BlackRock American Income Trust Plc - Final Results
PR Newswire
LONDON, United Kingdom, February 28
BlackRock American Income Trust plc (formerly BlackRock Sustainable American Income Trust plc)
LEI: 549300WWOCXSC241W468
Annual Report and Financial Statements 31 October 2024
Performance record
As at | As at | ||
Net assets (£'000)1 | 155,067 | 154,789 |
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Net asset value per ordinary share (pence) | 216.24 | 193.51 |
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Ordinary share price (mid-market) (pence) | 190.00 | 174.00 |
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Discount to cum income net asset value2 | 12.1% | 10.1% |
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Russell 1000 Value Index - gross total return3 | 2143.06 | 1733.58 |
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Russell 1000 Value Index - net total return3 | 2533.77 | 2056.54 |
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| ========= | ========= |
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For the year | For the year | ||
Performance (with dividends reinvested) |
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Net asset value per share2 | 16.0% | -5.6% |
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Ordinary share price2 | 13.8% | -8.1% |
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Russell 1000 Value Index - gross total return3 | 23.6% | -5.0% |
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Russell 1000 Value Index - net total return3 | 23.2% | -5.3% |
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Performance since inception (with dividends reinvested) |
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Net asset value per share2 | 246.5% | 198.7% |
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Ordinary share price2 | 204.7% | 167.8% |
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Russell 1000 Value Index - gross total return3 | 333.6% | 250.7% |
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Russell 1000 Value Index - net total return3 | 315.1% | 236.9% |
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| ========= | ========= |
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For the year | For the year |
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Revenue |
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Net profit on ordinary activities after taxation (£'000) | 2,604 | 2,945 | -11.6 |
Revenue earnings per ordinary share (pence)4 | 3.39 | 3.67 | -7.6 |
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Interim dividends (pence) |
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1st interim | 2.00 | 2.00 | - |
2nd interim | 2.00 | 2.00 | - |
3rd interim | 2.00 | 2.00 | - |
4th interim | 2.00 | 2.00 | - |
| --------------- | --------------- | --------------- |
Total dividends payable/paid | 8.00 | 8.00 | - |
| ========= | ========= | ========= |
1 The change in net assets reflects portfolio movements, shares bought back into treasury and dividends paid during the year.
2 Alternative Performance Measures, see Glossary in the Company's Annual Report for the year ended 31 October 2024.
3 The Company's performance reference index (the Russell 1000 Value Index) may be calculated on either a gross or a net total return basis. Net total return (NR) indices calculate the reinvestment of dividends net of withholding taxes using the tax rates applicable to non-resident institutional investors, and hence give a lower total return than indices where calculations are on a gross total return basis. As the Company is subject to the same withholding tax rates for the countries in which it invests, the NR basis is felt to be the most accurate, appropriate, consistent and fair comparison for the Company.
4 Further details are given in the Glossary in the Company's Annual Report for the year ended 31 October 2024.
Sources: BlackRock and LSEG Datastream.
Performance figures have been calculated in Sterling terms with dividends reinvested.
Chair's Statement
Market overview
The performance of markets over the year to October 2024 was supported by a more benign economic backdrop of falling inflation, a lower cost of borrowing, a resilient consumer and robust corporate earnings. Evidence suggests that US policymakers may have managed to bring inflation under control without causing a recession and, despite persistent concerns surrounding the durability of growth and interest rate policy, the US economy remains fundamentally strong.
Performance
Against this background and over the year to 31 October 2024, the Company's net asset value per share (NAV) returned +16.0% and the share price returned +13.8%. This compares with a rise of +23.2% in the Russell 1000 Value Index - net total return1, the Company's reference index (all figures are in Sterling terms with dividends reinvested net of withholding taxes). In the same period, and as a broader comparison, the S&P 500 Index was up by +30.2%.
More details on this and the significant contributors to and detractors from performance during the year are given in the Investment Manager's Report. Since the financial year end and up to close of business on 25 February 2025, the Company's NAV had increased by 4.8% (with dividends reinvested).
The Board is disappointed with the Company's performance relative to the Russell 1000 Value Index. Following a review of a wide range of options over the last few months, the Board is proposing to shareholders a change of investment strategy that will offer a differentiated approach to investing in US value equities with an enhanced dividend policy but at a lower cost, as set out in detail in the section below.
Revenue earnings and dividends
Your Company's revenue earnings per share, based on the weighted average number of shares in issue for the year, amounted to 3.39p (2023: 3.67p), a decrease of 7.6%. Four quarterly interim dividends of 2.00p per share were paid on 26 April 2024, 5 July 2024, 1 October 2024 and 2 January 2025. This is in line with the payments made in the previous financial year. The dividend paid represents a yield of 4.2% on the share price at the year end.
Your Board considers that it remains appropriate to continue with an enhanced dividend policy, supported through both revenue and other distributable reserves. The Board continues to believe that such a dividend policy provides an attractive option for investors who wish to achieve exposure to the US equity market, whilst at the same time receiving a competitive dividend.
