REG-BlackRock Throgmorton Trust Plc: Half-year Report
27/07/2023 14:00
BlackRock Throgmorton Trust plc
(Legal Entity Identifier: 5493003B7ETS1JEDPF59)
Information disclosed in accordance with Article 5 Transparency Directive and
DTR 4.2
Half Yearly Financial Report 31 May 2023
As at As at
31 May 2023 30 November 2022
Net assets (£’000) 1 620,407 633,357
Net asset value per ordinary share (pence) 618.58 626.10
Ordinary share price (mid-market) (pence) 587.00 595.00
Benchmark Index 2 15,277.98 15,652.96
Discount to cum income net asset value 3 5.1% 5.0%
For the For the
six months year
ended ended
31 May 2023 30 November 2022
Performance (with dividends reinvested)
NAV per share 3 0.1% (31.1)%
Ordinary share price 3 0.0% (35.5)%
Benchmark Index 2 (2.4)% (17.5)%
Average discount to cum income net asset value for the period/year 3 4.3% 3.5%
For the six For the six Change
months ended months ended %
31 May 2023 31 May 2022
Revenue
Net revenue profit on ordinary activities after taxation (£’000) 8,544 6,303 +35.6
Revenue earnings per ordinary share (pence) 4 8.46 6.12 +38.2
Dividends per ordinary share (pence)
Interim 3.30 2.60 +26.9
========= ========= =========
1 The change in net assets reflects portfolio movements, the purchase of the
Company’s own shares and dividends paid during the period.
2 The Company’s Benchmark Index is the Numis Smaller Companies plus AIM
(excluding Investment Companies) Index. With effect from 22 March 2018, the
Numis Smaller Companies plus AIM (excluding Investment Companies) Index
replaced the Numis Smaller Companies excluding AIM (excluding Investment
Companies) Index as the Company’s Benchmark Index. From 1 December 2013 to
21 March 2018, the Company’s Benchmark Index was the Numis Smaller Companies
excluding AIM (excluding Investment Companies) Index. Prior to 1 December
2013, the Company’s Benchmark Index was the Numis Smaller Companies plus AIM
(excluding Investment Companies) Index. The performance of the Benchmark
Indices during these periods has been blended to reflect these changes.
3 Alternative Performance Measures, see Glossary contained within the Half
Yearly Financial Report.
4 Further details are given in the Glossary contained within the Half Yearly
Financial Report.
CHAIRMAN’S STATEMENT
Dear Shareholder
PERIOD HIGHLIGHTS
· NAV per ordinary share increased by 0.1%, versus the decrease in the
Benchmark Index of 2.4%, an outperformance of 2.5 percentage points
· Share price return flat at 0.0%
· Earnings per share increased by 38.2% year-on-year
· Interim dividend declared of 3.30p per share (31 May 2022: 2.60p)
· Share rating remained stable ending the period at 5.1% (30 November 2022:
5.0%). Average discount during the period of 4.3%, compared with the weighted
average discount for the rest of the peer group of 11.3%
· A total of 863,079 ordinary shares were repurchased into treasury for a
total consideration of £5,076,000
OVERVIEW
The six months to 31 May 2023 were once again dominated by powerful
macroeconomic drivers. High inflation coupled with the threat of contagion
from the US banking crisis acted to exacerbate an already nervous UK market.
Stubborn inflation and persistent wage growth data saw the Bank of England
(BoE) implement a 50-basis point rise in the base interest rate in June
raising interest rates to 5.0%, the highest level since 2008. However, UK
inflation rose by 7.9% in the 12 months to 30 June 2023, a fall from 8.7% in
May, and down from the recent peak of 11.1% in October 2022. This is the
lowest inflation figure for over twelve months and is indeed positive news,
although it remains significantly above the BoE’s 2% target. As the BoE
wrestled with the conundrum of bringing down inflation whilst avoiding an
economic recession, the negative sentiment towards UK assets reported in the
2022 Annual Report continued to weigh heavily on our asset class. Our
Portfolio Manager’s high-quality growth style remained firmly out of favour
throughout the period under review as rising interest rates adversely impacted
company valuations of growth shares.
Against this challenging economic backdrop, our Portfolio Manager, Dan
Whitestone, remains optimistic about the longer-term prospects for the
companies within our portfolio, and for the asset class more broadly. While
the market continues to express a pessimistic view of the outlook in company
valuations, he highlights that trading and, importantly, earnings remain
strong for many of the companies within his portfolio. Despite the negative
sentiment around the outlook, the UK economy has displayed notable resilience,
with household balance sheets and corporate earnings in better shape than many
anticipated. A much-feared UK recession in 2023 is now expected to be avoided
and a return to modest levels of growth in 2024 is forecast by the BoE.
As you will read in the Portfolio Manager’s Report which follows, our
portfolio is constructed of differentiated and innovative companies, with
strong balance sheets, consistent cash flow and the financial resilience to
weather the storm. Our Portfolio Manager believes the challenging
macroeconomic conditions described above will expose weaker competitors who
will flounder against a backdrop of demand weakness, wage inflation and margin
pressure. He trusts that his portfolio of ‘best of breed’ companies will
prosper and consolidate their market position.
PERFORMANCE
Over the six months to 31 May 2023, the Company’s Net Asset Value (NAV)
return was +0.1% compared to a return of -2.4% from the Company’s Benchmark
Index, an outperformance of 2.5 percentage points. The Company’s share price
was flat over the period, returning 0.0% and outperforming the Benchmark Index
by 2.4 percentage points. Since the period end and up to the close of business
on 21 July 2023, the Company’s NAV has risen by 1.6%, and the Benchmark
Index has risen by 2.4% (all figures with dividends reinvested). Over the five
and ten-year periods to 31 May 2023, the Company’s NAV returned +11.8% and
+150.9%, and the share price returned +18.1% and +185.2%, versus the Benchmark
Index returns of -0.1% and +66.0% over the same period.
As I reported in the annual report for the year to 30 November 2022, the
Company’s relative underperformance for that financial year was largely a
result of the impact of a higher than usual gross and net exposure as we
entered the first quarter of 2022. The outbreak of the war in Ukraine coupled
with an acute market rotation from Growth to Value resulted in a broad
derating across the stocks within our portfolio, despite generally good
corporate trading results. Our Portfolio Manager believes there is now, more
than ever, a disconnect between the underlying fundamentals (sales growth,
cash flow and earnings) and the valuations ascribed through the prevailing
share price.
The Board continues to believe that the Company’s investment philosophy and
approach remain compelling and will, in time, enable the Company to resume the
delivery of consistent strong absolute and relative returns to our
shareholders.
Further information on the Company’s performance and the factors that
contributed to performance during the period and the outlook for the second
half of the financial year are set out in the Investment Manager’s Report
below.
Performance record to 31 May 2023 (with dividends reinvested)
NAV per share Share price Benchmark Index
1 Year change % -6.4 -5.9 -11.1
3 Year change % 17.2 10.8 22.2
5 Year change % 11.8 18.1 -0.1
REVENUE RETURN AND DIVIDENDS
The revenue return per share for the period amounted to 8.46 pence per share,
compared to 6.12 pence per share earned during the same six-month period last
year, an increase of 38.2%. It is positive to see that despite the broader
market turmoil, the income generated from our investment portfolio has
increased significantly.
The Board recognises that, although the Company’s objective is capital
growth, shareholders value consistency of dividends paid by the Company; an
interim dividend of 3.30p per share has therefore been declared (2022: 2.60p
per share), payable on 1 September 2023 to shareholders on the register on 4
August 2023 (the ex-dividend date is 3 August 2023). The interim dividend is
fully covered by revenue generated by the portfolio during the period.
SHARE RATING
During the six months to 31 May 2023, the Company’s share rating ranged
between a discount to NAV of 1.0% and a discount to NAV of 6.7%, ending the
period at a discount of 5.1% (30 November 2022: 5.0%). This compares very
favourably with the weighted average discount of the UK Smaller Companies peer
group which ended the period at an average discount of 13.0%.
The Board believes that the best way of addressing any discount to NAV over
the longer term is to generate good performance and to create demand for the
Company’s shares in the secondary market through broadening awareness of the
Company’s unique structure and other attractions. In determining whether the
premium/discount to NAV (the share rating) at which the Company’s shares
trade is excessive or otherwise, the Board considers several factors. These
may include but are not limited to whether the share rating is commensurate
with the current demand for UK Smaller Companies and whether the Company’s
shares were trading in normal market conditions; the ongoing attractiveness of
the investment proposition, in particular the strength of the portfolio
management team and process; and the strong long-term performance delivered
for shareholders, both in absolute and relative terms.
During the period the Company bought back a total of 863,079 ordinary shares
for a total consideration of £5,076,000 to be held in treasury. The advantage
of holding shares in treasury over cancelling them is that they remain listed.
This means that where there is an opportunity to re-issue these shares, the
Company does not have to pay additional fees for admission to trading as would
be required with an issue of new shares. It is the Board’s policy that it
will generally only take shares into treasury where it believes there is a
reasonable likelihood of re-issue in the future. All shares were bought back
at a discount to the prevailing NAV and were therefore accretive to existing
shareholders. Since 31 May 2023 and up to the latest practicable date of 21
July 2023, a further 653,500 shares have been bought back for a total
consideration of £3,729,000. As at 21 July 2023, the Company’s shares were
trading at a discount of 6.8% versus an average discount for the rest of the
peer group of 13.1%.
The Board believes that the share buy back activity undertaken has helped
reduce the volatility in our share rating, as evidenced by a consistently
tighter discount relative to the peer group average. As we navigate these more
volatile and uncertain markets, your Board will continue to monitor the
Company’s share rating and may deploy its powers to issue or buy back the
Company’s shares where it believes that it is in shareholders’ long-term
best interests to do so.
CORPORATE GOVERNANCE
The Board takes its governance responsibilities very seriously and follows
best practice requirements as closely as possible. As I reported in last
year’s Annual Report, we have complied with all applicable regulation and
guidance with regard to matters of board diversity such as the FTSE Women
Leaders Review and the recommendations of the Parker Review, now enshrined in
the UK Listing Rules. More recently, the Board has sought assurances from our
Manager that it has made suitable arrangements for its compliance with the
FCA’s new Consumer Duty regulation, which comes into force on 31 July 2023.
However, the corporate governance environment in which the Company operates
continues to evolve: the FRC has recently published revised minimum standards
for FTSE 350 audit committees and is currently consulting on proposed changes
to the UK Code, which include, amongst other matters, a focus on internal
control, audit committees, ESG consideration and Directors’ time commitment
and the concept of overboarding. The Board remains committed to exercising the
highest standards of good governance and, as we do each year, will report to
shareholders in the Annual Report on our compliance with the UK Code of
Corporate Governance and other matters of good governance.
SHAREHOLDER COMMUNICATION
We appreciate how important access to regular information is to our
shareholders. To supplement our Company website, we offer shareholders the
ability to sign up to the BlackRock’s Trust Matters newsletter which
includes information on the Company as well as news, views and insights on the
investment trust market. Information on how to sign up is included on the
inside cover of the Half Yearly Financial Report.
