TIDMBRNA
BLACKROCK NORTH AMERICAN INCOME TRUST PLC
LEI: 549300WWOCXSC241W468 - Article 5 Transparency Directive, DTR 4.2
Half Yearly Financial Report 30 April 2020
PERFORMANCE RECORD
FINANCIAL HIGHLIGHTS
As at As at
30 April 31 October Change
2020 2019 %
Net assets (GBP'000)1 130,003 142,786 -9.0
Net asset value per ordinary share (pence) 160.09 182.13 -12.1
- with dividends reinvested2 -9.9
Ordinary share price (mid-market) (pence) 160.50 186.50 -13.9
- with dividends reinvested2 -11.7
Russell 1000 Value Index (with dividends reinvested) 1,163.57 1,313.68 -11.4
Premium to cum income net asset value2 0.3% 2.4%
-------------- -------------- --------------
For the six For the six
months ended months ended
30 April 30 April Change
2020 2019 %
Revenue
Net profit after taxation (GBP'000) 2,502 2,144 +16.7
Revenue earnings per ordinary share (pence) 3.10 3.06 +1.3
-------------- -------------- --------------
Interim dividends (pence)
1st interim 2.00 2.00 0.0
2nd interim 2.00 2.00 0.0
-------------- -------------- --------------
Total dividends paid 4.00 4.00 0.0
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1 The change in net assets reflects shares issued during the period,
dividends paid and market movements.
2 Alternative Performance Measures, see Glossary in the half yearly
report and financial statements.
ANNUAL PERFORMANCE SINCE LAUNCH ON 24 OCTOBER 2012 TO 30 APRIL 2020
NAV Russell 1000 Share Price
Value Index
2013# 17.1 27.4 16.5
2014 11.8 16.9 2.4
2015 4.9 4.1 4.7
2016 34.2 34.6 43.0
2017 11.4 8.3 6.3
2018 6.6 7.1 10.3
2019 8.5 9.8 15.0
2020* -9.9 -11.4 -11.7
# Since launch on 24 October 2012 to 31 October 2013.
* Performance for six month period ended 30 April 2020.
Sources: BlackRock and Datastream.
Performance figures have been calculated in sterling terms with dividends
reinvested.
CHAIRMAN'S STATEMENT FOR THE SIX MONTHSED 30 APRIL 2020
MARKET OVERVIEW
The past six months have proved extremely challenging for stock market
investors. Whilst the end of 2019 and start of 2020 were rewarding and saw a
combination of high returns and low volatility, in mid-February the outbreak of
the COVID-19 pandemic, compounded by an unprecedented slump in the oil price,
sent stock markets plummeting. Despite significant fiscal and monetary
stimulus, the social distancing and lockdown measures required to combat the
virus caused the U.S. economy to contract during the first quarter at its
sharpest rate since the end of 2008. Although stock markets rallied in April,
high market volatility is expected to remain until there is greater clarity on
how long it will take for more accustomed levels of economic activity to
resume, which in turn will depend on the extent to which the spread of COVID-19
can be contained.
PERFORMANCE
Against this difficult backdrop, over the six months to 30 April 2020, the
Company's net asset value per share (NAV) returned -9.9% compared with a return
of -11.4% in the Russell 1000 Value Index. The Company's share price returned
-11.7% over the same period (all figures in sterling terms with dividends
reinvested). Further information on investment performance is given in the
Investment Manager's Report.
Since the period end and up to close of business on 23 June 2020, the Company's
NAV has increased by 6.1% and the share price has fallen by 0.9% (both
percentages in sterling with dividends reinvested), reflecting the shares
moving to a discount over this period.
EARNINGS AND DIVIDS
The Company's revenue return per share for the six months ended 30 April 2020
amounted to 3.10p compared with 3.06p for the corresponding period in 2019. On
20 March 2020 the Board declared the first quarterly dividend of 2.00p per
share which was paid on 29 April 2020. A second quarterly dividend of 2.00p per
share has been declared and will be paid on 3 July 2020 to shareholders on the
register on 22 May 2020. These are in line with payments made in 2019.
In the latest Annual Report, the Board confirmed that it intended to continue
with the established dividend policy of paying 2.00p per share for each quarter
of the current financial year, and the Board intends to maintain this policy.
One of the strengths of investment trusts over competing fund structures is
their ability to draw on revenue and distributable capital reserves to maintain
dividend pay-outs in periods of stress. One of the features of our approach is
writing covered call options to enhance revenue and recent volatility has meant
that the value obtained from writing option premia has increased. The outlook
for dividends from the portfolio remains unusually uncertain and the Board
will, as in previous years, review the current policy in the first quarter of
the Company's next financial year.
GROWTH IN THE COMPANY'S EQUITY
The Board is committed to growing the Company over time, which should improve
liquidity for all shareholders.
Until mid-February, when there were large day-to-day moves in share prices, the
Company's shares continued to enjoy a premium rating with ongoing demand mainly
from retail investors. In 2019, the Company ranked seventh overall for annual
tap issuances in the investment trust sector relative to market capitalisation.
During the six months to 30 April 2020, the Company's share price to NAV ranged
between a discount of 21.8% and a premium of 3.4% and the Company reissued
2,805,000 ordinary shares from treasury at a premium to NAV. Since the period
end and up to the date of this report, no further ordinary shares have been
reissued.
OUTLOOK
The global spread of COVID-19 has rocked financial markets and the fall in U.S.
stocks has followed a record long bull market and economic expansion. At the
beginning of the year ongoing economic growth was the base case expectation but
now we are contemplating a deep virus-induced economic downturn of unknown
duration. Anecdotal evidence from China is encouraging with factories and
stores already reopening, but a premature end to lockdowns could lead to a
second wave of infections and delay a recovery.
Tailwinds from monetary and fiscal policy and subsequent stimulus measures
should eventually promote stronger economic conditions once the virus threat
recedes. We believe the Portfolio Managers' focus on sustainability and
companies with high quality balance sheets is even more important than ever in
current conditions.
SIMON MILLER
24 June 2020
INVESTMENT MANAGER'S REPORT
MARKET OVERVIEW
For the six month period ended 30 April 2020, U.S. large-cap stocks, as
represented by the S&P 500® Index, declined by 3.2% (in U.S. dollar terms). The
path was not a smooth ride and can be seen in three parts: the S&P 500® Index
increased by 6.8% during the final two months of 2019 before a sharp sell-off
in February and March of 2020, which was followed by a swift rebound in April.
Stocks began the year with positive returns, as prices climbed on the heels of
upbeat earnings results, improving business sentiment and a Phase 1 U.S./China
trade deal. Stock prices reached a peak on 19 February 2020 before beginning a
swift reversal on the heels of the global spread of COVID-19. The pandemic
prompted countries to adopt varying degrees of social distancing,
self-quarantine and lockdown measures. Global economic activity declined at a
historically high rate as non-essential businesses were forced to close
indefinitely in many countries. Concern over the human and economic toll also
fuelled measures from governments and central bankers globally. In summary,
this chain of events brought the longest enduring U.S. bull market to a sudden
end.
Aggressive and coordinated monetary and fiscal policy measures helped to
stabilise U.S. financial markets in the final two weeks of the first quarter.
The Federal Reserve (the Fed) twice cut its benchmark interest rate in March to
a current range of 0.0% to 0.25% for overnight bank lending. Furthermore, on 23
March 2020 the Fed declared an unlimited balance sheet expansion for the
foreseeable future. These actions helped to improve market liquidity across
credit markets, as many investors sought to reduce risk levels in their
portfolios. Fiscal policy legislation also eased market fears, including the
unprecedented U.S.$2 trillion stimulus package announced on 27 March 2020 to
support individuals and businesses. This translates to roughly 10% of annual
U.S. gross domestic product (i.e. the market value of all final goods and
services produced in the country).
PORTFOLIO OVERVIEW
The largest contributor to relative performance was an elevated cash balance,
which we have maintained as our preferred method of defensive exposure.
Valuations remain stretched among traditional defensive sectors and we have
used cash as a buffer against volatile equity markets. In consumer
discretionary, stock selection in the multiline retail and household durables
industries proved beneficial, as did our underweight to the hotels, restaurants
and leisure industry. An underweight to real estate, most notably equity real
estate investment trusts (REITs), also benefited relative performance during
the period. Lastly, a combination of stock selection and an overweight to
information technology boosted relative returns. Most notably, our overweight
to the software industry and stock selection among technology hardware, storage
and peripherals providers, positively impacted relative performance.
