BlackRock Smaller Companies Trust Plc - Half-year Report
PR Newswire
LONDON, United Kingdom, October 24
BLACKROCK SMALLER COMPANIES TRUST plc
(LEI: 549300MS535KC2WH4082)
Half yearly financial announcement of results in respect of the six months ended 31 August 2024
Performance Record
As at | As at | | |
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Net asset value per ordinary share (debt at par value) (pence)1 | 1,634.26 | 1,450.15 |
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Net asset value per ordinary share (debt at fair value) (pence)1 | 1,684.43 | 1,502.25 |
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Ordinary share price (mid-market) (pence)1 | 1,524.00 | 1,326.00 |
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Deutsche Numis Smaller Companies plus AIM (excluding Investment Companies) Index2 | 17,183.46 | 15,173.40 |
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| --------------- | --------------- |
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Assets |
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Total assets less current liabilities (£'000) | 839,263 | 755,721 |
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Equity shareholders' funds (£'000)3 | 769,734 | 686,206 |
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Ongoing charges ratio4,5 | 0.8% | 0.8% |
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Dividend yield4 | 2.8% | 3.2% |
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Gearing4 | 10.6% | 11.5% |
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| ========= | ========= |
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For the six | For the six | | |
Performance (with dividends reinvested) |
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Net asset value per ordinary share (debt at par value)2,4 | 14.6% | -7.8% |
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Net asset value per ordinary share (debt at fair value)2,4 | 13.9% | -7.3% |
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Ordinary share price (mid-market)2,4 | 17.0% | -6.3% |
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Deutsche Numis Smaller Companies plus AIM (excluding Investment Companies) Index2,4 | 13.2% | -6.9% |
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| ========= | ========= |
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For the six | For the six | | |
Revenue and dividends |
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Revenue return per ordinary share | 27.54p | 25.11p | +9.7 |
Interim dividend per ordinary share | 15.50p | 15.00p | +3.3 |
| ========= | ========= | ========= |
1 Without dividends reinvested.
2 Total return basis with dividends reinvested.
3 The change in equity shareholders' funds represents the portfolio movements during the period and dividends paid.
4 Alternative Performance Measures, see Glossary contained within the Half Yearly Financial Report. Full details setting out how calculations with dividends reinvested are performed are set out in the Glossary contained within the Half Yearly Financial Report.
5 Ongoing charges ratio 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, prior year expenses written back and certain non-recurring items in accordance with AIC guidelines.
Chairman's Statement for the six months ended 31 August 2024
Dear Shareholder
I am pleased to present to shareholders the half yearly financial report for the six months ended 31 August 2024.
Performance
Investor sentiment and risk appetite, appear to have improved during the six month period ended 31 August 2024 and UK equity markets continued their upward trend. Market performance has been supported by a more benign economic backdrop of falling inflation, lower cost of borrowing, rising consumer confidence, high employment and strong wage growth. These factors have been positive for our asset class and this momentum has been reflected in the performance of our portfolio in the first six months of our financial year.
The Company's net asset value (NAV) rose by 13.9%1,2,3 over the period under review, to 1,684.43p per share, outperforming the Company's benchmark, the Deutsche Numis Smaller Companies plus AIM (excluding Investment Companies) Index, which rose by 13.2%1,3 over the same period. The Company's share price rose by 17.0%1,3 to 1,524.00p per share over the same period. Looking at the broader market environment, the FTSE 100 Index rose by 12.5%1 over the period, the FTSE 250 Index rose by 12.6%1 and the FTSE All Share Index rose by 12.6%1. The performance of both the NAV and share price over the longer term are illustrated in the table below.
| 6 Months | 1 Year | 3 Years | 5 Years | 10 Years |
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Net asset value per share (with dividends reinvested)1,2 | 13.9 | 18.5 | -20.1 | 28.6 | 123.9 |
Share price (with dividends reinvested)1 | 17.0 | 23.9 | -23.0 | 22.5 | 137.7 |
Benchmark (with dividends reinvested)1 | 13.2 | 14.6 | -14.1 | 26.4 | 61.6 |
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1 Percentages in Sterling terms with dividends reinvested.
2 Debt at fair value.
3 Alternative Performance Measure, see Glossary contained within the Half Yearly Financial Report.
Returns and dividends
Dividend revenue from portfolio companies increased this period, with the Company's revenue return per share for the six months ended 31 August 2024 up by 9.7% to 27.54p per share (compared to 25.11p revenue return per share for the six months to 31 August 2023). After adjusting for the impact of special dividends received, which amounted to 1.45p per share (31 August 2023: 2.02p per share), regular dividend income from portfolio companies increased by 11.4% compared to 2023 levels.
The Board is mindful of the importance of our dividend to shareholders. The Board is also cognisant of the benefits of the Company's investment trust structure which enables it to retain up to 15% of total revenue each year to build up reserves which may be carried forward and used to pay dividends during leaner times. The Company has substantial distributable reserves (£703.3 million as at 31 August 2024, including revenue reserves of £18.9 million). To put this into context, the current level of annual dividend distribution based on dividends declared in respect of the year ended 29 February 2024 amounted to £19.9 million. Accordingly, the Board is pleased to declare an interim dividend of 15.50p per share (2023: 15.00p per share) representing an increase of 3.3% over the previous interim dividend. The interim dividend will be paid on 4 December 2024 to shareholders on the Company's register on 1 November 2024. The Board continues to monitor the Company's income levels and projected future dividend income streams closely as the year proceeds and will make an assessment in respect of the final dividend in due course, noting that it has the ability to utilise revenue reserves should it deem this appropriate.
Gearing
The Company had the following borrowing facilities in place: long-term fixed rate funding in the form of a £25 million senior unsecured fixed rate private placement notes issued in May 2017 at a coupon of 2.74% with a 20 year maturity, £20 million senior unsecured fixed rate private placement notes issued in December 2019 at a coupon of 2.41% with a 25 year maturity and £25 million senior unsecured fixed rate private placement notes issued in September 2021 at a coupon of 2.47% with a 25 year maturity. Shorter-term variable rate funding consisted of an uncommitted overdraft facility of £60 million with The Bank of New York Mellon (International) Limited with interest charged at SONIA plus 100 basis points.
It continues to be the Board's intention that net gearing will not exceed 15% of the net assets of the Company at the time of the drawdown of the relevant borrowings. Under normal operating conditions it is envisaged that gearing will be within a range of 0%-15% of net assets. During the period net gearing ranged between 10.5% to 12.8%. The Company's net gearing stands at 10.9% of net assets as at 22 October 2024, well within our target range.
Management of share rating
During the period, the Company's shares traded at an average discount to NAV (with debt at fair value) of 10.5%. The discount ranged between 5.7% and 14.1% and ended the period at 9.5%. The Company's shares were trading at a discount of 12.7% to NAV (with debt at fair value) as at close of business on 22 October 2024. During the period the Company bought back a total of 220,000 ordinary shares for a total consideration of £2,968,000 to be held in treasury.
