REG-BlackRock Throg Tst: Half-year Report
23/07/2019 15:05
BLACKROCK THROGMORTON TRUST PLC
(Legal Entity Identifier: 5493003B7ETS1JEDPF59)
Information disclosed in accordance with Article 5 Transparency Directive and
DTR 4.2
Half Yearly Financial Report for period ended 31 May 2019
PERFORMANCE RECORD
31 May 2019 (unaudited) 30 November 2018 (audited)
Net assets (£'000) (1) 420,012 379,602
Net asset value per ordinary share 574.33p 519.08p
Ordinary share price (mid-market) 532.00p 457.00p
Benchmark Index (2) 14,224.14 13,589.32
Discount to cum income net asset value (3) 7.4% 12.0%
Average discount to cum income net asset value (3)for the period/year 6.5% 10.7%
Performance
Net asset value per share (total return) (4) +12.2% -2.7%
Benchmark Index (2) +4.7% -9.0%
Ordinary share price (total return) (4) +18.2% +1.8%
For the six months ended 31 May 2019 (unaudited) For the six months ended 31 May 2018 (unaudited) Change %
Revenue
Net profit after taxation (£’000) 3,345 5,214 -35.8
Revenue return per ordinary share 4.57p 7.13p -35.9
--------------- --------------- ---------------
Dividend per ordinary share
Interim (pence) 2.50p 2.50p -
=========== =========== ===========
(1 ) The change in net assets reflects market movements and dividend
payments during the period.
(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 has been blended to
reflect these changes.
(3) This is the difference between the share price and the NAV per share.
(4) This measures the Company’s NAV total return and share price, which
assumes dividends paid by the Company have been reinvested.
Further information in relation to the calculations above can be found in the
Glossary contained within the Half Yearly Financial Report.
CHAIRMAN’S STATEMENT FOR THE SIX MONTHS TO 31 MAY 2019
PERIOD HIGHLIGHTS
*
Outperformed the benchmark index by 7.5%
*
Ordinary share price up 18.2%
*
Discount narrowed from 12.0% (as at 30 November 2018) to 7.4%
*
Interim dividend declared of 2.50p per share (2018: 2.50p).
PERFORMANCE
I am pleased to report that during the six months to 31 May 2019, the Company
has once again generated strong investment performance for its shareholders,
both in relative and absolute terms. The Company’s Net Asset Value (NAV)
return for the period was +12.2%, compared with a return of +4.7% from the
Company’s benchmark, the Numis Smaller Companies plus AIM (excluding
Investment Companies) Index, an outperformance of 7.5%. The Company’s share
price rose by an impressive +18.2% which saw the discount to NAV narrow to
7.4% at the period end (all figures in sterling terms with dividends
reinvested).
Further information on portfolio activity, the factors that contributed to
performance during the period and the outlook for the second half of the
financial year are set out in the Investment Manager’s Report.
PERFORMANCE RECORD TO 31 MAY 2019 (WITH DIVIDENDS REINVESTED)
1 Year change % 3 Year change % 5 Year Change % Since BlackRock take-on change %
Benchmark (with dividends reinvested) -7.0 20.6 31.0 134.4
Share price (with dividends reinvested) 0.8 70.0 100.9 392.2
NAV per share (with dividends reinvested) -2.2 54.0 86.3 370.5
Since the period end and up to the close of business on 19 July 2019, the NAV
has risen by 1.3%, and the benchmark index has fallen by 0.7%. (All figures
in sterling terms with dividends reinvested).
REVENUE RETURN AND DIVIDENDS
The revenue return per share for the period amounted to 4.57 pence per share,
compared to 7.13 pence per share earned during the comparative period last
year. This represents a decrease of 35.9% and results from decreases in the
level of both the ordinary and special dividends received during the period.
The Board is pleased to declare an interim dividend of 2.50p per share (2018:
2.50p per share) payable on 28 August 2019 to shareholders on the register on
2 August 2019 (the ex-dividend date is 1 August 2019).
SHARE PRICE DISCOUNT
During the six months to 31 May 2019, the Company’s share price discount to
NAV ranged between 12.0% and 2.9%, ending the period at 7.4% (30 November
2018: 17.0%, 4.8% and 12.0% respectively). As at 19 July 2019 the discount
stood at 6.1%. The constituents of the UK Smaller Companies sector have
historically traded at a significant discount to NAV and the Company’s
average discount to NAV since 1 July 2008 (the date BlackRock became Manager
of the Company) has been 16%. It was pleasing to see that the Company’s
discount has narrowed during the period and currently trades below the sector
average. The Board will continue to monitor closely the discount to NAV at
which the Company’s shares trade.
OUTLOOK
A number of macroeconomic and political risks which could negatively impact
performance remain, not least a further deterioration in the economic outlook.
Various latent geopolitical risks also exist, including the outcome of the
Brexit process, political instability in the UK and a further escalation of
US/China trade tensions. The sustained uncertainty around the Brexit outcome
also continues to negatively impact economic activity and depress market
sentiment and UK GDP growth is expected to remain relatively low during the
second half of the year. However, as a result of this uncertainty, valuations
in the UK are now low compared with other developed markets such as the
Eurozone and the US. Therefore, your portfolio manager believes that value can
be selectively found in this market. The dovish stance adopted by European and
US central banks more recently has decreased the likelihood of interest rate
rises in the near term and has been supportive of equity markets in the short
term.
In addition, your portfolio manager’s ability to identify and short
companies which are under structural pressure, with high levels of debt and
weak balance sheets, or those struggling with rising costs and price pressure
from disruptive competitors, is a key differentiator within our sector.
Overall, your Board believes the Company is well positioned to continue to
meet its objectives of providing shareholders with long-term capital growth
and an attractive total return.
CHRISTOPHER SAMUEL
Chairman
23 July 2019
INVESTMENT MANAGER’S REPORT FOR THE SIX MONTHS ENDED 31 MAY 2019
MARKET REVIEW AND OVERALL INVESTMENT PERFORMANCE
Sharp declines in equity markets in the fourth quarter of 2018 have been
erased by a strong rally through the start of 2019. Markets shrugged off a
host of weak economic data, corporate earnings downgrades and political
confusion in the UK. Meanwhile trade tensions continue to pose a risk to
global growth and have been a catalyst for short term spikes in market
volatility. The Federal Reserve tone became notably more dovish, which drove
bond yields back to levels last seen at the beginning of 2018; the European
Central Bank’s stance also remained accommodative and Chinese policy was
eased on both fiscal and monetary fronts. Brexit has continued to dominate the
UK political landscape, culminating in Prime Minister Theresa May announcing
her resignation, but the market reaction was relatively muted given the
‘Brexit tax’ that the UK market is already discounting.
PERFORMANCE REVIEW
We feel performance year to date has rewarded our decision not to panic in the
fourth quarter of 2018. Encouragingly, the Company’s performance versus the
benchmark has strengthened through the calendar year as stock markets have
weakened, helped by us running with a lower gross and net market exposure than
usual, and a strong period for delivering positive stock and industry specific
outcomes. The result is that during the first six months of the Company’s
financial year, we have delivered a positive return in both absolute and
relative terms, with the NAV rising by 12.2% in sterling terms with dividends
reinvested, significantly outperforming our benchmark by over 7.5% after fees.
