BLACKROCK INCOME AND GROWTH
INVESTMENT TRUST PLC
LEI: 5493003YBY59H9EJLJ16
Annual results announcement
for the year ended 31 October
2022
PERFORMANCE RECORD
|
As
at
31 October
2022 |
As
at
31 October
2021 |
Change
% |
Net assets (£’000)1 |
40,572 |
43,468 |
-6.7 |
Net asset value per ordinary share
(pence) |
191.63 |
203.13 |
-5.7 |
Ordinary share price (mid-market)
(pence) |
171.00 |
191.00 |
-10.5 |
Discount to net asset
value2 |
10.8% |
6.0% |
|
FTSE All-Share Index |
7945.76 |
8173.30 |
-2.8 |
|
========== |
========== |
========== |
Performance (with
dividends reinvested) |
|
|
|
Net asset value per
share2 |
-2.3% |
30.4% |
|
Ordinary share
price2 |
-7.0% |
22.2% |
|
FTSE All-Share
Index |
-2.8% |
35.4% |
|
|
========== |
========== |
|
|
|
|
|
|
|
|
|
Year ended
31 October
2022 |
Year ended
31 October
2021 |
Change
% |
Revenue |
|
|
|
Net profit after taxation
(£'000) |
1,438 |
1,557 |
-7.6 |
Revenue earnings per ordinary share
(pence)3 |
6.77 |
7.10 |
-4.6 |
|
---------------- |
---------------- |
---------------- |
Dividends (pence) |
|
|
|
Interim |
2.60p |
2.60p |
– |
Final |
4.70p |
4.60p |
2.2 |
Total dividends paid and
payable |
7.30p |
7.20p |
1.4 |
|
========== |
========== |
========== |
1 The change in net assets
reflects portfolio movements, the purchase of the Company’s own
shares and dividends paid during the year.
2 Alternative Performance
Measures, see Glossary in the Annual Report and Financial
Statements.
3 Further details are given
in the Glossary in the Annual Report and Financial Statements.
CHAIRMAN’S STATEMENT
Overview
When I reported to shareholders at this time last year, the UK
market had been buoyed by a successful vaccine roll-out and there
was, to some extent, a degree of optimism as the shadow of COVID-19
faded away and economic activity started to return to more normal
levels. However, although the risk of direct COVID-19 related
disruption appeared to have dissipated, the longer-term damage to
the UK economy that many had feared was evident in strained supply
chains, labour shortages and the rising price of materials, freight
and logistics.
As the UK economy struggled with the transition from a COVID-19
driven demand for goods over services, to a more balanced goods and
services-based economy, the mismatch in demand over supply
inevitably led to rising prices and in turn rising inflation. This
supply chain pressure was compounded by China’s zero COVID-19
policy, which created bottle necks and was at odds with the
resumption of economic activity seen around the industrialised
world.
As we moved through early 2022, Russia’s invasion of
Ukraine triggered an energy supply
shock, resulting in soaring wholesale energy prices, as well as
price spikes in agricultural commodities, pushing up the cost of
many food staples and further exacerbating the supply constraint
led inflationary forces seen at the start of the period. These
powerful inflationary drivers ensured the rate of inflation
continued to rise throughout the financial year and at the time of
writing UK inflation, as measured by the Consumer Prices Index, is
at 9.2%, having peaked at 11.1% in October
2022.
The Bank of England has taken
action to combat rising inflation by reiterating its commitment to
the 2% inflation target and through monetary policy it has
implemented several interest rate hikes during the year. However,
this action has not come without cost, negatively impacting growth
forecasts and raising the likelihood of a more prolonged economic
recession. The stock market responded by adjusting valuations
downward to reflect this more challenging economic environment and
the compounding effect on corporate profit margins of a weakening
pound, higher input costs and rising wages. This rise in operating
costs has, in many cases, been passed on to the consumer, whose
spending power has been steadily eroded as the rising cost of
living bites.
Notwithstanding the headwinds faced by the UK economy, our
portfolio managers have approached this challenging backdrop with
prudence and balance over the 12-month period, avoiding taking
large sector or style bets and with limited use of gearing in the
portfolio. They also increased portfolio exposure to the resources
and power sectors, seeking to add to those holdings which they
believe will be beneficiaries of both rising energy costs and the
UK Government’s focus on the security of energy supply following
the invasion of Ukraine. They have
also used their ability to invest in non-UK companies, providing a
degree of diversification and additional sources of income.
Our portfolio managers’ ongoing focus on high quality, cash
generative companies, with strong balance sheets and experienced
management teams has served the Company well during the year as the
portfolio remained resilient, marginally outperforming the
benchmark; notwithstanding that the Company’s NAV fell in absolute
terms during the period.
Performance
During the year the Company’s Net Asset Value per share (NAV)
returned -2.3%. By comparison, the Company’s benchmark, the FTSE
All-Share Index, returned -2.8%. At the share price level, the
Company returned –7.0% over the period as our discount widened from
6.0% at the start of the financial year to 10.8% as at 31 October 2022.
As at 30 January 2023, since the
year end the Company’s NAV and share price have increased by 11.7%
and 13.7%, respectively (all percentages are in Sterling with
dividends reinvested).
As you will read in the Investment Manager’s Report which
follows, our portfolio saw strong performance from our exposure to
commodities and energy, and our financial holdings also performed
well as interest rates rose. Further details of the key
contributors and detractors from performance, and the portfolio
managers’ views on the outlook for the forthcoming year, can be
found in their report which follows below.
Revenue earnings and dividends
I am pleased to report that despite market volatility the Company’s
earnings remained relatively stable, with revenue earnings per
share for the year ended 31 October
2022 of 6.77 pence compared
with 7.10 pence for the previous
year. The Directors are mindful of shareholders’ desire for income
in addition to capital growth and believe the Company’s dividend is
of great value in the current environment as inflation soars to a
40 year high and a challenging global economic backdrop erodes the
value of the pound. We are therefore proposing a final dividend per
share of 4.70 pence (2021:
4.60 pence) giving total dividends
for the year of 7.30 pence per
share.
Subject to approval at the Annual General Meeting, the final
dividend will be paid on 15 March
2023 to shareholders on the Company’s register at the close
of business on 10 February 2023
(ex-dividend date is 9 February
2023). This final dividend, combined with an interim
dividend of 2.60 pence per share
(2021: 2.60 pence) paid to
shareholders on 1 September 2022,
gives a total dividend for the year of 7.30
pence, resulting in a yield of 4.3% based on a share price
of 171.00 pence as at 31 October 2022.
One of the benefits of the Company’s investment trust structure
is that it can retain up to 15% of total revenue each year to build
up reserves which may be carried forward and used to pay dividends
during leaner times. As at the date of this report the Company held
£2,294,000 in revenue reserves.
Policy on share price discount
The Directors recognise the importance to investors that the
Company’s share price should not trade at a significant discount to
NAV, and therefore, in normal market conditions, may use the
Company’s share buy back, sale of shares from treasury and share
issuance powers to seek to ensure that the share price does not
differ excessively from the underlying NAV. The existing authority
to buy back up to 14.99% of the Company’s issued share capital
(excluding treasury shares) will expire at the conclusion of the
2023 Annual General Meeting and a resolution will be put to
shareholders to renew the authority at that meeting. Currently,
ordinary shares representing up to 33% of the Company’s issued
ordinary share capital can be allotted as new ordinary shares or
sold from treasury.
During the year, a total of 226,928 ordinary shares were
purchased at an average price of 181.50
pence per share, for a total consideration (including costs)
of £416,000. All ordinary shares bought back were cancelled. No
shares were placed in treasury. The average discount for the year
to 31 October 2022 was 7.8% and the discount at the year end
was 10.8% which resulted in a share price return of -7.0% over the
financial year. To put this in context, average discounts for
investment trusts as a sector widened during the year to 13.3% as
at 31 December 2022, compared with
just 2.5% at the end of 2021. As at 30
January 2023, the sector discount was 9.2%.
Gearing
One of the advantages of the investment trust structure is that the
Company can use gearing with the objective of increasing portfolio
returns. The Company operates a flexible gearing policy which
depends on prevailing market conditions and is subject to a maximum
level of 20% of net assets at the time of investment. Net gearing
during the financial year did not exceed the level. As at
31 October 2022 it stood at 2.4%.
At the year end, the Company had in place a borrowing facility
of up to £4 million, provided by ING Luxembourg S.A. This facility
expired in December 2022 and the
borrowings were repaid to the lender. Following consultation with
the Manager, the Board sought a new borrowing facility that was
aligned with the Company’s gearing limit of 20% of net assets. On
23 December 2022, the Company
arranged a replacement borrowing facility provided by The Bank of
New York Mellon (International) Limited. This new facility has a
higher borrowing limit of £8 million and as at the date of this
report it is drawn down by £4 million.
Board composition
At the date of this report the Board consists of four independent
non-executive Directors, with two of the current Directors having
been appointed since 2019. In accordance with best practice and
good corporate governance, the Directors continue to submit
themselves for annual re-election. The Board has a succession plan
in place and will continue to appraise regularly its composition to
ensure that a suitable balance of skills, knowledge, experience,
independence and diversity is achieved to enable the Board to
discharge its duties effectively. Further information on the
Board’s policy on director tenure and succession planning can be
found in the Directors’ Report in the Annual Report and Financial
Statements.
Corporate governance
The UK Code of Corporate Governance (the UK Code) requires enhanced
disclosure setting out how we, as Directors, have fulfilled our
duties in taking into account the wider interests of stakeholders
in promoting the success of the Company. The Board takes its
governance responsibilities very seriously and follows the
provisions of the UK Code as closely as possible.
The Association of Investment Companies (AIC) has also published
updates to its Code of Corporate Governance (the 2019 AIC Code)
which were endorsed by the Financial Reporting Council (FRC) as
being appropriate for investment companies and fulfils the
requirements of the UK Corporate Governance Code, as they are
applicable to investment companies. The Board has fully adopted the
recommendations of the 2019 AIC Code.
Environmental, Social and Governance (ESG)
considerations
Material ESG issues can present both opportunities and risks to
long-term investment performance. While the Company does not have a
sustainable investment objective or exclude investments based only
on ESG criteria, these ethical and sustainability issues are a
consideration of the Company, and your Board is committed to a
diligent oversight of the activities of our Investment Manager in
these areas.
We believe that the companies in which the portfolio is invested
should operate within a healthy ecosystem of all their stakeholders
whether these are shareholders, employees, customers, regulators or
suppliers and that this can aid the sustainability of long-term
returns. We have also provided information on our Manager's
approach to investment stewardship and voting. Further information
can be found in the Annual Report and Financial Statements.
Continuation vote
The Company has an arrangement in place whereby at the Annual
General Meeting (AGM) held in 2018 and at every fifth AGM of the
Company convened thereafter, shareholders shall be asked to approve
the continuation of the Company as an investment trust. Therefore,
an ordinary resolution will be put to shareholders at the
forthcoming AGM to be held at 12.00 noon on Tuesday, 7 March 2023. The Board has considered the
Company’s performance, investment strategy and objective and the
ongoing viability of the Company over the next five years. The
Board believes that the Company’s offering remains compelling,
providing shareholders with growth in both capital and income over
the longer term. The Board therefore unanimously recommends that
shareholders vote in favour of the continuation of the Company in
its current form.
Annual general meeting
It is the Board’s intention that this year’s AGM will be held on
Tuesday, 7 March 2023 at 12.00 noon
at the offices of BlackRock at 12 Throgmorton Avenue, London, EC2N 2DL. Details of the business of
the meeting are set out in the Notice of Annual General Meeting in
the Annual Report and Financial Statements.
At present, UK Government restrictions on public gatherings are
no longer in force in connection with COVID-19 and therefore we
intend to hold the AGM in the normal way with physical attendance
by shareholders. However, although unlikely, shareholders should be
aware that it is possible that such restrictions could be reimposed
if required prior to the date of the AGM and therefore we recommend
that as well as physical attendance, shareholders also cast their
votes by proxy to ensure that their votes are counted.
Shareholders who intend to attend the AGM should ensure that
they have read the venue requirements for entry to the AGM. These
requirements, along with further information on the business of
this year’s AGM, can be found in the Directors’ Report in the
Annual Report and Financial Statements.
The Board very much looks forward to meeting shareholders and
answering any questions you may have on the day. We hope you can
attend this year’s AGM.
Communication with shareholders
We appreciate how important access to regular information is to our
shareholders. To supplement our Company website, we now offer
shareholders the ability to sign up to the Trust Matters newsletter
which includes information on the Company and other news, views and
insights. Further information on how to sign up is included on the
inside front cover of the Annual Report and Financial
Statements.
Outlook
As you will read in their report which follows below, your
investment managers’ fundamental strategy has not changed, although
they remain cautious, not least given the ongoing impact of the war
in Ukraine. The UK market has been
subject to sustained political and economic uncertainty this year,
with rapid changes in last government's policy and the ill advised
"mini-budget" negatively impacting confidence among both companies
and investors. However, in a world currently dominated by
macroeconomic and geopolitical factors, our portfolio managers
remain focused on bottom-up stock selection, assembling a portfolio
of individual companies which they believe are well placed to
prosper over time.
Your Board remains fully supportive of this approach and have
every confidence in the ability of our Investment Managers to
continue to deliver on the Company’s investment objective as we
move into 2023 and beyond.
Graeme Proudfoot
Chairman
1 February 2023
INVESTMENT MANAGER’S REPORT
Performance
For the 12 months since 31 October
2021, the Company’s NAV returned -2.3%, outperforming its
benchmark, whereas the FTSE All-Share Index (the Benchmark Index)
returned -2.8% over the same period (all percentages are in
Sterling with dividends reinvested).
Market review
The year ended 31 October 2022 marked
a tumultuous time in markets with building inflationary pressures
that were exacerbated by the war in Ukraine, leading to rising interest rates and
heightened recessionary concerns.
Strong demand combined with supply chain constraints continued
to drive inflation higher at the start of the period. Interest rate
expectations rose to reflect this increasingly inflationary
backdrop causing the discount rate used by financial markets to
rise and the valuation of financial assets to fall. This also
impacted the shape of the market as the valuation of long duration
assets was hit hardest, as evidenced by the underperformance of
growth shares within equity markets. Global stock markets weakened
further on the announcement of Russia’s invasion of Ukraine in February
2022. The war exacerbated inflationary concerns as supply
chains were disrupted once more, with the price of key commodities
across energy and agriculture markets rising sharply while energy
supply and security became a key focus. Geopolitical tensions have
remained at the fore throughout the period, as highlighted by the
interruptions to Europe’s energy supply due to the suspension of
the Nord Stream gas pipeline. Recessionary fears have been stoked
by persistent high inflation pressuring consumers, while the
rhetoric from central banks remains hawkish driving interest rate
expectations higher.
Whilst COVID-19 faded in relative importance, it continued to
have impacts, notably with China’s ongoing zero-COVID-19 policy,
compounding the global inventory problems and causing continued
supply chain constraints.