The Board believes that the share buyback activity undertaken has helped reduce the volatility in our share rating, which currently stands at 12.7% compared to an AIC UK Smaller Companies sector average of 12.2%. As we navigate these more volatile and uncertain markets, your Board will continue to monitor the Company's share rating and may deploy its powers to buyback the Company's shares where it believes that it is in shareholders' long-term best interests to do so. Shares are only bought back at a discount to NAV which ensures that these transactions are accretive to the NAV per share and enhance NAV returns for shareholders.
Since the period end and as at the date of this report, the Company has not bought back any shares. The share buyback activity undertaken from 1 March 2024 contributed 0.1% to the NAV per share return over this period.
Outlook
Since the period end, and up until the close of business on 22 October 2024, the Company's NAV per share fell by -4.4%1,2 and the share price decreased by -7.7%, whilst the benchmark fell by -2.6%1.
The smaller company landscape in the UK is truly diverse, with a wide range of sectors represented and a large number of companies within our target universe. Given our bottom-up investment approach, this is a fertile environment for active stockpickers investing for long-term growth.
There are clearly a range of uncertainties impacting the current business outlook, economic, political and geopolitical. While these uncertainties make portfolio decisions more challenging, they also give our managers opportunities to identify and select portfolio companies they see as strong performers for the future. Lower interest rates are already helping an improvement in business confidence while better economic policy clarity will be important for short-term market sentiment.
Unemployment remains low, balance sheets remain strong, inflation is falling (slower than we would like) and consumer confidence is improving. This backdrop gives us more confidence that the earnings outlook for our portfolio of companies is broadly positive although not with the level of robustness we had originally hoped. The new government's policies are unfortunately proving to be less clear than expected and all eyes are on the upcoming budget and the associated tax changes that may emerge. In the short term at least, this is limiting the rate of improvement we had hoped in sectors that have been important to our portfolio. Investor flows into the UK had markedly improved after the July election but those flows have since fallen away as investor confidence has receded, at least temporarily. Despite the hopes of many investors, the new government has committed too many "own goals" and markets will need more substantive information on developing policies before they again show signs of real confidence.
Our Portfolio Manager's focus on financially strong companies with innovative and disruptive business models and market leading offerings should, over time, see a return of the strong and consistent investment performance to which our shareholders have become accustomed. But the current environment is unsettled and there have been some earnings disappointments as well. Your Board remains supportive of our current approach but the near-term road ahead, like the real world, will have some tricky potholes.
If shareholders would like to contact me, please write to BlackRock Smaller Companies Trust plc, Exchange Place One, 1 Semple Street, Edinburgh EH3 8BL marked for the attention of the Chairman.
RONALD GOULD
Chairman
24 October 2024
Investment Manager's Report for the six months ended 31 August 2024
Market Review
I always find the start of these reports difficult to write; where should the emphasis be, what are the important events that have shaped markets, are there one or two key facts that should be discussed before all others in order to set the scene? The first six months of this financial year have offered so much that it is even more challenging than normal to find a pithy introduction. Focusing solely on markets we have seen the oscillation in expectations between a hard and soft landing scenario, often pivoting on the back of one single data point. We have seen interest rates start to reduce in major economies, resulting in an enormous amount of intellectual capital spent on whether it will be two or three cuts before the end of the year (newsflash it doesn't really matter as long as rates are heading down). The geopolitical situation continues to worsen, with no end in sight to the conflict in Ukraine, and new fronts opening up in the Middle East. The oil price has fallen and risen in the face of changing demands expectations, to then fall again on news the Saudis will pump all they can, and then rise again on further Middle East tension. We have seen Biden's campaign fall apart in 90 minutes of painful debate, Trump survives not one but two assassination attempts, and the Labour party sweep to power with an overwhelming majority, only to then have their first 100 days of power dominated by the £22 billion black hole and plummeting popularity largely on the back of some sartorial questions. In bond markets the initial decline in UK gilt yields, itself a reflection of inflation being under control and interest rates beginning their downward path, has now been scuppered over fears the new government will bend fiscal rules and raise more debt than the market had expected. Whilst all of these events are shaping daily news flow, the underlying themes of artificial intelligence ("AI") and climate change continue to spark debate globally, and at points having a significant impact on market moves.
Performance Review
The Company has modestly outperformed its benchmark, producing an overall return of 13.9% vs an index return of 13.2%.
On the positive side a number of the core holdings performed well. Investment platform provider IntegraFin rallied in the period as positive sentiment returned to financial markets, and the company reassured the market the issues with their cost base were consigned to history. Publisher Bloomsbury Publishing continued the recent run of upgrades, this time augmenting their operating momentum with an accretive acquisition. Funding Circle, who provide loans to Small and Medium-sized Enterprises (SMEs) in the UK announced the disposal of their loss making US operations, and a significant return of capital. The volatility within financial markets has been a boon to pension consultant XPS Pensions, who have seen significant demand for their services from pension trustees looking to understand the impact shifting yields are having on their fund assets and liabilities.
In terms of the shares that have negatively impacted on performance, there are three clear groups; the ones where trading has disappointed, the stocks we didn't own, and the stocks that are significant benchmark positions that have performed well. With regard to stocks that suffered trading issues, the main disappointment was media firm YouGov, which has seen competition in one division leading to pricing pressure. Veterinary services provider CVS Group has been impacted not by demand weakness, but by the announcement of a Competition and Markets Authority (CMA) investigation into the industry. The second group, stocks that we didn't own that were beneficiaries of the spike in M&A activity for UK listed companies and therefore hurt relative performance, including video game service provider Keywords, and media business Ascential. The final group, the large index constituents we didn't own that have done well, include the likes of ground services firm Keller, spread betting provider Plus500, gaming software provider Playtech, and Bank of Cyprus.
Transaction Activity
The UK consumer continues to see an improvement in disposable income, as wage growth is running ahead of inflation. The Asda income tracker is currently showing double digit year-on-year increases to household income, although currently this is resulting in a higher savings ratio. As consumers become more confident in the economic outlook we should see this manifest in increased spending. In anticipation of this we have added to a number of names within the leisure sector, including Dominos Pizza, Wetherspoons and Loungers. The latter two of these have recently given positive updates on trading.
The new Labour government has a clear policy to build one and a half million houses over five years. Whilst there has to be considerable risk with regards to this number given the repeated failure of government policy to reach these levels, to get anywhere close there will have to be significant improvements in planning, and substantial investment in the supply chain. In conjunction with lower interest rates spurring banks to become more competitive with regard to mortgage pricing, we see a positive multi year backdrop for the housebuilding and building product sectors. We have added to our position in housebuilder MJ Gleeson, brick manufacturer Ibstock, paving supplier Marshalls, and plumbing supplier Genuit.
The IPO (initial public offering) market has been frustratingly quiet in the period, with the Company only taking part in Raspberry Pi, the designer and manufacturer of Single Board Computers, and Rosebank, the new venture from the former management team of Melrose. Given the timing of the budget it feels unlikely we will see much issuance in the period to the end of this calendar year, but are hopeful the New Year will see a more conducive environment for capital market activity.