Returns have been driven predominantly by the long book, supplemented by a
number of stock specific wins from short positions. This is a positive result
in our opinion against a market that is up almost five percent.
The largest positive contributor to performance came from our holding in JD
Sports Fashion, which contributed 110bps during the period. JD Sports is a
position that we brought back into the portfolio in December 2018, taking
advantage of the market volatility to buy into a company that we’ve owned
historically, and know well, at a valuation we have rarely seen. JD Sports’
differentiated consumer proposition and multi-channel approach to retailing
has enabled it to continue to deliver strong like-for-like sales growth,
beating expectations and raising guidance, all without sacrificing their gross
margin. The Company owns very few retailers given the myriad of challenges
facing bricks and mortar retailing.
4imprint Group, a long-term core holding which we have highlighted many times
in the past, has once again delivered another period of strong performance,
most recently after reporting strong full year results with upgrades to
forward guidance. 4imprint is a UK listed but US focused direct marketing
business 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 competition is.
Software engineering group Aveva has made a positive start to the year, helped
by strong sales execution. This is a company undergoing a sales transition to
subscription based sales, which we think improves its quality of earnings,
whilst driving operational improvements to lift margins. Following its merger
with Schneider Electric, recurring revenues increased as a proportion of the
overall business and the company remains on track to meet its medium term
targets.
Other notable contributors during the period include Dechra Pharmaceuticals,
Xero and IntegraFin, all of which contributed more than 50bps to performance
and which all operate in very different industries, but the common theme being
their dominant and differentiated positions, which have enabled each to
continue to generate strong growth.
While short positions in aggregate were not a meaningful contributor to
performance we continue to generate stock specific alpha on the short side.
The largest short contributor has been a UK contractor, which despite having
completed an emergency fund raise in December, has followed up with a series
of negative updates, including a material profit warning in June, after the
period covered in this report. We had been increasing this short position
during the year as we felt that the company had issues with its balance sheet
and cash generating abilities, far beyond what the market was pricing in, and
this proved to be a profitable decision.
Given the strong outperformance achieved so far this year, it is unsurprising
to see that material detractors have been limited. The largest stock specific
detractor was online retailer of musical instruments, Gear4music. This is a
company that had previously demonstrated very strong and profitable sales
growth. However, early in the period the company provided an update showing
that further impressive sales growth had come at the expense of gross margin,
with Gear4music reacting to irrational competitor pricing in an attempt to
protect market share. This was particularly disappointing as we had discussed
the gross margin at length with the management team, and this we felt
completely compromised our investment thesis and we therefore sold the
holding. Other detractors included short positions in a reseller of IT
software and a UK retailer. Against the rising market it is unsurprising that
some shorts are buoyed by a general rising tide, however in both cases we have
to acknowledge that these companies have delivered better results than we
expected. We remain short the IT business as we find it hard to understand how
a reseller can justify the current multiple, however we have closed our short
in the furniture business.
ACTIVITY
The total number of positions (long and short) in the portfolio has increased
over the period to 142 as at 31 May 2019, which simply reflects the strength
of the investment universe and an increased amount of new opportunities we
continue to discover on both the long and the short side.
As previously mentioned, we purchased the holding in JD Sports at the
beginning of this financial year (December 2018). The investment case for
owning the business, as set out earlier, and the timing of the trade was
driven by the opportunity presented by the market during the spike in
volatility during 2018, where, as discussed, a number of companies were
severely sold off regardless of the underlying growth prospects for the
business. JD Sports is a clear example of our dynamic process in action, where
our average purchase price of the shares during the period was £3.70,
compared to a market price at the end of May of more than £6.
The Initial Public Offering (“IPO”) market continues to present us with
exciting opportunities. Watches of Switzerland, the luxury watch retailer,
which conducted an IPO in May of this year, is another great example of this
approach where we purchased a holding following an extensive due diligence
process.
We also purchased a new holding in Serco, the provider of public services to
governments globally. The management team has cleaned up the accounting and
fixed the balance sheet, and now recent contract wins are leading to a
business that is growing and generating cash. The recent deal predominantly
providing support to the US Navy significantly enhances Serco’s US footprint
and increases the group’s ability to be more competitive when tendering for
new contracts in the region.
Sales during the period have included Accesso Technology, Restore and Boku.
Both Accesso and Restore have been long held positions for the Company, but
all three fall into the camp of a change in investment thesis from the one we
have originally outlined, and as such our discipline is to sell out as we have
done.
“We have deliberately reduced some of our growth cyclicals, notably
Industrials, reflecting rising headwinds in certain industrial global supply
chains.”
Having reduced the portfolio’s gross and net exposure at the tail end of
last year we have been gradually adding back to this on both the long and
short books. The levels remain below historical average levels at 101% net and
127% gross.
Portfolio Positioning
One of the key messages that we believe it is very important for investors in
the Company to appreciate is that our philosophy is based around bottom up
stock selection. As a result portfolio positioning is a product (an output) of
our stock selection rather than a deliberate decision to take a predetermined
sector exposure versus the benchmark. As a reminder, stock positioning will be
driven by our focus on only two types of company. First would be 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 it would be
the victims of industry change, the ‘disrupted’.
Relative to our benchmark, our largest overweights are Media, General
Retailers and Pharmaceuticals & Biotechnology. Our largest holding in the
Media sector is our long term holding in YouGov. This is a company that many
people will remember as a traditional market research business, however in
reality YouGov has transformed into a data analytics business which now works
with some of the world’s largest brands. The company’s suite of data
products and services makes YouGov a core partner for their clients with all
aspects of marketing workflow in a fast-changing world for consumers.
Within General Retailers our exposure is through companies that are doing
something different and not those that are having their profit pools decimated
by the backdrop of falling footfall on the high street. For example, as
mentioned earlier in this report, JD Sports which has solidified itself as the
key route to market for many leading sportswear brands, or WH Smith which is
transforming its business to drive growth in its travel business and away from
its traditional high street newsagent store formats, and therefore opening up
a large international accessible market. Within Healthcare our largest
position is Dechra Pharmaceuticals, the veterinary product manufacturer which
is also very internationally exposed, has strong products and operates against
a positive industry backdrop.
Our exposure to Resources is extremely limited. We do not own any Oil & Gas
businesses and our exposure to mining is very limited, because these companies
generally fail to meet our investment criteria.
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 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.”
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 (weakening consumer
demand, rising cost pressures).
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
cannot afford. We think there are many of these companies 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 in recent weeks that our view is now garnering support, no doubt
catalysed by the implosion of several high-profile companies which fit the
description(s) we have outlined above. 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).
OUTLOOK
Equity markets globally have made a strong start to the year, in many cases
shrugging off the ongoing geopolitical uncertainty, softening global economic
data and increasing trade tensions. However, while the signs have been
encouraging, we continue to recognise that at this point in the cycle, the
market can be febrile and there is always potential for sudden spikes in
volatility and large swings in sentiment. We will therefore continue to manage
the net and gross exposure accordingly, happy to add risk as opportunities
present themselves.
Despite these risks, we continue to believe that the cycle has room to run.