Management of share rating
The Directors recognise the importance to investors that the market price of the Company's shares should not trade at a significant premium or discount to the underlying NAV. Accordingly, the Board monitors the share price closely, receiving regular updates from the Manager and our corporate broker, Cavendish Securities, and may use the Company's share buy back and share issue powers to ensure that the share price does not go to an excessive discount or premium. In the Board's opinion it is important to consider the discount in the context of wider market conditions, with investor sentiment and discounts being influenced by various external factors.
The investment trust sector average discount widened over the year as markets were disrupted by market volatility related to increased geopolitical instability and election uncertainty both in the US and Europe. Additionally, in the run-up to the UK budget, there was an accelerated stream of retail selling which also widened discounts. The Company's underperformance over the past couple of years compared to the Russell 1000 Value Index may have contributed to the discount widening out, but the Board has put in place a consistent buyback policy that has helped to defend the Company's discount which at 25 February 2025 was 7.4%.
Over the Company's financial year to end October 2024, the Company's shares have traded at an average discount of 9.6%. During the year, the Company purchased 8,280,074 shares at an average price of 194.78p per share at an average discount of 9.9% for a total cost of £16,128,000. The buyback of shares during the year has provided a gross capital uplift of £1.75 million (1.07% of the daily average NAV). Since the year end and up to 25 February 2025, a further 3,136,986 shares have been bought back at an average price of 205.06p per share for a total cost of £6,449,000. All shares have been placed in treasury. No shares were issued during the year under review and up to the date of this report.
Resolutions to renew the authorities to issue and buy back shares will be put to shareholders at the forthcoming Annual General Meeting.
General Meeting
On 19 December 2024 a letter was sent to shareholders regarding the renewal of the share buyback authority and notice of a General Meeting. Following the share buybacks both during the year and since the financial year end, the Directors concluded that, if the Company's purchases of its own shares were to continue at the same rate as they had since the Company's 2024 Annual General Meeting, the remaining capacity would be fully utilised before the 2025 Annual General Meeting.
The Directors therefore convened a General Meeting to seek authority from shareholders to renew the Company's authority to buy back shares with the renewed authority expiring at the conclusion of the 2025 Annual General Meeting. The General Meeting was held on 23 January 2025 and the special resolution was passed giving the Directors renewed authority to make market purchases of up to 10,468,142 ordinary shares. As mentioned above, the Directors intend to seek further renewal of the authority at the forthcoming Annual General Meeting.
Board composition
As stated in the 2024 Annual Report, as part of the Board's ongoing succession plans and, having now served as a Director for more than ten years and as Chair for just over two years, it is my intention to retire at the Company's forthcoming Annual General Meeting. I am delighted that David Barron has agreed to succeed me as Chair, at which time Solomon Soquar will become Senior Independent Director.
The Board has appointed an external recruitment firm to undertake a search and selection process to identify a new Director with the knowledge and skills to replace David Barron as Chair of the Audit Committee. If the Company's continuation vote is passed, the Board will proceed with the appointment of a new Director.
It has been a privilege to serve as Chair of your Company and also to have the opportunity to work with the Board, the investment team and others at BlackRock who help support the Company. With David's extensive experience, I leave the Company in the capable hands of the Board and the Investment Manager and wish it every success for the future.
Agreement with Saba
On 22 January 2025, the Board entered into an agreement with Saba Capital Management L.P. (Saba) pursuant to which Saba has provided a number of undertakings which has the effect of limiting certain actions by Saba. The press release can be found here. The agreement lasts until the earlier of the day following the completion of the Company's 2027 AGM or 31 August 2027. The agreement does not limit Saba's ability to acquire or dispose of shares in the Company.
SDR
Over the year, the Board considered the implications for the Company of the Financial Conduct Authority's Sustainability Disclosure Requirements (SDR) which came into effect on 2 December 2024. Noting that adopting a label under SDR would have required changes to the Company's existing strategy that would have required additional ESG constraints, the Board decided to remove the word 'sustainable' from the Company's name and investment objective such that the Company became an unlabelled ESG fund. As a result, on 13 November 2024 the Company's name was changed to BlackRock American Income Trust plc and, to reflect the Naming & Marketing Rules under SDR, the Company was required to make non-material changes to its investment objective and investment policy. These changes are reflected in the Strategic Report below. There was no change to how the investment portfolio was managed. However, as part of a wider exercise the Board has undertaken a detailed review of strategy and are proposing a number of additional changes as set out below.
Proposal to change investment strategy
The Board recognises that the investment performance relative to the Russell 1000 Value Index has been challenged for some time. Further, the Board has sought to offer shareholders active investment management at a lower cost and to identify a differentiated investment strategy that shareholders will find appealing and which better enables the Company to achieve greater scale. During the year the Directors engaged with their advisers to consider a number of strategic options available to the Company to address these points. Accordingly, following a thorough review and after careful consideration, the Board is proposing to amend the Company's investment approach (including its investment objective and investment policy) based on a proposal that was presented by BlackRock, a summary of which is set out below and in greater detail in the Circular.