Whilst this year has seen an increase in takeover activity, the Company has only benefitted from self-storage provider Lok'n Store Group, telecom equipment supplier Spirent, and financial services firm Mattioli Woods.
We also sold positions in shipping broker Clarkson, where we felt near-term operating momentum has possibly peaked, media business YouGov, which is seeing increased competition leading to pricing pressure, and defence business QinetiQ, where we had become concerned about the cash flow.
Outlook
It is almost impossible to address the outlook without addressing the change of government in the UK. The Labour party swept to power with an overwhelming majority, a mandate for change, and an ability to set long-term economic policy. With the Labour party claiming to offer a more business-friendly outlook this should have been a perfect set up for a market friendly environment. Sadly, their early statements have instead generated increased uncertainty as the market tries to understand how the government will shape policy to fill the "£22 billion black hole". With potential changes to inheritance tax, pensions, and capital gains tax, investors are doing what they traditionally do in the face of an information vacuum, selling. We, like everyone else with exposure to the UK stock market, await budget day with keen interest, and hope that once everyone has the certainty the budget will bring, they will be able to position for the long term. And this long term is where we have more conviction. As a consequence of the current uncertainty, consumer confidence has recently weakened. However, in the background real wages are rising, unemployment remains low, and household disposable income is increasing, all suggesting that as confidence returns the consumer maintains an ability to spend. Survey data suggests UK corporations are still positive and are themselves awaiting clarity before deciding to invest. And that clarity could (and should) come from the Labour Party, as they move away from the budget and start to enact their agenda; developing the framework to build one and a half million homes, investing in infrastructure and public services whilst at the same time reducing waste, lifting the skills and education of the workforce, and fostering innovation. On a global basis the more recent economic data suggests a soft landing is still the likely outcome. Finally, and importantly, the valuation of UK small and mid-cap companies is attractive on an historic basis. As we move through this near-term noise, the opportunity presented by the UK small and mid-cap market should be revealed, and maybe we will finally see investors looking to allocate back to an asset class that has historically been a profitable one.
ROLAND ARNOLD
BLACKROCK INVESTMENT MANAGEMENT (UK) LIMITED
24 October 2024
Twenty Largest Investments as at 31 August 2024
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| Market | % of |
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IntegraFin | Investment platform for financial advisers | 22,312 | 2.6 |
Workspace Group | Supply of flexible workspace to businesses in London | 22,081 | 2.6 |
Hill & Smith | Production of infrastructure products and supply of galvanizing services | 21,671 | 2.5 |
Gamma Communications | Provider of communication services to UK businesses | 19,861 | 2.3 |
Breedon | UK construction materials | 19,727 | 2.3 |
Chemring Group | Advanced technology products and services for the aerospace, defence and security markets | 19,054 | 2.2 |
Bloomsbury Publishing | Publisher of fiction and non-fiction | 17,652 | 2.1 |
Tatton Asset Management | Provider of discretionary fund management services to financial advisors | 16,620 | 2.0 |
Baltic Classifieds Group | Operator of online classified businesses in the Baltics | 15,790 | 1.9 |
XPS Pensions | Leading independent pensions consultancy and administration firm | 14,669 | 1.7 |
4imprint Group | Promotional merchandise in the US | 14,306 | 1.6 |
Great Portland Estates | British property development and investment company | 13,366 | 1.6 |
GlobalData | Data analytics and consulting company | 12,866 | 1.5 |
Boku | Digital payments company | 12,838 | 1.5 |
Oxford Instruments | Designer and manufacturer of tools and systems for industry and scientific research | 12,622 | 1.5 |
TT Electronics | Global manufacturer of electronic components | 12,377 | 1.5 |
FRP Advisory | A business advisory firm providing services in corporate restructuring, insolvency, debt advisory, and financial solutions to businesses | 12,347 | 1.5 |
Ibstock | Manufacture of clay bricks and concrete products | 11,898 | 1.4 |
Johnson Service Group | Provider of textile services | 11,818 | 1.4 |
MJ Gleeson | UK-based low-cost house builder and strategic land promoter | 11,519 | 1.4 |
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Twenty largest investments |
| 315,394 | 37.1 |
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| --------------- | --------------- |
Remaining investments |
| 535,803 | 62.9 |
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| ========= | ========= |
Total |
| 851,197 | 100.0 |
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| ========= | ========= |
Details of the full portfolio are available on the Company's website at www.blackrock.com/uk/brsc.
Portfolio holdings in excess of 3% of issued share capital
At 31 August 2024, the Company did not hold any equity investments comprising more than 3% of any company's share capital other than as disclosed in the table below:
| % of share capital held |
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Distribution Finance Capital Holdings | 5.1 |
The Pebble Group | 4.8 |
TT Electronics | 4.3 |
Secure Trust Bank | 3.9 |
Tatton Asset Management | 3.9 |
Mercia Asset Management | 3.5 |
Treatt | 3.4 |
Luceco | 3.4 |
MJ Gleeson | 3.4 |
FRP Advisory | 3.3 |
Robert Walters | 3.2 |
Diaceutics | 3.2 |
Central Asia Metals | 3.1 |
Ultimate Products | 3.1 |
Sylvania Platinum | 3.1 |
Porvair | 3.1 |
Bloomsbury Publishing | 3.0 |
Fuller Smith and Turner - A Shares | 3.0 |
Investment exposure as at 31 August 2024
Investment size
| Number of investments | Market value of investments as % of portfolio |
£0m to £1m | 2 | 0.1 |
£2m to £3m | 3 | 0.9 |
£3m to £4m | 12 | 5.0 |
£4m to £5m | 13 | 6.9 |
£5m to £6m | 13 | 8.5 |
£6m to £7m | 7 | 5.2 |
£7m to £8m | 9 | 8.1 |
£8m to £9m | 14 | 13.9 |
£9m to £10m | 4 | 4.5 |
£10m to £11m | 6 | 7.3 |
£11m to £12m | 5 | 6.7 |
£12m to £13m | 5 | 7.4 |
£13m to £14m | 1 | 1.6 |
£14m to £15m | 2 | 3.4 |
£15m to £16m | 1 | 1.9 |
£16m to £17m | 1 | 2.0 |
£17m to £18m | 1 | 2.1 |
£19m to £20m | 3 | 6.9 |
£21m to £22m | 1 | 2.5 |
£22m to £23m | 2 | 5.1 |
Source: BlackRock.
Analysis of portfolio value by sector
| Company | Benchmark |
Other | 0.0 | 0.8 |
Energy | 1.4 | 4.4 |
Basic Materials | 13.2 | 7.5 |
Industrials | 30.5 | 21.7 |
Consumer Discretionary | 15.4 | 18.0 |
Health Care | 2.6 | 4.6 |
Consumer Staples | 3.1 | 5.2 |
Telecommunications | 4.2 | 3.8 |
Financials | 20.6 | 18.2 |
Real Estate | 3.0 | 5.9 |
Technology | 6.0 | 9.1 |
Utilities | 0.0 | 0.8 |
Sources: BlackRock and LSEG Datastream.
Interim Management Report and Responsibility Statement
The Chairman's Statement and the Investment Manager's Report above give details of the important events which have occurred during the period and their impact on the financial statements.
