BLACKROCK NORTH AMERICAN INCOME TRUST PLC
LEI: 549300WWOCXSC241W468
Annual results announcement for the
year ended 31 October 2020
PERFORMANCE RECORD
|
As at
31 October
2020 |
As at
31 October
2019 |
| Net assets (£'000)1 |
126,410 |
142,786 |
| Net asset value per ordinary share
(pence) |
158.06 |
182.13 |
| Ordinary share price (mid-market)
(pence) |
145.50 |
186.50 |
| (Discount)/premium to cum income net
asset value2 |
(7.9%) |
2.4% |
| Russell 1000 Value Index |
1215.24 |
1313.68 |
| Performance |
|
|
| Net asset value per share (with
dividends reinvested)2 |
(8.9%) |
+8.5% |
| Russell 1000 Value Index (with
dividends reinvested) |
(7.5%) |
+9.8% |
| Ordinary share price (with dividends
reinvested)2 |
(17.9%) |
+15.0% |
|
======== |
======== |
1 The change in
net assets reflects market movements, shares issued/bought back and
dividends paid during the year.
2 Alternative
Performance Measures, see Glossary in the Company’s Annual Report
for the year ended 31 October
2020.
|
Year
ended
31 October
2020 |
Year
ended
31 October
2019 |
Change
% |
| Revenue |
|
|
|
| Net revenue profit after taxation
(£’000) |
5,367 |
4,338 |
+23.7 |
| Revenue earnings per ordinary share
(pence) |
6.65 |
5.96 |
+11.6 |
| Interim dividends
(pence) |
|
|
|
| 1st interim |
2.00 |
2.00 |
+0.0 |
| 2nd interim |
2.00 |
2.00 |
+0.0 |
| 3rd interim |
2.00 |
2.00 |
+0.0 |
| 4th interim |
2.00 |
2.00 |
+0.0 |
|
---------- |
---------- |
---------- |
| Total dividends paid/payable |
8.00 |
8.00 |
+0.0 |
|
======== |
======== |
======== |
ANNUAL PERFORMANCE SINCE LAUNCH ON
24 OCTOBER 2012 TO 31 OCTOBER 2020
|
NAV
% |
Russell
1000 Value Index % |
Share
Price % |
| 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 |
-8.9 |
-7.5 |
-17.9 |
# Since launch on 24 October 2012 to 31
October 2013.
Sources: BlackRock and Datastream.
Performance figures have been calculated in sterling terms with
dividends reinvested.
CHAIRMAN’S STATEMENT
OVERVIEW
Despite a promising start to the Company’s financial year, with
all-time highs in global equities reached in February 2020, the subsequent COVID-19 pandemic
has since clearly had an enormous impact on the global economy. The
initial lockdown measures severely curtailed economic activity in
most countries and, although economies slowly restarted over the
summer, sharply rising infection rates prompted further
restrictions in many countries over the autumn. In addition,
concerns over renewed U.S.-China
trade tensions, the risk of fading fiscal stimulus and the
increasingly divisive election campaign weighed on U.S. equities as
we approached our October year-end.
Throughout the COVID-19 outbreak the Board has had to adjust its
mode of operation and, although it has continued to meet regularly,
since March all scheduled meetings have been held by video
conference. The Board has also worked closely with its Manager to
ensure that the Company’s operations have not been adversely
impacted, that BlackRock and key service providers have established
business continuity plans, and a good level of service has and will
be maintained.
PERFORMANCE
Over the year to 31 October 2020, the
Company’s net asset value per share (NAV) returned
-8.9%1 and the share price -17.9%1. This
compares with a fall of -7.5%1 in the Russell 1000 Value
Index. Value stocks in general lagged the broader U.S. indices, as
technology stocks soared. Our underperformance of the Russell 1000
Value Index in the year was a reflection of stock selection and a
negative contribution from option writing.
At the close of business on 1 February
2021, the Company’s NAV had increased by 12.2% (with
dividends reinvested) since the year end.
REVENUE EARNINGS AND DIVIDENDS
The Company’s revenue earnings per share (EPS), based on the
weighted average number of shares in issue for the year, amounted
to 6.65p (2019: 5.96p), an increase of 11.6%. Based on the final
number of shares in issue at the year end, the EPS was 6.71p, an
increase of 21.3% versus the previous year. Four quarterly interim
dividends of 2.00p per share were paid on 29
April 2020, 3 July 2020,
1 October 2020 and 4 January 2021. This is in line with the payments
made in the previous financial year.
Your Board considers that it remains appropriate to continue
with the current dividend policy for the new financial year. The
dividend paid represents a yield of 5.5% on the share price at the
year end. The Board continues to believe that this dividend policy
provides an attractive option for current and prospective
shareholders who wish to achieve exposure to the U.S. equity market
whilst at the same time receiving a competitive dividend.
SHARE ISSUES AND DISCOUNT CONTROL
Prior to the COVID-19 pandemic, the Company’s shares had traded at
a premium to the underlying NAV. From the beginning of November 2019 to the end of January 2020 the Company reissued 2,805,000
shares from treasury at an average price of 189.84p per share and
an average premium to the estimated NAV of 1.5% for a total gross
consideration of £5,325,000.
As the COVID-19 pandemic took hold and market conditions
deteriorated in March 2020, the
Company’s share price fell and the shares began trading at a
discount. Consequently, 1,230,000 shares were purchased at an
average price of 155.45p per share for a total consideration
(including expenses) of £1,912,000. Subsequent to the year end and
up to the date of this report, a further 190,000 shares have been
purchased for a total consideration of £294,000. All shares
purchased have been placed in treasury.
The Board will continue to use its authorities to issue and buy
back shares when it considers it is in shareholders’ interests to
do so. Resolutions to renew the authorities to issue and buy back
shares will be put to shareholders at the forthcoming Annual
General Meeting.
ESG AND SOCIAL RESPONSIBILITY
As a Board we are conscious that Environmental, Social and
Governance (ESG) criteria have come to the forefront for a growing
number of investors in the investment decision-making process.
However, for your Company, they are a component of the investment
process rather than the sole driver of decision making. Our
Portfolio Managers do not look to exclude entire sectors from the
portfolio on ESG grounds but engage with investee companies to
encourage best practice within the sectors in which they operate.
Your Board believes that it is important that our Company’s
investee companies operate in a responsible and sustainable way
having regard to the interests of all their stakeholders, as this
will most likely lead to higher relative valuations and better
returns for shareholders.
Our Manager, BlackRock, takes a rigorous approach to corporate
governance, with the BlackRock Investment Stewardship team
responsible for protecting and enhancing the value of clients’
assets through engagement with companies to encourage business and
management practices that support sustainable financial performance
over the long term. Further information on ESG and Socially
Responsible Investment can be found in the Strategic Report and in
the Corporate Governance Statement in the Company’s Annual
Report.
OUTLOOK
World equities appear to be on a firmer footing. There is increased
optimism with the uncertainty of the U.S. election now over and
with the distribution of COVID-19 vaccines. The current economic
recovery in the U.S. could be faster than the one after the global
financial crisis, as the upbeat news on the vaccine gives greater
confidence that the economic re-start can accelerate further in
2021. There is a strong case that value stocks should now be well
placed to outperform growth stocks as the economic picture
brightens. The Portfolio Managers consider well capitalised
companies with strong management teams and good cash generation are
well placed in the current environment.
ANNUAL GENERAL MEETING (AGM)
The AGM of the Company will be held at the offices of BlackRock at
12 Throgmorton Avenue, London EC2N
2DL on Tuesday, 23 March 2021 at 12
noon. Details of the business of the meeting are set out in the
Directors’ Report in the Company’s Annual Report.
At the time of writing, various guidances have been issued by
the UK, Scottish and Welsh governments, respectively, regarding
measures to reduce the transmission of COVID-19 in the UK. These
measures are, and will continue to be, subject to periodic
amendment and currently impose rules on social distancing and
limitations on, among other things, public gatherings.
Accordingly, in view of this guidance, the Board is changing the
format of the AGM this year to follow the minimum legal
requirements for an AGM. Only the formal business set out in the
Notice will be considered, with no live presentation by the
Portfolio Managers. A presentation from the Portfolio Managers will
be made available on the Company’s website following the conclusion
of the AGM. In line with this guidance, shareholders are strongly
discouraged from attending the meeting and indeed entry will be
refused if current UK Government guidance is unchanged.
Shareholders are encouraged to check the Company’s website at
www.blackrock.com/uk/brna for updates to the AGM arrangements as
changes may well be required to comply with new guidance and/or
government measures.
The Board of course welcomes questions from shareholders and,
given the format and prevailing circumstances, I would ask that
shareholders submit any questions they may have to the Board in
advance of the AGM. The Board or the Investment Manager will
respond to all questions received. Shareholders may submit
questions to the Board before 23 March
2021 by email at: cosec@blackrock.com.
Notwithstanding these difficult circumstances, the Board looks
forward to offering opportunities for shareholders to meet the
Portfolio Managers at some safer stage in the future.
SIMON MILLER
Chairman
5 February 2021
1 All percentages
calculated in sterling terms with dividends reinvested.
INVESTMENT MANAGER’S REPORT
MARKET OVERVIEW
For the year ended 31 October 2020,
U.S. large cap stocks, as represented by the S&P
500® Index, advanced by 9.7% in US dollar terms. In
sterling terms, they appreciated by 9.7% for the performance
period. Value stocks, as represented by the Russell 1000 Value
Index, fell by 7.5% in sterling terms, illustrating the extreme
divergence between ‘growth’ and ‘value’ stocks last year. The
S&P 500® Index rallied strongly in the fourth
quarter of 2019, as risk appetite was boosted by expectations for a
U.S. and China trade deal, solid
economic growth and easy monetary policy. U.S. stock prices
continued to climb higher through early February 2020 following encouraging earnings
results, better business sentiment and the first phase of a
U.S.-China trade deal. U.S. equity
markets reached a peak on 19 February
2020 before beginning a sharp correction as COVID-19 began
to spread globally. The pandemic prompted countries to adopt
varying degrees of social distancing, self-quarantine and lockdown
measures. The global economy shrank at a historically high rate as
non-essential businesses were forced to close in many countries.
Concern over the human and economic toll also fuelled measures from
governments and central bankers across the globe. This combination
brought the longest enduring U.S. bull market to an abrupt end.
A combination of aggressive monetary and fiscal policy measures
helped to stabilise U.S. financial markets in the final two weeks
of March 2020. The Federal Reserve
cut its benchmark interest rate twice to a current range of 0.00% -
0.25% for overnight bank lending and declared an unlimited balance
sheet expansion for the foreseeable future. These steps helped to
improve market liquidity across credit markets. An unprecedented
U.S.$2 trillion stimulus package,
roughly 10% of annual U.S. gross domestic product, to support
individuals and businesses hardest hit by lockdown measures boosted
sentiment. These coordinated policy efforts helped U.S. stocks to
rebound swiftly from their March lows.
A decline in U.S. COVID-19 cases in April and May, subsequent
easing of lockdown measures and improving economic data in the
second and third quarters also boosted investor sentiment. These
factors culminated in an extended U.S. stock market rally from
April 2020 through August 2020. Market leadership was carried by
high growth companies which tapped into secular growth trends
supercharged by the pandemic, including trends towards e-commerce,
digitisation and enterprise spending on cloud infrastructure.
Finally, U.S. stocks retraced lower in September and October as
investors weighed the upcoming U.S. election cycle, stalled
negotiations for a new fiscal stimulus package and ongoing COVID-19
uncertainties. Overall levels of economic activity continued to
normalise higher through the end of the reporting period, while
investors took a ‘wait and see’ approach to the upcoming election
results and potential readouts on COVID-19 vaccine trials.
PORTFOLIO OVERVIEW
The primary detractor from relative performance was stock selection
and allocation decisions in utilities. Stock selection in the
electric utilities industry accounted for the majority of
underperformance within the sector, although underweight exposure
to the industry proved costly as well. In financials, an overweight
exposure and stock selection among banks weighed on relative
returns. Stock selection in the pharmaceuticals and health care
equipment and supplies industries within health care proved
detrimental, although our overweight exposure to the sector was
beneficial. Lastly, stock selection and allocation decisions in
consumer staples, industrials, materials and energy hampered
relative performance.
The largest positive contributor to relative performance was
allocation decisions in information technology. Within the sector,
an overweight exposure to software and stock selection in
technology hardware, storage and peripherals and IT services
accounted for the majority of relative outperformance. A lack of
exposure to real estate, most notably equity real estate investment
trusts (REITs), also benefited relative performance during the
year. Further, stock selection and allocation decisions in consumer
discretionary boosted relative returns. Most notably, selection
decisions in the household durables industry and a combination of
overweight exposure and stock selection in multi-line retail
positively impacted relative performance. Lastly, an elevated cash
balance, which we have maintained as our preferred method of
defensive exposure, contributed to relative performance during the
year.
Writing covered call options benefited the portfolio amid
dramatically declining U.S. stock prices during February and March
of 2020. However, in aggregate, the covered call options detracted
from absolute performance for the year. As designed, the Company’s
option overwrite component enhanced the portfolio’s income during
the year.
Distribution of investments as at 31
October 2020
|
Total
% |
Benchmark % |
| Communication
Services |
7.1 |
9.5 |
| Consumer
Discretionary |
4.9 |
7.7 |
| Consumer Staples |
9.2 |
8.2 |
| Energy |
6.6 |
3.9 |
| Financials |
24.7 |
18.4 |
| Health Care |
16.9 |
14.2 |
| Industrials |
6.4 |
13.2 |
| Information
Technology |
11.7 |
9.3 |
| Materials |
2.1 |
4.8 |
| Real Estate |
0.0 |
4.5 |
| Utilities |
4.0 |
6.3 |
| Cash |
6.4 |
0.0 |
Sources: BlackRock and Datastream.