Systematic Active Equity approach
Adopt a modern Systematic Active Equity investment process. By combining the power of big data, artificial intelligence and human expertise, the systematic investment process offered by BlackRock aims to unlock new ways to seek consistent portfolio outcomes and exploit market inefficiencies. Further details on the characteristics of this approach are set out in the Circular sent to shareholders.
Value investment style providing diversity for the US equity market
The strategy will continue to use the Russell 1000 Value Index, providing a diversifier from US growth allocations. There are few US equity-focused investment trusts and fewer focused with a value bias. This will be the first investment trust through which to access a systematic active equity strategy in the UK. Similar to the existing investment policy the portfolio managers will retain the flexibility to invest up to 20 per cent of gross asset value in securities that are not US equity securities, but in practice the Company is expected to be 100 per cent invested in US equity securities. There will be a significant marketing and communications campaign to communicate the characteristics and potential advantages of the new strategy to existing and prospective shareholders.
Using the investment trust structure for the benefit of shareholders - Enhanced dividend and gearing
Continue to pay an enhanced dividend. Using revenue and other distributable reserves, the Company will pay an attractive dividend of 1.5 per cent of net asset value each quarter, equivalent to 6 per cent of net asset value annually. Shareholders will be able to maintain exposure to the US equity market, which now represents approximately 74 per cent of global developed markets, whilst receiving an income yield significantly above the natural yield of the US market. The Board believes the Company's proposed approach may be attractive to investors with an income requirement who do not wish to reduce their US weighting. The Board will also be working with BlackRock to introduce gearing to the strategy to make use of the tools available within the investment trust structure.
Reduction in management fees and ongoing charges
The management fees for the new strategy will reduce from 0.70 per cent per annum to 0.35 per cent per annum of net assets, tiered to 0.30 per cent on net assets greater than £350 million. The future ongoing charges are expected to reduce from 1.06 per cent to circa 0.70 per cent - 0.80 per cent.
Fee holiday and cost contribution from the Manager
The Manager has agreed to a six-month management fee holiday in respect of the period 1 May 2025 to 31 October 2025 and to make a cost contribution to the costs of changing the investment strategy, such that the change of strategy and implementation of the tender offer referred to below are cost-neutral for shareholders in respect of their continuing investment in the Company.
Offering shareholders opportunities for exit
20 per cent tender opportunity available at time of strategy change. The Board believes the proposals are attractive to shareholders. Nonetheless, the Board recognise that some shareholders may wish to tender part or all of their investment at or around net asset value. As part of the strategy change, shareholders will be able to tender up to 20 per cent. of the issued share capital (excluding ordinary shares held in treasury) at a discount of 2 per cent. to the cum-income net asset value per ordinary share adjusted for the related portfolio realisation costs. The Company will also commit to offering shareholders the opportunity to tender for up to 100 per cent. of the Company's issued share capital (excluding ordinary shares held in treasury) at a tender price reflecting the latest cum-income NAV per ordinary share less 2 per cent. and adjusted for the related portfolio realisation costs where the annualised total NAV return of the Company does not exceed the annualised benchmark return (being the Russell 1000 Value Index) GBP (net total return) by more than 50 basis points over each three-year period from 1 May 2025.
The Board may also, at its discretion, determine to implement a tender offer on the basis set out above where the cum-income net asset value of the Company as at close of business at the end of each three-year period referred to above is less than £125 million.
Recommendation on continuation
Further details on the proposals, including the terms of the tender offer and the revised investment objective and policy are required to be set out in a separate Circular to shareholders. These proposals are conditional on the Company continuing as an investment trust for a further three years. They can only be implemented if shareholders vote in favour of continuation. Accordingly, the Board unanimously recommends shareholders vote in favour of continuation at the Annual General Meeting.
Outlook
The story for the US economy remains positive having grown faster than other large economies and expected to continue doing so. The re-election of US President Trump and a Republican majority is predicted to result in new trade policies and higher tariffs, much lower immigration, fresh tax cuts and regulatory easing. The economic headwind from US trade policy is expected to be greater outside the US, weighing more on China and the Euro area but, overall, global economic growth is expected to be solid despite the potential for US tariffs.
Against this backdrop of fundamental strength but potentially higher volatility, the Company continues to provide shareholders with exposure to US equities through a diversified portfolio of attractively valued companies.
Annual General Meeting
The Annual General Meeting of the Company will be held at the offices of BlackRock at 12 Throgmorton Avenue, London EC2N 2DL on Wednesday, 16 April 2025 at 12 noon. Details of the business of the meeting are set out in the Notice of Annual General Meeting in the Company's Annual Report for the year ended 31 October 2024. The Board very much looks forward to meeting shareholders on the day and we hope you will be able to attend.
