TIDMBRSA
BLACKROCK SUSTAINABLE AMERICAN INCOME TRUST PLC
LEI: 549300WWOCXSC241W468 - Article 5 Transparency Directive, DTR 4.2
Half Yearly Financial Report 30 April 2023
Performance record
As at As at
30 31
April October
2023 2022
Net assets (£'000)1 160,431 171,086
Net asset value per ordinary share (pence) 199.97 213.25
Ordinary share price (mid-market) (pence) 193.50 197.50
Discount to cum income net asset value2 3.2% 7.4%
Russell 1000 Value Index3 1747.35 1824.64
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For the For the
six year
months ended
ended 31
30 October
April 2022
2023
Performance (with dividends reinvested)
Net asset value per share2 -4.4% 7.4%
Ordinary share price2 0.0% 3.6%
Russell 1000 Value Index -4.2% 10.7%
======== ========
== ==
For the six For the six
months ended months ended
30 April 30 April Change
2023 2022 %
Revenue
Net profit on ordinary activities after taxation (£'000) 1,604 1,463 9.6
Revenue earnings per ordinary share (pence)3 2.00 1.82 9.9
---------------- ---------------- ----------------
Interim dividends (pence)
1st interim 2.00 2.00 -
2nd interim 2.00 2.00 -
---------------- ---------------- ----------------
Total dividends paid/payable 4.00 4.00 -
========== ========== ==========
Annual performance since launch on 24 October 2012 to 30 April 2023
# Since launch on 24 October 2012 to 31 October 2013.
1 The change in net assets reflects portfolio movements and dividends paid
during the period.
2 Alternative Performance Measures, see Glossary in the half yearly report
and financial statements.
3 Further details are given in the Glossary in the half yearly report and
financial statements.
Sources: BlackRock and Datastream.
Performance figures have been calculated in Sterling terms with dividends
reinvested.
Chair's Statement
Dear Shareholder
Market overview
The backdrop to the start of the Company's financial year was a difficult
market environment for both equities and bonds. Investors had many issues with
which to be concerned, including heightened geopolitical stress with the
Russian invasion of Ukraine and a subsequent rise in energy prices, China's
zero COVID-19 policies, disrupted supply chains, as well as inflation and
soaring interest rates. Heightened inflationary pressures led to central banks
hiking interest rates with the most aggressive tightening of monetary policy by
the Federal Reserve (the Fed) since the early 1980s.
October and November saw markets stabilise somewhat, as inflation rates
appeared to moderate from their multi-decade highs and investors seemed hopeful
that the Fed would pause its rate hiking cycle. However, the Fed remained
steadfast in its outlook for interest rate hikes and the market sold off in
December. An early year stock rally proved short-lived, as the strength of the
US labour market and its impact on the outlook for future inflation readings,
led the Fed to increase interest rates again.
The collapse of Silicon Valley Bank in mid-March, followed by two other
regional banks, caused significant volatility in the financial sector and
highlighted the dangers caused by rapid monetary tightening. These failures
bear little resemblance to those in the 2008 financial crisis and the problems
were unique to these banks rather than systemic. However, central banks are now
in a more difficult position, weighing persistently high inflation on the one
hand, against strains in the banking sector on the other.
Performance
In the six-months under review to 30 April 2023, the Company's net asset value
per share (NAV) fell by 4.4%, marginally underperforming its reference index,
the Russell 1000 Value Index, which returned -4.2%. Over the same period, your
Company's share price remained flat at 0.0% (all figures are in Sterling terms
with dividends reinvested). As a broader comparison, the S&P 500 Index fell by
0.5% during the same period.
Since the period end and up to close of business on 26 June 2023, the Company's
NAV has decreased by 1.1% and the share price has fallen by 5.2% (both
percentages in Sterling terms with dividends reinvested).
Earnings and dividends
The Company's earnings per share for the six months ended 30 April 2023
amounted to 2.00p compared with 1.82p for the corresponding period in 2022.
Your Board considers that the current policy of quarterly dividends of 2.00p
per share is of great value in an environment of soaring inflation and a
challenging economic backdrop, which will be supported through both revenue and
other distributable reserves.
On 21 March 2023, the Board declared the first quarterly dividend of 2.00p per
share which was paid on 28 April 2023. A second quarterly dividend of 2.00p per
share has been declared and will be paid on 3 July 2023 to shareholders on the
register on 19 May 2023. These are in line with payments made in prior years.
Management of share rating
The Board monitors the Company's share rating closely and recognises the
importance to shareholders that the Company's shares do not trade at either a
significant premium or discount to the underlying NAV. Therefore, where deemed
to be in shareholders' long-term interests, it may exercise its powers to issue
shares or buy back shares with the objective of ensuring that an excessive
premium or discount does not arise.
During the six months to 30 April 2023, the Company's share price discount/
premium to NAV ranged between a premium of 0.7% and discount of 7.8%. The
Company's discount as at close of business on 26 June 2023 stood at 7.2%.
During the period and up to the date of this report, no ordinary shares have
been reissued or bought back. 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.
Board composition
Following the retirement of Christopher Casey, we were delighted to welcome
Solomon Soquar to the Board. Solomon was appointed following the Annual General
Meeting on 21 March 2023 and has a long and deep experience of over 30 years
across investment banking, capital markets and wealth management.
Solomon has worked with several major financial institutions, including Goldman
Sachs, Bankers Trust, Merrill Lynch, Citi and Barclays. His most recent
executive role has been as CEO of Barclays Investments Solutions Limited. Over
the last few years, Solomon has developed a portfolio of roles, including
non-executive director of Ruffer Investment Company Limited, chair of Africa
Research Excellence Fund and business fellow of Oxford University, Smith School
of Economics and Enterprise.
Outlook
Economic outcomes for the US for 2023, much like the rest of the developed
world, will be dominated by monetary policy efforts to bring inflation down.
The Fed will continue to focus on reducing inflation to its stated target of
2%, but inflation has remained stubbornly elevated due to the tight labour
market and rise in disposable incomes. Growth is likely to be muted both in the
US and globally, with few exceptions. Geopolitical risks also remain due to the
war in Ukraine, and it is not clear how China's shift away from its
zero-COVID-19 policy will impact the global economy.
The current monetary tightening cycle is historic and leaves a narrow path for
the economy to escape without a period of recession. Strong household and
corporate balance sheets are likely to limit the downturn to a mild recession,
but any recession will be a headwind for equity markets as earnings and
economic indicators deteriorate. Against this backdrop, your portfolio managers
will stay disciplined and continue to focus on companies with solid balance
sheets, positive free cash flow and the ability to maintain their earnings
growth throughout market cycles.
Alice Ryder
28 June 2023
Investment Manager's Report
Market overview
Over the six months to 30 April 2023, the Company's NAV returned -4.4% and the
share price returned 0.0%. This compares with a return of -4.2% in the Russell
1000 Value Index (all percentages in Sterling terms with dividends reinvested).
Over the same period, US large cap stocks, as represented by the S&P 500 Index,
advanced by 8.6% in US Dollar terms. In Sterling terms, US stocks returned
-0.5% for the performance period.
The Company underperformed during the period as artificial intelligence began
to penetrate equity markets and growth outperformed value. Given the lack of
breadth in the market and certain stocks making a strong resurgence, the
Company was negatively impacted as we could not own these stocks based on
portfolio parameters. The following discussion highlights some of the key
market events during the period.
US equities rallied in the fourth quarter of 2022 as inflation pressures
continued to ease. Both October and November's Consumer Price Index prints
surprised to the downside, despite persistence in stickier components of the
index that have proven harder to address with monetary policy. By December
2022, disappointing economic data and a hawkish Federal Reserve (Fed) led the S
&P 500 Index to finish the final quarter of the year with only modest gains.
Despite central bank policy efforts, weakening housing data and disappointing
economic data, inflation remained firmly embedded in the US economy. This
backdrop, combined with anticipation of further rate hikes to come in 2023,
fuelled recessionary fears and weighed on market sentiment.