While this has been a long cycle, there are few signs that we would expect to
see at the beginning of a bear market or sustained period of GDP weakness. Low
inflation and accommodative monetary policy provides support for equity
markets, and importantly we continue to believe that there is sufficient
growth for differentiated companies to prosper. To that end, we continue to
highlight the importance of stock specifics in the current environment, and
the greater dispersion in winners and losers that this market regime and
political backdrop can generate.
Escalating trade tensions clearly present a risk to global growth and
potentially to stock markets, but we feel well positioned to deliver a good
investment outcome whatever happens next. Any global cyclical exposure in the
long book has been moderated (despite many structural trends that benefit our
long positions here regardless) and our long book is comprised of many
advantaged business models with robust finances. The pace of industry change
is not slowing and multi-year secular trends, like the need for corporates to
invest in digital transformation, show no signs of slowing and benefit many of
our holdings. On the flip side, we remain short financial leverage, and
continue to identify lots of opportunities to short commoditised businesses
with weakening demand, as well as structurally flawed businesses models, which
we believe will be the first and real victims of any global slowdown.
DAN WHITESTONE
BlackRock Investment Management (UK) Limited
23 July 2019
PORTFOLIO HOLDINGS AS AT 31 MAY 2019
1
YouGov*
Media
Market value £13,158,000
Share of net assets 3.1%
Provision of survey data and specialist data analytics
2
Aveva
Software & Computer Services
Market value £12,981,000
Share of net assets 3.1%
Engineering and industrial software business
3
JD Sports Fashion
General Retailers
Market value £12,799,000
Share of net assets 3.0%
Leading trainer and sports fashion retailer in the UK
4
Dechra Pharmaceuticals
Pharmaceuticals & Biotechnology
Market value £12,776,000
Share of net assets 3.0%
Development and supply of pharmaceutical and other products focused on the
veterinary market
5
4imprint Group
Media
Market value £12,342,000
Share of net assets 2.9%
Supply of promotional merchandise in the US
6
SSP
Travel & Leisure
Market value £12,092,000
Share of net assets 2.9%
Operator of food and beverage concessions in travel locations
7
IntegraFin
Financial Services
Market value £11,836,000
Share of net assets 2.8%
UK savings platform for financial advisors
8
Watches of Switzerland
Personal Goods
Market value £11,404,000
Share of net assets 2.7%
Retailer of luxury watches
9
Serco
Support Services
Market value £9,862,000
Share of net assets 2.3%
Provision of public services across health, transport, immigration, defence,
justice and citizen services
10
Bodycote
Industrial Engineering
Market value £9,754,000
Share of net assets 2.3%
Provision of thermal processing services
* Traded on the Alternative Investment Market (AIM) of the London
Stock Exchange.
# Company £’000 % of net assets Description
11 Craneware* Software & Computer Services 9,610 2.3 Provision of financial business software for US hospitals
12 Workspace Group Real Estate Investment Trust 8,828 2.1 Provision of flexible workspace to businesses in London
13 WH Smith General Retailers 8,688 2.1 Widespread British retailer of books, stationery, magazines, newspapers, entertainment products and confectionery
14 Beazley Non-life Insurance 8,669 2.1 Specialist insurance businesses
15 Advanced Medical Solutions* Health Care Equipment & Services 8,439 2.0 Development and manufacture of wound care and closure products
16 Big Yellow Real Estate Investment Trust 8,233 2.0 Provision of self-storage services
17 Hiscox Non-life Insurance 7,608 1.8 Provision of insurance services
18 Robert Walters Support Services 7,520 1.8 Provision of specialist recruitment services
19 Breedon* Construction & Materials 6,912 1.6 British construction materials group
20 Chegg General Retailers 6,815 1.6 Provision of education related services
21 Straumann Holding Health Care Equipment & Services 6,697 1.6 Swiss listed provider of products and services for the dental industry
22 Masimo Health Care Equipment & Services 6,546 1.6 Developer and manufacturer of non-invasive patient monitoring technologies
23 Gamma Communications* Mobile Telecommunications 6,520 1.6 Provision of communication services to UK businesses
24 RWS Holdings* Support Services 6,457 1.5 Provision of language support services
25 Future Media 6,413 1.5 Multi-platform media business covering technology, entertainment, creative arts, home interest and education
26 Zotefoams Chemicals 5,975 1.4 Manufactures polyolefin foams used in sport, construction, marine, automation, medical equipment and aerospace
27 Alliance Pharma* Pharmaceuticals & Biotechnology 5,919 1.4 Distributor of pharmaceutical and healthcare products
28 Polar Capital Holdings* Financial Services 5,856 1.4 Provision of investment management services
29 Qinetiq Group Aerospace & Defence 5,792 1.4 Provision of scientific and technological services to the defence, security and aerospace markets
30 Fuller Smith & Turner – A Shares Travel & Leisure 5,719 1.4 Ownership and operation of pubs mainly in the London area
31 Avon Rubber Aerospace & Defence 5,659 1.4 Production of safety masks and dairy related products
32 Next Fifteen Communications* Media 5,544 1.3 Provision of digital communication products and services
33 Sumo Group* Leisure Goods 5,407 1.3 Provision of creative and development services to the video games and entertainment industries
34 Wetherspoon (J.D) Travel & Leisure 5,400 1.3 Ownership and management of pubs in the UK
35 Games Workshop Leisure Goods 5,394 1.3 Developer, publisher and manufacturer of miniature war games
36 Bellway Household Goods & Home Construction 5,301 1.3 UK housebuilder
37 Liontrust Asset Management Financial Services 5,217 1.2 Provision of asset management services
38 James Fisher and Sons Industrial Transportation 5,104 1.2 Provision of innovative marine solutions and specialised engineering services
39 Ryanair Travel & Leisure 5,093 1.2 European low cost airline
40 Grafton Support Services 5,027 1.2 Distribution of building materials
41 Cineworld Group Travel & Leisure 4,993 1.2 Global cinema chain
42 Oxford Instruments Electronic & Electrical Equipment 4,970 1.2 Designs and manufactures tools and systems for industry and research
43 Mattioli Woods* Financial Services 4,868 1.2 Provision of asset management services
44 Young & Co’s Brewery* Travel & Leisure 4,750 1.1 Ownership of pubs in the London area
45 Xero Software & Computer Services 4,678 1.1 Australian listed software company specialising in accounting for small businesses
46 ECO Animal Health* Pharmaceuticals & Biotechnology 4,672 1.1 Development, registration and marketing of pharmaceutical products for global animal health markets
47 Sika Construction & Materials 4,549 1.1 Development and production of products for the building and motor industry
48 Spirax-Sarco Engineering Industrial Engineering 4,508 1.1 Manufacturer of steam management systems and peristaltic pumps and associated fluid path technologies