ALICE RYDER
Chair
27 February 2025
1 Return on net total return index is calculated including the reinvestment of dividends net of withholding taxes.
Investment Manager's Report
Market overview
Over the year to 31 October 2024, the Company's net asset value per share (NAV) returned +16.0% and the share price returned +13.8%. This compares with a return of +23.2% in the Russell 1000 Value Index - net total return1 (all percentages calculated in Sterling terms with dividends reinvested net of withholding taxes). For the one-year period ended 31 October 2024, US large cap stocks, as represented by the S&P 500 Index, advanced by +38.0% in US Dollar terms. In Sterling, S&P 500 Index returned +30.2% for the period. The following discussion highlights some of the key market events during the fiscal year.
After a banner year in 2023, US markets, defined as the S&P 500 Index, continued their momentum in 2024. Key drivers of performance may be attributed to a strong macro backdrop and above average earnings. The US economy continues to demonstrate a high level of resilience relative to the rest of the world. US gross domestic product (GDP) continues to grow at a healthy rate while employment remains low relative to long-term averages. At the same time inflation has come down meaningfully, leading to the US Federal Reserve's (the Fed) first rate cut in September which has also driven excitement around a more sanguine outlook for equities. This supportive macro environment has translated into exceptionally strong performance for US equity markets, particularly for the largest tech-oriented companies that continue to see a boon from excitement around the development of artificial intelligence (AI). The market does continue to run at historically concentrated levels, but there has been signs of broadening taking place. Since June, the leading sectors in the S&P 500 Index in terms of absolute performance have been utilities, financials, real estate and industrials. Moving forward, a broadening market will be one of the key trends that will dictate the health and longevity of strong performance for US equities.
Portfolio overview
In the fiscal year ending 31 October 2024, the US equity market experienced a tremendous amount of momentum among the more expensive end of the market. While this dynamic was most apparent in growth and core indexes, it also led to underperformance for the Company relative to the Russell 1000 Value Index. In environments where the market is led by strong momentum instead of fundamentals, the Company can lag the high growth of the market during these periods. Along with market dynamics, there were isolated stock selection decisions that weighed on the Company in consumer staples and health care. We continue to find conviction in these areas of the market and provide further commentary on our positioning below.
The largest detractor from relative performance was stock selection in consumer staples. Our selection decisions in the consumer staples distribution & retail industry accounted for the majority of underperformance. In health care, the overweight allocation along with stock selection within the health care providers & services industry proved costly. Other detractors from relative results included selection decisions within energy, specifically oil, gas and consumable fuels.
The largest contributor to relative performance was stock selection in industrials. Within the sector, our overweight allocation to the building products industry accounted for the majority of relative outperformance. In materials, an underweight allocation along with positive stock selection in chemicals boosted relative returns. Furthermore, stock selection in communication services proved beneficial, mainly due to stock selection within the entertainment industry.
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| Portfolio | Reference index | Portfolio | Contribution to |
Top 10 detractors |
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JPMorgan Chase | Financials | +0.2% | +2.5% | -2.3% | -0.6% |
Icon | Health Care | +0.3% | +0.1% | +0.3% | -0.6% |
Prudential | Financials | +1.3% | +0.0% | +1.3% | -0.8% |
Humana | Health Care | +1.1% | +0.1% | +0.9% | -0.8% |
Woodside Energy | Energy | +1.3% | +0.0% | +1.3% | -0.8% |
Samsung Electronics | Information Technology | +1.3% | +0.0% | +1.3% | -0.9% |
Aptiv | Industrials | +1.5% | +0.1% | +1.4% | -1.0% |
Fortrea Holdings | Industrials | +1.5% | +0.0% | +1.5% | -1.2% |
Kosmos Energy | Energy | +1.3% | +0.0% | +1.3% | -1.5% |
Dollar Tree | Consumer Staples | +1.9% | +0.1% | +1.8% | -1.8% |
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| Portfolio | Reference index | Portfolio | Contribution to |
Top 10 contributors |
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Fidelity National Information Services | Financials | +2.1% | +0.2% | +1.9% | +0.8% |
Citigroup | Financials | +3.2% | +0.5% | +2.7% | +0.8% |
General Motors | Industrials | +1.9% | +0.2% | +1.7% | +0.7% |
Western Digital | Information Technology | +1.9% | +0.1% | +1.8% | +0.7% |
Intel | Information Technology | +0.1% | +0.7% | -0.6% | +0.5% |
Johnson Controls International | Industrials | +1.8% | +0.2% | +1.6% | +0.5% |
Hasbro | Consumer Discretionary | +1.8% | +0.0% | +1.8% | +0.5% |
Exxon Mobil | Energy | +0.0% | +2.2% | -2.2% | +0.4% |
Johnson & Johnson | Health Care | +0.0% | +1.7% | -1.7% | +0.4% |
Westinghouse Airbrake Technologies | Industrials | +1.1% | +0.1% | +1.0% | +0.4% |
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Below is a comprehensive overview of our allocations (in Sterling) at the end of the period.