The period ended with the UK Government’s “mini-budget”
announcement leading to market turmoil. The scale of the announced
tax cuts and the lack of independent oversight from the Office of
Budget Responsibility triggered a sell-off in gilts which quickly
spiralled as Liability Driven Investment pension schemes became
forced sellers and only stabilised once the Bank of England intervened. The outlook for the UK
economy remains challenged, although it has stabilised following
the latest change in leadership.
Although the FTSE All-Share Index fell in absolute terms, the UK
market provided some relative respite compared to other global
markets, benefitting in part from its low starting valuation.
Market performance was dominated by the strength in commodities
prices; Mining and Oil & Gas markedly outperformed as the oil
price surged and defensive sectors, such as Tobacco and
Pharmaceuticals, also benefitted from the increase in economic
uncertainty. In contrast, cyclical sectors, notably Industrials,
and domestically exposed sectors, such as Construction and
Retailers, fell sharply contributing to weakness in mid and
small-cap indices.
Contributors to and detractors from performance
During the period, the Company’s performance fell in absolute terms
as rising interest rates and the implications of the “mini-budget”
announcement weighed on performance, however, the portfolio
outperformed in relative terms. International shares performed
relatively better and contributed to relative performance of the
portfolio while domestic holdings including BT Group,
Taylor Wimpey and Moonpig
Group performed poorly and detracted. Mining holdings Rio
Tinto and BHP were top positive contributors to the
returns of the Company reflecting the strength in commodity
markets.
Pearson was a top positive contributor during the period
despite rejecting a bid from private equity. The company has
consistently posted strong results and was the strongest performing
company in the index over the period. The education company is
shifting emphasis away from the legacy textbook business to the
stable growth, highly cash generative core, where we see material
value.
Whilst the underweight positioning in the Oil & Gas sector
detracted from performance given strength in the oil price, other
holdings exposed to the energy sector including Drax and
Chart Industries, a US-listed supplier of equipment to the
clean energy sector performed well and contributed to relative
performance. Whilst these had been relatively recent purchases for
the Company, both have been subsequently sold following significant
outperformance having risen c. 40% in absolute terms during the
year.
US-listed Mastercard reported solid results with strong
payment volumes and an encouraging acceleration in cross-border
volume linked to increased travel as COVID-19 restrictions fade.
EuroAPI, a pharmaceutical ingredients producer, was another
top positive contributor to relative performance during the period.
This was added to the portfolio after its spin-off from French
pharmaceutical company, Sanofi. The company announced very
strong numbers in September for its first statement as a public
company where revenue beat expectations by 5% and EBITDA by
10%.
Heightened recession concerns impacted the portfolio with the
potential for consumer weakness, housing price falls and rising
unemployment leading to weakness in several holdings, such as
Moonpig Group, Hays, Taylor Wimpey and Grafton Group.
Whilst cyclical exposure in the Company was moderated, we continue
to own positions in these areas given the attractive valuations on
offer. We are also reassured by strong balance sheets and cash
generation and where we see the opportunity for companies to
improve market positions through the downturn.
Elsewhere the holding in Integrafin negatively impacted
performance. Although the technology platform for independent
financial advisers reported strong results, we were disappointed to
see a meaningful cost increase causing us to question the
operational strength of the company. We have sold the position.
Transactions
We approached portfolio construction with caution and balance over
the 12-month period, avoiding large sector or style bets and with
limited use of gearing, given the difficult circumstances and many
moving parts that investors faced.
Having added to holdings in the resources and energy sectors
prior to the period, we continued to add to holdings that are
beneficiaries of both rising energy costs and of the focus on the
security of energy supply; purchasing Centrica and
Woodside Energy Group and adding to BP Group
and Shell. We also reduced Financials exposure in the
portfolio, including the sale of Legal & General, given
challenges in the financial system in the UK.
Ferguson’s strong logistics enabled the company to thrive
during the period of robust demand and disrupted supply chains,
while high commodity prices boosted revenues and margins. The
strong share price combined with our concern over the
sustainability of this performance prompted us to sell the holding.
We used some of the proceeds of the Ferguson sale to
purchase a new holding in Ashtead Group, the US-focused
equipment rental company offering attractive structural growth from
continued outsourcing trends in this fragmented industry.
We purchased a new holding in BT Group which is
building out the UK’s national fibre network, targeting more than
25 million homes, providing customers and businesses with access to
high-speed internet.
We purchased Sanofi in the first half of 2021, encouraged
by the progress of the operational turnaround at the company which
was focused on improving efficiency while benefitting from the
growing and underappreciated success of its blockbuster, Dupixent,
while its consumer health division offered optionality. More
recently, we grew concerned on litigation around the recalled drug
Zantac and we subsequently sold the holding in August 2022.
Towards the end of the period, we purchased a small position in
Kone, the Finnish elevator engineering company. The company
trades at a significant discount to peers, primarily due to
concerns over its exposure to China yet has a strong service division, is
highly cash generative supporting a compelling dividend.
Gearing
Historically, we have managed the Company’s portfolio with a modest
and consistent level of gearing, typically between 5-8% to enhance
income generation and capital growth. However, as market volatility
has picked up, we have been more active over the last 2 years,
varying both the level of gearing and using a broader range (0-10%)
depending on the opportunities or risks presenting themselves at
the time. At 31 October 2022, the
Company had employed net gearing of 2.4%.
Outlook
As we look ahead into 2023, the headwinds facing global equity
markets are evident. Inflation has consistently surprised in its
depth and breadth, driven by the resilient demand, COVID-19 supply
chain constraints, and most importantly by rising wages in more
recent data. Central banks across the developed world continue to
unwind ten years of excess liquidity by tightening monetary policy
desperate to prevent the entrenchment of higher inflation
expectations. Meanwhile, the risk of policy error from central
banks or politicians remains high as evidenced by the turmoil
created by the “mini-budget” in the UK that sent gilts spiralling.
The cost and availability of credit has changed and strengthens our
belief in investing in companies with robust balance sheets capable
of funding their own growth. The rise in the risk-free or discount
rate also challenges valuation frameworks especially for long
duration, high growth or highly valued businesses. We are mindful
of this and feel it is incredibly important to focus on companies
with strong, competitive positions, at attractive valuations that
can deliver in this environment.
The political and economic impact of the war in Ukraine has been significant in uniting
Europe and its allies, whilst
exacerbating the demand/supply imbalance in the oil and soft
commodity markets. We are conscious of the impact this has on the
cost of energy, and we continue to expect divergent regional
monetary approaches with the US being somewhat more insulated from
the impact of the conflict, than for example, Europe. Complicating this further is the
impact COVID-19 has had on certain parts of the world, notably
China, which has used lockdowns to
control the spread of the virus impacting economic activity. More
recently, China’s reopening in January
2023 has been well received by markets, with the return of
the world's second largest economy bolstering the global outlook.
However, the rapid reversal of the lockdown policy has seen
infections rates surge to levels not seen since the height of the
pandemic. We also see the potential for longer-term inflationary
pressure from decarbonisation and deglobalisation, the latter as
geopolitical tensions rise more broadly across the world.
We would expect broader demand weakness as we enter 2023
although the ‘scars’ of supply chain disruption are likely to
support parts of industrial capex demand as companies seek to
enhance the resilience of their supply chains. A notable feature of
our conversations with a wide range of corporates has been the ease
with which they have been able to pass on cost increases and
protect or even expand margins during 2022 as evidenced by US
corporate margins reaching 70-year highs. We believe that as demand
weakens and as the transitory inflationary pressures start to fade
during 2023 (e.g. commodity prices, supply chain disruption) then
pricing conversations will become more challenging, despite
pressure from wage inflation which may prove more persistent. While
this does not bode well for margins in aggregate, we believe that
2023 will see greater differentiation as corporates’ pricing power
will come under intense scrutiny.
The UK’s policy has somewhat diverged from the other G7
countries in fiscal policy terms as the present government attempts
to create stability after the severe reaction from the
“mini-budget”. The early signs of stability are welcome as
financial market liquidity has increased and the outlook, whilst
challenged, has improved. Although the UK stock market retains a
majority of internationally weighted revenues, the domestic facing
companies have continued to be impacted by this backdrop, notably
financials, housebuilders and property companies. The valuation of
the UK market remains highly supportive as currency weakness
supports international earnings, whilst domestic earners are in
many cases at COVID-19 or Brexit lows in share price or valuation
terms. Although we anticipate further volatility ahead as earnings
estimates moderate, we know that in the course of time, risk
appetites will return, and opportunities are emerging.
We continue to focus the portfolio on cash generative businesses
with durable, competitive advantages with strong leadership as we
believe these companies are best-placed to drive returns over the
long-term. We anticipate economic and market volatility will
persist in 2023 and we are excited by the opportunities this will
likely create by identifying those companies using this cycle to
strengthen their long-term prospects as well as attractive
turnaround situations.
ADAM AVIGDORI AND DAVID GOLDMAN
BlackRock Investment Management (UK) Limited
1 February 2023
TEN LARGEST INVESTMENTS
1 = AstraZeneca (2021: 1st)
Sector: Pharmaceuticals & Biotechnology
Market value: £3,510,000
Percentage of portfolio: 8.4% (2021: 7.2%)
AstraZeneca is an Anglo-Swedish multinational pharmaceutical
group with its headquarters in the UK. It is a science-led
biopharmaceutical business with a portfolio of products for major
disease areas including cancer, cardiovascular infection,
neuroscience and respiration.
2 + Shell (2021: 3rd)
Sector: Oil & Gas Producers
Market value: £3,497,000
Percentage of portfolio: 8.4% (2021: 4.7%)
Shell is a global oil and gas group. The group operates in both
Upstream and Downstream industries. Upstream is engaged in
searching for and recovering crude oil and natural gas and the
liquefaction and transportation of gas. Downstream is engaged in
manufacturing, distribution and marketing activities for oil
products and chemicals.
3 - RELX (2021: 2nd)
Sector: Media
Market value: £2,422,000
Percentage of portfolio: 5.8% (2021: 5.2%)
RELX is a global provider of professional information solutions
that includes publication of scientific, medical, technical and
legal journals. It also has the world’s leading exhibitions,
conference and events business.
4 = Reckitt Benckiser (2021: 4th)
Sector: Household Goods & Home Construction
Market value: £1,942,000
Percentage of portfolio: 4.7% (2021: 4.5%)
Reckitt Benckiser is a global leader in consumer health, hygiene
and home products. Its products are sold in many countries. The
company’s strategy is to have a highly focused portfolio
concentrating on its most profitable brands, which are responsible
for 70% of its revenues.
5 + British American Tobacco (2021: 8th)
Sector: Tobacco
Market value: £1,854,000
Percentage of portfolio: 4.5% (2021: 3.7%)
British American Tobacco is one of the world’s leading tobacco
groups, with more than 200 brands in the portfolio selling in
approximately 180 markets worldwide.
6 + Rio Tinto (2021: 7th)
Sector: Mining
Market value: £1,651,000
Percentage of portfolio: 4.0% (2021: 3.7%)
Rio Tinto is a metals and mining group operating in
approximately 36 countries around the world, producing iron ore,
copper, diamonds, gold and uranium.
7 - Unilever (2021: 5th)
Sector: Personal Goods
Market value: £1,365,000
Percentage of portfolio: 3.3% (2021: 3.9%)
Unilever is a global supplier of food, home, and personal care
products with more than 400 brands focused on health and
well-being.
8 - 3i Group (2021: 6th)
Sector: Financial Services
Market value: £1,329,000
Percentage of portfolio: 3.2% (2021: 3.8%)
3i Group is a private equity and venture capital group based in
London. The group invests in
mid-market buyouts, growth capital and infrastructure. Sectors
invested in are business and financial services, consumer,
industrials, energy and health care.
9 + Pearson (2021: 32nd)
Sector: Media
Market value: £1,321,000
Percentage of portfolio: 3.2% (2021: 1.3%)
Pearson is a British multinational and provides educational
materials and learning technologies. The company provides a range
of education services, including educational software, and
system-wide solutions. The company serves customers in the
education and consumer publishing markets across North America, Europe, Asia
Pacific, and other regions.
10 + Smith & Nephew (2021: 13th)
Sector: Health Care Equipment & Services
Market value: £1,187,000
Percentage of portfolio: 2.9% (2021: 2.8%)
Smith & Nephew is a multinational medical equipment
manufacturing company and an international producer of advanced
wound management products, arthroscopy products, trauma and
clinical therapy products, and orthopaedic reconstruction
products.
All percentages reflect the value of the holding as a percentage
of total investments as at 31 October
2022.
Percentages in brackets represent the value of the holding as at
31 October 2021.
Together, the ten largest investments represent 48.4% of total
investments (ten largest investments as at 31 October 2021: 43.5%).
DISTRIBUTION OF INVESTMENTS AS AT
31 OCTOBER 2022
Analysis of portfolio by sector
|
|
% of investments
by market value |
Benchmark |
1 |
Support Services |
12.6 |
3.5 |
2 |
Oil & Gas Producers |
10.5 |
12.4 |
3 |
Pharmaceuticals &
Biotechnology |
9.6 |
10.5 |
4 |
Media |
9.0 |
3.3 |
5 |
Household Goods & Home
Construction |
7.4 |
1.0 |
6 |
Banks |
6.1 |
7.9 |
7 |
Financial Services |
6.0 |
3.8 |
8 |
Mining |
5.7 |
0.3 |
9 |
Tobacco |
4.5 |
4.4 |
10 |
Non-Life Insurance |
3.7 |
0.9 |
11 |
Personal Goods |
3.3 |
0.5 |
12 |
Electronic & Electrical
Equipment |
3.1 |
0.9 |
13 |
Travel & Leisure |
2.9 |
2.9 |
14 |
General Retailers |
2.9 |
2.8 |
15 |
Health Care Equipment &
Services |
2.9 |
0.7 |
16 |
Food Producers |
2.8 |
0.5 |
17 |
Life Insurance |
2.8 |
2.4 |
18 |
Fixed Line Telecommunications |
1.3 |
1.8 |
19 |
Gas, Water & Multiutilities |
1.1 |
3.3 |
20 |
Industrial Engineering |
1.0 |
0.6 |
21 |
Real Estate Investment Trusts |
0.8 |
2.6 |
Sources: BlackRock and Datastream.