OUTLOOK
As you will read in his report which follows, our Portfolio Manager describes
the macroeconomic factors which have impacted upon performance, sentiment
towards our asset class generally, and on his high-quality growth style in
particular. Nonetheless, he is optimistic about the future and is encouraged
by what he believes is a mispricing within UK small and mid-caps, as evidenced
by the disconnect between earnings and valuations seen in P/E ratios and the
divergence between UK small cap and large cap, the largest for many years. UK
smaller companies also look very good value, with the twelve month forward
price-earnings ratio for FTSE UK Small-Cap Index averaging 9.4x1 and the FTSE
250 Index averaging 10.8x1. This compares favourably with other developed
markets such as the US and Europe, with the twelve month forward
price-earnings ratio for the S&P 500 Index averaging 19.3x1 and the Eurozone
(as measured by the Eurostoxx Index) averaging 12.2x1. There are of course
headwinds for UK growth stocks, most notably further interest rate increases
anticipated during 2023. There are also indications that we may be reaching
the peak of the current interest rate hiking cycle, which may be the catalyst
for a change in sentiment towards UK smaller companies and in turn a potential
re-rating of our asset class. This, he believes, presents a compelling
investment opportunity for the medium to long-term investor.
Our Portfolio Manager’s focus on financially strong companies with
innovative and disruptive business models and market leading offerings should,
over time, see a return of the strong and consistent investment performance to
which our shareholders have become accustomed. Your Board therefore remains
fully supportive of our Portfolio Manager, his investment philosophy and the
investment approach. On behalf of the Board, I would like to thank
shareholders for their loyalty and patience.
CHRISTOPHER SAMUEL
Chairman
27 July 2023
1 Source: Refinitiv Datastream.
INVESTMENT MANAGER’S REPORT FOR THE SIX MONTHS ENDED 31 MAY 2023
MARKET REVIEW AND OVERALL INVESTMENT PERFORMANCE
The first six months of the financial year bore witness to a continuation of
the macro volatility to which we have become accustomed. This has resulted in
a somewhat challenging market environment to navigate, with stock markets
grappling with macro-economic news, the latest inflation reports, and second
guessing the monetary response from central bankers and its implications for
economic growth. Despite the general bearish rhetoric about an inevitable
recession and an implosion in corporate earnings, the results and outlook
statements from corporates in developed markets has proved far more resilient.
In the US, 81% of companies beat earnings expectations for quarter one and in
Europe the figure is 74%. In many ways this is a continuation of the theme of
the last nine months, i.e. many reasons to be concerned about the macro,
offset by broadly positive corporate news flow and profitability. This tension
continues to create volatile market conditions and few discernible trends,
with the notable exceptions of artificial intelligence (“AI”) related
shares and the diverging performance of US and UK stock markets this year,
particularly pronounced in the absolute and relative underperformance of UK
small and medium sized companies.
Equity markets made a strong start to the year, fuelled by a combination of
China reopening, falling headline and core inflation in the US, as well as
several positive corporate updates which highlighted a more resilient consumer
outlook which all contributed to the increased optimism that a soft landing is
not out of reach. However, optimism was short-lived, and markets sold off
after a series of worse than expected inflation statistics and more hawkish
noises from central banks. Further turbulence came when markets were hit by
fears of a banking crisis following the collapse of Silicon Valley Bank, First
Republic and Credit Suisse. Thankfully, the main issues were largely confined
to US regional banks who had not adequately managed their interest rate risk
or had an unusual concentration in non-insured deposits rather than a global
systemic issue. Most recently, the rise of generative AI has been a hot topic
running through markets, with investors digesting its implications, both
positive and negative, across almost all industries and geographies.
On a global scale, markets have recouped some of the negative performance of
2022, driven heavily by the strength of US technology stocks on the back of
the generative AI phenomenon. This is even more pronounced when comparing the
returns of the technology stock-heavy Nasdaq to the more balanced S&P 500
(respectively returning 24.5% and 9.3% for the year to 31 May 2023). Within
the UK market, concerns over the outlook for Chinese demand and global growth,
the lack of any notable tech exposure, coupled with a large bias towards
resources and financials has resulted in the UK underperforming most global
developed markets. The underperformance of UK small and mid-caps versus the
FTSE 100 has continued; since the initial underperformance which began in
2021, the mid-cap FTSE 250 has underperformed the FTSE 100 by around 30
percentage points, which is the largest underperformance on record.
Critics of the UK will highlight the myriad challenges facing the UK to
explain this underperformance, ranging from stubbornly high inflation (versus
our European and US counterparts), and weak productivity and growth. Brexit
has not, in our view, helped many of these issues, particularly workforce
related problems such as staff shortages/availability and wage inflation.
However, for all these woes, the financial performance from UK listed
companies, both domestic and internationally focused, is far more robust.
There is a growing disconnect between strong company fundamentals and falling
share prices, driven in part by persistent outflows as investors move on to
other areas. Indeed, UK mid-cap funds saw a -21% reduction in AUM from
outflows over the last 12 months, compared to -4% from UK large cap funds.
Currently, the only buyers of note for UK listed companies are the companies
themselves and private equity firms.
PERFORMANCE REVIEW
The Company’s NAV per share increased by +0.1% during the first half of the
financial year, outperforming the benchmark which returned -2.4% (in Sterling
terms with income reinvested). Whilst the relative return during the first
half was positive, we feel this is not fully reflective of the strength in
trading across the portfolio. We consider that a mispricing within UK small
and mid-cap listed companies, is evidenced not only in the low
price-to-earnings ratio for the small and mid-cap universe but also the extent
of relative underperformance versus the FTSE 100. To put this into context,
the FTSE 250 has underperformed the FTSE 100 in 17 of the last 24 months, with
this now being the largest and longest period of underperformance on record,
far exceeding that witnessed during the 2008 global financial crisis.
This Investment Manager’s report focuses on the long holdings within the
portfolio as these are the drivers of the Company’s outperformance during
the period and where the major contributors and detractors to performance lie.
However, before turning to those holdings, we should note that the short
book’s contribution for the period includes the negative performance from
one of our largest shorts (a software company). This rose in the period before
abruptly being suspended on the discovery of “significant, sophisticated and
potentially fraudulent irregularities”. Since the suspension, the company in
question has appointed an external investigator who has clarified that
revenues for 2022 were overstated by 150% and bookings for 2022 were
overstated by 1014% i.e. over 90% of bookings were fake. The board hope to be
able to re-list the shares but we struggle to see any value in a business with
a circa US$10 million revenue run rate and US$40 million of costs. Even
assuming a lofty multiple of 10x sales on this new base, this would imply 90%
downside to the valuation at suspension. Since the period end, the shares
resumed trading after a four-month suspension and we closed our short, locking
in a 96% share price fall which the Company will benefit from in the second
half of the year.
Positive contributors to performance over the last six months have come from a
broad range of companies, with no one company or theme driving an outsized
portion of the overall Company return. The largest contributor to performance
was the position in Games Workshop, which continued to deliver strong results
through the period. Only recently described by some as nothing more than a
“work-from-home winner” which caused their shares to halve in early 2022,
Games Workshop has continued to grow revenues and profits ahead of
expectations and indeed looks likely to close out their fiscal 2023 (May
year-end) with sales and profits considerably higher than those achieved
during the work-from-home era. In a year of limited new product launches (this
is ahead of us) and rising costs, the strength of these results should not be
underestimated. The recent news of a potential deal with Amazon to develop a
TV series (specific details still unknown) should create a significant
positive halo effect on marketing for the brand, in addition to the possible
cash flow benefit from licensing.
Shares in Oxford Instruments strengthened further as the company maintained
its record of beating expectations and raising guidance. We have commented in
the past on the attractions of the long-term secular growth prospects of many
of Oxford Instruments’ end markets, such as life science, compound
semi-conductors, advanced materials and quantum technology. The strength of
these markets, with robust funding across academia, corporates and
governments, has contributed to the ongoing strength of their order books and
revenue generation. While broad comparisons in sectors like Industrials or
Consumer Services are generally best avoided, as no two companies are the
same, but in this case, we think it is important to observe that Oxford
Instrument’s results exemplify three key investor debates within the
Industrials sector. First, Oxford Instruments have been successful in
achieving price increases to offset their own cost pressures (easier to do
when you are a small percentage of a customer’s overall cost, and are
delivering genuine value-add). Second, Oxford Instruments did not achieve the
levels of growth that were possible in their last two years due to supply
chain challenges (now easing); this in our view reduces their own specific
risk of a sharp slowdown amidst customer destocking (the same cannot be said
of all companies in the sector). Third, there is already emerging evidence in
their order books of the “reshoring” programmes we think will be long-term
drivers of Industrial demand in the US.
Dechra Pharmaceuticals rose on the news it has received a cash offer from
private equity group EQT, albeit only at a modest premium to where they raised
money at the end of last year to acquire a pipeline of veterinary drugs which
will accelerate growth in the 2024 financial year and beyond. Recent trading
has proved more challenging than management anticipated, amidst destocking
within the US wholesale channel. The more volatile trading conditions have
also depressed Dechra Pharmaceuticals’ share price. In our view these issues
are only transitory and a compelling long-term growth dynamic remains, but it
is exactly this type of tension (near-term transient issues versus long-term
compound growth) that private equity have capitalised on.
Stepping back, a clear theme to us is that despite the challenging and
volatile environment, high-quality companies with market leading positions can
continue to grow and deliver better-than-expected results. 4imprint Group, one
of our top performers last year, once again reported impressive results
showing 45% revenue growth year-on-year, while profits before tax rose by more
than 240%. These results demonstrate the company’s ability to win share
within a highly fragmented end market due to their recent marketing efforts to
grow brand awareness, whilst they have a long track record of growing the
revenues from their existing customer base through high service levels and
product innovation. Shares in Dunelm Group rose after the company reported
positive growth in both online and in-store sales, with upgrades to full-year
profits guidance. To us, Dunelm Group is a well-invested and differentiated
consumer company that has emerged from COVID-19 with an even stronger business
model (post several years of digital investment and 2-man home delivery) and
market position (capturing share across all demographics as people seek better
value-for-money). Shares in Breedon moved higher after the company reported
better than expected results, achieving margin expansion despite a circa 10%
reduction in volumes and significant cost headwinds. We think Breedon has an
enviable market position in the UK and is well placed to prosper when volumes
recover.
Turning to the detractors, the biggest was Watches of Switzerland, where
shares have continued to fall despite extremely robust sales growth. Fears
continue that demand will erode sharply as the luxury watch category
normalises after a period of over-earning (working-from-home, crypto
millionaires, or Russian oligarchs) yet wait-lists remain robust and demand
still far exceeds supply. The company did experience a recent small earnings
downgrade attributable to margin pressure in the coming financial year from
the rising cost of interest-free credit products in a higher interest rate
environment. However, while this is disappointing, we do not consider it a
threat to the investment case. The company is still growing strongly and we
believe it has a good market position as a key route to market for luxury
watch brands globally. Recent feedback from industry conferences suggests
demand for the category remains strong. Valuation, at under 12x price to
earnings for this current financial year with a net cash balance sheet looks
extremely attractive to us given the runway of growth to take market share in
both the US and Europe, and management’s stated desire to do value accretive
acquisitions.