Below is a comprehensive overview of our allocations (in pound
sterling) at the end of the year.
Financials: 6.3% overweight (24.7% 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 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. In regard to insurers and insurance brokers, we
like these companies for their attractive valuations and relatively
stable business models.
Energy: 2.7% overweight (6.6% of the portfolio)
The portfolio maintains an overweight to the energy sector. We are
overweight to quality in the sector and three points of focus for
the investment team pertain to balance sheet, asset quality and
capital allocation decisions. Strong balance sheets are critical to
managing a business in the energy sector through commodity cycles.
In terms of asset quality, companies with low operating costs per
barrel of oil produced (i.e. operate with the lowest possible
breakeven oil price) are much more attractive to us in this
environment. Lastly, we target companies with positive free cash
flow generation that have a clear asset allocation strategy. We
tend to avoid companies that ‘chase growth’ by overinvesting during
stronger commodity price environments. 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.
Health Care: 2.7% overweight (16.9% 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 and 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: 2.4% overweight (11.7% of the
portfolio)
In the information technology (IT) 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.
Consumer Staples: 1.0% overweight (9.2% 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. However,
over the last year, the portfolio management team has increased
exposure to the sector through niche opportunities, some of which
are poised to benefit from a ‘return to normal’ post-pandemic.
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.
Utilities: 2.3% underweight (4.0% 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. These companies add a level of stability and
defensiveness to the portfolio through their durable dividend
profiles and healthy earnings growth potential. 2020 has provided
the portfolio management team with a unique opportunity in the
sector, as utilities have underperformed the broader market
year-to-date in an environment where the opposite is expected.
Thus, we have increased our exposure over the last year given
attractive valuations.
Communication Services: 2.4% underweight (7.1% of the
portfolio)
We are underweight to communication services and our allocation
remains concentrated in diversified telecommunication bellwether
Verizon Communications (4.0% of the portfolio) and media provider
Comcast (2.4% 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 Discretionary: 2.8% underweight (4.9% 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 are (1)
trading at discounted valuations or (2) somewhat insulated from
these disruptive pressures. For example, we believe companies such
as General Motors (autos) (2.0% of the portfolio) and Newell Brands (household durables) (0.7% of the
portfolio) offer investors exposure to underappreciated franchises
at discounted valuations. Further, retailers such as Ross Stores (discount department stores) (1.0%
of the portfolio), TJX Companies (discount retailers) (0.6% of the
portfolio), and Lowe's Companies (home improvement) (0.8% of the
portfolio) provide us with exposure to companies that can compound
earnings and are more immune to disruptive forces.
Materials: 2.7% underweight (2.1% 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 three chemicals stocks – Corteva
(0.7% of the portfolio), DuPont de Nemours (0.9% of the portfolio)
and PPG Industries (0.8% of the portfolio). Longer-term secular
trends in global population growth can potentially benefit
well-positioned companies in the agricultural chemical space.
Real Estate: 4.5% 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 space due to our view
that valuations are unattractive at current levels.
Industrials: 6.8% underweight (6.4% of the portfolio)
We are underweight to the industrials sector. Our selection is
driven by relative valuations, which we view as expensive, in many
cases, versus other cyclical segments of the U.S. equity market.
While we continue to maintain exposure to the industrial
conglomerates and aerospace & defence industries, the
portfolio’s exposure in the sector is comprised of select bottom-up
opportunities as opposed to large scale themes.
POSITIONING AND OUTLOOK
We believe the long-term opportunity in U.S. stocks remains
compelling. The U.S. offers us exposure to best-in-class businesses
that are positioned to benefit from durable megatrends and
investments in R&D and technology. In the short term, our views
are more balanced. A look at the macro regime and valuations all
point to trade-offs investors must weigh in the months ahead. For
the reasons we lay out below, we advocate for a barbell approach to
portfolio construction. This stance can align portfolios with
sectors tapping into secular growth trends while also targeting
high alpha opportunities in cyclical value sectors that have been
temporarily hurt by COVID-19.
Macro Regime: The COVID-19 pandemic, through mass social
distancing and the transition to working from home, has
supercharged secular growth trends towards e-commerce, digitisation
and enterprise spending on cloud infrastructure. A narrow subset of
U.S. stocks has reaped the lion’s share of financial gains from
this sudden shift. Many of these high growth companies have also
benefited from a world characterised by lower nominal growth, lower
interest rates and low inflation. First, a scarcity of growth has
increased demand, and valuation multiples, for stocks that can
potentially deliver high growth to investors. A collapse in
interest rates has also pushed valuations higher, to the benefit of
longer duration growth companies. A case in point, in financial
models the net present value of future cash flows increases when
the cost of debt financing (i.e. the discount rate) decreases.
Finally, low inflation gives policymakers flexibility to keep the
current macro regime intact (i.e. lower interest rates for longer).
These factors have culminated in vastly different year-to-date
investment returns across sectors, industries and investment
styles. The bifurcation between COVID-19 winners and losers has
also resulted in wide valuation spreads, which suggests there are
ample stock-picking opportunities for investors.
Valuations: A glance at traditional valuation metrics,
such as the price/ earnings (P/E) ratio, suggests U.S. stocks are
richly priced versus history. However, U.S. stocks appear to be
cheaply valued versus bonds in a low interest rate world, as
measured by the equity risk premium. Further, as businesses are
increasingly asset-light today, a company’s value is less
determined by its tangible assets and more determined by its cash
flows. This can make traditional valuation metrics less relevant.
So, are stocks expensively valued or cheap today? We argue stock
valuations can be both high and attractive, with the caveat that
high valuations offer less of a buffer versus downside risks. With
interest rates at historic lows and poised to stay there for some
time, equities are a relative bargain and can be a compelling
option for growth, value and income seekers.
As always, the strategy invests primarily in dividend paying
companies and seeks to deliver capital appreciation and current
income over time.
TONY DESPIRITO, FRANCO TAPIA
AND DAVID ZHAO
BLACKROCK INVESTMENT MANAGEMENT LLC
5 February 2021
PORTFOLIO
TEN LARGEST INVESTMENTS
1 = Verizon Communications (2019: 1st)
Communication Services
Market value: £4,797,000
Share of investments: 4.0% (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. The company
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: £3,783,000
Share of investments: 3.2% (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: £3,354,000
Share of investments: 2.8% (2019: 3.6%)
A U.S. based money center bank with a global footprint. We
believe the group 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 + Cognizant Technology Solutions (2019:
14th)
Information Technology
Market value: £2,960,000
Share of investments: 2.5% (2019: 1.9%)
After a period of share loss and earnings guide-downs, we do not
believe Cognizant is structurally impaired and we see attractive
turnaround opportunities under a new CEO. While there are certainly
execution risks and near-term uncertainties, these are likely
already priced in with the stock trading at a historical low
valuation relative to the market and peers.
5 + Anthem (2019: 11th)
Health Care
Market value: £2,928,000
Share of investments: 2.5% (2019: 2.0%)
A leading company in a high quality, stable U.S. managed care
space whose relatively new CEO is taking initiatives to leverage
the company’s market position and accelerate top and bottom line
growth. These initiatives include insourcing their Pharmacy
Benefits Manager, expanding their Medicare offerings and leveraging
their brand to offer ancillary products (dental benefits,
administrative services only arrangements, etc.).
6 + American International (2019: 12th)
Financials
Market value: £2,913,000
Share of investments: 2.4% (2019: 2.0%)
American International has been a challenged company in recent
years due to significant insurance reserve charges, poor prior
management and a bad property and casualty insurance business.
Management has spent the past three years fixing these issues by
expanding margins, fixing the reserves, lowering expenses and
managing catastrophe losses. Despite all this, the stock trades
close to 10-year lows. Now management plans to IPO its life
insurance business, which could also be very value additive.
7 + Comcast (2019: 10th)
Communication Services
Market value: £2,896,000
Share of investments: 2.4% (2019: 2.0%)
An American media conglomerate that provides video streaming,
television programming, high-speed internet, cable television and
communication services to its worldwide customer base. The company
is a steady compounder, driven by a strong competitive position and
structural growth in broadband internet. In our view, market fears
around cord-cutting and capital allocation are overdone, providing
an attractive opportunity.
8 + Samsung Electronics (2019: 18th)
Information Technology
Market value: £2,883,000
Share of investments: 2.4% (2019: 1.8%)
Samsung Electronics is returning to its roots as a component
manufacturing powerhouse by aggressively pushing its technical lead
in key emerging technologies: Organic Light Emitting Diode (OLED)
displays and 3D NAND (the next generation flash storage
technology). We believe that a combination of consistent earnings
growth and increasing capital return will drive a re?rating of the
company’s shares.
9 - Wells Fargo
(2019: 3rd)
Financials
Market value: £2,750,000
Share of investments: 2.3% (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.
10 - Medtronic (2019: 6th)
Health Care
Market value: £2,731,000
Share of investments: 2.3% (2019: 2.7%)
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. Medtronic is also meaningfully under-earning, with
current margins that are well below management’s targets and those
of its peers, indicating upside to profitability.
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 26.8% of the
Company’s portfolio (31 October 2019:
30.5%).
INVESTMENTS AS AT 31 OCTOBER
2020
Company |
Country |
Sector |
Securities |
Market
value
£’000 |
|
% of
total portfolio |
| Verizon Communications |
United
States |
Communication
Services |
Ordinary
shares |
4,799 |
} |
4.0 |
|
|
|
Options |
(2) |
| Bank of America |
United
States |
Financials |
Ordinary
shares |
3,794 |
} |
3.2 |
|
|
|
Options |
(11) |
| Citigroup |
United
States |
Financials |
Ordinary
shares |
3,354 |
|
2.8 |
| Cognizant Technology Solutions |
United
States |
Information
Technology |
Ordinary
shares |
2,980 |
} |
2.5 |
|
|
|
Options |
(20) |
| Anthem |
United
States |
Health Care |
Ordinary
shares |
2,928 |
|
2.5 |
| American International |
United
States |
Financials |
Ordinary
shares |
2,952 |
} |
2.4 |
|
|
|
Options |
(39) |
| Comcast |
United
States |
Communication
Services |
Ordinary
shares |
2,898 |
} |
2.4 |
|
|
|
Options |
(2) |
| Samsung Electronics |
United
States |
Information
Technology |
Ordinary
shares |
2,892 |
} |
2.4 |
|
|
|
Options |
(9) |
| Wells Fargo |
United
States |
Financials |
Ordinary
shares |
2,750 |
|
2.3 |
| Medtronic |
Ireland |
Health Care |
Ordinary
shares |
2,736 |
} |
2.3 |
|
|
|
Options |
(5) |
| Altria |
United
States |
Consumer
Staples |
Ordinary
shares |
2,714 |
} |
2.3 |
|
|
|
Options |
(13) |
| Unilever |
Netherlands |
Consumer
Staples |
Ordinary
shares |
2,692 |
} |
2.3 |
|
|
|
Options |
(2) |
| Sanofi |
France |
Health Care |
Ordinary
shares |
2,681 |
|
2.2 |
| Koninklijke Philips |
Netherlands |
Health Care |
Ordinary
shares |
2,519 |
|
2.1 |
| Arthur J. Gallagher & Co |
United
States |
Financials |
Ordinary
shares |
2,514 |
} |
2.1 |
|
|
|
Options |
(3) |
| General Motors |
United
States |
Consumer
Discretionary |
Ordinary
shares |
2,332 |
|
2.0 |
| BAE Systems |
United
Kingdom |
Industrials |
Ordinary
shares |
2,293 |
|
1.9 |
| Raymond James |
United
States |
Financials |
Ordinary
shares |
2,217 |
} |
1.8 |
|
|
|
Options |
(13) |
| Berkshire Hathaway |
United
States |
Financials |
Ordinary
shares |
2,194 |
} |
1.8 |
|
|
|
Options |
(1) |
| Public Service Enterprise Group |
United
States |
Utilities |
Ordinary
shares |
2,022 |
} |
1.7 |
|
|
|
Options |
(17) |
| Williams |
United
States |
Energy |
Ordinary
shares |
2,014 |
} |
1.7 |
|
|
|
Options |
(15) |
| Constellation Brands |
United
States |
Consumer
Staples |
Ordinary
shares |
1,975 |
} |
1.7 |
|
|
|
Options |
(1) |
| Schwab (Charles) |
United
States |
Financials |
Ordinary
shares |
1,995 |
} |
1.7 |
|
|
|
Options |
(28) |
| Coca-Cola |
United
States |
Consumer
Staples |
Ordinary
shares |
1,915 |
} |
1.6 |
|
|
|
Options |
(3) |
| Visa |
United
States |
Information
Technology |
Ordinary
shares |
1,895 |
} |
1.6 |
|
|
|
Options |
(1) |
| Marathon Petroleum |
United
States |
Energy |
Ordinary
shares |
1,785 |
|
1.5 |