Investment size
|
Number of
investments |
% of investments
by market value |
< £1m |
31 |
40.4 |
£1m to £2m |
11 |
37.0 |
£2m to £3m |
1 |
5.8 |
£3m to £4m |
2 |
16.8 |
Source: BlackRock
List of investments as at 31
October 2022
|
Market
value
£’000 |
% of
investments |
Support Services |
|
|
Rentokil Initial |
1,128 |
2.7 |
Mastercard1 |
997 |
2.4 |
Hays |
933 |
2.2 |
RS Group |
733 |
1.8 |
Ashtead Group |
712 |
1.7 |
Equifax1 |
442 |
1.1 |
Grafton Group |
289 |
0.7 |
|
--------------- |
--------------- |
|
5,234 |
12.6 |
|
========= |
========= |
Oil & Gas Producers |
|
|
Shell |
3,497 |
8.4 |
BP Group |
540 |
1.3 |
Woodside Energy Group |
330 |
0.8 |
|
--------------- |
--------------- |
|
4,367 |
10.5 |
|
========= |
========= |
Pharmaceuticals &
Biotechnology |
|
|
AstraZeneca |
3,510 |
8.4 |
EuroAPI1 |
497 |
1.2 |
|
--------------- |
--------------- |
|
4,007 |
9.6 |
|
========= |
========= |
Media |
|
|
RELX |
2,422 |
5.8 |
Pearson |
1,321 |
3.2 |
|
--------------- |
--------------- |
|
3,743 |
9.0 |
|
========= |
========= |
Household Goods & Home
Construction |
|
|
Reckitt Benckiser |
1,942 |
4.7 |
Berkeley Group |
760 |
1.8 |
Taylor Wimpey |
368 |
0.9 |
|
--------------- |
--------------- |
|
3,070 |
7.4 |
|
========= |
========= |
Banks |
|
|
Standard Chartered |
1,187 |
2.9 |
HSBC Holdings |
682 |
1.6 |
Lloyds Banking Group |
680 |
1.6 |
|
--------------- |
--------------- |
|
2,549 |
6.1 |
|
========= |
========= |
Financial Services |
|
|
3i Group |
1,329 |
3.2 |
Ashmore Group |
438 |
1.1 |
London Stock Exchange Group |
394 |
0.9 |
Premier Asset Management Group |
319 |
0.8 |
|
--------------- |
--------------- |
|
2,480 |
6.0 |
|
========= |
========= |
Mining |
|
|
Rio Tinto |
1,651 |
4.0 |
BHP |
700 |
1.7 |
|
--------------- |
--------------- |
|
2,351 |
5.7 |
|
========= |
========= |
Tobacco |
|
|
British American Tobacco |
1,854 |
4.5 |
|
--------------- |
--------------- |
|
1,854 |
4.5 |
|
========= |
========= |
Non-Life Insurance |
|
|
Direct Line Group |
944 |
2.3 |
Hiscox |
588 |
1.4 |
|
--------------- |
--------------- |
|
1,532 |
3.7 |
|
========= |
========= |
Personal Goods |
|
|
Unilever |
1,365 |
3.3 |
|
--------------- |
--------------- |
|
1,365 |
3.3 |
|
========= |
========= |
Electronic & Electrical
Equipment |
|
|
Schneider Electric1 |
705 |
1.7 |
Oxford Instruments |
578 |
1.4 |
|
--------------- |
--------------- |
|
1,283 |
3.1 |
|
========= |
========= |
Travel & Leisure |
|
|
Whitbread |
946 |
2.3 |
Fuller Smith & Turner - A
Shares |
270 |
0.6 |
Patisserie Holdings2 |
– |
– |
|
--------------- |
--------------- |
|
1,216 |
2.9 |
|
========= |
========= |
General Retailers |
|
|
Moonpig Group |
438 |
1.1 |
Next |
434 |
1.0 |
WH Smith |
326 |
0.8 |
|
--------------- |
--------------- |
|
1,198 |
2.9 |
|
========= |
========= |
Health Care Equipment &
Services |
|
|
Smith & Nephew |
1,187 |
2.9 |
|
--------------- |
--------------- |
|
1,187 |
2.9 |
|
========= |
========= |
Food Producers |
|
|
Tate & Lyle |
1,182 |
2.8 |
|
--------------- |
--------------- |
|
1,182 |
2.8 |
|
========= |
========= |
Life Insurance |
|
|
Phoenix Group |
1,143 |
2.8 |
|
--------------- |
--------------- |
|
1,143 |
2.8 |
|
========= |
========= |
Fixed Line
Telecommunications |
|
|
BT Group |
557 |
1.3 |
|
--------------- |
--------------- |
|
557 |
1.3 |
|
========= |
========= |
Gas, Water &
Multiutilities |
|
|
Centrica |
477 |
1.1 |
|
--------------- |
--------------- |
|
477 |
1.1 |
|
========= |
========= |
Industrial Engineering |
|
|
Kone1 |
441 |
1.0 |
|
--------------- |
--------------- |
|
441 |
1.0 |
|
========= |
========= |
Real Estate Investment
Trusts |
|
|
Big Yellow Group |
321 |
0.8 |
|
--------------- |
--------------- |
|
321 |
0.8 |
|
========= |
========= |
Total investments |
41,557 |
100.0 |
|
========= |
========= |
1 Non-UK listed
investments.
2 Company under
liquidation.
All investments are in ordinary shares unless otherwise stated.
The total number of investments held at 31
October 2022 was 45 (31 October
2021: 48).
As at 31 October 2022, the Company
did not hold any equity interests comprising more than 3% of any
company’s share capital.
STRATEGIC REPORT
The Directors present the Strategic Report of the Company for
the year ended 31 October 2022.
Investment objective
The Company’s objective is to provide growth in capital and income
over the long term through investment in a diversified portfolio of
principally UK listed equities.
Business and management of the company
BlackRock Income and Growth Investment Trust plc is an investment
trust company that has a premium listing on the London Stock
Exchange. Its principal activity is portfolio investment.
Investment trusts, like unit trusts and open-ended investment
companies (OEICs), are pooled investment vehicles which allow
exposure to a diversified range of assets through a single
investment thus spreading, although not eliminating, investment
risk.
Investment trusts, unlike unit trusts and OEICs, have the
ability to borrow for investment purposes and to manage dividend
distributions through revenue reserves. They also enjoy, unlike
unit trusts and OEICs, the benefit of continuous dealing during
market hours.
The Company is an Alternative Investment Fund in accordance with
the Alternative Investment Fund Managers Directive (AIFMD).
BlackRock Fund Managers Limited (the Manager) is the Company’s
Alternative Investment Fund Manager. The management of the
investment portfolio and the administration of the Company have
been contractually delegated to the Manager. The Manager, operating
under guidelines determined by the Board, has direct responsibility
for decisions relating to the running of the Company and is
accountable to the Board for the investment, financial and
operating performance of the Company.
The Company delegates fund accounting services to BlackRock
Investment Management (UK) Limited (BIM
(UK) or the Investment Manager), which in turn sub-delegates
these services to the Fund Accountant, The Bank of New York Mellon
(International) Limited, and also sub-delegates registration
services to the Registrar, Computershare Investor Services PLC.
Other service providers include the Depositary, also performed by
The Bank of New York Mellon (International) Limited. Details of the
contractual terms with these service providers are set out in the
Directors’ Report in the Annual Report and Financial
Statements.
Business model
The Company invests in accordance with the investment objective.
The Board is collectively responsible to shareholders for the
long-term success of the Company and is its governing body. There
is a clear division of responsibility between the Board and the
Manager. Matters reserved for the Board include setting the
Company’s strategy, including its investment objective and policy,
setting limits on gearing, setting the dividend, capital structure,
governance, and appointing and monitoring the performance of
service providers, including the Manager.
The Company’s business model follows that of an externally
managed investment trust, therefore the Company does not have any
employees and outsources its activities to third party service
providers, including the Manager which is the principal service
provider.
Investment strategy and policy
The Company’s policy is that the portfolio will usually consist of
approximately 30-60 securities and the Company will invest
primarily in the securities of companies listed or admitted to
trading in the UK. The Company may invest up to 20% of the gross
asset value of the Company in the securities of companies that are
not listed or admitted to trading in the UK.
The Company may hold a maximum of 10% of the issued ordinary
share capital of any company. No more than 15% of the gross asset
value of the Company may be invested in the securities of any one
issuer, calculated at the time of any relevant investment. Cash may
not exceed 10% of the net asset value of the Company. The
performance of the Company is measured by reference to the FTSE
All-Share Index (the Benchmark Index) on a total return basis.
Non-benchmark securities (including securities that are not listed
or admitted to trading in the UK) may not exceed 20% of the gross
asset value of the Company. Any non-benchmark securities which are
listed or admitted to trading in the UK shall be limited to 10% of
the gross asset value of the Company. Each investee company that is
a constituent of the Benchmark Index is subject to a lower limit of
0% and an upper limit of plus 4 percentage points of the Company’s
gross asset value against such investee company’s weighting in the
Index on an ongoing basis, subject to an absolute sector weighting
upper limit of 20% of the Company’s net asset value at any
time.
The Company may deal in derivatives, including options, futures,
contracts for difference and derivatives not traded on or under the
rules of a recognised or designated investment exchange for the
purpose of efficient portfolio management. Derivatives and exchange
traded funds may be dealt in only with the prior consent of the
Board.
The Company achieves an appropriate spread of risk by investing
in a diversified portfolio of securities.
No material change can be made to the investment policy without
the approval of shareholders by ordinary resolution.
Investment approach and process
In assembling the Company’s portfolio, a relatively concentrated
approach to investment is adopted to ensure that the fund manager’s
best ideas contribute significantly to returns. We believe that it
is the role of the portfolio overall to achieve a premium level of
yield rather than every individual company within it. This gives
increased flexibility to invest where returns are most attractive.
This relatively concentrated approach results in a portfolio which
differs substantially from the Benchmark Index and in any
individual year, the returns will vary, sometimes significantly,
from those of the Benchmark Index. Over longer periods the
objective is to achieve total returns greater than the Benchmark
Index.
Investment approach
The foundation of the portfolio, approximately 70% by value, is in
high free cash flow companies that can sustain cash generation and
pay a growing yield whilst aiming to deliver a double-digit total
return. Additionally, the Investment Manager seeks to identify and
invest 20% by value of the portfolio in ‘growth’ companies that
have significant barriers to entry and scalable business models
that enable them to grow consistently. Turnaround companies are
also sought, at around 10% by value, which represent those
companies that are out of favour by the market, facing temporary
challenges with high yields/very low valuations, but with recovery
potential. The return from this segment is expected to contribute
meaningfully to returns over time.
Our approach to Environmental, Social and Governance
(ESG)
BlackRock believes that sustainability risk – and climate risk in
particular – now equates to investment risk, and this will drive a
profound reassessment of risk and asset values as investors seek to
react to the impact of climate policy changes. This in turn (in
BlackRock's view) is likely to drive a significant reallocation of
capital away from traditional carbon intensive industries over the
next decade. BlackRock believes that carbon-intensive companies
will play an integral role in unlocking the full potential of the
energy transition, and to do this, they must be prepared to adapt,
innovate and pivot their strategies towards a low carbon
economy.
As part of BlackRock’s structured investment process, ESG risks
and opportunities (including sustainability/climate risk) are
considered within the portfolio management team’s fundamental
analysis of companies and industries. ESG factors have been a key
consideration of the BlackRock UK Equity Team’s investment process
since inception and the Company’s portfolio managers work closely
with BIS to assess the governance quality of companies and
understand any potential issues, risks or opportunities.
As part of their approach to ESG integration, the portfolio
managers use ESG information when conducting research and due
diligence on new investments and again when monitoring investments
in the portfolio. In particular, portfolio managers now have access
to 1,200 key ESG performance indicators in Aladdin (BlackRock's
proprietary trading system) from third-party data providers.
BlackRock’s internal sustainability research framework scoring is
also available alongside third-party ESG scores in core portfolio
management tools. BlackRock’s analyst’s sector expertise and local
market knowledge allows it to engage with companies through direct
interaction with management teams and conducting site visits. In
conjunction with the portfolio management team, BIS meets with
boards of companies frequently to evaluate how they are
strategically managing their longer-term issues, including those
surrounding ESG and the potential impact these may have on company
financials. BIS’s and the portfolio management team’s understanding
of ESG issues is further supported by BlackRock’s Sustainable
Investment Team (BSI). BSI look to advance ESG research and
integration, active engagement and the development of sustainable
investment solutions across the firm.
The Company does not meet the criteria for Article 8 or 9
products under the EU Sustainable Finance Disclosure Regulation
(“SFDR”) and the investments underlying this financial product do
not take into account the EU criteria for environmentally
sustainable economic activities.
Further information on the Manager’s approach to ESG and
Socially Responsible Investing can be found in the Strategic Report
in the Annual Report and Financial Statements.
Gearing and borrowings
The appropriate use of gearing can add value and the Company may,
from time to time, use borrowings to achieve this. The Board is
responsible for the level of gearing in the Company and reviews the
position at every meeting. Gearing, including borrowings and
gearing through the use of derivatives (which requires prior Board
approval), when aggregated with underwriting participations, will
not exceed 20% of the net asset value at the time of investment,
drawdown or participation. There are no derivative positions at
31 October 2022. Any borrowing,
except for short-term liquidity purposes, is used for investment
purposes or to fund the purchase of the Company’s own shares.
At the year end, the Company had in place a two-year unsecured
Sterling revolving credit facility of £4 million, provided by ING
Luxembourg S.A. The facility matured on 31
December 2022 and was repaid. The Company has put in place a
replacement borrowing facility with a limit of £8 million, extended
to the Company by The Bank of New York Mellon (International)
Limited. At the date of this report the facility was drawn down in
the sum of £4 million.
Performance
The Board also reviews regularly the Company’s performance
attribution analysis to understand how performance was achieved.
This provides an understanding of how components such as sector
exposure, stock selection and asset allocation impact performance.
The table below provides performance information for the current
and prior year.
Details of the Company’s performance for the year are also given
in the Chairman’s Statement above. The Investment Manager’s Report
above includes a review of the main developments during the year,
together with information on investment activity within the
Company’s portfolio.
Results and dividends
The Company’s revenue earnings for the year amounted to 6.77p per
share (2021: 7.10p per share). The total net loss for the year,
after taxation, was £949,000 (2021: profit of £10,621,000) of which
the net revenue profit amounted to £1,438,000 (2021: £1,557,000)
and the net capital loss amounted to £2,387,000 (2021: profit of
£9,064,000). Details of dividends paid and declared in respect of
the year are set out in the Chairman’s Statement above.
KEY PERFORMANCE INDICATORS
At each Board meeting, the Directors consider a number of
performance measures to assess the Company’s success in achieving
its objectives. The key performance indicators (KPIs) used to
measure the progress and performance of the Company over time, and
which are comparable to other investment trusts, are set out in the
following table. As indicated in the footnote to the table, some of
these KPIs fall within the definition of ‘Alternative Performance
Measures’ under guidance issued by the European Securities and
Markets Authority (ESMA) and additional information explaining how
these are calculated is set out in the Glossary in the Annual
Report and Financial Statements.
Additionally, the Board regularly reviews the performance of the
portfolio, the net asset value, share price, discount to NAV and
ongoing charges of the Company and compares this against various
companies and indices. The Board also reviews the performance of
the portfolio against a benchmark index, the FTSE All-Share Index.
Information on the Company’s performance is given in the Chairman’s
Statement above.
The principal KPIs are described below.
Performance against the benchmark
The performance of the portfolio together with the performance of
the Company’s net asset value and share price are reviewed at each
Board meeting and compared to the return of the Company’s
benchmark, the FTSE All-Share Index.
Premium/discount to NAV
At each meeting the Board monitors the level of the Company’s
premium or discount to NAV and considers strategies for managing
any premium or discount. Further details of the discount policy are
provided in the Annual Report and Financial Statements. In the year
to 31 October 2022, the Company’s
share price to NAV traded in the range of a discount of 15.7% to a
premium of 0.9%, both on a cum income basis. The Company bought
back a total of 226,928 ordinary shares during the year at an
average discount of 10.8% and at an average price of 181.50p per
share. The total consideration (including costs) was £416,000. No
ordinary shares were reissued from treasury during the year.
