REG-BlackRock Throg Tst: Final Results
06/02/2020 18:00
BlackRock Throgmorton Trust plc
(Legal Entity Identifier: 5493003B7ETS1JEDPF59)
Information disclosed in accordance with Article 5 Transparency Directive and
DTR 4.1
Annual Results Announcement for the year ended 30 November 2019
PERFORMANCE RECORD
30 November 2019 30 November 2018
Net assets (£’000) (1) 470,057 379,602
Net asset value per ordinary share 634.10p 519.08p
Ordinary share price (mid-market) 640.00p 457.00p
Benchmark Index (2) 14,670.11 13,589.32
Premium/(discount) to cum income net asset value (3) 0.9% (12.0%)
Average discount to cum income net asset value (3)for the year (4.6%) (10.7%)
Performance
Net asset value per share (total return) (3) +24.4% -2.7%
Benchmark Index (2) +8.0% -9.0%
Ordinary share price (total return) (3) +42.8% +1.8%
Year ended 30 November 2019 Year ended 30 November 2018 Change
Revenue
Net revenue profit after taxation (£’000) 6,265 8,056 -22.2%
Revenue return per ordinary share 8.56p 11.02p -22.3%
Dividends
Interim 2.50p 2.50p 0.0%
Final 7.70p 7.50p +2.7%
Total dividends paid and payable 10.20p 10.00p +2.0%
ANNUAL PERFORMANCE FOR THE FIVE YEARS TO 30 NOVEMBER 2019
NAV Benchmark Index (2) Share Price
2015 23.2 11.9 27.7
2016 7.3 6.3 -2.1
2017 33.9 21.3 43.8
2018 -2.7 -9.0 1.8
2019 24.4 8.0 42.8
Performance figures 1 Year change %, calculated in sterling terms with
dividends reinvested.
Sources: BlackRock and Datastream.
1 The change in net assets reflects market movements, dividends paid
and share issues during the year.
2 With effect from 22 March 2018, the Numis Smaller Companies plus
AIM (excluding Investment Companies) Index replaced the Numis Smaller
Companies excluding AIM (excluding Investment Companies) Index as the
Company’s benchmark. From 1 December 2013 to 21 March 2018, the Company’s
benchmark was the Numis Smaller Companies excluding AIM (excluding Investment
Companies) Index. Prior to 1 December 2013 the Company’s benchmark was the
Numis Smaller Companies plus AIM (excluding Investment Companies) Index. The
performance of the benchmark indices during these periods have been blended to
reflect these changes.
3 Alternative Performance Measures, see Glossary in the Annual
Report and Financial Statements.
CHAIRMAN’S STATEMENT
Dear Shareholder
I am pleased to present the Annual Financial Report for the year to 30
November 2019.
PERFORMANCE
The Company has performed very strongly this year. The Net Asset Value (NAV)
per share outperformed the benchmark index by 16.4%, a notable achievement
given the challenging economic and political backdrop during the year.
Over the twelve months to 30 November 2019, the Company’s NAV returned
24.4%, compared with a total return of 8.0% from the Company’s benchmark
index, the Numis Smaller Companies plus AIM (excluding Investment Companies)
Index. The share price returned an even more impressive 42.8% during the year.
The Company also saw its discount narrow substantially from 12.0% at the start
of the year, to a premium of 0.9% as at the financial year end.
Since the year end and up to the close of business on 3 February 2020, the NAV
has increased by 7.6% compared to the benchmark index return which increased
by 4.7% (all figures in sterling terms with dividends reinvested).
I am also very pleased to report that the Company won the Investment Week
Investment Company of the Year Award 2019 (UK Smaller Companies category) and
the Online Personal Wealth Award 2019 for best investment trust for growth. It
was also awarded Citywire Investment Trust of the Year (UK Smaller Companies
category) for the second year in a row.
We congratulate our Portfolio Manager, Dan Whitestone, on what has been a very
impressive year. Further information on portfolio performance can be found in
the Investment Manager’s report.
SHARE PRICE DISCOUNT/PREMIUM
During the year to 30 November 2019 the Company’s share price
discount/premium to NAV ranged between a discount of 12.0% and a premium of
2.4% and ended the year at a premium of 0.9%. As at 3 February 2020 the
Company’s shares were trading at a premium of 1.7%.
The Board believes that it is in shareholders’ interests that the share
price does not trade at an excessive premium or discount to NAV. Therefore,
where deemed to be in shareholders’ long-term interests, it may exercise its
share issue or buy back powers with the objective of ensuring that an
excessive premium or discount does not arise.
The Company is therefore once again seeking shareholder authority at the
forthcoming Annual General Meeting to issue up to 10% and to buy back up to
14.99% of the Company’s issued share capital.
Further information in relation to the discount can be found in the Annual
Report and Financial Statements.
REVENUE RETURN AND DIVIDENDS
The revenue return per share for the year amounted to 8.56 pence per share,
compared with 11.02 pence per share for the previous year, a decrease of
22.3%. This decrease in revenue was primarily due to a decrease in ordinary
and special dividends recognised during the year and increased costs relating
to derivative positions, as outlined in note 11 to the financial statements in
the Annual Report. One of the features of the investment trust structure is
the ability to distribute previous retained revenue to smooth out the
dividends paid in years in which revenue has decreased. The Company has paid
£1,639,000 from revenue reserves this year, representing 20.7% of the total
dividend paid.
The Directors are pleased to declare a proposed final dividend of 7.70 pence
per share for the year ended 30 November 2019. This, together with the interim
dividend of 2.50 pence per share paid on 28 August 2019, gives a total
dividend for the year of 10.20 pence per share, an increase of 2.0% on the
total dividend distributed to shareholders in the prior financial year. This
dividend will be paid on 2 April 2020, subject to shareholder approval at the
forthcoming AGM, to shareholders on the Company’s register on 21 February
2020. The ex-dividend date is 20 February 2020.
BOARD COMPOSITION
At the time of writing, the Board consists of four independent non-executive
Directors, a lower number than it has historically had. The Board will
continue to consider its composition on a regular basis to ensure that there
is a suitable balance of skills, knowledge, experience, independence and
diversity, which is aligned to the Company’s strategy.
In accordance with best practice and developing corporate governance, all
Directors have agreed to submit themselves for election at the forthcoming
AGM.
The Board’s policy on Director tenure and succession planning can be found
in the Corporate Governance Statement in the Annual Report and Financial
Statements. Further details of all the Directors can be found in their
biographies in the Annual Report and Financial Statements.
ESG AND SOCIAL RESPONSIBILITY
As a Board, we are also conscious that Environmental, Social and Governance
(ESG) matters are increasingly at the forefront of investors’ minds. We
believe that it is important that this Company’s investee companies operate
in a responsible and sustainable way having regard to the interests of all
their stakeholders; whether these are shareholders, employees, customers,
regulators or suppliers.
Our Investment Manager, BlackRock, has a rigorous approach to corporate
governance, with the BlackRock Investment Stewardship team responsible for
protecting and enhancing the value of clients’ assets through engagement
with companies to encourage business and management practices that support
sustainable financial performance over the long-term.
Further information on ESG and Socially Responsible Investment can be found in
the Strategic Report and in the Corporate Governance Statement in the Annual
Report and Financial Statements.
GENERAL MEETING
In the face of continuing demand for the Company’s shares and having regard
to the benefits of enlarging the Company, the Directors have convened a
General Meeting to be held at 11.00 a.m. on 27 February 2020 in order to seek
shareholder authority to issue ordinary shares or to sell shares from treasury
on a non-pre-emptive basis having determined that the existing authority
granted by shareholders at last year’s AGM will likely be exhausted before
the forthcoming AGM, at which time a renewal of these powers are usually
sought. In so doing, the Directors have taken into account the desirability of
limiting the premium to the Net Asset Value per ordinary share at which the
ordinary shares trade in order to ensure that new or existing shareholders who
regularly acquire ordinary shares are not disadvantaged.
The Resolution to be considered at the General Meeting will, if passed, give
the Directors the authority to allot new ordinary shares or sell shares from
treasury, on a non-pre-emptive basis up to 7,313,020 ordinary shares, being
approximately 9.2% of the issued ordinary share capital as at 3 February
2020. The Directors intend to use this authority to satisfy continuing demand
for the ordinary shares. As with the ordinary share issuance to date, any
shares will be issued at a premium to the last published sterling Net Asset
Value (cum-income) per ordinary share at the time the proposed allotment is
agreed and will therefore benefit existing shareholders by being accretive to
the Net Asset Value per ordinary share.
The authority conferred by the Resolution will lapse at the conclusion of the
next Annual General Meeting of the Company to be held on 25 March 2020 when
the Directors will seek a renewed authority as they do at this time each year.
Further information can be found in the Director’s Report in the Annual
Report and Financial Statements.
ANNUAL GENERAL MEETING
The Company’s AGM will be held on Wednesday, 25 March 2020 at 11.00 a.m. at
the offices of BlackRock, 12 Throgmorton Avenue, London EC2N 2DL. Details of
the business of the meeting are set out in the Notice of AGM in the Annual
Report and Financial Statements. The portfolio manager will make a
presentation to shareholders on the Company’s progress and the outlook for
the year ahead. We welcome shareholders to the AGM and look forward to seeing
you there.
OUTLOOK
The result of the UK General Election has aided UK equity markets. Sterling
initially rallied against the US Dollar on the news and domestically-focused
UK equities have benefited from greater political certainty, and the prospect
of some fiscal stimulus.
The emergence of a comfortable working majority has ensured that the
Withdrawal Agreement with the EU has been passed swiftly by Parliament.
Nevertheless, it remains to be seen whether a comprehensive trade deal with
the EU can be negotiated by the deadline of the end of 2020. At the same time,
the UK will be free to negotiate trade deals with other countries.
Overall, this higher degree of political certainty should be positive for the
UK economy. However, the heightened volatility seen in 2019 is likely to
continue to be a feature throughout the forthcoming financial year as the
Brexit process plays out, although this should present the Company’s active
portfolio manager with opportunities.
The forthcoming year will no doubt present challenges, but your portfolio
manager believes that UK small and mid-size companies provide a great number
of exciting investment opportunities. The portfolio is focused on high quality
companies which have robust business models, strong cash flows, favourable
industry characteristics and which are led by experienced management teams,
that can continue to generate attractive returns despite challenging
macro-economic conditions and sustained market volatility.
CHRISTOPHER SAMUEL
Chairman
6 February 2020
INVESTMENT MANAGER’S REPORT
MARKET REVIEW AND OVERALL INVESTMENT PERFORMANCE
Strong equity markets during the period masked increasing levels of volatility
and style rotations in market leadership away from growth and into value.
Global trade uncertainties continued to create a major headwind, offset by
renewed central bank monetary easing in both the US and Europe. The UK’s
political environment remained turbulent; first with Theresa May’s decision
to step down as Prime Minister after failing to secure a Brexit deal in
Parliament (leading to the UK General Election), which saw Boris Johnson’s
Conservative Party secure a convincing majority. This political chaos resulted
in increased sterling volatility, with the currency touching lows in August,
and then rallying in anticipation of the Conservative majority. For all the
Brexit-related concerns, there was a notable resurgence in Mergers &
Acquisitions activity in the UK market, with a diverse range of targets,
particularly from overseas corporates prepared to take advantage of
opportunities in the UK, despite the nervousness in the equity market.
PERFORMANCE REVIEW
2019 has been a successful year, with the Company’s NAV rising by 24.4% and
outperforming our benchmark by 16.4%, with dividends reinvested. This level of
outperformance has certainly exceeded our expectations, particularly given the
volatile economic and political backdrop. However, we believe this result
supports our belief that stock and industry specifics can triumph over
macroeconomic factors, particularly during times of uncertainty.
Encouragingly, the Company has delivered many positive stock specific results
across both long and short positions. Whilst returns during the year have been
predominantly driven by the long book, the short book has also delivered a
significant and positive outcome, contributing close to 1% in absolute
performance, which is very encouraging considering the backdrop of rising
equity markets.
The largest positive contributor to performance came from our holding in JD
Sports Fashion. We discussed the holding at length in the half-yearly report,
however the shares have continued to rise during the second half of the year
after the company delivered its third upgrade in earnings in the space of
twelve months. Incredibly, this differentiated retailer continued to deliver
high single digit like-for-like sales growth in-store in the UK. We highlight
this because it goes to show that differentiated businesses can outperform
peers, and company statements about ‘weather’ and ‘weak
macroeconomics’ should not always be taken at face value. Shares in JD
Sports Fashion are up more than 125% during the period and contributed 1.85%
to relative performance.
Industrial software engineer Aveva was the second largest contributor to
performance during the period. The company has been trading well on a
consistent basis and has seen organic revenue growth accelerate more recently,
driven in part by their customers’ desire to spend on the digital
transformation and through multi-year contracts. We believe that digital
transformation will continue to be a key secular growth driver of capital
expenditure in the coming years as corporates invest in their digital journey
and seek to drive market share or remove costs and complexity from their
operations. With specific regard to Aveva, we believe this company is well
placed as a market leader, with a compelling product offering to help enable
their customers to embrace the “digital twin”. 4imprint Group, another
long-term core holding, remained a top contributor for the full year as the
business continued to deliver organic top-line growth. Shares in specialist
media publisher Future rose in response to an underlying earnings upgrade,
while also announcing a significant accretive acquisition of TI Media, the
publisher of titles such as Marie Claire UK and Country Life.
Other notable contributors included Xero, Dechra Pharmaceuticals and Workspace
Group which rose towards the end of the period as UK domestic assets performed
strongly in response to polling data that leaned towards a Conservative
majority in the election. The names mentioned above are merely a snapshot of
some of the largest contributors to performance during the year. There were
many other companies that contributed. The common theme amongst these
holdings, in most cases, was the underlying businesses exceeding expectations
and raising forward guidance.