Principal risks and uncertainties
The principal risks faced by the Company can be divided into various areas as follows:
· Investment performance;
· Market;
· Income/dividend;
· Legal and compliance;
· 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 29 February 2024. A detailed explanation can be found in the Strategic Report on pages 33 to 37 and note 17 on pages 99 to 106 of the Annual Report and Financial Statements which is available on the website maintained by BlackRock at www.blackrock.com/uk/brsc.
The Board and the Investment Manager continue to monitor investment performance in line with the Company's investment objectives, and the operations of the Company and the publication of net asset values are continuing.
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 Board is mindful of the risk that unforeseen or unprecedented events including (but not limited to) heightened geopolitical tensions such as the wars in Ukraine and Middle East, their longer-term effects on the global economy, high inflation and the current cost of living crisis could have a significant impact on global markets. Notwithstanding this significant degree of uncertainty, the Directors, having considered the nature and liquidity of the portfolio, the Company's investment objective, 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.
Related party disclosure and transactions with the AIFM and Investment Manager
BlackRock Fund Managers Limited (BFM) was appointed as the Company's Alternative Investment Fund Manager (AIFM) with effect from 2 July 2014. BFM has (with the Company's consent) delegated certain portfolio and risk management services, and other ancillary services, to BlackRock Investment Management (UK) Limited (BIM (UK)). Both BFM and BIM (UK) are regarded as related parties under the Listing Rules. Details of the management and marketing fees payable are set out in notes 4 and 5 respectively and note 14 below. The related party transactions with the Directors are set out in note 15 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 and belief that:
· the condensed set of financial statements contained within the Half Yearly Financial Report has been prepared in accordance with the applicable UK Accounting Standard FRS 104 Interim Financial Reporting; and
· the Interim Management Report together with the Chairman's Statement and Investment Manager's Report, include a fair review of the information required by 4.2.7R and 4.2.8R of the Financial Conduct Authority's (FCA) Disclosure Guidance and Transparency Rules.
The Half Yearly Financial Report has not been audited or reviewed by the Company's Auditor.
The Half Yearly Financial Report was approved by the Board on 24 October 2024 and the above Responsibility Statement was signed on its behalf by the Chairman.
RONALD GOULD
FOR AND ON BEHALF OF THE BOARD
24 October 2024
Income Statement for the six months ended 31 August 2024
Six months ended | Six months ended | Year ended | ||||||||
| Revenue | Capital | Total | Revenue | Capital | Total | Revenue | Capital | Total | |
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Gains/(losses) on investments held at fair value through profit or loss |
| - | 88,199 | 88,199 | - | (69,846) | (69,846) | - | (48,408) | (48,408) |
Losses on foreign exchange |
| - | (7) | (7) | - | - | - | - | (9) | (9) |
Income from investments held at fair value through profit or loss | 3 | 14,494 | 798 | 15,292 | 13,385 | 782 | 14,167 | 21,884 | 782 | 22,666 |
Other income | 3 | - | - | - | 155 | - | 155 | 379 | - | 379 |
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| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- |
Total income/(loss) |
| 14,494 | 88,990 | 103,484 | 13,540 | (69,064) | (55,524) | 22,263 | (47,635) | (25,372) |
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| ========= | ========= | ========= | ========= | ========= | ========= | ========= | ========= | ========= |
Expenses |
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Investment management fee | 4 | (615) | (1,845) | (2,460) | (564) | (1,692) | (2,256) | (1,109) | (3,328) | (4,437) |
Other operating expenses | 5 | (510) | (14) | (524) | (439) | (14) | (453) | (869) | (21) | (890) |
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| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- |
Total operating expenses |
| (1,125) | (1,859) | (2,984) | (1,003) | (1,706) | (2,709) | (1,978) | (3,349) | (5,327) |
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Net profit/(loss) on ordinary activities before finance costs and taxation |
| 13,369 | 87,131 | 100,500 | 12,537 | (70,770) | (58,233) | 20,285 | (50,984) | (30,699) |
Finance costs | 6 | (332) | (900) | (1,232) | (237) | (708) | (945) | (471) | (1,408) | (1,879) |
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| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- |
Net profit/(loss) on ordinary activities before taxation |
| 13,037 | 86,231 | 99,268 | 12,300 | (71,478) | (59,178) | 19,814 | (52,392) | (32,578) |
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| ========= | ========= | ========= | ========= | ========= | ========= | ========= | ========= | ========= |
Taxation |
| (55) | - | (55) | (88) | - | (88) | (123) | - | (123) |
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| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- |
Net profit/(loss) on ordinary activities after taxation |
| 12,982 | 86,231 | 99,213 | 12,212 | (71,478) | (59,266) | 19,691 | (52,392) | (32,701) |
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| ========= | ========= | ========= | ========= | ========= | ========= | ========= | ========= | ========= |
Earnings/(loss) per ordinary share (pence) - basic and diluted | 8 | 27.54 | 182.93 | 210.47 | 25.11 | (146.99) | (121.88) | 40.70 | (108.29) | (67.59) |
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| ========= | ========= | ========= | ========= | ========= | ========= | ========= | ========= | ========= |
The total columns of this statement represent the Company's profit and loss account. The supplementary revenue and capital accounts are both prepared under guidance published by the Association of Investment Companies (AIC). All items in the above statement derive from continuing operations. No operations were acquired or discontinued during the period. All income is attributable to the equity holders of the Company.
The net profit/(loss) for the period disclosed above represents the Company's total comprehensive income/(loss).
Statement of Changes in Equity for the six months ended 31 August 2024
| Called | Share | Capital |
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| |
For the six months ended 31 August 2024 (unaudited) |
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At 29 February 2024 |
| 12,498 | 51,980 | 1,982 | 601,098 | 18,648 | 686,206 |
Total comprehensive income: |
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Net profit for the period |
| - | - | - | 86,231 | 12,982 | 99,213 |
Transactions with owners, recorded directly to equity: |
|
|
|
|
|
|
|
Ordinary shares repurchased into treasury |
| - | - | - | (2,940) | - | (2,940) |
Share buyback costs |
| - | - | - | (28) | - | (28) |
Dividends paid1 | 7 | - | - | - | - | (12,717) | (12,717) |
|
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- |
At 31 August 2024 |
| 12,498 | 51,980 | 1,982 | 684,361 | 18,913 | 769,734 |
|
| ========= | ========= | ========= | ========= | ========= | ========= |
For the six months ended 31 August 2023 (unaudited) |
|
|
|
|
|
|
|
At 28 February 2023 |
| 12,498 | 51,980 | 1,982 | 673,479 | 18,590 | 758,529 |
Total comprehensive (loss)/income: |
|
|
|
|
|
|
|
Net (loss)/profit for the period |
| - | - | - | (71,478) | 12,212 | (59,266) |
Transactions with owners, recorded directly to equity: |
|
|
|
|
|
|
|
Ordinary shares repurchased into treasury |
| - | - | - | (3,272) | - | (3,272) |
Share buyback costs |
| - | - | - | (23) | - | (23) |
Dividends paid2 | 7 | - | - | - | - | (12,395) | (12,395) |
|
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- |
At 31 August 2023 |
| 12,498 | 51,980 | 1,982 | 598,706 | 18,407 | 683,573 |
|
| ========= | ========= | ========= | ========= | ========= | ========= |
For the year ended 29 February 2024 (audited) |
|
|
|
|
|
|
|
At 28 February 2023 |
| 12,498 | 51,980 | 1,982 | 673,479 | 18,590 | 758,529 |
Total comprehensive (loss)/income: |
|
|
|
|
|
|
|
Net (loss)/profit for the year |
| - | - | - | (52,392) | 19,691 | (32,701) |
Transactions with owners, recorded directly to equity: |
|
|
|
|
|
|
|
Ordinary shares repurchased into treasury |
| - | - | - | (19,859) | - | (19,859) |
Share buyback costs |
| - | - | - | (130) | - | (130) |
Dividends paid3 | 7 | - | - | - | - | (19,633) | (19,633) |
|
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- |
At 29 February 2024 |
| 12,498 | 51,980 | 1,982 | 601,098 | 18,648 | 686,206 |
|
| ========= | ========= | ========= | ========= | ========= | ========= |
1 Final dividend paid in respect of the year ended 29 February 2024 of 27.00p per share was declared on 14 May 2024 and paid on 27 June 2024.