For the first two months of 2023, US equities rallied broadly as the market
continued to digest unexpectedly strong economic data and weakening headline
inflation, which fell to 6.0% in February 2023. By March, we saw the first real
economic ramifications from the Fed's tightening cycle as regulators announced
the government rescue of depositors at Silicon Valley Bank (SVB). Shortly
after, Signature Bank, another regional bank based out of New York, also
collapsed in the wake of SVB's failure. While this initially sent shockwaves
through the market, US equities eventually stabilised. Concerns around the
banking sector remain reasonably contained for the time being. By April, the S&
P 500 Index finished higher as investors continue to anticipate an end to the
Fed's rate-hiking cycle.
Portfolio overview
The largest contributor to relative performance was stock selection in health
care. Within the sector, our stock selection within the pharmaceuticals
industry accounted for the majority of relative outperformance in this sector.
In utilities, stock selection and a modest overweight allocation to the
multi-utilities industry boosted relative returns. Furthermore, stock selection
in financials proved beneficial mainly due to stock selection within the
insurance industry.
The largest detractor from relative performance was stock selection and
allocation decisions in communication services. Having no exposure to the
interactive media & services industry accounted for the majority of relative
underperformance. In information technology (IT), both stock selection and
allocation decisions within the IT services industry proved detrimental, as did
our decision to not invest in semiconductors & semiconductor equipment
companies. Other modest detractors from relative results included allocation
decisions within industrials and stock selection in the aerospace & defence
industry.
Below is a comprehensive overview of our allocations (in Sterling) at the end
of the period.
Health Care: 4.8% overweight (21.3% of the portfolio)
Secular growth opportunities in health care are a byproduct of demographic
trends. Older populations spend more on health care than younger populations.
In the US, a combination of greater demand for health care services and rising
costs facilitates a need for increased efficiency within the health care
ecosystem. We believe innovation and strong cost control can work together to
address this need and companies that can contribute to this outcome may be
poised to benefit. On the innovation front we are finding opportunities in
pharmaceuticals and among companies in the health care equipment & supplies
industry. We prefer to invest in pharma companies with a proven ability to
generate high research & development (R&D) productivity versus those that focus
on one or two key drugs and rely upon raising their prices to drive growth.
Outside of pharma, our search for attractively priced innovators is more stock
specific; we recently initiated a position in Baxter International, (2.9% of
the portfolio) a health care company focused on products to treat kidney
disease and other chronic medical conditions. We believe the company is poised
to do well as margin pressures from temporary inflation (logistics and
shipping) suppress and the economy continues to reopen. From a cost
perspective, health maintenance organisations (HMOs) have an economic incentive
to drive down costs as they provide health insurance coverage to constituents.
These efforts ultimately help to make health care insurance affordable to more
people and the HMOs also play a substantial role in improving the access to and
quality of health care its members receive. Fundamentally, we believe our
holdings in the space can benefit from downward pressure on cost-trend, new
membership growth and further industry consolidation over time. Furthermore,
they trade at meaningfully discounted valuations versus peers, offering us an
attractive risk versus reward opportunity.
Information Technology (IT): 7.2% overweight (14.6% of the portfolio)
An increasing number of companies in the technology 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 (FCF). Strong earnings growth and FCF
generation is also translating to an increasing number of companies paying
growing dividends to shareholders. This is in stark contrast to the dot-com era
where growth was often prioritised over shareholder return. We believe this
trend is poised to continue. Our preferred exposures in the sector include IT
services and communications equipment companies with sticky revenue streams
such as Cognizant Technology Solutions (2.6% of the portfolio) and Cisco
Systems (2.7% of the portfolio). We also continue to invest in software
companies with capital-lite business models such as Microsoft (2.8% of the
portfolio). IT broadly scores well on ESG metrics given the generally lower
environmental impact than other sectors, with our selection of companies
including a mix of ESG leaders and ESG improvers.
Financials: 1.0% underweight (19.3% of the portfolio)
Financials represent our portfolio's largest absolute sector allocation and we
prefer companies in the banking, insurance and wealth management industries. We
believe the US banks offer investors a combination of strong balance sheets
(their capital levels are meaningfully higher post financial crisis),
attractive valuations and the potential for relative upside versus the broader
market from inflation and higher interest rates. Secondly, we continue to like
insurers and insurance brokers as these companies operate relatively stable
businesses and trade at attractive valuations. We categorise most of our
holdings in this space as ESG improvers, with opportunities for company
managements to enact stronger corporate governance and human capital
development policies. Lastly, we have also identified stock specific
investments in wealth management as companies such as Charles Schwab (0.6% of
the portfolio) stand out from peers due to their differentiated investment
platforms, proximity to end customers and runways for long-term growth.
Consumer Discretionary: 4.0% overweight (9.9% of the portfolio)
Within the sector, our preferred areas of investment include household
durables, textiles and apparel, and firms with auto-related exposure.
Disruption risks persist in the sector and we believe these risks are best
mitigated through identifying stock-specific investment opportunities that
either trade at discounted valuations or have business models that are somewhat
insulated from disruptive pressures. For example, we believe companies such as
General Motors (autos; 1.7% of the portfolio) and Ralph Lauren (apparel; 0.7%
of the portfolio) offer investors exposure to underappreciated franchises at
discounted valuations. From a sustainability standpoint, our selection of
companies includes a mix of ESG leaders such as Panasonic (2.0% of the
portfolio), as well as ESG improvers with clear roadmaps for better ESG
adherence and disclosures (i.e. General Motors' commitment to electric vehicles
and Ralph Lauren's Global Citizen initiative).
Consumer Staples: 1.2% underweight (6.5% 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. Notable portfolio holdings include Mondelez International
(2.3% of the portfolio) and Kraft Heinz (2.3% of the portfolio). We view each
of these businesses as ESG leaders and improvers: Mondelez International stands
out for securing GFSI (Global Food Safety Initiative)-benchmarked certification
for their manufacturing sites which provides audits of suppliers and routine
tests for final products limiting product and reputational risks. Kraft Heinz
is an ESG improver as they have committed to a 50% reduction in GHG (greenhouse
gas) emissions across all 3 scopes by 2030 and net zero by 2050.
Energy: 0.5% overweight (8.6% of the portfolio)
The portfolio currently invests in five energy stocks and we have a neutral
weight in the sector relative to the reference index. Our focus on
sustainability places a high hurdle for energy companies to be included in the
portfolio, but we believe the sector remains investable, as more traditional
oil and gas operators are critical in the energy transition towards less carbon
intensive sources. For example, natural gas is 40-60% less carbon-intensive to
produce and combust versus coal and oil. We view natural gas as a key "bridge
fuel" and like companies such as Shell (2.8% of the portfolio) and EQT (1.3% of
the portfolio). Fundamentally, we generally seek to invest in attractively
priced operators with good resource assets that have the opportunity to improve
upon environmental issues or demonstrate clear leadership in sustainability
(i.e. through their exposure to renewables or commitments to net zero/carbon
neutral outcomes). We also prefer to target companies with experienced
management teams, low financial leverage and disciplined capex spending plans,
as these elements can contribute to positive free cash flow generation over
time.
Materials: 0.7% underweight (3.7% of the portfolio)
Our exposure to the materials sector is stock specific as we are only invested
in the chemicals and containers and packaging industries. Within the chemicals
industry, we have a position in PPG Industries (2.2% of the portfolio), a
global supplier of paints, coatings and specialty materials. We believe PPG
Industries' improving cost dynamics will lead to better earnings and the
company will regain its "quality compounder" status as volumes continue to
recover from pandemic-related headwinds. Within the containers & packaging
industry, our position in Sealed Air (1.5% of the portfolio) offers a
relatively stable growth outlook. Sealed Air operates a high return business
and has good pricing power. From a sustainability standpoint, plastic packagers
generally score poorly on waste and water stress. The key issue for plastic is
how to improve circularity and management has pledged to have 100% recyclable/
reusable solutions and 50% average recycled/renewable content by 2025, which is
well ahead of peers.
Utilities: 1.5% underweight (4.1% of the portfolio)
The portfolio currently invests in only two utility stocks and we have a slight
underweight in the sector relative to the reference index. Portfolio exposures
are stock specific as we are finding pockets of investment opportunity among US
regulated utilities, which add a level of stability and defensiveness to the
portfolio through their durable earnings and dividend profiles. Our investments
in the sector primarily focus on ESG leaders that have specific targets for
reduction in carbon emissions and maintain significant exposure to renewables
or generate power through cleaner means such as natural gas.