The second largest detractor was our long position in specialist
pharmaceuticals business Ergomed, which suffered with the broader sell-off in
UK small & mid-cap growth shares and specific fears over a slowdown in biotech
funding. Ergomed specialises in drug development and drug safety, operating
across two businesses (Clinical Research and Pharmacovigilance), focusing on
high growth markets in oncology, rare diseases and drug safety, which we
believe offer a long runway of future growth. Ergomed reported very strong
trading across all divisions for the 12 months to 31 December 2022, with a
positive outlook as its order book continues to grow, providing a high level
of revenue visibility in the coming years, and therefore our investment case
for the share remains unchanged. Ergomed updated the market in June,
confirming a strong start to 2023 with solid revenue growth. Other detractors
include Spirent which warned that their customers have been delaying their
investment decisions as a result of the ongoing challenging economic backdrop,
and direct-to-consumer retailer of swimming pool supplies in the US,
Leslie’s, which fell in response to soft results impacted by the challenging
backdrop and rising costs.
PORTFOLIO POSITIONING & OUTLOOK
To date, 2023 has seen a continuation of the themes of uncertainty; the
impacts of the Russia/Ukraine war, China, supply chain disruption and
inflation. However, despite the recent inflation figures and the subsequent
Bank of England’s 50 basis points interest rate hike, we believe we are
closer to the end of monetary tightening and that inflation is now falling,
albeit slower than previously thought. As the year-on-year impact of inflation
starts to roll over, the impending fall in utility bills will offer some
meaningful shelter to those still to re-mortgage into a new fixed deal in the
current climate. With 40% of home owners being mortgage free, and a large
percentage of the mortgage book having remortgaged earlier this year, there
are many who will benefit from strong employment, falling utility costs and
higher interest on cash. Indeed many banks have upgraded their household
cash-flow forecasts as a consequence and consumer confidence continues to
remain robust. This is not to say that the outlook is positive in all ways,
far from it. However, there are in our view some factors that run counter to
the general tone of recent reporting on the UK economy. Generally speaking, we
consider that financial conditions may not be as stretched as this reporting
current suggests. Corporates and consumers are reasonably well capitalised,
and banks have plenty of capital. The path of employment will dictate the
consumer outlook but we continue to believe that the trough will be shallower
than in previous downturns.
For UK domestic focused public limited companies (“PLCs”), 2023 will
likely see growing dispersion in financial returns. Those with strong market
share stories (digital, trading down, new product verticals etc.) will
outperform and grow despite a more challenging backdrop. Input costs will (we
expect) reverse for many. Financial stability will also be a key contributor
to performance, with rising interest costs further eroding profitability in a
more challenged consumer backdrop.
Industrial activity is likely to moderate as excess inventory works through
the system (we can see evidence of destocking impacting the Chemicals
companies for instance). However, given major markets such as automotive and
aerospace were already seeing choked demand through supply chain issues, again
we expect a shallower trough. Reshoring in the US, as well as several
government programmes (such as measures in relation to semiconductor (chip)
research and production and the Inflation Reduction Act) will provide
additional tailwinds of growth for quite a few US focused UK listed small and
mid-caps. Housebuilding and RMI (Repair, Maintenance and Improvement) have had
a tough first half of the year, but we still believe the outlook is not as bad
as it was in September 2022, and consensus forecasts are already
conservatively struck. As such we think valuations are already pricing in a
lot of bad news.
Whilst there is much that can be debated about the economic outlook, we think
the valuation of UK small and mid-cap companies is compelling. It is therefore
disappointing to us to see the continuing de-equitisation of the UK listed
market continues writ large, with non-market participants seemingly taking a
very different view on the value of company equity and their associated cash
flows, as evidenced by i) corporate share buy-backs (the majority of our
investments are buying back their equity), ii) corporate mergers and
acquisitions (“M&A”) (i.e. Deutsche’s cash-bid for Numis), and iii)
Private Equity (i.e. EQT’s cash bid for Dechra Pharmaceuticals). This is a
trend we expect to continue. Private Equity is sitting on near record levels
of cash (we estimate circa US$438 billion in Europe) which they are keen to
deploy. We note that this de-equitisation trend may pose a challenge if a
significant disconnect of company valuations from strong fundamentals drives a
pick-up in M&A activity and results in companies that would otherwise provide
compelling long-term investment opportunities being taken off the market. On
the positive side, an increased market focus on the opportunities available in
the UK small-cap space may catalyse a positive re-rating.
The portfolio’s positioning has not changed materially over the period. This
reflects our preference for differentiated growth companies with an ability to
win market share. Consumer Discretionary and Industrials tend to be our two
biggest sector areas, and have increased marginally. The Company owns many
long-standing positions such as Breedon, Grafton Group, Gamma Communications,
Ergomed, Morgan Sindall, that have delivered successive positive updates but
have continued to de-rate despite upgrades. We continue to add to these
positions as we consider that they have a compelling risk/reward profile. New
additions to the portfolio in recent months include Intermediate Capital
Group, Permanent TSB, SIG, Future, MJ Gleeson and Crest Nicholson.
Whilst the backdrop is still tough overall, we believe there are reasons for
optimism. The recent round of trading updates from our investments have
generally been in-line with or better than expectations. However, with oil and
gas prices lower year-on-year, China re-opening, USD weakening, and
shipping/logistics/factory gate prices dropping, much of the inflation
pressure of last year could become deflationary during the course of this
year. The picture we see is one of a gradual recovery and in our view, this is
not reflected in valuations so remains the biggest risk/reward opportunity for
us. The underperformance of UK small and mid-cap companies is not something
that we think can persist. We see similar dynamics in the US, with the Russell
2000 versus the Nasdaq back to levels last seen in the 2000 tech bubble. The
portfolio now includes many companies on single digit price to earnings
ratios, with double digit free cash flow yields, but unlike so many
archetypical “value” sectors, have far superior growth prospects. As a
result, the net market exposure of the Company is slowly increasing and is now
around 106%, while the gross exposure is c.115%.
We thank shareholders for their ongoing support.
DAN WHITESTONE
BLACKROCK INVESTMENT MANAGEMENT (UK) LIMITED
27 July 2023
PORTFOLIO OF INVESTMENTS
1 Gamma Communications* (2022: 7th)
Mobile Telecommunications
Market value: £18,766,000
Share of net assets: 3.0% (2022: 2.8%)
Provider of communication services to UK businesses.
2 WH Smith (2022: 9th)
General Retailers
Market value: £18,687,000
Share of net assets: 3.0% (2022: 2.6%)
Retailer of books, stationery, magazines, newspapers and confectionary.
3 Breedon (2022: 12th)
Construction & Materials
Market value: £17,506,000
Share of net assets: 2.8% (2022: 2.4%)
Supplier of construction materials.
4 4imprint Group (2022: 3rd)
Media
Market value: £17,311,000
Share of net assets: 2.8% (2022: 3.1%)
Supplier of promotional merchandise in the US.
5 CVS Group* (2022: 5th)
General Retailers
Market value: £17,309,000
Share of net assets: 2.8% (2022: 2.9%)
Operator of veterinary surgeries.
6 YouGov* (2022: 11th)
Media
Market value: £17,149,000
Share of net assets: 2.8% (2022: 2.4%)
Provider of survey data and specialist data analytics.
7 Diploma* (2022: 8th)
Support Services
Market value: £16,695,0001
Share of net assets: 2.7% (2022: 2.7%)
Supplier of specialised technical products and services.
8 Grafton Group (2022: 13th)
Support Services
Market value: £16,219,000
Share of net assets: 2.6% (2022: 2.1%)
Builders’ merchants in the UK, Ireland and Netherlands.
9 Watches of Switzerland (2022: 1st)
Personal Goods
Market value: £15,569,000
Share of net assets: 2.5% (2022: 3.3%)
Retailer of luxury watches.
10 Ergomed* (2022: 6th)
Pharmaceuticals & Biotechnology
Market value: £15,515,0001
Share of net assets: 2.5% (2022: 2.9%)
Provider of pharmaceutical services.
Percentages shown are the share of net assets.
The market value shown is the gross exposure to the shares through equity
investments and long derivative positions. For equity investments, the market
value is the fair value of the shares. For long derivative positions, it is
the market value of the underlying shares to which the portfolio is exposed
via the contract. Percentages in brackets represent the portfolio holding as
at 30 November 2022.