2 Final dividend paid in respect of the year ended 28 February 2023 of 25.50p was declared on 9 May 2023 and paid on 27 June 2023.
3 Interim dividend paid in respect of the year ended 29 February 2024 of 15.00p was declared on 26 October 2023 and paid on 4 December 2023. Final dividend paid in respect of the year ended 28 February 2023 of 25.50p was declared on 9 May 2023 and paid on 27 June 2023.
For information on the Company's distributable reserves, please refer to note 12.
Balance Sheet as at 31 August 2024
| 31 August | 31 August | 29 February | |
Non current assets |
|
|
|
|
Investments held at fair value through profit or loss | 13 | 851,197 | 753,759 | 765,178 |
Current assets |
|
|
|
|
Current tax assets |
| 132 | 177 | 210 |
Debtors |
| 4,958 | 2,092 | 4,667 |
Cash and cash equivalents |
| - | 644 | 28 |
|
| --------------- | --------------- | --------------- |
Total current assets |
| 5,090 | 2,913 | 4,905 |
|
| ========= | ========= | ========= |
Current liabilities |
|
|
|
|
Bank overdraft |
| (10,102) | - | (7,899) |
Other creditors |
| (6,922) | (3,580) | (6,463) |
|
| --------------- | --------------- | --------------- |
Net current liabilities |
| (11,934) | (667) | (9,457) |
|
| ========= | ========= | ========= |
Total assets less current liabilities |
| 839,263 | 753,092 | 755,721 |
|
| ========= | ========= | ========= |
Non current liabilities | 9, 10 | (69,529) | (69,519) | (69,515) |
|
| --------------- | --------------- | --------------- |
Net assets |
| 769,734 | 683,573 | 686,206 |
|
| ========= | ========= | ========= |
Total equity |
|
|
|
|
Called up share capital | 11 | 12,498 | 12,498 | 12,498 |
Share premium account |
| 51,980 | 51,980 | 51,980 |
Capital redemption reserve |
| 1,982 | 1,982 | 1,982 |
Capital reserves |
| 684,361 | 598,706 | 601,098 |
Revenue reserve |
| 18,913 | 18,407 | 18,648 |
|
| --------------- | --------------- | --------------- |
Total shareholders' funds | 8 | 769,734 | 683,573 | 686,206 |
|
| ========= | ========= | ========= |
Net asset value per ordinary share (debt at par value) (pence) | 8 | 1,634.26 | 1,407.04 | 1,450.15 |
|
| ========= | ========= | ========= |
Net asset value per ordinary share (debt at fair value) (pence) | 8 | 1,684.43 | 1,460.02 | 1,502.25 |
|
| ========= | ========= | ========= |
Statement of Cash Flows for the six months ended 31 August 2024
Six months | Six months | Year | |
Operating activities |
|
|
|
Net profit/(loss) on ordinary activities before taxation | 99,268 | (59,178) | (32,578) |
Add back finance costs | 1,232 | 945 | 1,879 |
(Gains)/losses on investments held at fair value through profit or loss | (88,199) | 69,846 | 48,408 |
Net movement in foreign exchange | 7 | - | 9 |
Sale of investments held at fair value through profit or loss | 211,755 | 149,604 | 322,366 |
Purchase of investments held at fair value through profit or loss | (207,606) | (163,539) | (327,895) |
Net amount for capital special dividends received | (798) | (782) | (782) |
(Increase)/decrease in debtors | (1,273) | (771) | 7 |
Increase/(decrease) in other creditors | 409 | (2,315) | (1,280) |
Taxation on investment income | (55) | (88) | (123) |
| --------------- | --------------- | --------------- |
Net cash generated from/(used in) operating activities | 14,740 | (6,278) | 10,011 |
| ========= | ========= | ========= |
Financing activities |
|
|
|
Ordinary shares repurchased into treasury | (3,006) | (3,295) | (19,792) |
Share buyback costs | (28) | - | (130) |
Interest paid | (1,213) | (924) | (1,854) |
Dividends paid | (12,717) | (12,395) | (19,633) |
| --------------- | --------------- | --------------- |
Net cash used in financing activities | (16,964) | (16,614) | (41,409) |
| ========= | ========= | ========= |
Decrease in cash and cash equivalents | (2,224) | (22,892) | (31,398) |
Cash and cash equivalents at beginning of the period/year | (7,871) | 23,536 | 23,536 |
Effect of foreign exchange rate changes | (7) | - | (9) |
| --------------- | --------------- | --------------- |
Cash and cash equivalents at end of period/year | (10,102) | 644 | (7,871) |
| ========= | ========= | ========= |
Comprised of: |
|
|
|
Cash at bank | - | 644 | - |
Cash Fund1 | - | - | 28 |
Bank overdraft | (10,102) | - | (7,899) |
| --------------- | --------------- | --------------- |
| (10,102) | 644 | (7,871) |
| ========= | ========= | ========= |
1 Cash Fund represents funds held on deposit with the BlackRock Institutional Cash Series plc - Sterling Liquid Environmentally Aware Fund.
Notes to the Financial Statements for the six months ended 31 August 2024
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 preparation
The financial statements of the Company are prepared on a going concern basis in accordance with Financial Reporting Standard 104 Interim Financial Reporting (FRS 104) applicable in the United Kingdom and Republic of Ireland and the revised Statement of Recommended Practice - Financial Statements of Investment Trust Companies and Venture Capital Trusts (SORP), issued by the Association of Investment Companies (AIC) in October 2019 and updated in July 2022, and the provisions of the Companies Act 2006.
The accounting policies and estimation techniques applied for the condensed set of financial statements are as set out in the Company's Annual Report and Financial Statements for the year ended 29 February 2024.