The primary detractor from relative performance was stock selection and
allocation decisions in financials. Overweight exposure to banks was
particularly harmful given the impact of starkly lower interest rates on
portfolio holdings. In consumer staples, an underweight to the household
products and food and staple retailing industries also weighed on relative
returns. Lastly, stock selection and allocation decisions in health care hurt
relative returns, primarily due to our underweight exposure to the
biotechnology and life sciences tools and services industries.
As expected, writing covered call options slightly hindered relative
performance during the final two months of 2019 amid rising stock prices.
Conversely, writing covered call options benefited the portfolio amid
dramatically declining U.S. stock prices during February and March of 2020. In
summary, the covered call options contributed positively to absolute
performance for the six-month period. As designed, the Company's option
overwrite component enhanced the portfolio's income during the period.
Below is a comprehensive overview of our allocations (in GBP) at the end of the
period and overweight/underweight positions compared to the benchmark. At the
end of the period, the portfolio's cash position was 8.2%.
Financials: 2.8% overweight (23.7% of the portfolio)
Financials represent the Company's largest sector allocation and we remain
particularly bullish on the U.S. banks, insurers and insurance brokers. We
believe the U.S. banks are safer and sounder investments today than before the
financial crisis. They have stronger balance sheets (i.e. higher capital
levels), revamped company cost structures and disciplined loan underwriting has
contributed to benign credit trends. Bank valuations are compelling relative to
other cyclical sectors (i.e. industrials) and potential tailwinds from
deregulation and investor-friendly capital return policies also bode well for
investors, in our view. A low interest rate environment is harmful to net
interest income, but with lower exposure to regional banks, the Company is
relatively less exposed to changes in interest rates. With regard to insurers
and insurance brokers, we like these companies for their attractive valuations
and relatively stable business models. Over the last year, insurers and brokers
have benefited from strong pricing power. Pricing power is reflective of low
U.S. interest rates, two straight years of larger than expected catastrophe
losses, and large institutions (i.e. AIG) taking capacity out of the market.
Health Care: 2.3% overweight (18.2% of the portfolio)
Secular growth opportunities in health care are a by-product of demographic
trends. Older populations spend more on health care than younger populations.
In the United States, a combination of greater demand for health care services
and rising costs drive a need for increased efficiency within the health care
ecosystem. We believe innovation and strong cost control can work hand-in-hand
to address this need and companies that can contribute in this regard may be
poised to benefit.
On the innovation front, there is a need for newer and more effective medicines
and therapies. The Food and Drug Administration has made this a priority by
increasing the volume and speed of drug approvals, which bodes well for
pharmaceutical manufacturers that can deliver new drugs to the market. From an
investment standpoint, we prefer pharmaceutical companies with a proven ability
to generate high research & development productivity, versus those that focus
on one or two key drugs and rely upon raising their prices to drive growth.
From a cost perspective, health maintenance organisations (HMOs) have an
economic incentive to drive down costs as they provide health insurance
coverage to constituents. The HMOs have demonstrated a strong ability to manage
costs by leveraging their scale and technology to drive efficiencies.
Governments, in turn, are increasingly outsourcing to HMOs as a way to lower
costs and balance their budgets. We prefer HMOs with diversified business
units, exposure to faster-growing areas of government including Medicare and
Medicaid, and opportunities to enhance their profitability through controlling
costs.
Information Technology: 1.7% overweight (8.6% of the portfolio)
In the technology sector, buzzwords such as 'artificial intelligence', 'big
data' and 'disruption' are increasingly utilised to describe growth
opportunities and the overall operating environment. Of course, a portion of IT
still incubates companies similar to the nascent, high-flying and cash-poor
innovators that ushered the U.S. equity market into the sharp rise and eventual
tumble that is known as the dot-com bubble. However, the fundamental identity
of the typical technology company is also changing. An increasing number of
constituents in the IT sector are what we refer to as 'industrial tech'. These
firms are competitively insulated from disruptors, well-positioned to take
advantage of long-term secular tailwinds and exhibit growth in earnings and
free cash flow. A swelling number of companies in the sector have also adopted
dividend payments to shareholders as a viable use of cash, rejecting the notion
that IT firms can only add value to investors via their growth potential. We
believe this trend is poised to continue, as many mature IT companies are flush
with cash and shareholders are increasingly willing to reward management teams
for return of capital.
Energy: 1.7% overweight (8.1% of the portfolio)
The portfolio maintains a modest overweight to the energy sector. We favour
oil-weighted companies over those levered to natural gas and prefer exposure to
large-cap integrated oil and independent oil & gas producers. From a quality
standpoint we seek to own companies with experienced management teams,
disciplined capex spending plans and exposure to lower cost resource assets.
From a valuation standpoint we seek to own companies with free cash flow
generation and margin capture stories that are underappreciated by the street.
In summary, we believe companies with strong balance sheets and cash flows,
production growth visibility, operating specialisation and pricing power at the
industry level remain most desirable from an investment perspective.
Communication Services: 1.2% underweight (7.1% of the portfolio)
We are underweight to communication services and our allocation remains
concentrated in diversified telecommunication bellwether Verizon Communications
(4.7% of the portfolio). Our stock-specific exposure in the sector is to
companies that offer healthy dividend yields and opportunity for steady,
longer-term growth.
Consumer Staples: 1.3% underweight (8.9% of the portfolio)
The consumer staples sector is a common destination for the conservative equity
income investor. Historically, many of these companies have offered investors
recognisable brands, diverse revenue streams, exposure to growing end markets
and the ability to garner pricing power. These characteristics, in turn, have
translated into strong and often stable free cash flow and growing dividends
for shareholders. In recent years some of these secular advantages have become
challenged, in our view, due to changing consumer preferences, greater end
market competition from local brands and disruption from the rapid adoption of
online shopping. These challenges, combined with higher than historical
valuations, have facilitated our more neutral stance in the sector. Notably, we
prefer ownership of companies with underappreciated growth profiles (i.e. buy
growth), sticky customer bases and the ability to cut costs and/or improve
profit margins.
Consumer Discretionary: 1.4% underweight (4.2% of the portfolio)
We continue to maintain a degree of caution in consumer discretionary, as
investors are sensitive to disruption and how new business models and
technology can displace incumbent operators. We believe these disruptive forces
are best avoided through identifying stock-specific investment opportunities
that (1) are trading at discounted valuations or (2) are somewhat insulated
from these disruptive pressures. For example, we believe companies such as
General Motors (autos) and Newell Brands (household durables) offer investors
exposure to underappreciated franchises at discounted valuations. Furthermore,
retailers such as Dollar General (dollar store) and Lowe's Companies (home
improvement) provide us with exposure to companies that can compound earnings
and are more immune to disruptive forces.
Industrials: 2.4% underweight (6.8% of the portfolio)
We are underweight to the industrials sector. Our selectivity is driven by
relative valuations, which we view as expensive, in many cases, versus other
cyclical segments of the U.S. equity market. We continue to maintain exposure
to the aerospace & defence industry. From a fundamental and operating model
standpoint, we continue to like the profiles of the large-cap aerospace &
defence firms. Many of these companies have strong balance sheets, good
visibility into sales and earnings and historically have demonstrated
shareholder friendly capital return policies.
Materials: 2.6% underweight (1.7% of the portfolio)
Broadly speaking, we have found more attractive opportunities from which to
source our portfolio's cyclical exposure. Our exposure to the materials sector
consists of two chemicals stocks - Corteva and DuPont De Nemours. Longer-term
secular trends in global population growth can potentially benefit
well-positioned companies in the agricultural chemical space.
Utilities: 2.7% underweight (4.5% of the portfolio)
Strong investor demand for equity income in recent years has resulted in
elevated valuations for many high dividend yielding stocks, including utilities
companies. Despite rich valuations at the sector level, we are finding pockets
of opportunity in U.S. regulated utilities such as Public Service Enterprise
Group (PEG), FirstEnergy (FE), Edison International (EIX), and NiSource (NI).
PEG, EIX, and NI add a level of stability and defensiveness to the portfolio
through their durable dividend profiles and healthy earnings growth potential.
Alternatively, FE offers us exposure to a company with a good underlying
regulated franchise with some near-term uncertainties (i.e. merchant business
bankruptcy). This uncertainty, in our view, creates opportunity for patient
long-term investors that are willing and capable of doing deep analysis on
complex investment issues.
Real Estate: 5.0% underweight (0.0% of the portfolio)
The real estate sector is our largest underweight position in the strategy. We
maintain a 0% weighting in the sector due to our view that valuations are
unattractive at current levels.