49 Impax Asset Management* Financial Services 4,452 1.1 Provision of asset management services
50 Bovis Homes Group Household Goods & Home Construction 4,411 1.1 UK housebuilder
51 Premier Asset Management Group* Financial Services 4,398 1.0 Provision of retail asset management services
52 Aptitude Software Software & Computer Services 4,341 1.0 Provision of specialist finance software and technology
53 Sirius Real Estate Real Estate Investment & Services 4,193 1.0 Owner and operator of business parks, offices and industrial complexes in Germany
54 Derwent London Real Estate Investment Trust 3,971 0.9 British property investment company
55 Learning Technologies* Support Services 3,896 0.9 Provision of e-learning services
56 Savills Real Estate Investment & Services 3,861 0.9 Provision of specialist real estate services
57 Tarsus Media 3,821 0.9 Organisation of exhibitions, conferences, education, publishing and online media
58 Great Portland Estates Real Estate Investment Trust 3,817 0.9 British property development and investment company
59 GB Group* Software & Computer Services 3,648 0.9 Development and supply of identity verification solutions
60 Clarkson Industrial Transportation 3,554 0.8 Provision of shipping services
61 Chapel Down (†) Beverages 3,480 0.8 UK producer of sparkling and still wines, beers and ciders
62 Etsy Inc General Retailers 3,436 0.8 Global marketplace for unique and creative goods
63 Huntsworth Media 3,249 0.8 Provision of marketing and research services principally to the pharmaceuticals sector
64 Fevertree Drinks* Beverages 3,136 0.8 Development and sale of soft drinks and mixers
65 Tatton Asset Management* Financial Services 3,116 0.7 Provision of discretionary fund management services to IFA market
66 Entertainment One Media 2,884 0.7 Global independent studio that specialises in the development, acquisition, production, financing, distribution and sales of entertainment content
67 FairFX* Financial Services 2,863 0.7 Provision of international payments services
68 XPS Pensions Group Financial Services 2,846 0.7 Pension consulting and administration business
69 Gooch & Housego* Electronic & Electrical Equipment 2,750 0.7 Designer and manufacturer of advanced photonic systems
70 888 Travel & Leisure 2,675 0.6 Operator and platform for online gaming
71 SThree Support Services 2,641 0.6 Provision of specialist professional recruitment services
72 Draper Esprit* Financial Services 2,573 0.6 Technology focused venture capital firm
73 Team 17* Leisure Goods 2,522 0.6 British video game developer and publisher
74 Trifast Industrial Engineering 2,461 0.6 Manufacture and distribution of industrial fastenings
75 New Relic Software & Computer Services 2,274 0.5 Provision of cloud-based instrumentation platform for complex software environments
76 Treatt Chemicals 2,254 0.5 Development and manufacture of ingredients for the flavour and fragrance industry
77 Five9 Software & Computer Services 2,119 0.5 Provision of cloud-based contact centre software
78 Renishaw Electronic & Electrical Equipment 2,033 0.5 Engineering and scientific technology company, with expertise in precision measurement and healthcare
79 Central Asia Metals* Mining 2,005 0.5 Production of base metals with operations in Kazakhstan and North Macedonia
80 Spectris Electronic & Electrical Equipment 1,986 0.5 Supplier of productivity enhancing instrumentation and controls
81 CVS Group* General Retailers 1,952 0.5 Operation of veterinary surgeries
82 Frontier Developments* Leisure Goods 1,924 0.5 British video game developer and publisher
83 Stock Spirits Group Beverages 1,901 0.5 Development and manufacture of branded spirits mainly in Eastern Europe
84 Diploma Support Services 1,830 0.4 Supplier of specialised technical products and services
85 Ringcentral Mobile Telecommunications 1,792 0.4 Provision of cloud-based communications and collaboration solutions
86 ASOS* General Retailers 1,784 0.4 British online fashion and cosmetic retailer
87 Zendesk Software & Computer Services 1,695 0.4 Provision of cloud-based customer service software
88 AB Dynamics* Industrial Engineering 1,694 0.4 Development and supply of specialist automotive testing systems
89 Coupa Software Software & Computer Services 1,616 0.4 Provision of cloud-based platform for business spend
90 Rathbone Brothers Financial Services 1,510 0.4 Provision of wealth management services
91 Kainos Software & Computer Services 1,368 0.3 Provision of digital technology solutions for government, finance and health industries
92 St. Modwen Properties Real Estate Investment & Services 1,280 0.3 Investment in, and development of property
93 Computacenter Software & Computer Services 1,212 0.3 Provision of computer services to private and public sector clients
94 Park Group* Financial Services 1,044 0.3 Provision of multi-retailer gift cards and vouchers and digital rewards services
95 Joules* General Retailers 979 0.2 Clothing retailer inspired by British country lifestyles
---------------- ----------------
Long investment positions (excluding BlackRock’s Institutional Cash Series plc – Sterling Liquidity Fund) 478,601 113.9
---------------- ----------------
Short investment positions (55,526) (13.2)
========= =========
* 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 31 May 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 31 MAY 2019
Fair value (1) £’000 Market exposure (2) £’000 Market exposure as a % of net assets (3)
Long investment positions (excluding BlackRock’s Institutional Cash Series plc – Sterling Liquidity Fund) 419,100 478,601 113.9
Short investment positions 2,348 (55,526) (13.2)
---------------- ---------------- ----------------
Total exposure 421,448 423,075 100.7
---------------- ---------------- ----------------
BlackRock’s Institutional Cash Series plc – Sterling Liquidity Fund 14,247 14,247 3.4
Cash at bank (4) 224 (1,403) (0.3)
Other net current liabilities (15,907) (15,907) (3.8)
---------------- ---------------- ----------------
Net assets 420,012 420,012 100.0
========= ========= =========
(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 is determined based on the difference between the purchase/sale
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 £59,501,000 at the time of purchase, and subsequent
market falls in prices have resulted in unrealised losses on the long
derivative positions of £308,000, resulting in the value of the total market
exposure to the underlying securities decreasing to £59,193,000 as at 31 May
2019. The notional price of selling the securities to which exposure was
gained via the short derivative positions would have been £57,874,000 at the
time of entering into the contract, and subsequent price falls have resulted
in unrealised gains on the short derivative positions of £2,348,000 and the
value of the market exposure of these investments decreasing to £55,526,000
at 31 May 2019. If the short derivative positions had been closed on 31 May
2019 this would have resulted in a gain of £2,348,000 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.
(4 ) The market exposure column for cash at bank has been
adjusted to assume the Company traded direct holdings rather than exposure
being gained through long and short derivative positions.