3. Income
Six months | Six months | Year | |
Investment income1: |
|
|
|
UK dividends | 11,921 | 9,686 | 16,538 |
UK special dividends | 605 | 984 | 1,230 |
Property income dividends | 841 | 558 | 1,058 |
Overseas dividends | 1,049 | 2,157 | 3,058 |
Overseas special dividends | 78 | - | - |
| --------------- | --------------- | --------------- |
Total investment income | 14,494 | 13,385 | 21,884 |
| ========= | ========= | ========= |
Other income: |
|
|
|
Bank interest | - | 3 | 8 |
Interest from Cash Fund | - | 152 | 371 |
| --------------- | --------------- | --------------- |
| - | 155 | 379 |
| --------------- | --------------- | --------------- |
Total income | 14,494 | 13,540 | 22,263 |
| ========= | ========= | ========= |
1 UK and overseas dividends are disclosed based on the country of domicile of the underlying portfolio company.
Special dividends of £798,000 have been recognised in capital during the period ended 31 August 2024 (six months ended 31 August 2023: £782,000; year ended 29 February 2024: £782,000).
Dividends and interest received in cash during the period amounted to £13,289,000 and £nil (six months ended 31 August 2023: £12,413,000 and £231,000; year ended 29 February 2024: £21,699,000 and £447,000).
4. Investment management fee
Six months ended | Six months ended | Year ended | |||||||
Revenue | Capital | Total | Revenue | Capital | Total | Revenue | Capital | Total | |
|
|
|
|
|
|
|
|
|
|
Investment management fee | 615 | 1,845 | 2,460 | 564 | 1,692 | 2,256 | 1,109 | 3,328 | 4,437 |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- |
Total | 615 | 1,845 | 2,460 | 564 | 1,692 | 2,256 | 1,109 | 3,328 | 4,437 |
| ========= | ========= | ========= | ========= | ========= | ========= | ========= | ========= | ========= |
The investment management fee is based on a rate of 0.6% of the first £750 million of total assets (excluding current year income) less the current liabilities of the Company (the "Fee Asset Amount"), reducing to 0.5% above this level. The fee is calculated at the rate of one quarter of 0.6% of the Fee Asset Amount up to the initial threshold of £750 million, and one quarter of 0.5% of the Fee Asset Amount in excess thereof, at the end of each quarter. The investment management fee is allocated 25% to the revenue account and 75% to the capital account of the Income Statement.
5. Other operating expenses
Six months | Six months | Year | |
Allocated to revenue: |
|
|
|
Custody fees | 5 | 5 | 10 |
Depositary fees | 42 | 52 | 78 |
Auditor's remuneration | 29 | 34 | 50 |
Registrar's fee | 23 | 19 | 42 |
Directors' emoluments | 112 | 90 | 201 |
Director search fees | - | 18 | 35 |
Marketing fees | 136 | 59 | 174 |
AIC fees | 11 | 11 | 22 |
Bank charges | 12 | 16 | 28 |
Broker fees | 18 | 18 | 35 |
Stock exchange listings | 21 | 17 | 34 |
Printing and postage fees | 24 | 22 | 37 |
Legal fees | 9 | 8 | 21 |
Prior year expenses written back1 | - | (7) | (1) |
Other administrative costs | 68 | 77 | 103 |
| --------------- | --------------- | --------------- |
| 510 | 439 | 869 |
| ========= | ========= | ========= |
Allocated to capital: |
|
|
|
Custody transaction charges2 | 14 | 14 | 21 |
| --------------- | --------------- | --------------- |
| 524 | 453 | 890 |
| ========= | ========= | ========= |
1 No expenses have been written back during the six month period ended 31 August 2024 (six months ended 31 August 2023: depositary fees and miscellaneous fees; year ended 29 February 2024: miscellaneous fees).
2 For the six month period ended 31 August 2024, expenses of £14,000 (six months ended 31 August 2023: £14,000; year ended 29 February 2024: £21,000) were charged to the capital account of the Income Statement. These relate to transaction costs charged by the custodian on sale and purchase trades.
The direct transaction costs incurred on the acquisition of investments amounted to £887,000 for the six months ended 31 August 2024 (six months ended 31 August 2023: £708,000; year ended 29 February 2024: £1,393,000). Costs relating to the disposal of investments amounted to £159,000 for the six months ended 31 August 2024 (six months ended 31 August 2023: £113,000; year ended 29 February 2024: £249,000). All direct transaction costs have been included within capital reserves.
6. Finance costs
Six months ended | Six months ended | Year ended | |||||||
Revenue | Capital | Total | Revenue | Capital | Total | Revenue | Capital | Total | |
|
|
|
|
|
|
|
|
|
|
Interest on 2.74% loan note 2037 | 87 | 260 | 347 | 87 | 260 | 347 | 173 | 518 | 691 |
Interest on 2.41% loan note 2044 | 60 | 182 | 242 | 60 | 182 | 242 | 121 | 362 | 483 |
Interest on 2.47% loan note 2046 | 76 | 228 | 304 | 76 | 228 | 304 | 152 | 456 | 608 |
Interest on bank overdraft | 105 | 220 | 325 | 10 | 28 | 38 | 17 | 52 | 69 |
2.74% Amortised loan note issue expenses | 2 | 5 | 7 | 2 | 5 | 7 | 4 | 10 | 14 |
2.41% Amortised loan note issue expenses | 1 | 2 | 3 | 1 | 2 | 3 | 2 | 5 | 7 |
2.47% Amortised loan note issue expenses | 1 | 3 | 4 | 1 | 3 | 4 | 2 | 5 | 7 |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- | --------------- |
Total | 332 | 900 | 1,232 | 237 | 708 | 945 | 471 | 1,408 | 1,879 |
| ========= | ========= | ========= | ========= | ========= | ========= | ========= | ========= | ========= |
Finance costs have been allocated 25% to the revenue account and 75% to the capital account of the Income Statement.
7. Dividends
In accordance with FRS 102, Section 32 Events After the End of the Reporting Period, the interim dividend payable on the ordinary shares has not been included as a liability in the financial statements, as interim dividends are only recognised when they have been paid.
The Board has declared an interim dividend of 15.50p per share (31 August 2023: 15.00p per share), payable on 4 December 2024 to shareholders on the Company's register as at 1 November 2024; the ex dividend date is 31 October 2024. The total cost of this dividend, based on 47,099,792 shares in issue at 22 October 2024, is £7,300,000 (31 August 2023: £7,238,000).