POSITIONING AND OUTLOOK
Our 2020 base case was for slow but positive U.S. economic growth and for U.S.
stocks to grind higher on the back of a strong U.S. consumer and supportive
monetary and fiscal policy. Stocks have tumbled amid the current global health
crisis, a tail risk no one could have predicted a few short months ago.
Volatility never feels good, but the foundation underlying it is important.
Daily market moves in response to the COVID-19 outbreak have matched the scale
of those seen during the global financial crisis. But this is not 2008. The
COVID-19 shock is not one caused by a crisis in the core of the financial
system and for this reason the U.S. economy is on a much stronger footing to
endure the current economic disruption.
Make no mistake, the economic and earnings impact from the crisis are real.
Trading volatility is likely to persist as investors recalibrate expectations
for corporate earnings and global supply chains. However, our long-term
conviction in U.S. stocks remains steadfast. It bears reminding that the value
of a company is the net present value of its future cash flows. We expect
earnings to be hard hit in 2020, but ultimately see COVID-19 as a transitory
event. One or two quarters of lost earnings, although painful, should not
materially change the long-term earnings power of our portfolio holdings.
Importantly, we are encouraged by the swiftness, magnitude and coordination of
monetary and fiscal policy deployment. These efforts have helped to stabilise
financial markets while governments pursue coronavirus containment measures. We
are watching closely for visibility into the effectiveness of these containment
efforts. The gradual reopening of economies is an important upcoming litmus
test, with a second wave of infections a key outstanding risk to our market
outlook.
TONY DESPIRITO, FRANCO TAPIA and DAVID ZHAO
BlackRock Investment Management LLC
24 June 2020
TEN LARGEST INVESTMENTS AS AT 30 APRIL 2020
1 = Verizon Communications (2019: 1st)
Communication Services
Market value: GBP5,623,000
Share of investments: 4.7% (2019: 4.5%)
One of the largest providers of wireline and wireless communications in the
U.S., where 48 million access lines represent approximately one-third of market
share. The company's wireless customer base is very sizable and continues to
grow. Verizon remains in a strong financial position and exhibits a sustainable
dividend yield above 4%. Going forward, we expect continued expansion in
wireless, long distance and high-speed services to drive company growth.
2 + Bank of America (2019: 5th)
Financials
Market value: GBP4,448,000
Share of investments: 3.7% (2019: 3.0%)
One of the largest financial institutions in the U.S. with lending operations
in the consumer, small-business and corporate markets, in addition to asset
management and investment banking divisions. Bank of America has delivered
consistent results over the last year, with particular strength within their
consumer bank division.
3 + Citigroup (2019: 4th)
Financials
Market value: GBP4,022,000
Share of investments: 3.4% (2019: 3.6%)
A U.S. based money center bank with a global footprint. We believe Citigroup is
attractively valued on both a price-to-earnings and book value basis, has
self-help opportunities within its consumer banking segment and offers the
potential for dividend growth.
4 + Sanofi (2019: 60th)
Health Care
Market value: GBP3,197,000
Share of investments: 2.7% (2019: 0.5%)
Sanofi checks a lot of boxes that we look for in a pharmaceuticals investment -
a company with a strong commercial business and an under-appreciated pipeline
that is not reflected in the current valuation. Additionally, Sanofi is
under-earning its potential and a new CEO with turn-around experience has begun
to demonstrate a path to margin improvement. Low exposure to U.S. drug pricing
regulatory risk is also attractive and the company is a potential
sum-of-the-parts story as several of the company's businesses including
Vaccines and Consumer Health should trade at much higher multiples.
5 + Anthem (2019: 11th)
Health Care
Market value: GBP3,117,000
Share of investments: 2.6% (2019: 2.0%)
Anthem is a leading company in a high quality, stable U.S. managed care space
whose relatively new CEO is taking the initiative to leverage the company's
market position and accelerate top and bottom-line growth. These initiatives
include insourcing their Pharmacy Benefit Managers, expanding their Medicare
offerings and leveraging their brand to offer ancillary products (dental
benefits, Administrative Services Only arrangements, etc). Furthermore, at 10x
2021 price-to-earnings, Anthem trades near the low end of the group, despite
having the highest projected earnings per share growth going forward.
6 = Medtronic (2019: 6th)
Health Care
Market value: GBP3,071,000
Share of investments: 2.6% (2019: 2.7%)
One of the world's largest medical device companies. The firm generates the
majority of its sales and profits from the United States but is headquartered
in the Republic of Ireland. The company offers an attractive innovation
pipeline in its cardiovascular, diabetes and robotics businesses. We believe
that Medtronic should be able to reliably grow revenue and earnings in a
meaningful way going forward, leading to multiple expansion relative to peers.
7 - Wells Fargo (2019: 3rd)
Financials
Market value: GBP2,904,000
Share of investments: 2.4% (2019: 3.9%)
A U.S. bank which operates in three segments including community banking,
wholesale banking and wealth & investment management. Wells Fargo has a strong
deposit franchise and we are encouraged by the company's history of strong
investment returns and prudent credit risk management. In our view, shares of
the company are underappreciated today in an environment characterised by low
credit losses and ample access to liquidity.
8 + Koninklijke Philips (2019: 9th)
Health Care
Market value: GBP2,777,000
Share of investments: 2.3% (2019: 2.1%)
The company trades at a deep discount to its medical technology peers despite
offering better growth. The company is transforming into a pure-play health
care company that, in our view, deserves a higher multiple. Philips is also
meaningfully under-earning, with current margins that are well below
management's targets and those of its peers, indicating upside to
profitability.
9 + Unilever (2019: 30th)
Consumer Staples
Market value: GBP2,725,000
Share of investments: 2.3% (2019: 1.3%)
Unilever has a strong portfolio of home and personal care brands and favourable
exposure to emerging markets. Recent sales performance has disappointed,
driving a relative derating. While margin may need to be rebased, that seems
fully baked into expectations, trading at 19x 2020 price-to-earnings, a 20%
discount to global staples peers. At this price, we believe there is
optionality on a) better execution; b) macro improvement; c) disposals; and d)
perhaps activist involvement.
10 + FirstEnergy (2019: 21st)
Utilities
Market value: GBP2,682,000
Share of investments: 2.2% (2019: 1.7%)
FirstEnergy is an integrated utility that services U.S. customers primarily in
the Northeast and Midwest. Our investment thesis is predicated on valuation, as
we believe the stock trades at a discount on a sum-of-the-parts basis.
Additionally, we believe the company has manageable equity needs and offers
investors steady 4% to 6% EPS growth annually.
Market value amounts include the liability for written covered call options.
All percentages reflect the value of the holding as a percentage of total
investments. Percentages in brackets represent the value of the holding as at
31 October 2019.
Together, the ten largest investments represent 28.9% of the Company's
portfolio (31 October 2019: 30.5%).