Ongoing charges
Ongoing charges represent the Company’s management fee and all
other operating expenses, excluding finance costs, direct
transaction costs, custody transaction charges, VAT recovered,
taxation, write back of prior year expenses and certain
non-recurring items, expressed as a percentage of average daily net
assets.
The Board reviews the ongoing charges and monitors the expenses
incurred by the Company at each meeting. The Board also compares
the level of ongoing charges against those of its peers.
|
Year ended
31 October
2022 |
Year ended
31 October
2021 |
NAV per share1 |
191.63p |
203.13p |
Share price2 |
171.00p |
191.00p |
Net asset value total return3,
4 |
-2.3% |
+30.4% |
Share price total return3,
4 |
-7.0% |
+22.2% |
Change in Benchmark
Index5 |
-2.8% |
+35.4% |
Discount to net asset
value4 |
10.8% |
6.0% |
Revenue earnings per share |
6.77p |
7.10p |
Dividends per share |
7.30p |
7.20p |
Ongoing charges4, 6 |
1.18% |
1.21% |
|
========= |
========= |
1 Calculated in accordance
with accounting policies adopted by the Company and AIC
guidelines.
2 Mid-market share price.
3 This measures the Company’s
share price and NAV total return, which assumes dividends paid by
the Company have been reinvested.
4 Alternative Performance
Measures, see Glossary in the Annual Report and Financial
Statements.
5 FTSE All-Share Index (total
return).
6 Ongoing charges represent
the management fee and all other operating expenses, excluding
finance costs, direct transaction costs, custody transaction
charges, VAT recovered, taxation, write back of prior year expenses
and certain non-recurring items as a % of average daily net
assets.
Performance against the Company’s peers
Whilst the principal objective is to achieve growth in capital and
income relative to the benchmark, the Board also monitors
performance relative to a range of competitor funds, particularly
those also within the AIC UK Equity Income sector.
Principal risks
The Company is exposed to a variety of risks and uncertainties. As
required by the UK Corporate Governance Code, the Board has
undertaken a robust assessment of the principal and emerging risks
facing the Company, including those that would threaten its
business model, future performance, solvency or liquidity.
In making this assessment, the Board has considered, amongst
other factors, the ongoing COVID-19 pandemic which has given rise
to unprecedented challenges for businesses across the globe and the
Board has taken into consideration the risks posed to the Company
by the crisis and incorporated these into the Company’s risk
register. It has also considered the impact of the conflict in
Ukraine and its impact on the
global economy. Emerging risks are considered by the Board as they
come into view and are incorporated into the existing review of the
Company’s risk register.
A core element of this process is the Company’s risk register
which identifies the risks facing the Company and assesses the
likelihood and potential impact of each risk and the controls
established for mitigation. A residual risk rating is then
calculated for each risk. The risk register is regularly reviewed
and the risks reassessed. The risk environment in which the Company
operates is also monitored and regularly appraised. New risks are
also added to the register as they are identified which ensures
that the document continues to be an effective risk management
tool. The risk register, its method of preparation and the
operation of key controls in the Investment Manager’s and third
party service providers systems of internal control are reviewed on
a regular basis by the Audit Committee.
Additionally, the Investment Manager considers emerging risks in
numerous forums and the Risk and Quantitative Analysis team
produces an annual risk survey. Any material risks of relevance to
the Company identified through the annual risk survey will be
communicated to the Board.
In order to gain a more comprehensive understanding of the
Investment Manager’s and other third party service providers’ risk
management processes and how these apply to the Company’s business,
the Audit Committee periodically receives presentations from
BlackRock’s Internal Audit and Risk & Quantitative Analysis
functions. The Audit Committee also reviews Service Organisation
Control (SOC 1) reports from the Company’s service providers.
The current risk register includes a range of risks which are
categorised under the following headings:
· investment
performance;
· income/dividend;
· gearing;
· legal, regulatory
and tax compliance;
· operational;
· market; and
· financial.
The principal risks identified are described in detail within
the table below, together with an explanation of how they are
managed and mitigated. The Board will continue to assess these
risks on an ongoing basis.
Principal Risk |
Mitigation/Control |
Investment
performance
The Board is responsible for:
· setting the investment
strategy to fulfil the Company’s objective; and
· monitoring the
performance of the Investment Manager and the implementation of the
investment strategy.
An inappropriate investment strategy may lead to:
· poor performance
compared to the Benchmark Index and the Company’s peer group;
· a widening discount to
NAV;
· a reduction or
permanent loss of capital; and
· dissatisfied
shareholders and reputational damage.
The Board is also aware of the long-term risk to performance from
inadequate attention to ESG issues and in particular the impact of
climate change. |
To manage this risk the Board:
· regularly reviews
investment performance;
· regularly reviews the
Company’s investment mandate and long-term strategy;
· is required to provide
prior consent to the use of derivatives and exchange traded
funds;
· has set investment
restrictions and guidelines which the Investment Manager monitors
and regularly reports on;
· reviews changes in
gearing and the rationale for the composition of the investment
portfolio;
· monitors the
maintenance of an adequate spread of investments in order to
minimise the risks associated with factors specific to particular
sectors, based on the diversification requirements inherent in the
investment policy; and
· monitors the discount
to NAV and use of the granted buy back powers.
ESG analysis is integrated into the Manager's investment process.
This is monitored by the Board. |
Income/dividend
The amount of dividends and future dividend growth will depend on
the Company’s underlying portfolio and the dividends paid by the
underlying investee companies.
Changes in the composition of the portfolio and any change in the
tax treatment of the dividends or interest received by the Company
may alter the level of dividends received by shareholders. |
The Board monitors this risk through the receipt of detailed income
forecasts and considers the level of income at each meeting. The
Company also has a revenue reserve and powers to pay dividends from
capital which could potentially be used to support the Company’s
dividend if required. |
Gearing
The Company’s investment strategy may involve the use of gearing to
enhance investment returns.
Gearing may be generated through borrowing money or increasing
levels of market exposure through the use of derivatives. The
Company currently has an unsecured revolving credit facility
provided by The Bank of New York Mellon (International) Limited.
The use of gearing exposes the Company to the risks associated with
borrowing. |
To manage this risk the Board has limited gearing, including
borrowings and gearing through the use of derivatives, to 20% of
NAV at the time of investment, drawdown or participation.
The Investment Manager will only use gearing when confident that
market conditions and opportunities exist to enhance investment
returns. |
Legal, regulatory
and tax compliance
The Company has been approved by HM Revenue & Customs as an
investment trust, subject to meeting the relevant eligibility
conditions and operating as an investment trust in accordance with
Sections 1158 and 1159 of the Corporation Tax Act 2010. As such,
the Company is exempt from capital gains tax on the profits
realised from the sale of its investments. Any breach of the
relevant eligibility conditions could lead to the Company losing
investment trust status and being subject to corporation tax on
capital gains realised within the Company’s portfolio.
The Company is required to comply with the provisions of the
Companies Act 2006, the Alternative Investment Fund Managers
Directive (the ‘AIMFD’), the Market Abuse Regulation, the UK
Listing Rules and the FCA’s Disclosure Guidance & Transparency
Rules.
Any serious breach could result in the Company and/or the Directors
being fined or the subject of criminal proceedings or the
suspension of the Company’s shares which would in turn lead to a
breach of the Corporation Tax Act 2010. |
Compliance with the accounting rules affecting investment trusts
are regularly monitored.
The Investment Manager monitors investment movements, the level and
type of forecast income and expenditure and the amount of proposed
dividends, if any, to ensure that the provisions of Chapter 4 of
Part 24 of the Corporation Tax Act 2010 are not breached. The
results are reported to the Board at each meeting. The Board is
aware of the risk of potential changes in law and taxation post
Brexit and will continue to monitor this closely.
The Company Secretary and the Company’s professional advisers
provide regular reports to the Board in respect of compliance with
all applicable rules and regulation.
The Company and its appointed Alternative Investment Fund Manager
(AIFM and/or Manager) are subject to the risks that the
requirements of AIFMD are not correctly complied with. The Board
and the Manager also monitor changes in government policy and
legislation which may have an impact on the Company.
The Market Abuse Regulation came into force across the EU on 3 July
2016. The Board has taken steps to ensure that individual Directors
(and their Persons Closely Associated) are aware of their
obligations under the regulation and has updated internal
processes, where necessary, to ensure the risk of non-compliance is
effectively mitigated. |
Operational
In common with most other investment trust companies, the Company
has no employees. The Company therefore relies upon the services
provided by third parties and is dependent on the control systems
of BlackRock (the Investment Manager and AIFM), and of The Bank of
New York Mellon (International) Limited (the Depositary and Fund
Accountant), which ensures safe custody of the Company’s assets and
maintains the Company’s accounting records. The Company’s share
register is maintained by the Registrar, Computershare Investor
Services PLC.
Failure by any service provider to carry out its obligations to the
Company could have a material adverse effect on the Company’s
performance. Disruption to the accounting, payment systems or
custody records, as a result of a cyber-attack or otherwise, could
impact the monitoring and reporting of the Company’s financial
position.
The security of the Company’s assets, dealing procedures,
accounting records and maintenance of regulatory and legal
requirements, depend on the effective operation of these
systems. |
Due diligence is undertaken before contracts are entered into with
third party service providers. Thereafter, the performance of the
provider is subject to regular review and reports to the Board.
The Bank of New York Mellon’s and BlackRock’s internal control
processes are regularly tested and monitored throughout the year
and are evidenced through their Service Organisation Control (SOC
1) reports, which are subject to review by an Independent Service
Assurance Auditor. The SOC 1 reports provide assurance in respect
of the effective operation of internal controls. These reports are
regularly reviewed by the Audit Committee.
The Company’s assets are subject to a strict liability regime and
in the event of a loss of assets, the Depositary must return assets
of an identical type or the corresponding amount, unless able to
demonstrate the loss was a result of an event beyond its reasonable
control.
The Board reviews the overall performance of the Manager,
Investment Manager and all other third party service providers on a
regular basis and compliance with the Investment Management
Agreement regularly. The Board also considers the business
continuity arrangements of the Company’s key service providers.
The Board considers succession arrangements for key employees of
the Investment Manager and the Board also considers the business
continuity arrangements of the Company’s key service providers on
an ongoing basis and reviews these as part of its review of the
Company’s risk register. In respect of the unprecedented risks
posed by the COVID-19 pandemic in terms of the ability of service
providers to function effectively, the Board has received reports
from key service providers setting out the measures that they have
put in place to address the crisis, in addition to their existing
business continuity framework. Having considered these arrangements
and reviewed service levels since the crisis has evolved, the Board
is confident that a good level of service has and will be
maintained. |
Market
Market risk arises from volatility in the prices of the Company’s
investments. It represents the potential loss the Company might
suffer through realising investments at a time of negative market
movements.
There is also the potential for the Company to suffer loss through
holding investments in a period of negative market movements. |
The Board considers the diversification of the portfolio, asset
allocation, stock selection, and levels of gearing on a regular
basis and has set investment restrictions and guidelines which are
monitored and reported on by the Investment Manager.
The Board monitors the implementation and results of the investment
process with the Investment Manager.
The Board also recognises the benefits of a closed-end fund
structure in extremely volatile markets such as those experienced
with the COVID-19 pandemic and, more recently, the conflict in
Ukraine and its impact on markets. Unlike open-ended counterparts,
closed-end funds are not obliged to sell-down portfolio holdings at
low valuations to meet liquidity requirements for redemptions.
During times of elevated volatility and market stress, the ability
of a closed-end fund structure to remain invested for the long-term
enables the Investment Manager to adhere to disciplined fundamental
analysis from a bottom-up perspective. |
Financial
The Company’s investment activities expose it to a variety of
financial risks that include market risk. |
Details of these risks are disclosed in note 16 to the financial
statements within the Annual Report Financial Statements, together
with a summary of the policies for managing these risks. |
VIABILITY STATEMENT
In accordance with provision 31 of the UK Corporate Governance
Code, the Directors have assessed the prospects of the Company over
a longer period than the twelve months referred to by the ‘Going
Concern’ guidelines. The Company is an investment trust with the
objective of achieving capital growth and income.
The Directors believe that five years is an appropriate
investment horizon to assess the viability of the Company. This is
based on the Company’s long-term mandate, the low turnover in the
portfolio and the investment holding period investors generally
consider while investing in the UK market. This period has also
been selected as it is aligned to the Company’s objective of
achieving long-term growth in capital and income. The Board is
aware of the ongoing uncertainty surrounding the potential duration
of the COVID-19 pandemic and the conflict in Ukraine, their impact on the global economy
and the prospects for many of the Company’s portfolio holdings.
Notwithstanding the impact of these events, and given the factors
stated below, the Board expects the Company to continue to meet its
liabilities as they fall due for the foreseeable future.
The Board conducted its review for the period up to the AGM in
2028, being a five-year period from the date that this annual
report will be laid before shareholders for approval. In making
this assessment the Board has considered the following factors:
· the Company’s
principal risks as set out above;
· the ongoing
relevance of the Company’s investment objective in the current
environment; and
· the level of demand
for the Company’s shares.
The Company is required to undertake a continuation vote at this
year’s AGM and has also reviewed the potential impact that this may
have on the Company’s viability. Particular consideration has been
given to the following:
· the performance of
the Company versus its benchmark index;
· good communication with major
shareholders. At the present time there has been no indication that
the continuation vote will not be successful index; and
· at the close of
business on 30 January 2023 the
Company’s shares were trading at a discount to NAV of 9.2%.
Having considered the above factors, the Board believes that the
scheduled continuation vote does not have a detrimental impact on
the Company’s viability.
As part of its assessment the Board has also considered:
· the level of ongoing
charges, both current and historical;
· the level at which
the shares trade relative to NAV;
· the level of income
generated; and
· future income
forecasts.
The Board has concluded that the Company would be able to meet
its ongoing operating costs and net current liabilities as they
fall due as a consequence of:
· a liquid portfolio;
and
· overheads which
comprise a small percentage of net assets.
Therefore, the Board has concluded that even in exceptionally
stressed operating conditions, the Company would comfortably be
able to meet its ongoing operating costs as they fall due.
However, investment companies may face other challenges. These
include regulatory changes, changes to the tax treatment of
investment trusts, a significant decrease in size due to poor
investment performance or substantial share buy back activity,
which may result in the Company no longer being of sufficient
market capitalisation to represent a viable investment proposition
or no longer being able to continue in operation.
Based on the results of their analysis, the Directors have a
reasonable expectation that the Company will be able to continue in
operation and meet its liabilities as they fall due over the period
of their assessment.
Future prospects
The Board’s main focus is the achievement of income and capital
growth. The future performance of the Company is dependent upon the
success of the investment strategy.
The outlook for the Company is discussed in the Chairman’s
Statement and in the Investment Manager’s Report above.
Social, community and human rights issues
As an investment trust, the Company has no direct social or
community responsibilities.
However, the Company believes that it is in shareholders’
interests to consider environmental, social and governance factors
and human rights issues when selecting and retaining investments.