Real Estate: 3.0% underweight (1.5% of the portfolio)
The portfolio has an underweight allocation to real estate, as we are finding
few companies in the sector with both attractive valuations and strong or
improving fundamentals. For example, retail REITs are facing challenges due to
e-commerce and its negative impact on traditional brick and mortar retailers.
Meanwhile, data center and logistics companies have strong fundamentals, but we
view their valuations as unattractive. Our lone portfolio holding is CBRE Group
(1.5% of the portfolio), the world's largest commercial real estate services
firm. The company is trading at a wide discount relative to peers and ranks
well on ESG metrics versus peers. CBRE Group signed the Climate Pledge in 2021
to reach net zero by 2040.
Communication Services: 4.4% underweight (4.4% of the portfolio)
The portfolio has an underweight to communication services. Our underweight is
driven by expensive valuations and a lack of dividend payers in the
entertainment and interactive media & services industries. Meanwhile, the
portfolio is overweight to the diversified telecom services and media
industries. Notable portfolio holdings include Verizon Communications
(diversified telecom; 2.6% of the portfolio) and Comcast (media; 1.8% of the
portfolio). Verizon Communications trades at a reasonable price relative to the
quality and stability of its business and acts as a key enabler for smart
cities, with potential to reduce energy consumption, increase safety and
provide other social benefits. Comcast also trades at a very reasonable
valuation due to competition in broadband and in media. As the leading
broadband provider in the US, Comcast is a key enabler of digital interactions
and provides some of the key infra-structure that enables remote work (which
reduces commuting related emissions).
Industrials: 4.7% underweight (6.1% of the portfolio)
The portfolio is meaningfully underweight to the industrials sector. Our
selectivity is driven by relative valuations, which we view as expensive, in
many cases, versus other cyclical value segments of the US equity market.
Notable positions include Union Pacific, one of two Class 1 freight railroads
operating on the US West Coast (2.3% of the portfolio), and Komatsu (1.9% of
the portfolio), a Japanese manufacturer of construction and mining equipment.
We view both companies as ESG leaders in their respective domains. Union
Pacific has the best physical footprint among US railroads and requires less
public infrastructure spending compared to trucking. Additionally, railroads
emit circa 1/3 as much CO2 as trucks to move an equivalent amount of cargo.
Komatsu has set meaningful targets for reduced CO2 emissions from its products
by 2030 and to achieve carbon neutrality by 2050.
Market outlook
The start of 2023 finally showed the effects of the fastest Fed tightening
cycle since 1980. The bank closures of Silicon Valley Bank, Signature Bank and
First Republic Bank illustrated the increased challenges of operating in a high
inflation, high interest rate economy and the fallout in our view is unlikely
to change that. With regional banks remaining under pressure, we see consumer
lending continuing to slow, which may further tighten financial conditions.
Investors should remain mindful that we are only just over a year removed from
the first Fed rate hike, meaning financial conditions were already set to
tighten before March's banking events. From a market perspective, this may
create additional volatility if we see more negative outcomes related to a
sluggish US economy. Despite a more challenging macro environment, we do not
see the Fed cutting rates this year as core inflation proves to be resilient.
We feel the Fed should prioritise curbing inflation as a premature interest
rate cut could create additional economic challenges. Looking ahead, we
continue to focus on resiliency by investing in high-quality businesses with
strong fundamentals as we look for the economy to stabilise. While we see
short-term choppiness ahead, we remain constructive of US equities in the long
term.
Tony DeSpirito, David Zhao and Lisa Yang
BlackRock Investment Management LLC
28 June 2023
Ten largest investments 30 April 2023
1 + Laboratory Corporation of America (2022: 6th)
Sector: Health Care
Market value: £4,711,000
Share of investments: 3.0% (2022: 2.8%)
ESG Leader Laboratory Corporation of America, commonly known as LabCorp,
operates in two segments including a low-cost, high quality national provider
of laboratory services and a contract research organisation, which supports
clinical research through administering trials and lab testing. LabCorp is able
to offer a high quality service at a materially lower cost due to scale.
Diagnostic testing is vital to generating positive health outcomes and LabCorp
supports low-cost testing services, helping drive testing accessibility
nationally.
2 + Baxter International (2022: 23rd)
Sector: Health Care
Market value: £4,618,000
Share of investments: 2.9% (2022: 1.9%)
ESG Improver Baxter International markets devices and drugs used to treat
kidney disease and other chronic and acute medical conditions. The company is
the number one player in Peritoneal Dialysis (PD) with dominant positions in
medical fluids/delivery systems and strong market positions across a wide range
of medical equipment and devices. The company's PD technology helps improve
access to care for high-risk patients with kidney disease.
3 = Willis Towers Watson (2022: 3rd)
Sector: Financials
Market value: £4,606,000
Share of investments: 2.9% (2022: 2.9%)
ESG Improver Willis Towers Watson (WTW) is a British-American multinational
insurance advisor company. WTW's revenue breakdown is approximately 55%
consulting related and 45% insurance brokerage related. WTW's valuation
relative to peers is at historically wide levels. The board of WTW has seen
many positive changes since late 2021 and we believe this will improve the
company's sustainability rating over time.
4 + Shell (2022: 11th)
Sector: Energy
Market value: £4,437,000
Share of investments: 2.8% (2022: 2.5%)
ESG Leader Shell is one of the largest integrated energy companies globally
with five main operating segments: Integrated Gas, Upstream, Marketing,
Chemicals & Products and Renewables & Energy Solutions. The company has a
high-quality, gas/liquefied natural gas (LNG)-weighted portfolio with marketing
and optimisation opportunities superior to most of its oil major peers. Shell
is an ESG leader, having adopted an internal net-zero strategy by 2050 to be
Paris-aligned, which is not adopted by most US-based oil major peers.
5 + Microsoft (2022: 26th)
Sector: Information Technology
Market value: £4,356,000
Share of investments: 2.8% (2022: 1.9%)
ESG Leader Microsoft is a dominant software company with strong market
positions across multiple segments: intelligent cloud (36% of revenue),
productivity & business processes (32% of revenue) and personal computing (32%
of revenue). The company has a reasonable valuation for the long growth runway
and the cloud transition should lead to high revenue and profit growth. The
company invests heavily in carbon-neutral data centers powered by renewable
energy sources.
6 - Cisco Systems (2022: 5th)
Sector: Information Technology
Market value: £4,274,000
Share of investments: 2.7% (2022: 2.8%)
ESG Leader Cisco Systems is the world's largest networking equipment vendor,
with leading positions in most of its core end markets. As one of the largest
suppliers of network security solutions, Cisco System's products help customers
to enhance data security and privacy. Despite market concerns regarding
competition and cloud migration, we believe they can still deliver sustainable
revenue and earnings growth.
7 + Cognizant Technology Solutions (2022: 9th)
Sector: Information Technology
Market value: £4,119,000
Share of investments: 2.6% (2022: 2.6%)
ESG Leader Cognizant Technology Solutions is an IT Services company with a
diversified revenue base across industry verticals and geographies. They help
enterprise and small and medium business clients transition to cloud
infrastructure, which is more efficient versus sub-scale in-house data centers.
The company also exhibits strong governance as evidenced by an independent
chairman, an independent majority and a gender diverse board.
8 - Verizon Communications (2022: 4th)
Sector: Communication Services
Market value: £4,100,000
Share of investments: 2.6% (2022: 2.8%)
ESG Leader Verizon Communications is the leading wireless company in the US. We
believe the company trades at a reasonable price relative to the quality and
stability of the business due to competitive dynamics that have somewhat
abated, as T-Mobile has pivoted to a margin growth strategy (from a share gain
strategy). Verizon Communications also has some optionality on new types of
revenue enabled by 5th generation networks.
9 - Sanofi (2022: 1st)
Sector: Health Care
Market value: £4,043,000
Share of investments: 2.6% (2022: 2.9%)
ESG Leader Sanofi is a French multinational pharmaceutical and health care
company that operates in three segments including pharmaceuticals, vaccines and
consumer health. Sanofi is a leader in diabetes, immunology and cardiovascular
management and also maintains strong consumer brands such as Allegra, IcyHot,
GoldBond and Rolaids. The company also has a wide portfolio of vaccines
including a leading influenza vaccine business. With the newly appointed CEO
who we know well from Novartis, we believe the company's R&D and innovation
track record can be turned around.