Health Care: 3.0% overweight (18.0% of the portfolio)
Secular growth opportunities in health care are a by product of demographic trends. Older populations spend more on health care than younger populations. In the 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 and development productivity with companies like Sanofi (2.2% of the portfolio) and Novo Nordisk (1.5% of the portfolio). Outside of pharma, our search for attractively priced innovators is more stock specific; we continue to like Baxter International (2.4% of the portfolio) a health care company focused on products to treat kidney disease and other chronic medical conditions. We believe the company is still poised to do well as margin pressures from temporary inflation (logistics and shipping) continue to reside and operation count rises as hospitals gain more capacity. 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 and further industry consolidation over time. HMOs are also secular beneficiaries of aging populations which should drive membership growth, specifically for the Medicare exposed names. Furthermore, they trade at meaningfully discounted valuations versus peers, offering us an attractive risk versus reward opportunity.
Consumer Discretionary: 4.1% overweight (10.2% of the portfolio)
Within the sector, our preferred areas of investment include leisure products and firms with auto-related exposure. In leisure products, we believe Hasbro (1.9% of the portfolio) which trades at a significant discount to peers, but has a wide catalogue of strong franchises offers nice upside for an extremely steady business. 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 able to take advantage of possible disruptions. For example, we believe companies such as General Motors (autos; 1.6% of the portfolio) and Aptiv (auto components; 1.5% of the portfolio) offer investors exposure to underappreciated franchises at discounted valuations from the perspective of General Motors and an opportunity to benefit from the further electrification of cars with Aptiv.
Communication Services: 3.5% overweight (7.8% of the portfolio)
The portfolio has an overweight to communication services. The portfolio is overweight to the media and entertainment industries. Notable portfolio holdings include Comcast (media; 2.9% of the portfolio) and Electronic Arts (entertainment; 2.4% of the portfolio). Comcast 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 infrastructure that enables remote work (which reduces commuting related emissions). Electronic Arts has been going through a notable investment period over the last few years as they refreshed their catalogue of video games and are set to start reaping the benefits with their now wider array of franchises.
Information Technology (IT): 7.5% overweight (16.5% 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 industry exposures in the sector include technology hardware, storage & peripherals and electronic equipment, instruments & components companies. In the sector we have looked to gain exposure to the AI excitement through the memory chip producers. We like this part of the theme because companies like Samsung Electronics (1.9% of the portfolio) and Western Digital (1.8% of the portfolio) trade at valuations much more appropriate for a value portfolio but should be beneficiaries of the significant demand uptick that graphics processing units require to run AI queries.
Utilities: 0.3% overweight (5.1% of the portfolio)
The portfolio currently invests in four utility stocks and we have a slight overweight 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.
Consumer Staples: 2.1% underweight (5.8% 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 FCF and growing dividends for shareholders. Notable portfolio holdings include Kraft Heinz (2.3% of the portfolio) and Dollar Tree (1.4% of the portfolio). Kraft Heinz is historically among the strongest franchises in food products but has also continued to innovate its product mix to meet the changing demands of modern consumers. Dollar Tree is a discount retailer that has historically performed counter cyclically as more consumers tend to trade down and shop at the store during challenging economic environments. The performance dynamic helps build stability into the portfolio in the scenario that there is a drawdown in the economy.
Materials: 2.0% overweight (6.6% of the portfolio)
Our exposure to the materials sector is stock specific because broadly the sector is fairly expensive relative to history, but there are isolated opportunities at the stock level. Within the containers & packaging industry, our position in Sealed Air (1.6% of the portfolio) offers a relatively stable growth outlook. Sealed Air operates a high return business and has good pricing power. They have also expanded their business into paper packaging in order to position them more competitively against the rising competition from low-cost packaging materials. From a ESG 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. Within the chemicals industry, we have a position in International Flavors & Fragrances (1.4% of the portfolio), a global supplier of inputs into food, consumer items and health care solutions. International Flavors & Fragrances is a dominant player in every market it participates in, making it a consistent earnings compounder.
Energy: 0.8% underweight (6.0% of the portfolio)
The portfolio currently invests in four energy stocks and we have a slight underweight in the sector relative to the reference index. Our focus on ESG places a high hurdle for energy companies to be included in the portfolio, but we believe the sector remains investable, as more traditional oil & 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 Cheniere Energy (2.1% of the portfolio) and Shell (1.7% 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 ESG (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 capital expenditure spending plans, as these elements can contribute to positive free cash flow generation over time.
Financials: 5.9% underweight (16.1% of the portfolio)
Financials represent our portfolio's largest absolute sector allocation, and we prefer companies in banks, insurance and consumer finance. We believe the large 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 consumer finance with an opportunity in Discover Financial Services (1.1% of the portfolio). While currently in conversation to be acquired by Capital One, which would be beneficial to shareholders, the company has strong growth prospects with differentiated networks that offer a healthy outlook for the business even if the current deal with Capital One were to fall through.
Real Estate: 2.7% underweight (2.1% 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 recent holding is a specialised REIT company, Crown Castle (2.1% of the portfolio). The company owns cell towers, fiber, and collects rent from carriers who collocatetheir equipment on the infrastructure. Crown Castle is trading at a wide discount relative to peers and is a leader in labour management and corporate governance practices.