Details of the Company’s approach to socially responsible
investment are set out in the Annual Report and Financial
Statements.
Modern slavery act
As an investment vehicle the Company does not provide goods or
services in the normal course of business and does not have
customers. Accordingly, the Directors consider that the Company is
not required to make any slavery or human trafficking statement
under the Modern Slavery Act 2015. In any event, the Board
considers the Company’s supply chain, dealing predominantly with
professional advisers and service providers in the financial
services industry, to be low risk in relation to this matter.
Directors, gender representation and employees
The Directors of the Company on 31 October
2022, all of whom held office throughout the year, are set
out in the Governance Structure and Directors’ biographies in the
Annual Report and Financial Statements.
The Board recognises the importance of having a range of
experienced Directors with the right skills and knowledge to enable
it to fulfil its obligations. As at 31
October 2022, the Board consisted of three male Directors
and one female Director, resulting in 25% female board
representation. The Company does not have any employees.
Promoting the success of BlackRock Income and Growth
Investment Trust plc
The Companies (Miscellaneous Reporting) Regulations 2018 require
directors to explain more fully how they have discharged their
duties under Section 172(1) of the Companies Act 2006 in promoting
the success of their companies for the benefit of members as a
whole. This enhanced disclosure covers how the Board has engaged
with and understands the views of stakeholders and how
stakeholders’ needs have been taken into account, the outcome of
this engagement and the impact that it has had on the Board’s
decisions.
As the Company is an externally managed investment company and
does not have any employees or customers, the Board considers the
main stakeholders in the Company to be the shareholders, key
service providers (being the Manager and Investment Manager, the
Custodian, Depositary, Registrar and Broker) and investee
companies. The reasons for this determination, and the Board’s
overarching approach to engagement, are set out in the table
below.
Stakeholders |
Shareholders
Continued shareholder support and engagement are critical to the
continued existence of the Company and the successful delivery of
its long-term strategy. The Board is focused on fostering good
working relationships with shareholders and on understanding the
views of shareholders in order to incorporate them into the Board’s
strategy and objectives in delivering long-term growth and
income. |
Manager and
Investment Manager
The Board’s main working relationship is with the Manager, who is
responsible for the Company’s portfolio management (including asset
allocation, stock and sector selection) and risk management, as
well as ancillary functions such as administration, secretarial,
accounting and marketing services.
The Manager has sub-delegated portfolio management to the
Investment Manager. Successful management of shareholders’ assets
by the Investment Manager is critical for the Company to deliver
successfully its investment strategy and meet its objective. The
Company is also reliant on the Manager as AIFM to provide support
in meeting relevant regulatory obligations under the AIFMD and
other relevant legislation. |
Other key service
providers
In order for the Company to function as an investment trust with a
listing on the premium segment of the official list of the FCA and
trade on the London Stock Exchange’s (LSE) main market for listed
securities, the Board relies on a diverse range of service
providers and advisors for support in meeting relevant obligations
and safeguarding the Company’s assets. For this reason the Board
considers the Company’s Custodian, Depositary, Registrar and Broker
to be stakeholders. The Board maintains regular contact with its
key external providers and receives regular reporting from them
through the Board and committee meetings, as well as outside of the
regular meeting cycle. |
Investee companies
Portfolio holdings are ultimately shareholders’ assets, and the
Board recognises the importance of good stewardship and
communication with investee companies in meeting the Company’s
investment objective and strategy. The Board monitors the
Investment Manager’s stewardship arrangements and receives regular
feedback from the Investment Manager in respect of meetings with
the management of portfolio companies. |
A summary of the key areas of engagement undertaken by the Board
with its key stakeholders in the year under review and how
Directors have acted upon this to promote the long-term success of
the Company are set out in the table below.
Area of Engagement |
Issue |
Engagement |
Impact |
Investment mandate and
objective |
The Board is committed to promoting
the role and success of the Company in delivering on its investment
mandate to shareholders over the long-term. Consideration of
sustainable investment is a key part of the investment process and
must be factored in when making investment decisions. The Board
also has responsibility to shareholders to ensure that the
Company’s portfolio of assets is invested in line with the stated
investment objective and in a way that ensures an appropriate
balance between spread of risk and portfolio returns. |
The Board believes that
responsible investment and sustainability are important to the
longer-term delivery of growth in capital and income and has worked
very closely with the Manager throughout the year to review
regularly the Company’s performance, investment strategy and
underlying policies and to understand how sustainability
considerations are integrated into the investment process.
The Manager’s approach to the consideration of ESG factors in
respect of the Company’s portfolio, as well as its engagement with
investee companies to encourage the adoption of sustainable
business practices which support long-term value creation, are kept
under review by the Board. The Manager reports to the Board in
respect of its consideration of ESG factors and how these are
integrated into the investment process. |
The portfolio activities undertaken
by the Investment Manager and the performance delivered for
shareholders during the year can be found in the Investment
Manager’s Report above. |
Discount strategy |
The Board believes that strong
performance and an attractive dividend yield enhances demand for
the Company’s shares, which will help to narrow the Company’s
discount of share price to NAV over time. |
The Manager reports
total return performance statistics to the Board on a regular
basis, along with the portfolio yield and the impact of dividends
paid on brought forward distributable reserves.
The Board reviews the Company’s discount/premium to NAV on a
regular basis and holds regular discussions with the Manager and
the Company’s broker regarding the discount/premium level.
The Manager provides the Board with feedback and key performance
statistics regarding the success of the Company’s marketing
initiatives which include messaging to highlight the dividends.
The Board also reviews feedback from shareholders in respect of the
level of dividend. |
The average discount for the year to
31 October 2022 was 7.8%. During the year the Company’s share price
has traded at a maximum discount of 15.7% and a maximum premium of
0.9%. |
Service levels of third party
providers |
The Board acknowledges the
importance of ensuring that the Company’s principal suppliers are
providing a suitable level of service: including the Manager in
respect of investment performance and delivering on the Company’s
investment mandate; the Custodian and Depositary in respect of
their duties towards safeguarding the Company’s assets; the
Registrar in its maintenance of the Company’s share register and
dealing with investor queries and the Company’s Brokers in respect
of the provision of advice and acting as a market maker for the
Company’s shares. |
The Manager reports to
the Board on the Company’s performance on a regular basis. The
Board carries out a robust annual evaluation of the Manager’s
performance, their commitment and available resources.
The Board performs an annual review of the service levels of all
third party service providers and concludes on their suitability to
continue in their role.
The Board receives regular updates from the AIFM, Depositary,
Registrar and Brokers.
In light of the challenges presented by the ongoing COVID-19
pandemic to the operation of business across the globe, the Board
has worked closely with the Manager to gain comfort that relevant
business continuity plans are operating effectively for all of the
Company’s service providers. |
Performance evaluations
were performed on a timely basis and the Board concluded that all
third party service providers, including the Manager, Custodian,
Depositary and Fund Administrator were operating effectively and
providing a good level of service.
The Board has received updates in respect of business continuity
planning from the Manager, Custodian, Depositary, Fund
Administrator, Brokers and Registrar, and is confident that
arrangements are in place to ensure that a good level of service
will continue to be provided despite the ongoing impact of the
COVID-19 pandemic. |
Board composition |
The Board is committed to ensuring
that its own composition brings an appropriate balance of
knowledge, experience, diversity and skills, and that it is
compliant with best corporate governance practice under the UK Code
of Corporate Governance, including guidance on tenure and the
composition of the Board’s committees. |
Over recent years the
Board undertook a review of succession planning arrangements and
identified the need for action given that, if no action were taken,
a majority of Board Directors would have had tenure in excess of
nine years. The Board, discharging the duties of a Nomination
Committee, agreed the selection criteria and the method of
selection, recruitment and appointment. Board diversity, including
gender, was taken into account when establishing the criteria. 50%
of the Board was appointed after 2019.
All Directors are subject to a formal evaluation process on an
annual basis (more details and the conclusions in respect of the
2022 evaluation process are given in the Annual Report and
Financial Statements). All Directors stand for re-election by
shareholders annually. Shareholders may, subject to any COVID-19
restrictions, attend the AGM and raise any queries in respect of
Board composition or individual Directors in person, or may contact
the Company Secretary or the Chairman using the details provided in
the Annual Report and Financial Statements if they wish to raise
any issues. |
The Board recognises
the benefits of diversity and a structured process of ongoing
refreshment and will continue to consider regularly its
composition.
The Directors are not aware of any issues that have been raised
directly by shareholders in respect of Board composition in 2022.
Through its Manager and Corporate Broker, there is regular contact
with major shareholders. Shareholders are able to raise any
concerns in this regard at the AGM or alternatively they may write
to the Chairman of the Board. Details of the proxy voting results
in favour and against individual Directors’ re-election at the 2022
AGM are given on the Company’s website at
www.blackrock.com/uk/brig. Historical proxy voting results can be
found under the ‘Further Literature’ tab. |
Shareholders |
Continued shareholder support and
engagement are critical to the continued existence of the Company
and the successful delivery of its long-term strategy. |
The Board is committed
to maintaining open channels of communication and to engage with
shareholders. The Company welcomes and encourages attendance and
participation from shareholders at its Annual General Meetings.
Shareholders therefore have the opportunity to meet the Directors
and Investment Manager and to address questions to them
directly.
The Annual Report and Half-Yearly Financial Report are available on
the BlackRock website and are also circulated to shareholders
either in printed copy or via electronic communications. In
addition, regular updates on performance, monthly factsheets, the
daily NAV and other information are also published on the website
at www.blackrock.com/uk/brig.
The Board also works closely with the Investment Manager to develop
the Company’s marketing strategy, with the aim of ensuring
effective communication with shareholders in respect of the
investment mandate and objective. Unlike trading companies,
one-to-one shareholder meetings usually take the form of a meeting
with the Investment Manager as opposed to members of the Board. As
well as attending regular investor meetings the Investment Manager
holds regular discussions with wealth management desks and offices
to build on the case for, and understanding of, long-term
investment opportunities in the UK market.
The Investment Manager also coordinates public relations activity,
including meetings with relevant industry publications to set out
their vision for the portfolio strategy and outlook for the UK
equity market. The Investment Manager releases monthly portfolio
updates to the market to ensure that investors are kept up to date
in respect of performance and other portfolio developments, and
maintains a website on behalf of the Company that contains relevant
information in respect of the Company’s investment mandate and
objective. If shareholders wish to raise issues or concerns with
the Board, they are welcome to do so at any time.
The Chairman is available to meet directly with shareholders
periodically to understand their views on governance and the
Company’s performance. He may be contacted via the Company
Secretary whose details are given in the Annual Report and
Financial Statements. |
The Board values any
feedback and questions from shareholders ahead of and during Annual
General Meetings in order to gain an understanding of their views
and will take action when and as appropriate.
Feedback and questions will also help the Company evolve its
reporting, aiming to make reports more transparent and
understandable. Feedback from all substantive meetings between the
Investment Manager and shareholders will be shared with the Board.
The Directors will also receive updates from the Company’s broker
on any feedback from shareholders, as well as share trading
activity, share price performance and an update from the Investment
Manager.
|
The Board’s approach to Sustainability and ESG
Material environmental, social and governance (ESG) issues can
present both opportunities and threats to long-term investment
performance. These ethical and sustainability issues are a key
focus of the Board and your Board is committed to a diligent
oversight of the activities of the Manager in these areas. The
Board believes effective engagement with management is, in most
cases, the most effective way of driving meaningful change in the
behaviour of investee company management. This is particularly true
for the Company’s Manager given the extent of BlackRock’s
shareholder engagement. As well as the influence afforded by its
sheer scale, the Board believes that BlackRock is well placed as
Manager to fulfil these requirements due to the integration of ESG
into its investment processes, the emphasis it places on
sustainability, its collaborative approach in its investment
stewardship activities and its position in the industry as one of
the largest suppliers of sustainable investment products in the
global market. More information on BlackRock’s approach to
responsible investing is set out in the Annual Report and Financial
Statements.
BY ORDER OF THE BOARD
KEVIN MAYGER
FOR AND ON BEHALF OF
BLACKROCK INVESTMENT MANAGEMENT (UK) LIMITED
Company Secretary
1 February 2023
RESPONSIBLE OWNERSHIP:
BLACKROCK’S APPROACH TO SUSTAINABLE INVESTING
Responsible ownership – BlackRock's approach
Consistent with BlackRock’s fiduciary duty as an asset manager,
BlackRock Investment Stewardship’s (BIS) purpose is to support
investee companies in their efforts to deliver long-term durable
financial performance on behalf of our clients. These clients
include public and private pension plans, governments, insurance
companies, endowments, universities, charities and, ultimately,
individual investors, among others. BIS serves as an important link
between BlackRock’s clients and the companies they invest in.
Clients depend on BlackRock to help them meet their investment
goals; the business and governance decisions that companies make
will have a direct impact on BlackRock’s clients’ long-term
investment outcomes and financial well-being.
Global Principles
BlackRock’s approach to corporate governance and stewardship is
comprised in BIS’ Global Principles and market-specific voting
guidelines. BIS’ policies set out the core elements of corporate
governance that guide its investment stewardship activities
globally and within each regional market, including when voting at
shareholder meetings for those clients who have authorized BIS to
vote on their behalf. Each year, BIS reviews its policies and
updates them as necessary to reflect changes in market standards
and regulations, insights gained over the year through third-party
and its own research, and feedback from clients and companies. BIS’
Global Principles are available on its website at
https://www.blackrock.com/corporate/literature/fact-sheet/blk-responsible-investment-engprinciples-global.pdf.
Market-specific proxy voting guidelines
BIS’ voting guidelines are intended to help clients and companies
understand its thinking on key governance matters. They are the
benchmark against which it assesses a company’s approach to
corporate governance and the items on the agenda to be voted on at
the shareholder meeting. BIS applies its guidelines pragmatically,
taking into account a company’s unique circumstances where
relevant. BlackRock informs voting decisions through research and
engages as necessary. BIS reviews its voting guidelines annually
and updates them as necessary to reflect changes in market
standards, evolving governance practice and insights gained from
engagement over the prior year.
BIS’ market-specific voting guidelines are available on its
website at
https://www.blackrock.com/corporate/about-us/investment-stewardship#stewardship-policies.
BlackRock is committed to transparency in terms of disclosure on
its stewardship activities on behalf of clients. BIS publishes its
stewardship policies on its approach to responsible investment and
its global principles, engagement priorities and voting guidelines
to help BlackRock’s clients understand its work to advance their
interests as long-term investors in public companies. Additionally,
BIS published both annual and quarterly vote bulletins that
describe its rationale for certain votes at high profile
shareholder meetings.