DISTRIBUTION OF INVESTMENTS AS AT 31 MAY 2019
Sector % of long portfolio % of short portfolio % of net portfolio
Chemicals 1.9 (0.7) 1.2
Mining 0.5 0.0 0.5
---------------- ---------------- ----------------
Basic Materials 2.4 (0.7) 1.7
---------------- ---------------- ----------------
Aerospace & Defence 2.7 0.0 2.7
Construction & Materials 2.7 (0.8) 1.9
General Industrials 0.0 (0.2) (0.2)
Electronic & Electrical Equipment 2.8 0.0 2.8
Industrial Engineering 4.4 0.0 4.4
Industrial Transportation 2.0 0.0 2.0
Support Services 8.8 (2.7) 6.1
---------------- ---------------- ----------------
Industrials 23.4 (3.7) 19.7
---------------- ---------------- ----------------
Automobiles 0.0 (0.3) (0.3)
Beverages 2.0 0.0 2.0
Food Producers 0.0 (1.1) (1.1)
Household Goods & Home Construction 2.3 0.0 2.3
Leisure Goods 3.6 0.0 3.6
Personal Goods 2.7 (0.7) 2.0
---------------- ---------------- ----------------
Consumer Goods 10.6 (2.1) 8.5
---------------- ---------------- ----------------
Health Care Equipment & Services 5.1 (1.0) 4.1
Pharmaceuticals & Biotechnology 5.5 (1.4) 4.1
---------------- ---------------- ----------------
Health Care 10.6 (2.4) 8.2
---------------- ---------------- ----------------
General Retailers 8.6 (1.0) 7.6
Media 11.2 0.0 11.2
Travel & Leisure 9.6 (1.2) 8.4
---------------- ---------------- ----------------
Consumer Services 29.4 (2.2) 27.2
---------------- ---------------- ----------------
Equity Investment Instruments 0.0 (0.4) (0.4)
Financial Services 12.0 (0.4) 11.6
Non-life Insurance 3.8 0.0 3.8
Real Estate Investment & Services 2.2 0.0 2.2
Real Estate Investment Trusts 5.9 (0.3) 5.6
---------------- ---------------- ----------------
Financials 23.9 (1.1) 22.8
---------------- ---------------- ----------------
Software & Computer Services 10.8 (0.9) 9.9
---------------- ---------------- ----------------
Technology 10.8 (0.9) 9.9
---------------- ---------------- ----------------
Mobile Telecommunications 2.0 0.0 2.0
---------------- ---------------- ----------------
Telecommunications 2.0 0.0 2.0
---------------- ---------------- ----------------
Total Investments 113.1 (13.1) 100.0
========= ========= =========
The above percentages are calculated on the net portfolio as at 31 May 2019.
The net portfolio is calculated as long equity and derivative positions, less
short derivative positions as at 31 May 2019.
ANALYSIS OF THE PORTFOLIO BY MAIN INDEX MEMBERSHIP
Gross basis (1) Net basis (2)
FTSE 250 40.0% 38.5%
FTSE AIM 25.8% 30.1%
FTSE Small Cap 17.6% 14.2%
International 7.9% 9.9%
Other 6.5% 4.4%
FTSE 100 2.2% 2.9%
Source: BlackRock.
(1) Long exposure plus short exposure in aggregate
excluding investment in BlackRock’s Institutional Cash Series plc –
Sterling Liquidity Fund.
(2) Long exposure less short exposure excluding
investment in BlackRock’s Institutional Cash Series plc – Sterling
Liquidity Fund.
MARKET CAPITALISATION AS AT 31 MAY 2019
Long positions* % of net portfolio Short positions % of net portfolio
£1bn+ 65.0% -4.6%
£400m-£1bn 29.8% -5.6%
£100m-£400m 18.3% -2.9%
£0m-£100m 0.0% 0.0%
Source: BlackRock.
POSITION SIZE AS AT 31 MAY 2019
Long positions* Number of positions Short positions Number of positions
£2m+ 79 -2
£1m-£2m 15 -31
£0m-£1m 1 -14
Source: BlackRock.
* The above investments may comprise exposures to long equity and long
derivative positions.
INTERIM MANAGEMENT REPORT AND RESPONSIBILITY STATEMENT
The Chairman’s Statement and the Investment Manager’s report give details
of the important events which have occurred during the period and their impact
on the financial statements.
PRINCIPAL RISKS AND UNCERTAINTIES
The principal risks faced by the Company can be divided into various areas as
follows:
*
Performance;
*
Market;
*
Income/dividend;
*
Financial;
*
Operational; and
*
Regulatory.
The Board reported on the principal risks and uncertainties faced by the
Company in the Annual Report and Financial Statements for the year ended 30
November 2018. A detailed explanation can be found in the Strategic Report on
pages 21 and 22 and in note 16 on pages 82 to 94 of the Annual Report and
Financial Statements which are available on the website maintained by
BlackRock at blackrock.co.uk/thrg.
In the view of the Board, there have been no changes to the fundamental nature
of the principal risks and uncertainties since the previous report and these
are equally applicable to the remaining six months of the financial year as
they were to the six months under review.
RELATED PARTY DISCLOSURE AND TRANSACTIONS WITH THE INVESTMENT MANAGER
BlackRock Fund Managers Limited (BFM) was appointed as the Company’s
Alternative Investment Fund Manager (“AIFM”) with effect from 2 July 2014.
BFM has (with the Company’s consent) delegated certain portfolio and risk
management services, and other ancillary services, to BlackRock Investment
Management (UK) Limited (BIM (UK)). Both BFM and BIM (UK) are regarded as
related parties under the Listing Rules. Details of the fees payable are set
out in note 4 and note 10 of the financial statements.
The related party transactions with the Directors are set out in note 11 of
the financial statements.
GOING CONCERN
The Directors are satisfied that the Company has adequate resources to
continue in operational existence for the foreseeable future (being a period
of at least twelve months from the date that this half-yearly financial report
is approved) and is financially sound. For this reason, they continue to adopt
the going concern basis in preparing the financial statements. The Company has
a portfolio of investments which is considered to be readily realisable and is
able to meet all of its liabilities from its assets and the income generated
from these assets. Ongoing charges (excluding transaction costs, performance
fee and finance costs) for the year ended 30 November 2018 were approximately
0.57% of net assets.
DIRECTORS’ RESPONSIBILITY STATEMENT
The Disclosure Guidance and Transparency Rules (DTR) of the UK Listing
Authority require the Directors to confirm their responsibilities in relation
to the preparation and publication of the Interim Management Report and
Financial Statements.
The Directors confirm to the best of their knowledge that:
*
the condensed set of financial statements contained within the half yearly
financial report has been prepared in accordance with International Accounting
Standard 34 ‘Interim Financial Reporting’; and
*
the Interim Management Report, together with the Chairman’s Statement and
Investment Manager’s report, include a fair review of the information
required by 4.2.7R and 4.2.8R of the FCA’s Disclosure Guidance and
Transparency Rules.
The half yearly financial report has not been audited or reviewed by the
Company’s Auditor.
The half yearly financial report was approved by the Board on 23 July 2019 and
the above responsibility statement was signed on its behalf by the Chairman.