| CVS Health |
United
States |
Health Care |
Ordinary
shares |
1,722 |
|
1.4 |
| UnitedHealth Group |
United
States |
Health Care |
Ordinary
shares |
1,713 |
} |
1.4 |
|
|
|
Options |
(8) |
| AstraZeneca |
United
Kingdom |
Health Care |
Ordinary
shares |
1,672 |
} |
1.4 |
|
|
|
Options |
* |
| Bayer |
Germany |
Health Care |
Ordinary
shares |
1,658 |
|
1.4 |
| JPMorgan Chase |
United
States |
Financials |
Ordinary
shares |
1,626 |
} |
1.4 |
|
|
|
Options |
(8) |
| General Electric |
United
States |
Industrials |
Ordinary
shares |
1,592 |
} |
1.3 |
|
|
|
Options |
(23) |
| Morgan Stanley |
United
States |
Financials |
Ordinary
shares |
1,559 |
} |
1.3 |
|
|
|
Options |
(5) |
| Siemens |
Germany |
Industrials |
Ordinary
shares |
1,544 |
|
1.3 |
| Motorola Solutions |
United
States |
Information
Technology |
Ordinary
shares |
1,547 |
} |
1.3 |
|
|
|
Options |
(5) |
| MetLife |
United
States |
Financials |
Ordinary
shares |
1,537 |
} |
1.3 |
|
|
|
Options |
(6) |
| Microsoft |
United
States |
Information
Technology |
Ordinary
shares |
1,515 |
} |
1.3 |
|
|
|
Options |
(1) |
| Henkel |
Germany |
Consumer
Staples |
Ordinary
shares |
1,396 |
} |
1.2 |
|
|
|
Options |
(3) |
| Alcon |
Switzerland |
Health Care |
Ordinary
shares |
1,348 |
} |
1.1 |
|
|
|
Options |
(2) |
| Fox Corp |
United
States |
Communication
Services |
Ordinary
shares |
1,325 |
} |
1.1 |
|
|
|
Options |
(8) |
| Cisco Systems |
United
States |
Information
Technology |
Ordinary
shares |
1,239 |
} |
1.0 |
|
|
|
Options |
(6) |
| Union Pacific |
United
States |
Industrials |
Ordinary
shares |
1,232 |
} |
1.0 |
|
|
|
Options |
* |
| Edison International |
United
States |
Utilities |
Ordinary
shares |
1,215 |
} |
1.0 |
|
|
|
Options |
(13) |
| Ross Stores |
United
States |
Consumer
Discretionary |
Ordinary
shares |
1,183 |
} |
1.0 |
|
|
|
Options |
(4) |
| Pioneer Natural |
United
States |
Energy |
Ordinary
shares |
1,177 |
|
1.0 |
| Fidelity National |
United
States |
Financials |
Ordinary
shares |
1,053 |
} |
0.9 |
|
|
|
Options |
(3) |
| McKesson |
United
States |
Health Care |
Ordinary
shares |
1,044 |
|
0.9 |
| CME |
United
States |
Financials |
Ordinary
shares |
1,042 |
} |
0.9 |
|
|
|
Options |
(1) |
| American Express |
United
States |
Financials |
Ordinary
shares |
1,019 |
} |
0.9 |
|
|
|
Options |
* |
| DuPont De Nemours |
United
States |
Materials |
Ordinary
shares |
1,018 |
} |
0.9 |
|
|
|
Options |
(3) |
| Equitable Holdings |
United
States |
Financials |
Ordinary
shares |
998 |
|
0.8 |
| Lowe's Companies |
United
States |
Consumer
Discretionary |
Ordinary
shares |
995 |
} |
0.8 |
|
|
|
Options |
(2) |
| NXP Semiconductors |
Netherlands |
Information
Technology |
Ordinary
shares |
995 |
} |
0.8 |
|
|
|
Options |
(7) |
| Equinor ASA |
Norway |
Energy |
Ordinary
shares |
975 |
} |
0.8 |
|
|
|
Options |
* |
| PPG Industries |
United
States |
Materials |
Ordinary
shares |
928 |
|
0.8 |
| Zimmer Biomet |
United
States |
Health Care |
Ordinary
shares |
866 |
|
0.7 |
| Ferguson |
United
Kingdom |
Industrials |
Ordinary
shares |
844 |
} |
0.7 |
|
|
|
Options |
(4) |
| ConocoPhillips |
United
States |
Energy |
Ordinary
shares |
830 |
} |
0.7 |
|
|
|
Options |
(4) |
| Allstate |
United
States |
Financials |
Ordinary
shares |
825 |
} |
0.7 |
|
|
|
Options |
(1) |
| NiSource |
United
States |
Utilities |
Ordinary
shares |
821 |
} |
0.7 |
|
|
|
Options |
(2) |
| Newell Brands |
United
States |
Consumer
Discretionary |
Ordinary
shares |
824 |
} |
0.7 |
|
|
|
Options |
(7) |
| Corteva |
United
States |
Materials |
Ordinary
shares |
811 |
} |
0.7 |
|
|
|
Options |
(8) |
| Nestlé |
Switzerland |
Consumer
Staples |
Ordinary
shares |
782 |
} |
0.7 |
|
|
|
Options |
(1) |
| PPL |
United
States |
Utilities |
Ordinary
shares |
777 |
} |
0.6 |
|
|
|
Options |
(3) |
| TJX Companies |
United
States |
Consumer
Discretionary |
Ordinary
shares |
681 |
} |
0.6 |
|
|
|
Options |
(2) |
| Applied Materials |
United
States |
Information
Technology |
Ordinary
shares |
645 |
} |
0.5 |
|
|
|
Options |
(5) |
| CDK Global |
United
States |
Information
Technology |
Ordinary
shares |
623 |
} |
0.5 |
|
|
|
Options |
(4) |
| Kinder Morgan |
United
States |
Energy |
Ordinary
shares |
602 |
} |
0.5 |
|
|
|
Options |
(1) |
| BP |
United
Kingdom |
Energy |
Ordinary
shares |
556 |
} |
0.5 |
|
|
|
Options |
* |
| Open Text |
Canada |
Information
Technology |
Ordinary
shares |
539 |
} |
0.5 |
|
|
|
Options |
(1) |
| Humana |
United
States |
Health Care |
Ordinary
shares |
538 |
} |
0.5 |
|
|
|
Options |
(1) |
| FedEx |
United
States |
Industrials |
Ordinary
shares |
451 |
} |
0.4 |
|
|
|
Options |
(1) |
| Dollar General |
United
States |
Consumer
Discretionary |
Ordinary
shares |
427 |
} |
0.4 |
|
|
|
Options |
(1) |
| Oneok |
United
States |
Energy |
Ordinary
shares |
415 |
} |
0.3 |
|
|
|
Options |
(4) |
| Exelon |
United
States |
Utilities |
Ordinary
shares |
389 |
} |
0.3 |
|
|
|
Options |
(1) |
| Danone |
France |
Consumer
Staples |
Ordinary
shares |
282 |
} |
0.2 |
|
|
|
Options |
* |
| Siemens Energy |
Germany |
Industrials |
Ordinary
shares |
143 |
} |
0.1 |
|
|
|
Options |
(4) |
| First American |
United
States |
Financials |
Ordinary
shares |
56 |
|
– |
|
|
|
|
-------------- |
|
-------------- |
| Portfolio |
|
|
|
119,086 |
|
100.0 |
|
|
|
|
======== |
|
======== |
| Comprising: |
|
|
|
|
|
|
| Equity investments |
|
|
|
119,434 |
|
100.3 |
| Derivative financial instruments –
written options |
|
|
|
(348) |
|
(0.3) |
|
|
|
|
-------------- |
|
-------------- |
|
|
|
|
119,086 |
|
100.0 |
|
|
|
|
======== |
|
======== |
* Market value less than
£1,000.
All investments are in ordinary shares unless otherwise stated.
The number of holdings as at 31 October
2020 was 78 (31 October 2019:
89). The total number of individual open options as at 31 October 2020 was 171 (31 October 2019: 224).
The negative valuation of £348,000 in respect of options held
represents the notional cost of repurchasing the contracts at
market prices as at 31 October 2020
(31 October 2019: £482,000).
At 31 October 2020, 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 2020. The
aim of the Strategic Report is to provide shareholders with the
information to assess how the Directors have performed their duty
to promote the success of the Company for the collective benefit of
shareholders.
The Chairman’s Statement together with the Investment Manager’s
Report form part of this Strategic Report. The Strategic Report was
approved by the Board at its meeting on 5
February 2021.
PRINCIPAL ACTIVITY
The Company carries on business as an investment trust and its
principal activity is portfolio investment. Investment trusts are
pooled investment vehicles which allow exposure to a diversified
range of assets through a single investment, thus spreading
investment risk.
OBJECTIVE
The Company’s objective is to provide an attractive and growing
level of income return with capital appreciation over the long
term, predominantly through investment in a diversified portfolio
of primarily large-cap U.S. quoted equities with a focus on
companies that pay and grow their dividends. The Company may invest
through an active options overlay strategy utilising predominantly
covered call options and may also hold other securities from
time-to-time including, inter alia, convertible securities, fixed
interest securities, preference shares, non-convertible preferred
stock and depositary receipts. The Company may also invest in
listed large-cap equities quoted on exchanges outside the U.S.,
subject to the restrictions set out below, and in securities
denominated in US dollars and non-US dollar currencies.
STRATEGY, BUSINESS MODEL AND INVESTMENT POLICY
Strategy
The Company invests in accordance with the objective given above.
The Board is collectively responsible to shareholders for the
long-term success of the Company and is its governing body. There
is a clear division of responsibility between the Board and
BlackRock Fund Managers Limited (the Manager), the Company's
Alternative Investment Fund Manager (AIFM). Matters reserved for
the Board include setting the Company’s strategy, including its
investment objective and policy, setting limits on gearing, capital
structure, governance, and appointing and monitoring of performance
of service providers, including the Manager.
Business model
The Company’s business model follows that of an externally managed
investment trust. Therefore, the Company does not have any
employees and outsources its activities to third-party service
providers including the Manager who is the principal service
provider. The management of the investment portfolio and the
administration of the Company have been contractually delegated to
the Manager who in turn (with the permission of the Company) has
delegated certain investment management and other ancillary
services to BlackRock Investment Management (UK) Limited (the
Investment Manager or BIM (UK)). The
Manager, operating under guidelines determined by the Board, has
direct responsibility for the decisions relating to the day-to-day
running of the Company and is accountable to the Board for the
investment, financial and operating performance of the Company.
The Company delegates fund accounting services to the Investment
Manager, which in turn sub-delegates these services to The Bank of
New York Mellon (International) Limited (BNYM) and also
sub-delegates registration services to the Registrar, Computershare
Investor Services PLC. Other service providers include the
Depositary (also BNYM). Details of the contractual terms with the
Manager and the Depositary and more details of sub-delegation
arrangements in place governing custody services are set out in the
Directors’ Report in the Company’s Annual Report.
Investment policy
To achieve the Company’s investment objective, the Investment
Manager adopts a stock specific approach in managing the Company’s
portfolio, selecting investments that it believes will both
increase in value over the long term and provide income. The
Company does not invest in companies which are not listed, quoted
or traded at the time of investment, although it may have exposure
to such companies where, following investment, the relevant
securities cease to be listed, quoted or traded. Typically, it is
expected that the investment portfolio will comprise of between 80
and 120 securities (excluding its active options overlay strategy).
As at 31 October 2020, there were 78
holdings in the Company’s portfolio.
The Company may invest through derivatives for efficient
portfolio management and may, for investment purposes, employ an
active options overlay strategy utilising predominantly covered
call options. Any use of derivatives for efficient portfolio
management and options for investment purposes is based on the same
principles of risk spreading and diversification that apply to the
Company’s direct investments. For the avoidance of doubt, the
Company does not enter into physical or synthetic short positions
or write any uncovered options.
Portfolio risk is mitigated by investing in a diversified spread
of investments. In particular, the Company observes the following
investment restrictions: no single investment (including for the
avoidance of doubt, any single derivative instrument) will, at the
time of investment, account for more than 10% of the gross assets;
no more than 20% of the gross assets, at the time of investment,
will be invested in securities issued outside of the U.S.*; no more
than 35% of the gross assets, at the time of investment, will be
exposed to any one sector; and no more than 20% of the Company’s
portfolio will be under option at any given time. (*Securities
issued by certain companies organised outside the United States may not be deemed to be
foreign securities (but rather deemed to be U.S. securities) if:
(i) the company’s principal operations are conducted from the U.S.;
(ii) the company’s equity securities trade principally on a U.S.
stock exchange; (iii) the company does a substantial amount of
business in the U.S.; or (iv) the issuer of securities is included
in the Company’s primary U.S. benchmark index.)
The Company’s foreign currency investments are not hedged to
sterling as a matter of general policy. However, the investment
team may employ currency hedging, either back to sterling or
between currencies (i.e. cross-hedging of portfolio
investments).
In order to comply with the current Listing Rules, the Company
also complies with the following investment restrictions (which do
not form part of the Company’s investment policy): the Company will
not conduct any trading activity which is significant in the
context of its group as a whole; and the Company will not invest
more than 10% of its gross assets in other listed closed-ended
investment funds, whether managed by the Manager or not, except
that this restriction shall not apply to investments in listed
closed-ended investment funds which themselves have stated
investment policies to invest no more than 15% of their gross
assets in other listed closed-ended investment funds.
The Company may borrow up to 20% of its net assets (calculated
at the time of draw down), although the Board intends only to
utilise borrowings representing up to 10% of net assets at the time
of draw down. Borrowings may be used for investment purposes. The
Company has entered into a multi-currency overdraft facility with
its Custodian (BNYM) for this purpose. The Company may enter into
interest rate hedging arrangements.
Information regarding the Company’s investment exposures is
contained within the schedule of investments above. Further
information regarding investment risk and activity throughout the
year can be found in the Investment Manager’s Report.
No material change will be made to the investment policy without
the approval of shareholders by ordinary resolution.
ENVIRONMENTAL IMPACT
The direct impact of the Company’s activities is minimal as it has
no employees, premises, physical assets or operations either as a
producer or a provider of goods or services. Neither does it have
customers. Its indirect impact occurs through the investments that
it makes and this is mitigated through BlackRock’s environmental,
social and governance policies.