BlackRock’s reporting and disclosures
In terms of its own reporting, BlackRock believes that the SASB
provides a clear set of standards for reporting sustainability
information across a wide range of issues, from labour practices to
data privacy to business ethics. For evaluating and reporting
climate-related risks, as well as the related governance issues
that are essential to managing them, the TCFD provides a valuable
framework. BlackRock recognises that reporting to these standards
requires significant time, analysis and effort. BlackRock’s 2021
TCFD report can be found
at https://www.blackrock.com/corporate/literature/continuous-disclosure-and-important-information/tcfd-report-2021-blkinc.pdf
The Company does not meet the criteria for Article 8 or 9
products under the EU Sustainable Finance Disclosure Regulation
(“SFDR”) and the investments underlying this financial product do
not take into account the EU criteria for environmentally
sustainable economic activities. The Investment Manager has access
to a range of data sources, including principal adverse indicator
(“PAI”) data, when making decisions on the selection of
investments. However, whilst BlackRock considers ESG risks for all
portfolios and these risks may coincide with environmental or
social themes associated with the PAIs, unless stated otherwise in
the AIFMD Disclosure Document, the Company does not commit to
considering PAIs in driving the selection of its investments.
The above forms part of the Strategic Report.
RELATED PARTY TRANSACTIONS
BlackRock Fund Managers Limited (BFM) provides management and
administration services to the Company under a contract which is
terminable on six months’ notice. BFM has (with the Company’s
consent) delegated certain portfolio and risk management services,
and other ancillary services, to BlackRock Investment Management
(UK) Limited (BIM (UK)). Further
details of the investment management contract are disclosed in the
Directors’ Report in the Annual Report and Financial
Statements.
The investment management fee is levied quarterly, based on
0.60% per annum of the Company’s market capitalisation. The
investment management fee due for the year ended 31 October 2022 amounted to £237,000 (2021:
£240,000). At the year end, £118,000 was outstanding in respect of
the management fee (2021: £180,000).
In addition to the above services, BIM
(UK) has provided the Company with marketing services. The
total fees paid or payable for these services for the year ended
31 October 2022 amounted to £13,000
including VAT (2021: £11,000). Marketing fees of £11,000 including
VAT were outstanding at 31 October
2022 (2021: £11,000).
The Company holds an investment in the BlackRock Institutional
Cash Series plc - Sterling Liquid Environmentally Aware Fund of
£2,604,000 (2021: £1,299,000) which for the year ended 31 October 2022 and 31
October 2021 has been presented in the financial statements
as a cash equivalent. This is a fund managed by a company within
the BlackRock Group.
The ultimate holding company of the Manager and the Investment
Manager is BlackRock, Inc., a company incorporated in Delaware USA.
The Board currently consists of four non-executive Directors,
all of whom are independent of the Company’s Manager. None of the
Directors has a service contract with the Company. For the year
ended 31 October 2022, the Chairman
received an annual fee of £30,750, the Chairman of the Audit
Committee received an annual fee of £25,000 and each of the other
Directors received an annual fee of £21,500. Directors’ fees were
last increased with effect from 1 November
2021.
Disclosures of the Directors’ interests in the ordinary shares
of the Company and fees and expenses payable to the Directors are
set out in the Directors’ Remuneration Report in the Annual Report
and Financial Statements. At 31 October
2022, £8,000 (2021: £8,000) was outstanding in respect of
Directors’ fees.
As at 31 October 2022 and 2021,
the Directors’ interests in the Company’s ordinary shares were as
follows:
|
As at
31 October 2022 |
As at
31 October 2021 |
Graeme Proudfoot (Chairman) |
60,000 |
60,000 |
Nicholas Gold1 |
20,0001 |
20,000 |
Charles Worsley2 |
987,5392 |
987,5392 |
Win Robbins |
12,106 |
12,106 |
1.
Mr Gold purchased a further 23,175 ordinary shares on 2 November 2022 and as of the date of this report
he holds a total of 43,175 ordinary shares.
2.
Including a non-beneficial interest in 655,500 ordinary shares.
All of the holdings of the Directors are beneficial, other than
where stated in the footnote above. No changes to these holdings
have been notified up to the date of this report.
The information in the table above has been audited.
STATEMENT OF DIRECTORS’
RESPONSIBILITES IN RESPECT OF THE ANNUAL REPORT AND FINANCIAL
STATEMENTS
The Directors are responsible for preparing the Annual Report
and Financial Statements in accordance with applicable law and
regulations. Company law requires the Directors to prepare
financial statements for each financial year. Under that law they
have elected to prepare the financial statements in accordance with
applicable law and United Kingdom Generally Accepted Accounting
Practice, including FRS 102 The Financial Reporting Standard
applicable in the UK and Ireland.
Under company law, the Directors must not approve the financial
statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Company as at the end of each
financial year and of the profit or loss of the Company for that
year.
In preparing these financial statements, the Directors are
required to:
· present fairly the
financial position, financial performance and cash flows of the
Company;
· select suitable
accounting policies in accordance with United Kingdom Generally
Accepted Accounting Practice and apply them consistently;
· present information,
including accounting policies, in a manner that provides relevant,
reliable, comparable and understandable information;
· make judgements and
estimates that are reasonable and prudent;
· state whether
applicable UK Accounting Standards have been followed, subject to
any material departures disclosed and explained in the financial
statements; and
· prepare the
financial statements on the going concern basis unless it is
inappropriate to presume that the Company will continue in
business.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company’s
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that
the financial statements comply with the Companies Act 2006. They
are also responsible for safeguarding the assets of the Company and
hence for taking reasonable steps for the prevention and detection
of fraud and other irregularities.
The Directors are also responsible for preparing the Strategic
Report, the Directors’ Report, the Directors’ Remuneration Report,
the Corporate Governance Statement and the Report of the Audit
Committee in accordance with the Companies Act 2006 and applicable
regulations, including the requirements of the Listing Rules and
the Disclosure Guidance and Transparency Rules.
The Directors have delegated responsibility to the Manager for
the maintenance and integrity of the Company’s corporate and
financial information included on the BlackRock website.
Legislation in the United
Kingdom governing the preparation and dissemination of
financial statements may differ from legislation in other
jurisdictions.
Each of the Directors, whose names are listed in the Annual
Report and Financial Statements, confirm to the best of their
knowledge that:
· the financial
statements, prepared in accordance with applicable accounting
standards, give a true and fair view of the assets, liabilities,
financial position and profit or loss of the Company; and
· the Strategic Report
contained in the Annual Report and Financial Statements includes a
fair review of the development and performance of the business and
the position of the Company, together with a description of the
principal risks and uncertainties that it faces.
The 2018 UK Corporate Governance Code requires Directors to
ensure that the Annual Report and Financial Statements are fair,
balanced and understandable. In order to reach a conclusion on this
matter, the Board has requested that the Audit Committee advise on
whether it considers that the Annual Report and Financial
Statements fulfils these requirements. The process by which the
Audit Committee has reached these conclusions is set out in the
Audit Committee’s report in the Annual Report and Financial
Statements. As a result, the Board has concluded that the Annual
Report and Financial Statements for the year ended 31 October 2022, taken as a whole, are fair,
balanced and understandable and provide the information necessary
for shareholders to assess the Company’s position and performance,
business model and strategy.
FOR AND ON BEHALF OF THE BOARD
GRAEME PROUDFOOT
Chairman
1 February 2023
INCOME STATEMENT FOR THE YEAR ENDED 31 OCTOBER
2022
|
|
2022 |
2021 |
|
Notes |
Revenue
£’000 |
Capital
£’000 |
Total
£’000 |
Revenue
£’000 |
Capital
£’000 |
Total
£’000 |
(Losses)/gains on investments held
at fair value through profit or loss |
|
– |
(2,328) |
(2,328) |
– |
8,980 |
8,980 |
Gains/(losses) on foreign
exchange |
|
– |
5 |
5 |
– |
(3) |
(3) |
Income from investments held at fair
value through profit or loss |
3 |
1,742 |
169 |
1,911 |
1,919 |
303 |
2,222 |
Other income |
3 |
28 |
– |
28 |
8 |
– |
8 |
|
|
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
Total income/(loss) |
|
1,770 |
(2,154) |
(384) |
1,927 |
9,280 |
11,207 |
|
|
========= |
========= |
========= |
========= |
========= |
========= |
Expenses |
|
|
|
|
|
|
|
Investment management fee |
4 |
(59) |
(178) |
(237) |
(60) |
(180) |
(240) |
Other operating expenses |
5 |
(265) |
(6) |
(271) |
(284) |
(6) |
(290) |
|
|
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
Total operating expenses |
|
(324) |
(184) |
(508) |
(344) |
(186) |
(530) |
|
|
========= |
========= |
========= |
========= |
========= |
========= |
Net profit/(loss) on ordinary
activities before finance costs and taxation |
|
1,446 |
(2,338) |
(892) |
1,583 |
9,094 |
10,677 |
Finance costs |
6 |
(16) |
(49) |
(65) |
(10) |
(30) |
(40) |
|
|
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
Net profit/(loss) on ordinary
activities before taxation |
|
1,430 |
(2,387) |
(957) |
1,573 |
9,064 |
10,637 |
Taxation |
|
8 |
– |
8 |
(16) |
– |
(16) |
|
|
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
Net profit/(loss) on ordinary
activities after taxation |
|
1,438 |
(2,387) |
(949) |
1,557 |
9,064 |
10,621 |
|
|
========= |
========= |
========= |
========= |
========= |
========= |
Earnings/(loss) per ordinary
share (pence) |
8 |
6.77 |
(11.24) |
(4.47) |
7.10 |
41.35 |
48.45 |
|
|
========= |
========= |
========= |
========= |
========= |
========= |
The total column of this statement represents the Company’s
profit and loss account. The supplementary revenue and capital
accounts are both prepared under guidance published by the
Association of Investment Companies (AIC). All items in the above
statement derive from continuing operations. No operations were
acquired or discontinued during the year. All income is
attributable to the equity holders of the Company.
The net profit/(loss) on ordinary activities for the year
disclosed above represents the Company’s total comprehensive
income/(loss).
STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED
31 OCTOBER 2022
|
Notes |
Called
up share
capital
£’000 |
Share
premium
account
£’000 |
Capital
redemption
reserve
£’000 |
Capital
reserve
£’000 |
Special
reserve
£’000 |
Revenue
reserve
£’000 |
Total
£’000 |
For the year ended 31 October
2022 |
|
|
|
|
|
|
|
|
At 31 October 2021 |
|
315 |
14,819 |
234 |
11,870 |
13,843 |
2,387 |
43,468 |
Total comprehensive
(loss)/income: |
|
|
|
|
|
|
|
|
Net (loss)/profit for the year |
|
– |
– |
– |
(2,387) |
– |
1,438 |
(949) |
Transactions with owners, recorded
directly to equity: |
|
|
|
|
|
|
|
|
Ordinary shares purchased for
cancellation |
9,10 |
(2) |
– |
2 |
– |
(414) |
– |
(414) |
Share purchase costs |
10 |
– |
– |
– |
– |
(2) |
– |
(2) |
Dividends paid1 |
7 |
– |
– |
– |
– |
– |
(1,531) |
(1,531) |
|
|
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
At 31 October 2022 |
|
313 |
14,819 |
236 |
9,483 |
13,427 |
2,294 |
40,572 |
|
|
========= |
========= |
========= |
========= |
========= |
========= |
========= |
For the year ended 31 October
2021 |
|
|
|
|
|
|
|
|
At 31 October 2020 |
|
326 |
14,819 |
223 |
2,806 |
15,816 |
2,411 |
36,401 |
Total comprehensive income: |
|
|
|
|
|
|
|
|
Net profit for the year |
|
– |
– |
– |
9,064 |
– |
1,557 |
10,621 |
Transactions with owners, recorded
directly to equity: |
|
|
|
|
|
|
|
|
Ordinary shares purchased for
cancellation |
|
(11) |
– |
11 |
– |
(1,961) |
– |
(1,961) |
Share purchase costs |
|
– |
– |
– |
– |
(12) |
– |
(12) |
Dividends paid2 |
7 |
– |
– |
– |
– |
– |
(1,581) |
(1,581) |
|
|
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
At 31 October 2021 |
|
315 |
14,819 |
234 |
11,870 |
13,843 |
2,387 |
43,468 |
|
|
========= |
========= |
========= |
========= |
========= |
========= |
========= |
1 Interim dividend paid in
respect of the six months ended 30 April
2022 of 2.60p per share was declared on 22 June 2022 and paid on 1
September 2022. Final dividend paid in respect of the year
ended 31 October 2021 of 4.60p per
share was declared on 13 January 2022
and paid on 17 March 2022.
2 Interim dividend paid in
respect of the six months ended 30 April
2021 of 2.60p per share was declared on 23 June 2021 and paid on 1
September 2021. Final dividend paid in respect of the year
ended 31 October 2020 of 4.60p per
share was declared on 1 February 2021
and paid on 17 March 2021.
For information on the Company’s distributable reserves please
refer to note 15 in the Annual Report and Financial Statements.
BALANCE SHEET AS AT 31 OCTOBER 2022
|
Notes |
2022
£’000 |
2021
£’000 |
Fixed assets |
|
|
|
Investments held at fair value
through profit or loss |
|
41,557 |
46,080 |
|
|
--------------- |
--------------- |
Current assets |
|
|
|
Current tax asset |
|
16 |
11 |
Debtors |
|
589 |
324 |
Cash and cash equivalents |
|
2,657 |
1,362 |
|
|
--------------- |
--------------- |
Total current assets |
|
3,262 |
1,697 |
|
|
========= |
========= |
Creditors – amounts falling due
within one year |
|
|
|
Bank loan |
|
(4,000) |
(4,000) |
Other creditors |
|
(247) |
(309) |
|
|
--------------- |
--------------- |
Total current
liabilities |
|
(4,247) |
(4,309) |
|
|
========= |
========= |
Net current liabilities |
|
(985) |
(2,612) |
|
|
========= |
========= |
Net assets |
|
40,572 |
43,468 |
|
|
========= |
========= |
Capital and reserves |
|
|
|
Called up share capital |
9 |
313 |
315 |
Share premium account |
10 |
14,819 |
14,819 |
Capital redemption reserve |
10 |
236 |
234 |
Capital reserve |
10 |
9,483 |
11,870 |
Special reserve |
10 |
13,427 |
13,843 |
Revenue reserve |
10 |
2,294 |
2,387 |
|
|
--------------- |
--------------- |
Total shareholders’
funds |
8 |
40,572 |
43,468 |
|
|
========= |
========= |
Net asset value per ordinary
share (pence) |
8 |
191.63 |
203.13 |
|
|
========= |
========= |
STATEMENT OF CASH FLOWS FOR THE YEAR ENDED
31 OCTOBER 2022
|
2022
£’000 |
2021
£’000 |
Operating activities |
|
|
Net (loss)/profit on ordinary
activities before taxation |
(957) |
10,637 |
Add back finance costs |
65 |
40 |
Loss/(gains) on investments held at
fair value through profit or loss |
2,328 |
(8,980) |
(Gains)/losses on foreign
exchange |
(5) |
3 |
Sales of investments held at fair
value through profit or loss |
17,325 |
22,755 |
Purchases of investments held at
fair value through profit or loss |
(15,424) |
(21,084) |
Decrease/(increase) in other
debtors |
29 |
(89) |
(Decrease)/increase in other
creditors |
(62) |
60 |
Taxation on investment income |
3 |
(27) |
|
--------------- |
--------------- |
Net cash generated from operating
activities |
3,302 |
3,315 |
|
========= |
========= |
Financing activities |
|
|
Ordinary shares purchased for
cancellation |
(414) |
(1,961) |
Share purchase costs paid |
(2) |
(12) |
Interest paid |
(65) |
(40) |
Dividends paid |
(1,531) |
(1,581) |
|
--------------- |
--------------- |
Net cash used in financing
activities |
(2,012) |
(3,594) |
|
========= |
========= |
Increase/(decrease) in cash and
cash equivalents |
1,290 |
(279) |
Cash and cash equivalents at the
beginning of the year |
1,362 |
1,644 |
Effect of foreign exchange rate
changes |
5 |
(3) |
|
--------------- |
--------------- |
Cash and cash equivalents at the
end of the year |
2,657 |
1,362 |
|
========= |
========= |
Comprised of: |
|
|
Cash at bank |
53 |
63 |
Cash Fund1 |
2,604 |
1,299 |
|
--------------- |
--------------- |
|
2,657 |
1,362 |
|
========= |
========= |
1 Cash Fund represents funds
held on deposit with the BlackRock Institutional Cash Series plc –
Sterling Liquid Environmentally Aware Fund.