We continue to believe that the ability to short stocks is a key
differentiator of our Company compared to most other investment companies in
our universe. It is therefore pleasing when the short book not only adds to
relative performance, but also when short positions, which are typically
smaller than longs, feature in the top ten contributors to performance,
representing stock specific ‘alpha’, or outperformance. This year we have
had two shorts which have been top ten contributors to performance, each
falling more than 70% and each contributing more than 0.6% to relative
returns. The largest was a UK contractor that we have mentioned in many of our
monthly updates. Despite an emergency fund raise and a series of negative
updates, the company issued a significant profit warning in June, resulting in
the share price collapsing. Despite the share price weakness, we had been
adding to this short position in the months ahead of the warnings, a decision
that proved to be profitable. It is all too tempting to close short positions
after material share price falls, particularly when they may appear
“cheap” and with so many people who want to tell you they are “cheap”,
but there are times when real conviction is required, and the resolve to
maintain or add to the short. The other material short contributor was from a
position in a listed Investment Trust which has fallen as the NAV has
continued to be revised down as many of that Trust’s listed companies have
delivered material profit warnings (some of which this Company has been short
directly) whilst some of the private investments have seen their value written
down as they have failed to deliver.
The largest detractor from performance was veterinary medicine producer, Eco
Animal Health Group, which fell after the company issued a profit warning in
November in response to a sharp slowdown in sales in China. Demand has fallen
heavily in response to the African Swine Fever epidemic that has significantly
reduced the pig herd and where the impact on revenues was far greater than we
had anticipated. The company’s decision to maintain the cost base so they
are well placed to benefit from the recovery in demand once the outbreak is
contained, meant the reduction in revenues had a disproportionate impact on
profitability. We have subsequently reduced the position, but maintain a
holding as we see its long-term competitive position unchanged.
The next largest detractor was Craneware, a UK listed software company focused
on the US healthcare market, which fell in response to a profit warning
earlier in the year. The business has a very high percentage of recurring
revenues, so the shortfall versus expectations was related to a reduction in
new contract wins, which was attributed to poor sales execution rather than
any change in the competitive landscape. We discussed this with management at
the time. The issues appear to be transient and remedial actions are in place.
Therefore, we believe this should have little impact on the long-term earnings
power of the company. However, we reduced the holding as a result.
ACTIVITY
The total number of positions (long and short) in the portfolio has marginally
reduced over the period to 133 as at 30 November 2019. Having reduced the
gross and net exposure at the end of 2018, we have continued to operate with a
lower than average gross and net exposure, at 109% and 95% respectively.
As stated in the half-yearly report, we purchased the holding in JD Sports
Fashion in December 2018, taking advantage of the market volatility to buy
into a company that we have owned historically and believe we know well at a
valuation we had rarely seen. We own very few retailers, given the myriad of
challenges facing bricks and mortar retailing, but what the company has
achieved over the last 5-10 years is truly impressive and a credit to the
management team. Its differentiated consumer proposition and multi-channel
approach to retailing has enabled JD Sports Fashion to continue to deliver
strong like-for-like sales growth, beating expectations and raising guidance,
all without sacrificing gross margin. We continue to like the business, which
has been a fantastic investment for the Company. However, as a result of
strong share price performance, the shares were promoted into the FTSE 100,
which, given our smaller companies mandate, required us to reduce the size of
our holding. Similarly, Aveva has also been promoted into the large
capitalisation index and while our conviction in the long-term prospects of
the business remain unchanged, we have been locking in some profit from this
holding.
The Initial Public Offering (IPO) market continues to present us with exciting
opportunities. Watches of Switzerland, the luxury watch retailer, which
floated in May 2019, is another good example of this process where we
purchased a holding following an extensive due diligence process. We also took
part in the IPO of Trainline in June. The company enjoys a strong market
position in the UK and is set to grow its market share, particularly as the
rail industry moves from paper to e-tickets, and more ticket barriers are now
tap to pay. Its market position in Europe is more nascent, but the
deregulation of the industry and the company’s technological advantages
should allow it to gain share from the incumbent rail operators.
We have also been adding new holdings in some UK domestic shares in the second
half of the year, including discount retailer B&M and UK bakery chain Greggs,
whilst increasing our exposure to existing investments in companies like WH
Smith and CVS Group. Each of these holdings were added to the portfolio for
stock specific reasons and for their long-term secular growth drivers.
Pessimism towards the UK during the year certainly provided attractive entry
points in our opinion. We initiated a new position in serviced office provider
IWG (formerly Regus) which recently embarked on a strategy to franchise some
of its operations, which should help the group reduce its financial leverage
and grow in a less capital intensive way.
Notable disposals during the period included Ascential, Howden Joinery and
Fever-Tree Drinks. More recently, in the run-up to the UK General Election, we
have been using strength in UK domestics to reduce exposure as we believed
there was an asymmetrical risk/reward profile developing for many UK
businesses if a majority Conservative Government failed to materialise. This
was a risk management decision to help protect client capital should the UK
public maintain its past form of surprising the market on polling days.
PORTFOLIO POSITIONING
As a reminder, stock positioning will be driven by our focus on only two types
of company. First, what we define as quality differentials, which are
essentially differentiated long-term growth investments. These we would
characterise as companies that have strong management teams, with a protected
market position, a unique and compelling product offering with an attractive
route to market, maybe benefitting from structural growth, and that are well
financed with clean accounting. The second type of company are those that are
leading industry change, the ‘disruptors’, and alternatively on the short
side, the victims of industry change, the ‘disrupted’.
Relative to our benchmark, our largest overweights are Media, Pharmaceuticals
& Biotechnology and Industrials. Our largest holding in Media is 4imprint
Group, a UK listed but US focused direct marketer of promotional goods. It is
the market leader in the US by some distance, but has less than 4% market
share despite compounding its revenues organically in the mid-teens for over
10 years, reflecting not only the size of the market but just how fragmented
the competitive set is. Within Pharmaceuticals, our holdings include Dechra
Pharmaceuticals, Masimo and Abcam. These are all global businesses, operating
in specific niches where they are exposed to strong secular growth drivers.
Our Industrials include Bodycote and Spirax-Sarco Engineering which are both
high quality, cash generative industrials, that are well capitalised, and have
strong and protected market positions.
Our exposure to Resources remains extremely limited because these companies
generally fail to meet our investment criteria. Therefore we do not feel that
these companies make compelling long-term compounding growth investments.
The long book remains exposed to specific investment cases, often where
companies have harnessed the power and convenience of technology in a
capital-light model that disrupts mature profit pools. We have also increased
our long exposure to disruptive software companies benefitting from the
structural trend in corporates investing in “digitisation” to either drive
efficiency or yield improvements.
The short book continues to target the same areas that we see as over-earning,
or under structural or cyclical pressure. Many of our short positions are
within Consumer Services, either facing structural headwinds (digital
disruption, low cost or specialised formats) or cyclical pressures (weakening
consumer demand, rising costs). Both categories can be overlaid with a
financial framework centred on weak balance sheets and poor cash conversion.
As discussed in previous reports we are of the view that the market needs to
fundamentally reappraise the true value of over-indebted structurally
challenged business models, particularly those that are paying dividends they
can’t afford. We think there are many of these companies out there
masquerading as “cheap shares” because their “price to adjusted earnings
ratio” looks low, and for too long other market participants have championed
some of these shares as “value” investments, which we think does a
tremendous injustice to the many respected and wealth-creating value managers.
There have been signs during the year that this view of ours is garnering
support, no doubt catalysed by the implosion of several high-profile companies
which fit the description(s) we’ve outlined above. Thankfully we have been
short some of these companies and continue to target financially leveraged
businesses that are over distributing (at the expense of investing in their
business to generate real long-term wealth for their owners).
ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG) MATTERS
We are conscious that ESG matters are increasingly at the forefront of
shareholders’ minds. We have always incorporated an awareness of ESG into
our fundamental research investment process in the belief that these
additional insights, particularly with regard to the strength of management
and high standards of corporate governance, can ultimately lead to more
informed investment decisions. We continue to work closely with the BlackRock
Investment Stewardship team to engage with those companies which may have
governance issues we think need to be addressed.
OUTLOOK
Our ongoing and deliberate decision to reduce the gross and net exposures of
the portfolio has been aimed to protect shareholders’ capital given the
potential for sudden spikes in volatility and large swings in sentiment.
Importantly, this leaves us in a position to add risk back to the portfolio
when we feel the time is right. However, we must remember that trade
negotiations may cause further volatility on a number of fronts, not only as
the UK seeks to renegotiate relationships, but also as the US and China
attempt to further build on the recent rapprochement.
The Conservative majority in Parliament does remove a tail risk in our view,
and more clarity should lead to increased business confidence and corporate
spending (something we will look for evidence of this in our interactions with
company management teams). This has the potential to create a healthy backdrop
of improving corporate profitability both for domestic and global-facing UK
PLCs.
We continue to focus the portfolio on stock and industry specific investment
cases, rather than just responding to short-term political developments. Our
investment process remains centred around the factors that we think lead to
long-term compounding growth for successful companies. We do not think the
General Election outcome will reverse many of the structural issues facing
some UK domestic industries. The progress (or lack thereof) of trade talks
between the US and China is of far greater significance for the global economy
and relevance to many of the portfolio’s holdings, so positive developments
here combined with the improving business confidence and spending in the UK
(if it materialises) could certainly create an attractive backdrop for our
asset class in 2020.
In summary, 2019 has been a successful year for the Company, and the
outperformance of the benchmark has far exceeded our expectations. This
confirms our belief that stock and industry specifics can triumph over macro,
particularly during times of uncertainty. We thank shareholders for their
support during the year, and look forward to 2020, with confidence in the
portfolio’s holdings. The prospects for growth will bring opportunities for
further progress.
DAN WHITESTONE
BlackRock Investment Management (UK) Limited
6 February 2020
Portfolio of Investments as at 30 November 2019
1 + 2018 33rd
WH Smith
General Retailers
Market value £13,925,000
Share of net assets 3.0% (2018: 1.3%)
Widespread British retailer of books, stationery, magazines, newspapers,
entertainment products and confectionery.
2 + 2018 7th
4imprint Group
Media
Market value £13,628,000
Share of net assets 2.9% (2018: 2.5%)
Supply of promotional merchandise in the US.
3 + 2018 9th
IntegraFin
Financial Services
Market value £13,261,000(1)
Share of net assets 2.8% (2018: 2.2%)
UK savings platform for financial advisors.
4 + 2018 8th
YouGov*
Media
Market value £13,076,000(1)
Share of net assets 2.8% (2018: 2.4%)
Provision of survey data and specialist data analytics.
5 + 2018 11th
Workspace Group
Real Estate Investment Trusts
Market value £12,018,000
Share of net assets 2.6% (2018: 2.1%)
Supply of flexible workspace to businesses in London.
6 = 2018 n/a
Serco Group
Support Services
Market value £11,836,000
Share of net assets 2.5% (2018: n/a)
Provision of public services across health, transport, immigration, defence,
justice and citizen services.
7 - 2018 6th
Dechra Pharmaceuticals
Pharmaceuticals & Biotechnology
Market value £11,815,000
Share of net assets 2.5% (2018: 2.7%)
Development and supply of pharmaceutical and other products focused on the
veterinary market.
8 - 2018 3rd
SSP
Travel & Leisure
Market value £11,446,000
Share of net assets 2.4% (2018: 2.8%)
Operator of food and beverage concessions in travel locations.
9 + 2018 10th
Bodycote
Industrial Engineering
Market value £11,078,000(1)
Share of net assets 2.4% (2018: 2.2%)
Provision of thermal processing services.
10 - 2018 5th
Aveva
Software & Computer Services
Market value £9,493,000
Share of net assets 2.0% (2018: 2.8%)
Engineering and industrial software business.
* Traded on the Alternative Investment Market (AIM) of the London
Stock Exchange.
(1) Includes long derivative positions.