Industrials: 8.9% underweight (5.8% 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 JohnsonControls International (2.0% of the portfolio) and Allegion (1.9% of the portfolio). We view both companies as ESG leaders in their respective domains. Allegion's products enhance public safety and increase building efficiency. Additionally, Allegion's MSCI ESG score is top decile, both relative to the investment universe and Allegion's peer group.
Market outlook
Like many, we see plenty of reasons to be optimistic in 2025: the US economy continues to hum along, a Republican-led administration has historically led to reduced regulation and lower taxes, which should support companies' bottom lines, and AI infrastructure spend shows no signs of slowing down. However, in the face of excitement, experience tells us to maintain prudence. Multiples have continued to expand with current levels similar to those in the mid-to-late 1990s. This has coincided with a growing 'valuation gap' i.e. expensive companies getting more expensive and cheap companies getting cheaper despite, in many cases, company fundamentals not materially changing. We believe this opens the door for earnings growth to broaden out in 2025, shrinking the valuation gap. Lastly, high expectations for policy, economics and markets, may lead to harsher negative reactions if there are speed bumps. Taken together, our team continues to emphasise discipline in finding high quality businesses (i.e. clean balance sheets, good franchises, savvy management etc.) at attractive valuations, while avoiding chasing momentum.
TONY DESPIRITO, DAVID ZHAO AND LISA YANG
BLACKROCK INVESTMENT MANAGEMENT LLC
27 February 2025
1 Return on net total return index is calculated including the reinvestment of dividends net of withholding taxes.
Ten largest investments
Together, the Company's ten largest investments represented 26.9% of the Company's portfolio as at 31 October 2024 (2023: 28.0%)
1 ? Citigroup (2023: 8th)
Sector: Financials
Market value: £5,373,000
Share of investments: 3.5% (2023: 2.7%)
Citigroup (Citi) 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. Citi generates returns significantly below its peers due to numerous issues, including higher funding costs, business mix and weak operating performance. However, we believe there is a multi-year opportunity to close the gap over time, as they continue to cut costs. Citi also scores similarly to its large US bank peers with a strong score in Financing Environmental Impact, which will be increasingly important.
2 ? Cardinal Health (2023: 12th)
Sector: Health Care
Market value: £4,578,000
Share of investments: 2.9% (2023: 2.4%)
Cardinal Health (Cardinal) is one of three leading pharmaceutical wholesalers in the US engaged in sourcing and distributing of branded, generic and specialty pharmaceutical products to pharmacies (retail chains, independent and mail order), hospitals networks and health care providers. Over the long term, the fundamental outlook for the drug distribution industry looks extremely positive, driven by an aging population and increased utilisation of prescription drugs. We believe at the current valuation, Cardinal gives the best opportunity to capture this secular tailwind.
3 ? Comcast (2023: 25th)
Sector: Communication Services
Market value: £4,527,000
Share of investments: 2.9% (2023: 1.8%)
Comcast is a leading American multinational telecommunications and media conglomerate. It operates primarily through its cable services, internet offerings and media production capabilities, making it one of the largest telecommunications companies globally. Comcast is currently trading at a discount due to competitive dynamics and structural fears around linear TV. However, we believe Comcast is a high-return communication infrastructure business with high-quality assets (studios, parks) and thus this discount creates an asymmetric risk-reward profile.
4 ? CVS Health (2023: n/a)
Sector: Health Care
Market value: £4,302,000
Share of investments: 2.8% (2023: n/a)
CVS Health (CVS) is a prominent American health care company that provides a wide array of health services, including retail pharmacy, health insurance and various health care solutions. The company aims to enhance patient care and improve health outcomes through its integrated services. Currently, CVS is experiencing a 30% decline in earnings due to losses in Medicare Advantage (MA) amid industry-wide mispricing of MA health plans. However, earnings are expected to recover as plans reprice and adjust benefits. In the meantime, CVS's other major business lines remain profitable and strong free cash flow provides time for a turnaround. The early stages of a turnaround are already coming together with a new MA team in place.
5 ? Wells Fargo
(2023: 35th)
Sector: Financials
Market value: £4,092,000
Share of investments: 2.6% (2023: 1.5%)
Wells Fargo is a major American multinational financial services corporation that provides a wide range of banking, investment and mortgage products and services to millions of customers worldwide. Wells Fargo was a high-quality compounder that has historically generated best-in-class returns. However, Wells Fargo is currently underearning relative to peers because of a suboptimal efficiency ratio driven by an inflated cost base due to historical mismanagement and regulatory issues. Therefore, there is an opportunity for outperformance over the long term as Wells Fargo manages efficiencies and approaches normalised return levels.
6 ? American International Group (2023: 5th)
Sector: Financials
Market value: £3,843,000
Share of investments: 2.5% (2023: 2.8%)
American International Group (AIG) is a leading global insurer that provides insurance solutions to help businesses and individuals in over 190 countries and jurisdictions protect their assets and manage risks. In recent years, management has transformed AIG and returned the company to financial strength. AIG continues to present an investment opportunity by trading at a discount to book value.