# Company £’000^ % Description
11 Rotork 15,091 2.4 Manufacturer of industrial flow equipment
Electronic & Electrical Equipment
12 Computacenter 14,992 1 2.4 Computer services
Software & Computer Services
13 SigmaRoc* 14,464 2.3 Buy-and-build group targeting construction materials assets in the UK and Northern Europe
Construction & Materials
14 Oxford Instruments 13,784 2.2 Designer and manufacturer of tools and systems for industry and research
Electronics & Electrical Equipment
15 Qinetiq Group 12,229 2.0 Provider of scientific and technological services to the defence, security and aerospace markets
Aerospace & Defence
16 Bytes Technology 10,909 1.8 Specialist in software, security and cloud services
Software & Computer Services
17 Games Workshop 10,220 1.6 Developer, publisher and manufacturer of miniature war games
Leisure Goods
18 Tatton Asset Management* 10,156 1.6 Provider of discretionary fund management services to the IFA market
Financial Services
19 Moneysupermarket.com 9,893 1 1.6 Provider of price comparison website specialising in financial services
Software & Computer Services
20 Dechra Pharmaceuticals 9,840 1.6 Developer and supplier of pharmaceutical and other products focused on the veterinary market
Pharmaceuticals & Biotechnology
21 Dunelm Group 9,772 1.6 Retailer of homeware products
General Retailers
22 Boku* 9,482 1.5 Digital payments platform
Support Services
23 Mattioli Woods* 9,462 1.5 Provider of wealth management services
Financial Services
24 Hill & Smith Holdings 9,399 1.5 Supplier of infrastructure products and galvanizing services
Industrial Metals & Mining
25 Impax Asset Management* 9,394 1.5 Provider of asset management services
Financial Services
26 Auction Technology Group 9,297 1.5 Operator of marketplaces for curated online auctions
General Retailers
27 IntegraFin 8,955 1.4 UK savings platform for financial advisors
Financial Services
28 Baltic Classifieds Group 8,844 1 1.4 Operator of online classified businesses in the Baltics
Software & Computer Services
29 Morgan Sindall 8,546 1 1.4 Supplier of office fit out, construction and urban regeneration services
Construction & Materials
30 TT Electronics 8,290 1 1.3 Global manufacturer of electronic components
Electronic & Electrical Equipment
31 Workspace Group 7,824 1.3 Supply of flexible workspace to businesses in London
Real Estate Investment Trusts
32 Jet2* 7,684 1.2 Low cost tour operator and airline
Travel & Leisure
33 OSB Group 7,645 1.2 Specialist lending business
Financial Services
34 Chemring Group 7,486 1.2 Provider of technology products and services to aerospace, defence and security markets
Aerospace & Defence
35 GlobalData* 6,759 1 1.1 Data analytics and consulting
Media
36 Intermediate Capital Group 6,692 1.1 Private equity business
Investment Banking & Brokerage
37 Future 6,596 1.1 Multi-platform media business covering technology, entertainment, creative arts, home interest and education
Media
38 Next Fifteen Communications* 6,504 1.0 Provider of digital communication products and services
Media
39 Alfa Financial Software 6,462 1.0 Provider of software to the finance industry
Software & Computer Services
40 Robert Walters 6,442 1.0 Provider of specialist recruitment services
Support Services
41 Hiscox 6,411 1 1.0 Provision of insurance services
Non-life Insurance
42 Vesuvius* 6,307 1 1.0 British engineered ceramics company
Industrial Engineering
43 Euronext* 6,129 1 1.0 European stock exchange
Financial Services
44 SIG 6,102 1.0 Supplier of building, roofing and insulation products
Industrial Support Services
45 Deliveroo 6,089 1.0 Online food delivery business
Software & Computer Services
46 Londonmetric Property 5,784 1 0.9 Investor in, and developer of property
Real Estate Investment Trusts
47 Lok’nStore* 5,773 0.9 Provider of self-storage space in the UK
Real Estate Investment & Services
48 Safestore 5,538 0.9 Provider of self-storage units
Real Estate Investment Trusts
49 Young & Co’s Brewery* 5,516 0.9 Owner and operator of pubs mainly in the London area
Travel & Leisure
50 RS Group 5,307 0.9 Distributor of industrial and electronic products
Support Services
51 Bellway 5,120 0.8 UK housebuilder
Household Goods & Home Construction
52 Xero* 4,974 1 0.8 Software company specialising in accounting for small businesses
Software & Computer Services
53 Porvair 4,915 0.8 Specialist filtration and environmental technology
Industrial Engineering
54 Herc Holdings* 4,882 1 0.8 Equipment rental business
Industrial Transportation
55 Judges Scientific* 4,855 0.8 Designer and producer of scientific instruments
Electronic & Electrical Equipment
56 Cranswick 4,792 0.8 Producer of premium, fresh and added-value food products
Food Producers
57 Kier Group 4,718 0.8 UK construction, services and property group
Support Services
58 AB Dynamics* 4,683 0.8 Developer and supplier of specialist automotive testing systems
Industrial Engineering
59 Ashmore Group 4,599 1 0.7 Emerging market focused investment manager
Financial Services
60 Spectris 4,571 0.7 Supplier of productivity enhancing instrumentation and controls
Electronic & Electrical Equipment
61 Polar Capital Holdings* 4,553 0.7 Provider of investment management services
Financial Services
62 Zotefoams 4,510 1 0.7 Manufacturer of polyolefin foams used in sport, construction, marine, automation, medical equipment and aerospace
Chemicals
63 Permanent TSB 4,354 0.7 Irish bank
Banks
64 Ascential 4,299 0.7 Specialist information and data analytics company
Software & Computer Services
65 Accesso Technology* 4,281 1 0.7 Provider of ticketing and virtual queuing solutions
Software & Computer Services
66 Clarkson 4,216 0.7 Provider of shipping services
Industrial Transportation
67 The Pebble Group* 4,181 0.7 Designer and manufacturer of promotional goods
Media
68 Numis* 4,171 0.7 UK broker
Investment Banking & Brokerage
69 Spirent 4,130 0.7 Multinational telecommunications testing
Technology Hardware & Equipment
70 Kainos Group 4,047 1 0.7 Provider of digital technology solutions
Software & Computer Services
71 Hunting 3,931 1 0.6 Oil services business
Oil Equipment & Services
72 DiscoverIE 3,874 0.6 International designer, manufacturer and supplier of customised electronics
Electronic & Electrical Equipment
73 Redrow 3,843 0.6 UK housebuilder
Household Goods & Home Construction
74 Leslie’s 3,786 1 0.6 US direct to consumer retailer of swimming pool maintenance products
Leisure Goods
75 Serica Energy* 3,770 0.6 Oil and gas producer
Oil, Gas & Coal
76 Luceco 3,763 0.6 Supplier & manufacturer of high quality LED lighting products
Electronic & Electrical Equipment
77 Howden Joinery Group 3,745 1 0.6 Kitchen and joinery product supplier
General Retailers
78 Restore* 3,698 0.6 Provider of records management services
Support Services
79 Sirius Real Estate 3,354 0.6 Owner and operator of business parks, offices and industrial complexes in Germany
Real Estate Investment & Services
80 Halfords 3,293 0.5 Retailer of motoring and cycling products
Specialty Retailers
81 Victorian Plumbing* 3,261 1 0.5 Online retailer of bathroom products
Home Improvement Retailers
82 MJ Gleeson 3,159 0.5 UK housebuilder
Household Goods & Home Construction
83 Renishaw 3,135 0.5 Engineering and scientific technology company
Electronic & Electrical Equipment
84 Babcock International Group 3,122 0.5 British aerospace, defence and nuclear engineering services company
Aerospace & Defence
85 Eckoh* 3,075 0.5 Global provider of secure payments products
Software & Computer Services
86 TP ICAP 3,056 0.5 Inter-dealer broker
Investment Banking & Brokerage
87 Crest Nicholson 3,036 0.5 UK housebuilder
Household Goods & Home Construction
88 Sthree 3,004 0.5 Provider of specialist professional recruitment services
Support Services
89 Ashtead* 2,931 0.5 International equipment rental business
Oil, Gas & Coal
90 Team17* 2,833 0.5 Video game developer and publisher
Leisure Goods
91 Cerillion* 2,816 0.5 Provider of billing, charging and customer management systems
Software & Computer Services
92 AJ Bell 2,732 0.5 UK savings platform for financial advisors & individual investors
Financial Services
93 Advanced Medical Solutions* 2,669 1 0.4 Developer and manufacturer of advanced wound care solutions
Healthcare Equipment & Services
94 Big Technologies* 2,526 0.4 Provider of remote personal monitoring products
Software & Computer Services
95 Learning Technologies* 2,402 0.4 Provider of e-learning services
Software & Computer Services
96 Animalcare Group* 2,095 0.4 Veterinary pharmaceuticals business
Pharmaceuticals & Biotechnology
97 XP Power 1,689 0.3 Leading provider of power solutions
Electronic & Electrical Equipment
98 Gooch & Housego* 1,643 0.3 Designer and manufacturer of advanced photonic systems
Electronic & Electrical Equipment
99 MaxCyte* 1,595 0.3 Clinical-stage global cell-based therapies and life sciences company
Pharmaceuticals & Biotechnology
100 Close Brothers Group 1,590 0.3 UK merchant banking group providing lending, deposit taking, wealth management services and securities trading
Banks
101 NCC Group 917 0.1 Cyber security business
Software & Computer Services
--------------- --------
Long investment positions (excluding BlackRock’s Institutional Cash Series plc –Sterling Liquidity Environmentally Aware Fund) 693,989 111.9
========= ====
Short investment positions (22,364) (3.6)
========= ====
1 Includes long derivative positions.
* Traded on the Alternative Investment Market (AIM) of the London Stock
Exchange.
^ The market value shown is the gross exposure to the shares through equity
investments and long derivative positions. For equity investments, the market
value is the fair value of the shares. For long derivative positions, it is
the market value of the underlying shares to which the portfolio is exposed
via the contract.
Percentages shown as a % of net assets.
At 31 May 2023, the Company held equity interests in four companies comprising
more than 3% of a company’s share capital as follows: Tatton Asset
Management: 3.8%; SigmaRoc: 3.5%; Eckoh: 3.1%; and Ergomed: 3.0%.
Fair value and gross market exposure of investments as at 31 May 2023
Fair value 1 Gross market Gross market exposure as a %
exposure 2,3 of net assets 2
£’000 £’000 31 May 2023 31 May 2022 30 November 2022
Long investment positions (excluding BlackRock’s Institutional Cash Series plc – Sterling Liquidity Environmentally Aware Fund) 609,814 693,989 111.9 108.8 106.8
Short investment positions 1,005 (22,364) (3.6) (6.3) (2.5)
--------------- --------------- --------------- --------------- ---------------
Subtotal 610,819 671,625 108.3 102.5 104.3
========= ========= ========= ========= =========
Cash and cash equivalents 12,983 (47,823) (7.8) (1.2) (3.5)
Other net current liabilities (3,395) (3,395) (0.5) (1.3) (0.8)
--------------- --------------- --------------- --------------- ---------------
Net assets 620,407 620,407 100.0 100.0 100.0
========= ========= ========= ========= =========
The Company uses gearing through the use of long and short derivative
positions. Gross and Net Gearing as at 31 May 2023 were 115.5% and 108.3%
respectively (31 May 2022: 115.1% and 102.5%; year ended 30 November 2022:
109.3% and 104.3% respectively). Gross and Net Gearing are Alternative
Performance Measures, see Glossary contained within the Half Yearly Financial
Report.
1 Fair value is determined as follows:
– Long equity investment positions are valued at bid prices where
available, otherwise at latest market traded quoted prices.
– The sum of the fair value column for the derivative contracts totaling
£84,547,000 represents the net fair valuation of all derivative contracts,
which is determined based on the difference between the notional transaction
price and market value of the underlying shares in the contract (in effect the
unrealised gains/(losses) on the exposed long and short derivative positions).
– The exposure to securities held through long derivative positions
directly in the market would have amounted to £84,175,000 at the time of
purchase, and subsequent movement in market prices have resulted in unrealised
losses on the long derivative positions of £(633,000) resulting in the value
of the total long derivative market exposure to the underlying securities
decreasing to £83,542,000 as at 31 May 2023. If the long positions had been
closed on 31 May 2023, this would have resulted in a loss of £(633,000) for
the Company.
– The notional exposure of selling the securities gained via the short
derivative positions would have been £(23,369,000) at the time of entering
into the contract, and subsequent movement in market prices have resulted in
unrealised gains on the short derivative positions of £1,005,000 resulting in
the value of the total short derivative market exposure of these investments
increasing to £(22,364,000) as at 31 May 2023. If the short positions had
been closed on 31 May 2023, this would have resulted in a gain of £1,005,000
for the Company.
2 Gross market exposure for equity investments is the same as fair value; bid
prices are used where available and, if unavailable, latest market traded
quoted prices are used. For both long and short derivative positions, the
gross market exposure is the market value of the underlying shares to which
the portfolio is exposed via the contract.
3 The gross market exposure column for cash and cash equivalents has been
adjusted to assume the Company traded direct holdings, rather than exposure
being gained through long and short derivative positions.