INVESTMENT PHILOSOPHY AND PROCESS
The Investment Manager seeks to offer a stable foundation for
investors to protect and grow their assets through disciplined
application of value investment principles. The Investment Manager
believes a portfolio of attractively valued, quality companies with
histories of dividend growth can potentially deliver strong
risk-adjusted returns over the long term.
The Investment Manager’s investment process has three main
elements including idea generation, investment research and
portfolio construction. The investment process is continuous and
forms a virtuous circle that ensures the best investment ideas are
reflected in the portfolio at all times.
The Investment Manager derives new investment ideas from the
bottom-up fundamental research generated by its research analysts
and from its quantitative screens. The Investment Manager’s
research analysts derive investment ideas from their existing
knowledge of industry and company trends and developments. The
Investment Manager’s quantitative screens utilise both quality and
value factors with the goal of highlighting potentially attractive
opportunities that the analysts may have otherwise missed. The
Investment Manager’s Directors of Research collaborate with the
research analysts to prioritise research ideas and ensure research
best practices. The Investment Manager’s research analyst team
conducts fundamental research. This research includes traditional
financial statement analysis, meetings with company managements,
discussions with industry experts and collaboration with investors
across BlackRock.
Final investment decisions result from the Investment Manager’s
bottom-up, company specific research. Portfolio allocations are a
reflection of the investment opportunities the Investment Manager
is identifying in the current environment.
INVESTMENT RESEARCH: ENVIRONMENTAL, SOCIAL AND GOVERNANCE
(ESG)
ESG is not the overriding consideration for investment decisions
which are primarily based on an assessment of a stock's future
performance prospects. However, ESG factors can be very useful and
relevant indicators for investment purposes and can help the
Portfolio Managers with their decision making through identifying
potentially negative events or corporate behaviour. The Portfolio
Managers work closely with BlackRock’s Investment Stewardship team
to assess the governance quality of companies and investigate any
potential issues, risks or opportunities. The Portfolio Managers
use ESG information when conducting research and due diligence on
new investments and again when monitoring investments in the
portfolio.
The Portfolio Managers assess a variety of economic and
financial indicators, including ESG issues, to make investment
decisions that align with clients’ objectives. To facilitate this
analysis, they review information in their research templates using
a tool (the Fundamental Active Equity Risk Window) which
supplements investment decisions by identifying potential ESG risks
associated with a given company. Further research and engagement
with companies helps to assess each risk. Combining this additional
insight with the Portfolio Managers’ in-depth fundamental approach
broadens the total set of information available for use in
decision-making processes and positions the investment team to
evaluate ESG issues and the impact they could potentially have on
an investment.
PERFORMANCE
Over the year ended 31 October 2020,
the Company’s net asset value returned -8.9% compared with a return
of -7.5% in the Russell 1000 Value Index. The ordinary share price
returned -17.9% (all percentages are calculated in sterling terms
with dividends reinvested). The Investment Manager’s Report
includes a review of the main developments during the year,
together with information on investment activity within the
Company’s portfolio.
RESULTS AND DIVIDENDS
The results for the Company are set out in the Statement of
Comprehensive Income. The total return for the year, after
taxation, was a loss of £13,315,000 (2019: a profit of £10,370,000)
of which the revenue return amounted to a profit of £5,367,000
(2019: a profit of £4,338,000) and the capital return amounted to a
loss of £18,682,000 (2019: a profit of £6,032,000).
The Company pays dividends quarterly. Four quarterly interim
dividends of 2.00p per share were paid on 29
April 2020, 3 July 2020,
1 October 2020 and 4 January 2021. Total dividends of 8.00p per
share were paid or declared in the year ended 31 October 2020 (2019: 8.00p).
FUTURE PROSPECTS
The Board’s main focus is to provide an attractive and growing
level of income return with capital appreciation over the long term
and the future of the Company is dependent upon the success of the
investment strategy. The outlook for the Company in the next twelve
months is discussed in both the Chairman’s Statement and in the
Investment Manager’s Report.
SOCIAL, COMMUNITY AND HUMAN RIGHTS ISSUES
As an investment trust with no employees, the Company has no direct
social or community responsibilities or impact on the environment.
However, the Company believes that it is in shareholders’ interests
to consider human rights issues and environmental, social and
governance factors when selecting and retaining investments.
Details of the Company’s policy on socially responsible investment
are set out in the Corporate Governance Statement in the Company’s
Annual Report.
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 chains, 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
2020 are set out in the Directors’ Biographies in the
Company’s Annual Report. The Board consists of three male Directors
and two female Directors. The Company does not have any executive
employees.
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 below.
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 Company’s Annual
Report.
Additionally, the Board regularly reviews the performance of the
portfolio, as well as the net asset value and share price of the
Company and compares this against various companies and indices.
The Board also reviews the performance of the portfolio against the
Russell 1000 Value Index. Information on the Company’s performance
is given in the Chairman’s Statement.
|
Year ended
31 October
2020 |
Year ended
31 October
2019 |
| Net asset value per ordinary
share |
158.06p |
182.13p |
| Ordinary share price
(mid?market) |
145.50p |
186.50p |
| Net asset value total
return1 |
-8.9% |
8.5% |
| Benchmark index2 |
-7.5% |
9.8% |
| Share price total
return1 |
-17.9% |
15.0% |
| Dividends per share |
8.00p |
8.00p |
| (Discount)/premium to cum income net
asset value3 |
(7.9%) |
2.4% |
| Revenue return per share |
6.65p |
5.96p |
| Ongoing charges4 |
1.06% |
1.09% |
|
======== |
======== |
1 This measures
the Company’s share price and NAV total return, which assumes
dividends paid by the Company have been reinvested.
2 Russell 1000
Value Index, total return basis.
3 This is the
difference between the share price and the NAV per share with debt
at par. It is an indicator of the need for shares to be bought back
or, in the event of a premium to NAV per share, issued.
4 Ongoing charges
represent the management fee and all other operating expenses
excluding finance costs, direct transaction costs, custody
transaction charges, VAT recovered, taxation and certain
non-recurring items as a % of average daily net assets.
PRINCIPAL RISKS
The Company is exposed to a variety of risks and uncertainties. As
required by the 2018 UK Corporate Governance Code (the UK Code),
the Board has put in place a robust ongoing process to identify,
assess and monitor the principal risks and emerging risks facing
the Company.
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 quality of
controls operating to mitigate it. A residual risk rating is then
calculated for each risk based on the outcome of the
assessment.
The risk register, its method of preparation and the operation
of key controls in BlackRock’s and third-party service providers’
systems of internal control, are reviewed on a regular basis by the
Audit and Management Engagement Committee. In order to gain a more
comprehensive understanding of BlackRock’s and other third-party
service providers’ risk management processes and how these apply to
the Company’s business, BlackRock’s internal audit department
provides an annual presentation to the Audit Committee chairmen of
the BlackRock investment trusts setting out the results of testing
performed in relation to BlackRock’s internal control processes.
The Audit and Management Engagement Committee also periodically
receives and reviews internal control reports from BlackRock and
the Company’s service providers.
The Board has undertaken a robust assessment of both the
principal and emerging risks facing the Company, including those
that would threaten its business model, future performance,
solvency or liquidity. The COVID-19 pandemic 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. The threat of climate change has also reinforced the
importance of more sustainable practices and environmental
responsibility. 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. Additionally, the 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.
The Board will continue to assess these risks on an ongoing
basis. In relation to the UK Code, the Board is confident that the
procedures that the Company has put in place are sufficient to
ensure that the necessary monitoring of risks and controls has been
carried out throughout the reporting period.
The principal risks and uncertainties faced by the Company
during the financial year, together with the potential effects,
controls and mitigating factors are set out in the following
table.
| Principal Risk |
Mitigation/Control |
Counterparty
The potential loss that the Company could incur if a counterparty
is unable (or unwilling) to perform on its commitments. |
Due diligence is undertaken before contracts are entered into and
exposures are diversified across a number of counterparties.
The Depositary is liable for restitution for the loss of financial
instruments held in custody unless able to demonstrate the loss was
a result of an event beyond its reasonable control. |
Investment
performance
Returns achieved are reliant primarily upon the performance of the
portfolio.
The Board is responsible for:
· deciding 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 policy may lead to:
· underperformance
compared to the benchmark index;
· a reduction or
permanent loss of capital; and
· dissatisfied
shareholders and reputational damage. |
To manage this risk the Board:
· regularly reviews the
Company’s investment mandate and long-term strategy;
· has set investment
restrictions and guidelines which the Investment Manager monitors
and regularly reports on;
· receives from the
Investment Manager a regular explanation of stock selection
decisions, portfolio exposure, gearing and any changes in gearing
and the rationale for the composition of the investment
portfolio;
· monitors and maintains
an adequate spread of investments in order to minimise the risks
associated with particular countries or factors specific to
particular sectors, based on the diversification requirements
inherent in the investment policy;
· receives and reviews
regular reports showing an analysis of the Company’s performance
against the Russell 1000 Value Index and other similar indices;
and
· has been assured that
the Investment Manager has training and development programmes in
place for its employees and its recruitment and remuneration
packages are developed in order to retain key staff. |
Legal &
Regulatory Compliance
The Company has been approved by HM Revenue & Customs as an
investment trust, subject to continuing to meet the relevant
eligibility conditions, and operates as an investment trust in
accordance with Chapter 4 of Part 24 of the Corporation Tax Act
2010. As such, the Company is exempt from capital gains tax on the
profits realised from the sale of its investments.
Any breach of the relevant eligibility conditions could lead to the
Company losing investment trust status and being subject to
corporation tax on capital gains realised within the Company’s
portfolio. In such event, the investment returns of the Company may
be adversely affected.
Any serious breach could result in the Company and/or the Directors
being fined or the subject of criminal proceedings or the
suspension of the Company’s shares which would in turn lead to a
breach of the Corporation Tax Act 2010.
Amongst other relevant laws, the Company is required to comply with
the provisions of the Companies Act 2006, the Alternative
Investment Fund Managers’ Directive, the UK Listing Rules,
Disclosure Guidance and Transparency Rules and the Market Abuse
Regulation. |
The Investment Manager monitors investment movements, the level of
forecast income and expenditure and the amount of proposed
dividends 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.
Compliance with the accounting rules affecting investment trusts is
also carefully and regularly monitored.
The Company Secretary, Manager and the Company’s professional
advisers provide regular reports to the Board in respect of
compliance with all applicable rules and regulations. The Board and
Manager also monitor changes in government policy and legislation
which may have an impact on the Company. |
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 in the face of negative market
movements.
Changes in general economic and market conditions, such as currency
exchange rates, interest rates, rates of inflation, industry
conditions, tax laws, political events and trends, including the
impact of the UK leaving the European Union, can also substantially
and adversely affect the securities and, as a consequence, the
Company’s prospects and share price.
Market risk includes the potential impact of events which are
outside the Company’s control, such as the COVID-19 pandemic and
climate change. |
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. 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 Portfolio Managers to adhere to disciplined fundamental
analysis from a bottom-up perspective and be ready to respond to
dislocations in the market as opportunities present themselves.
The Portfolio Managers spend time understanding the ESG risks and
opportunities facing investee companies and conduct research and
due diligence on new investments and when monitoring investments in
the portfolio. |
Operational
In common with most other investment trust companies, the Company
has no employees. The Company therefore relies on the services
provided by third parties and is dependent on the control systems
of the Manager, the Depositary, Custodian and Fund Accountant,
which maintains the Company’s assets, dealing procedures and
accounting records.
The security of the Company’s assets, dealing procedures,
accounting records and adherence to regulatory and legal
requirements depend on the effective operation of the systems of
these other third-party service providers. There is a risk that a
major disaster, such as floods, fire, a global pandemic, or
terrorist activity, renders the Company’s service providers unable
to conduct business at normal operating effectiveness.
Failure by any service provider to carry out its obligations could
have a material adverse effect on the Company’s performance.
Disruption to the accounting, payment systems or custody records
(including cyber security risk) could prevent the accurate
reporting and monitoring of the Company’s financial position. |
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 reported to the
Board.
The Board reviews on a regular basis an assessment of the fraud
risks that the Company could potentially be exposed to and also a
summary of the controls put in place by the Manager, Depositary,
Custodian, Fund Accountant and Registrar specifically to mitigate
these risks.
Most third-party service providers produce internal control reports
to provide assurance regarding the effective operation of internal
controls as reported on by their reporting accountants. These
reports are provided to the Audit and Management Engagement
Committee for review. The Committee would seek further
representations from service providers if not satisfied with the
effectiveness of their control environment.
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 annually.
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 and emerging 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. |
Financial
The Company’s investment activities expose it to a variety of
financial risks which include market risk, counterparty credit
risk, liquidity risk and the valuation of financial
instruments. |
Details of these risks are disclosed in note 14 to the Financial
Statements in the Company’s Annual Report, together with a summary
of the policies for managing these risks. |
Marketing
Marketing efforts are inadequate or do not comply with relevant
regulatory requirements. There is a failure to communicate
adequately with shareholders or reach out to potential new
shareholders resulting in reduced demand for the Company’s shares
and a widening of the discount. |
The Board reviews marketing strategy and initiatives and the
Manager is required to provide regular updates on progress.
BlackRock has a dedicated investment trust sales team visiting both
existing and potential clients on a regular basis. Data on client
meetings and issues raised are provided to the Board on a regular
basis.
All investment trust marketing documents are subject to appropriate
review and authorisation. |
In the view of the Board, there have not been any changes to the
fundamental nature of these risks and these principal risks and
uncertainties are equally applicable for the current financial
year.