7 ?Willis Towers Watson
(2023: 4th)
Sector: Financials
Market value: £3,813,000
Share of investments: 2.5% (2023: 2.9%)
Willis Towers Watson (WTW) is a British-American multinational company that specialises in insurance brokerage, risk management and consulting services. We believe that insurance brokerage and health/risk outsourcing is an attractive business that has sticky customer relationships and high free cash flow conversion. Within this space, WTW trades at a discount to peers due to low cash conversion, low margins and high staff turnover post the failed sale to AON. The team believes that the valuation gap will narrow as WTW executes on its cost efficiency strategy, boosting margins while maintaining long-term growth.
8 ? First Citizens BancShares (2023: 30th)
Sector: Financials
Market value: £3,783,000
Share of investments: 2.4% (2023: 1.6%)
First Citizens BancShares is a family-controlled financial institution based in the US, offering a comprehensive range of banking products and services tailored for both personal and business needs. The bank emphasises stability, customer service and community involvement. The team believes in the upside of First Citizens BancShares because it is a disciplined bank that serves attractive markets (primarily in the Carolinas). The bank's opportunistic acquisitions of CIT Group & Silicon Valley Bank have created meaningful value with further runway ahead. First Citizens BancShares' significant excess capital also provides optionality.
9 ? Electronic Arts (2023: n/a)
Sector: Communication Services
Market value: £3,782,000
Share of investments: 2.4% (2023: n/a)
Electronic Arts (EA) is a leading American video game company that has become one of the largest and most influential players in the video game industry, known for its innovative games and franchises. Currently, EA is going through an investment period that has led to a substantial discount in their valuation. However, the team believes that EA should benefit over time from new titles within dormant franchises such as NCAA Football, Battlefield, Sims and more.
10 ? Baxter International (2023: 16th)
Sector: Health Care
Market value: £3,689,000
Share of investments: 2.4% (2023: 2.2%)
Baxter International (Baxter) markets devices and drugs used to treat kidney disease and other chronic and acute medical conditions. Baxter 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. They are focused on driving higher penetration rates of PD therapy globally to address the needs of dialysis patients in a more cost-effective manner.
All percentages reflect the value of the holding as a percentage of total investments.
Percentages in brackets represent the value of the holding as at 31 October 2023.
Arrows indicate the change in relative ranking of the position in the portfolio compared to its ranking as at 31 October 2023.