PORTFOLIO ANALYSIS AS AT 30 APRIL 2020
% % % % % % % % % % % % % Total % Total
Sectors Canada Denmark France Germany Ireland Japan Netherlands Norway Switzerland United Kingdom United States Cash 30.04.20 31.10.19
Financials - - - - - - - - - - 23.7 - 23.7 24.6
Health Care - - 2.4 1.8 2.4 - 2.1 - 0.9 1.7 6.9 - 18.2 16.6
Consumer - - - 1.0 - - 2.1 - 1.1 0.2 4.5 - 8.9 6.9
Staples
Information 0.2 - - - - - 0.5 - - - 7.9 - 8.6 8.6
Technology
Energy - - 0.4 - - - - 0.5 - 1.3 5.9 - 8.1 9.2
Communication - - - - - - - - - - 7.1 - 7.1 6.6
Services
Industrials - - - 1.0 - - - - - 2.5 3.3 - 6.8 8.0
Utilities - - - - - - - - - - 4.5 - 4.5 2.4
Consumer - - - - - - - - - - 4.2 - 4.2 6.1
Discretionary
Materials - - - - - - - - - - 1.7 - 1.7 1.8
Cash - - - - - - - - - - - 8.2 8.2 9.2
--------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- ---------------
% Portfolio 0.2 - 2.8 3.8 2.4 - 4.7 0.5 2.0 5.7 69.7 8.2 100.0
30.04.20
--------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- ---------------
% Portfolio 0.6 0.3 1.1 2.6 2.8 1.6 3.5 0.3 1.8 6.3 69.9 9.2 100.0
31.10.19
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INVESTMENTS AS AT 30 APRIL 2020
Market % of
value total
Company Country Sector Securities GBP'000 portfolio
Verizon Communications United States Communication Ordinary shares 5,649 } 4.7
Services Options (26)
Bank of America United States Financials Ordinary shares 4,501 } 3.7
Options (53)
Citigroup United States Financials Ordinary shares 4,022 3.4
Sanofi France Health Care Ordinary shares 3,197 2.7
Anthem United States Health Care Ordinary shares 3,117 2.6
Medtronic Ireland Health Care Ordinary shares 3,077 } 2.6
Options (6)
Wells Fargo United States Financials Ordinary shares 2,904 2.4
Koninklijke Philips Netherlands Health Care Ordinary shares 2,777 2.3
Unilever Netherlands Consumer Ordinary shares 2,729 } 2.3
Staples Options (4)
FirstEnergy United States Utilities Ordinary shares 2,691 } 2.2
Options (9)
Cognizant Technology Solutions United States Information Ordinary shares 2,683 } 2.2
Technology Options (32)
Williams United States Energy Ordinary shares 2,623 } 2.1
Options (59)
Comcast United States Communication Ordinary shares 2,546 } 2.1
Services Options (8)
Altria United States Consumer Ordinary shares 2,522 } 2.1
Staples Options (10)
Constellation Brands United States Consumer Ordinary shares 2,474 } 2.0
Staples Options (52)
Bayer Germany Health Care Ordinary shares 2,287 1.9
JPMorgan Chase United States Financials Ordinary shares 2,234 } 1.9
Options (9)
American International United States Financials Ordinary shares 2,249 } 1.9
Options (27)
AstraZeneca United Kingdom Health Care Ordinary shares 2,230 } 1.8
Options (76)
Morgan Stanley United States Financials Ordinary shares 2,047 } 1.7
Options (19)
Microsoft United States Information Ordinary shares 2,077 } 1.7
Technology Options (50)
CVS Health United States Health Care Ordinary shares 1,976 1.6
BAE Systems United Kingdom Industrials Ordinary shares 1,838 } 1.5
Options (8)
Willis Towers Watson United States Financials Ordinary shares 1,824 } 1.5
Options (5)
Public Service Enterprise Group United States Utilities Ordinary shares 1,793 } 1.5
Options (19)
BP United Kingdom Energy Ordinary shares 1,802 } 1.5
Options (55)
MetLife United States Financials Ordinary shares 1,776 } 1.5
Options (31)
General Electric United States Industrials Ordinary shares 1,744 } 1.4
Options (10)
Schwab (Charles) United States Financials Ordinary shares 1,703 } 1.4
Options (14)
Samsung Electronics United States Information Ordinary shares 1,631 1.4
Technology
Lowe's Companies United States Consumer Ordinary shares 1,659 } 1.4
Discretionary Options (29)
UnitedHealth Group United States Health Care Ordinary shares 1,670 } 1.4
Options (41)
General Motors United States Consumer Ordinary shares 1,531 1.3
Discretionary
Visa United States Information Ordinary shares 1,537 } 1.3
Technology Options (8)
Raymond James United States Financials Ordinary shares 1,500 } 1.2
Options (11)
Dollar General United States Consumer Ordinary shares 1,476 } 1.2
Discretionary Options (3)
DuPont De Nemours United States Materials Ordinary shares 1,470 } 1.2
Options (48)
Nestlé Switzerland Consumer Ordinary shares 1,401 } 1.2
Staples Options (4)
Siemens Germany Industrials Ordinary shares 1,366 } 1.1
Options (28)
Berkshire Hathaway United States Financials Ordinary shares 1,324 } 1.1
Options (5)
Marathon Petroleum United States Energy Ordinary shares 1,310 1.1
Arthur J.Gallagher & Co United States Financials Ordinary shares 1,306 } 1.1
Options (3)
Cisco Systems United States Information Ordinary shares 1,315 } 1.1
Technology Options (14)
Henkel Germany Consumer Ordinary shares 1,309 } 1.1
Staples Options (13)
Fox Corp United States Communication Ordinary shares 1,214 } 1.0
Services Options (8)
Ferguson United Kingdom Industrials Ordinary shares 1,203 } 1.0
Options (17)
Union Pacific United States Industrials Ordinary shares 1,252 } 1.0
Options (80)
Alcon Switzerland Health Care Ordinary shares 1,158 } 1.0
Options (4)
ConocoPhillips United States Energy Ordinary shares 1,135 } 0.9
Options (39)
Edison International United States Utilities Ordinary shares 1,089 } 0.9
Options (6)
Pfizer United States Health Care Ordinary shares 1,064 } 0.9
Options (11)
McKesson United States Health Care Ordinary shares 1,033 0.9
Motorola Solutions United States Information Ordinary shares 1,021 } 0.8
Technology Options (2)
Equitable Holdings United States Financials Ordinary shares 1,014 0.8
Pioneer Natural Resources United States Energy Ordinary shares 1,020 } 0.8
Options (26)
CME Group United States Financials Ordinary shares 949 } 0.8
Options (7)
Lockheed Martin United States Industrials Ordinary shares 913 } 0.8
Options (6)
Allstate United States Financials Ordinary shares 736 } 0.6
Options (6)
Corteva United States Materials Ordinary shares 737 } 0.6
Options (8)
Newell Brands United States Consumer Ordinary shares 746 } 0.6
Discretionary Options (29)
NXP Semiconductors Netherlands Information Ordinary shares 709 } 0.6
Technology Options (8)
Equinor ASA Norway Energy Ordinary shares 675 } 0.6
Options (11)
Marathon Oil United States Energy Ordinary shares 635 } 0.5
Options (33)
Total France Energy Ordinary shares 571 } 0.5
Options (10)
FedEx United States Industrials Ordinary shares 544 } 0.4
Options (5)
Pepsico United States Consumer Ordinary shares 493 } 0.4
Staples Options (1)
Kinder Morgan United States Energy Ordinary shares 483 0.4
Oneok United States Energy Ordinary shares 488 } 0.4
Options (13)
Conagra Brands United States Consumer Ordinary shares 448 } 0.4
Staples Options (2)
American Express United States Financials Ordinary shares 420 } 0.3
Options (2)
US Bancorp United States Financials Ordinary shares 378 } 0.3
Options (3)
British American Tobacco United Kingdom Consumer Ordinary shares 332 } 0.3
Staples Options (1)
Pentair United Kingdom Industrials Ordinary shares 311 } 0.2
Options (6)
NiSource United States Utilities Ordinary shares 256 } 0.2
Options (2)
Quest Diagnostics United States Health Care Ordinary shares 264 } 0.2
Options (14)
Travelers Companies United States Financials Ordinary shares 234 } 0.2
Options (1)
Constellation Software Canada Information Ordinary shares 211 0.2
Technology
Lear Corp United States Consumer Ordinary shares 74 0.1
Discretionary
Fidelity National Financial United States Financials Ordinary shares 64 -
-------------- --------------
Portfolio 119,621 100.0
======== ========
Comprising:
Equity investments 120,771 101.0
Derivative financial instruments - written (1,150) (1.0)
options
-------------- --------------
119,621 100.0
======== ========
All investments are in ordinary shares unless otherwise stated. The number of
holdings as at 30 April 2020 was 79 (31 October 2019: 89). The total number of
individual open options as at 30 April 2020 was 208 (31 October 2019: 224).
The negative valuation of GBP1,150,000 in respect of options held represents the
notional cost of repurchasing the contracts at market prices as at 30 April
2020 (31 October 2019: GBP482,000).
At 30 April 2020, the Company did not hold any equity interests comprising more
than 3% of any company's share capital.
Interim management report and responsibility statement
The Chairman's Statement and the Investment Manager's Report give details of
the important events which have occurred during the period and their impact on
the financial statements.
PRINCIPAL RISKS AND UNCERTAINTIES
The principal risks faced by the Company can be divided into various areas as
follows:
* Counterparty;
* Investment performance;
* Legal & Compliance;
* Market;
* Operational;
* Financial; and
* Marketing.
The Board reported on the principal risks and uncertainties faced by the
Company in the Annual Report and Financial Statements for the year ended 31
October 2019. A detailed explanation can be found in the Strategic Report on
pages 26 to 29 and in note 14 on pages 75 to 84 of the Annual Report and
Financial Statements which are available on the website maintained by BlackRock
at blackrock.com/uk/brna.