DISTRIBUTION OF INVESTMENTS AS AT 31 MAY 2023
Sector % of % of % of net
long portfolio short portfolio portfolio
Oil, Gas & Coal 1.0 0.0 1.0
Oil Equipment & Services 0.6 0.0 0.6
--------------- --------------- ---------------
Oil & Gas 1.6 0.0 1.6
========= ========= =========
Chemicals 0.7 0.0 0.7
Industrial Metals & Mining 1.4 0.0 1.4
--------------- --------------- ---------------
Basic Materials 2.1 0.0 2.1
========= ========= =========
Aerospace & Defence 3.4 0.0 3.4
Construction & Materials 6.0 (0.3) 5.7
Electronic & Electrical Equipment 9.0 0.0 9.0
Industrial Engineering 2.4 0.0 2.4
Industrial Support Services 0.9 (0.4) 0.5
Industrial Transportation 1.3 (0.1) 1.2
Support Services 9.8 (0.2) 9.6
--------------- --------------- ---------------
Industrials 32.8 (1.0) 31.8
========= ========= =========
Food Producers 0.7 0.0 0.7
Personal Goods 2.3 0.0 2.3
--------------- --------------- ---------------
Consumer Staples 3.0 0.0 3.0
========= ========= =========
Healthcare Equipment & Services 0.4 0.0 0.4
Pharmaceuticals & Biotechnology 4.3 (0.3) 4.0
--------------- --------------- ---------------
Health Care 4.7 (0.3) 4.4
========= ========= =========
General Retailers 8.8 (0.2) 8.6
Home Improvement Retailers 0.5 0.0 0.5
Household Goods & Home Construction 2.3 0.0 2.3
Leisure Goods 2.5 0.0 2.5
Media 8.7 0.0 8.7
Specialty Retailers 0.5 0.0 0.5
Travel & Leisure 2.0 (0.2) 1.8
--------------- --------------- ---------------
Consumer Discretionary 25.3 (0.4) 24.9
========= ========= =========
Banks 0.9 0.0 0.9
Closed End Investments 0.0 (0.3) (0.3)
Financial Services 9.5 0.0 9.5
Investment Banking & Brokerage 2.1 (0.3) 1.8
Non-life Insurance 0.9 0.0 0.9
--------------- --------------- ---------------
Financials 13.4 (0.6) 12.8
========= ========= =========
Real Estate Investment & Services 1.3 0.0 1.3
Real Estate Investment Trusts 2.8 (0.4) 2.4
--------------- --------------- ---------------
Real Estate 4.1 (0.4) 3.7
========= ========= =========
Software & Computer Services 12.9 (0.6) 12.3
Technology Hardware & Equipment 0.6 0.0 0.6
--------------- --------------- ---------------
Technology 13.5 (0.6) 12.9
========= ========= =========
Mobile Telecommunications 2.8 0.0 2.8
--------------- --------------- ---------------
Telecommunications 2.8 0.0 2.8
========= ========= =========
Total Investments 103.3 (3.3) 100.0
========= ========= =========
The above percentages are calculated on the net portfolio as at 31 May 2023.
The net portfolio is calculated as long equity and derivative positions, less
short derivative positions as at 31 May 2023.
ANALYSIS OF THE PORTFOLIO
Market capitalisation as at 31 May 2023
Long positions 1 Short positions
£5bn – £10bn 1.7% 0.0%
£2.5bn – £5bn 16.3% -0.3%
£2bn – £2.5bn 8.7% -0.2%
£1.5bn – £2bn 12.6% -0.5%
£1bn – £1.5bn 21.4% -0.5%
£500m – £1bn 22.1% -1.2 %
£0m – £500m 20.5% -0.6%
1 The above investments may comprise exposures to long equity and long
derivative positions.
Source: BlackRock.
Position size as at 31 May 2023
Long positions 1 Short positions
£15m – £20m 11 0
£10m – £15m 7 0
£5m – £10m 33 0
£2.5m – £5m 43 0
£0m – £2.5m 7 -13
1 The above investments may comprise exposures to long equity and long
derivative positions.
Source: BlackRock.
PORTFOLIO HOLDINGS WITHIN KEY BENCHMARK INDICES
Gross Basis 1 Net Basis 2
FTSE 250 52.9% 53.2%
FTSE AIM 32.4% 34.5%
FTSE Small Cap 8.0% 7.6%
Other 5.1% 2.9%
FTSE 100 1.6% 1.8%
Portfolio holdings within the Benchmark Index (the Numis Smaller Companies
plus AIM
(excluding Investment companies) index)
Gross Basis 1,3 Net Basis 2,3
Within Benchmark 62.9% 66.1%
Off-Benchmark 37.1% 33.9%
Source: BlackRock.
1 Long exposure plus short exposure as a percentage of the portfolio in
aggregate excluding investment in BlackRock’s Institutional Cash Series plc
– Sterling Liquid Environmentally Aware Fund.
2 Long exposure less short exposure as a percentage of the portfolio
excluding investment in BlackRock’s Institutional Cash Series plc –
Sterling Liquid Environmentally Aware Fund.
3 Holdings included within the Benchmark Index as at 30 November 2022 were
58.6% on a Gross Basis and 56.8% on a Net Basis.
INTERIM MANAGEMENT REPORT AND RESPONSIBILITY STATEMENT
The Chairman’s Statement and the Investment Manager’s Report above give
details of the important events which have occurred during the period and
their impact on the financial statements.
PRINCIPAL RISKS AND UNCERTAINTIES
The principal risks faced by the Company can be divided into various areas as
follows:
· Performance;
· Market;
· Income/dividend;
· Financial;
· Operational; and
· Regulatory.
The Board reported on the principal risks and uncertainties faced by the
Company in the Annual Report and Financial Statements for the year ended 30
November 2022. A detailed explanation can be found in the Strategic Report on
pages 40 to 43 and in note 16 on pages 103 to 115 of the Annual Report and
Financial Statements which are available on the website maintained by
BlackRock at www.blackrock.com/uk/thrg.
The Directors have also assessed the impact of market conditions arising from
the conflict in Ukraine on the Company’s ability to meet its investment
objective. Based on the latest available information, the Company continues to
be managed in line with its investment objective, with no disruption to its
operations.
In the view of the Board, there have not been any changes to the fundamental
nature of the principal risks and uncertainties since the previous report and
these are equally applicable to the remaining six months of the financial year
as they were to the six months under review.
RELATED PARTY DISCLOSURE AND TRANSACTIONS WITH THE INVESTMENT MANAGER
BlackRock Fund Managers Limited (BFM) was appointed as the Company’s
Alternative Investment Fund Manager (AIFM) with effect from 2 July 2014. BFM
has (with the Company’s consent) delegated certain portfolio and risk
management services, and other ancillary services, to BlackRock Investment
Management (UK) Limited (BIM (UK)). Both BFM and BIM (UK) are regarded as
related parties under the Listing Rules. Details of the fees payable are set
out in note 4 and note 11 of the financial statements below.
The related party transactions with the Directors are set out in note 12 of
the financial statements below.
GOING CONCERN
The Board remains mindful of the ongoing uncertainty surrounding the potential
duration of the conflict in Ukraine and its longer-term effects on the global
economy and the current heightened geopolitical risk. Nevertheless, the
Directors, having considered the nature and liquidity of the portfolio, the
Company’s investment objective and the Company’s projected income and
expenditure, are satisfied that the Company has adequate resources to continue
in operational existence for the foreseeable future and is financially sound.
The Company has a portfolio of investments which are predominantly readily
realisable and is able to meet all its liabilities from these assets.
Accounting revenue and expense forecasts are maintained and reported to the
Board regularly and it is expected that the Company will be able to meet all
its obligations. Ongoing charges for the year ended 30 November 2022 were
0.54% of net assets and it is expected that this is unlikely to change
significantly going forward.
Based on the above, the Board is satisfied that it is appropriate to continue
to adopt the going concern basis in preparing the financial statements.
DIRECTORS’ RESPONSIBILITY STATEMENT
The Disclosure Guidance and Transparency Rules (DTR) of the UK Listing
Authority require the Directors to confirm their responsibilities in relation
to the preparation and publication of the Interim Management Report and
Financial Statements.
The Directors confirm to the best of their knowledge that:
· the condensed set of financial statements contained within the Half Yearly
Financial Report has been prepared in accordance with International Accounting
Standard 34 Interim Financial Reporting; and
· the Interim Management Report, together with the Chairman’s Statement
and Investment Manager’s report, include a fair review of the information
required by 4.2.7R and 4.2.8R of the FCA’s Disclosure Guidance and
Transparency Rules.
The Half Yearly Financial Report has not been audited or reviewed by the
Company’s Auditor.
The Half Yearly Financial Report was approved by the Board on 27 July 2023 and
the above responsibility statement was signed on its behalf by the Chairman.
CHRISTOPHER SAMUEL
FOR AND ON BEHALF OF THE BOARD
27 July 2023
STATEMENT OF COMPREHENSIVE INCOME FOR THE SIX MONTHS ENDED 31 MAY 2023
Six months ended Six months ended Year ended
31 May 2023 31 May 2022 30 November 2022
(unaudited) (unaudited) (audited)
Notes Revenue Capital Total Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000
Income from investments held at fair value through profit or loss 3 7,869 – 7,869 5,966 91 6,057 12,585 91 12,676
Net income from derivatives 3 655 – 655 1,119 – 1,119 1,526 – 1,526
Other income 3 754 – 754 76 – 76 749 – 749
--------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- ---------------
Total income 9,278 – 9,278 7,161 91 7,252 14,860 91 14,951
========= ========= ========= ========= ========= ========= ========= ========= =========
Net loss on investments held at fair value through profit or loss – (4,300) (4,300) – (200,574) (200,574) – (250,583) (250,583)
Net loss on foreign exchange – (42) (42) – (507) (507) – (676) (676)
Net loss from derivatives – (980) (980) – (53,754) (53,754) – (55,673) (55,673)
--------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- ---------------
Total 9,278 (5,322) 3,956 7,161 (254,744) (247,583) 14,860 (306,841) (291,981)
========= ========= ========= ========= ========= ========= ========= ========= =========
Expenses
Investment management fee and performance fees 4 (325) (2,461) (2,786) (438) (1,315) (1,753) (756) (2,269) (3,025)
Other operating expenses 5 (405) (10) (415) (418) (10) (428) (843) (20) (863)
--------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- ---------------
Total operating expenses (730) (2,471) (3,201) (856) (1,325) (2,181) (1,599) (2,289) (3,888)
========= ========= ========= ========= ========= ========= ========= ========= =========
Net profit/(loss) on ordinary activities before finance costs and taxation 8,548 (7,793) 755 6,305 (256,069) (249,764) 13,261 (309,130) (295,869)
Finance costs (10) (30) (40) (2) (7) (9) (5) (15) (20)
--------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- ---------------
Net profit/(loss) on ordinary activities before taxation 8,538 (7,823) 715 6,303 (256,076) (249,773) 13,256 (309,145) (295,889)
Taxation credit 6 – 6 – – – 1 – 1
--------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- ---------------
Net profit/(loss) on ordinary activities after taxation 8,544 (7,823) 721 6,303 (256,076) (249,773) 13,257 (309,145) (295,888)
========= ========= ========= ========= ========= ========= ========= ========= =========
Earnings/(loss) per ordinary share (pence) 7 8.46 (7.75) 0.71 6.12 (248.72) (242.60) 12.95 (302.05) (289.10)
========= ========= ========= ========= ========= ========= ========= ========= =========
The total columns of this statement represent the Company’s Statement of
Comprehensive Income, prepared in accordance with UK-adopted International
Accounting Standards (IASs). The supplementary revenue and capital accounts
are both prepared under guidance published by the Association of Investment
Companies (AIC). All items in the above statement derive from continuing
operations. No operations were acquired or discontinued during the period. All
income is attributable to the equity holders of the Company.
The Company does not have any other comprehensive income/(loss). The net
profit/(loss) for the period disclosed above represents the Company’s total
comprehensive income/(loss).