10 + Citigroup (2022: 13th)
Financials
Market value: £4,012,000
Share of investments: 2.5% (2022: 2.4%)
ESG Leader Citigroup is a multinational investment bank and financial services
corporation with a larger international footprint and smaller US retail
footprint compared to its large US bank peers. Citigroup scores similarly to
its large US bank peers with a strong score in Financing Environmental Impact,
which will be increasingly important.
All percentages reflect the value of the holding as a percentage of total
investments.
Percentages in brackets represent the value of the holding as of 31 October
2022.
Together, the ten largest investments represent 27.4% of the Company's
portfolio (31 October 2022: 27.4%).
Portfolio analysis as at 30 April 2023
Sector Exposure
2023 2022 2023
portfolio1 portfolio2 reference
index1,3
Communication Services 4.4% 4.4% 8.8%
Consumer Discretionary 9.9% 10.0% 5.9%
Consumer Staples 6.5% 5.4% 7.7%
Energy 8.6% 8.7% 8.1%
Financials 19.3% 21.9% 20.3%
Health Care 21.3% 20.4% 16.5%
Industrials 6.1% 5.5% 10.8%
Information Technology 14.6% 13.9% 7.4%
Materials 3.7% 4.3% 4.4%
Real Estate 1.5% 1.3% 4.5%
Utilities 4.1% 4.2% 5.6%
1 Represents exposure at 30 April 2023.
2 Represents exposure at 31 October 2022.
3 Russell 1000 Value Index at 30 April 2023.
Geographic Exposure1
As at 30 April 2023
United States of America 81.5%
United Kingdom 7.8%
Other2 4.2%
Japan 3.9%
France 2.6%
As at 31 October 2022
United States of America 81.2%
United Kingdom 7.7%
Other2 4.6%
Japan 3.6%
France 2.9%
1 Based on the principal place of operation of each investment.
2 Consists of Australia, Canada and Denmark.
Investments as at 30 April 2023
Market
value % of
Company Country Sector Securities £'000 total portfolio
Laboratory Corporation of America United Health Care Ordinary 4,711 3.0
States shares
Baxter International United Health Care Ordinary 4,618 2.9
States shares
Willis Towers Watson United Financials Ordinary 4,606 2.9
States shares
Shell United Energy Ordinary 4,437 2.8
Kingdom shares
Microsoft United Information Ordinary 4,356 2.8
States Technology shares
(IT)
Cisco Systems United IT Ordinary 4,274 2.7
States shares
Cognizant Technology Solutions United IT Ordinary 4,119 2.6
States shares
Verizon Communications United Communication Ordinary 4,100 2.6
States Services shares
Sanofi France Health Care Ordinary 4,043 2.6
shares
Citigroup United Financials Ordinary 4,012 2.5
States shares
Wells Fargo United Financials Ordinary 3,828 2.4
States shares
American International United Financials Ordinary 3,708 2.3
States shares
Mondelez International United Consumer Ordinary 3,693 2.3
States Staples shares
Dollar Tree United Consumer Ordinary 3,609 2.3
States Discretionary shares
Cardinal Health United Health Care Ordinary 3,583 2.3
States shares
Kraft Heinz United Consumer Ordinary 3,563 2.3
States Staples shares
Union Pacific United Industrials Ordinary 3,562 2.3
States shares
PPG Industries United Materials Ordinary 3,448 2.2
States shares
Public Service Enterprise Group United Utilities Ordinary 3,420 2.2
States shares
Cigna United Health Care Ordinary 3,379 2.1
States shares
Fidelity National Information Services United IT Ordinary 3,367 2.1
States shares
Panasonic Japan Consumer Ordinary 3,214 2.0
Discretionary shares
Anthem United Health Care Ordinary 3,105 2.0
States shares
Komatsu Japan Industrials Ordinary 3,025 1.9
shares
AstraZeneca United Health Care Ordinary 3,014 1.9
Kingdom shares
Exelon United Utilities Ordinary 2,995 1.9
States shares
Cheniere Energy United Energy Ordinary 2,980 1.9
States shares
JPMorgan Chase United Financials Ordinary 2,958 1.9
States shares
Comcast United Communication Ordinary 2,849 1.8
States Services shares
Prudential United Financials Ordinary 2,816 1.8
Kingdom shares
General Motors United Consumer Ordinary 2,700 1.7
States Discretionary shares
Woodside Energy Group Australia Energy Ordinary 2,693 1.7
shares
Western Digital United IT Ordinary 2,476 1.6
States shares
Citizens Financial Group United Financials Ordinary 2,466 1.6
States shares
Sealed Air United Materials Ordinary 2,447 1.5
States shares
CBRE Group United Real Estate Ordinary 2,342 1.5
States shares
Zebra Technologies United IT Ordinary 2,233 1.4
States shares
Zimmer Biomet United Health Care Ordinary 2,207 1.4
States shares
Gildan Activewear Canada Consumer Ordinary 2,185 1.4
Discretionary shares
Reckitt Benckiser Group United Consumer Ordinary 2,106 1.3
Kingdom Staples shares
EQT United Energy Ordinary 2,052 1.3
States shares
Avantor United Health Care Ordinary 1,899 1.2
States shares
L3Harris Technologies United Industrials Ordinary 1,756 1.1
States shares
Novo Nordisk Denmark Health Care Ordinary 1,684 1.1
shares
Lear United Consumer Ordinary 1,593 1.0
States Discretionary shares
Visa United IT Ordinary 1,490 0.9
States shares
First American United Financials Ordinary 1,478 0.9
States shares
Kosmos Energy United Energy Ordinary 1,464 0.9
States shares
Eli Lilly United Health Care Ordinary 1,298 0.8
States shares
Fidelity National United Financials Ordinary 1,249 0.8
States shares
Newell Brands United Consumer Ordinary 1,236 0.8
States Discretionary shares
Pentair United Industrials Ordinary 1,213 0.8
States shares
Ralph Lauren United Consumer Ordinary 1,105 0.7
States Discretionary shares
Invesco United Financials Ordinary 985 0.6
States shares
Molson Coors United Consumer Ordinary 944 0.6
States Staples shares
Charles Schwab United Financials Ordinary 852 0.6
States shares
Ciena United IT Ordinary 846 0.5
States shares
Goldman Sachs United Financials Ordinary 817 0.5
States shares
Raymond James United Financials Ordinary 792 0.5
States shares
---------------- ----------------
Portfolio 158,000 100.0
========== ==========
All investments are in ordinary shares unless otherwise stated. The number of
holdings as at 30 April 2023 was 59 (31 October 2022: 57).
At 30 April 2023, the Company did not hold any equity interests comprising more
than 3% of any company's share capital.
Interim Management Report and Responsibility Statement
The Chair's Statement and the Investment Manager's Report above give details of
the important events which have occurred during the period and their impact on
the financial statements.
Principal risks and uncertainties
The principal risks faced by the Company can be divided into various areas as
follows:
· Counterparty;
· Investment performance;
· Legal & Regulatory Compliance;
· Market;
· Operational;
· Financial; and
· Marketing.
The Board reported on the principal risks and uncertainties faced by the
Company in the Annual Report and Financial Statements for the year ended 31
October 2022. A detailed explanation can be found in the Strategic Report on
pages 38 to 41 and in note 15 on pages 93 to 101 of the Annual Report and
Financial Statements which are available on the website maintained by BlackRock
at www.blackrock.com/uk/brsa.
In the view of the Board, there have not been any changes to the fundamental
nature of the principal risks and uncertainties since the previous report and
these are equally applicable to the remaining six months of the financial year
as they were to the six months under review.
Going concern
The Directors, having considered the nature and liquidity of the portfolio, the
Company's investment objective and the Company's projected income and
expenditure, are satisfied that the Company has adequate resources to continue
in operational existence for the foreseeable future and is financially sound.
The Board is mindful of the continuing uncertainty surrounding the current
environment of heightened geopolitical risk given the war in Ukraine. The Board
believes that the Company and its key third-party service providers have in
place appropriate business continuity plans and these services have continued
to be supplied without interruption.
The Company has a portfolio of investments which are predominantly readily
realisable and is able to meet all its liabilities from its assets and income
generated from these assets. Accounting revenue and expense forecasts are
maintained and reported to the Board regularly and it is expected that the
Company will be able to meet all its obligations. Borrowings under the
overdraft facility shall at no time exceed £20 million or 20% of the Company's
net assets (calculated at the time of draw down), although the Board intends
only to utilise borrowings representing 10% of net assets at the time of draw
down, and this covenant was complied with during the period. Ongoing charges
for the year ended 31 October 2022 were 1.01% of net assets.