VIABILITY STATEMENT
In accordance with provision 31 of the 2018 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 Board is cognisant of the uncertainty surrounding the
potential duration of the COVID-19 pandemic, its impact on the
global economy and the prospects for many of the Company’s
portfolio holdings. Notwithstanding this crisis, and given the
factors stated below, the Board expects the Company to continue for
the foreseeable future and has therefore conducted this review for
a period of three years. This is generally the investment holding
period investors consider while investing in the North American
sector. The Company also undertakes a continuation vote every three
years. The next continuation vote will take place at the Annual
General Meeting in 2022.
In its assessment of the viability of the Company, the Directors
have noted that:
- the Company invests in highly liquid, large listed companies so
its assets are readily realisable;
- the Company has limited gearing and no concerns around
facilities, headroom or covenants;
- the Company’s forecasts for revenues, expenses and liabilities
are relatively stable and it has largely fixed overheads which
comprise a small percentage of net assets (1.06%); and
- the business model should remain attractive for much longer
than three years, unless there is significant economic or
regulatory change.
The Directors have also reviewed:
- the impact of a significant fall in U.S equity markets on the
value of the Company’s investment portfolio, factoring in the
impact of the recent volatility related to the COVID-19
pandemic;
- the ongoing relevance of the Company’s investment objective,
business model and investment policy in the current environment;
and
- the level of demand for the Company’s shares.
The Board has also considered a number of other factors,
including:
- portfolio liquidity in light of the COVID-19 pandemic on global
market liquidity. As at 1 February
2021, 100% of the portfolio was estimated as being capable
of being liquidated within one day;
- the Company’s revenue and expense forecasts in light of the
COVID-19 pandemic and its anticipated impact on dividend income and
market valuations. The Board is confident that the Company’s
business model remains viable and that there are sufficient
resources to meet all liabilities as they fall due for the period
under review;
- the Company’s borrowing facility and considers that the Company
continues to meet its financial covenants in respect of this
facility;
- the principal risks and uncertainties as set out above and is
confident that the Company has appropriate controls and processes
in place to manage these and to maintain its operating model, even
given the challenges posed by COVID-19;
- the operational resilience of the Company and its key service
providers and their ability to continue to provide a good level of
service for the foreseeable future;
- the effectiveness of business continuity plans in place for the
Company and key service providers; and
- the level of income generated by the Company and future income
forecasts.
Based on the results of their analysis, the Directors have
concluded that there is a reasonable expectation that the Company
will continue in operation and meet its liabilities as they fall
due over the period of their assessment.
SECTION 172 STATEMENT: PROMOTING THE SUCCESS OF THE
COMPANY
New regulations (The Companies (Miscellaneous Reporting)
Regulations 2018) require directors of large companies 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 includes the
likely consequences of their decisions in the longer term and how
they have taken wider stakeholders’ needs into account.
The enhanced disclosure that follows 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. The Board considers the main stakeholders in the Company
to be the Manager, Investment Manager and the shareholders. In
addition to this, the Board considers investee companies and key
service providers of the Company to be stakeholders; the latter
comprise the Company’s Custodian, Depositary, Registrar and
Broker.
| Stakeholders |
| Shareholders |
Manager and Investment
Manager |
Other key service
providers |
Investee companies |
| 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 an attractive and growing level of capital appreciation
over the long term. |
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 successfully deliver 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. |
In order for the Company to function
as an investment trust with a listing on the premium segment of the
official list of the Financial Conduct Authority and trade on the
London Stock Exchange’s (LSE) main market for listed securities,
the Board relies on a diverse range of advisors for support in
meeting relevant obligations and safeguarding the Company’s assets.
For this reason, the Board consider the Company’s Custodian,
Depositary, Registrar and Broker to be stakeholders. The Board
maintains regular contact with its key external service providers
and receives regular reporting from them through the Board and
Committee meetings, as well as outside of the regular meeting
cycle. |
Portfolio holdings are ultimately
shareholders’ assets and the Board recognise the importance of good
stewardship and communication with investee companies in meeting
the Company’s investment objective and strategy. The Board monitors
the Manager’s stewardship arrangements and receives regular
feedback from the Manager in respect of meetings with the
management. |
| Areas of Engagement |
Issue |
Engagement |
Impact |
| Investment mandate and
objective |
The Board 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 worked closely with the
Investment Manager throughout the year in further developing
investment strategy and underlying policies, not simply for the
purpose of achieving the Company’s investment objective but in the
interests of shareholders and future investors. The Company is not
currently geared. However, the possibility of gearing remains under
active consideration by the Board with the Investment Manager based
on the market outlook. |
The Company’s objective is to
provide an attractive and growing level of income return with
capital appreciation over the long term. The Board has maintained
or increased dividends since the Company’s launch and remains
committed to delivering long-term total return performance on
shareholder capital. Growth should reflect both the Investment
Manager’s investment performance and the issuance of shares when
sufficient demand exists to do this without diluting the value of
existing shareholder capital. |
| 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 will have the opportunity to meet the Directors and
Investment Manager and to address questions to them directly. The
Investment Manager will also provide a presentation on the
Company’s performance and the outlook.
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 Manager’s
website at blackrock.com/uk/brna.
Unlike trading companies, one-to-one shareholder meetings normally
take the form of a meeting with the Investment Manager as opposed
to members of the Board. The Company’s willingness to enter into
discussions with institutional shareholders is also demonstrated by
the programmes of institutional presentations by the Investment
Manager. 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
where they wish to do so. He may be contacted via the Company
Secretary whose details are given on page 109 of the Annual
Report. |
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.
Portfolio holdings are ultimately shareholders’ assets and the
Board recognise the importance of good stewardship and
communication with investee companies in meeting the Company’s
investment objective and strategy. The Board monitors the Manager’s
stewardship arrangements and receives regular feedback from the
Investment Manager in respect of meetings with the management of
portfolio companies. |
| Responsible investing |
More than ever, the importance of
good governance and consideration of sustainable investment are key
factors in making investment decisions. Climate change is becoming
a defining factor in companies’ long-term prospects across the
investment spectrum, with significant and lasting implications for
economic growth and prosperity. |
The Board believes that
responsible investment and sustainability are important to the
longer-term delivery of the Company’s success. The Board works
closely with the Investment Manager to regularly review the
Company’s performance, investment strategy and underlying policies
and to understand how Environmental, Social and Governance (ESG)
considerations are integrated into the investment process. In
conjunction with the BlackRock Stewardship team, the portfolio
management team engage with companies on a wide range of issues and
is committed to voting against management to the extent that they
have not demonstrated sufficient progress or disclosed business
plans for mitigating climate risk and environmental impacts.
A summary of BlackRock’s approach to ESG and sustainability is set
out below. The Investment Manager’s engagement and voting policy is
detailed in the Director’s Report in the Annual Report and on the
BlackRock website. |
The Investment Manager believes
there is likely to be a positive correlation between strong ESG
practices and investment performance over time. |
| Discount management |
The Board recognises that it is in
the long-term interests of shareholders that shares do not trade at
a significant discount (or premium) to their prevailing NAV. The
Board believes this may be achieved by the use of share buy back
powers. |
The Board monitors the
Company’s share rating on an ongoing basis and receives regular
updates from the Manager and the Company’s Broker regarding the
level of discount. The Board believes that the best way of
maintaining the share rating at an optimal level over the long term
is to create demand for the shares in the secondary market. To this
end, the Investment Manager is devoting considerable effort to
broadening the awareness of the Company, particularly to wealth
managers and to the wider retail market.
In addition, the Board has worked closely with the Manager to
develop the Company’s marketing strategy, with the aim of ensuring
effective communication with existing shareholders and to attract
new shareholders to the Company in order to improve liquidity in
the Company’s shares and to sustain the share rating of the
Company. |
The Board continues to
monitor the Company’s discount to NAV and will look to buy back
shares if it is deemed to be in the interests of shareholders as a
whole.
The Company’s average discount for the year to 31 October 2020 was
3.3% and the discount at 1 February 2021 stood at 5.6%. |
| 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 Broker 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 Broker on an ongoing basis.
In light of the challenges presented by the COVID-19 pandemic to
the operation of businesses 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
key service providers. |
All performance evaluations were
performed on a timely basis and the Board concluded that all key
third-party service providers, including the Manager, were
operating effectively and providing a good level of service. The
Board has received updates in respect of business continuity
planning from the Company’s Manager, Custodian, Depositary, Fund
Accountant, Registrar and Printer and is confident that
arrangements are in place to ensure a good level of service will
continue to be provided despite the 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 and skills, and that it is compliant with
best corporate governance practice under the UK Code, including
guidance on tenure and the composition of the Board’s
committees. |
All Directors are
subject to a formal evaluation process on an annual basis (more
details and the conclusions of the 2020 evaluation process are
given in the Corporate Governance Statement in the Annual Report).
All Directors stand for re-election by shareholders annually.
Shareholders may attend the Annual General Meeting 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 on page 109 of the Annual Report. |
As at the date of this
report, the Board was comprised of three men and two women. No
Director has a tenure in excess of nine years.
Details of each Directors’ contribution to the success and
promotion of the Company are set out in the Directors’ Report in
the Annual Report and details of Directors’ biographies can be
found in the Annual Report.
The Directors are not aware of any issues that have been raised
directly by shareholders in respect of Board composition in the
year under review. However, the Board noted the votes against two
resolutions at the 2020 AGM by one significant shareholder, more
details of which are provided in the Corporate Governance Statement
in the Annual Report. Details of the proxy voting results in favour
and against individual Directors’ re-election at the 2020 Annual
General Meeting are given on the Manager’s website at
www.blackrock.com/uk/brna. |
BLACKROCK’S SUSTAINABILITY AND ESG POLICIES
Environmental, social and governance (ESG) issues can present both
opportunities and threats to long-term investment performance.
These ethical and sustainability issues cannot be ignored, and
BlackRock is committed to applying the highest standards of ESG
practice. Effective engagement with management is, in most cases,
the most constructive way of driving meaningful change in the
behaviour of investee company management. This is particularly true
given the extent of its shareholder engagement (BlackRock held
3,040 engagements with 2,020 companies based in 54 markets for the
year to 30 June 2020). As well as the
influence afforded by its sheer scale, 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
sustainability is set out below.
RESPONSIBLE OWNERSHIP – BLACKROCK’S APPROACH
As a fiduciary to its clients, BlackRock has built its business to
protect and grow the value of clients’ assets. From BlackRock’s
perspective, business-relevant sustainability issues can contribute
to a company’s long-term financial performance and thus further
incorporating these considerations into the investment research,
portfolio construction and stewardship process can enhance
long-term risk adjusted returns. By expanding access to data,
insights and learning on material ESG risks and opportunities in
investment processes across BlackRock’s diverse platform, BlackRock
believes that the investment process is greatly enhanced. The
Company’s Portfolio Managers work closely with BlackRock’s
Investment Stewardship team to assess the governance quality of
companies and investigate any potential issues, risks or
opportunities. The Portfolio Managers use ESG information when
conducting research and due diligence on new investments and again
when monitoring investments in the portfolio.
BLACKROCK’S APPROACH TO SUSTAINABLE INVESTING
Considerations about sustainability have been at the centre of
BlackRock’s investment approach for many years and the firm offers
more than 200 sustainable products and solutions. BlackRock
believes that climate change is now a defining factor in companies’
long-term prospects and that will have a significant and lasting
impact on economic growth and prosperity. BlackRock believes that
climate risk 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 is
likely to drive a significant reallocation of capital away from
traditional carbon intensive industries over the next decade.
In January 2020, with this
transition in mind, BlackRock announced that it would accelerate
its sustainable investing efforts and make a number of enhancements
to its investment management and risk processes, including the
following:
- heightening scrutiny on sectors and issuers with a high ESG
risk, such as thermal coal producers, due to the investment risk
they present to client portfolios;
- putting ESG analysis at the heart of Aladdin (BlackRock’s
proprietary trading platform) and using proprietary tools to help
analyse ESG risk; and
- placing oversight of ESG risk with BlackRock’s Risk and
Quantitative Analysis group (RQA), to ensure that ESG risk is given
increased weighting as a risk factor and is analysed with the same
weight given to traditional measures such as credit or liquidity
risk.
INVESTMENT STEWARDSHIP
BlackRock also places a strong emphasis on sustainability in its
stewardship activities and has engaged with companies on
sustainability-related questions for a number of years. This year
BlackRock made an explicit ask that companies align their
disclosures to the Task Force on Climate-Related Financial
Disclosures (TCFD) framework and the Sustainability Accounting
Standards Board (SASB) standards. This includes each company's plan
for operating under a scenario where the Paris Agreement's goal of
limiting global warming to less than two degrees is fully realised,
as expressed by the TCFD guidelines. To this end, BlackRock joined
Climate Action 100+, a natural progression in its work to advance
sustainable business practices aligned with TCFD. BlackRock has
aligned its engagement and stewardship priorities to UN Sustainable
Development Goals (including Gender Equality and Affordable and
Clean Energy). BlackRock is committed to voting against management
to the extent that they have not demonstrated sufficient progress
on sustainability issues.
BlackRock is committed to transparency in terms of disclosure on
its engagement with companies and voting rationales. Last year,
BlackRock voted against or withheld votes from 5,130 directors at
2,809 different companies driven by concerns regarding director
independence, executive compensation, insufficient progress on
board diversity and overcommitted directors, reflecting its
intensified focus on sustainability risks. More details about
BlackRock’s investment stewardship process can be found on
BlackRock’s website at
www.blackrock.com/corporate/about-us/investment-stewardship. 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 recognise that reporting to these standards requires
significant time, analysis, and effort. BlackRock's own
SASB-aligned disclosure is available on its website at
www.blackrock.com/corporate/literature/continuous-disclosure-and-important-information/blackrock-2019-sasb-disclosure.pdf
and BlackRock published a detailed TCFD-aligned report on its 2020
activities. More information on BlackRock’s policies on Corporate
Sustainability can be found on BlackRock’s website at
www.blackrock.com/corporate/sustainability.