STATEMENT OF CHANGES IN EQUITY FOR THE SIX MONTHS ENDED 31 MAY 2023
Note Called Share Capital Special Capital Revenue Total
up share premium redemption reserve reserves reserve £’000
capital account reserve £’000 £’000 £’000
£’000 £’000 £’000
For the six months ended 31 May 2023 (unaudited)
At 30 November 2022 5,160 242,122 11,905 33,038 327,883 13,249 633,357
Total comprehensive (loss)/income:
Net (loss)/profit for the period – – – – (7,823) 8,544 721
Transactions with owners, recorded directly to equity:
Ordinary shares bought back into treasury – – – (5,053) – – (5,053)
Share purchase costs – – – (23) – – (23)
Dividends paid 1 6 – – – – – (8,595) (8,595)
--------------- --------------- --------------- --------------- --------------- --------------- ---------------
At 31 May 2023 5,160 242,122 11,905 27,962 320,060 13,198 620,407
========= ========= ========= ========= ========= ========= =========
For the six months ended 31 May 2022 (unaudited)
At 30 November 2021 5,072 225,660 11,905 44,582 637,028 10,901 935,148
Total comprehensive (loss)/income:
Net (loss)/profit for the period – – – – (256,076) 6,303 (249,773)
Transactions with owners, recorded directly to equity:
Ordinary shares issued 89 16,479 – – – – 16,568
Share issue costs – (17) – – – – (17)
Ordinary shares bought back into treasury – – – (3,482) – – (3,482)
Share purchase costs – – – (16) – – (16)
Dividends paid 2 6 – – – – – (8,255) (8,255)
--------------- --------------- --------------- --------------- --------------- --------------- ---------------
At 31 May 2022 5,161 242,122 11,905 41,084 380,952 8,949 690,173
========= ========= ========= ========= ========= ========= =========
For the year ended 30 November 2022 (audited)
At 30 November 2021 5,072 225,660 11,905 44,582 637,028 10,901 935,148
Total comprehensive (loss)/income:
Net (loss)/profit for the year – – – – (309,145) 13,257 (295,888)
Transactions with owners, recorded directly to equity:
Ordinary shares issued 88 16,479 – – – – 16,567
Share issue costs – (17) – – – – (17)
Ordinary shares bought back into treasury – – – (11,487) – – (11,487)
Share purchase costs – – – (57) – – (57)
Dividends paid 3 – – – – – (10,909) (10,909)
--------------- --------------- --------------- --------------- --------------- --------------- ---------------
At 30 November 2022 5,160 242,122 11,905 33,038 327,883 13,249 633,357
========= ========= ========= ========= ========= ========= =========
1 Final dividend of 8.50p per share for the year ended 30 November 2022,
declared on 10 February 2023 and paid on 31 March 2023.
2 Final dividend of 8.00p per share for the year ended 30 November 2021,
declared on 7 February 2022 and paid on 31 March 2022.
3 Final dividend of 8.00p per share for the year ended 30 November 2021,
declared on 7 February 2022 and paid on 31 March 2022 and interim dividend of
2.60p per share for the year ended 30 November 2022, declared on 20 July 2022
and paid on 26 August 2022.
For information on the Company’s distributable reserves, please refer to
note 9 below.
STATEMENT OF FINANCIAL POSITION AS AT 31 MAY 2023
Notes 31 May 2023 31 May 2022 30 November 2022
(unaudited) (unaudited) (audited)
£’000 £’000 £’000
Non current assets
Investments held at fair value through profit or loss 10 610,447 623,283 576,771
Current assets
Current tax asset 315 141 174
Other receivables 3,169 3,529 3,131
Derivative financial assets held at fair value through profit or loss 10 1,460 8,448 4,800
Cash collateral pledged with brokers 1,060 4,730 –
Cash and cash equivalents 12,983 67,873 58,793
--------------- --------------- ---------------
Total current assets 18,987 84,721 66,898
--------------- --------------- ---------------
Total assets 629,434 708,004 643,669
========= ========= =========
Current liabilities
Other payables (5,629) (14,904) (2,240)
Derivative financial liabilities held at fair value through profit or loss 10 (1,088) (527) (2,202)
Liability for cash collateral received (2,310) (2,400) (5,870)
--------------- --------------- ---------------
Total current liabilities (9,027) (17,831) (10,312)
--------------- --------------- ---------------
Net assets 620,407 690,173 633,357
========= ========= =========
Equity attributable to equity holders
Called up share capital 8 5,160 5,161 5,160
Share premium account 242,122 242,122 242,122
Capital redemption reserve 11,905 11,905 11,905
Special reserve 27,962 41,084 33,038
Capital reserves 320,060 380,952 327,883
Revenue reserve 13,198 8,949 13,249
--------------- --------------- ---------------
Total equity 620,407 690,173 633,357
========= ========= =========
Net asset value per ordinary share (pence) 7 618.58 672.58 626.10
========= ========= =========
CASH FLOW STATEMENT FOR THE SIX MONTHS ENDED 31 MAY 2023
Six months Six months Year
ended ended ended
31 May 2023 31 May 2022 30 November 2022
(unaudited) (unaudited) (audited)
£’000 £’000 £’000
Operating activities
Net profit/(loss) on ordinary activities before taxation 715 (249,773) (295,889)
Add back finance costs 40 9 20
Loss on investments held at fair value through profit or loss (including transaction costs) 4,300 200,574 250,583
Loss from derivatives (including transaction costs) 980 53,754 55,673
Financing costs on derivatives (1,218) (405) (1,101)
Net loss on foreign exchange 42 507 676
Sales of investments held at fair value through profit or loss 96,831 217,580 325,600
Purchases of investments held at fair value through profit or loss (134,807) (120,232) (231,750)
Net receipts/(payments) on closure of derivatives 2,464 (69,987) (65,886)
(Increase)/decrease in other receivables (721) 637 (279)
Increase/(decrease) in other payables 2,301 3,780 (8,169)
Decrease/(increase) in amounts due from brokers 683 (2,312) (998)
Increase/(decrease) in amounts due to brokers 208 (2,367) (2,599)
Net cash collateral (pledged)/received (4,620) 5,050 13,250
--------------- --------------- ---------------
Net cash (outflow)/inflow from operating activities before taxation (32,802) 36,815 39,131
Taxation paid (135) (60) (92)
--------------- --------------- ---------------
Net cash (outflow)/inflow from operating activities (32,937) 36,755 39,039
========= ========= =========
Financing activities
Interest paid (40) (9) (20)
Cash proceeds from ordinary shares issued – 17,681 17,680
Cash paid for ordinary shares bought back into treasury (4,196) (3,015) (11,544)
Dividends paid (8,595) (8,255) (10,909)
--------------- --------------- ---------------
Net cash (outflow)/inflow from financing activities (12,831) 6,402 (4,793)
========= ========= =========
(Decrease)/increase in cash and cash equivalents (45,768) 43,157 34,246
Effect of foreign exchange rate changes (42) (507) (676)
--------------- --------------- ---------------
Change in cash and cash equivalents (45,810) 42,650 33,570
Cash and cash equivalents at start of period 58,793 25,223 25,223
--------------- --------------- ---------------
Cash and cash equivalents at end of the period 12,983 67,873 58,793
========= ========= =========
Comprised of:
Cash at bank 129 228 103
Cash Fund 1 12,854 67,645 58,690
--------------- --------------- ---------------
12,983 67,873 58,793
========= ========= =========
1 Cash Fund represents funds invested in the BlackRock Institutional Cash
Series plc - Sterling Liquid Environmentally Aware Fund.
NOTES TO THE FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 31 MAY 2023
1. PRINCIPAL ACTIVITY
The principal activity of the Company is that of an investment trust company
within the meaning of Section 1158 of the Corporation Tax Act 2010.
2. BASIS OF PRESENTATION
The Half Yearly Financial Statements for the six month period ended 31 May
2023 have been prepared in accordance with the Disclosure Guidance and
Transparency Rules sourcebook of the Financial Conduct Authority and with the
UK-adopted International Accounting Standard 34 (IAS 34) Interim Financial
Reporting. The Half Yearly Financial Statements should be read in conjunction
with the Company’s Annual Report and Financial Statements for the year ended
30 November 2022, which have been prepared in accordance with UK-adopted
International Accounting Standards (IASs) in conformity with the requirements
of the Companies Act 2006.
Insofar as the Statement of Recommended Practice (SORP) for investment trust
companies and venture capital trusts, issued by the Association of Investment
Companies (AIC) in October 2019 and updated in July 2022, is compatible with
UK-adopted IASs, the financial statements have been prepared in accordance
with guidance set out in the SORP.
Relevant International Accounting Standards that have yet to be adopted:
IFRS 17 – Insurance contracts (effective 1 January 2023). This standard
replaces IFRS 4, which currently permits a wide range of accounting practices
in accounting for insurance contracts. IFRS 17 will fundamentally change the
accounting by all entities that issue insurance contracts and investment
contracts with discretionary participation features.
This standard is unlikely to have any impact on the Company as it does not
issue insurance contracts.
IAS 12 – Deferred tax related to assets and liabilities arising from a
single transaction (effective 1 January 2023). The International Accounting
Standards Board (IASB) has amended IAS 12 Income Taxes to require companies to
recognise deferred tax on particular transactions that, on initial
recognition, give rise to equal amounts of taxable and deductible temporary
differences. According to the amended guidance, a temporary difference that
arises on initial recognition of an asset or liability is not subject to the
initial recognition exemption if that transaction gave rise to equal amounts
of taxable and deductible temporary differences. These amendments might have a
significant impact on the preparation of financial statements by companies
that have substantial balances of right-of-use assets, lease liabilities,
decommissioning, restoration and similar liabilities. The impact for those
affected would be the recognition of additional deferred tax assets and
liabilities.
The amendment of this standard is unlikely to have any significant impact on
the Company.
None of the standards that have been issued but are not yet effective are
expected to have a material impact on the Company.
3. INCOME
Six months Six months Year
ended ended ended
31 May 2023 31 May 2022 30 November 2022
(unaudited) (unaudited) (audited)
£’000 £’000 £’000
Investment income:
UK dividends 5,121 4,244 9,654
UK special dividends 1,175 576 839
UK stock dividends – 44 68
UK REIT dividends 293 210 509
Overseas special dividends 1,280 892 1,515
--------------- --------------- ---------------
Total investment income 1 7,869 5,966 12,585
========= ========= =========
Net income from derivatives 655 1,119 1,526
Other income:
Deposit interest 3 10 111
Interest from Cash Fund 718 66 594
Collateral interest 33 – 44
--------------- --------------- ---------------
754 76 749
========= ========= =========
Total income 9,278 7,161 14,860
========= ========= =========
1 UK and overseas dividends are presented based on the country of domicile of
the respective underlying portfolio company.
Dividends and interest received in cash in the six months ended 31 May 2023
amounted to £7,007,000 and £835,000 (six months ended 31 May 2022:
£6,069,000 and £50,000; year ended 30 November 2022: £12,223,000 and
£615,000).
No special dividends have been recognised in capital in the six months ended
31 May 2023 (six months ended 31 May 2022: £91,000; year ended 30 November
2022: £91,000).