NOTES TO THE FINANCIAL STATEMENTS FOR
THE YEAR ENDED 31 OCTOBER 2022
1. PRINCIPAL ACTIVITY
The principal activity of the Company is that of an investment
trust company within the meaning of Section 1158 of the Corporation
Tax Act 2010.
2. ACCOUNTING POLICIES
The principal accounting policies adopted by the Company are set
out below.
(a) Basis of preparation
The financial statements have been prepared on a going concern
basis in accordance with ‘The Financial Reporting Standard
applicable in the UK and Republic of Ireland’ (FRS 102) and the
revised Statement of Recommended Practice – ‘Financial Statements
of Investment Trust Companies and Venture Capital Trusts’ (SORP)
issued by the Association of Investment Companies (AIC) in
October 2019, and updated in
July 2022, and the provisions of the
Companies Act 2006.
Substantially, all of the assets of the Company consist of
securities that are readily realisable and, accordingly, the
Directors are satisfied that the Company has adequate resources to
continue in operational existence for the period to 1 February 2024, being a period of at least
12 months from the date of approval of the financial
statements, and therefore consider the going concern assumption to
be appropriate. The Directors have reviewed compliance with the
covenants associated with the bank loan facility, income and
expense projections, the liquidity of the investment portfolio and
the risks associated with the current environment of heightened
geo-political risk given the war in Ukraine in making their assessment.
We also acknowledge the continuation vote in March 2023, however, given the Company’s relative
performance to peers, our discussions with shareholders to date and
the alternatives available to shareholders to realise their
investment, we believe the continuation vote will be passed and
therefore the vote does not represent a material uncertainty
to the going concern of the Company.
The Directors have considered the impact of climate change on
the value of the investments included in the Financial Statements
and have concluded that:
– there was no further
impact of climate change to be considered as the investments are
valued based on market pricing as required by FRS 102; and
– the risk is adequately
captured in the assumptions and inputs used in measurement of Level
3 assets, if any, as noted in note 16 of the Financial Statements
within the Annual Report and Financial Statements.
None of the Company’s other assets and liabilities were
considered to be potentially impacted by climate change.
The principal accounting policies adopted by the Company are set
out below. Unless specified otherwise, the policies have been
applied consistently throughout the year and are consistent with
those applied in the preceding year. All of the Company’s
operations are of a continuing nature.
The Company’s financial statements are presented in Sterling,
which is the functional currency of the Company and the primary
economic environment in which the Company operates. All values are
rounded to the nearest thousand pounds (£’000) except where
otherwise indicated.
(b) Presentation of Income Statement
In order to better reflect the activities of an investment trust
company and in accordance with guidance issued by the AIC,
supplementary information which analyses the Income Statement
between items of a revenue and a capital nature has been presented
alongside the Income Statement.
(c) Segmental reporting
The Directors are of the opinion that the Company is engaged in a
single segment of business being investment business.
(d) Income
Dividends receivable on equity shares are treated as revenue for
the year on an ex-dividend basis. Where no ex-dividend date is
available, dividends receivable on or before the year end are
treated as revenue for the year. Provisions are made for dividends
not expected to be received.
Special dividends are recognised on an ex-dividend basis and
treated as capital or revenue depending on the facts or
circumstances of each dividend.
Dividends are accounted for in accordance with Section 29 of FRS
102 on the basis of income actually receivable, without adjustment
for tax credits attaching to the dividend. Dividends from overseas
companies continue to be shown gross of withholding tax.
Deposit interest receivable is accounted for on an accruals
basis. Interest income from the Cash Fund is accounted for on an
accruals basis. Underwriting commission is recognised when the
issue underwritten closes.
Where the Company has elected to receive its dividends in the
form of additional shares rather than in cash, the cash equivalent
of the dividend is recognised as revenue. Any excess in the value
of the shares received over the amount of the cash dividend is
recognised in capital.
(e) Expenses
All expenses, including finance costs, are accounted for on an
accruals basis. Expenses have been charged wholly to the revenue
account of the Income Statement, except as follows:
· expenses which are
incidental to the acquisition or disposal of an investment are
treated as capital. Details of transaction costs on the purchases
and sales of investments are disclosed in note 10, in the Annual
Report and Financial Statements;
· expenses are treated
as capital where a connection with the maintenance or enhancement
of the value of the investments can be demonstrated; and
· the investment
management fee and finance costs have been allocated 75% to the
capital account and 25% to the revenue account of the Income
Statement in line with the Board’s expected long-term split of
returns, in the form of capital gains and income respectively, from
the investment portfolio.
(f) Taxation
The tax expense represents the sum of the tax currently payable and
deferred tax. The tax currently payable is based on the taxable
profit for the year. Taxable profit differs from net profit as
reported in the Income Statement because it excludes items of
income or expenses that are taxable or deductible in other years
and it further excludes items that are never taxable or deductible.
The Company’s liability for current tax is calculated using tax
rates that were applicable at the balance sheet date.
The current tax effect of different items of expenditure is
allocated between capital and revenue on the marginal basis using
the Company’s effective rate of corporation tax for the accounting
period.
Deferred taxation is recognised in respect of all timing
differences at the financial reporting date, where transactions or
events that result in an obligation to pay more taxation in the
future or right to less taxation in the future have occurred at the
balance sheet date. Deferred taxation is measured on a
non-discounted basis, at the average tax rates that are expected to
apply in the periods in which the timing differences are expected
to reverse based on tax rates and laws that have been enacted or
substantively enacted by the balance sheet date. This is subject to
deferred taxation assets only being recognised if it is considered
more likely than not that there will be suitable profits from which
the future reversal of the timing differences can be deducted.
(g) Investments held at fair value through profit or
loss
The Company’s investments are classified as held at fair value
through profit or loss in accordance with Section 11 and 12 of FRS
102 and are managed and evaluated on a fair value basis in
accordance with its investment strategy.
All investments are classified upon initial recognition as held
at fair value through profit or loss. Purchases of investments are
recognised on a trade date basis. Sales are recognised at the trade
date of the disposal and the proceeds are measured at fair value,
which is regarded as the proceeds of the sale less any transaction
costs.
The fair value of the financial investments is based on their
quoted bid price at the balance sheet date on the exchange on which
the investment is quoted, without deduction for the estimated
future selling costs. Unquoted investments are valued by the
Directors at fair value using International Private Equity and
Venture Capital Valuation Guidelines. This policy applies to all
current and non-current asset investments of the Company.
Changes in the value of investments held at fair value through
profit or loss and gains and losses on disposal are recognised in
the Income Statement as ‘Gains or losses on investments held at
fair value through profit or loss’. Also included within this
heading are transaction costs in relation to the purchase or sale
of investments.
The fair value hierarchy consists of the following three
levels:
Level 1 – Quoted market price for identical instruments in
active markets.
Level 2 – Valuation techniques using observable inputs.
Level 3 – Valuation techniques using significant unobservable
inputs.
(h) Debtors
Debtors include sales for future settlement, other debtors and
prepayments and accrued income in the ordinary course of business.
If collection is expected in one year or less, they are classified
as current assets. If not, they are presented as non-current
assets.
(i) Creditors
Creditors include purchases for future settlement, interest
payable, share buyback costs and accruals in the ordinary course of
business. Creditors are classified as creditors – amounts due
within one year if payment is due within one year or less (or in
the normal operating cycle of business if longer). If not, they are
presented as creditors – amounts due after more than one year.
(j) Dividends payable
Under Section 32 of FRS 102, final dividends should not be accrued
in the financial statements unless they have been approved by
shareholders before the balance sheet date. Dividends payable to
equity shareholders are recognised in the Statement of Changes in
Equity when they have been approved by shareholders and have become
a liability of the Company. Interim dividends are only recognised
in the financial statements in the period in which they are
paid.
(k) Cash and cash equivalents
Cash comprises cash in hand and on demand deposits. Cash
equivalents include bank overdrafts repayable on demand and
short-term, highly liquid investments, that are readily convertible
to known amounts of cash and that are subject to an insignificant
risk of changes in value.
(l) Foreign currency translation
In accordance with Section 30 of FRS 102, the Company is required
to nominate a functional currency being the currency in which the
Company predominately operates. The functional and reporting
currency is Sterling, reflecting the primary economic environment
in which the Company operates. Transactions in foreign currencies
are translated into Sterling at the rates of exchange ruling on the
date of the transaction. Foreign currency monetary assets and
liabilities and non-monetary assets held at fair value are
translated into Sterling at the rates of exchange ruling at the
balance sheet date. Profits and losses thereon are recognised in
the capital account of the Income Statement and taken to the
capital reserve.
(m) Share repurchases and share reissues
Shares repurchased and subsequently cancelled – share capital is
reduced by the nominal value of the shares repurchased and the
capital redemption reserve is correspondingly increased in
accordance with Section 733 of the Companies Act 2006. The full
cost of the repurchase is charged to the special reserve.
Shares repurchased and held in treasury – the full cost of the
repurchase is charged to the special reserve.
Where treasury shares are subsequently reissued:
· amounts received to
the extent of the repurchase price are credited to the special
reserve and capital reserve based on a weighted average basis of
amounts utilised from these reserves on repurchases; and
· any surplus received
in excess of the repurchase price is taken to the share premium
account.
Where new shares are issued, amounts received to the extent of
any surplus received in excess of the par value are taken to the
share premium account.
Costs on issuance of new shares are charged to the share premium
account. Costs on share reissues are charged to the special reserve
and capital reserve.
(n) Bank borrowings
Bank loans are recorded as the proceeds received. Finance charges
are accounted for on an accruals basis in the Income Statement.
(o) Critical accounting judgement and key sources of
estimation uncertainty
The Board makes estimates and assumptions concerning the future.
The resulting accounting estimates and assumptions will, by
definition, seldom equal the related actual results. Estimates and
judgements are regularly evaluated and are based on historical
experience and other factors, including expectations of future
events that are believed to be reasonable under the circumstances.
The Directors do not believe that any accounting judgements or
estimates have a significant risk of causing a material adjustment
to the carrying amount of assets and liabilities within the next
financial year.
3. INCOME
|
2022
£’000 |
2021
£’000 |
Investment income: |
|
|
UK dividends |
1,447 |
1,503 |
UK scrip dividends |
– |
19 |
UK special dividends |
96 |
226 |
UK REIT dividends |
11 |
9 |
Overseas dividends |
188 |
162 |
|
--------------- |
--------------- |
Total investment income |
1,742 |
1,919 |
|
========= |
========= |
Other income: |
|
|
Interest from Cash Fund |
28 |
1 |
Underwriting commission |
– |
7 |
|
--------------- |
--------------- |
Total income |
1,770 |
1,927 |
|
========= |
========= |
Dividends and interest received in cash during the year amounted
to £1,838,000 and £23,000 respectively (2021: £1,771,000 and
£1,000).
Special dividends of £169,000 have been recognised in capital
during the year (2021: £303,000).
4. INVESTMENT MANAGEMENT FEE
|
2022 |
2021 |
|
Revenue
£’000 |
Capital
£’000 |
Total
£’000 |
Revenue
£’000 |
Capital
£’000 |
Total
£’000 |
Investment management fee |
59 |
178 |
237 |
60 |
180 |
240 |
|
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
Total |
59 |
178 |
237 |
60 |
180 |
240 |
|
========= |
========= |
========= |
========= |
========= |
========= |
Under the terms of the investment management agreement, BFM is
entitled to a fee of 0.6% per annum of the Company’s market
capitalisation. The investment management fee is allocated 75% to
the capital account and 25% to the revenue account. There is no
additional fee for company secretarial and administration
services.
5. OTHER OPERATING EXPENSES
|
2022
£’000 |
2021
£’000 |
Allocated to revenue: |
|
|
Custody fees |
1 |
1 |
Depositary fees |
5 |
5 |
Audit fees1 |
29 |
29 |
Registrars’ fee |
27 |
24 |
Directors’
emoluments2 |
99 |
100 |
Marketing fees |
13 |
11 |
Printing and postage fees |
35 |
32 |
Legal and professional fees |
12 |
32 |
London Stock Exchange fee |
10 |
10 |
FCA fee |
7 |
7 |
Prior year expenses written
back3 |
(2) |
– |
Other administration costs |
29 |
33 |
|
--------------- |
--------------- |
|
265 |
284 |
|
========= |
========= |
Allocated to capital: |
|
|
Custody transaction
costs4 |
6 |
6 |
|
--------------- |
--------------- |
|
271 |
290 |
|
========= |
========= |
The Company’s ongoing
charges5, calculated as a percentage of average daily
net assets and using the management fee and all other operating
expenses, excluding finance costs, direct transaction costs,
custody transaction charges, VAT recovered, taxation, write back of
prior year expenses and certain non-recurring items were: |
1.18% |
1.21% |
|
========= |
========= |
1 No non-audit services were
provided by the Company’s auditors.
2 Further information on
Directors’ emoluments can be found in the Directors’ Remuneration
Report in the Annual Report and Financial Statements. The Company
has no employees.
3 Relates to other
administration costs written back in the year ended 31 October 2022 (31
October 2021: none).
4 For the year ended
31 October 2022, expenses of £6,000
(2021: £6,000) were charged to the capital account of the Income
Statement. These relate to transaction costs charged by the
custodian on sale and purchase trades.
5 Alternative Performance
Measure, see Glossary in the Annual Report and Financial
Statements.
6. FINANCE COSTS
|
2022 |
2021 |
|
Revenue
£’000 |
Capital
£’000 |
Total
£’000 |
Revenue
£’000 |
Capital
£’000 |
Total
£’000 |
Interest on Sterling bank loan |
16 |
49 |
65 |
10 |
30 |
40 |
|
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
|
16 |
49 |
65 |
10 |
30 |
40 |
|
========= |
========= |
========= |
========= |
========= |
========= |
Finance costs have been allocated 75% to the capital account and
25% to the revenue account of the Income Statement.