BY ORDER OF THE BOARD
CAROLINE DRISCOLL
FOR AND ON BEHALF OF
BLACKROCK INVESTMENT MANAGEMENT (UK) LIMITED
Company Secretary
5 February 2021
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 of the Company’s Annual Report.
The investment management fee due for the year ended
31 October 2020 amounted to
£1,001,000 (2019: £1,002,000). At the year end, £725,000 was
outstanding in respect of the management fee (2019: £546,000).
In addition to the above services, BlackRock has provided
marketing services. The total fees paid or payable for these
services for the year ended 31 October
2020 amounted to £46,000 excluding VAT (2019: £26,000).
Marketing fees of £31,000 excluding VAT (2019: £23,000) were
outstanding as at the year end.
The Board consists of five non-executive Directors, all of whom
are considered to be independent of the Manager by the Board. None
of the Directors has a service contract with the Company. With
effect from 1 April 2019, the
Chairman received an annual fee of £42,000, the Chairman of the
Audit and Management Engagement Committee received an annual fee of
£35,000 and each of the other Directors received an annual fee of
£29,000.
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 of the Company’s
Annual Report. At 31 October 2020
£14,000 (2019: £14,000) was outstanding in respect of Directors’
fees.
STATEMENT OF DIRECTORS’
RESPONSIBILITIES IN RESPECT OF THE ANNUAL REPORT AND FINANCIAL
STATEMENTS
The Directors are responsible for preparing the Annual Report
and the financial statements in accordance with applicable
United Kingdom law and
regulations. Company law requires the Directors to prepare
financial statements for each financial year. Under that law, the
Directors have elected to prepare the financial statements under
international accounting standards in conformity with the
requirements of the Companies Act 2006.
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
period.
In preparing those 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 IAS 8:
Accounting Policies, Changes in Accounting Estimates and Errors and
then apply them consistently;
- present information, including accounting policies, in a manner
that provides relevant, reliable, comparable and understandable
information;
- make judgements and estimates that are reasonable and
prudent;
- state whether the financial statements have been prepared in
accordance with international accounting standards in conformity
with the requirements of the Companies Act 2006, subject to any
material departures disclosed and explained in the financial
statements;
- provide additional disclosures when compliance with the
specific requirements in international accounting standards in
conformity with the requirements of the Companies Act 2006 is
insufficient to enable users to understand the impact of particular
transactions, other events and conditions on the Company’s
financial position and financial performance; and
- prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company’s
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that
the financial statements comply with the Companies Act 2006. They
are also responsible for safeguarding the assets of the Company and
hence for taking reasonable steps for the prevention and detection
of fraud and other irregularities.
The Directors are also responsible for preparing the Strategic
Report, Directors’ Report, the Directors’ Remuneration Report, the
Corporate Governance Statement and the Report of the Audit and
Management Engagement 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 Directors’
biographies on pages 27 to 29 of the Company’s Annual Report,
confirm to the best of their knowledge that:
- the financial statements, which have been prepared in
accordance with international accounting standards in conformity
with the requirements of the Companies Act 2006, give a true and
fair view of the assets, liabilities, financial position and net
profit 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 also requires Directors to
ensure that the Annual Report and Financial Statements are fair,
balanced and understandable. In order to reach a conclusion on this
matter, the Board has requested that the Audit and Management
Engagement Committee advise on whether it considers that the Annual
Report and Financial Statements fulfil these requirements. The
process by which the Committee has reached these conclusions is set
out in the Audit and Management Engagement Committee’s report in
the Annual Report. As a result, the Board has concluded that the
Annual Report and Financial Statements for the year ended
31 October 2020, taken as a whole,
are fair, balanced and understandable and provide the information
necessary for shareholders to assess the Company’s position,
performance, business model and strategy.
FOR AND ON BEHALF OF THE BOARD
SIMON MILLER
Chairman
5 February 2021
FINANCIAL STATEMENTS
STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED
31 OCTOBER 2020
|
Notes |
Revenue
2020
£’000 |
Revenue
2019
£’000 |
Capital
2020
£’000 |
Capital
2019
£’000 |
Total
2020
£’000 |
Total
2019
£’000 |
| Income from investments held at fair
value through profit or loss |
3 |
4,015 |
3,488 |
– |
– |
4,015 |
3,488 |
| Other income |
3 |
2,954 |
2,180 |
– |
– |
2,954 |
2,180 |
|
|
-------------- |
-------------- |
-------------- |
-------------- |
-------------- |
-------------- |
| Total revenue |
|
6,969 |
5,668 |
– |
– |
6,969 |
5,668 |
|
|
======== |
======== |
======== |
======== |
======== |
======== |
| Net (loss)/profit on investments and
options held at fair value through profit or loss |
|
– |
– |
(18,286) |
6,772 |
(18,286) |
6,772 |
| Net profit/(loss) on foreign
exchange |
|
– |
– |
233 |
(110) |
233 |
(110) |
|
|
-------------- |
-------------- |
-------------- |
-------------- |
-------------- |
-------------- |
| Total |
|
6,969 |
5,668 |
(18,053) |
6,662 |
(11,084) |
12,330 |
|
|
======== |
======== |
======== |
======== |
======== |
======== |
| Expenses |
|
|
|
|
|
|
|
| Investment management fee |
4 |
(250) |
(250) |
(751) |
(752) |
(1,001) |
(1,002) |
| Other operating expenses |
5 |
(451) |
(403) |
(21) |
(21) |
(472) |
(424) |
|
|
-------------- |
-------------- |
-------------- |
-------------- |
-------------- |
-------------- |
| Total operating expenses |
|
(701) |
(653) |
(772) |
(773) |
(1,473) |
(1,426) |
|
|
======== |
======== |
======== |
======== |
======== |
======== |
| Net profit/(loss) on ordinary
activities before taxation |
|
6,268 |
5,015 |
(18,825) |
5,889 |
(12,557) |
10,904 |
| Taxation |
|
(901) |
(677) |
143 |
143 |
(758) |
(534) |
|
|
-------------- |
-------------- |
-------------- |
-------------- |
-------------- |
-------------- |
| Profit/(loss) for the
year |
|
5,367 |
4,338 |
(18,682) |
6,032 |
(13,315) |
10,370 |
|
|
======== |
======== |
======== |
======== |
======== |
======== |
| Earnings/(loss) per ordinary
share (pence) |
7 |
6.65 |
5.96 |
(23.14) |
8.28 |
(16.49) |
14.24 |
|
|
======== |
======== |
======== |
======== |
======== |
======== |
The total column of this statement represents the Company’s
Statement of Comprehensive Income, prepared in accordance with
international accounting standards in conformity with the
requirements of the Companies Act 2006. The supplementary revenue
and capital columns are both prepared under guidance published by
the Association of Investment Companies (AIC). All items in the
above statement derive from continuing operations. No operations
were acquired or discontinued during the year. All income is
attributable to the equity holders of the Company.
The Company does not have any other comprehensive income/(loss).
The net profit/(loss) for the year disclosed above represents the
Company’s total comprehensive income/(loss).
STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED
31 OCTOBER 2020
|
Notes |
Called
up share
capital
£’000 |
Share
premium
account
£’000 |
Capital
redemption
reserve
£’000 |
Special
reserve
£’000 |
Capital
reserves
£’000 |
Revenue
reserve
£’000 |
Total
£’000 |
| For the year ended 31 October
2020 |
|
|
|
|
|
|
|
|
| At 31 October 2019 |
|
1,004 |
42,596 |
1,460 |
36,373 |
58,113 |
3,240 |
142,786 |
| Total comprehensive
(loss)/income: |
|
|
|
|
|
|
|
|
| Net (loss)/profit for the year |
|
– |
– |
– |
– |
(18,682) |
5,367 |
(13,315) |
| Transactions with owners, recorded
directly to equity: |
|
|
|
|
|
|
|
|
| Ordinary shares reissued from
treasury |
8, 9 |
– |
1,937 |
– |
3,388 |
– |
– |
5,325 |
| Share issue costs |
8 |
– |
– |
– |
(10) |
– |
– |
(10) |
| Ordinary shares bought back into
treasury |
8, 9 |
– |
– |
– |
(1,901) |
– |
– |
(1,901) |
| Share purchase costs |
8 |
– |
– |
– |
(11) |
– |
– |
(11) |
| Dividends paid1 |
6 |
– |
– |
– |
– |
(1,209) |
(5,255) |
(6,464) |
|
|
-------------- |
-------------- |
-------------- |
-------------- |
-------------- |
-------------- |
-------------- |
| At 31 October 2020 |
|
1,004 |
44,533 |
1,460 |
37,839 |
38,222 |
3,352 |
126,410 |
|
|
======== |
======== |
======== |
======== |
======== |
======== |
======== |
| For the year ended 31 October
2019 |
|
|
|
|
|
|
|
|
| At 31 October 2018 |
|
1,004 |
36,774 |
1,460 |
24,943 |
54,249 |
2,515 |
120,945 |
| Total comprehensive income: |
|
|
|
|
|
|
|
|
| Net profit for the year |
|
– |
– |
– |
– |
6,032 |
4,338 |
10,370 |
| Transactions with owners, recorded
directly to equity: |
|
|
|
|
|
|
|
|
| Ordinary shares reissued from
treasury |
|
– |
5,822 |
– |
11,507 |
– |
– |
17,329 |
| Share issue costs |
|
– |
– |
– |
(77) |
– |
– |
(77) |
| Dividends paid2 |
6 |
– |
– |
– |
– |
(2,168) |
(3,613) |
(5,781) |
|
|
-------------- |
-------------- |
-------------- |
-------------- |
-------------- |
-------------- |
-------------- |
| At 31 October 2019 |
|
1,004 |
42,596 |
1,460 |
36,373 |
58,113 |
3,240 |
142,786 |
|
|
======== |
======== |
======== |
======== |
======== |
======== |
======== |
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; 1st interim dividend of 2.00p per
share for the year ended 31 October
2020, declared on 20 March
2020 and paid on 29 April
2020; 2nd interim dividend of 2.00p per share for the year
ended 31 October 2020, declared on
5 May 2020 and paid on 3 July 2020; and 3rd interim dividend of 2.00p
per share for the year ended 31 October
2020, declared on 6 August
2020 and paid on 1 October
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; 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.
For information on the Company’s distributable reserves please
refer to note 9 below.
STATEMENT OF FINANCIAL POSITION AS AT
31 OCTOBER 2020
|
Notes |
2020
£’000 |
2019
£’000 |
| Non current assets |
|
|
|
| Investments held at fair value
through profit or loss |
|
119,434 |
130,525 |
| Current assets |
|
|
|
| Other receivables |
|
850 |
844 |
| Cash and cash equivalents |
|
8,069 |
13,207 |
|
|
-------------- |
-------------- |
| Total current assets |
|
8,919 |
14,051 |
|
|
======== |
======== |
| Total assets |
|
128,353 |
144,576 |
|
|
======== |
======== |
| Current liabilities |
|
|
|
| Other payables |
|
(1,595) |
(1,308) |
| Derivative financial liabilities
held at fair value through profit or loss |
|
(348) |
(482) |
|
|
-------------- |
-------------- |
| Total current
liabilities |
|
(1,943) |
(1,790) |
|
|
======== |
======== |
| Net assets |
|
126,410 |
142,786 |
|
|
======== |
======== |
| Equity attributable to equity
holders |
|
|
|
| Called up share capital |
8 |
1,004 |
1,004 |
| Share premium account |
9 |
44,533 |
42,596 |
| Capital redemption reserve |
9 |
1,460 |
1,460 |
| Special reserve |
9 |
37,839 |
36,373 |
| Capital reserves |
9 |
38,222 |
58,113 |
| Revenue reserve |
9 |
3,352 |
3,240 |
|
|
-------------- |
-------------- |
| Total equity |
|
126,410 |
142,786 |
|
|
======== |
======== |
| Net asset value per ordinary
share (pence) |
7 |
158.06 |
182.13 |
|
|
======== |
======== |
CASH FLOW STATEMENT FOR THE YEAR ENDED 31 OCTOBER 2020
|
2020
£’000 |
2019
£’000 |
| Operating activities |
|
|
| Net (loss)/profit on ordinary
activities before taxation |
(12,557) |
10,904 |
| Net loss/(profit) on investments and
options held at fair value through profit or loss (including
transaction costs) |
18,286 |
(6,772) |
| Net (profit)/loss on foreign
exchange |
(233) |
110 |
| Sales of investments held at fair
value through profit or loss |
115,627 |
95,699 |
| Purchases of investments held at
fair value through profit or loss |
(122,956) |
(104,461) |
| Increase in other receivables |
(59) |
(105) |
| Increase in other payables |
217 |
183 |
| (Increase)/decrease in amounts due
from brokers |
(496) |
1 |
| Increase in amounts due to
brokers |
12 |
328 |
|
-------------- |
-------------- |
| Net cash outflow from operating
activities before taxation |
(2,159) |
(4,113) |
|
======== |
======== |
| Taxation paid |
(706) |
(503) |
|
-------------- |
-------------- |
| Net cash outflow from operating
activities |
(2,865) |
(4,616) |
|
======== |
======== |
| Financing activities |
|
|
| Net cash proceeds from ordinary
shares reissued from treasury |
5,870 |
16,697 |
| Net cash outflow from ordinary
shares bought back into treasury |
(1,912) |
– |
| Dividends paid |
(6,464) |
(5,781) |
|
-------------- |
-------------- |
| Net cash (outflow)/inflow from
financing activities |
(2,506) |
10,916 |
|
======== |
======== |
| (Decrease)/increase in cash and
cash equivalents |
(5,371) |
6,300 |
| Effect of foreign exchange rate
changes |
233 |
(110) |
|
======== |
======== |
| Change in cash and cash
equivalents |
(5,138) |
6,190 |
| Cash and cash equivalents at start
of year |
13,207 |
7,017 |
|
======== |
======== |
| Cash and cash equivalents at end
of year |
8,069 |
13,207 |
|
======== |
======== |
| Comprised of: |
|
|
| Cash at bank |
8,069 |
13,207 |
|
-------------- |
-------------- |
|
8,069 |
13,207 |
|
======== |
======== |
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED
31 OCTOBER 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. The Company was incorporated in England and Wales on 30 August
2012.