4. INVESTMENT MANAGEMENT AND PERFORMANCE FEES
Six months ended Six months ended Year ended
31 May 2023 31 May 2022 30 November 2022
(unaudited) (unaudited) (audited)
Revenue Capital Total Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000
Investment management fee 325 974 1,299 438 1,315 1,753 756 2,269 3,025
Performance fee – 1,487 1,487 – – – – – –
--------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- ---------------
Total 325 2,461 2,786 438 1,315 1,753 756 2,269 3,025
========= ========= ========= ========= ========= ========= ========= ========= =========
INVESTMENT MANAGEMENT FEES
The investment management fee is calculated at the rate of 0.35% per annum on
month end Gross Assets. For the purposes of this note, Gross Assets are
defined as the value of the portfolio of the Company, including uninvested
cash, with the portfolio valuation based on value at risk (with value at risk
being the gross asset value of the long-only portfolio plus the gross value of
the underlying equities, long and short, to which the Company is exposed
through derivatives including CFDs and index futures). The management fee is
charged 25% to the revenue account and 75% to the capital account of the
Statement of Comprehensive Income. There is no additional fee for company
secretarial and administration services.
PERFORMANCE FEES
The performance fee is calculated at the rate of 15% of the Outperformance of
the Company. For the purpose of this note, Outperformance is defined as the
amount by which the annualised percentage Net Asset Value total return of the
Company arithmetically exceeds the annualised percentage return of the
Benchmark Index, measured over a rolling two-year performance period. This
rate is applied to the average Gross Assets, in that rolling two-year
performance period. Outperformance is the amount by which the Net Asset Value
total return arithmetically exceeds the Benchmark Index total return.
There is a cap on the annual total management and performance fees of 1.25%
per financial year of the average Gross Assets over the rolling two-year
performance period (the “Cap” or “Capped Amount”) which has the effect
of capping the annual performance fees at circa 0.9% of average Gross Assets
and which means that the performance fee from any performance period will not
exceed 0.9% of average Gross Assets for the relevant performance period.
The performance fee is calculated daily for the rolling two-year performance
period ending 30 November 2023 and the rolling two-year performance period
ending 30 November 2024 and, accruals are made in the NAV subject to the Cap.
The performance fee is payable on 30 November each year in relation to the
rolling two-year performance period ending on that date. The accrual is
calculated applying the following assumptions:
· The Benchmark Index remains unchanged.
· The Net Asset Value total return performs in line with the Benchmark Index
total return for the remainder of the respective rolling two-year performance
periods ending 30 November 2023 and 30 November 2024.
· The future value of Gross Assets for performance fee purposes is the same
at the balance sheet date.
The amount of outperformance on which a performance fee has not been paid in a
financial year due to the application of the Cap, will be carried forward to
offset against future shortfall returns. As at 1 December 2022, the carried
forward unpaid net outperformance, net of prior period shortfall returns,
available to offset against future shortfall returns was 10.7% (1 December
2021: 14.6%).
On the first day of the financial year, due to the application of the Cap in
the prior financial year, any performance fee for the ongoing rolling two-year
performance period not yet recognised is accrued in the daily NAV released to
the London Stock Exchange on that day.
Performance fees have been wholly allocated to the capital account of the
Statement of Comprehensive Income as the performance has been predominantly
generated through capital returns from the investment portfolio. For the six
months ended 31 May 2023, the total accrual of performance fee for all rolling
two year performance periods amounted to £1,487,000 (31 May 2022: £nil; 30
November 2022: £nil), calculated as follows:
· For the annualised rolling two-year performance period to 30 November
2023, the Company has underperformed the Benchmark Index by -6.5% as at 31 May
2023. No performance fee relating to this performance period has been accrued
at the date of this report.
· For the annualised rolling two-year performance period to 30 November
2024, the Company has outperformed the Benchmark Index by 1.4% as at 31 May
2023. A performance fee of £1,487,000 relating to this performance period has
been accrued at the date of this report.
5. OTHER OPERATING EXPENSES
Six months Six months Year
ended ended ended
31 May 2023 31 May 2022 30 November 2022
(unaudited) (unaudited) (audited)
£’000 £’000 £’000
Allocated to revenue:
Custody fees 3 5 8
Auditor’s remuneration 1 32 26 52
Registrar’s fees 17 20 45
Directors’ emoluments 115 99 205
Broker fees 18 17 35
Depositary fees 36 48 83
Marketing fees 71 66 153
FCA fees 15 10 28
Printing and postage fees 22 22 42
AIC fees 11 11 21
Stock exchange listing fees 16 80 102
Write back of prior year expenses 2 (9) – (26)
Other administrative costs 58 14 95
--------------- --------------- ---------------
405 418 843
========= ========= =========
Allocated to capital:
Custody transaction charges 3 10 10 20
--------------- --------------- ---------------
415 428 863
========= ========= =========
1 In the six months ended 31 May 2023, no non-audit services were provided by
the auditors (six months ended 31 May 2022: none; year ended 30 November 2022:
none).
2 Relates to Directors’ recruitment fees written back during the period
(six months ended 31 May 2022: none; year ended 30 November 2022: Directors’
expenses, legal fees, registration fees and miscellaneous fees).
3 For the six month period ended 31 May 2023, expenses of £10,000 (six
months ended 31 May 2022: £10,000; year ended 30 November 2022: £20,000)
were charged to the capital account of the Statement of Comprehensive Income.
This relates to transaction costs charged by the custodian on sale and
purchase trades.
The transaction costs incurred on the acquisition of investments amounted to
£652,000 for the six months ended 31 May 2023 (six months ended 31 May 2022:
£378,000; year ended 30 November 2022: £858,000). Costs relating to the
disposal of investments amounted to £66,000 for the six months ended 31 May
2023 (six months ended 31 May 2022: £147,000; year ended 30 November 2022:
£230,000). All transaction costs have been included within capital reserves.
6. DIVIDENDS
The Board has declared an interim dividend of 3.30p per share payable on 1
September 2023 to shareholders on the register at 4 August 2023 (six months
ended 31 May 2022: interim dividend of 2.60p per share paid on 26 August 2022
to shareholders on the register at 29 July 2022). This dividend has not been
accrued in the financial statements for the six months ended 31 May 2023 as,
under IAS, interim dividends are not recognised until paid. Dividends are
debited directly to reserves.
7. EARNINGS/(LOSS) AND NET ASSET VALAUE PER ORDINARY SHARE
Total revenue return, capital loss and net asset value per ordinary share are
shown below and have been calculated using the following:
Six months Six months Year
ended ended ended
31 May 2023 31 May 2022 30 November 2022
(unaudited) (unaudited) (audited)
Net revenue profit attributable to ordinary shareholders (£’000) 8,544 6,303 13,257
Net capital loss attributable to ordinary shareholders (£’000) (7,823) (256,076) (309,145)
---------------- ---------------- ----------------
Total profit/(loss) attributable to ordinary shareholders (£’000) 721 (249,773) (295,888)
---------------- ---------------- ----------------
Equity shareholders’ funds (£’000) 620,407 690,173 633,357
========== ========== ==========
The weighted average number of ordinary shares in issue during the period on which the earnings per ordinary share was calculated was: 100,992,473 102,956,409 102,346,782
The actual number of ordinary shares in issue at the period end on which the net asset value per ordinary share was calculated was: 100,295,785 102,615,194 101,158,864
Earnings/(loss) per ordinary share
Revenue earnings per share (pence) – basic and diluted 8.46 6.12 12.95
Capital loss per share (pence) - basic and diluted (7.75) (248.72) (302.05)
---------------- ---------------- ----------------
Total earnings/(loss) per share (pence) - basic and diluted 0.71 (242.60) (289.10)
========== ========== ==========
As at As at As at
31 May 2023 31 May 2022 30 November 2022
(unaudited) (unaudited) (audited)
Net asset value per ordinary share (pence) 618.58 672.58 626.10
Ordinary share price (pence) 587.00 635.00 595.00
========== ========== ==========
There were no dilutive securities at the period end (six months ended 31 May
2022: none; year ended 30 November 2022: none).
8. CALLED UP SHARE CAPITAL
Ordinary Treasury Total Nominal
shares shares shares value
in issue number number £’000
number
Allotted, called up and fully paid share capital comprised:
Ordinary shares of 5 pence each:
At 30 November 2022 101,158,864 2,051,000 103,209,864 5,160
Ordinary shares bought back into treasury (863,079) 863,079 – –
---------------- ---------------- ---------------- ----------------
At 31 May 2023 100,295,785 2,914,079 103,209,864 5,160
========== ========== ========== ==========
During the six months ended 31 May 2023, the Company bought back 863,079
shares into treasury (six months ended 31 May 2022: 594,670; year ended 30
November 2022: 2,051,000) for a total consideration of £5,076,000 (six months
ended 31 May 2022: £3,498,000; year ended 30 November 2022: £11,544,000)
including costs.
During the six months ended 31 May 2023, the Company issued no new shares (six
months ended 31 May 2022: 1,773,900; year ended 30 November 2022: 1,773,900)
for a total consideration of £nil (six months ended 31 May 2022:
£16,551,000; year ended 30 November 2022: £16,550,000) including costs.
Since 31 May 2023 and up to the date of this report, no shares have been
reissued. 653,500 shares have been bought back into treasury for a total
consideration of £3,729,000.
The ordinary shares give shareholders voting rights, the entitlement to all of
the capital growth in the Company’s assets and to all income from the
Company that is resolved to be distributed.
9. RESERVES
The share premium account and capital redemption reserve are not distributable
reserves under the Companies Act 2006. In accordance with ICAEW Technical
Release 02/17BL on Guidance on Realised and Distributable Profits under the
Companies Act 2006, the special reserve and capital reserve may be used as
distributable reserves for all purposes and, in particular, the repurchase by
the Company of its ordinary shares and for payments such as dividends. In
accordance with the Company’s Articles of Association, the special reserve,
capital reserve and revenue reserve may be distributed by way of dividend. The
gain on the capital reserve arising on the revaluation of investments of
£9,770,000 (six months ended 31 May 2022: gain of £47,224,000; year ended 30
November 2022: gain of £6,609,000) is subject to fair value movements and may
not be readily realisable at short notice, as such it may not be entirely
distributable. The investments are subject to financial risks; as such capital
reserves (arising on investments sold) and the revenue reserve may not be
entirely distributable if a loss occurred during the realisation of these
investments.
10. FINANCIAL RISKS AND VALUATION OF FINANCIAL INSTRUMENTS
The Company’s investment activities expose it to the various types of risk
which are associated with the financial instruments and markets in which it
invests. The risks are substantially consistent with those disclosed in the
previous annual financial statements with the exception of those outlined
below.
Market risk arising from price risk
Price risk is the risk that the fair value or future cash flows of a financial
instrument will fluctuate because of changes in market prices (other than
those arising from interest rate risk or currency risk), whether those changes
are caused by factors specific to the individual financial instrument or its
issuer, or factors affecting similar financial instruments traded in the
market. Local, regional or global events such as war, acts of terrorism, the
spread of infectious illness or other public health issues, recessions,
climate change or other events could have a significant impact on the Company
and its investments.
The current environment of heightened geopolitical risk given the war in
Ukraine has undermined investor confidence and market direction. In addition
to the tragic and devastating events in Ukraine, the war has constricted
supplies of key commodities, pushing prices up and creating a level of market
uncertainty and volatility which is likely to persist for some time.