In the view of the Board, the outbreak of an infectious respiratory illness
caused by a novel coronavirus known as COVID-19, first detected in China in
December 2019 and has developed into a global pandemic, has fundamentally
altered the nature of the risks reported in the Annual Report and Financial
Statements. COVID-19 has resulted in travel restrictions, closed international
borders, enhanced health screenings at ports of entry and elsewhere, disruption
of and delays in healthcare service preparation and delivery, prolonged
quarantines, cancellations, supply chain disruptions and lower consumer demand,
as well as general concern and uncertainty. The impact of COVID-19 has
adversely affected the economies of many nations across the entire global
economy, individual issuers and capital markets, and could continue with
extents that cannot necessarily be foreseen. In addition, the impact of
infectious illnesses in emerging market countries may be greater due to
generally less established healthcare systems. Public health crises caused by
the COVID-19 outbreak may exacerbate other pre-existing political, social and
economic risks in certain countries or globally. The duration of the COVID-19
outbreak and its effects cannot be determined with certainty.
GOING CONCERN
The Board is mindful of the uncertainty surrounding the potential duration of
the COVID-19 pandemic and its impact on the global economy, the Company's
assets and the potential for the level of revenue derived from the portfolio to
reduce versus the prior year. The Directors, having considered the nature and
liquidity of the portfolio, the Company's investment objective and the
Company's projected income and expenditure, are satisfied that the Company has
adequate resources to continue in operational existence for the foreseeable
future and is financially sound. The Board believes that the Company and its
key third party service providers have in place appropriate business continuity
plans and will be able to maintain service levels through the COVID-19
pandemic.
The Company has a portfolio of investments which are considered to be readily
realisable and is able to meet all of its liabilities from its assets and
income generated from these assets. Based on the above, the Board is satisfied
that it is appropriate to continue to adopt the going concern basis in
preparing the financial statements. Ongoing charges (excluding finance costs,
direct transaction costs, custody transaction charges, non-recurring charges
and taxation) were approximately 1.09% of net assets for the year ended 31
October 2019.
CORPORATE GOVERNANCE
The Board noted the votes against two resolutions at the spring Annual General
Meeting by a significant shareholder and has subsequently sought to understand
its reasons for so doing. This shareholder is supportive of the objectives of
the Company but indicated its frustration with the limited scale (and, in
their view, limited growth) of the Company in recent years and their perception
that the Portfolio Managers had not used the benefits of the closed end
structure to the full (by, for example deploying gearing or investing in less
liquid assets). The Board appreciates this feedback and wishes to confirm that
expanding the Company is an important objective as it leads to greater
liquidity and lower fixed charges. The Board has requested that the Portfolio
Managers are more active in deploying leverage when they consider it is in
shareholders' interests to do so.
RELATED PARTY DISCLOSURE AND TRANSACTIONS WITH THE MANAGER
BlackRock Fund Managers Limited (BFM) was appointed as the Company's
AIternative Investment Fund Manager (AIFM) with effect from 2 July 2014. BFM
has (with the Company's consent) delegated certain portfolio and risk
management services, and other ancillary services, to BlackRock Investment
Management (UK) Limited (BIM (UK)). Both BFM and BIM (UK) are regarded as
related parties under the Listing Rules. Details of the fees payable are set
out in note 4 and note 10.
The related party transactions with the Directors are set out in note 11.
DIRECTORS' RESPONSIBILITY STATEMENT
The Disclosure Guidance and Transparency Rules (DTR) of the UK Listing
Authority require the Directors to confirm their responsibilities in relation
to the preparation and publication of the Interim Management Report and
Financial Statements.
The Directors confirm to the best of their knowledge that:
* the condensed set of financial statements contained within the half yearly
financial report has been prepared in accordance with applicable
International Accounting Standard 34 - 'Interim Financial Reporting'; and
* the Interim Management Report, together with the Chairman's Statement and
Investment Manager's Report, include a fair review of the information
required by 4.2.7R and 4.2.8R of the Financial Conduct Authority's
Disclosure Guidance and Transparency Rules.
This half yearly financial report has not been audited or reviewed by the
Company's auditors.
The half yearly financial report was approved by the Board on 24 June 2020
and the above responsibility statement was signed on its behalf by the
Chairman.
SIMON MILLER
For and on behalf of the Board
24 June 2020
FINANCIAL STATEMENTS
STATEMENT OF COMPREHENSIVE INCOME FOR THE SIX MONTHSED 30 APRIL 2020
Revenue GBP'000 Capital GBP'000 Total GBP'000
Notes
Six months ended Year ended Six months ended Year ended Six months ended Year ended
31.10.19 31.10.19 31.10.19
(audited) (audited) (audited)
30.04.20 30.04.19 30.04.20 30.04.19 30.04.20 30.04.19
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
Income from investments 3 1,949 1,718 3,488 - - - 1,949 1,718 3,488
held at fair value through
profit or loss
Other income 3 1,307 1,029 2,180 - - - 1,307 1,029 2,180
-------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
Total revenue 3,256 2,747 5,668 - - - 3,256 2,747 5,668
-------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
Net (loss)/profit on - - - (17,509) 2,414 6,772 (17,509) 2,414 6,772
investments and options
held at fair value through
profit or loss
Net profit/(loss) on - - - 462 (160) (110) 462 (160) (110)
foreign exchange
-------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
Total 3,256 2,747 5,668 (17,047) 2,254 6,662 (13,791) 5,001 12,330
-------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
Expenses
Investment management fee 4 (131) (114) (250) (393) (343) (752) (524) (457) (1,002)
Other operating expenses 5 (208) (188) (403) (10) (10) (21) (218) (198) (424)
-------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
Total operating expenses (339) (302) (653) (403) (353) (773) (742) (655) (1,426)
-------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
Net profit/(loss) on 2,917 2,445 5,015 (17,450) 1,901 5,889 (14,533) 4,346 10,904
ordinary activities before
taxation
Taxation (415) (301) (677) 75 65 143 (340) (236) (534)
-------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
Profit/(loss) for the 2,502 2,144 4,338 (17,375) 1,966 6,032 (14,873) 4,110 10,370
period
-------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
Earnings/(loss) per 7 3.10 3.06 5.96 (21.53) 2.81 8.28 (18.43) 5.87 14.24
ordinary share (pence)
======== ======== ======== ======== ======== ======== ======== ======== ========
The total column of this statement represents the Company's Statement of
Comprehensive Income, prepared in accordance with International Financial
Reporting Standards (IFRS) as adopted by the European Union (EU). The
supplementary revenue and capital columns are both prepared under guidance
published by the Association of Investment Companies (AIC). All items in the
above statement derive from continuing operations. No operations were acquired
or disposed of during the period. All income is attributable to the equity
holders of the Company.
The net profit/(loss) for the period disclosed above represents the Company's
total comprehensive income/(loss). The Company does not have any other
comprehensive income.
STATEMENT OF CHANGES IN EQUITY FOR THE SIX MONTHSED 30 APRIL 2020
Called Share Capital
up share premium redemption Special Capital Revenue
capital account reserve reserve reserves reserve Total
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
For the six
months ended 30
April 2020
(unaudited)
At 31 October 1,004 42,596 1,460 36,373 58,113 3,240 142,786
2019
Total
comprehensive
income:
Net (loss)/profit - - - - (17,375) 2,502 (14,873)
for the period
Transactions with
owners, recorded
directly to
equity:
Ordinary shares - 1,937 - 3,386 - - 5,323
reissued from
treasury
Share issue costs - - - (8) - - (8)
Dividends paid1 6 - - - - (1,209) (2,016) (3,225)
-------------- -------------- -------------- -------------- -------------- -------------- --------------
At 30 April 2020 1,004 44,533 1,460 39,751 39,529 3,726 130,003
-------------- -------------- -------------- -------------- -------------- -------------- --------------
For the six
months ended 30
April 2019
(unaudited)
At 31 October 1,004 36,774 1,460 24,943 54,249 2,515 120,945
2018
Total
comprehensive
income:
Net profit for - - - - 1,966 2,144 4,110
the period
Transactions with
owners, recorded
directly to
equity:
Ordinary shares - - - 5,510 - - 5,510
reissued from
treasury
Share issue costs - - - (27) - - (27)
Dividends paid2 - - - - (1,047) (1,745) (2,792)
-------------- -------------- -------------- -------------- -------------- -------------- --------------
At 30 April 2019 1,004 36,774 1,460 30,426 55,168 2,914 127,746
-------------- -------------- -------------- -------------- -------------- -------------- --------------
For the year
ended 31 October
2019 (audited)
At 31 October 1,004 36,774 1,460 24,943 54,249 2,515 120,945
2018
Total
comprehensive
income:
Net profit for - - - - 6,032 4,338 10,370
the year
Transactions with
owners, recorded
directly to
equity:
Ordinary shares - 5,822 - 11,507 - - 17,329
issued from
treasury
Share issue costs - - - (77) - - (77)
Dividends paid3 - - - - (2,168) (3,613) (5,781)
-------------- -------------- -------------- -------------- -------------- -------------- --------------
At 31 October 1,004 42,596 1,460 36,373 58,113 3,240 142,786
2019
======== ======== ======== ======== ======== ======== ========
1 4th interim dividend of 2.00p per share for the year ended 31 October
2019, declared on 7 November 2019 and paid on 3 January 2020 and 1st interim
dividend of 2.00p per share for the year ending 31 October 2020, declared on 20
March 2020 and paid on 29 April 2020.