2. ACCOUNTING POLICIES
The principal accounting policies adopted by the Company have been
applied consistently, other than where new policies have been
adopted, and are set out below.
(a) Basis of preparation
The financial statements have been prepared under the historic cost
convention modified by the revaluation of financial assets and
financial liabilities held at fair value through profit or loss and
in accordance with international accounting standards (IFRS) and
IFRS Interpretations Committee interpretations (IFRIC) in
conformity with the requirements of the Companies Act 2006. All of
the Company’s operations are of a continuing nature.
Insofar as the Statement of Recommended Practice (SORP) for
investment trust companies and venture capital trusts issued by the
Association of Investment Companies (AIC) in October 2019, is compatible with international
accounting standards in conformity with the requirements of the
Companies Act 2006, the financial statements have been prepared in
accordance with the 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. As a result,
the loss on disposals of investments of £617,000 (2019: gain of
£7,588,000) and loss on revaluation of investments of £17,669,000
(2019: loss of £816,000) have now been combined, as shown in note 9
to the financial statements in the Company’s Annual Report. The
result of this change in presentation has no impact on the net
asset value or total return for both the current year and prior
year. No other accounting policies or disclosures have changed as a
result of the revised SORP.
Substantially all of the assets of the Company consist of
securities that are readily realisable and, accordingly, the
Directors believe that the Company has adequate resources to
continue in operational existence for the foreseeable future.
Consequently, the Directors have determined that it is appropriate
for the financial statements to be prepared on a going concern
basis. The Directors have considered any potential impact of the
COVID-19 pandemic and the mitigation measures which key service
providers, including the Manager, have in place to maintain
operational resilience on the going concern of the Company. The
Directors have reviewed income and expense projections and the
liquidity of the investment portfolio in making their
assessment.
The Company’s financial statements are presented in sterling,
which is the functional currency of the Company and the currency of
the primary economic environment in which the Company operates. All
values are rounded to the nearest thousand pounds (£’000) except
where otherwise indicated.
IFRS standards that have recently been adopted:
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 requires 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 been endorsed by the
European Union (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 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.
(b) Presentation of the Statement of Comprehensive
Income
In order to better reflect the activities of an investment trust
company and in accordance with guidance issued by the AIC,
supplementary information which analyses the Statement of
Comprehensive Income between items of a revenue and a capital
nature has been presented alongside the Statement of Comprehensive
Income.
(c) Segmental reporting
The Directors are of the opinion that the Company is engaged in a
single segment of business being investment business.
(d) Income
Dividends receivable on equity shares are recognised as revenue for
the year on an ex-dividend basis. Where no ex-dividend date is
available, dividends receivable on or before the year end are
treated as revenue for the year. Provision is made for any
dividends not expected to be received. Special dividends, if any,
are treated as a capital or a revenue receipt depending on the
facts or circumstances of each dividend. The return on a debt
security is recognised on a time apportionment basis so as to
reflect the effective yield on the debt security.
Options may be purchased or written over securities held in the
portfolio for generating or protecting capital returns, or for
generating or maintaining revenue returns. Where the purpose of the
option is the generation of income, the premium is treated as a
revenue item. Where the purpose of the option is the maintenance of
capital, the premium is treated as a capital item.
Option premium income is recognised as revenue evenly over the
life of the option contract and included in the revenue column of
the Statement of Comprehensive Income unless the option has been
written for the maintenance and enhancement of the Company’s
investment portfolio and represents an incidental part of a larger
capital transaction, in which case any premia arising are allocated
to the capital column of the Statement of Comprehensive Income.
Deposit interest receivable is accounted for on an accruals
basis.
Where the Company has elected to receive its dividends in the
form of additional shares rather than in cash, the cash equivalent
of the dividend is recognised as revenue. Any excess in the value
of the shares received over the amount of the cash dividend is
recognised in capital.
(e) Expenses
All expenses, including finance costs, are accounted for on an
accruals basis. Expenses have been charged wholly to the revenue
column of the Statement of Comprehensive Income, except as
follows:
- expenses which are incidental to the acquisition or sale of an
investment are charged to the capital column of the Statement of
Comprehensive Income. Details of transaction costs on the purchases
and sales of investments are disclosed within note 9 to the
financial statements in the Company’s Annual Report;
- expenses are treated as capital where a connection with the
maintenance or enhancement of the value of the investments can be
demonstrated;
- the investment management fee and finance costs have been
allocated 75% to the capital column and 25% to the revenue column
of the Statement of Comprehensive Income in line with the Board’s
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 Statement of Comprehensive Income because it
excludes items of income or expenses that are taxable or deductible
in other years and it further excludes items that are never taxable
or deductible. The Company’s liability for current tax is
calculated using tax rates that were applicable at the balance
sheet date.
Where expenses are allocated between capital and revenue, any
tax relief in respect of expenses is allocated between capital and
revenue returns on the marginal basis using the Company’s effective
rate of corporation tax for the accounting period.
Deferred taxation is recognised in respect of all temporary
differences that have originated but not reversed at the financial
reporting date, where transactions or events that result in an
obligation to pay more taxation in the future or right to pay less
tax in the future have occurred at the financial reporting date.
This is subject to deferred tax assets only being recognised if it
is considered more likely than not that there will be suitable
profits from which the future reversal of the temporary differences
can be deducted. Deferred tax assets and liabilities are measured
at the rates applicable to the legal jurisdictions in which they
arise.
(g) Investments held at fair value through profit or
loss
In accordance with IFRS 9, the Company classifies its investments
at initial recognition as held at fair value through profit or loss
and are managed and evaluated on a fair value basis in accordance
with its investment strategy and business model.
All investments are measured initially and subsequently at fair
value through profit or loss. Purchases of investments are
recognised on a trade date basis. Sales of investments are
recognised at the trade date of the disposal.
The fair value of the financial investments is based on their
quoted bid price at the financial reporting date, without deduction
for the estimated selling costs. This policy applies to all current
and non current asset investments held by the Company.
Changes in the value of investments held at fair value through
profit or loss and gains and losses on disposal are recognised in
the Statement of Comprehensive Income as Profits or losses on
investments held at fair value through profit or loss. Also
included within the heading are transaction costs in relation to
the purchase or sale of investments.
For all financial instruments not traded in an active market,
the fair value is determined by using various valuation techniques.
Valuation techniques include market approach (i.e., using recent
arm’s length market transactions adjusted as necessary and
reference to the current market value of another instrument that is
substantially the same) and the income approach (e.g., discounted
cash flow analysis and option pricing models making use of
available and supportable market data where possible). See note
2(o) below.
(h) Options
Options are held at fair value through profit or loss based on the
bid/offer prices of the options written to which the Company is
exposed. The value of the option is subsequently marked-to-market
to reflect the fair value through profit or loss of the option
based on traded prices. Where the premium is taken to revenue, an
appropriate amount is shown as capital return such that the total
return reflects the overall change in the fair value of the option.
When an option is exercised, the gain or loss is accounted for as a
capital gain or loss. Any cost on closing out an option is
transferred to revenue along with any remaining unamortised
premium.
(i) Other receivables and other payables
Other receivables and other payables do not carry any interest and
are short term in nature and are accordingly stated on an amortised
cost basis.
(j) Dividends payable
Under IFRS, final dividends should not be accrued in the financial
statements unless they have been approved by shareholders before
the financial reporting date. Interim dividends should not be
accrued in the financial statements unless they have been paid.
Dividends payable to equity shareholders are recognised in the
Statement of Changes in Equity.
(k) Foreign currency translation
Transactions involving foreign currencies are converted at the rate
ruling at the date of the transaction. Foreign currency monetary
assets and liabilities and non monetary assets held at fair value
are translated into sterling at the rate ruling on the financial
reporting date. Foreign exchange differences arising on translation
are recognised in the Statement of Comprehensive Income as a
revenue or capital item depending on the income or expense to which
they relate. For investment transactions and investments held at
the year end, denominated in a foreign currency, the resulting
gains or losses are included in the profit/(loss) on investments
held at fair value through profit or loss in the Statement of
Comprehensive Income.
(l) Cash and cash equivalents
Cash comprises cash in hand and on demand deposits. Cash
equivalents are short term, highly liquid investments that are
readily convertible to known amounts of cash and that are subject
to an insignificant risk of changes in value.
(m) Bank borrowings
Bank overdrafts are recorded as the proceeds received. Finance
charges, including any premium payable on settlement or redemption
and direct issue costs, are accounted for on an accruals basis in
the Statement of Comprehensive Income.
(n) Share repurchases and re-issues
Shares repurchased and subsequently cancelled – share capital is
reduced by the nominal value of the shares repurchased, and the
capital redemption reserve is correspondingly increased in
accordance with Section 733 of the Companies Act 2006. The full
cost of the repurchase is charged to the special reserve.
Shares repurchased and held in treasury – the full cost of the
repurchase is charged to the special reserve.
Where treasury shares are subsequently reissued
- amounts received to the extent of the repurchase price are
credited to the special reserve; and
- any surplus received in excess of the repurchase price is taken
to the share premium account.
(o) Critical accounting estimates and judgements
The Company 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. There are no critical accounting estimates or
judgements.
3. INCOME
|
2020
£’000 |
2019
£’000 |
| Investment income: |
|
|
| UK dividends |
353 |
312 |
| Overseas dividends |
3,606 |
3,162 |
| Overseas special dividends |
– |
14 |
| Overseas scrip dividends |
56 |
– |
|
-------------- |
-------------- |
|
4,015 |
3,488 |
|
======== |
======== |
| Other income: |
|
|
| Deposit interest |
72 |
212 |
| Option premium income |
2,882 |
1,968 |
|
-------------- |
-------------- |
|
2,954 |
2,180 |
|
======== |
======== |
| Total income |
6,969 |
5,668 |
|
======== |
======== |
During the year, the Company received option premium income in
cash totalling £2,919,000 (2019: £2,016,000) for writing covered
call options for the purposes of revenue generation.
Option premium income is amortised evenly over the life of the
option contract and accordingly, during the period, option premiums
of £2,882,000 (2019: £1,968,000) were amortised to revenue.
At 31 October 2020, there were 171
open positions (2019: 224) with an associated liability of £348,000
(2019: £482,000).
All derivative transactions were based on constituent stocks in
the Russell 1000 Value Index.
Dividends and interest received in cash during the year amounted
to £3,411,000 and £72,000 (2019: £2,944,000 and £212,000).
No special dividends have been recognised in capital (2019:
£nil).
4. INVESTMENT MANAGEMENT FEE
|
2020 |
2019 |
|
Revenue
£’000 |
Capital
£’000 |
Total
£’000 |
Revenue
£’000 |
Capital
£’000 |
Total
£’000 |
| Investment management fee |
250 |
751 |
1,001 |
250 |
752 |
1,002 |
|
-------------- |
-------------- |
-------------- |
-------------- |
-------------- |
-------------- |
| Total |
250 |
751 |
1,001 |
250 |
752 |
1,002 |
|
======== |
======== |
======== |
======== |
======== |
======== |
The investment management fee is payable in quarterly arrears,
calculated at the rate of 0.75% of the Company’s net assets (2019:
0.75%). The investment management fee is allocated 75% to capital
reserves and 25% to the revenue reserve. There is no additional fee
for company secretarial and administration services.
5. OTHER OPERATING EXPENSES
|
2020
£’000 |
2019
£’000 |
| Allocated to revenue: |
|
|
| Custody fee |
6 |
5 |
| Auditors’ remuneration: – audit
services1 |
35 |
29 |
| Registrar’s fee |
28 |
32 |
| Directors’
emoluments2 |
164 |
133 |
| Broker fees |
40 |
40 |
| Depositary fees |
13 |
13 |
| Printing fees |
19 |
22 |
| Legal and professional fees |
23 |
29 |
| Marketing fees |
46 |
26 |
| AIC fees |
7 |
9 |
| FCA fees |
8 |
7 |
| Other administrative costs |
62 |
58 |
|
-------------- |
-------------- |
|
451 |
403 |
|
======== |
======== |
| Allocated to capital: |
|
|
| Custody transaction charges |
21 |
21 |
|
-------------- |
-------------- |
|
472 |
424 |
|
======== |
======== |
| The Company’s ongoing
charges3, 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 and certain
non-recurring items were: |
1.06% |
1.09% |
|
======== |
======== |
1 No non-audit
services were provided by the auditors.
2 Further
information on Directors’ emoluments can be found in the Directors’
Remuneration Report in the Company’s Annual Report. The Company has
no employees.
3 Alternative
Performance Measure, see Glossary in the Company’s Annual
Report.
For the year ended 31 October
2020, expenses of £21,000 (2019: £21,000) were charged to
the capital column of the Statement of Comprehensive Income. These
relate to transaction costs charged by the custodian on sale and
purchase trades.