# Company £’000 % Description
11 Gamma Communications* 9,492 2.0 Provider of communication services to UK businesses
Mobile Telecommunications
12 Games Workshop 9,215 2.0 Developer, publisher and manufacturer of miniature war games
Leisure Goods
13 Watches of Switzerland 9,055 1.9 Retailer of luxury watches
Personal Goods
14 Qinetiq Group 8,377 1.8 Provider of scientific and technological services to the defence, security and aerospace markets
Aerospace & Defence
15 Wetherspoon (J.D) 8,367 1.8 Owner and manager of pubs in the UK
Travel & Leisure
16 Breedon* 8,181 1.8 British construction materials group
Construction & Materials
17 Oxford Instruments 7,988 1.7 Designer and manufacturers of tools and systems for industry and research
Electronic & Electrical Equipment
18 RWS Holdings* 7,706 1.6 Provider of language support services
Support Services
19 IWG 7,642 1.6 Multinational provider of serviced offices
Support Services
20 Avon Rubber 7,620 1.6 Provider of safety masks and dairy related products
Aerospace & Defence
21 Trainline 6,787 1.4 Independent rail and coach digital ticketing platform
General Retailers
22 Sirius Real Estate 6,686 1.4 Owner and operator of business parks, offices and industrial complexes in Germany
Real Estate Investment & Services
23 Beazley 6,641 1.4 Specialist insurance businesses
Non-Life Insurance
24 Liontrust Asset Management 6,495 1.4 Provider of asset management services
Financial Services
25 Bovis Homes Group 6,269 1.3 UK housebuilder
Household Goods & Home Construction
26 Learning Technologies* 6,076 1.3 Provider of e-learning services
Support Services
27 Future 6,006 1.3 Multi-platform media business covering technology, entertainment, creative arts, home interest and education
Media
28 CVS Group* 5,966 1.3 Operator of veterinary surgeries
General Retailers
29 Masimo 5,962 1.3 Developer and manufacturer of non-invasive patient monitoring technologies
Health Care Equipment & Services
30 Alliance Pharma* 5,942 1.3 Distributor of pharmaceutical and healthcare products
Pharmaceuticals & Biotechnology
31 Polar Capital Holdings* 5,669 1.2 Provider of investment management services
Financial Services
32 Fuller Smith & Turner - A Shares 5,659 1.2 Owner and operator of pubs, mainly in the London area
Travel & Leisure
33 Impax Asset Management* 5,501 1.2 Provider of asset management services
Financial Services
34 B&M 5,324 1.1 UK discount retailer
General Retailers
35 Xero 5,130 1.1 Australian listed, but New Zealand based, software company specialising in accounting for small businesses
Software & Computer Services
36 Greggs 5,091 1.1 Bakery chain
Food & Drug Retailers
37 Hiscox 5,085 1.1 Provider of insurance services
Non-Life Insurance
38 Young & Co’s Brewery* 5,055 1.1 Owner and operator of pubs, mainly in the London area
Travel & Leisure
39 Spectris 4,949 1.1 Supplier of productivity enhancing instrumentation and controls
Electronic & Electrical Equipment
40 GB Group* 4,908 1.0 Developer and supplier of identity verification solutions
Software & Computer Services
41 Derwent London 4,772 1.0 British property investment company
Real Estate Investment Trusts
42 Robert Walters 4,655 1.0 Provider of specialist recruitment services
Support Services
43 Diploma 4,518 1.0 Supplier of specialised technical products and services
Support Services
44 Sumo Group* 4,456 0.9 Provider of creative and development services to the video games and entertainment industries
Leisure Goods
45 Mattioli Woods* 4,387 0.9 Provider of asset management
Financial Services
46 Abcam* 4,302 0.9 Abcam is a producer, distributor and seller of protein research tools
Pharmaceuticals & Biotechnology
47 James Fisher and Sons 4,246 0.9 Provider of innovative marine solutions and specialised engineering services
Industrial Transportation
48 Grafton 4,227 0.9 Distribution of building materials
Support Services
49 Computacenter 4,218 0.9 Provider of computer services to private and public sector clients
Software & Computer Services
50 Aptitude Software 4,201 0.9 Provider of specialist finance software and technology
Software & Computer Services
51 Clarkson 4,200 0.9 Provider of shipping services
Industrial Transportation
52 Next Fifteen Communications* 4,122 0.9 Provider of digital communication products and services
Media
53 Tatton Asset Management* 3,937 0.8 Transportation Services
Financial Services
54 JD Sports Fashion 3,868 0.8 Leading trainer and sports fashion retailer in the UK
General Retailers
55 Ryanair 3,541 0.8 Irish low cost airline
Travel & Leisure
56 Signature Aviation 3,455 0.7 Service provider to the business & general aviation industry
Industrial Transportation
57 Big Yellow 3,441 0.7 Provider of self-storage services
Real Estate Investment Trusts
58 Advanced Medical Solutions* 3,409 0.7 Development and manufacture of wound care and closure products
Health Care Equipment & Services
59 Softcat 3,331 0.7 Software distributor
Software & Computer Services
60 Premier Asset Management Group* 3,311 0.7 Retail asset management services provider
Financial Services
61 Pets at Home 3,296 0.7 Pet supplies retailer
General Retailers
62 IMImobile* 3,160 0.7 Cloud communications software provider
Software & Computer Services
63 Chapel Down† 3,080 0.7 UK producer of sparkling and still wines, and Curious beers and ciders
Beverages
64 AB Dynamics* 3,001 0.6 Developer and supplier of specialist automotive testing systems
Industrial Engineering
65 Team 17* 2,957 0.6 British video game developer and publisher
Leisure Goods
66 Gooch & Housego* 2,935 0.6 Designer and manufacturer of advanced photonic systems
Electronic & Electrical Equipment
67 888 2,931 0.6 Operator of online gaming platform
Travel & Leisure
68 Spirax-Sarco Engineering 2,904 0.6 Manufacturer of steam management systems and peristaltic pumps and associated fluid path technologies
Industrial Engineering
69 SThree 2,681 0.6 Provider of specialist professional recruitment services
Support Services
70 Cineworld Group 2,679 0.6 Global cinema chain
Travel & Leisure
71 Renishaw 2,607 0.6 Engineering and scientific technology company, with expertise in precision measurement and healthcare
Electronic & Electrical Equipment
72 Eckoh* 2,494 0.5 Global provider of secure payments products
Software & Computer Services
73 Frontier Developments* 2,420 0.5 British video game developer and publisher
Leisure Goods
74 Chegg 2,397 0.5 Provider of education related services
General Retailers
75 DSV Panalpina 2,375 0.5 Danish transport and logistics company
Industrial Transportation
76 Coupa Software 2,330 0.5 Provider of cloud-based platform for business spend
Software & Computer Services
77 St. Modwen Properties 2,308 0.5 Investment in, and development of property
Real Estate Investment & Services
78 Craneware* 2,211 0.5 Provider of financial business software for US hospitals
Software & Computer Services
79 Equals Group* 2,190 0.5 Provider of payment services
Financial Services
80 Treatt 2,184 0.5 Development and manufacture of ingredients for the flavour and fragrance industry
Chemicals
81 Bellway 2,165 0.5 UK housebuilder
Household Goods & Home Construction
82 Ergomed* 2,155 0.5 Pharmaceuticals services provider
Pharmaceuticals & Biotechnology
83 Euromoney Institutional Investor 2,113 0.4 Financial information specialist
Media
84 Genus 2,100 0.4 Animal genetics company
Pharmaceuticals & Biotechnology
85 Five9 1,984 0.4 Provider of cloud-based contact centre software
Software & Computer Services
86 Premier Oil 1,960 0.4 Oil & gas exploration and production business
Oil & Gas Producers
87 Sika 1,953 0.4 Development and production of systems and products for bonding, sealing, damping, reinforcing and protecting in the building sector and motor vehicle industry
Construction & Materials
88 Central Asia Metals* 1,927 0.4 Production of base metals with operations in Kazakhstan and North Macedonia
Mining
89 Huntsworth 1,924 0.4 Provider of marketing and research services principally to the pharmaceuticals sector
Media
90 ECO Animal Health Group* 1,889 0.4 Development, registration and marketing of pharmaceutical products for global animal health markets
Pharmaceuticals & Biotechnology
91 Trifast 1,806 0.4 Manufacturer and distributor of industrial fastenings
Industrial Engineering
92 Rathbone Brothers 1,728 0.4 Provider of wealth management services
Financial Services
93 Stock Spirits Group 1,550 0.3 Developer and manufacturer of branded spirits mainly in Eastern Europe
Beverages
94 Zotefoams 1,464 0.3 Manufacturer of polyolefin foams used in sport, construction, marine, automation, medical equipment and aerospace
Chemicals
95 Savills 1,214 0.3 Provider of specialist real estate services
Real Estate Investment & Services
96 8X8 1,069 0.2 Provider of cloud-based communications platform
Mobile Telecommunications
97 Luceco 1,063 0.2 LED lighting manufacturer
Electronic & Electrical Equipment
98 XPS Pensions Group 804 0.2 Pension consulting and administration business
Financial Services
99 Appreciate Group (formerly Park Group)* 166 – Provider of multi-retailer gift cards and vouchers and digital rewards services
Financial Services
Long investment positions (excluding BlackRock’s Institutional 485,191 103.2
Cash Series plc - Sterling Liquid Environmentally Aware Fund)
Short investment positions (34,685) (7.4)
2018 comparative for ten largest investments
# Company £’000 % Description
1 Hiscox 11,247 3.0 Provider of insurance services
Non-life insurance
2 Ascential 10,837 2.9 Global business-to-business media company
Media
3 SSP 10,723 2.8 Operator of food and beverage concessions in travel locations
Travel & Leisure
4 Craneware* 10,654 2.8 Provider of financial software business for US hospitals
Software & Computer Services
5 Aveva 10,513 2.8 Engineering and industrial software business
Software & Computer Services
6 Dechra Pharmaceuticals 10,233 2.7 Developer and supplier of pharmaceutical and other products focused on the veterinary market
Pharmaceuitcals & Biotechnology
7 4imprint Group 9,474 2.5 Supplier of promotional merchandise in the US
Media
8 YouGov* 9,101 2.4 Provider of survey data and specialist data analytics
Media
9 IntegraFin 8,461 2.2 UK savings platform for financial advisors
Financial Services
10 Bodycote 8,420 2.2 Provider of thermal processing services
Industrial Engineering
* Traded on the Alternative Investment Market (AIM) of the London
Stock Exchange.
† Traded on NEX exchange.
Percentages shown are the share of net assets.
At 30 November 2019, the Company did not hold any equity interest representing
more than 3% of any company’s share capital.
The above investments may comprise exposures to long equity and long
derivative positions.
FAIR VALUE AND GROSS MARKET EXPOSURE OF INVESTMENTS AS AT 30 NOVEMBER 2019
Fair value (1) £’000 Gross market exposure (2) £’000 Gross market exposure as a % of net assets (3) 2019 Gross market exposure as a % of net assets (3) 2018
Long investment positions (excluding BlackRock’s Institutional Cash Series plc – Sterling Liquid Environmentally Aware Fund) 447,670 485,191 103.2 103.8
-------------------- -------------------- -------------------- --------------------
Short investment positions (508) (34,685) (7.4) (10.5)
-------------------- -------------------- -------------------- --------------------
Cash and cash equivalents (4) 1,421 (1,923) (0.4) (2.1)
-------------------- -------------------- -------------------- --------------------
BlackRock’s Institutional Cash Series plc - Sterling Liquid Environmentally Aware Fund (4) 28,977 28,977 6.2 8.9
-------------------- -------------------- -------------------- --------------------
Other net current liabilities (7,503) (7,503) (1.6) (0.1)
-------------------- -------------------- -------------------- --------------------
Net assets 470,057 470,057 100.0 100.0
=========== =========== =========== ===========
1 Fair value is determined as follows:
– Listed and AIM quoted investments are valued at bid prices where
available, otherwise at published price quotations.
– The sum of the fair values of the long and short derivative
positions above is determined based on the difference between the purchase or
transaction price and value of the underlying shares in the contract (in
effect the unrealised gains/(losses) on the exposed positions). The cost of
purchasing the securities held through long derivative positions directly in
the market would have amounted to £37,521,000 at the time of purchase, and
subsequent market rises in prices have resulted in unrealised gains on the
long derivative positions of £3,066,000, resulting in the value of the total
market exposure to the underlying securities increasing to £40,587,000 as at
30 November 2019. The notional price of selling the securities to which
exposure was gained via the short investment positions would have been
£34,177,000 at the time of entering into the contract, and subsequent price
rises have resulted in unrealised losses on the short investment positions of
£508,000 and the value of the market exposure of these investments increasing
to £34,685,000 at 30 November 2019. If the short investment positions had
been closed on 30 November 2019 this would have resulted in a loss of
£508,000 for the Company.
2 Market exposure in the case of equity investments is the same as
fair value. In the case of long and short derivative positions it is the
market value of the underlying shares to which the portfolio is exposed via
the contract.
3 % based on the total market exposure of Net Assets.
4 The gross market exposure column for cash and cash equivalents has
been adjusted to assume the Company traded direct holdings rather than
exposure being gained through long and short derivative positions.
DISTRIBUTION OF INVESTMENTS AS AT 30 NOVEMBER 2019
% of long portfolio % of short portfolio % of net portfolio
Oil & Gas Producers 0.4 0.0 0.4
Oil Equipment, Services & Distribution 0.0 (0.4) (0.4)
--------------- --------------- ---------------
Oil & Gas 0.4 (0.4) 0.0
--------------- --------------- ---------------
Chemicals 0.8 (0.9) (0.1)
Mining 0.4 0.0 0.4
--------------- --------------- ---------------
Basic Materials 1.2 (0.9) 0.3
--------------- --------------- ---------------
Aerospace & Defence 3.6 0.0 3.6
Construction & Materials 2.2 (0.4) 1.8
Electronic & Electrical Equipment 4.3 0.0 4.3
General Industrials 0.0 0.0 0.0
Industrial Engineering 4.2 0.0 4.2
Industrial Transportation 3.2 0.0 3.2
Support Services 10.7 (1.6) 9.1
--------------- --------------- ---------------
Industrials 28.2 (2.0) 26.2
--------------- --------------- ---------------
Automobiles 0.0 (0.1) (0.1)
Beverages 1.0 0.0 1.0
Food Producers 0.0 (0.5) (0.5)
Household Goods & Home Construction 1.9 0.0 1.9
Leisure Goods 4.2 0.0 4.2
Personal Goods 2.0 0.0 2.0
--------------- --------------- ---------------
Consumer Goods 9.1 (0.6) 8.5
--------------- --------------- ---------------
Health Care Equipment & Services 2.1 (0.4) 1.7
Pharmaceuticals & Biotechnology 6.5 (0.5) 6.0
--------------- --------------- ---------------
Health Care 8.6 (0.9) 7.7
--------------- --------------- ---------------
Food & Drug Retailers 1.1 0.0 1.1
General Retailers 9.2 (0.3) 8.9
Media 9.1 0.0 9.1
Travel & Leisure 8.8 (0.5) 8.3
--------------- --------------- ---------------
Consumer Services 28.2 (0.8) 27.4
--------------- --------------- ---------------
Financial Services 10.5 (0.4) 10.1
Non-life Insurance 2.6 0.0 2.6
Real Estate Investment & Services 2.3 0.0 2.3
Real Estate Investment Trusts 4.5 (0.7) 3.8
--------------- --------------- ---------------
Financials 19.9 (1.1) 18.8
--------------- --------------- ---------------
Software & Computer Services 9.7 (1.0) 8.7
--------------- --------------- ---------------
Technology 9.7 (1.0) 8.7
--------------- --------------- ---------------
Mobile Telecommunications 2.4 0.0 2.4
--------------- --------------- ---------------
Telecommunications 2.4 0.0 2.4
--------------- --------------- ---------------
Total Investments 107.7 (7.7) 100.0
========= ========= =========
The above percentages are calculated on the net portfolio as at 30 November
2019. The net portfolio is calculated as long equity and derivative positions,
less short derivative positions as at 30 November 2019.