Based on the above, the Board is satisfied that it is appropriate to continue
to adopt the going concern basis in preparing the financial statements.
Related party disclosure and transactions with the Manager
BlackRock Fund Managers Limited (BFM) was appointed as the Company's
AIternative Investment Fund Manager (AIFM) with effect from 2 July 2014. BFM
has (with the Company's consent) delegated certain portfolio and risk
management services, and other ancillary services, to BlackRock Investment
Management (UK) Limited (BIM (UK)). Both BFM and BIM (UK) are regarded as
related parties under the Listing Rules. Details of the fees payable are set
out in note 4 and note 11 below.
The related party transactions with the Directors are set out in note 12 below.
Directors' responsibility statement
The Disclosure Guidance and Transparency Rules (DTR) of the UK Listing
Authority require the Directors to confirm their responsibilities in relation
to the preparation and publication of the Interim Management Report and
Financial Statements.
The Directors confirm to the best of their knowledge that:
· the condensed set of financial statements contained within the Half
Yearly Financial Report has been prepared in accordance with applicable
International Accounting Standard 34 - 'Interim Financial Reporting'; and
· the Interim Management Report, together with the Chair's Statement and
Investment Manager's Report, include a fair review of the information required
by 4.2.7R and 4.2.8R of the FCA's Disclosure Guidance and Transparency Rules.
This Half Yearly Financial Report has not been audited or reviewed by the
Company's auditors.
The Half Yearly Financial Report was approved by the Board on 28 June 2023 and
the above responsibility statement was signed on its behalf by the Chair.
Alice Ryder
For and on behalf of the Board
28 June 2023
Statement of Comprehensive Income for the six months ended 30 April 2023
Six months ended Six months ended Year ended
30 April 2023 30 April 2022 31 October 2022
(unaudited) (unaudited) (audited)
Revenue Capital Total Revenue Capital Total Revenue Capital Total
Notes £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Income from investments 3 2,265 - 2,265 1,961 47 2,008 4,255 55 4,310
held at fair value through
profit or loss
Other income 3 3 - 3 - - - 3 - 3
---------------- ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- ----------------
Total income 2,268 - 2,268 1,961 47 2,008 4,258 55 4,313
========== ========== ========== ========== ========== ========== ========== ========== ==========
Net (loss)/profit on - (8,581) (8,581) - 9,038 9,038 - 10,423 10,423
investments and options
held at fair value through
profit or loss
Net profit/(loss) on - 6 6 - (199) (199) - (433) (433)
foreign exchange
---------------- ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- ----------------
Total 2,268 (8,575) (6,307) 1,961 8,886 10,847 4,258 10,045 14,303
========== ========== ========== ========== ========== ========== ========== ========== ==========
Expenses
Investment management fee 4 (145) (435) (580) (148) (444) (592) (299) (898) (1,197)
Other operating expenses 5 (238) (1) (239) (153) 2 (151) (412) 2 (410)
---------------- ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- ----------------
Total operating expenses (383) (436) (819) (301) (442) (743) (711) (896) (1,607)
========== ========== ========== ========== ========== ========== ========== ========== ==========
Net profit/(loss) on 1,885 (9,011) (7,126) 1,660 8,444 10,104 3,547 9,149 12,696
ordinary activities before
finance costs and taxation
Finance costs (13) (38) (51) (4) (11) (15) (17) (52) (69)
---------------- ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- ----------------
Net profit/(loss) on 1,872 (9,049) (7,177) 1,656 8,433 10,089 3,530 9,097 12,627
ordinary activities before
taxation
Taxation (268) - (268) (193) - (193) (449) (8) (457)
---------------- ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- ----------------
Profit/(loss) for the 1,604 (9,049) (7,445) 1,463 8,433 9,896 3,081 9,089 12,170
period/year
========== ========== ========== ========== ========== ========== ========== ========== ==========
Earnings/(loss) per 7 2.00 (11.28) (9.28) 1.82 10.51 12.33 3.84 11.33 15.17
ordinary share (pence)
========== ========== ========== ========== ========== ========== ========== ========== ==========
The total columns of this statement represent the Company's Statement of
Comprehensive Income, prepared in accordance with UK-adopted International
Accounting Standards (IASs). The supplementary revenue and capital accounts are
both prepared under guidance published by the Association of Investment
Companies (AIC). All items in the above statement derive from continuing
operations. No operations were acquired or discontinued during the period. All
income is attributable to the equity holders of the Company.
The Company does not have any other comprehensive income/(loss) (30 April 2022:
£nil; 31 October 2022: £nil). The net profit/(loss) for the period disclosed
above represents the Company's total comprehensive income/(loss).
Statement of Changes in Equity for the six months ended 30 April 2023
Called Share Capital
up share premium redemption Special Capital Revenue
capital account reserve reserve reserves reserve Total
Note £'000 £'000 £'000 £'000 £'000 £'000 £'000
For the six months ended 30 April 2023
(unaudited)
At 31 October 2022 1,004 - 1,460 82,963 84,940 719 171,086
Total comprehensive (loss)/income:
Net (loss)/profit for the period - - - - (9,049) 1,604 (7,445)
Transactions with owners, recorded
directly to equity:
Dividends paid1 6 - - - - (1,195) (2,015) (3,210)
---------------- ---------------- ---------------- ---------------- ---------------- ---------------- ----------------
At 30 April 2023 1,004 - 1,460 82,963 74,696 308 160,431
========== ========== ========== ========== ========== ========== ==========
For the six months ended 30 April 2022
(unaudited)
At 31 October 2021 1,004 44,873 1,460 38,090 79,369 538 165,334
Total comprehensive income:
Net profit for the period - - - - 8,433 1,463 9,896
Transactions with owners, recorded
directly to equity:
Dividends paid2 6 - - - - (1,394) (1,815) (3,209)
---------------- ---------------- ---------------- ---------------- ---------------- ---------------- ----------------
At 30 April 2022 1,004 44,873 1,460 38,090 86,408 186 172,021
========== ========== ========== ========== ========== ========== ==========
For the year ended 31 October 2022
(audited)
At 31 October 2021 1,004 44,873 1,460 38,090 79,369 538 165,334
Total comprehensive income:
Net profit for the year - - - - 9,089 3,081 12,170
Transactions with owners, recorded
directly to equity:
Transfer of share premium to special - (44,873) - 44,873 - - -
reserve3
Dividends paid4 - - - - (3,518) (2,900) (6,418)
---------------- ---------------- ---------------- ---------------- ---------------- ---------------- ----------------
At 31 October 2022 1,004 - 1,460 82,963 84,940 719 171,086
========== ========== ========== ========== ========== ========== ==========
1 4th interim dividend of 2.00p per share for the year ended 31 October
2022, declared on 2 November 2022 and paid on 3 January 2023 and 1st interim
dividend of 2.00p per share for the year ending 31 October 2023, declared on 22
March 2023 and paid on 28 April 2023.
2 4th interim dividend of 2.00p per share for the year ended 31 October
2021, declared on 3 November 2021 and paid on 4 January 2022 and 1st interim
dividend of 2.00p per share for the year ending 31 October 2022, declared on 22
March 2022 and paid on 29 April 2022.
3 The Company's share premium account was cancelled pursuant to
shareholders' approval of a special resolution at the Company's Annual General
Meeting on 22 March 2022 and Court approval on 19 July 2022. The share premium
account which totalled £44,873,000 was transferred to a special reserve. This
action was taken, in part, to ensure that the Company had sufficient
distributable reserves.
4 4th interim dividend of 2.00p per share for the year ended 31 October
2021, declared on 3 November 2021 and paid 4 January 2022; 1st interim dividend
of 2.00p per share for the year ended 31 October 2022, declared on 22 March
2022 and paid on 29 April 2022; 2nd interim dividend of 2.00p per share for the
year ended 31 October 2022, declared on 11 May 2022 and paid on 1 July 2022;
and 3rd interim dividend of 2.00p per share for the year ended 31 October 2022,
declared on 4 August 2022 and paid on 3 October 2022.