2 4th interim dividend of 2.00p per share for the year ended 31 October
2018, declared on 1 November 2018 and paid on 4 January 2019 and 1st interim
dividend of 2.00p per share for the year ending 31 October 2019, declared on 5
March 2019 and paid on 12 April 2019.
3 4th interim dividend of 2.00p per share for the year ended 31 October
2018, declared on 1 November 2018 and paid on 4 January 2019; 1st interim
dividend of 2.00p per share for the year ended 31 October 2019, declared on 5
March 2019 and paid on 12 April 2019; 2nd interim dividend of 2.00p per share
for the year ended 31 October 2019, declared on 8 May 2019 and paid on 28 June
2019; and 3rd interim dividend of 2.00p per share for the year ended 31 October
2019, declared on 6 August 2019 and paid on 1 October 2019.
Costs relating to the acquisition and disposal of investments amounted to GBP
45,000 and GBP17,000 respectively for the six months ended 30 April 2020 (six
months ended 30 April 2019: GBP31,000 and GBP12,000; year ended 31 October 2019: GBP
75,000 and GBP26,000).
The share premium account and capital redemption reserve are not distributable
profits under the Companies Act 2006. The special reserve may be used as
distributable profits for all purposes and, in particular, for the repurchase
by the Company of its ordinary shares and for payment as dividends. In
accordance with the Company's Articles of Association, net capital reserves may
be distributed by way of the repurchase by the Company of its ordinary shares
and for payment as dividends.
STATEMENT OF FINANCIAL POSITION AS AT 30 APRIL 2020
30 April 30 April 31 October
2020 2019 2019
GBP'000 GBP'000 GBP'000
Notes (unaudited) (unaudited) (audited)
Non current assets
Investments held at fair value through profit or 120,771 118,384 130,525
loss
Current assets -------------- -------------- --------------
Other receivables 905 257 844
Cash and cash equivalents 10,747 11,069 13,207
-------------- -------------- --------------
11,652 11,326 14,051
-------------- -------------- --------------
Total assets 132,423 129,710 144,576
-------------- -------------- --------------
Current liabilities
Other payables (1,270) (1,314) (1,308)
Derivative financial liabilities held at fair value (1,150) (650) (482)
through profit or loss
-------------- -------------- --------------
(2,420) (1,964) (1,790)
-------------- -------------- --------------
Net assets 130,003 127,746 142,786
======== ======== ========
Equity attributable to equity holders
Called up share capital 8 1,004 1,004 1,004
Share premium account 44,533 36,774 42,596
Capital redemption reserve 1,460 1,460 1,460
Special reserve 39,751 30,426 36,373
Capital reserves 39,529 55,168 58,113
Revenue reserve 3,726 2,914 3,240
-------------- -------------- --------------
Total equity 130,003 127,746 142,786
======== ======== ========
Net asset value per ordinary share (pence) 7 160.09 177.30 182.13
======== ======== ========
CASH FLOW STATEMENT FOR THE SIX MONTHSED 30 APRIL 2020
Six months Six months Year
ended ended ended
30 April 30 April 31 October
2020 2019 2019
GBP'000 GBP'000 GBP'000
(unaudited) (unaudited) (audited)
Operating activities
Net (loss)/profit before taxation (14,533) 4,346 10,904
Net loss/(profit) on investments and options held at fair 17,509 (2,414) (6,772)
value through profit or loss (including transaction costs)
Net (profit)/loss on foreign exchange (462) 160 110
Sales of investments held at fair value through profit or 62,649 46,164 95,699
loss
Purchases of investments held at fair value through profit or (69,736) (46,973) (104,461)
loss
Increase in other receivables (37) (96) (105)
(Decrease)/increase in other payables (277) (18) 183
(Increase)/decrease in amounts due from brokers (574) 11 1
Increase in amounts due to brokers 244 574 328
-------------- -------------- --------------
Net cash (outflow)/inflow from operating activities before (5,217) 1,754 (4,113)
taxation
Taxation paid (350) (233) (503)
-------------- -------------- --------------
Net cash (outflow)/inflow from operating activities (5,567) 1,521 (4,616)
-------------- -------------- --------------
Financing activities
Proceeds from ordinary shares reissued from treasury 5,878 5,510 16,774
Share issue costs paid (8) (27) (77)
Dividends paid (3,225) (2,792) (5,781)
-------------- -------------- --------------
Net cash inflow from financing activities 2,645 2,691 10,916
-------------- -------------- --------------
(Decrease)/increase in cash and cash equivalents (2,922) 4,212 6,300
Effect of foreign exchange rate changes 462 (160) (110)
-------------- -------------- --------------
Change in cash and cash equivalents (2,460) 4,052 6,190
Cash and cash equivalents at start of period/year 13,207 7,017 7,017
-------------- -------------- --------------
Cash and cash equivalents at end of period/year 10,747 11,069 13,207
-------------- -------------- --------------
Comprised of:
Cash at bank 10,747 11,069 13,207
======== ======== ========
NOTES TO THE FINANCIAL STATEMENTS FOR THE SIX MONTHSED 30 APRIL 2020
1. PRINCIPAL ACTIVITY
The principal activity of the Company is that of an investment trust company
within the meaning of section 1158 of the Corporation Tax Act 2010.
2. BASIS OF PRESENTATION
The half yearly financial statements for the period ended 30 April 2020 have
been prepared in accordance with the Disclosure Guidance and Transparency Rules
sourcebook of the Financial Conduct Authority and with International Accounting
Standard 34 (IAS 34), 'Interim Financial Reporting', as adopted by the European
Union (EU). The half yearly financial statements should be read in conjunction
with the Company's Annual Report and Financial Statements for the year ended 31
October 2019, which have been prepared in accordance with International
Financial Reporting Standards (IFRS) as adopted by the EU and as applied in
accordance with the provisions of the Companies Act 2006 and in accordance with
IAS 34 Interim Financial Reporting.
Insofar as the Statement of Recommended Practice (SORP) for investment trust
companies and venture capital trusts issued by the Association of Investment
Companies (AIC) in October 2019 is compatible with IFRS, the financial
statements have been prepared in accordance with guidance set out in the SORP.
The revised SORP issued in October 2019 is applicable for accounting periods
beginning on or after 1 January 2019, therefore the Company has adopted the new
SORP for the accounting year beginning 1 November 2019. As a result, there will
be an amended presentation of movements in investments held at fair value
through profit or loss in the notes to the financial statements, which will be
included as part of the 2020 Annual Report and Financial Statements. As this
note is not included as part of the Interim Report and Financial Statements,
there is no impact on the Interim Report and Financial Statements as a result
of the adoption of the revised SORP.
Adoption of new and amended standards and interpretations
IFRS 16 Leases
The Company adopted IFRS 16 as of the date of initial application of 1 November
2019. IFRS 16 specifies accounting for leases and removes the distinction
between operating and finance leases. This standard is not applicable to the
Company as it has no leases.
IFRIC 23 Uncertainty over Income Tax Treatments
The Company adopted IFRIC 23 as of the date of initial application of 1
November 2019. IFRIC 23 seeks to provide clarity on how to account for
uncertainty over income tax treatments and specifies that an entity must
consider whether it is probable that the relevant tax authority will accept
each tax treatment, or group of tax treatments, that it plans to use in its
income tax filing. The interpretation also requires companies to reassess the
judgements and estimates applied if facts and circumstances change. The
interpretation would require the Company to recognise uncertain tax positions
which are more than probable within its financial statements and it could
potentially require the Company to recognise tax reclaims filed with HMRC if
their recoverability becomes more than probable. The adoption of this
interpretation has had no impact on the financial statements of the Company.
IFRS standards that have yet to be adopted
Amendments to IFRS 3 - definition of a business (effective 1 January 2020).