Analysis of the Portfolio
GROSS BASIS(1)
%
FTSE 250 54.0
FTSE AIM 26.8
FTSE Small Cap 9.0
Overseas 4.7
FTSE 100 4.1
Other 1.4
NET BASIS(2)
%
FTSE 250 52.6
FTSE AIM 28.1
FTSE Small Cap 8.4
Overseas 4.9
FTSE 100 4.7
Other 1.3
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.
Market capitalisation as at 30 November 2019
% of net portfolio Long positions % of net portfolio Short positions
£1bn+ 64.6 -4.3
£400m - £1bn 28.3 -2.1
£100m - £400m 14.8 -1.3
£0m - £10m 0.0 0.0
Source: BlackRock.
Position size as at 30 November 2019
Market value Number of positions Long positions Number of positions Short positions
£2m+ 84 0
£1m - £2m 13 -20
£0m - £1m 2 -14
Source: BlackRock.
STRATEGIC REPORT
The Directors present the Strategic Report of the Company for the year ended
30 November 2019.
PRINCIPAL ACTIVITY
The Company is a public company limited by shares and carries on business as
an investment trust and its principal activity is portfolio investment.
OBJECTIVE
The Company’s objective is to provide shareholders with long term capital
growth and an attractive total return through investment primarily in UK
smaller and mid-capitalisation companies traded on the London Stock Exchange.
STRATEGY, BUSINESS MODEL, INVESTMENT POLICY AND INVESTMENT PROCESS
The Company invests in accordance with the objective given above. The Board is
collectively responsible to shareholders for the long-term success of the
Company and is its governing body. There is a clear division of responsibility
between the Board and the Manager, BlackRock Fund Managers Limited (BFM).
Matters for the Board include setting the Company’s strategy, including its
investment objective and policy, setting limits on gearing (both bank
borrowings and the effect of derivatives), capital structure, governance, and
appointing and monitoring of performance of service providers, including the
Manager.
The Company’s business model follows that of an externally managed
investment trust, therefore the Company does not have any employees and
outsources its activities to third-party service providers, including the
Manager who is the principal service provider.
The management of the investment portfolio and the administration of the
Company have been contractually delegated to the BFM. The Manager, operating
under guidelines determined by the Board, has direct responsibility for the
decisions relating to the day-to-day running of the Company and is accountable
to the Board for the investment, financial and operating performance of the
Company.
Other service providers include the Depositary and the Fund Accountant, The
Bank of New York Mellon (International) Limited, and the Registrar,
Computershare Investor Services PLC. Details of the contractual terms with
third-party service providers are set out in the Directors’ Report.
WHAT MAKES BLACKROCK THROGMORTON TRUST PLC DIFFERENT?
· A greater toolkit for outperformance
· Enhanced outperformance generation through expressing both long
and short positions
· Ability to smooth out volatility of returns whilst maintaining
exposure to the attractive, but sometimes volatile, asset class of UK smaller
and mid-capitalisation companies
· Ability to flex overall market exposure to potentially reduce
correlation to the market
INVESTMENT POLICY
The Company’s performance is measured against the Numis Smaller Companies
plus AIM (excluding Investment Companies) Index (the Index). The Investment
Manager, BlackRock Investment Management (UK) Limited (BIM (UK)), may invest
in companies outside the Index without restriction, subject to the following
limits.
The Company may hold up to 15% of its gross assets, at the time of
acquisition, in securities of companies which are listed or traded on a stock
exchange outside the UK. In addition, the Company is permitted to employ
leverage up to 30% of net assets, which it does primarily through the use of
contracts for difference (CFDs) and/or comparable equity derivatives, rather
than bank borrowings.
This can be deployed into either long or short CFDs and/or comparable equity
derivatives, therefore enabling the Company to have a maximum net market
exposure of 130%.
In normal circumstances the Company will likely hold a mixture of long and
short CFDs and/or comparable equity derivatives that would result in a typical
net market exposure of between 100% and 115%. In extremis, the Company could
deploy the full 30% of permissible leverage into short CFDs and/or comparable
equity derivatives, thereby reducing its overall net market exposure to 70%.
Portfolio risk will be mitigated by investment in a diversified portfolio of
holdings.
No more than 5% of the Company’s gross assets, at the time of acquisition,
may be invested in any one single holding, excluding holdings in cash or money
market funds, where up to 10% of the Company’s gross assets may be held. The
Company may also invest in collective investment vehicles. However, the
Company will not invest more than 10% of its gross assets, at the time of the
acquisition, in other listed closed-ended investment funds, unless such
companies have a stated investment policy not to invest more than 15% of their
gross assets in other listed closed-ended investment funds, in which case the
limit is 15% of gross assets.
The Board’s policy is that net gearing, borrowings less cash, should not
exceed 20% of gross assets. The Company expects to employ any leverage
primarily through its use of CFDs and/or comparable equity derivatives.
No material change will be made to the investment objective and policy without
shareholder approval.
INVESTMENT PROCESS
A unique feature of the Company is that it has the ability to go both long and
short up to approximately 30% of the Company’s net assets.
Notwithstanding recent positive returns from UK small and mid-capitalisation
companies, the sector has demonstrated considerable volatility over the past
20 years. Such an environment provides an attractive opportunity to add value
via derivatives: instruments which can exploit share price moves whether up or
down. As the maximum short portfolio exposure through derivatives is 30% of
net assets, the Company will at all times retain a significant exposure to the
market. In the course of their research the portfolio managers come across
companies which they judge are likely to underperform; the ability to take
short positions therefore significantly enhances the opportunity to make money
for shareholders. This is not possible in a conventional or long only
portfolio.
When markets are expected to rise in the medium term, the long/short strategy
is used to generate additional market exposure through ensuring that the long
exposure exceeds the short exposure in a range between 0% to 15% of the net
assets of the Company. Rising or ‘bull’ markets have historically (in the
UK) persisted for longer than falling or ‘bear’ markets. A typical net
market exposure might therefore be between 100% and 115%. This is lower than
the ‘gross exposure’, which is the combination of the long equity
positions, plus the net of long and short derivative positions expressed as a
percentage of net assets. In a recessionary environment the portfolio manager
has the flexibility to reduce market exposure to – at the maximum of its
‘least exposed’ level – around 70%. If successfully implemented this
strategy would provide some cushioning of the Company’s performance in
falling markets.
ESG AND SOCIALLY RESPONSIBLE INVESTING
The Manager defines Environmental, Social and Governance (ESG) integration as
the practice of incorporating material ESG information into investment
decisions in order to enhance risk-adjusted returns. The Manager believes that
this is part of any robust investment process and means adapting its research
and core investment processes to account for additional sources of risk and
return that are identified by ESG information. In alpha-seeking strategies,
the Manager can use ESG information when conducting research and due diligence
on new investments, and again when monitoring investments in a portfolio. Of
course, ESG information is not the sole consideration for investment
decisions; instead, the Manager assesses a variety of economic and financial
indicators, which can include ESG issues, to make investment decisions
appropriate to their clients’ objectives.
The Manager’s approach to ESG integration is to broaden the total amount of
information its investment professionals consider in order to improve
investment analysis, seeking to meet or exceed economic return and financial
risk targets. ESG factors can be useful and relevant indicators for investment
purposes and can help portfolio managers with their decision-making through
identifying potentially negative events or corporate behaviour. This results
in the expectation that there will be an outperformance bias towards better
governed companies in the long-run. The portfolio manager works closely with
BlackRock’s Investment Stewardship team (BIS) to assess the governance
quality of companies and investigate any potential issues, risks or
opportunities.
Specific to corporate governance, the portfolio manager leverages expertise
(BIS and investors) in its proprietary, risk-based approach. Financial
statement integrity is central to the analysis, where BIS applies a range of
systematic measures to highlight companies’ accounting ratios in its
assessment of balance sheet and earnings quality risks. For other categories
under the corporate governance umbrella (e.g. audit quality, board
accountability, executive pay and ownership and control), BIS flags risks
based on internal research, including regulatory filings announcements and
public news feeds. Governance (G) data may also be employed for supporting
consideration. Environmental (E) and Social (S) factors are primarily assessed
using MSCI data, examining whether specific E&S exposure exists, and if so, to
determine how well such exposure is being managed.
The Manager’s research team monitors differing levels of risk throughout the
process and believes that avoiding major downside events can generate
significant outperformance over the long-term. Inputs from the Manager’s
Risk & Quantitative Analysis Team (RQA) are an integral part of the investment
process. RQA analyse market and portfolio risk factors including stress tests,
correlations, factor returns, cross-sectional volatility and attributions. The
Manager’s evaluation procedures and financial analysis of the companies
within the portfolio also take into account environmental, social and
governance matters and other business issues.
Further information on the Manager’s approach to ESG can be found in the ESG
investment statement at the following link
(https://www.blackrock.com/corporate/literature/publication/blk-esg-investment-statement-web.pdf)
and in the Corporate Governance report in the Annual Report and Financial
Statements.
PERFORMANCE
The Investment Manager’s report includes a review of the main developments
during the year, together with information on investment activity within the
Company’s portfolio.
RESULTS AND DIVIDENDS
The results for the Company are set out in the Statement of Comprehensive
Income. The total profit for the year, after taxation, was £91,395,000 (2018:
a loss of £10,297,000) of which the revenue return amounted to £6,265,000
(2018: £8,056,000), and a capital profit of £85,130,000 (2018: loss of
£18,353,000).
Details of the dividends declared in respect of the year are set out in the
Chairman’s Statement.
KEY PERFORMANCE INDICATORS
At each Board meeting, the Directors consider a number of performance measures
to assess the Company’s success in achieving its objectives. The key
performance indicators (KPIs) used to measure the progress and performance of
the Company over time, which are comparable to those reported by other
investment trusts, are set out in the table below. These KPIs fall within the
definition of ‘Alternative Performance Measures’ (APMs) under guidance
issued by the European Securities and Markets Authority (ESMA), and additional
information explaining how these are calculated is set out in the Glossary in
the Annual Report and Financial Statements.
The Board monitors the KPIs at each meeting. Additionally, it regularly
reviews a number of indices and ratios to understand the impact on the
Company’s relative performance of the various components such as asset
allocation and stock selection. This includes an assessment of the Company’s
performance and ongoing charges against its peer group of investment trusts
with similar investment objectives.
Year ended 30 November 2019 Year ended 30 November 2018
Net asset value total return (1,2) 24.4% -2.7%
---------------------- ----------------------
Share price total return (1,2) 42.8% 1.8%
---------------------- ----------------------
Benchmark total return (3) 8.0% -9.0%
---------------------- ----------------------
Premium/(discount) to cum income net asset value (2) 0.9% (12.0%)
---------------------- ----------------------
Revenue return per share 8.56p 11.02p
---------------------- ----------------------
Total dividend per share 10.20p 10.00p
---------------------- ----------------------
Ongoing charges (2,4) 0.59% 0.57%
---------------------- ----------------------
Ongoing charges (2,5) 1.75% 1.29%
============= =============
1 This measures the Company’s share price and NAV total return,
which assumes dividends paid by the Company have been reinvested.
2 Alternative Performance Measures, see Glossary in the Annual
Report and Financial Statements.
3 With effect from 22 March 2018, the Numis Smaller Companies plus
AIM (excluding Investment Companies) Index replaced the Numis Smaller
Companies excluding AIM (excluding Investment Companies) Index as the
Company’s benchmark. From 1 December 2013 to 21 March 2018, the Company’s
benchmark was the Numis Smaller Companies excluding AIM (excluding Investment
Companies) Index. Prior to 1 December 2013 the Company’s benchmark was the
Numis Smaller Companies plus AIM (excluding Investment Companies) Index. The
performance of the benchmark indices during these periods has been blended to
reflect these changes.
4 Ongoing charges represent the management fee and all other
recurring operating expenses, excluding the performance fee, finance costs,
direct transaction costs, custody transaction charges and taxation, as a % of
average shareholders’ funds.
5 Ongoing charges represent the management fee, performance fee and
all other recurring operating expenses, excluding finance costs, direct
transaction costs, custody transaction charges and taxation, as a % of average
shareholders’ funds.
SHARE PRICE DISCOUNT/PREMIUM
The Directors recognise that it is in the long-term interests of shareholders
that the Company’s shares do not trade at an excessive discount or premium
to their prevailing NAV for any material length of time. In the year under
review the discount/premium to NAV of the ordinary shares on a cum income
basis has ranged between a discount of 12.0% and a premium of 2.4%, with the
average being a discount of 4.6%. The shares ended the year at a premium of
0.9% on a cum income basis. As at 3 February 2020 the premium was 1.7%.
Your Board believes that the best way of ensuring that the Company’s shares
trade at as close to NAV as possible over the longer term is to continue to
generate good performance and to create demand for the Company’s shares in
the secondary market through effective communication of the Company’s unique
structure to existing and potential shareholders. The Board will also be
seeking to renew the authority from shareholders to buy back shares.
PRINCIPAL RISKS
The Company is exposed to a variety of risks and uncertainties and the Board
has in place a robust process to identify, assess and monitor the principal
risks faced by the Company. A core element of this process is the Company’s
risk register, which identifies the risks facing the Company and the
likelihood and potential impact of each risk, together with the controls
established for mitigation. A residual risk rating is calculated for each
risk, which allows the effect of any mitigating procedures to be reflected in
the register. The principal risks and uncertainties faced by the Company
during the financial year, together with the potential effects, controls and
mitigating factors, are set out in the following tables.