Valuation of financial instruments
Financial assets and financial liabilities are either carried in the Statement
of Financial Position at their fair value (investments and derivatives) or at
an amount which is a reasonable approximation of fair value (due from brokers,
dividends and interest receivable, due to brokers, accruals, cash at bank and
bank overdrafts). IFRS 13 requires the Company to classify fair value
measurements using a fair value hierarchy that reflects the significance of
inputs used in making the measurements. The valuation techniques used by the
Company are explained in the accounting policies note 2(g) as set out on pages
93 and 94 in the Company’s Annual Report and Financial Statements for the
year ended 30 November 2022.
Categorisation within the hierarchy has been determined on the basis of the
lowest level input that is significant to the fair value measurement of the
relevant asset.
The fair value hierarchy has the following levels:
Level 1 – Quoted market price for identical instruments in active markets
A financial instrument is regarded as quoted in an active market if quoted
prices are readily available from an exchange, dealer, broker, industry group,
pricing service or regulatory agency and those prices represent actual and
regularly occurring market transactions on an arm’s length basis. The
Company does not adjust the quoted price for these instruments.
Level 2 – Valuation techniques using observable inputs
This category includes instruments valued using quoted prices for similar
instruments in markets that are considered less active, or other valuation
techniques where all significant inputs are directly or indirectly observable
from market data.
Valuation techniques used for non-standardised financial instruments such as
options, currency swaps and other over-the-counter derivatives include the use
of comparable recent arm’s length transactions, reference to other
instruments that are substantially the same, discounted cash flow analysis,
option pricing models and other valuation techniques commonly used by market
participants making the maximum use of market inputs and relying as little as
possible on entity specific inputs.
As at the period end the long and short derivative positions were valued using
the underlying equity bid price (offer price in respect of short positions)
and the contract price at the inception of the trade or at the trade reset
date. There have been no changes to the valuation technique since the previous
year or as at the date of this report.
Contracts for difference have been classified as Level 2 investments as their
valuation has been based on market observable inputs represented by the market
prices of the underlying quoted securities to which these contracts expose the
Company.
Level 3 – Valuation techniques using significant unobservable inputs
This category includes all instruments where the valuation technique includes
inputs not based on market data and these inputs could have a significant
impact on the instrument’s valuation.
This category also includes instruments that are valued based on quoted prices
for similar instruments where significant entity determined adjustments or
assumptions are required to reflect differences between the instruments and
instruments for which there is no active market. The Investment Manager
considers observable data to be that market data that is readily available,
regularly distributed or updated, reliable and verifiable, not proprietary and
provided by independent sources that are actively involved in the relevant
market.
The level in the fair value hierarchy within which the fair value measurement
is categorised in its entirety is determined on the basis of the lowest level
input that is significant to the fair value measurement. If a fair value
measurement uses observable inputs that require significant adjustment based
on unobservable inputs, that measurement is a Level 3 measurement.
Assessing the significance of a particular input to the fair value measurement
in its entirety requires judgement, considering factors specific to the Level
3 asset or liability including an assessment of the relevant risks including
but not limited to credit risk, market risk, liquidity risk, business risk and
sustainability risk. The determination of what constitutes ‘observable’
inputs requires significant judgement by the Investment Manager and these
risks are adequately captured in the assumptions and inputs used in
measurement of Level 3 assets or liabilities.
Fair values of financial assets and financial liabilities
The table below sets out fair value measurements using the IFRS 13 fair value
hierarchy.
Financial assets/(liabilities) at fair value through profit or loss at 31 May 2023 (unaudited) Level 1 Level 2 Level 3 Total
£’000 £’000 £’000 £’000
Assets:
Equity investments 610,447 – – 610,447
Contracts for difference – 1,460 – 1,460
Liabilities:
Contracts for difference – (1,088) – (1,088)
---------------- ---------------- ---------------- ----------------
610,447 372 – 610,819
========== ========== ========== ==========
Financial assets/(liabilities) at fair value through profit or loss at 31 May 2022 (unaudited) Level 1 Level 2 Level 3 Total
£’000 £’000 £’000 £’000
Assets:
Equity investments 623,283 – – 623,283
Contracts for difference – 10,056 – 10,056
Liabilities:
Contracts for difference – (1,573) – (1,573)
Futures (562) – – (562)
---------------- ---------------- ---------------- ----------------
622,721 8,483 – 631,204
========== ========== ========== ==========
Financial assets/(liabilities) at fair value through profit or loss at 30 November 2022 (audited) Level 1 Level 2 Level 3 Total
£’000 £’000 £’000 £’000
Assets:
Equity investments 576,771 – – 576,771
Contracts for difference – 4,800 – 4,800
Liabilities:
Contracts for difference – (2,202) – (2,202)
---------------- ---------------- ---------------- ----------------
576,771 2,598 – 579,369
========== ========== ========== ==========
There were no transfers between levels for financial assets and financial
liabilities recorded at fair value during the six months ended 31 May 2023,
six months ended 31 May 2022 or year ended 30 November 2022. The Company did
not hold any Level 3 securities during the period ended 31 May 2023 (six
months ended 31 May 2022: none; year ended 30 November 2022: none).
For exchange listed equity investments the quoted price is the bid price.
Contracts for difference are valued based on the bid price of the underlying
quoted securities that the contracts relate to. Substantially, all investments
are valued based on unadjusted quoted market prices. Where such quoted prices
are readily available in an active market, such prices are not required to be
assessed or adjusted for any business risks, including climate risk, in
accordance with the fair value related requirements of the Company’s
Financial Reporting Framework.
11. TRANSACTIONS WITH THE INVESTMENT MANAGER AND AIFM
BlackRock Fund Managers Limited (BFM) provides management and administration
services to the Company under a contract which is terminable on six months’
notice. BFM has (with the Company’s consent) delegated certain portfolio and
risk management services, and other ancillary services, to BlackRock
Investment Management (UK) Limited (BIM (UK)). Further details of the
investment management contract are disclosed on pages 54 and 55 of the
Directors’ Report in the Company’s Annual Report and Financial Statements
for the year ended 30 November 2022.
The investment management fee due for the six months ended 31 May 2023
amounted to £1,299,000 (six months ended 31 May 2022: £1,753,000; year ended
30 November 2022: £3,025,000). At the period end, £1,906,000 was outstanding
in respect of management fees (31 May 2022: £1,753,000; 30 November 2022:
£1,272,000).
The performance fee accrued for the six months ended 31 May 2023 amounted to
£1,487,000 (six months ended 31 May 2022: £nil; year ended 30 November 2022:
£nil). Any final performance fee for the full year ending 30 November 2023
will not fall due until the calculation date of 30 November 2023.
In addition to the above services, BIM (UK) has provided the Company with
marketing services. The total fees paid or payable for these services to 31
May 2023 amounted to £71,000 excluding VAT (six months ended 31 May 2022:
£66,000; year ended 30 November 2022: £153,000). Marketing fees of £192,000
excluding VAT (31 May 2022: £186,000; 30 November 2022: £120,000) were
outstanding at 31 May 2023.
The Company has funds held on deposit with the BlackRock Institutional Cash
Series plc – Sterling Liquid Environmentally Aware Fund of £12,854,000 as
at 31 May 2023 (31 May 2022: £67,645,000; 30 November 2022: £58,690,000).
As at 31 May 2023, an amount of £198,000 (31 May 2022: £83,000; 30 November
2022: £83,000) was payable to the Manager in respect of Directors’ fees.
The ultimate holding company of the Manager and the Investment Manager is
BlackRock, Inc., a company incorporated in Delaware, USA.
12. RELATED PARTY DISCLOSURE
Directors’ emoluments
The Board consists of six non-executive Directors, all of whom are considered
to be independent of the Manager by the Board. None of the Directors has a
service contract with the Company. With effect from 1 December 2022, the
Chairman receives an annual fee of £46,700, the Chairman of the Audit
Committee receives an annual fee of £37,000 and each of the other Directors
receives an annual fee of £31,700.
As at 31 May 2023, an amount of £18,000 (31 May 2022: £16,500; 30 November
2022: £17,000) was outstanding in respect of Directors’ fees.
At the period end, members of the Board, including any connected persons, held
ordinary shares in the Company as set out below:
Ordinary Ordinary Ordinary
shares shares shares
21 July 2023 31 May 2023 30 November 2022
Christopher Samuel (Chairman) 65,229 65,229 63,352
Loudon Greenlees 1 n/a n/a 15,000
Nigel Burton 16,474 16,474 16,000
Angela Lane 11,656 11,656 11,496
Louise Nash 3,900 3,900 2,100
Merryn Somerset Webb 3,727 3,727 3,727
Glen Suarez 2 4,800 4,800 n/a
1 Loudon Greenlees retired as a Director on 23 March 2023.
2 Glen Suarez was appointed as a Director on 9 January 2023.
Significant Holdings
The following investors are:
a. funds managed by the BlackRock Group or are affiliates of BlackRock, Inc.
(Related BlackRock Funds); or
b. investors (other than those listed in (a) above) who held more than 20% of
the voting shares in issue in the Company and are as a result, considered to
be related parties to the Company (Significant Investors).
As at 31 May 2023
Total % of shares held by Related Total % of shares held by Significant Number of Significant Investors who
BlackRock Funds Investors who are not affiliates of are not affiliates of BlackRock Group or
BlackRock Group or BlackRock, Inc. BlackRock, Inc.
1.53 n/a n/a
As at 31 May 2022
Total % of shares held by Related Total % of shares held by Significant Number of Significant Investors who
BlackRock Funds Investors who are not affiliates of are not affiliates of BlackRock Group or
BlackRock Group or BlackRock, Inc. BlackRock, Inc.
1.71 n/a n/a
13. CONTINGENT LIABILITIES
There were no contingent liabilities as at 31 May 2023 (six months ended 31
May 2022: none; year ended 30 November 2022: none).
14. PUBLICATION OF NON STATUTORY ACCOUNTS
The financial information contained in this half yearly financial report does
not constitute statutory accounts as defined in Section 435 of the Companies
Act 2006. The financial information for the six months ended 31 May 2023 and
31 May 2022 has not been audited.
The information for the year ended 30 November 2022 has been extracted from
the latest published audited financial statements, which have been filed with
the Registrar of Companies. The report of the auditor on those financial
statements contained no qualification or statement under Sections 498(2) or
498(3) of the Companies Act 2006.
15. ANNUAL RESULTS
The Board expects to announce the annual results for the year ending 30
November 2023 in February 2024. 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 2024, with the Annual General Meeting
expected to be held in March 2024.
For further information, please contact:
Melissa Gallagher, 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
27 July 2023
12 Throgmorton Avenue
London EC2N 2DL
END
The Half Yearly Financial Report will also be available on the BlackRock
website at http://www.blackrock.com/uk/thrg. Neither the contents of the
Manager’s website nor the contents of any website accessible from hyperlinks
on the Manager’s website (or any other website) is incorporated into, or
forms part of, this announcement.
Should you wish to receive investment trust related news and insights you can
subscribe to BlackRock’s Investment Trust Matters newsletter at:
https://go.blackrock.com/LP=2142.
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