7. DIVIDENDS
Dividends paid on equity shares |
Record date |
Payment date |
2022
£’000 |
2021
£’000 |
2020 Final dividend of 4.60p |
12 February
2021 |
17 March
2021 |
– |
1,015 |
2021 Interim dividend of 2.60p |
23 July
2021 |
1 September
2021 |
– |
566 |
2021 Final dividend of 4.60p |
4 February
2022 |
17 March
2022 |
981 |
– |
2022 Interim dividend of 2.60p |
22 July
2022 |
1 September
2022 |
550 |
– |
|
|
|
--------------- |
--------------- |
|
|
|
1,531 |
1,581 |
|
|
|
========= |
========= |
The Directors have proposed a final dividend of 4.70p per share
in respect of the year ended 31 October
2022. The final dividend will be paid, subject to
shareholders’ approval, on 15 March
2023 to shareholders on the Company’s register on
10 February 2023. The proposed final
dividend has not been included as a liability in these financial
statements as final dividends are only recognised in the financial
statements when they have been approved by shareholders.
The total dividends payable in respect of the year which form
the basis of determining retained income for the purpose of Section
1158 of the Corporation Tax Act 2010 and Section 833 of the
Companies Act 2006, and the amount proposed for the year ended
31 October 2022, meet the relevant
requirements as set out in this legislation.
Dividends paid or declared on equity shares: |
2022
£’000 |
2021
£’000 |
Interim paid of 2.60p (2021:
2.60p) |
550 |
566 |
Final proposed of 4.70p1
(2021: 4.60p) |
986 |
981 |
|
--------------- |
--------------- |
|
1,536 |
1,547 |
|
========= |
========= |
1 Based on 20,968,251
ordinary shares (excluding treasury shares) in issue on
30 January 2023.
All dividends paid or payable are distributed from the Company’s
current year revenue profits and, if required, from brought forward
revenue reserves.
8. EARNINGS/(LOSS) AND NET ASSET VALUE PER ORDINARY
SHARE
Revenue, capital earnings/(loss) and net asset value per ordinary
share are shown below and have been calculated using the
following:
|
2022 |
2021 |
Net revenue profit attributable to
ordinary shareholders (£’000) |
1,438 |
1,557 |
Net capital (loss)/profit
attributable to ordinary shareholders (£’000) |
(2,387) |
9,064 |
|
--------------- |
--------------- |
Total (loss)/profit attributable
to ordinary shareholders (£’000) |
(949) |
10,621 |
|
--------------- |
--------------- |
Total shareholders’ funds
(£’000) |
40,572 |
43,468 |
|
========= |
========= |
Earnings per share |
|
|
The weighted average number of
ordinary shares in issue during the year on which the earnings per
ordinary share was calculated was: |
21,244,153 |
21,920,081 |
The actual number of ordinary shares
in issue at the year end on which the net asset value was
calculated was: |
21,171,914 |
21,398,842 |
The number of ordinary shares in
issue, including treasury shares at the year end was: |
31,253,446 |
31,480,374 |
Calculated on weighted average
number of ordinary shares: |
|
|
Revenue earnings per share (pence) –
basic and diluted |
6.77 |
7.10 |
Capital (loss)/earnings per share
(pence) – basic and diluted |
(11.24) |
41.35 |
|
--------------- |
--------------- |
Total (loss)/earnings per share
(pence) – basic and diluted |
(4.47) |
48.45 |
|
========= |
========= |
|
As at
31 October
2022 |
As at
31 October
2021 |
Net asset value per ordinary share
(pence) |
191.63 |
203.13 |
Ordinary share price (mid-market)
(pence) |
171.00 |
191.00 |
|
========= |
========= |
There were no dilutive securities at the year end (31 October 2021: nil).
9. CALLED UP SHARE CAPITAL
|
Ordinary
shares
number |
Treasury
shares
number |
Total
shares
number |
Nominal
value
£’000 |
Allotted, called up and fully
paid share capital comprised: |
|
|
|
|
Ordinary shares of 1 pence
each: |
|
|
|
|
At 31 October 2021 |
21,398,842 |
10,081,532 |
31,480,374 |
315 |
Shares purchased for
cancellation |
(226,928) |
– |
(226,928) |
(2) |
|
--------------- |
--------------- |
--------------- |
--------------- |
At 31 October 2022 |
21,171,914 |
10,081,532 |
31,253,446 |
313 |
|
========= |
========= |
========= |
========= |
During the year 226,928 ordinary shares (2021: 1,112,783) were
purchased and subsequently cancelled for a total consideration
including expenses of £416,000 (2021: £1,973,000).
The number of ordinary shares in issue at the year end was
31,253,446 (2021: 31,480,374) of which 10,081,532 (2021:
10,081,532) were held in treasury.
10. RESERVES
|
Share
premium
account
£’000 |
Capital
redemption
reserve
£’000 |
Distributable reserves |
Capital
reserve
(arising on
investments
sold)
£’000 |
Capital
reserve
(arising on
revaluation of
investments
held)
£’000 |
Special
reserve
£’000 |
Revenue
reserve
£’000 |
At 31 October 2021 |
14,819 |
234 |
7,108 |
4,762 |
13,843 |
2,387 |
Movement during the year: |
|
|
|
|
|
|
Total comprehensive
income/(loss): |
|
|
|
|
|
|
Net profit/(loss) for the year |
– |
– |
889 |
(3,276) |
– |
1,438 |
Transactions with owners, recorded
directly to equity: |
|
|
|
|
|
|
Ordinary shares purchased for
cancellation |
– |
2 |
– |
– |
(414) |
– |
Share purchase costs |
– |
– |
– |
– |
(2) |
– |
Dividends paid during the year |
– |
– |
– |
– |
– |
(1,531) |
|
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
At 31 October 2022 |
14,819 |
236 |
7,997 |
1,486 |
13,427 |
2,294 |
|
========= |
========= |
========= |
========= |
========= |
========= |
|
Share
premium
account
£’000 |
Capital
redemption
reserve
£’000 |
Distributable reserves |
Capital
reserve
(arising on
investments
sold)
£’000 |
Capital
reserve
(arising on
revaluation of
investments
held)
£’000 |
Special
reserve
£’000 |
Revenue
reserve
£’000 |
At 31 October 2020 |
14,819 |
223 |
4,661 |
(1,855) |
15,816 |
2,411 |
Movement during the year: |
|
|
|
|
|
|
Total comprehensive income: |
|
|
|
|
|
|
Net profit for the year |
– |
– |
2,447 |
6,617 |
– |
1,557 |
Transactions with owners, recorded
directly to equity: |
|
|
|
|
|
|
Ordinary shares purchased for
cancellation |
– |
11 |
– |
– |
(1,961) |
– |
Share purchase costs |
– |
– |
– |
– |
(12) |
– |
Dividends paid during the year |
– |
– |
– |
– |
– |
(1,581) |
|
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
--------------- |
At 31 October 2021 |
14,819 |
234 |
7,108 |
4,762 |
13,843 |
2,387 |
|
========= |
========= |
========= |
========= |
========= |
========= |
The share premium account and capital redemption reserve are not
distributable reserves under the Companies Act 2006. The Company’s
share premium account was cancelled pursuant to shareholders’
approval of a special resolution at the Company’s Annual General
Meeting in 2002 and Court approval on 24
January 2002. The share premium account which totalled
£61,852,000 was transferred to a special reserve. This action was
taken, in part, to ensure that the Company had sufficient
distributable reserves. In accordance with ICAEW Technical Release
02/17BL on Guidance on Realised and Distributable Profits under the
Companies Act 2006, the special reserve and capital reserves may be
used as distributable reserves for all purposes and, in particular,
the repurchase by the Company of its ordinary shares and for
payments as dividends. In accordance with the Company’s Articles of
Association, the special reserve, capital reserves and the revenue
reserve may be distributed by way of dividend. The gain on the
capital reserve arising on the revaluation of investments of
£1,486,000 (2021: gain of £4,762,000) 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.
11. VALUATION OF FINANCIAL INSTRUMENTS
Financial assets and financial liabilities are either carried in
the Balance Sheet at their fair value (investments) 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, bank overdrafts and bank loans). Section 34
of FRS 102 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
to the Financial Statements in the Annual Report and Financial
Statements.
Categorisation within the hierarchy has been determined on the
basis of the lowest level input that is significant to the fair
value measurement of the relevant asset.
The fair value hierarchy has the following levels:
Level 1 – Quoted market price for identical instruments in
active markets
A financial instrument is regarded as quoted in an active market if
quoted prices are readily and regularly available from an exchange,
dealer, broker, industry group, pricing service or regulatory
agency and those prices represent actual and regularly occurring
market transactions on an arm’s length basis. The Company does not
adjust the quoted price for these instruments.
Level 2 – Valuation techniques using observable
inputs
This category includes instruments valued using quoted prices for
similar instruments in markets that are considered less than
active, or other valuation techniques where significant inputs are
directly or indirectly observable from market data.
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 asset or
liability.
Fair values of financial assets and financial
liabilities
The table below is an analysis of the Company’s financial
instruments measured at fair value at the balance sheet date.
Financial assets at fair value through profit or loss at 31 October
2022 |
Level
1
£’000 |
Level
2
£’000 |
Level
3
£’000 |
Total
£’000 |
Equity investments |
41,557 |
– |
– |
41,557 |
|
========= |
========= |
========= |
========= |
Financial assets at fair value through profit or loss at 31 October
2021 |
Level
1
£’000 |
Level
2
£’000 |
Level
3
£’000 |
Total
£’000 |
Equity investments |
46,080 |
– |
– |
46,080 |
|
========= |
========= |
========= |
========= |
There were no transfers between levels for financial assets and
financial liabilities during the year recorded at fair value as at
31 October 2022 (2021: none). The
Company held no Level 3 securities during the financial year or as
at 31 October 2022 (2021: none).
For exchange listed equity investments, the quoted price is the
bid price. Substantially, all investments are valued based on
unadjusted quoted market prices. Where such quoted prices are
readily available in an active market, such prices are not required
to be assessed or adjusted for any business risks, including
climate change risk, in accordance with the fair value related
requirements of the Company’s financial reporting framework.
12. TRANSACTIONS WITH THE MANAGER AND INVESTMENT
MANAGER
BlackRock Fund Managers Limited (BFM) provides management and
administration services to the Company under a contract which is
terminable on six months’ notice. BFM has (with the Company’s
consent) delegated certain portfolio and risk management services,
and other ancillary services, to BlackRock Investment Management
(UK) Limited (BIM (UK)). Further
details of the investment management contract are disclosed in the
Directors’ Report in the Annual Report and Financial
Statements.
The investment management fee is levied quarterly, based on
0.60% per annum of the Company’s market capitalisation. The
investment management fee due for the year ended 31 October 2022 amounted to £237,000 (2021:
£240,000). At the year end, £118,000 was outstanding in respect of
the management fee (2021: £180,000).
In addition to the above services, BIM
(UK) has provided the Company with marketing services. The
total fees paid or payable for these services for the year ended
31 October 2022 amounted to £13,000
including VAT (2021: £11,000). Marketing fees of £11,000 including
VAT were outstanding at 31 October
2022 (2021: £11,000).
The Company holds an investment in the BlackRock Institutional
Cash Series plc - Sterling Liquid Environmentally Aware Fund of
£2,604,000 (2021: £1,299,000) which for the year ended 31 October 2022 and 31
October 2021 has been presented in the financial statements
as a cash equivalent. This is a fund managed by a company within
the BlackRock Group.
The ultimate holding company of the Manager and the Investment
Manager is BlackRock, Inc., a company incorporated in Delaware, USA.
13. RELATED PARTY DISCLOSURE
At the date of this report, the Board consists of four
non-executive Directors, all of whom are considered to be
independent of the Manager by the Board.
Disclosures of the Directors’ interests in the ordinary shares
of the Company and fees and expenses payable to the Directors are
set out in the Directors’ Remuneration Report in the Annual Report
and Financial Statements. At 31 October
2022, £8,000 (2021: £8,000) was outstanding in respect of
Directors’ fees.
Significant holdings
The following investors are:
a. funds managed by the BlackRock
Group or are affiliates of BlackRock Inc. (“Related BlackRock
Funds”); or
b. investors (other than those
listed in (a) above) who held more than 20% of the voting shares in
issue in the Company and are as a result, considered to be related
parties to the Company (“Significant Investors”).
As at 31
October 2022
Total % of shares held by Related
BlackRock Funds |
Total % of shares held by
Significant
Investors who are not affiliates of
BlackRock Group or BlackRock, Inc. |
Number of Significant Investors
who
are not affiliates of BlackRock Group or
BlackRock, Inc. |
nil |
n/a |
n/a |
As at 31
October 2021
Total % of shares held by Related
BlackRock Funds |
Total % of shares held by
Significant
Investors who are not affiliates of
BlackRock Group or BlackRock, Inc. |
Number of Significant Investors
who
are not affiliates of BlackRock Group or
BlackRock, Inc. |
nil |
n/a |
n/a |
14. CONTINGENT LIABILITIES
There were no contingent liabilities at 31
October 2022 (2021: nil).
15. SUBSEQUENT EVENTS
The Company’s £4 million overdraft facility with ING Luxembourg
S.A. matured on 31 December 2022.
On 31 December 2022, a new
facility was arranged between The Bank of New York Mellon
(International) Limited (BNYM) and the Company under which BNYM
agreed to make available to the Company a variable interest rate
unsecured Sterling revolving credit facility of up to £8
million.
16. PUBLICATION OF NON-STATUTORY ACCOUNTS
The financial information contained in this announcement does not
constitute statutory accounts as defined in the Companies Act 2006.
The Annual Report and Financial Statements for the year ended
31 October 2022 will be filed with
the Registrar of Companies after the Annual General Meeting.
The figures set out above have been reported upon by the
auditor, whose report for the year ended 31
October 2022 contains no qualification or statement under
Section 498(2) or (3) of the Companies Act 2006.
The comparative figures are extracts from the audited financial
statements of BlackRock Income and Growth Investment Trust plc for
the year ended 31 October 2021, which
have been filed with the Registrar of Companies, unless otherwise
stated. The report of the auditor on those financial statements
contained no qualification or statement under Section 498 of the
Companies Act.
17. ANNUAL REPORT
Copies of the Annual Report will be sent to members shortly and
will be available from the registered office c/o The Company
Secretary, BlackRock Income and Growth Investment Trust plc,
12 Throgmorton Avenue, London
EC2N 2DL.
18. ANNUAL GENERAL MEETING
The Annual General Meeting of the Company will be held at 12
Throgmorton Avenue, London EC2N
2DL on Tuesday, 7 March 2023 at 12.00
noon.
ENDS
The Annual Report will also be available on the BlackRock
website at blackrock.co.uk/brig. Neither the contents of the
Manager's website nor the contents of any website accessible from
hyperlinks on the Manager's website (or any other website) is
incorporated into, or forms part of, this announcement.
For further information, please contact:
Melissa Gallagher, Head, Closed
End Funds, BlackRock Investment Management (UK) Limited
Tel: 020 7743 3893
Press enquires:
Ed Hooper, Lansons
Communications
Tel: 020 7294 3620
E-mail: BlackRockInvestmentTrusts@lansons.com or
EdH@lansons.com
2 February 2023
12 Throgmorton Avenue
London
EC2N 2DL