For information on the Company's distributable reserves, please refer to note 9
below.
Statement of Financial Position as at 30 April 2023
30 April 30 April 31 October
2023 2022 2022
(unaudited) (unaudited) (audited)
Notes £'000 £'000 £'000
Non current assets
Investments held at fair value through profit or 10 158,000 176,665 175,425
loss
---------------- ---------------- ----------------
Current assets
Current tax asset 132 99 145
Other receivables 348 332 3,287
Cash and cash equivalents 3,450 60 58
---------------- ---------------- ----------------
Total current assets 3,930 491 3,490
========== ========== ==========
Total assets 161,930 177,156 178,915
========== ========== ==========
Current liabilities
Current tax liability (6) - (6)
Other payables (1,493) (1,389) (3,969)
Bank overdraft - (3,746) (3,854)
---------------- ---------------- ----------------
Total current liabilities (1,499) (5,135) (7,829)
========== ========== ==========
Net assets 160,431 172,021 171,086
========== ========== ==========
Equity attributable to equity holders
Called up share capital 8 1,004 1,004 1,004
Share premium account - 44,873 -
Capital redemption reserve 1,460 1,460 1,460
Special reserve 82,963 38,090 82,963
Capital reserves 74,696 86,408 84,940
Revenue reserve 308 186 719
---------------- ---------------- ----------------
Total equity 160,431 172,021 171,086
========== ========== ==========
Net asset value per ordinary share (pence) 7 199.97 214.41 213.25
========== ========== ==========
Cash Flow Statement for the six months ended 30 April 2023
Six months Six months Year
ended ended ended
30 April 30 April 31 October
2023 2022 2022
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Operating activities
Net (loss)/profit on ordinary activities before taxation (7,177) 10,089 12,619
Add back finance costs 51 15 69
Net loss/(profit) on investments and options held at fair 8,581 (9,038) (10,423)
value through profit or loss (including transaction costs)
Net (profit)/loss on foreign exchange (6) 199 433
Sales of investments held at fair value through profit or 52,732 50,798 107,169
loss
Purchases of investments held at fair value through profit or (43,888) (53,454) (107,200)
loss
Increase in other receivables (103) (116) (23)
Increase/(decrease) in other payables 353 173 (76)
Decrease/(increase) in amounts due from brokers 3,042 2,021 (1,021)
(Decrease)/increase in amounts due to brokers (2,829) (2,000) 829
---------------- ---------------- ----------------
Net cash inflow/(outflow) from operating activities before 10,756 (1,313) 2,376
taxation
========== ========== ==========
Taxation paid (255) (190) (492)
---------------- ---------------- ----------------
Net cash inflow/(outflow) from operating activities 10,501 (1,503) 1,884
========== ========== ==========
Financing activities
Interest paid (51) (15) (69)
Dividends paid (3,210) (3,209) (6,418)
---------------- ---------------- ----------------
Net cash outflow from financing activities (3,261) (3,224) (6,487)
========== ========== ==========
Increase/(decrease) in cash and cash equivalents 7,240 (4,727) (4,603)
Effect of foreign exchange rate changes 6 (199) (433)
---------------- ---------------- ----------------
Change in cash and cash equivalents 7,246 (4,926) (5,036)
Cash and cash equivalents at start of period/year (3,796) 1,240 1,240
---------------- ---------------- ----------------
Cash and cash equivalents at end of period/year 3,450 (3,686) (3,796)
Comprised of:
Cash at bank 273 60 58
Bank overdraft - (3,746) (3,854)
Cash Fund1 3,177 - -
---------------- ---------------- ----------------
3,450 (3,686) (3,796)
========== ========== ==========
1 Cash Fund represents funds invested in the BlackRock Institutional Cash
Series plc - US Dollar Liquid Environmentally Aware Fund.
Notes to the Financial Statements for the six months ended 30 April 2023
1. Principal activity
The principal activity of the Company is that of an investment trust company
within the meaning of Section 1158 of the Corporation Tax Act 2010.
2. Basis of presentation
The half yearly financial statements for the period ended 30 April 2023 have
been prepared in accordance with the Disclosure Guidance and Transparency Rules
sourcebook of the Financial Conduct Authority and with the UK-adopted
International Accounting Standard 34 (IAS 34) Interim Financial Reporting. The
half yearly financial statements should be read in conjunction with the
Company's Annual Report and Financial Statements for the year ended 31 October
2022, which have been prepared in accordance with UK-adopted International
Accounting Standards (IASs) in conformity with the requirements of the
Companies Act 2006.
Insofar as the Statement of Recommended Practice (SORP) for investment trust
companies and venture capital trusts, issued by the Association of Investment
Companies (AIC) in October 2019 and updated in July 2022, is compatible with
UK-adopted IASs, the financial statements have been prepared in accordance with
the guidance set out in the SORP.
Relevant International Accounting Standards that have yet to be adopted:
IFRS 17 - Insurance contracts (effective 1 January 2023). This standard
replaces IFRS 4, which currently permits a wide range of accounting practices
in accounting for insurance contracts. IFRS 17 will fundamentally change the
accounting by all entities that issue insurance contracts and investment
contracts with discretionary participation features.
This standard is unlikely to have any impact on the Company as it does not
issue insurance contracts.
IAS 12 - Deferred tax related to assets and liabilities arising from a single
transaction (effective 1 January 2023). The International Accounting Standards
Board (IASB) has amended IAS 12 Income Taxes to require companies to recognise
deferred tax on particular transactions that, on initial recognition, give rise
to equal amounts of taxable and deductible temporary differences. According to
the amended guidance, a temporary difference that arises on initial recognition
of an asset or liability is not subject to the initial recognition exemption if
that transaction gave rise to equal amounts of taxable and deductible temporary
differences. These amendments might have a significant impact on the
preparation of financial statements by companies that have substantial balances
of right-of-use assets, lease liabilities, decommissioning, restoration and
similar liabilities. The impact for those affected would be the recognition of
additional deferred tax assets and liabilities.
The amendment of this standard is unlikely to have any significant impact on
the Company.
None of the standards that have been issued but are not yet effective are
expected to have a material impact on the Company.
3. Income
Six months Six months Year
ended ended ended
30 April 30 April 31 October
2023 2022 2022
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Investment income:
UK dividends 196 148 234
Overseas dividends 2,048 1,764 3,926
Overseas special dividends - 8 27
Overseas REIT dividends - 41 68
Interest from Cash Fund 21 - -
---------------- ---------------- ----------------
Total investment income 2,265 1,961 4,255
========== ========== ==========
Deposit interest 3 - 3
---------------- ---------------- ----------------
Total income 2,268 1,961 4,258
========== ========== ==========
Dividends and interest received in cash during the period amounted to £
1,888,000 and £12,000 (six months ended 30 April 2022: £1,659,000 and £nil;
year ended 31 October 2022: £3,662,000 and £3,000).
No special dividends have been recognised in capital during the period (six
months ended 30 April 2022: £47,000; year ended 31 October 2022: £55,000).
4. Investment management fee
Six months ended Six months ended Year ended
30 April 2023 30 April 2022 31 October 2022
(unaudited) (unaudited) (audited)
Revenue Capital Total Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Investment management 145 435 580 148 444 592 299 898 1,197
fee
---------------- ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- ----------------
Total 145 435 580 148 444 592 299 898 1,197
========== ========== ========== ========== ========== ========== ========== ========== ==========
The investment management fee is payable in quarterly arrears, calculated at
the rate of 0.70% of the Company's net assets. The investment management fee is
allocated 25% to the revenue account and 75% to the capital account.
There is no additional fee for company secretarial and administration services.
5. Other operating expenses
Six months Six months Year
ended ended ended
30 April 30 April 31 October
2023 2022 2022
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Allocated to revenue:
Custody fee 1 1 3
Auditors' remuneration - audit services1 17 19 38
Registrar's fee 11 15 32
Directors' emoluments 68 82 165
Broker fees 20 20 40
Depositary fees 8 8 16
Printing fees 18 16 32
Legal and professional fees 18 17 35
Marketing fees 26 17 49
AIC fees 6 5 11
FCA fees 5 4 9
Write back of prior year expenses2 (11) (87) (101)
Other administration costs 51 36 83
---------------- ---------------- ----------------
238 153 412
========== ========== ==========
Allocated to capital:
Custody transaction charges3 1 5 5
Write back of prior year expenses3,4 - (7) (7)
---------------- ---------------- ----------------
239 151 410
========== ========== ==========
1 No non-audit services were provided by the Company's auditors for the six
months ended 30 April 2023 (six months ended 30 April 2022: none; year ended 31
October 2022: none).