8. Returns and net asset value per share
Revenue earnings, capital loss and net asset value per share are shown below and have been calculated using the following:
Six months | Six months | Year | |
|
|
|
|
Revenue return attributable to ordinary shareholders (£'000) | 12,982 | 12,212 | 19,691 |
Capital profit/(loss) attributable to ordinary shareholders (£'000) | 86,231 | (71,478) | (52,392) |
| --------------- | --------------- | --------------- |
Total profit/(loss) attributable to ordinary shareholders (£'000) | 99,213 | (59,266) | (32,701) |
| ========= | ========= | ========= |
Total shareholders' funds (£'000) | 769,734 | 683,573 | 686,206 |
| ========= | ========= | ========= |
The weighted average number of ordinary shares in issue during the period on which the earnings per ordinary share was calculated was: | 47,138,725 | 48,625,566 | 48,381,588 |
The actual number of ordinary shares in issue at the end of each period on which the undiluted net asset value was calculated was: | 47,099,792 | 48,582,292 | 47,319,792 |
Earnings per share |
|
|
|
Revenue earnings per share (pence) - basic and diluted | 27.54 | 25.11 | 40.70 |
Capital earnings/(loss) per share (pence) - basic and diluted | 182.93 | (146.99) | (108.29) |
| --------------- | --------------- | --------------- |
Total earnings/(loss) per share (pence) - basic and diluted | 210.47 | (121.88) | (67.59) |
| ========= | ========= | ========= |
As at | As at | As at | |
|
|
|
|
Net asset value per ordinary share (debt at par value) (pence) | 1,634.26 | 1,407.04 | 1,450.15 |
Net asset value per ordinary share (debt at fair value) (pence) | 1,684.43 | 1,460.02 | 1,502.25 |
Ordinary share price (pence) | 1,524.00 | 1,268.00 | 1,326.00 |
| ========= | ========= | ========= |
9. Borrowings
Six months | Six months | Year | |
Amounts falling due after more than one year |
|
|
|
2.74% loan note 2037 | 25,000 | 25,000 | 25,000 |
Unamortised loan note issue expenses | (166) | (189) | (182) |
| --------------- | --------------- | --------------- |
| 24,834 | 24,811 | 24,818 |
| ========= | ========= | ========= |
2.41% loan note 2044 | 20,000 | 20,000 | 20,000 |
Unamortised loan note issue expenses | (130) | (136) | (133) |
| --------------- | --------------- | --------------- |
| 19,870 | 19,864 | 19,867 |
| ========= | ========= | ========= |
2.47% loan note 2046 | 25,000 | 25,000 | 25,000 |
Unamortised loan note issue expenses | (175) | (156) | (170) |
| --------------- | --------------- | --------------- |
| 24,825 | 24,844 | 24,830 |
| --------------- | --------------- | --------------- |
Total borrowings | 69,529 | 69,519 | 69,515 |
| ========= | ========= | ========= |
The fair value of the 2.74% loan note has been determined based on a comparative yield for UK Gilts for similar duration maturity and spreads, and as at 31 August 2024 equated to a valuation of 76.63p per note (31 August 2023: 72.24p; 29 February 2024: 74.55p), a total of £19,158,000 (31 August 2023: £18,060,000; 29 February 2024: £18,638,000). The fair value of the 2.41% loan note has been determined based on a comparative yield for UK Gilts for similar duration maturity and spreads, and as at 31 August 2024 equated to a valuation of 61.74p per note (31 August 2023: 59.30p; 29 February 2024: 60.55p), a total of £12,348,000 (31 August 2023: £11,860,000; 29 February 2024: £12,110,000). The fair value of the 2.47% loan note has been determined based on a comparative yield for UK Gilts for similar duration maturity and spreads, and as at 31 August 2024 equated to a valuation of 57.58p per note (31 August 2023: 55.44p; 29 February 2024: 56.44p), a total of £14,395,000 (31 August 2023: £13,860,000; 29 February 2024: £14,110,000).
The £25 million loan note was issued on 24 May 2017. Interest on the note is payable in equal half yearly instalments on 24 May and 24 November in each year. The loan note is unsecured and is redeemable at par on 24 May 2037.
The £20 million loan note was issued on 3 December 2019. Interest on the note is payable in equal half yearly instalments on 3 December and 3 June in each year. The loan note is unsecured and is redeemable at par on 3 December 2044.
The second £25 million loan note was issued on 16 September 2021. Interest on the note is payable in equal half yearly instalments on 16 March and 16 September each year. The loan note is unsecured and is redeemable at par on 16 September 2046.
The Company had in place a £35 million three year multi-currency revolving loan facility with SMBC Bank International plc. This facility was terminated on 25 November 2022 and any loan amounts repaid. As at 31 August 2022, the facility was not utilised. Prior to the termination, interest on the facility was reset every three months and was charged at the Sterling Overnight Index Average rate (SONIA) plus a credit adjustment spread of 0.326% for one month borrowings and 0.1193% for three month borrowings.
The Company also has available an uncommitted overdraft facility of £60 million with The Bank of New York Mellon (International) Limited, of which £nil had been utilised at 31 August 2024 (31 August 2023: £nil; 29 February 2024: £nil).
The Company has complied with all covenants during the period related to the loan and borrowings.
10. Reconciliation of liabilities arising from financing activities
Six months | Six months | | |
Debt arising from financing activities: |
|
|
|
Debt arising from financing activities at beginning of the period/year | 69,515 | 69,504 | 69,504 |
| --------------- | --------------- | --------------- |
Cash flows: |
|
|
|
Non-cash flows: |
|
|
|
Amortisation of debenture and loan note issue expenses | 14 | 15 | 11 |
| --------------- | --------------- | --------------- |
Debt arising from financing activities at end of the period/year | 69,529 | 69,519 | 69,515 |
| ========= | ========= | ========= |
11. Called up share capital
Ordinary shares | Treasury | Total | Nominal | |
Allotted, called up and fully paid share capital comprised: |
|
|
|
|
Ordinary shares of 25p each |
|
|
|
|
At 29 February 2024 | 47,319,792 | 2,673,731 | 49,993,523 | 12,497 |
Ordinary shares bought back into treasury | (220,000) | 220,000 | - | - |
| --------------- | --------------- | --------------- | --------------- |
At 31 August 2024 | 47,099,792 | 2,893,731 | 49,993,523 | 12,497 |
| ========= | ========= | ========= | ========= |
During the period ended 31 August 2024, the Company has bought back 220,000 shares into treasury for a total consideration of £2,968,000 (six months ended 31 August 2023: bought back 247,500 shares for a total consideration of £3,295,000; year ended 29 February 2024: bought back 1,510,000 shares for a total consideration of £19,989,000.
Since 31 August 2024 and up to the latest practicable date of 22 October 2024 no further shares have been bought back.
The ordinary shares (excluding any shares held in treasury) carry the right to receive any dividends and have one voting right per ordinary share. There are no restrictions on the voting rights of the ordinary shares or on the transfer of ordinary shares.
12. Reserves
The share premium account and capital redemption reserve are not distributable reserves under the Companies Act 2006. In accordance with ICAEW Technical Release 02/17BL on Guidance on Realised and Distributable Profits under the Companies Act 2006, the 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 capital reserve and the revenue reserve may be distributed by way of dividend. The gain on the capital reserve arising on the revaluation of investments of £109,443,000 (31 August 2023: gain of £18,222,000; 29 February 2024: gain of £35,601,000) 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.
13. 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.
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 and could result in increased premiums or discounts to the Company's net asset value.