This amendment revises the definition of a business. According to feedback
received by the International Accounting Standards Board, application of the
current guidance is commonly thought to be too complex and it results in too
many transactions qualifying as business combinations. The standard has not
been endorsed by the EU. This standard is unlikely to have any impact on the
Company.
Amendments to IAS 1 and IAS 8 - definition of material (effective 1 January
2020). The amendments to IAS 1, 'Presentation of Financial Statements', and IAS
8, 'Accounting Policies, Changes in Accounting Estimates and Errors' and
consequential amendments to other IFRSs require companies to:
(i) use a consistent definition of materiality throughout IFRSs and the
Conceptual Framework for Financial Reporting;
(ii) clarify the explanation of the definition of material; and
(iii) incorporate some of the guidance of IAS 1 about immaterial
information.
This standard has not been endorsed by the EU. This standard is unlikely to
have any impact on the Company.
Amendments to IFRS 9, IAS 39 and IFRS 7 - interest rate benchmark reform
(effective 1 January 2020). These amendments provide certain reliefs in
connection with the interest rate benchmark reform. The reliefs relate to hedge
accounting and have the effect that the Inter Bank Offer Rate (IBOR) reform
should not generally cause hedge accounting to terminate. However, any hedge
ineffectiveness should continue to be recorded in the income statement. Given
the pervasive nature of hedges involving IBOR based contracts, the reliefs will
affect companies in all industries.
This standard has been endorsed by the EU. This standard is unlikely to have
any significant impact on the Company.
IFRS 17 - insurance contracts (effective 1 January 2021). This standard
replaces IFRS 4, which currently permits a wide variety of practices in
accounting for insurance contracts. IFRS 17 will fundamentally change the
accounting by all entities that issue insurance contracts and investment
contracts with discretionary participation features. The standard has not been
endorsed by the EU. This standard is unlikely to have any impact on the Company
as it has no insurance contracts.
3. INCOME
Six months Six months Year
ended ended ended
30 April 30 April 31 October
2020 2019 2019
GBP'000 GBP'000 GBP'000
(unaudited) (unaudited) (audited)
Investment income:
UK dividends 145 154 312
Overseas dividends 1,804 1,550 3,162
Overseas special dividends - 14 14
-------------- -------------- --------------
1,949 1,718 3,488
-------------- -------------- --------------
Other income:
Deposit interest 72 92 212
Option premium income 1,235 937 1,968
-------------- -------------- --------------
1,307 1,029 2,180
-------------- -------------- --------------
Total income 3,256 2,747 5,668
======== ======== ========
During the period, the Company received premiums totalling GBP1,350,000 (six
months ended 30 April 2019: GBP917,000; year ended 31 October 2019: GBP2,016,000)
for writing covered call options for the purposes of revenue generation. Option
premiums of GBP1,235,000 (six months ended 30 April 2019: GBP937,000; year ended 31
October 2019: GBP1,968,000) were amortised to revenue. All derivative
transactions were based on constituent stocks in the Russell 1000 Value Index.
At 30 April 2020 there were 208 open positions with an associated liability of
GBP1,150,000 (six months ended 30 April 2019: 237 open positions with an
associated liability of GBP650,000; year ended 31 October 2019: 224 open
positions with an associated liability of GBP482,000).
Dividends and interest received in cash during the period amounted to GBP
1,626,000 and GBP72,000 (six months ended 30 April 2019: GBP1,620,000 and GBP92,000;
year ended 31 October 2019: GBP2,944,000 and GBP212,000) respectively.
No special dividends have been recognised in capital during the period (six
months ended 30 April 2019: GBPnil; year ended 31 October 2019: GBPnil).
4. INVESTMENT MANAGEMENT FEE
Six months ended Six months ended Year ended
30 April 2020 30 April 2019 31 October 2019
(unaudited) (unaudited) (audited)
Revenue Capital Total Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Investment management 131 393 524 114 343 457 250 752 1,002
fee
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Total 131 393 524 114 343 457 250 752 1,002
====== ====== ====== ====== ====== ====== ====== ====== ======
The investment management fee is payable quarterly in arrears, calculated at
the rate of 0.75% of the Company's net assets.
5. OTHER OPERATING EXPENSES
Six months Six months Year
ended ended ended
30 April 30 April 31 October
2020 2019 2019
GBP'000 GBP'000 GBP'000
(unaudited) (unaudited) (audited)
Allocated to revenue:
Custody fee 3 3 5
Auditors' remuneration
- audit services 15 15 29
Registrar's fee 14 13 32
Directors' emoluments 81 60 133
Broker fees 20 20 40
Depositary fees 7 6 13
Legal and professional fees 8 8 29
Marketing fees 17 14 26
Printing fees 8 10 22
Other administration costs 35 39 74
---------- ---------- ----------
208 188 403
---------- ---------- ----------
Allocated to capital:
Custody transaction charges 10 10 21
---------- ---------- ----------
218 198 424
====== ====== ======
6. DIVIDS
The Directors have declared a second quarterly interim dividend of 2.00p per
share. The dividend will be paid on 3 July 2020 to shareholders on the
Company's register on 22 May 2020. This dividend has not been accrued in the
financial statements for the six months ended 30 April 2020, as under IFRS
interim dividends are not recognised until paid. Dividends are debited directly
to reserves.
Dividends paid on equity shares during the period were:
Six months ended
30 April 2020
(unaudited)
Revenue Capital Total
GBP'000 GBP'000 GBP'000
Fourth interim dividend for the year ended 31 October 2019 of 1,001 600 1,601
2.00p per ordinary share paid on 3 January 2020
First interim dividend for the year ending 31 October 2020 of 1,015 609 1,624
2.00p per ordinary share paid on 29 April 2020
----------- ----------- -----------
2,016 1,209 3,225
----------- ----------- -----------
Second interim dividend for the year ending 31 October 2020 1,624 - 1,624
of 2.00p per ordinary share payable on 3 July 2020*
----------- ----------- -----------
3,640 1,209 4,849
====== ====== ======
* Based on 81,204,044 ordinary shares in issue on 21 May 2020 (the
ex-dividend date).
7. EARNINGS AND NET ASSET VALUE PER ORDINARY SHARE
Total revenue return, capital return and net asset value per share are shown
below and have been calculated using the following:
Six months Six months Year
ended ended ended
30 April 30 April 31 October
2020 2019 2019
(unaudited) (unaudited) (audited)
Net revenue profit attributable to ordinary shareholders (GBP 2,502 2,144 4,338
'000)
Net capital (loss)/profit attributable to ordinary (17,375) 1,966 6,032
shareholders (GBP'000)
--------------- --------------- ---------------
Total (loss)/profit attributable to ordinary shareholders (GBP (14,873) 4,110 10,370
'000)
--------------- --------------- ---------------
Equity shareholders' funds (GBP'000) 130,003 127,746 142,786
--------------- --------------- ---------------
The weighted average number of ordinary shares in issue 80,690,446 70,051,946 72,835,622
during the period on which the earnings per ordinary share
was calculated was:
--------------- --------------- ---------------
The actual number of ordinary shares in issue at the end of 81,204,044 72,049,044 78,399,044
each period on which the net asset value per ordinary share
was calculated was:
--------------- --------------- ---------------
Earnings per share
Revenue earnings per share (pence) 3.10 3.06 5.96
Capital (loss)/earnings per share (pence) (21.53) 2.81 8.28
--------------- --------------- ---------------
Total (loss)/earnings per share (pence) (18.43) 5.87 14.24
========= ========= =========
There were no dilutive securities at the period end (six month ended 30 April
2019: nil, year ended 31 October 2019: nil).
As at As at As at
30 April 30 April 31 October
2020 2019 2019
(unaudited) (unaudited) (audited)
Net asset value per ordinary share (pence) 160.09 177.30 182.13
----------- ----------- -----------
Ordinary share price (pence) 160.50 181.50 186.50
====== ====== ======
8. CALLED UP SHARE CAPITAL
Ordinary
shares in Treasury Total Nominal
issue shares shares value
(unaudited) (number) (number) (number) GBP'000
Allotted, called up and fully paid share capital
comprised:
Ordinary shares of 1 pence each:
At 31 October 2019 78,399,044 21,962,261 100,361,305 1,004
Ordinary shares reissued from treasury in the period 2,805,000 (2,805,000) - -
----------------- ----------------- ----------------- -----------------
At 30 April 2020 81,204,044 19,157,261 100,361,305 1,004
========== ========== ========== ==========
During the period to 30 April 2020, 2,805,000 ordinary shares were reissued
from treasury for a total gross consideration of GBP5,323,000 (period ended 30
April 2019: 3,175,000 ordinary shares for a total gross consideration of GBP
5,510,000; year ended 31 October 2019: 9,525,000 ordinary shares for a total
gross consideration of GBP17,252,000).