2 Relates to prior year accruals for legal fees written back during the
period (six months ended 30 April 2022: Directors' fees, Directors' expenses
and legal fees; year ended 31 October 2022: Directors' fees, Directors'
expenses, Employer's NI, legal fees and printing fees).
3 For the six month period ended 30 April 2023, an expense of £1,000 (six
months ended 30 April 2022: an expense of £5,000 and a write back of prior year
accruals of £7,000; year ended 31 October 2022: an expense of £5,000 and a
write back of prior year accruals of £7,000) was charged to the capital account
of the Statement of Comprehensive Income. This relates to transaction costs
charged by the custodian on sale and purchase trades.
4 No prior year accruals for custody transaction charges were written back
during the period (six months ended 30 April 2022: £7,000; year ended 31
October 2022: £7,000).
The transaction costs incurred on the acquisition of investments amounted to £
7,000 for the six months ended 30 April 2023 (six months ended 30 April 2022: £
26,000; year ended 31 October 2022: £66,000). Costs relating to the disposal of
investments amounted to £6,000 for the six months ended 30 April 2023 (six
months ended 30 April 2022: £8,000; year ended 31 October 2022: £16,000). All
transaction costs have been included within capital reserves.
6. Dividends
On 11 May 2023, the Directors declared a second quarterly interim dividend of
2.00p per share. The dividend will be paid on 3 July 2023 to shareholders on
the Company's register on 19 May 2023. This dividend has not been accrued in
the financial statements for the six months ended 30 April 2023 as, under IAS,
interim dividends are not recognised until paid. Dividends are debited directly
to reserves.
Dividends paid on equity shares during the period were:
Six months
ended
30 April
2023
(unaudited)
£'000
Fourth interim dividend for the year ended 31 October 2022 of 2.00p per 1,605
ordinary share paid on 3 January 2023
First interim dividend for the year ended 31 October 2023 of 2.00p per 1,605
ordinary share paid on 28 April 2023
----------------
3,210
==========
Second interim dividend for the year ended 31 October 2023 of 2.00p per 1,605
ordinary share payable on 3 July 2023
----------------
4,815
==========
1 Based on 80,229,044 ordinary shares in issue on 18 May 2023 (the
ex-dividend date).
7. Earnings and net asset value per ordinary share
Total revenue, capital (loss)/earnings and net asset value per ordinary share
are shown below and have been calculated using the following:
Six months Six months Year
ended ended ended
30 April 30 April 31 October
2023 2022 2022
(unaudited) (unaudited) (audited)
Net revenue profit attributable to ordinary shareholders (£ 1,604 1,463 3,081
'000)
Net capital (loss)/profit attributable to ordinary (9,049) 8,433 9,089
shareholders (£'000)
---------------- ---------------- ----------------
Total (loss)/profit attributable to ordinary shareholders (£ (7,445) 9,896 12,170
'000)
========== ========== ==========
Equity shareholders' funds (£'000) 160,431 172,021 171,086
========== ========== ==========
The weighted average number of ordinary shares in issue 80,229,044 80,229,044 80,229,044
during the period on which the earnings per ordinary share
was calculated was:
The actual number of ordinary shares in issue at the period 80,229,044 80,229,044 80,229,044
end on which the net asset value per ordinary share was
calculated was:
---------------- ---------------- ----------------
Earnings per ordinary share
Revenue earnings per share (pence) - basic and diluted 2.00 1.82 3.84
Capital (loss)/earnings per share (pence) - basic and diluted (11.28) 10.51 11.33
---------------- ---------------- ----------------
Total (loss)/earnings per share (pence) - basic and diluted (9.28) 12.33 15.17
========== ========== ==========
As at As at As at
30 April 30 April 31
2023 2022 October
(unaudited) (unaudited) 2022
(audited)
Net asset value per ordinary share (pence) 199.97 214.41 213.25
Ordinary share price (pence) 193.50 210.00 197.50
========== ========== =========
=
There were no dilutive securities at the period end (six months ended 30 April
2022: none; year ended 31 October 2022: none).
8. Called up share capital
Ordinary
shares Treasury Total Nominal
in issue shares shares value
(unaudited) number number number £'000
Allotted, called up and fully paid share capital
comprised:
Ordinary shares of 1 pence each:
At 31 October 2022 80,229,044 20,132,261 100,361,305 1,004
---------------- ---------------- ---------------- ----------------
At 30 April 2023 80,229,044 20,132,261 100,361,305 1,004
========== ========== ========== ==========
During the six months ended 30 April 2023, no ordinary shares were reissued
from treasury (six months ended 30 April 2022 and year ended 31 October 2022:
no shares were reissued from treasury).
During the six months ended 30 April 2023, no shares were bought back and
transferred into treasury (six months ended 30 April 2022 and year ended 31
October 2022: no shares were bought back and transferred into treasury).
Since 30 April 2023 and up to the date of this report, no ordinary shares have
been reissued from treasury and no ordinary shares have been bought back and
transferred into treasury.
9. Reserves
The share premium and capital redemption reserve are not distributable reserves
under the Companies Act 2006. In accordance with ICAEW Technical Release 02/
17BL on Guidance on Realised and Distributable Profits under the Companies Act
2006, the special reserve and capital reserve may be used as distributable
reserves for all purposes and, in particular, the repurchase by the Company of
its ordinary shares and for payments such as dividends. In accordance with the
Company's Articles of Association, the special reserve, capital reserve and
revenue reserve may be distributed by way of dividend. The loss on the capital
reserve arising on the revaluation of investments of £1,745,000 (six months
ended 30 April 2022: gain of £19,243,000; year ended 31 October 2022: gain of £
11,680,000) is subject to fair value movements and may not be readily
realisable at short notice, as such it may not be entirely distributable. The
investments are subject to financial risks; as such capital reserves (arising
on investments sold) and the revenue reserve may not be entirely distributable
if a loss occurred during the realisation of these investments.
The Company's share premium account was cancelled pursuant to shareholders'
approval of a special resolution at the Company's Annual General Meeting on 22
March 2022 and Court approval on 19 July 2022. The share premium account which
totalled £44,873,000 was transferred to a special reserve. This action was
taken, in part, to ensure that the Company had sufficient distributable
reserves.
10. Financial risks and valuation of financial instruments
The Company's investment activities expose it to the various types of risk
which are associated with the financial instruments and markets in which it
invests. The risks are substantially consistent with those disclosed in the
previous annual financial statements with the exception of those outlined
below.
Market risk arising from price risk
Price risk is the risk that the fair value or future cash flows of a financial
instrument will fluctuate because of changes in market prices (other than those
arising from interest rate risk or currency risk), whether those changes are
caused by factors specific to the individual financial instrument or its
issuer, or factors affecting similar financial instruments traded in the
market. Local, regional or global events such as war, acts of terrorism, the
spread of infectious illness or other public health issues, recessions, climate
change or other events could have a significant impact on the Company and its
investments.
The current environment of heightened geopolitical risk given the war in
Ukraine has undermined investor confidence and market direction. In addition to
the tragic and devastating events in Ukraine, the war has constricted supplies
of key commodities, pushing prices up and creating a level of market
uncertainty and volatility which is likely to persist for some time.
Valuation of financial instruments
Financial assets and financial liabilities are either carried in the Statement
of Financial Position at their fair value (investments and derivatives) or at
an amount which is a reasonable approximation of fair value (due from brokers,
dividends and interest receivable, due to brokers, accruals, cash at bank and
bank overdrafts). IFRS 13 requires the Company to classify fair value
measurements using a fair value hierarchy that reflects the significance of
inputs used in making the measurements. The valuation techniques used by the
Company are explained in the accounting policies note 2(g) as set out on pages
85 and 86 of the Company's Annual Report and Financial Statements for the year
ended 31 October 2022.
Categorisation within the hierarchy has been determined on the basis of the
lowest level input that is significant to the fair value measurement of the
relevant asset.