The risk register, its method of preparation and the operation of key controls
in the Manager’s and third-party service providers’ systems of internal
control are reviewed on a regular basis by the Audit Committee. In order to
gain a more comprehensive understanding of the Manager’s and other
third-party service providers’ risk management processes and how these apply
to the Company’s business, the Audit Committee periodically receives
presentations from BlackRock’s Internal Audit and Risk & Quantitative
Analysis teams. Where produced, the Audit Committee also reviews summaries of
the Service Organisation Control (SOC1) reports from the Company’s service
providers.
As required by the UK Corporate Governance Code, the Board has undertaken a
robust assessment of the principal risks facing the Company, including those
that would threaten its business model, future performance, solvency or
liquidity. The Board will continue to assess these risks on an ongoing basis.
Principal Risk Mitigation/Control
Investment Performance The Board is responsible for: · setting the investment policy to fulfil the Company’s objectives; and · monitoring the performance of the Company’s Investment Manager and the strategy adopted. An inappropriate policy or strategy may lead to: · poor performance compared to the Company’s benchmark, peer group or shareholder expectations; · a widening discount to NAV; · a reduction or permanent loss of capital; and · dissatisfied shareholders and reputational damage. To manage these risks the Board: · regularly reviews the Company’s investment mandate and long-term strategy; · has set, and regularly reviews, the investment guidelines and has put in place appropriate limits on levels of gearing and the use of
derivatives; · receives from the Investment Manager a regular explanation of stock selection decisions, portfolio gearing and any changes in gearing and the rationale for the composition of the investment portfolio; · receives from the Investment Manager
regular reporting on the portfolio’s exposure through derivatives, including the extent to which the portfolio is geared in this manner and the value of any short positions; · monitors the maintenance of an adequate spread of investments in order to
minimise the risks associated with particular sectors, based on the diversification requirements inherent in the Company’s investment policy; and · monitors the share price discount or premium to NAV.
Market Risk Market risk arises from changes to the prices of the Company’s investments. It represents the potential loss the Company might suffer through holding investments and derivatives. Market risk includes the potential impact of events which are outside the scope of the Company’s control, such as the UK’s decision to leave the European Union. The Board carefully considers the diversification of the portfolio, asset allocation, stock selection, unquoted investments and levels of gearing on a regular basis and has set investment restrictions and guidelines which are monitored and reported on by
the Investment Manager. The Board monitors the implementation and results of the investment process with the Investment Manager.
Income/dividend risk The amount of dividends and future dividend growth will depend on the performance of the Company’s underlying portfolio. Changes in the composition of the portfolio and any change in the tax treatment of the dividends or interest received by the Company may reduce the level of dividends received by shareholders. The Board monitors this risk through the receipt of detailed income forecasts and considers the level of income at each meeting. The Company also has a revenue reserve and powers to pay dividends from capital which could potentially be used to support the
Company’s dividend if required.
Financial risk The Company’s investment activities expose it to a variety of financial risks that include market risk, foreign currency risk and interest rate risk. At 30 November 2019, the Company had approximately 26.6% of its gross asset value invested in AIM traded equity securities, and, by the very nature of its investment objective, largely invests in smaller companies. Liquidity in these securities can from time-to-time become constrained, making these investments difficult to realise at or near published prices. The Company is not materially exposed to foreign currency and interest rate risk. For mitigation of market risk, see above. There are also risks linked to the Company’s use of derivative transactions including long and short investment positions. Details
are disclosed in note 11 in the Annual Report and Financial Statements, together with a summary of the policies for managing and controlling these risks in note 16 of the Annual Report and Financial Statements.
Operational risk In common with most other investment trust companies, the Company has no employees. The Company therefore relies upon the services provided by BlackRock (the Manager and AIFM) and The Bank of New York Mellon (International) Limited (the Depositary and Fund Accountant) who maintain the Company’s accounting records. Failure by any service provider to carry out its obligations to the Company could have a material adverse effect on the Company’s performance. Disruption to the accounting, payment systems or custody records, as a result of a cyber attack or otherwise, could impact the monitoring and reporting of the Company’s financial position. The security of the Company’s assets, dealing procedures, accounting records and maintenance of regulatory and legal requirements, depend on the effective operation of these systems. The Board reviews the overall performance of the Manager, Investment Manager and all other third-party service providers and compliance with the investment management agreement on a regular basis. The Fund Accountant’s and the Manager’s internal control
processes are regularly tested and monitored throughout the year and are evidenced through their Service Organisation Control (SOC 1) reports, which are subject to review by an Independent Service Assurance Auditor. The SOC 1 reports provide assurance in
respect of the effective operation of internal controls. The Company’s assets are subject to a strict liability regime and in the event of a loss of financial assets held in custody, the Depositary must return assets of an identical type or the
corresponding amount, unless able to demonstrate that the loss was a result of an event beyond its reasonable control. The Board receives assurance on the business continuity arrangements for the Company’s key service providers. The Board also receives
regular reports from BlackRock’s internal audit function.
Legal and regulatory risk The Company has been approved by HM Revenue & Customs as an investment trust, subject to continuing to meet the relevant eligibility conditions, and operates as an investment trust in accordance with Chapter 4 of Part 24 of the Corporation Tax Act 2010. As such, the Company is exempt from capital gains tax on the profits realised from the sale of its investments. Any breach of the relevant eligibility conditions could lead to the Company losing its investment trust status and being subject to corporation tax on capital gains realised within the Company’s portfolio. In such event the investment returns of the Company may be adversely affected. Any serious breach could result in the Company and/or the Directors being fined or the subject of criminal proceedings or the suspension of the Company’s shares which would in turn lead to a breach of the Corporation Tax Act 2010. Amongst other relevant laws and regulations, the Company is required to comply with the provisions of the Companies Act 2006, the Alternative Investment Fund Managers’ Directive, the Market Abuse Regulation, the UK Listing Rules and the Disclosure Guidance and Transparency Rules. The Investment Manager monitors investment movements, the level of forecast income and expenditure and the amount of proposed dividends, if any, to ensure that the provisions of Chapter 4 of Part 24 of the Corporation Tax Act 2010 are not breached and the
results are reported to the Board at each meeting. Following authorisation under the Alternative Investment Fund Managers’ Directive (AIFMD), the Company and its appointed Alternative Investment Fund Manager (AIFM) are subject to the risks that the
requirements of this Directive are not correctly complied with. The Board and the AIFM also monitor changes in government policy and legislation which may have an impact on the Company. Compliance with the accounting standards applicable to quoted
companies and those applicable to investment trusts are also regularly monitored to ensure compliance. The Company Secretary and the Company’s professional advisers monitor developments in relevant laws and regulations and provide regular reports to the
Board in respect of the Company’s compliance. The Market Abuse Regulation came into force across the EU on 3 July 2016. The Board has taken steps to ensure that individual Directors (and their Persons Closely Associated) are aware of their obligations
under the regulation and has updated internal processes, where necessary, to ensure the risk of non-compliance is effectively mitigated.
Counterparty risk The potential loss that the Company could incur if a counterparty is unable (or unwilling) to perform on its commitments. The Company’s investment policy also permits the use of both exchange-traded and over-the-counter derivatives (including contracts for difference). Due diligence is undertaken before contracts are entered into and exposures are diversified across a number of counterparties. The Board reviews the controls put in place by the Investment Manager to monitor and to minimise counterparty exposure, which
include intra-day monitoring of exposures to ensure that these are within set limits. The Depositary is liable for restitution for the loss of financial instruments held in custody, unless it is able to demonstrate that the loss was due to an event beyond
its reasonable control.
VIABILITY STATEMENT
The Directors have assessed the prospects of the Company over a longer period
than the 12 months referred to by the “Going Concern” guidelines.
The Board conducted this review for the period up to the AGM in 2025, being a
five year period from the date that this Annual Report will be approved by
shareholders. This is generally the investment holding period investors
consider while investing in the smaller companies sector. In making this
assessment the Board has considered the following factors:
· the Company’s principal risks, as set out above;
· the impact of a significant fall in UK equity markets on the
value of the Company’s investment portfolio;
· the ongoing relevance of the Company’s investment objective;
and
· the level of demand for the Company’s shares.
The Directors have also considered the Company’s revenue and expense
forecasts and the fact that expenses and liabilities are relatively stable.
The Company also has a portfolio of investments which provides a level of cash
receipts in the form of dividends and which are considered to be relatively
realisable if required.
The Directors reviewed the assumptions and considerations underpinning the
Company’s existing going concern assertion (please see the disclosure in the
Directors’ Report in the Annual Report and Financial Statements), which are
based on:
· processes for monitoring costs;
· key financial ratios;
· evaluation of risk management and controls;
· compliance with the investment objective;
· the Company’s ability to meet its liabilities as they fall due;
· portfolio risk profile;
· share price discount to NAV;
· gearing; and
· counterparty exposure and liquidity risk.
The Company has a relatively liquid portfolio and largely fixed overheads
(excluding any applicable performance fees) which comprise a very small
percentage of net assets (0.59% excluding performance fees, 1.75% including
performance fees). The effective performance fee cap in the event that the NAV
return exceeds the benchmark return over the performance period is 0.9% of the
average gross assets over the two years and the applicable percentage to be
applied to the outperformance of the NAV total return over the benchmark
return is 15%. In addition, the maximum cap on total management and
performance fees is 1.25% of average gross assets (measured over a rolling two
year period). Therefore, the Board has concluded that the Company would be
able to meet its ongoing operating costs as they fall due.
The Board has considered the potential impact on the Company of the UK’s
decision to leave the European Union (the ‘EU’) following a referendum
held on 23 June 2016 (‘Brexit’). The result has led to political and
economic instability and volatility in the financial markets of the United
Kingdom and more broadly across Europe. This has also led to weakening in
consumer, corporate and financial confidence in such markets as the UK
finalises the terms of its exit from the EU.
More recently, the emergence of a comfortable working majority Government in
the UK elections has brought greater political certainty. At the date of this
report the UK has officially exited the EU. However, the extent of any
potential impact will depend in part on the nature of the trade deals and
other arrangements that the UK will seek to agree with the EU and other
countries following its withdrawal from the EU.
The Board has also considered the impact of potential changes in law,
regulation and taxation and the matter of foreign exchange risk. They have
determined that although there are a number of potential risks associated with
the Brexit process and the legal, fiscal and regulatory landscape thereafter,
they do not believe that this represents a material threat to the Company’s
strategy and business model, nor do they believe that the Investment Manager
would be materially impeded in achieving the Company’s investment objective.
The longer-term process of implementing the political, economic and legal
framework that is to be agreed between the UK and the EU is likely to lead to
ongoing uncertainty and periods of exacerbated volatility in both the UK and
in wider European markets.
Based on the results of their analysis, the Directors have a reasonable
expectation that the Company will be able to continue in operation and meet
its liabilities as they fall due over the period of their assessment.
FUTURE PROSPECTS
The Board’s main focus is on the achievement of capital growth and the
future of the Company is dependent upon the success of the investment
strategy. The outlook for the Company is discussed in the Chairman’s
Statement and in the Investment Manager’s Report.
SOCIAL, COMMUNITY AND HUMAN RIGHTS ISSUES
As an investment trust, the Company has no direct social or community
responsibilities. However, the Company believes that it is in shareholders’
interests to consider human rights issues, environmental, social and
governance factors when selecting and retaining investments. Details of the
Company’s policy on socially responsible investment are set out in the
Annual Report and Financial Statements.
MODERN SLAVERY ACT
As an investment vehicle the Company does not provide goods or services in the
normal course of business, and does not have customers. Accordingly, the
Directors consider that the Company is not required to make any slavery or
human trafficking statement under the Modern Slavery Act 2015. The Board
considers the Company’s supply chain, dealing predominantly with
professional advisers and service providers in the financial services
industry, to be low risk in relation to this matter.
GLOBAL GREENHOUSE GAS EMISSIONS FOR THE PERIOD 1 DECEMBER 2018 TO 30 NOVEMBER
2019
The Company has no greenhouse gas emissions to report from its operations, nor
does it have responsibility for any other emissions producing sources under
the Companies Act 2006 (Strategic Report and Directors’ Reports) Regulations
2013.
DIRECTORS’ GENDER REPRESENTATION
The Directors of the Company on 30 November 2019, three of whom, with the
exception of Mrs Nash who joined the Board on 21 March 2019, held office
throughout the year, are set out in the Annual Report and Financial
Statements. The Board recognises the importance of having a range of
experienced Directors who, both individually and collectively, possess a
suitable balance of skills, knowledge, independence and diversity to enable it
to fulfil its obligations. As at 30 November 2019, the Board consisted of two
men and two women, resulting in 50% female representation. The Company has no
employees and all of its Directors are non-executive. Therefore, there are no
disclosures to be made in respect of employees.
The Chairman’s Statement and the Investment Manager’s Report form part of
this Strategic Report.
The Strategic Report was approved by the Board at its meeting on 6 February
2020.
BY ORDER OF THE BOARD
KEVIN MAYGER, FOR AND ON BEHALF OF
BLACKROCK INVESTMENT MANAGEMENT (UK) LIMITED
Company Secretary
6 February 2020
RELATED PARTY TRANSACTIONS
BlackRock Fund Managers Limited (BFM) provides management and administration
services to the Company under a contract which is terminable on six months’
notice. BFM has (with the Company’s consent) delegated certain portfolio and
risk management services, and other ancillary services to BlackRock Investment
Management (UK) Limited (BIM (UK)). Further details of the investment
management contract are disclosed in the Directors’ Report in the Annual
Report and Financial Statements.
The investment management fee due for the year ended 30 November 2019 amounted
to £1,784,000 (2018: £1,866,000). In addition, a performance fee is payable
of £4,756,000 (2018: £3,018,000). At the year end, £932,000 was outstanding
in respect of management fees (2018: £441,000) and £4,756,000 (2018:
£3,018,000) was outstanding in respect of performance fees.