No treasury shares were cancelled during the period (six months ended 30 April
2019: nil; year ended 31 October 2019: nil).
Since 30 April 2020 and up to the date of this report, no ordinary shares have
been reissued from treasury.
9. VALUATION OF FINANCIAL INSTRUMENTS
Financial assets and financial liabilities are either carried in the Statement
of Financial Position at their fair value (investments and derivatives) or at
an amount which is a reasonable approximation of fair value (due from brokers,
dividends and interest receivable, due to brokers, accruals, cash at bank and
bank overdrafts). IFRS 13 requires the Company to classify fair value
measurements using a fair value hierarchy that reflects the significance of
inputs used in making the measurements. The valuation techniques used by the
Company are explained in the accounting policies note 2(g) as set out in the
Company's Annual Report and Financial Statements for the year ended 31 October
2019.
Categorisation within the hierarchy has been determined on the basis of the
lowest level input that is significant to the fair value measurement of the
relevant asset as follows.
The fair value hierarchy has the following levels:
Level 1 - Quoted market price for identical instruments in active markets
A financial instrument is regarded as quoted in an active market if quoted
prices are regularly and readily available from an exchange, dealer, broker,
industry group, pricing service or regulatory agency and those prices represent
actual and regularly occurring market transactions on an arm's length basis.
The Company does not adjust the quoted price for these instruments.
Level 2 - Valuation techniques using observable inputs
This category includes instruments valued using quoted prices for similar
instruments in markets that are considered less than active, or other valuation
techniques where all significant inputs are directly or indirectly observable
from market data. Valuation techniques used for non-standardised financial
instruments such as options, currency swaps and other over-the-counter
derivatives include the use of comparable recent arm's length transactions,
reference to other instruments that are substantially the same, discounted cash
flow analysis, option pricing models and other valuation techniques commonly
used by market participants making the maximum use of market inputs and relying
as little as possible on entity specific inputs.
Level 3 - Valuation techniques using significant unobservable inputs
This category includes all instruments where the valuation technique includes
inputs not based on market data and these inputs could have a significant
impact on the instrument's valuation.
This category also includes instruments that are valued based on quoted prices
for similar instruments where significant entity determined adjustments or
assumptions are required to reflect differences between the instruments and
instruments for which there is no active market. The Investment Manager
considers observable data to be that market data that is readily available,
regularly distributed or updated, reliable and verifiable, not proprietary and
provided by independent sources that are actively involved in the relevant
market.
The level in the fair value hierarchy within which the fair value measurement
is categorised in its entirety is determined on the basis of the lowest level
input that is significant to the fair value measurement. If a fair value
measurement uses observable inputs that require significant adjustment based on
unobservable inputs, that measurement is a Level 3 measurement.
Assessing the significance of a particular input to the fair value measurement
in its entirety requires judgement, considering factors specific to the asset
or liability. The determination of what constitutes 'observable' inputs
requires significant judgement by the Investment Manager.
Over-the-counter derivative option contracts have been classified as Level 2
investments as their valuation has been based on market observable inputs
represented by the underlying quoted securities to which these contracts expose
the Company.
The table below sets out fair value measurements using the IFRS 13 fair value
hierarchy.
Financial assets/(liabilities) at fair value Level 1 Level 2 Level 3 Total
through profit or loss at 30 April 2020 GBP'000 GBP'000 GBP'000 GBP'000
(unaudited)
Assets:
Equity investments 120,771 - - 120,771
Liabilities:
Derivative financial instruments - written - (1,150) - (1,150)
options
-------------- -------------- -------------- --------------
120,771 (1,150) - 119,621
======== ======== ======== ========
Financial assets/(liabilities) at fair value Level 1 Level 2 Level 3 Total
through profit or loss at 30 April 2019 GBP'000 GBP'000 GBP'000 GBP'000
(unaudited)
Assets:
Equity investments 118,384 - - 118,384
Liabilities:
Derivative financial instruments - written - (650) - (650)
options
-------------- -------------- -------------- --------------
118,384 (650) - 117,734
======== ======== ======== ========
Financial assets/(liabilities) at fair value Level 1 Level 2 Level 3 Total
through profit or loss at 30 October 2019 GBP'000 GBP'000 GBP'000 GBP'000
(audited)
Assets:
Equity investments 130,525 - - 130,525
Liabilities:
Derivative financial instruments - written - (482) - (482)
options
-------------- -------------- -------------- --------------
130,525 (482) - 130,043
======== ======== ======== ========
There were no transfers between levels for financial assets and financial
liabilities during the period/year recorded at fair value as at 30 April 2020,
30 April 2019 and 31 October 2019. The Company did not hold any Level 3
securities throughout the financial period under review or as at 30 April 2020,
30 April 2019 and 31 October 2019.
10. RELATED PARTY DISCLOSURE
The Board consists of five non-executive Directors all of whom are considered
to be independent by the Board. None of the Directors has a service contract
with the Company. With effect from 1 November 2019, the Chairman receives an
annual fee of GBP42,000, the Chairman of the Audit & Management Engagement
Committee receives an annual fee of GBP35,000 and each of the Directors receives
an annual fee of GBP29,000. At 30 April 2020, an amount of GBP14,000 (six months
ended 30 April 2019: GBP10,000; year ended 31 October 2019: GBP14,000) was
outstanding in respect of Directors' fees.
At 30 April 2020, interests of the Directors in the ordinary shares of the
Company are as set out below:
Six months Six months Year
ended ended ended
30 April 30 April 31
2020 2019 October
(unaudited) (unaudited) 2019
(audited)
Simon Miller (Chairman) 38,094 38,094 38,094
Christopher Casey 19,047 19,047 19,047
Andrew Irvine 38,094 38,094 38,094
Alice Ryder 9,047 9,047 9,047
Melanie Roberts - n/a -
======== ======== ========
Since the period end and up to the date of this report there have been no
changes in Directors' holdings.
11. TRANSACTIONS WITH THE AIFM 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 on page 32 of the Directors' Report in the
Company's Annual Report and Financial Statements for the year ended 31 October
2019.
The investment management fee due to BFM for the six months ended 30 April 2020
amounted to GBP524,000 (six months ended 30 April 2019: GBP457,000; year ended 31
October 2019: GBP1,002,000). At the period end GBP247,000 was outstanding in
respect of the investment management fee (six months ended 30 April 2019: GBP
456,000; year ended 31 October 2019: GBP546,000).
In addition to the above services, BlackRock has provided the Company with
marketing services. The total fees paid or payable for these services for the
period ended 30 April 2020 amounted to GBP17,000 excluding VAT (six months ended
30 April 2019: GBP14,000; year ended 31 October 2019: GBP26,000). Marketing fees of
GBP40,000 excluding VAT (period ended 30 April 2019: GBP39,000; year ended 31
October 2019: GBP23,000) were outstanding as at 30 April 2020.
12. CONTINGENT LIABILITIES
There were no contingent liabilities at 30 April 2020 (six months ended 30
April 2019 and year ended 31 October 2019: nil).
13. PUBLICATION OF NON STATUTORY ACCOUNTS
The financial information contained in this half yearly financial report does
not constitute statutory accounts as defined in section 435 of the Companies
Act 2006. The financial information for the six months ended 30 April 2020 and
30 April 2019 has not been audited.
The information for the year ended 31 October 2019 has been extracted from the
latest published audited financial statements which have been filed with the
Registrar of Companies. The report of the auditors on this financial statements
contained no qualifications or statement under sections 498(2) or 498(3) of the
Companies Act 2006.
14. ANNUAL RESULTS
The Board expects to announce the annual results for the year ending 31 October
2020 in late January 2021.
Copies of the annual results announcement can be obtained from the Secretary on
0207 743 3000 or cosec@blackrock.com. The Annual Report and Financial
Statements should be available by the beginning of February 2021 with the
Annual General Meeting being held in March 2021.
FOR FURTHER INFORMATION, PLEASE CONTACT:
Simon White, Managing Director, Investment Trusts, BlackRock Investment
Management (UK) Limited - Tel: 020 7743 3000
Press enquiries:
Lansons Communications - Tel: 020 7294 3689
E-mail: BlackRockInvestmentTrusts@lansons.com
24 June 2020
12 Throgmorton Avenue
London EC2N 2DL
END
END
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