CHRISTOPHER SAMUEL
For and on behalf of the Board
23 July 2019
STATEMENT OF COMPREHENSIVE INCOME FOR THE SIX MONTHS ENDED 31 MAY 2019
Notes Revenue £’000 Capital £’000 Total £’000
Six months ended 31.05.19 (unaudited) Six months ended 31.05.18 (unaudited) Year ended 30.11.18 (audited) Six months ended 31.05.19 (unaudited) Six months ended 31.05.18 (unaudited) Year ended 30.11.18 (audited) Six months ended 31.05.19 (unaudited) Six months ended 31.05.18 (unaudited) Year ended 30.11.18 (audited)
Income from investments held at fair value through profit or loss 3 4,496 5,463 9,281 – – – 4,496 5,463 9,281
Net (expense)/income from derivatives 3 (738) 228 (247) – – – (738) 228 (247)
Other income 3 111 23 40 – – – 111 23 40
--------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- ---------------
Total income 3,869 5,714 9,074 – – – 3,869 5,714 9,074
--------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- ---------------
Net profit/(loss) on investments held at fair value through profit or loss – – – 44,065 38,542 (18,705) 44,065 38,542 (18,705)
Net (loss)/profit on foreign exchange – – – (44) 42 (67) (44) 42 (67)
Net profit from derivatives – – – 3,939 6,756 4,863 3,939 6,756 4,863
--------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- ---------------
Total 3,869 5,714 9,074 47,960 45,340 (13,909) 51,829 51,054 (4,835)
--------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- ---------------
Expenses
Investment management and performance fees 4 (214) (229) (467) (5,394) (4,812) (4,417) (5,608) (5,041) (4,884)
Other operating expenses 5 (295) (261) (537) (14) (8) (21) (309) (269) (558)
--------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- ---------------
Total operating expenses (509) (490) (1,004) (5,408) (4,820) (4,438) (5,917) (5,310) (5,442)
--------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- ---------------
Net profit/(loss) on ordinary activities before finance costs and taxation 3,360 5,224 8,070 42,552 40,520 (18,347) 45,912 45,744 (10,277)
Finance costs (1) – (2) (2) (1) (6) (3) (1) (8)
--------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- ---------------
Net profit/(loss) on ordinary activities before taxation 3,359 5,224 8,068 42,550 40,519 (18,353) 45,909 45,743 (10,285)
Taxation (14) (10) (12) – – – (14) (10) (12)
--------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- ---------------
Profit/(loss) for the period 7 3,345 5,214 8,056 42,550 40,519 (18,353) 45,895 45,733 (10,297)
--------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- ---------------
Earnings/(loss) per ordinary share (pence) 7 4.57 7.13 11.02 58.19 55.41 (25.10) 62.76 62.54 (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 period. All income is attributable to the equity
holders of the Company.
The net profit/(loss) for the period disclosed above represents the
Company’s total comprehensive income/(loss). The Company does not have any
other comprehensive income.
STATEMENT OF CHANGES IN EQUITY FOR THE SIX MONTHS ENDED 31 MAY 2019
Note Called up share capital £’000 Share premium account £’000 Capital redemption reserve £’000 Special reserve £’000 Capital reserves £’000 Revenue reserve £’000 Total £’000
For the six months ended 31 May 2019 (unaudited)
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 period – – – – 42,550 3,345 45,895
Transactions with owners, recorded directly to equity:
Dividends paid ((a)) 6 – – – – – (5,485) (5,485)
--------------- --------------- --------------- --------------- --------------- --------------- ---------------
At 31 May 2019 4,026 21,049 11,905 35,272 337,144 10,616 420,012
--------------- --------------- --------------- --------------- --------------- --------------- ---------------
For the six months ended 31 May 2018 (unaudited)
At 30 November 2017 4,026 21,049 11,905 35,272 312,947 11,647 396,846
Total comprehensive income:
Net profit for the period – – – – 40,519 5,214 45,733
Transactions with owners, recorded directly to equity:
Dividends paid ((b)) 6 – – – – – (5,119) (5,119)
--------------- --------------- --------------- --------------- --------------- --------------- ---------------
At 31 May 2018 4,026 21,049 11,905 35,272 353,466 11,742 437,460
--------------- --------------- --------------- --------------- --------------- --------------- ---------------
For the year ended 30 November 2018 (audited)
At 30 November 2017 4,026 21,049 11,905 35,272 312,947 11,647 396,846
Total comprehensive income:
Net (loss)/profit for the year – – – – (18,353) 8,056 (10,297)
Transactions with owners, recorded directly to equity:
Dividends paid ((c)) – – – – – (6,947) (6,947)
--------------- --------------- --------------- --------------- --------------- --------------- ---------------
At 30 November 2018 4,026 21,049 11,905 35,272 294,594 12,756 379,602
========= ========= ========= ========= ========= ========= =========
((a) ) 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.
((b) ) 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.
((c) ) 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 divided of 2.50p per share for the year ended 30 November 2018,
declared on 25 July 2018 and paid on 29 August 2018.
Costs related to the acquisition and disposal of investments amounted to
£495,000 and £72,000 respectively for the six months ended 31 May 2019 (six
months ended 31 May 2018: £453,000 and £98,000; year ended 30 November 2018:
£935,000 and £223,000). All transaction costs have been included within
capital reserves.
The share premium account and capital redemption reserve are not distributable
profits under the Companies Act 2006. The special 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 of Association, net capital reserves
may be distributed by way of the repurchase by the Company of its ordinary
shares and for payment as dividends.
STATEMENT OF FINANCIAL POSITION AS AT 31 MAY 2019
Notes 31 May 2019 £’000 (unaudited) 31 May 2018 £’000 (unaudited) 30 November 2018 £’000 (audited)
Non current assets
Investments held at fair value through profit or loss 9 419,408 431,684 344,478
--------------- --------------- ---------------
Current assets
Other receivables 3,781 3,149 3,183
Derivative financial assets held at fair value through profit or loss 2,100 4,554 1,719
Cash collateral held with brokers in respect of derivatives 350 450 1,410
Cash and cash equivalents 14,471 10,500 34,081
--------------- --------------- ---------------
20,702 18,653 40,393
--------------- --------------- ---------------
Total assets 440,110 450,337 384,871
--------------- --------------- ---------------
Current liabilities
Other payables (19,678) (9,919) (5,152)
Derivative financial liabilities held at fair value through profit or loss (60) (38) (117)
Cash collateral received in respect of derivatives (360) (2,920) –
--------------- --------------- ---------------
(20,098) (12,877) (5,269)
--------------- --------------- ---------------
Net assets 420,012 437,460 379,602
========= ========= =========
Equity attributable to equity holders
Called up share capital 8 4,026 4,026 4,026
Share premium account 21,049 21,049 21,049
Capital redemption reserve 11,905 11,905 11,905
Special reserve 35,272 35,272 35,272
Capital reserves 337,144 353,466 294,594
Revenue reserve 10,616 11,742 12,756
--------------- --------------- ---------------
Total equity 7 420,012 437,460 379,602
--------------- --------------- ---------------
Net asset value per ordinary share (pence) 7 574.33 598.19 519.08
========= ========= =========
CASH FLOW STATEMENT FOR THE SIX MONTHS ENDED 31 MAY 2019
Six months ended 31 May 2019 £’000 (unaudited) Six months ended 31 May 2018 £’000 (unaudited) Year ended 30 November 2018 £’000 (audited)
Operating activities
Net profit/(loss) on ordinary activities before taxation 45,909 45,743 (10,285)
Add back finance costs 3 1 8
Net (profit)/loss on investments and derivatives held at fair value through profit or loss (including transaction costs) (48,261) (45,536) 13,343
Net loss/(profit) on foreign exchange 44 (42) 67
Sales of investments held at fair value through profit or loss 104,144 122,762 298,720
Purchases of investments held at fair value through profit or loss (135,008) (125,579) (271,577)
Net payments on closure of derivatives 3,758 1,786 3,066
Net movement in cash collateral held with brokers in respect of derivatives 1,420 2,307 (1,573)
Increase in other receivables (582) (2,388) (32)
Increase/(decrease) in other payables 2,800 (14) (2,944)
(Increase)/decrease in amounts due from brokers (5) 942 (1,437)
Increase in amounts due to brokers 11,725 2,558 721
--------------- --------------- ---------------
Net cash (outflow)/inflow from operating activities before interest and taxation (14,053) 2,540 28,077
--------------- --------------- ---------------
Taxation on investment income included within gross income (25) (10) (22)
--------------- --------------- ---------------
Net cash (outflow)/inflow from operating activities (14,078) 2,530 28,055
--------------- --------------- ---------------
Financing activities
Interest paid (3) (1) (8)
Dividends paid (5,485) (5,119) (6,947)
--------------- --------------- ---------------
Net cash outflow from financing activities (5,488) (5,120) (6,955)
--------------- --------------- ---------------
(Decrease)/increase in cash and cash equivalents (19,566) (2,590) 21,100
Effect of foreign exchange rate changes (44) 42 (67)
--------------- --------------- ---------------
Change in cash and cash equivalents (19,610) (2,548) 21,033
Cash and cash equivalents at start of period 34,081 13,048 13,048
--------------- --------------- ---------------
Cash and cash equivalents at end of the period 14,471 10,500 34,081
--------------- --------------- ---------------
Comprised of:
Cash at bank 224 1,290 132
Cash Fund* 14,247 9,210 33,949
--------------- --------------- ---------------
14,471 10,500 34,081
========= ========= =========
* Cash Fund represents funds held on deposit with the BlackRock
Institutional Cash Series plc – Sterling Liquidity Fund.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 31 MAY
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. BASIS OF PREPARATION
The half yearly financial statements have been prepared using the same
accounting policies as set out in the Company’s Annual Report and Financial
Statements for the year ended 30 November 2018 which were prepared in
accordance with International Financial Reporting Standards (‘IFRS’) as
adopted by the European Union and applied in accordance with International
Accounting Standard 34, ‘Interim Financial Reporting’. 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 January 2017 and February
2018 is compatible with IFRS, the Financial Statements have been prepared in
accordance with the guidance set out in the SORP.