In addition to the above services, BlackRock has provided marketing services.
The total fees paid or payable for these services for the year ended 30
November 2019 amounted to £202,000 excluding VAT (2018: £79,000). Marketing
fees of £122,000 (2018: £82,000) were outstanding at the year end.
The Company has an investment in BlackRock Institutional Cash Series plc –
Sterling Liquid Environmentally Aware Fund of £28,977,000 (2018: £33,949,000
in BlackRock Institutional Cash Series plc – Sterling Liquidity Fund) which
for the year ended 30 November 2019 and 30 November 2018 has been presented in
the financial statements as a cash equivalent.
Disclosures of the Directors’ interests in the ordinary shares of the
Company and fees and expenses payable to the Directors are set out in the
Directors’ Remuneration Report in the Annual Report and Financial
Statements. At 30 November 2019, £10,000 (2018: £11,000) was outstanding in
respect of Directors’ fees.
The Board consists of four non-executive Directors, all of whom are considered
to be independent by the Board. None of the Directors has a service contract
with the Company. For the year ended 30 November 2019, the Chairman received
an annual fee of £38,500, the Chairman of the Audit and Management Engagement
Committee received an annual fee of £30,000 and each other Director received
an annual fee of £26,000. With effect from 1 December 2019 the Chairman
will receive an annual fee of £39,500, the Chairman of the Audit and
Management Engagement Committee will receive an annual fee of £31,000 and
each other Director will receive an annual fee of £27,000.
As at 30 November 2019, all members of the Board held shares in the Company.
Christopher Samuel held 24,999 ordinary shares, Loudon Greenlees held 15,000
ordinary shares, Jean Matterson held 46,000 ordinary shares and Louise Nash
held 1,000 ordinary shares.
All of the holdings of the Directors are beneficial. Since the year end there
have been no changes to the Directors’ share interests.
STATEMENT OF DIRECTORS’ RESPONSIBILITIES IN RESPECT OF THE ANNUAL REPORT AND
FINANCIAL STATEMENTS
The Directors are responsible for preparing the Annual Report and Financial
Statements, (including the Directors’ Remuneration Report) in accordance
with applicable United Kingdom law and regulations.
Company law requires the Directors to prepare financial statements for each
financial year. Under that law, the Directors are required to prepare the
financial statements in accordance with IFRS as adopted by the European Union.
Under company law the Directors must not approve the financial statements
unless they are satisfied that they give a true and fair view of the state of
affairs of the Company and of the profit or loss of the Company for that
period.
In preparing these Financial Statements, the Directors are required to:
· present fairly the financial position, financial performance and
cash flows of the Company;
· select suitable accounting policies in accordance with IAS8:
Accounting Policies, Changes in Accounting Estimates and Errors and then apply
them consistently;
· present information, including accounting policies, in a manner
that provides relevant, reliable, comparable and understandable information;
· make judgements and estimates that are reasonable and prudent;
· state whether the Financial Statements have been prepared in
accordance with IFRS as adopted by the European Union, subject to any material
departures disclosed and explained in the Financial Statements;
· provide additional disclosures when compliance with the specific
requirements in IFRS as adopted by the European Union is insufficient to
enable users to understand the impact of particular transactions, other events
and conditions on the Company’s financial position and financial
performance; and
· prepare the Financial Statements on the going concern basis
unless it is inappropriate to presume that the Company will continue in
business.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Company’s transactions and disclose with
reasonable accuracy at any time the financial position of the Company and
enable them to ensure that the Financial Statements comply with the Companies
Act 2006. They are also responsible for safeguarding the assets of the Company
and hence for taking reasonable steps for the prevention and detection of
fraud and other irregularities. The Directors are also responsible for
preparing the Strategic Report, the Directors’ Report, the Directors’
Remuneration Report and the Corporate Governance Statement in accordance with
the Companies Act 2006 and applicable regulations, including the requirements
of the Listing Rules and the Disclosure Guidance and Transparency Rules. The
Directors have delegated responsibility to the Investment Manager and the AIFM
for the maintenance and integrity of the Company’s corporate and financial
information included on BlackRock’s website. Legislation in the United
Kingdom governing the preparation and dissemination of Financial Statements
may differ from legislation in other jurisdictions.
Each of the Directors, whose names are listed in the Annual Report and
Financial Statements, confirms to the best of his or her knowledge that:
· the Financial Statements, which have been prepared in accordance
with IFRS as adopted by the European Union, give a true and fair view of the
assets, liabilities, financial position and net profit of the Company; and
· the Annual Report and Financial Statements include a fair review
of the development and performance of the business and the position of the
Company, together with a description of the principal risks and uncertainties
that it faces.
The 2016 UK Corporate Governance Code also requires Directors to ensure that
the Annual Report and Financial Statements are fair, balanced and
understandable. In order to reach a conclusion on this matter, the Board has
requested that the Audit Committee advise on whether it considers that the
Annual Report and Financial Statements fulfil these requirements. The process
by which the Committee has reached these conclusions is set out in the Audit
Committee’s report in the Annual Report and Financial Statements. As a
result, the Board has concluded that the Annual Report and Financial
Statements for the year ended 30 November 2019, taken as a whole, are fair,
balanced and understandable and provided the information necessary for
shareholders to assess the Company’s position, performance, business model
and strategy.
For and on behalf of the Board
CHRISTOPHER SAMUEL
Chairman
6 February 2020
FINANCIAL STATEMENTS
STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 NOVEMBER 2019
Notes Revenue 2019 £’000 Revenue 2018 £’000 Capital 2019 £’000 Capital 2018 £’000 Total 2019 £’000 Total 2018 £’000
Income from investments held at fair value through profit or loss 3 8,531 9,281 – – 8,531 9,281
Net loss from derivatives 3 (1,352) (247) – – (1,352) (247)
Other income 3 191 40 – – 191 40
------------------- ------------------- ------------------- ------------------- ------------------- -------------------
Total revenue 7,370 9,074 – – 7,370 9,074
------------------- ------------------- ------------------- ------------------- ------------------- -------------------
Net profit/(loss) on investments held at fair value through profit or loss – – 78,040 (18,705) 78,040 (18,705)
Net loss on foreign exchange – – (4) (67) (4) (67)
Net profit from derivatives – – 13,212 4,863 13,212 4,863
------------------- ------------------- ------------------- ------------------- ------------------- -------------------
Total 7,370 9,074 91,248 (13,909) 98,618 (4,835)
------------------- ------------------- ------------------- ------------------- ------------------- -------------------
Expenses
Investment management and performance fees 4 (446) (467) (6,094) (4,417) (6,540) (4,884)
Other operating expenses 5 (635) (537) (17) (21) (652) (558)
------------------- ------------------- ------------------- ------------------- ------------------- -------------------
Total operating expenses (1,081) (1,004) (6,111) (4,438) (7,192) (5,442)
------------------- ------------------- ------------------- ------------------- ------------------- -------------------
Net profit/(loss) on ordinary activities before finance costs and taxation 6,289 8,070 85,137 (18,347) 91,426 (10,277)
Finance costs (2) (2) (7) (6) (9) (8)
------------------- ------------------- ------------------- ------------------- ------------------- -------------------
Net profit/(loss) on ordinary activities before taxation 6,287 8,068 85,130 (18,353) 91,417 (10,285)
Taxation (22) (12) – – (22) (12)
------------------- ------------------- ------------------- ------------------- ------------------- -------------------
Profit/(loss) for the year 6,265 8,056 85,130 (18,353) 91,395 (10,297)
=========== =========== =========== =========== =========== ===========
Earnings/(loss) per ordinary share (pence) 8.56 11.02 116.39 (25.10) 124.95 (14.08)
=========== =========== =========== =========== =========== ===========
The total column of this statement represents the Company’s Statement of
Comprehensive Income, prepared in accordance with International Financial
Reporting Standards (IFRS) as adopted by the European Union (EU). The
supplementary revenue and capital columns are both prepared under guidance
published by the Association of Investment Companies (AIC). All items in the
above statement derive from continuing operations. No operations were acquired
or discontinued during the year. All income is attributable to the equity
holders of the Company.
The Company does not have any other comprehensive income. The net
profit/(loss) for the year disclosed above represents the Company’s total
comprehensive income/(loss).
STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 NOVEMBER 2019
Notes Called up share capital £’000 Share premium account £’000 Capital redemption reserve £’000 Special reserve £’000 Capital reserve £’000 Revenue reserve £’000 Total £’000
For the year ended 30 November 2019
At 30 November 2018 4,026 21,049 11,905 35,272 294,594 12,756 379,602
Total comprehensive income:
Net profit for the year – – – – 85,130 6,265 91,395
Transactions with owners, recorded directly to equity:
Ordinary shares issued from treasury 8, 9 – 5,120 – 1,266 – – 6,386
Share issue costs 9 – – – (13) – – (13)
Dividends paid (1) 6 – – – – – (7,313) (7,313)
------------------- ------------------- ------------------- ------------------- ------------------- ------------------- -------------------
At 30 November 2019 4,026 26,169 11,905 36,525 379,724 11,708 470,057
=========== =========== =========== =========== =========== =========== ===========
For the year ended 30 November 2018
At 30 November 2017 4,026 21,049 11,905 35,272 312,947 11,647 396,846
Total comprehensive loss:
Net (loss)/profit for the year – – – – (18,353) 8,056 (10,297)
Transactions with owners, recorded directly to equity:
Dividends paid (2) 6 – – – – – (6,947) (6,947)
------------------- ------------------- ------------------- ------------------- ------------------- ------------------- -------------------
At 30 November 2018 4,026 21,049 11,905 35,272 294,594 12,756 379,602
=========== =========== =========== =========== =========== =========== ===========
1 Final dividend of 7.50p per share for the year ended 30
November 2018, declared on 12 February 2019 and paid on 28 March 2019 and
interim dividend of 2.50p per share for the year ended 30 November 2019,
declared on 23 July 2019 and paid on 28 August 2019.
2 Final dividend of 7.00p per share for the year ended 30
November 2017, declared on 9 February 2018 and paid on 29 March 2018 and
interim dividend of 2.50p per share for the year ended 30 November 2018,
declared on 26 July 2018 and paid on 29 August 2018.
STATEMENT OF FINANCIAL POSITION AS AT 30 NOVEMBER 2019
Notes 30 November 2019 £’000 30 November 2018 £’000
Non-current assets
Investments held at fair value through profit or loss 444,604 344,478
------------------- -------------------
Current assets
Other receivables 3,682 3,183
Derivative financial assets held at fair value through profit or loss 2,923 1,719
Cash collateral held with brokers in respect of derivatives 310 1,410
Cash and cash equivalents 30,398 34,081
------------------- -------------------
37,313 40,393
------------------- -------------------
Total assets 481,917 384,871
------------------- -------------------
Current liabilities
Other payables (8,875) (5,152)
Derivative financial liabilities held at fair value through profit or loss (365) (117)
Cash collateral received in respect of derivatives (2,620) –
------------------- -------------------
(11,860) (5,269)
------------------- -------------------
Net assets 470,057 379,602
=========== ===========
Equity attributable to equity holders
Called up share capital 8 4,026 4,026
Share premium account 9 26,169 21,049
Capital redemption reserve 9 11,905 11,905
Special reserve 9 36,525 35,272
Capital reserve 9 379,724 294,594
Revenue reserve 9 11,708 12,756
------------------- -------------------
Total equity 470,057 379,602
------------------- -------------------
Net asset value per ordinary share (pence) 634.10 519.08
=========== ===========
CASH FLOW STATEMENT FOR THE YEAR ENDED 30 NOVEMBER 2019
30 November 2019 £’000 30 November 2018 £’000
Operating activities
Net profit/(loss) on ordinary activities before taxation 91,417 (10,285)
Add back finance costs 9 8
(Profit)/loss on investments and contracts for difference held at fair value through profit or loss (including transaction costs) (91,876) 13,343
Net loss on foreign exchange 4 67
Special dividends allocated to capital 1,109 –
Sales of investments held at fair value through profit or loss 210,451 298,720
Purchases of investments held at fair value through profit or loss (233,646) (271,577)
Net receipts on closure of derivatives 12,880 3,066
Increase in other receivables (807) (32)
Increase/(decrease) in other payables 2,135 (2,944)
Decrease/(increase) in amounts due from brokers 1,543 (1,437)
Increase in amounts due to brokers 1,588 721
Net movement in cash collateral received from/held with brokers in respect of derivatives 3,720 (1,573)
------------------- -------------------
Net cash (outflow)/inflow from operating activities before taxation (1,473) 28,077
------------------- -------------------
Taxation (32) (22)
------------------- -------------------
Net cash (outflow)/inflow from operating activities (1,505) 28,055
------------------- -------------------
Financing activities
Interest paid (9) (8)
Cash proceeds from ordinary shares issued from treasury 5,148 –
Dividends paid (7,313) (6,947)
------------------- -------------------
Net cash outflow from financing activities (2,174) (6,955)
------------------- -------------------
(Decrease)/increase in cash and cash equivalents (3,679) 21,100
Effect of foreign exchange rate changes (4) (67)
------------------- -------------------
Change in cash and cash equivalents (3,683) 21,033
Cash and cash equivalents at start of year 34,081 13,048
------------------- -------------------
Cash and cash equivalents at end of year 30,398 34,081
=========== ===========
Comprised of:
Cash at bank 1,421 132
Cash Funds* 28,977 33,949
------------------- -------------------
30,398 34,081
=========== ===========
* Cash Funds represent funds held on deposit with the BlackRock
Institutional Cash Series plc – Sterling Liquid Environmentally Aware Fund
(2018: BlackRock Institutional Cash Series plc – Sterling Liquidity Fund).
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 NOVEMBER 2019
1. PRINCIPAL ACTIVITY
The principal activity of the Company is that of an investment trust company
within the meaning of section 1158 of the Corporation Tax Act 2010.