Valuation of financial instruments
Financial assets and financial liabilities are either carried in the Balance Sheet at their fair value (investments) or at an amount which is a reasonable approximation of fair value (due from brokers, dividends and interest receivable, due to brokers, accruals, cash and cash equivalents and bank overdrafts). Section 34 of FRS 102 requires the Company to classify fair value measurements using a fair value hierarchy that reflects the significance of inputs used in making the measurements. The valuation techniques used by the Company are explained in the accounting policies note on page 89 of the Annual Report and Financial Statements for the year ended 29 February 2024.
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 than active, or other valuation techniques where significant inputs are directly or indirectly observable from market data.
Level 3 - Valuation techniques using significant unobservable inputs
This category includes all instruments where the valuation technique includes inputs not based on market data and these inputs could have a significant impact on the instrument's valuation.
This category also includes instruments that are valued based on quoted prices for similar instruments where significant entity determined adjustments or assumptions are required to reflect differences between the instruments and instruments for which there is no active market. The Investment Manager considers observable data to be that market data that is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market.
The level in the fair value hierarchy within which the fair value measurement is categorised in its entirety is determined on the basis of the lowest level input that is significant to the fair value measurement. If a fair value measurement uses observable inputs that require significant adjustment based on unobservable inputs, that measurement is a Level 3 measurement.
Assessing the significance of a particular input to the fair value measurement in its entirety requires judgement, considering factors specific to the 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 is an analysis of the Company's financial instruments measured at fair value at the balance sheet date.
Financial assets at fair value through profit or loss at 31 August 2024 (unaudited)
Level 1 | Level 2 | Level 3 | Total | |
|
|
|
|
|
Equity investments | 851,197 | - | - | 851,197 |
| --------------- | --------------- | --------------- | --------------- |
Total | 851,197 | - | - | 851,197 |
| ========= | ========= | ========= | ========= |
Financial assets at fair value through profit or loss at 31 August 2023 (unaudited)
Level 1 | Level 2 | Level 3 | Total | |
|
|
|
|
|
Equity investments | 753,759 | - | - | 753,759 |
| --------------- | --------------- | --------------- | --------------- |
Total | 753,759 | - | - | 753,759 |
| ========= | ========= | ========= | ========= |
Financial assets at fair value through profit or loss at 29 February 2024 (audited)
Level 1 | Level 2 | Level 3 | Total | |
|
|
|
|
|
Equity investments | 765,178 | - | - | 765,178 |
| --------------- | --------------- | --------------- | --------------- |
Total | 765,178 | - | - | 765,178 |
| ========= | ========= | ========= | ========= |
There were no transfers between levels for financial assets during the period recorded at fair value as at 31 August 2024, 31 August 2023 and 29 February 2024. The Company did not hold any Level 3 securities throughout the six month period or as at 31 August 2024 (31 August 2023: none; 29 February 2024: none).
For exchange listed equity investments, the quoted price is the bid price. Substantially, all investments are valued based on unadjusted quoted market prices. Where such quoted prices are readily available in an active market, such prices are not required to be assessed or adjusted for any business risks, including climate change risk, in accordance with the fair value related requirements of the Company's financial reporting framework.
14. 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 29 February 2024.
The investment management fee payable for the six months ended 31 August 2024 amounted to £2,460,000 (six months ended 31 August 2023: £2,256,000; year ended 29 February 2024: £4,437,000). At the period end, £3,569,000 was outstanding in respect of the management fee (31 August 2023: £2,256,000; 29 February 2024: £3,319,000).
In addition to the above services, BIM (UK) has provided the Company with marketing services. The total fees paid or payable for these services for the six months ended 31 August 2024 amounted to £136,000 including VAT (six months ended 31 August 2023: £59,000; year ended 29 February 2024: £174,000). At the period end, £273,000 was outstanding in respect of the marketing fees (31 August 2023: £196,000; 29 February 2024: £137,000).
During the period, the Manager pays the amounts due to the Directors. These fees are then reimbursed by the Company for the amounts paid on its behalf. As of 31 August 2024, an amount of £232,000 (31 August 2023: £196,000; 29 February 2024: £210,000) was payable to the Manager in respect of Directors' fees.
The Company had an investment in the BlackRock Institutional Cash Series plc - Sterling Liquid Environmentally Aware Fund of £nil as at 31 August 2024 (31 August 2023: £nil; 29 February 2024: £28,000).
The ultimate holding company of the Manager and the Investment Manager is BlackRock, Inc., a company incorporated in Delaware, USA.
15. Related party disclosure
Directors' emoluments
As at 31 August 2024, the Board consisted of six non-executive Directors, all of whom are considered to be independent of the Manager by the Board. None of the Directors has a service contract with the Company. The Chairman receives an annual fee of £50,000, the Audit Committee Chairman receives an annual fee of £38,000, the Senior Independent Director receives a fee of £35,000 and each of the other Directors receives an annual fee of £33,000.
As at 31 August 2024, an amount of £19,000 (31 August 2023: £15,000; 29 February 2024: £17,000) was outstanding in respect of Directors' fees.
At the period end members of the Board held ordinary shares in the Company as set out below:
As at | As at | As at | |
|
|
|
|
Ronald Gould (Chairman) | 3,544 | 3,544 | 3,544 |
Susan Platts-Martin | 2,800 | 2,800 | 2,800 |
Mark Little | 491 | 491 | 491 |
James Barnes | 2,500 | 2,500 | 2,500 |
Helen Sinclair | 988 | 988 | 988 |
Dunke Afe1 | - | - | - |
1 Ms Afe was appointed 1 January 2024.
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).
| Total % of shares held by | | |
|
|
|
|
As at 31 August 2024 | 5.92 | n/a | n/a |
| --------------- | --------------- | --------------- |
As at 31 August 2023 | 9.19 | n/a | n/a |
| --------------- | --------------- | --------------- |
As at 29 February 2024 | 9.70 | n/a | n/a |
| ========= | ========= | ========= |
16. Contingent liabilities
There were no contingent liabilities at 31 August 2024, 29 February 2024 or 31 August 2023.
17. Publication of non-statutory accounts
The financial information contained in this Half Yearly Financial Report does not constitute statutory accounts as defined in Section 435 of the Companies Act 2006. The financial information for the six months ended 31 August 2024 and 31 August 2023 has not been audited, or reviewed, by the Company's auditors.
The information for the year ended 29 February 2024 has been extracted from the latest published audited financial statements, which have been filed with the Registrar of Companies. The report of the auditor in those financial statements contained no qualification or statement under Sections 498(2) or (3) of the Companies Act 2006.
18. Annual results
The Board expects to announce the annual results for the year ending 28 February 2025 in early May 2025.
Copies of the results announcement can be obtained from the Secretary on 020 7743 3000 or at cosec@blackrock.com. The Annual Report should be available by the beginning of May 2025 with the Annual General Meeting being held in June 2025.
The Annual Report and Financial Statements will also be available on the BlackRock Investment Management website at http://www.blackrock.com/uk/brsc. 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:
Sarah Beynsberger, Director, Closed End Funds, BlackRock Investment Management (UK) Limited
Tel: 020 7743 3000
Press Enquiries:
Ed Hooper, Lansons Communications
Tel: 020 7294 3620
E-mail:
BlackRockInvestmentTrusts@lansons.comor EdH@lansons.com