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.
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 model to
account for revenue arising from contracts with customers. In addition,
guidance on interest and dividend income have 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.
3. INCOME
Six months ended 31 May 2019 £’000 (unaudited) Six months ended 31 May 2018 £’000 (unaudited) Year ended 30 November 2018 £’000 (audited)
Investment income:
UK dividends 2,892 3,449 6,421
UK special dividends 870 1,068 1,232
UK stock dividends – 40 40
UK REIT dividends 319 249 570
Overseas dividends 390 553 914
Overseas special dividends 25 62 62
Overseas stock dividends – 42 42
--------------- --------------- ---------------
4,496 5,463 9,281
Net (expense)/income from derivatives (738) 228 (247)
--------------- --------------- ---------------
3,758 5,691 9,034
--------------- --------------- ---------------
Other income:
Deposit interest 4 1 4
Interest from Cash Fund 107 22 36
--------------- --------------- ---------------
111 23 40
--------------- --------------- ---------------
Total income 3,869 5,714 9,074
========= ========= =========
Dividends and interest received in cash in the six months ended 31 May 2019
amounted to £3,780,000 and £99,000 (six months ended 31 May 2018:
£4,267,000 and £23,000; year ended 30 November 2018: £9,161,000 and
£45,000) respectively.
There are no special dividends recognised in capital in the six months ended
31 May 2019 (six months ended 31 May 2018: £nil; year ended 30 November 2018:
£nil).
Comparative figures
Interest of £22,000 from the BlackRock Institutional Cash Series plc –
Sterling Liquidity Fund (Cash Fund) has been reclassified from “Income from
investments held at fair value through profit or loss” to “Other Income”
in the Statement of Comprehensive Income for the six months ended 31 May 2018.
This reclassification had no impact on the revenue return for the respective
periods or the net assets as at 31 May 2018.
4. INVESTMENT MANAGEMENT AND PERFORMANCE FEES
Six months ended 31 May 2019 (unaudited) Six months ended 31 May 2018 (unaudited) Year ended 30 November 2018 (audited)
Revenue £’000 Capital £’000 Total £’000 Revenue £’000 Capital £’000 Total £’000 Revenue £’000 Capital £’000 Total £’000
Investment management fee 214 640 854 229 686 915 467 1,399 1,866
Performance fee – 4,754 4,754 – 4,126 4,126 – 3,018 3,018
--------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- ---------------
Total 214 5,394 5,608 229 4,812 5,041 467 4,417 4,884
========= ========= ========= ========= ========= ========= ========= ========= =========
With effect from 1 December 2017, 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. 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 the 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 six
months ended 31 May 2019, a performance fee of £4,754,000 has been accrued
(six months ended 31 May 2018: £4,126,000; year ended 30 November 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
Six months ended 31 May 2019 £’000 (unaudited) Six months ended 31 May 2018 £’000 (unaudited) Year ended 30 November 2018 £’000 (audited)
Allocated to revenue:
Custody fee 5 5 11
Auditor’s remuneration:
– audit services 18 16 37
– other assurance services – 6 7
Registrar’s fee 17 19 39
Directors’ emoluments 68 68 139
Broker fees 18 18 36
Depositary fees 23 28 58
Marketing fees 63 35 79
FCA Fees 6 6 12
Printing and postage fees 21 16 23
AIC fees 14 10 20
Other administrative costs 42 34 76
--------------- --------------- ---------------
295 261 537
========= ========= =========
Allocated to capital:
Custody transaction charges 14 8 21
--------------- --------------- ---------------
309 269 558
========= ========= =========
6. DIVIDENDS
The Board has declared an interim dividend of 2.50p per share payable on 28
August 2019 to shareholders on the register at 2 August 2019 (six months ended
31 May 2018: interim dividend of 2.50p per share paid on 29 August 2018 to
shareholders on the register at 3 August 2018). This dividend has not been
accrued in the financial statements for the six months ended 31 May 2019 as,
under IFRS, interim dividends are not recognised until paid. Dividends are
debited directly to reserves.
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:
Six months ended 31 May 2019 £’000 (unaudited) Six months ended 31 May 2018 £’000 (unaudited) Year ended 30 November 2018 £’000 (audited)
Net revenue profit attributable to ordinary shareholders (£’000) 3,345 5,214 8,056
Net capital profit/(loss) attributable to ordinary shareholders (£’000) 42,550 40,519 (18,353)
-------------------- -------------------- --------------------
Total profit/(loss) attributable to ordinary shareholders (£’000) 45,895 45,733 (10,297)
============ ============ ============
Equity shareholders’ funds (£’000) 420,012 437,460 379,602
-------------------- -------------------- --------------------
The weighted average number of ordinary shares in issue during the period on which the earnings per ordinary share was calculated was: 73,130,326 73,130,326 73,130,326
-------------------- -------------------- --------------------
The actual number of ordinary shares in issue at the end of each period on which the net asset value per ordinary share was calculated was: 73,130,326 73,130,326 73,130,326
-------------------- -------------------- --------------------
Returns per share
Revenue earnings per share (pence) 4.57 7.13 11.02
Capital earnings/(loss) per share (pence) 58.19 55.41 (25.10)
-------------------- -------------------- --------------------
Total earnings/(loss) per share (pence) 62.76 62.54 (14.08)
============ ============ ============
As at 31 May 2019 £’000 (unaudited) As at 31 May 2018 £’000 (unaudited) As at 30 November 2018 £’000 (audited)
Net asset value per ordinary share (pence) 574.33 598.19 519.08
--------------- --------------- ---------------
Ordinary share price (pence) 532.00 538.00 457.00
========= ========= =========
The Company does not have any dilutive securities.