2. ACCOUNTING POLICIES
The principal accounting policies adopted by the Company have been applied
consistently, other than where new policies have been adopted and are set out
below.
(a) Basis of preparation
The financial statements have been prepared under the historic cost convention
modified by the revaluation of financial assets and financial liabilities held
at fair value through profit or loss and in accordance with International
Financial Reporting Standards (IFRS) as adopted by the European Union and as
applied in accordance with the provisions of the Companies Act 2006. All of
the Company’s operations are of a continuing nature.
Insofar as the Statement of Recommended Practice (SORP) for investment trust
companies and venture capital trusts issued by the Association of Investment
Companies (AIC), revised in November 2014 and updated in February 2018 is
compatible with IFRS, the financial statements have been prepared in
accordance with the guidance set out in the SORP.
Substantially all of the assets of the Company consist of securities that are
readily realisable and, accordingly, the Directors believe that the Company
has adequate resources to continue in operational existence for the
foreseeable future. Consequently, the Directors have determined that it is
appropriate for the financial statements to be prepared on a going concern
basis.
The Company’s financial statements are presented in sterling, which is the
functional currency of the Company and the currency of the primary economic
environment in which the Company operates. All values are rounded to the
nearest thousand pounds (£’000) except where otherwise indicated.
A number of new standards, amendments to standards and interpretations are
effective for the annual periods beginning on or after 1 January 2019 and have
not been applied in preparing these financial statements (major changes and
new standards issued are detailed below) as these are not expected to have any
effect on the measurement of the amounts recognised in the financial
statements of the Company.
IFRS standards that have yet to be adopted:
IFRS 16 – Leases (effective 1 January 2019) specifies accounting for leases
and removes the distinction between operating and finance leases. This
standard is not applicable to the Company as it has no leases.
IFRIC 23 – Uncertainty over Income Tax Treatments seeks to provide clarity
on how to account for uncertainty over income tax treatments and specifies
that an entity must consider whether it is probable that the relevant tax
authority will accept each tax treatment, or group of tax treatments, that it
plans to use in its income tax filing. The interpretation also requires
companies to reassess the judgements and estimates applied if facts and
circumstances change. The interpretation is effective for annual reporting
periods beginning on or after 1 January 2019. The interpretation would require
the Company to recognise uncertain tax positions which are more than probable
within its financial statements. The interpretation is unlikely to have any
impact on the financial statements of the Company.
Adoption of new and amended standards and interpretations:
IFRS 9 Financial Instruments
The classification and measurement requirements of IFRS 9 have been adopted
retrospectively as of the date of initial application on 1 December 2018;
however, the Company has chosen to take advantage of the option not to restate
comparatives. Therefore, the 2018 comparative figures are presented and
measured under IAS 39. All financial assets previously held at fair value
continue to be measured at fair value and accordingly there has been no impact
as a result of the adoption of IFRS 9. All financial assets that were
classified as loans and receivables and measured at amortised cost continue to
be so and there was no material impact of expected credit losses on financial
assets and financial liabilities measured at amortised cost.
IFRS 15 Revenue from contracts with customers
The Company adopted IFRS 15 as of the date of initial application of 1
December 2018. IFRS 15 replaces IAS 18 Revenue and establishes a five-step
model to account for revenue arising from contracts with customers. In
addition, guidance on interest and dividend income has been moved from IAS 18
to IFRS 9 without significant changes to the requirements. Therefore, there
was no impact of adopting IFRS 15 for the Company.
(b) Presentation of the Statement of Comprehensive Income
In order to better reflect the activities of an investment trust company and
in accordance with guidance issued by the AIC, supplementary information which
analyses the Statement of Comprehensive Income between items of a revenue and
a capital nature has been presented alongside the Statement of Comprehensive
Income.
(c) Segmental reporting
The Directors are of the opinion that the Company is engaged in a single
segment of business being investment business.
(d) Income
Dividends receivable on equity shares are recognised as revenue for the year
on an ex-dividend basis. Where no ex-dividend date is available, dividends
receivable on or before the year end are treated as revenue for the year.
Provision is made for any dividends not expected to be received. Special
dividends, if any, are treated as a capital or a revenue receipt depending on
the facts or circumstances of each dividend. The return on a debt security is
recognised on a time apportionment basis so as to reflect the effective yield
on the debt security.
Deposit interest receivable is accounted for on an accruals basis.
Where the Company has elected to receive its dividends in the form of
additional shares rather than in cash, the cash equivalent of the dividend is
recognised as revenue. Any excess in the value of the shares received over the
amount of the cash dividend is recognised in capital.
(e) Expenses
All expenses, including finance costs, are accounted for on an accruals basis.
Expenses have been charged wholly to the revenue column of the Statement of
Comprehensive Income, except as follows:
· expenses which are incidental to the acquisition or sale of an
investment are charged to the capital column of the Statement of Comprehensive
Income. Details of transaction costs on the purchases and sales of investments
are disclosed within note 10 to the financial statements in the Annual Report
and Financial Statements;
· expenses are treated as capital where a connection with the
maintenance or enhancement of the value of the investments can be
demonstrated;
· the investment management fee and finance costs have been
allocated 75% to the capital column and 25% to the revenue column of the
Statement of Comprehensive Income in line with the Board’s expectations of
the long-term split of returns, in the form of capital gains and income,
respectively, from the investment portfolio; and
· performance fees are allocated 100% to the capital column of the
Statement of Comprehensive Income as fees are generated in connection with
enhancing the value of the investment portfolio.
(f) Taxation
The tax expense represents the sum of the tax currently payable and deferred
tax. The tax currently payable is based on the taxable profit for the year.
Taxable profit differs from net profit as reported in the Statement of
Comprehensive Income because it excludes items of income or expenses that are
taxable or deductible in other years and it further excludes items that are
never taxable or deductible. The Company’s liability for current tax is
calculated using tax rates that were applicable at the balance sheet date.
Where expenses are allocated between capital and revenue, any tax relief in
respect of expenses is allocated between capital and revenue returns on the
marginal basis using the Company’s effective rate of corporation tax for the
accounting period.
Deferred taxation is recognised in respect of all temporary differences that
have originated but not reversed at the financial reporting date, where
transactions or events that result in an obligation to pay more tax in the
future or right to pay less tax in the future have occurred at the financial
reporting date. This is subject to deferred tax assets only being recognised
if it is considered more likely than not that there will be suitable profits
from which the future reversal of the temporary differences can be deducted.
Deferred tax assets and liabilities are measured at the rates applicable to
the legal jurisdictions in which they arise.
(g) Investments held at fair value through profit or loss
In accordance with IFRS 9, the Company classifies its investments at initial
recognition as held at fair value through profit or loss and are managed and
evaluated on a fair value basis in accordance with its investment strategy and
business model.
All investments are measured initially and subsequently at fair value through
profit or loss. Purchases of investments are recognised on a trade date basis.
Sales of investments are recognised at the trade date of the disposal.
The fair value of the financial investments is based on their quoted bid price
at the financial reporting date, without deduction for the estimated selling
costs. This policy applies to all current and non-current asset investments
held by the Company.
Changes in the value of investments held at fair value through profit or loss
and gains and losses on disposal are recognised in the Statement of
Comprehensive Income as “Net profits or losses on investments held at fair
value through profit or loss”. Also included within the heading are
transaction costs in relation to the purchase or sale of investments.
For all financial instruments not traded in an active market, the fair value
is determined by using various valuation techniques. Valuation techniques
include market approach (i.e. using recent arm’s length market transactions
adjusted as necessary and reference to the current market value of another
instrument that is substantially the same) and the income approach (e.g.
discounted cash flow analysis and option pricing models making use of
available and supportable market data as possible).
(h) Derivatives
The Company can hold long and short positions in contracts for difference
(CFDs) and index futures which are held at fair value based on the bid prices
of the underlying securities in respect of long positions, and the offer
prices of the underlying securities in respect of short positions.
Profits and losses on derivative transactions are recognised in the Statement
of Comprehensive Income. They are shown in the capital column of the Statement
of Comprehensive Income if they are of a capital nature and are shown in the
revenue column of the Statement of Comprehensive Income if they are of a
revenue nature. To the extent that any profits or losses are of a mixed
revenue and capital nature, they are apportioned between revenue and capital
accordingly.
Derivative assets and derivative liabilities that are subject to netting
arrangements are offset in the Statement of Financial Position.
(i) Other receivables and other payables
Other receivables and other payables do not carry any interest and are
short-term in nature and are accordingly stated on an amortised cost basis.
(j) Dividends payable
Under IFRS, final dividends should not be accrued in the financial statements
unless they have been approved by shareholders before the financial reporting
date. Interim dividends should not be accrued in the financial statements
unless they have been paid.
Dividends payable to equity shareholders are recognised in the Statement of
Changes in Equity.
(k) Foreign currency translation
Transactions involving foreign currencies are converted at the rate ruling at
the date of the transaction. Foreign currency monetary assets and liabilities
and non-monetary assets held at fair value are translated into sterling at the
rate ruling on the financial reporting date. Foreign exchange differences
arising on translation are recognised in the Statement of Comprehensive Income
as a revenue or capital item depending on the income or expense to which they
relate. For investment transactions and investments held at the year end,
denominated in a foreign currency, the resulting gains or losses are included
in the profit/(loss) on investments held at fair value through profit or loss
in the Statement of Comprehensive Income.
(l) Cash and cash equivalents
Cash comprises cash in hand and on demand deposits. Cash equivalents are
short-term, highly liquid investments that are readily convertible to known
amounts of cash and that are subject to an insignificant risk of changes in
value.
The Company has an investment in BlackRock Institutional Cash Series plc –
Sterling Liquid Environmentally Aware Fund (Cash Fund) of £28,977,000 (2018:
investment in BlackRock Institutional Cash Series plc – Sterling Liquidity
Fund of £33,949,000). The Cash Fund is managed by BlackRock Asset Management
Ireland Limited and is subject to fees and expenses which are capped at 0.03%
of the NAV.
The investment is managed as part of the Company’s cash and cash equivalents
as defined under IAS 7 and is presented as a cash equivalent in the financial
statements.
(m) Bank borrowings
Bank overdrafts are recorded as the proceeds received. Finance charges are
accounted for on an accruals basis in the Statement of Comprehensive Income
using the effective interest rate method and are added to the carrying amount
of the instruments to the extent that they are not settled in the period in
which they arise.
(n) Share repurchases and re-issues
Shares repurchased and subsequently cancelled – share capital is reduced by
the nominal value of the shares repurchased, and the capital redemption
reserve is correspondingly increased in accordance with section 733 of the
Companies Act 2006. The full cost of the repurchase is charged to the special
reserve.
Shares repurchased and held in treasury – the full cost of the repurchase is
charged to the special reserve.
Where treasury shares are subsequently reissued:
· amounts received to the extent of the repurchase price are
credited to the special reserve; and
· any surplus received in excess of the repurchase price is taken
to the share premium account.
(o) Critical accounting estimates and judgements
The Board makes estimates and assumptions concerning the future. The resulting
accounting estimates and assumptions will, by definition, seldom equal the
related actual results. Estimates and judgements are regularly evaluated and
are based on historical experience and other factors, including expectations
of future events that are believed to be reasonable under the circumstances.
The Directors do not believe that any accounting judgements or estimates have
a significant risk of causing a material adjustment to the carrying amount of
assets and liabilities within the next financial year.
(p) Comparatives
Certain prior year figures have been reclassified to correspond to current
year presentation.
3. INCOME
2019 £’000 2018 £’000
Investment income:
UK dividends 6,251 6,421
UK special dividends 934 1,232
UK stock dividends – 40
UK REIT dividends 655 570
Overseas dividends 666 914
Overseas special dividends 25 62
Overseas stock dividends – 42
------------------- -------------------
8,531 9,281
------------------- -------------------
Net loss from derivatives (1,352) (247)
------------------- -------------------
7,179 9,034
------------------- -------------------
Other income:
Deposit interest 7 4
Interest from Cash Funds 184 36
------------------- -------------------
191 40
------------------- -------------------
Total income 7,370 9,074
=========== ===========
Dividends and interest received in cash during the year amounted to
£8,538,000 and £172,000 (2018: £9,161,000 and £45,000).
Special dividends of £1,109,000 have been recognised in capital (2018: £nil)
and deducted from investment costs.
4. INVESTMENT MANAGEMENT AND PERFORMANCE FEES
2019 2018
Revenue £’000 Capital £’000 Total £’000 Revenue £’000 Capital £’000 Total £’000
Investment management fee 446 1,338 1,784 467 1,399 1,866
Performance fee – 4,756 4,756 – 3,018 3,018
------------------- ------------------- ------------------- ------------------- ------------------- -------------------
446 6,094 6,540 467 4,417 4,884
=========== =========== =========== =========== =========== ===========
The performance fee is 15% of Net Asset Value total return outperformance of
the benchmark measured over a two year rolling basis and is applied on the
average Gross Assets over two years. The performance fee is calculated and
accrued on a daily basis and payable on 30 November each year. Gross Assets
are defined as 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 CFDs. There is a cap on total management and performance fees
of 1.25% of average gross assets over a two year period which has the effect
of capping performance fees at circa 0.9% of average gross assets over two
years.
With effect from 22 March 2018, the Company’s benchmark index was changed
from the Numis Smaller Companies excluding AIM (excluding Investment
Companies) Index to the Numis Smaller Companies plus AIM (excluding Investment
Companies) Index. For the purposes of calculation of performance fee for each
period, the outperformance of the Net Asset Value total return has been
measured against the performance of the benchmark indices on a blended basis
during each period.
Performance fees have been wholly allocated to the capital column of the
Statement of Comprehensive Income as the performance has been predominantly
generated through capital returns from the investment portfolio. For the year
ended 30 November 2019, a performance fee of £4,756,000 has been accrued
(2018: £3,018,000).