6. DIVIDENDS
Dividends paid on equity shares |
Record date |
Payment date |
2020
£’000 |
2019
£’000 |
| 4th interim dividend of 2.00p per
share paid for the year ended 31 October 2019 (2018: 2.00p) |
29 November
2019 |
3 January
2020 |
1,601 |
1,382 |
| 1st interim dividend of 2.00p per
share paid for the year ended 31 October 2020 (2019: 2.00p) |
3 April 2020 |
29 April
2020 |
1,624 |
1,410 |
| 2nd interim dividend of 2.00p per
share paid for the year ended 31 October 2020 (2019: 2.00p) |
22 May 2020 |
3 July 2020 |
1,624 |
1,455 |
| 3rd interim dividend of 2.00p per
share paid for the year ended 31 October 2020 (2019: 2.00p) |
21 August
2020 |
1 October
2020 |
1,615 |
1,534 |
|
|
|
-------------- |
-------------- |
| Accounted for in the financial
statements |
|
|
6,464 |
5,781 |
|
|
|
======== |
======== |
The total dividends payable in respect of the year ended
31 October 2020 which form the basis
of Section 1158 of the Corporation Tax Act 2010 and Section 833 of
the Companies Act 2006, and the amounts declared, meet the relevant
requirements as set out in this legislation.
Dividends paid or declared on equity shares: |
2020
£’000 |
2019
£’000 |
| 1st interim dividend of 2.00p per
share paid for the year ended 31 October 2020 (2019: 2.00p) |
1,624 |
1,410 |
| 2nd interim dividend of 2.00p per
share paid for the year ended 31 October 2020 (2019: 2.00p) |
1,624 |
1,455 |
| 3rd interim dividend of 2.00p per
share paid for the year ended 31 October 2020 (2019: 2.00p) |
1,615 |
1,534 |
| 4th interim dividend of 2.00p per
share payable on 4 January 2021 for the year ended 31 October
20201 (2019: 2.00p) |
1,596 |
1,601 |
|
-------------- |
-------------- |
|
6,459 |
6,000 |
|
======== |
======== |
1 Based on
79,804,044 ordinary shares in issue on 26
November 2020 (the ex-dividend date).
7. EARNINGS AND NET ASSET VALUE PER ORDINARY SHARE
Total revenue and capital return per share and net asset value per
share are shown below and have been calculated using the
following:
|
Year
ended
31 October
2020 |
Year
ended
31 October
2019 |
| Net revenue profit attributable to
ordinary shareholders (£’000) |
5,367 |
4,338 |
| Net capital (loss)/profit
attributable to ordinary shareholders (£’000) |
(18,682) |
6,032 |
|
-------------- |
-------------- |
| Total (loss)/profit attributable
to ordinary shareholders (£’000) |
(13,315) |
10,370 |
|
======== |
======== |
| Equity shareholders’ funds
(£’000) |
126,410 |
142,786 |
|
======== |
======== |
| The weighted average number of
ordinary shares in issue during the year, on which the earnings per
ordinary share was calculated was: |
80,754,136 |
72,835,622 |
| The actual number of ordinary shares
in issue at the year end, on which the net asset value per ordinary
share was calculated was: |
79,974,044 |
78,399,044 |
| Return per share |
|
|
| Revenue earnings per share
(pence) |
6.65 |
5.96 |
| Capital (loss)/earnings per share
(pence) |
(23.14) |
8.28 |
|
======== |
======== |
| Total (loss)/earnings per share
(pence) |
(16.49) |
14.24 |
|
======== |
======== |
|
As
at
31 October
2020 |
As
at
31 October
2019 |
| Net asset value per ordinary share
(pence) |
158.06 |
182.13 |
| Ordinary share price (pence) |
145.50 |
186.50 |
|
======== |
======== |
There were no dilutive securities at the year end.
8. CALLED UP SHARE CAPITAL
|
Number
of
shares
in issue |
Treasury
shares |
Total
shares |
Nominal
value
£’000 |
| Allotted, called up and fully
paid share capital comprised: |
|
|
|
|
| Ordinary shares of 1 pence
each |
|
|
|
|
| At 31 October 2019 |
78,399,044 |
21,962,261 |
100,361,305 |
1,004 |
| Ordinary shares issued from
treasury |
2,805,000 |
(2,805,000) |
– |
– |
| Ordinary shares bought back into
treasury |
(1,230,000) |
1,230,000 |
– |
– |
|
---------------- |
---------------- |
---------------- |
---------------- |
| At 31 October 2020 |
79,974,044 |
20,387,261 |
100,361,305 |
1,004 |
|
========= |
========= |
========= |
========= |
During the year ended 31 October
2020, the Company issued 2,805,000 (2019: 9,525,000) shares
from treasury for a total consideration including costs of
£5,315,000 (2019: £17,252,000).
The Company also bought back and transferred 1,230,000 (2019:
nil) shares into treasury for a total consideration including costs
of £1,912,000 (2019: £nil).
Since 31 October 2020, 190,000
shares have been bought back and placed in treasury for a total
consideration of £294,000.
9. RESERVES
|
|
|
Distributable reserves |
|
Share
premium
account
£’000 |
Capital
redemption
reserve
£’000 |
Special
reserve
£’000 |
Capital
reserve
arising on
investments
sold
£’000 |
Capital
reserve
arising on
revaluation of
investments
held
£’000 |
Revenue
reserve
£’000 |
| At 31 October 2019 |
42,596 |
1,460 |
36,373 |
49,921 |
8,192 |
3,240 |
| Movement during the year: |
|
|
|
|
|
|
| Total comprehensive
(loss)/income: |
|
|
|
|
|
|
| Net capital loss for the year |
– |
– |
– |
(1,432) |
(17,250) |
– |
| Net revenue profit for the year |
– |
– |
– |
– |
– |
5,367 |
| Transactions with owners, recorded
directly to equity: |
|
|
|
|
|
|
| Ordinary shares reissued from
treasury |
1,937 |
– |
3,388 |
– |
– |
– |
| Share issue costs |
– |
– |
(10) |
– |
– |
– |
| Ordinary shares bought back into
treasury |
– |
– |
(1,901) |
– |
– |
– |
| Share purchase costs |
– |
– |
(11) |
– |
– |
– |
| Dividends paid |
– |
– |
– |
(1,209) |
– |
(5,255) |
|
-------------- |
-------------- |
-------------- |
-------------- |
-------------- |
-------------- |
| At 31 October 2020 |
44,533 |
1,460 |
37,839 |
47,280 |
(9,058) |
3,352 |
|
======== |
======== |
======== |
======== |
======== |
======== |
The share premium account and capital redemption reserve are not
distributable profits under the Companies Act 2006. In accordance
with ICAEW Technical Release 02/17BL on Guidance on Realised and
Distributable Profits under the Companies Act 2006, the special
reserve and capital reserve may be used as distributable profits
for all purposes and, in particular, for the repurchase by the
Company of its ordinary shares and for payment as dividends.
Accordingly, the total amount of distributable reserves at
31 October 2020 were £79,413,000.
10. VALUATION OF FINANCIAL INSTRUMENTS
Financial assets and financial liabilities are either carried in
the Statement of Financial Position at their fair value (investment
and derivatives) or at an amount which is a reasonable
approximation of fair value (due from brokers, dividends and
interest receivable, due to brokers, accruals, cash at bank and
bank overdrafts). IFRS 13 requires the Company to classify fair
value measurements using a fair value hierarchy that reflects the
significance of inputs used in making the measurements. The
valuation techniques used by the Company are explained in the
accounting policies note 2(g) to the Financial Statements
above.
Categorisation within the hierarchy has been determined on the
basis of the lowest level of 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 readily and regularly available from an exchange,
dealer, broker, industry group, pricing service or regulatory
agency and those prices represent actual and regularly occurring
market transactions on an arm’s length basis. The Company does not
adjust the quoted price for these instruments.
Level 2 – Valuation techniques using observable
inputs
This category includes instruments valued using quoted prices for
similar instruments in markets that are considered less than
active, or other valuation techniques where all significant inputs
are directly or indirectly observable from market data. Valuation
techniques used for non-standardised financial instruments such as
options, currency swaps and other over-the-counter derivatives
include the use of comparable recent arm’s length transactions,
reference to other instruments that are substantially the same,
discounted cash flow analysis, option pricing models and other
valuation techniques commonly used by market participants making
the maximum use of market inputs and relying as little as possible
on entity specific inputs.
Level 3 – Valuation techniques using significant unobservable
inputs
This category includes all instruments where the valuation
technique includes inputs not based on observable market data and
these inputs could have a significant impact on the instrument’s
valuation.
This category 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.
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.
Fair values of financial assets and financial
liabilities
The below sets out fair value measurements using the IFRS 13 fair
value hierarchy.
Financial assets/(liabilities) at fair value through profit or loss
at 31 October 2020 |
Level 1
£’000 |
Level 2
£’000 |
Level 3
£’000 |
Total
£’000 |
| Assets: |
|
|
|
|
| Equity investments |
119,434 |
– |
– |
119,434 |
| Liabilities: |
|
|
|
|
| Derivative financial instruments –
written options |
– |
(348) |
– |
(348) |
|
-------------- |
-------------- |
-------------- |
-------------- |
|
119,434 |
(348) |
– |
119,086 |
|
======== |
======== |
======== |
======== |
Financial assets/(liabilities) at fair value through profit or loss
at 31 October 2019 |
Level 1
£’000 |
Level 2
£’000 |
Level 3
£’000 |
Total
£’000 |
| Assets: |
|
|
|
|
| Equity investments |
130,525 |
– |
– |
130,525 |
| Liabilities: |
|
|
|
|
| Derivative financial instruments –
written options |
– |
(482) |
– |
(482) |
|
-------------- |
-------------- |
-------------- |
-------------- |
|
130,525 |
(482) |
– |
130,043 |
|
======== |
======== |
======== |
======== |
There were no transfers between levels for financial assets and
financial liabilities during the year recorded at fair value as at
31 October 2020 and 31 October 2019. The Company did not hold any
Level 3 securities throughout the financial year or as at
31 October 2020 (2019: nil).
11. RELATED PARTY DISCLOSURE
Directors’ emoluments
Disclosures of the Directors’ interests in the ordinary shares of
the Company and fees and expenses payable to the Directors are set
out in the Directors’ Remuneration Report in the Company’s Annual
Report.
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 2020
| 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. |
| 1.7 |
n/a |
n/a |
As at 31
October 2019
| 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. |
| 1.4 |
n/a |
n/a |
12. TRANSACTIONS WITH THE INVESTMENT MANAGER AND AIFM
BlackRock Fund Managers Limited (BFM) provides management and
administration services to the Company under a contract which is
terminable on six months’ notice. BFM has (with the Company’s
consent) delegated certain portfolio and risk management services,
and other ancillary services, to BlackRock Investment Management
(UK) Limited (BIM (UK)). Further
details of the investment management contract are disclosed in the
Directors’ Report in the Company’s Annual Report.
The investment management fee due for the year ended
31 October 2020 amounted to
£1,001,000 (2019: £1,002,000). At the year end, £725,000 was
outstanding in respect of the management fee (2019: £546,000).
In addition to the above services, BlackRock has provided
marketing services. The total fees paid or payable for these
services for the year ended 31 October
2020 amounted to £46,000 excluding VAT (2019: £26,000).
Marketing fees of £31,000 excluding VAT (2019: £23,000) were
outstanding as at the year end.
The ultimate holding company of the Manager and the Investment
Manager is BlackRock, Inc. a company incorporated in Delaware USA. During the period, PNC Financial
Services Group, Inc. (PNC) was a substantial shareholder in
BlackRock, Inc. PNC did not provide any services to the Company
during the financial year ended 31 October
2019 and the period up to the 11 May
2020, when PNC announced its intent to sell its investment
in BlackRock, Inc. through a registered offering and related
buyback by BlackRock, Inc.
13. CONTINGENT LIABILITIES
There were no contingent liabilities at 31
October 2020 (2019: nil).
14. PUBLICATION OF NON-STATUTORY
ACCOUNTS
The financial information contained in this announcement does
not constitute statutory accounts as defined in the Companies Act
2006. The Annual Report and Financial Statements for the year ended
31 October 2020 will be filed with
the Registrar of Companies after the Annual General Meeting.
The figures set out above have been reported upon by the
auditors, whose report for the year ended 31
October 2020 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 North American Income Trust plc for the
year ended 31 October 2019, which
have been filed with the Registrar of Companies. The report of
the auditor on those financial statements contained no
qualification or statement under section 498 of the Companies
Act.
15. ANNUAL REPORT
Copies of the Annual Report and Financial Statements will be
published shortly and will be available from the registered office,
c/o The Company Secretary, BlackRock North American Income Trust
plc, 12 Throgmorton Avenue, London
EC2N 2DL.
16. ANNUAL GENERAL MEETING
The Annual General Meeting of the Company will be held at the
offices of BlackRock, 12 Throgmorton Avenue, London EC2N 2DL on Tuesday, 23 March 2021 at 12.00 noon.
ENDS
The Annual Report will also be available on the BlackRock
website at blackrock.com/uk/brna. Neither the contents of the
Manager’s website nor the contents of any website accessible from
hyperlinks on the Manager’s website (or any other website) is
incorporated into, or forms part of, this announcement.
For further information please contact:
Simon White, Managing Director,
Investment Trusts, BlackRock Investment Management (UK) Limited
Tel: 020 7743 5284
Press enquiries:
Ed Hooper, Lansons
Communications
Tel: 020 7294 3620
E-mail: BlackRockInvestmentTrusts@lansons.com or
EdH@lansons.com
12 Throgmorton Avenue
London
EC2N 2DL
5 February 2021