8. CALLED UP SHARE CAPITAL
Ordinary shares in issue (number) Treasury shares (number) Total shares (number) Nominal value £’000
Allotted, called up and fully paid share capital comprised:
Ordinary shares of 5p each:
At 1 December 2018 and 31 May 2019 73,130,326 7,400,000 80,530,326 4,026
There has been no change in the Company’s share capital during the period or
as at the date of this report.
9. VALUATION OF FINANCIAL INSTRUMENTS
Financial assets and financial liabilities are either carried in the Statement
of Financial Position at their fair value (investments and derivatives) or at
an amount which is a reasonable approximation of fair value (due from brokers,
dividends and interest receivable, due to brokers, accruals, cash and cash
equivalents and bank overdrafts). IFRS 13 requires the Company to classify
fair value measurements using a fair value hierarchy that reflects the
significance of inputs used in making the measurements. The valuation
techniques used by the Company are explained in the accounting policies note
2(g) as set out on page 73 in the Company’s Annual Report and Financial
Statements for the year ended 30 November 2018.
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 as follows.
The fair value hierarchy has the following levels:
Level 1 – Quoted market price in an active market for an identical
instrument
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 period end the CFDs were valued using the underlying equity bid
price and the contract price at the inception of the CFD 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 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. Index futures have also been classified as Level 2 investments.
The table below sets out fair value measurements using IFRS 13 fair value
hierarchy.
Financial assets/(liabilities) at fair value through profit or loss as at 31 May 2019 (unaudited) Level 1 £’000 Level 2 £’000 Level 3 £’000 Total £’000
Assets:
Equity investments 419,408 – – 419,408
Contracts for difference (gross exposure on long positions) – 59,193 – 59,193
Liabilities:
Contracts for difference (gross exposure on short positions) – (55,526) – (55,526)
------------------- ------------------- ------------------- -------------------
419,408 3,667 – 423,075
=========== =========== =========== ===========
Financial assets/(liabilities) at fair value through profit or loss as at 31 May 2018 (unaudited) Level 1 £’000 Level 2 £’000 Level 3 £’000 Total £’000
Assets:
Equity investments 431,684 – – 431,684
Contracts for difference (gross exposure on long positions) – 78,645 – 78,645
Liabilities:
Contracts for difference (gross exposure on short positions) – (43,851) – (43,851)
------------------- ------------------- ------------------- -------------------
431,684 34,794 – 466,478
=========== =========== =========== ===========
Financial assets/(liabilities) at fair value through profit or loss as at 30 November 2018 (audited) Level 1 £’000 Level 2 £’000 Level 3 £’000 Total £’000
Assets:
Equity investments 344,478 – – 344,478
Contracts for difference (gross exposure on long positions) – 49,464 – 49,464
Liabilities:
Contracts for difference (gross exposure on short positions) – (39,884) – (39,884)
------------------- ------------------- ------------------- -------------------
344,478 9,580 – 354,058
=========== =========== =========== ===========
There were no transfers between levels for financial assets and financial
liabilities during the period recorded at fair value as at 31 May 2019, 31 May
2018 and 30 November 2018. The Company did not hold any Level 3 securities
throughout the financial period under review or as at 31 May 2019, 31 May 2018
or 30 November 2018.
10. TRANSACTIONS WITH THE AIFM AND INVESTMENT MANAGER
BlackRock Fund Managers Limited (BFM) is the Company’s Alternative
Investment Fund Manager (AIFM). 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)).
The investment management fee due for the six months ended 31 May 2019
amounted to £854,000 (six months ended 31 May 2018: £915,000; year ended 30
November 2018: £1,866,000). In addition a performance fee of £4,754,000 (six
months ended 31 May 2018: £4,126,000, year ended 30 November 2018:
£3,018,000) was accrued for the six months ended 31 May 2019.
At the period end £854,000 was outstanding in respect of management fees (31
May 2018: £915,000; 30 November 2018: £441,000). Any final performance fee
for the full year ending 30 November 2019 will not crystallise and fall due
until the calculation date of 30 November 2019.
In addition to the above services, BlackRock has provided the Company with
marketing services. The total fees paid or payable for these services to 31
May 2019 amounted to £63,000 excluding VAT (six months ended 31 May 2018:
£35,000; year ended 30 November 2018: £79,000). Marketing fees of £145,000
excluding VAT (31 May 2018: £117,000; 30 November 2018: £82,000) were
outstanding at 31 May 2019.
The Company has an investment in BlackRock’s Institutional Cash Series plc
– Sterling Liquidity Fund of £14,247,000 as at 31 May 2019 (31 May 2018:
£9,210,000; 30 November 2018: £33,949,000).
11. RELATED PARTY DISCLOSURE: DIRECTORS’ EMOLUMENTS
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. With effect from 1 December 2018, the remuneration of the
Chairman was increased from £36,000 to £38,500, the remuneration of the
Chairman of the Audit Committee was increased from £28,000 to £30,000 and
for the other Directors the remuneration was increased from £24,000 to
£26,000.
As at 31 May 2019, an amount of £10,000 (31 May 2018: £11,000; 30 November
2018: £11,000) was outstanding in respect of Directors’ fees.
At the period end and at 23 July 2019, the interests of the Directors in the
ordinary shares of the Company were as follows:
Ordinary shares 31 May 2019 Ordinary shares 23 July 2019
Christopher Samuel (Chairman) 24,960 24,960
Loudon Greenlees 15,000 15,000
Jean Matterson 46,000 46,000
Louise Nash – appointed 21 March 2019 nil nil
12. CONTINGENT LIABILITIES
There were no contingent liabilities as at 31 May 2019 (31 May 2018 and 30
November 2018: nil).
13. PUBLICATION OF NON STATUTORY ACCOUNTS
The financial information contained in this half yearly financial report does
not constitute statutory accounts as defined in section 435 of the Companies
Act 2006. The financial information for the six months ended 31 May 2019 has
not been audited or reviewed by the Auditor. The financial information for the
six months to 31 May 2018 was reviewed by Company's Auditor.
The information for the year ended 30 November 2018 has been extracted from
the latest published audited financial statements, which have been filed with
the Registrar of Companies. The report of the previous Auditor on those
financial statements contained no qualification or statement under sections
498(2) or 498(3) of the Companies Act 2006.
14. ANNUAL RESULTS
The Board expects to announce the annual results for the year ending 30
November 2019 in February 2020. Copies of the results announcement can be
obtained from the Secretary on 020 7743 3000 or by email at
cosec@blackrock.com. The Annual Report and Financial Statements should be
available by the beginning of February 2020, with the Annual General Meeting
expected to be held in March 2020.
For further information, please contact:
Simon White, Managing Director, Investment Companies, BlackRock Investment
Management (UK) Limited
Tel: 020 7743 3000
Press enquiries: Lucy Horne, Lansons Communications – Tel: 020 7294 3689
E-mail: lucyh@lansons.com
23 July 2019
12 Throgmorton Avenue
London EC2N 2DL
END
The Half Yearly Financial Report will also be available on the BlackRock
website at http://www.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.
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