the above services, BIM (UK) has provided the Company with
marketing services. The total fees paid or payable for these services to 31
May 2024 amounted to £68,000 excluding VAT (six months ended 31 May 2023:
£71,000; year ended 30 November 2023: £149,000). Marketing fees of £192,000
excluding VAT (31 May 2023: £192,000; 30 November 2023: £269,000) were
outstanding at 31 May 2024.
As at 31 May 2024, an amount of £193,000 (31 May 2023: £198,000; 30 November
2023: £202,000) was payable to the Manager in respect of Directors’ fees.
The Company has an investment in the BlackRock Institutional Cash Series plc
– Sterling Liquid Environmentally Aware Fund of £42,648,000 (31 May 2023:
£12,854,000; 30 November 2023: £24,328,000) which for the period ended 31
May 2024, 31 May 2023 and year ended 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.
12. Related party disclosure
Directors’ emoluments
The Board consists of six non-executive Directors, all of whom are considered
to be independent of the Manager by the Board. None of the Directors has a
service contract with the Company. With effect from 1 December 2023, the
Chairman receives an annual fee of £48,800, the Chairman of the Audit
Committee receives an annual fee of £38,700, the Senior Independent Director
receives an annual fee of £34,100 and each of the other Directors receives an
annual fee of £33,100.
As at 31 May 2024, an amount of £21,000 (31 May 2023: £18,000; 30 November
2023: £18,000) was outstanding in respect of Directors’ fees.
At the period end, members of the Board, including any connected persons, held
ordinary shares in the Company as set out below:
Ordinary Ordinary Ordinary
shares shares shares
24 July 31 May 30 November
2024 2024 2023
Christopher Samuel (Chairman) 66,869 66,869 65,606
Nigel Burton 16,888 16,888 16,570
Angela Lane 11,731 11,731 11,673
Louise Nash 3,900 3,900 3,900
Merryn Somerset Webb 3,727 3,727 3,727
Glen Suarez(1) 4,800 4,800 4,800
(1 )Glen Suarez was appointed as a Director on 9 January 2023.
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 held by Total % of shares held by Number of Significant
Related BlackRock Funds Significant Investors who are Investors who are not
not affiliates of BlackRock affiliates of BlackRock
Group or BlackRock, Inc. Group or BlackRock, Inc.
As at 31 May 2024 1.39 n/a n/a
As at 30 November 2023 1.34 n/a n/a
As at 31 May 2023 1.53 n/a n/a
========= ========= =========
13. Contingent liabilities
There were no contingent liabilities as at 31 May 2024 (six months ended 31
May 2023: none; year ended 30 November 2023: none).
14. Publication of non statutory accounts
The financial information contained in this Half Yearly Financial Report does
not constitute statutory accounts as defined in Section 435 of the Companies
Act 2006. The financial information for the six months ended 31 May 2024 and
31 May 2023 has not been audited.
The information for the year ended 30 November 2023 has been extracted from
the latest published audited financial statements, which have been filed with
the Registrar of Companies. The report of the auditor on those financial
statements contained no qualification or statement under Sections 498(2) or
498(3) of the Companies Act 2006.
15. Annual results
The Board expects to announce the annual results for the year ending 30
November 2024 in February 2025. Copies of the results announcement can be
obtained from the Secretary on 020 7743 3000 or by email at
cosec@blackrock.com. The Annual Report and Financial Statements should be
available by the beginning of February 2025, with the Annual General Meeting
expected to be held in March 2025.
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 3620
E-mail: edh@lansons.com; BlackRockInvestmentTrusts@lansons.com
24 July 2024
12 Throgmorton Avenue
London EC2N 2DL
END
The Half Yearly Financial Report will also be available on the BlackRock
website at http://www.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.
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