The fair value hierarchy has the following levels:
Level 1 - Quoted market price for identical instruments in active markets
A financial instrument is regarded as quoted in an active market if quoted
prices are readily available from an exchange, dealer, broker, industry group,
pricing service or regulatory agency and those prices represent actual and
regularly occurring market transactions on an arm's length basis. The Company
does not adjust the quoted price for these instruments.
Level 2 - Valuation techniques using observable inputs
This category includes instruments valued using quoted prices for similar
instruments in markets that are considered less active, or other valuation
techniques where all significant inputs are directly or indirectly observable
from market data.
Valuation techniques used for non-standardised financial instruments such as
options, currency swaps and other over-the-counter derivatives include the use
of comparable recent arm's length transactions, reference to other instruments
that are substantially the same, discounted cash flow analysis, option pricing
models and other valuation techniques commonly used by market participants
making the maximum use of market inputs and relying as little as possible on
entity specific inputs.
Level 3 - Valuation techniques using significant unobservable inputs
This category includes all instruments where the valuation technique includes
inputs not based on market data and these inputs could have a significant
impact on the instrument's valuation.
This category includes instruments that are valued based on quoted prices for
similar instruments where significant entity determined adjustments or
assumptions are required to reflect differences between the instruments and
instruments for which there is no active market. The Investment Manager
considers observable data to be that market data that is readily available,
regularly distributed or updated, reliable and verifiable, not proprietary and
provided by independent sources that are actively involved in the relevant
market.
The level in the fair value hierarchy within which the fair value measurement
is categorised in its entirety is determined on the basis of the lowest level
input that is significant to the fair value measurement. If a fair value
measurement uses observable inputs that require significant adjustment based on
unobservable inputs, that measurement is a Level 3 measurement.
Assessing the significance of a particular input to the fair value measurement
in its entirety requires judgement, considering factors specific to the Level 3
asset or liability including an assessment of the relevant risks including but
not limited to credit risk, market risk, liquidity risk, business risk and
sustainability risk. The determination of what constitutes 'observable' inputs
requires significant judgement by the Investment Manager and these risks are
adequately captured in the assumptions and inputs used in the measurement of
Level 3 assets or liabilities.
Fair values of financial assets and financial liabilities
The table below sets out fair value measurements using the IFRS 13 fair value
hierarchy.
Financial assets at fair value through profit or Level 1 Level 2 Level 3 Total
loss at £'000 £'000 £'000 £'000
30 April 2023 (unaudited)
Assets:
Equity investments 158,000 - - 158,000
---------------- ---------------- ---------------- ----------------
158,000 - - 158,000
========== ========== ========== ==========
Financial assets at fair value through profit or Level 1 Level 2 Level 3 Total
loss at £'000 £'000 £'000 £'000
30 April 2022 (unaudited)
Assets:
Equity investments 176,665 - - 176,665
---------------- ---------------- ---------------- ----------------
176,665 - - 176,665
========== ========== ========== ==========
Financial assets at fair value through profit or Level 1 Level 2 Level 3 Total
loss at £'000 £'000 £'000 £'000
31 October 2022 (audited)
Assets:
Equity investments 175,425 - - 175,425
---------------- ---------------- ---------------- ----------------
175,425 - - 175,425
========== ========== ========== ==========
For exchange listed equity investments, the quoted price is the bid price.
Substantially all investments are valued based on unadjusted quoted market
prices. Where such quoted prices are readily available in an active market,
such prices are not required to be assessed or adjusted for any business risks,
including climate change risk, in accordance with the fair value related
requirements of the Company's financial reporting framework.
There were no transfers between levels for financial assets and financial
liabilities recorded at fair value as at 30 April 2023, 30 April 2022 and 31
October 2022. The Company did not hold any Level 3 securities throughout the
financial period under review or as at 30 April 2023, 30 April 2022 and 31
October 2022.
11. Related party disclosure
Directors' emoluments
The Board consists of four 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. The Chair receives an annual fee of £43,000,
the Audit and Management Engagement Committee Chairman receives an annual fee
of £36,000 and each of the Directors receives an annual fee of £30,000. At 30
April 2023, an amount of £14,000 (six months ended 30 April 2022: £14,000; year
ended 31 October 2022: £14,000) was outstanding in respect of Directors' fees.
At 30 April 2023, interests of the Directors in the ordinary shares of the
Company are as set out below:
Six months Six months Year
ended ended ended
30 April 30 April 31
2023 2022 October
(unaudited) (unaudited) 2022
(audited)
Alice Ryder (Chair)1 9,047 9,047 9,047
David Barron 5,000 - 5,000
Melanie Roberts 10,000 - 10,000
Solomon Soquar2 - n/a n/a
Christopher Casey3 n/a 19,047 19,047
Simon Miller4 n/a 38,094 38,094
========== ========== =========
=
1 Appointed as Chair on 1 November 2022.
2 Appointed on 21 March 2023.
3 Retired on 21 March 2023.
4 Retired as Chairman on 31 October 2022.
Since the period end and up to the date of this report there have been no
changes in Directors' holdings.
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 30 April 2023
Total % of shares held by Number of Significant
Total % of shares held by Significant Investors who
Related Investors who are not are not affiliates of
BlackRock Funds affiliates of BlackRock Group or
BlackRock Group or BlackRock, Inc.
BlackRock, Inc.
0.9 n/a n/a
As at 30 April 2022
Total % of shares held by Number of Significant
Total % of shares held by Significant Investors who
Related Investors who are not are not affiliates of
BlackRock Funds affiliates of BlackRock Group or
BlackRock Group or BlackRock, Inc.
BlackRock, Inc.
1.7 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 on page 49 of the Directors' Report in the
Company's Annual Report and Financial Statements for the year ended 31 October
2022.
The investment management fee is payable quarterly in arrears, calculated at
the rate of 0.70% of the Company's net assets. The investment management fee is
allocated 25% to the revenue account and 75% to the capital account. The
investment management fee due for the six months ended 30 April 2023 amounted
to £580,000 (six months ended 30 April 2022: £592,000; year ended 31 October
2022: £1,197,000). At the period end, £1,186,000 was outstanding in respect of
the investment management fee (six months ended 30 April 2022: £1,177,000; year
ended 31 October 2022: £899,000).
In addition to the above services, BIM (UK) has provided the Company with
marketing services. The total fees paid or payable for these services to 30
April 2023 amounted to £26,000 excluding VAT (six months ended 30 April 2022: £
17,000; year ended 31 October 2022: £49,000). Marketing fees of £56,000
excluding VAT (30 April 2022: £46,000; 31 October 2022: £29,000) were
outstanding as at 30 April 2023.
The Company has an investment in the BlackRock Institutional Cash Series plc -
US Dollar Liquid Environmentally Aware Fund of £3,177,000 (30 April 2022: £nil;
31 October 2022: £nil) as at 30 April 2023, which is a fund managed by a
company within the BlackRock Group.
The ultimate holding company of the Manager and the Investment Manager is
BlackRock, Inc., a company incorporated in Delaware, USA.
13. Contingent liabilities
There were no contingent liabilities at 30 April 2023 (six months ended 30
April 2022: none; year ended 31 October 2022: none).
14. Publication of non statutory accounts
The financial information contained in this half yearly financial report does
not constitute statutory accounts as defined in Section 435 of the Companies
Act 2006. The financial information for the six months ended 30 April 2023 and
30 April 2022 has not been audited.
The information for the year ended 31 October 2022 has been extracted from the
latest published audited financial statements which have been filed with the
Registrar of Companies. The report of the auditors on those financial
statements contained no qualifications or statement under Sections 498(2) or
498(3) of the Companies Act 2006.
15. Annual results
The Board expects to announce the annual results for the year ending 31 October
2023 in late January 2024.
Copies of the annual results announcement can be obtained from the Secretary on
0207 743 3000 or cosec@blackrock.com. The Annual Report and Financial
Statements should be available by the beginning of February 2024 with the
Annual General Meeting being held in March 2024.
FOR FURTHER INFORMATION, PLEASE CONTACT:
Melissa Gallagher, Managing Director, Investment Trusts, BlackRock Investment
Management (UK) Limited - Tel: 020 7743 3000
Press enquiries:
Lansons Communications - Tel: 020 7294 3689
E-mail: BlackRockInvestmentTrusts@lansons.com
28 June 2023
12 Throgmorton Avenue
London EC2N 2DL
END
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