The investment management fee is calculated at the rate of 0.35% per annum on
month end Gross Assets. The management fee is charged 25% to revenue and 75%
to capital.
5. OTHER OPERATING EXPENSES
2019 £’000 2018 £’000
Allocated to revenue:
Custody fee 8 11
Auditor’s remuneration:
– audit services 35 37
– non-audit services (1) – 7
Registrar’s fee 37 39
Directors’ emoluments 133 139
Broker fees 33 36
Depositary fees 47 58
Marketing fees (2) 202 79
FCA fees 13 12
Printing and postage fees 33 23
AIC fees 27 20
Other administrative costs 67 76
------------------- -------------------
635 537
------------------- -------------------
Allocated to capital:
Custody transaction charges 17 21
------------------- -------------------
652 558
------------------- -------------------
The Company’s ongoing charges (3), calculated as a percentage of average net assets and using recurring expenses, excluding performance fees, direct transaction costs, finance costs, custody transaction charges and taxation were: 0.59% 0.57%
------------------- -------------------
The Company’s ongoing charges (3), calculated as a percentage of average net assets and using recurring expenses, including performance fees but excluding direct transaction costs, finance costs, custody transaction charges and taxation were: 1.75% 1.29%
=========== ===========
(1) The Audit fee excluding VAT for 2019 is £29,750. There was
no half yearly review performed during the year, therefore Auditor’s
remuneration for other assurance services was £nil (2018: £6,500 relating to
the half yearly review).
(2) Marketing fees for the year reflect an under accrual of
£69,000 for these fees in 2018.
(3) Alternative Performance Measures, see Glossary in the
Annual Report and Financial Statements.
For the year ended 30 November 2019, expenses of £17,000 (2018: £21,000)
were charged to the capital column of the Statement of Comprehensive Income.
These relate to transaction costs charged by the custodian on sale and
purchase trades.
Details of the Directors’ emoluments are given in the Directors’
Remuneration Report in the Annual Report and Financial Statements.
6. DIVIDENDS
Dividends paid on equity shares:
Record date Payment date 2019 £’000 2018 £’000
Final dividend of 7.50p per share for the year ended 30 November 2018 (2017: 7.00p) 22 February 2019 28 March 2019 5,485 5,119
Interim dividend of 2.50p per share for the year ended 30 November 2019 (2018: 2.50p) 2 August 2019 28 August 2019 1,828 1,828
------------------- -------------------
7,313 6,947
=========== ===========
The total dividends payable in respect of the year ended 30 November 2019
which form the basis of section 1158 of the Corporation Tax Act 2010 and
section 833 of the Companies Act 2006, and the amounts proposed, meet the
relevant requirements as set out in this legislation.
Dividends paid or declared on equity shares: 2019 £’000 2018 £’000
Interim dividend of 2.50p per share for the year ended 30 November 2019 (2018: 2.50p) 1,828 1,828
Final dividend of 7.70p per share for the year ended 30 November 2019* (2018: 7.50p) 6,076 5,485
------------------- -------------------
7,904 7,313
=========== ===========
* Based on 78,908,941 (2018: 73,130,326) ordinary shares in
issue on 3 February 2020.
7. EARNINGS AND NET ASSET VALUE PER ORDINARY SHARE
Total revenue and capital returns per share and net asset value per share are
shown below and have been calculated using the following:
2019 2018
Net revenue profit attributable to ordinary shareholders (£’000) 6,265 8,056
Net capital profit/(loss) attributable to ordinary shareholders (£’000) 85,130 (18,353)
------------------- -------------------
Total profit/(loss) attributable to ordinary shareholders (£’000) 91,395 (10,297)
------------------- -------------------
Equity shareholders’ funds (£’000) 470,057 379,602
------------------- -------------------
The weighted average number of ordinary shares in issue during the year, on which the earnings/(loss) per ordinary share was calculated was: 73,146,571 73,130,326
------------------- -------------------
The actual number of ordinary shares in issue at the year end, on which the net asset value per ordinary share was calculated was: 74,130,326 73,130,326
------------------- -------------------
Earnings per share
Revenue earnings per share (pence) 8.56 11.02
Capital earnings/(loss) per share (pence) 116.39 (25.10)
------------------- -------------------
Total earnings/(loss) per share (pence) 124.95 (14.08)
=========== ===========
As at 30 November 2019 As at 30 November 2018
Net asset value per ordinary share (pence) 634.10 519.08
------------------- -------------------
Ordinary share price (pence) 640.00 457.00
=========== ===========
There were no dilutive securities at the year end.
8. CALLED UP SHARE CAPITAL
Number of shares in issue Treasury shares Total shares Nominal value £’000
Allotted, called up and fully paid share capital comprised:
Ordinary shares of 5 pence each
At 30 November 2018 73,130,326 7,400,000 80,530,326 4,026
Ordinary shares issued from treasury 1,000,000 (1,000,000) – –
----------------------- ----------------------- ----------------------- -----------------------
At 30 November 2019 74,130,326 6,400,000 80,530,326 4,026
============= ============= ============= =============
During the year ended 30 November 2019, the Company issued 1,000,000 (2018:
nil) shares from treasury for a total gross consideration of £6,373,000
(2018: £nil) including costs.
Since 30 November 2019, and up to the latest practicable date of 4 February
2020, 4,778,615 shares have been reissued from treasury for a total gross
consideration of £32,487,000.
The Ordinary Shares give shareholders voting rights, the entitlement to all of
the capital growth in the Company’s assets, and to all income from the
Company that is resolved to be distributed.
9. RESERVES
Distributable reserves
Share premium account £’000 Capital redemption reserve £’000 Special reserve £’000 Capital reserve arising on investments sold £’000 Capital reserve arising on revaluation of investments held £’000 Revenue reserve £’000
At 30 November 2018 21,049 11,905 35,272 244,457 50,137 12,756
Movement during the year:
Total Comprehensive Income:
Net capital profit for the year – – – 36,718 48,412 –
Net revenue profit for the year – – – – – 6,265
Transactions with owners recorded directly to equity:
Ordinary shares issued from treasury 5,120 – 1,266 – – –
Share issue costs – – (13) – – –
Dividends paid – – – – – (7,313)
------------------- ------------------- ------------------- ------------------- ------------------- -------------------
At 30 November 2019 26,169 11,905 36,525 281,175 98,549 11,708
=========== =========== =========== =========== =========== ===========
The share premium account and capital redemption reserve are not distributable
profits under the Companies Act 2006. The special reserve and capital reserve
may be used as distributable profits for all purposes and, in particular, for
the repurchase by the Company of its ordinary shares and for payment as
dividends. In accordance with the Company’s articles, net capital returns
may be distributed by way of dividend.
10. VALUATION OF FINANCIAL INSTRUMENTS
Financial assets and financial liabilities are either carried in the Statement
of Financial Position at their fair value (investment and derivatives) or at
an amount which is a reasonable approximation of fair value (due from brokers,
dividends and interest receivable, due to brokers, accruals, cash at bank and
bank overdrafts). IFRS 13 requires the Company to classify fair value
measurements using a fair value hierarchy that reflects the significance of
inputs used in making the measurements. The valuation techniques used by the
Company are explained in the accounting policies note 2(g) to the Financial
Statements in the Annual Report and Financial Statements.
Categorisation within the hierarchy has been determined on the basis of the
lowest level input that is significant to the fair value measurement of the
relevant asset or liability.
The fair value hierarchy has the following levels:
Level 1 – Quoted market price for identical instruments in active markets
A financial instrument is regarded as quoted in an active market if quoted
prices are readily and regularly available from an exchange, dealer, broker,
industry group, pricing service or regulatory agency and those prices
represent actual and regularly occurring market transactions on an arm’s
length basis. The Company does not adjust the quoted price for these
instruments.
Level 2 – Valuation techniques using observable inputs
This category includes instruments valued using quoted prices for similar
instruments in markets that are considered less than active, or other
valuation techniques where all significant inputs are directly or indirectly
observable from market data. Valuation techniques used for non-standardised
financial instruments such as options, currency swaps and other
over-the-counter derivatives include the use of comparable recent arm’s
length transactions, reference to other instruments that are substantially the
same, discounted cash flow analysis, option pricing models and other valuation
techniques commonly used by market participants making the maximum use of
market inputs and relying as little as possible on entity specific inputs.
As at the year end the long and short derivative positions were valued using
the underlying equity bid price (offer price in respect of short positions)
and the contract price at the inception of the trade or at the trade reset
date. There have been no changes to the valuation technique since the previous
year or as at the date of this report.
Level 3 – Valuation techniques using significant unobservable inputs
This category includes all instruments where the valuation technique includes
inputs not based on observable 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. The determination of what constitutes ‘observable’ inputs
requires significant judgement by the Investment Manager.
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.
Fair values of financial assets and financial liabilities
The table below sets out fair value measurements using the IFRS 13 fair value
hierarchy.
Financial assets/(liabilities) at fair value through profit or loss at 30 November 2019 Level 1 £’000 Level 2 £’000 Level 3 £’000 Total £’000
Assets:
Equity investments 444,604 – – 444,604
Contracts for difference (fair value) – 2,923 – 2,923
Liabilities:
Contracts for difference (fair value) – (365) – (365)
------------------- ------------------- ------------------- -------------------
444,604 2,558 – 447,162
=========== =========== =========== ===========
Financial assets/(liabilities) at fair value through profit or loss at 30 November 2018 Level 1 £’000 Level 2 £’000 Level 3 £’000 Total £’000
Assets:
Equity investments 344,478 – – 344,478
Contracts for difference (fair value) – 1,719 – 1,719
Liabilities:
Contracts for difference (fair value) – (117) – (117)
------------------- ------------------- ------------------- -------------------
344,478 1,602 – 346,080
=========== =========== =========== ===========
There were no transfers between levels for financial assets and financial
liabilities during the year recorded at fair value as at 30 November 2019 and
30 November 2018. The Company did not hold any Level 3 securities throughout
the financial year or as at 30 November 2019 (2018: nil).
The values of derivative positions classified as Level 2 as at 30 November
2018 have been restated to fair value to align with the values presented on
the statement of financial position. The amounts presented in the prior year
financial statements were presented on a gross exposure basis as follows:
total gross exposure on long derivative positions was presented as an asset of
£49,464,000 and total gross exposure on short derivative positions was
presented as a liability of (£39,884,000).
11. RELATED PARTY DISCLOSURE: DIRECTORS’ EMOLUMENTS
Disclosures of the Directors’ interests in the ordinary shares of the
Company and fees and expenses payable to the Directors are set out in the
Directors’ Remuneration Report in the Annual Report and Financial
Statements. At 30 November 2019, £10,000 (2018: £11,000) was outstanding in
respect of Directors’ fees.
12. TRANSACTIONS WITH THE INVESTMENT MANAGER AND AIFM
BlackRock Fund Managers Limited (BFM) provides management and administration
services to the Company under a contract which is terminable on six months’
notice. BFM has (with the Company’s consent) delegated certain portfolio and
risk management services, and other ancillary services to BlackRock Investment
Management (UK) Limited (BIM (UK)). Further details of the investment
management contract are disclosed in the Directors’ Report in the Annual
Report and Financial Statements.
The investment management fee due for the year ended 30 November 2019 amounted
to £1,784,000 (2018: £1,866,000). In addition, a performance fee is payable
of £4,756,000 (2018: £3,018,000). At the year end, £932,000 was outstanding
in respect of management fees (2018: £441,000) and £4,756,000 (2018:
£3,018,000) was outstanding in respect of performance fees.
In addition to the above services, BlackRock has provided marketing services.
The total fees paid or payable for these services for the year ended 30
November 2019 amounted to £202,000 excluding VAT (2018: £79,000). Marketing
fees of £122,000 (2018: £82,000) were outstanding at the year end.
The Company has an investment in BlackRock Institutional Cash Series plc –
Sterling Liquid Environmentally Aware Fund of £28,977,000 (2018: £33,949,000
in BlackRock Institutional Cash Series plc – Sterling Liquidity Fund) which
for the year ended 30 November 2019 and 30 November 2018 has been presented in
the financial statements as a cash equivalent.
13. CONTINGENT LIABILITIES
There were no contingent liabilities at 30 November 2019 (2018: £nil).
14. PUBLICATION OF NON-STATUTORY ACCOUNTS
The financial information contained in this announcement does not constitute
statutory accounts as defined in the Companies Act 2006. The Annual Report
and Financial Statements for the year ended 30 November 2019 will be filed
with the Registrar of Companies after the Annual General Meeting.
The figures set out above have been reported upon by the auditor, whose report
for the year ended 30 November 2019 contains no qualification or statement
under section 498(2) or (3) of the Companies Act 2006.
The comparative figures are extracts from the audited financial statements of
BlackRock Throgmorton Trust plc for the year ended 30 November 2018, which
have been filed with the Registrar of Companies. The report of the auditor
on those financial statements contained no qualification or statement under
section 498 of the Companies Act.
15. ANNUAL REPORT
Copies of the Annual Report and Financial Statements will be sent to members
shortly and will be available from the registered office, c/o The Company
Secretary, BlackRock Throgmorton Trust plc, 12 Throgmorton Avenue, London EC2N
2DL.
16. ANNUAL GENERAL MEETING
The Annual General Meeting of the Company will be held at 12 Throgmorton
Avenue, London EC2N 2DL on Wednesday, 25 March 2020 at 11.00 a.m.
ENDS
The Annual Report will also be available on the BlackRock website at
blackrock.co.uk/thrg. Neither the contents of the Manager’s website nor
the contents of any website accessible from hyperlinks on the Manager’s
website (or any other website) is incorporated into, or forms part of, this
announcement.
FOR FURTHER INFORMATION, PLEASE CONTACT:
Simon White, Managing 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
6 February 2020
12 Throgmorton Avenue
London EC2N 2DL
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