Portfolio analysis as at 31 October 2024
Sector Exposure
| 20241 portfolio | 20232 portfolio | 2024 reference index3 |
Communication Services | 7.8% | 4.5% | 4.3% |
Consumer Discretionary | 10.2% | 9.6% | 6.1% |
Consumer Staples | 5.8% | 7.2% | 7.9% |
Energy | 6.0% | 9.3% | 6.8% |
Financials | 16.1% | 19.6% | 22.0% |
Health Care | 18.0% | 18.4% | 15.0% |
Industrials | 5.8% | 9.0% | 14.7% |
Information Technology | 16.5% | 13.5% | 9.0% |
Materials | 6.6% | 3.6% | 4.6% |
Real Estate | 2.1% | 1.3% | 4.8% |
Utilities | 5.1% | 4.0% | 4.8% |
1 Represents portfolio exposure at 31 October 2024.
2 Represents portfolio exposure at 31 October 2023.
3 Represents exposure of the Russell 1000 Value Index at 31 October 2024.
Geographic Exposure1
| As at 31 October 2024 | As at 31 October 2023 | |
United States | 90.2% | 86.8% | |
United Kingdom | 3.4% | 4.8% | |
Other | 2.3%2 | 3.7%3 | |
France | 2.2% | 1.9% | |
South Korea | 1.9% | n/a | |
Japan | n/a | 2.8% | |
1 Based on the principal place of operation of each investment.
2 Consists of Ireland and Canada.
3 Consists of Australia, Canada and Denmark.
Investments as at 31 October 2024
|
|
| Market |
|
Citigroup | United States | Financials | 5,373 | 3.5 |
Cardinal Health | United States | Health Care | 4,578 | 2.9 |
Comcast | United States | Communication Services | 4,527 | 2.9 |
CVS Health | United States | Health Care | 4,302 | 2.8 |
Wells Fargo | United States | Financials | 4,092 | 2.6 |
American International Group | United States | Financials | 3,843 | 2.5 |
Willis Towers Watson | United States | Financials | 3,813 | 2.5 |
First Citizens BancShares | United States | Financials | 3,783 | 2.4 |
Electronic Arts | United States | Communication Services | 3,782 | 2.4 |
Baxter International | United States | Health Care | 3,689 | 2.4 |
Kraft Heinz | United States | Consumer Staples | 3,536 | 2.3 |
Sanofi | France | Health Care | 3,338 | 2.2 |
Cheniere Energy | United States | Energy | 3,326 | 2.1 |
Fidelity National Information Services | United States | Information Technology (IT) | 3,317 | 2.1 |
Crown Castle | United States | Real Estate | 3,278 | 2.1 |
Microsoft | United States | IT | 3,258 | 2.1 |
Sony | United States | Consumer Discretionary | 3,190 | 2.1 |
Johnson Controls International | United States | Industrials | 3,135 | 2.0 |
Cisco Systems | United States | IT | 2,969 | 1.9 |
Allegion | United States | Industrials | 2,963 | 1.9 |
Hasbro | United States | Consumer Discretionary | 2,949 | 1.9 |
Samsung Electronics | South Korea | IT | 2,906 | 1.9 |
HP | United States | IT | 2,809 | 1.8 |
Western Digital | United States | IT | 2,746 | 1.8 |
WPP | United Kingdom | Communication Services | 2,678 | 1.7 |
Cognizant Technology Solutions | United States | IT | 2,669 | 1.7 |
Shell | United Kingdom | Energy | 2,654 | 1.7 |
Amazon | United States | Consumer Discretionary | 2,638 | 1.7 |
Sempra | United States | Utilities | 2,596 | 1.7 |
General Motors | United States | Consumer Discretionary | 2,507 | 1.6 |
Sealed Air | United States | Materials | 2,428 | 1.6 |
Exelon | United States | Utilities | 2,388 | 1.5 |
Novo Nordisk | United States | Health Care | 2,387 | 1.5 |
Keysight Technologies | United States | IT | 2,376 | 1.5 |
Aptiv | United States | Consumer Discretionary | 2,375 | 1.5 |
Laboratory Corporation of America | United States | Health Care | 2,338 | 1.5 |
Crown Holdings | United States | Materials | 2,299 | 1.5 |
International Flavors & Fragrances | United States | Materials | 2,209 | 1.4 |
Dollar Tree | United States | Consumer Discretionary | 2,129 | 1.4 |
Icon | Ireland | Health Care | 2,089 | 1.3 |
PG&E | United States | Utilities | 2,054 | 1.3 |
Diageo | United States | Consumer Staples | 2,037 | 1.3 |
Avnet | United States | IT | 1,967 | 1.3 |
Hess | United States | Energy | 1,820 | 1.2 |
Fortrea Holdings | United States | Health Care | 1,817 | 1.2 |
Elevance Health | United States | Health Care | 1,784 | 1.2 |
Unilever | United States | Consumer Staples | 1,740 | 1.1 |
Lamb Weston Holdings | United States | Consumer Staples | 1,694 | 1.1 |
Air Products & Chemicals | United States | Materials | 1,679 | 1.1 |
Discover Financial Services | United States | Financials | 1,657 | 1.1 |
Humana | United States | Health Care | 1,631 | 1.0 |
CNH Industrial | United States | Industrials | 1,614 | 1.0 |
Teck Resources | Canada | Materials | 1,570 | 1.0 |
Kosmos Energy | United States | Energy | 1,509 | 1.0 |
Wabtec | United States | Industrials | 1,467 | 0.9 |
Fidelity National | United States | Financials | 1,462 | 0.9 |
Walt Disney Company | United States | Communication Services | 1,242 | 0.8 |
NASDAQ | United States | Financials | 982 | 0.6 |
Dominion Energy | United States | Utilities | 970 | 0.6 |
Intel | United States | IT | 620 | 0.4 |
|
|
| --------------- | --------------- |
Portfolio |
|
| 155,578 | 100.0 |
|
|
| ========= | ========= |
All investments are in ordinary shares unless otherwise stated. The number of holdings as at 31 October 2024 was 60 (2023: 60).
At 31 October 2024, the Company did not hold any equity interests comprising more than 3% of any company's share capital.
Strategic Report
The Directors present the Strategic Report of the Company for the year ended 31 October 2024.
Principal activity
The Company carries on business as an investment trust and is listed on the London Stock Exchange. Its principal activity is portfolio investment.
Investment objective
The Company's current objective is to provide an attractive level of income return together with capital appreciation over the long term, whilst incorporating the ESG commitments described in the Company's investment policy.
Proposed amendments to the Company's investment objective and policy are set out in the Chair's Statement and in the Circular to shareholders. As such, this Strategic Report section should be read within the context of the current objectives of the Company.
Strategy, business model and investment policy
Strategy
The Company invests in accordance with the objective given above. The Board is collectively responsible to shareholders for the long-term success of the Company and is its governing body. There is a clear division of responsibility between the Board and BlackRock Fund Managers Limited (the Manager). Matters reserved for the Board include setting the Company's strategy, including its investment objective and policy, setting limits on gearing, capital structure, governance and appointing and monitoring performance of service providers, including the Manager.
Business model
The Company's business model follows that of an externally managed investment trust. Therefore, the Company does not have any employees and outsources its activities to third-party service providers including the Manager who is the principal service provider. In accordance with the Alternative Investment Fund Managers' Directive (AIFMD) the Company is an Alternative Investment Fund (AIF). BlackRock Fund Managers Limited is the Company's Alternative Investment Fund Manager.
The management of the investment portfolio and the administration of the Company have been contractually delegated to the Manager which in turn (with the permission of the Company) has delegated certain investment management and other ancillary services to BlackRock Investment Management (UK) Limited (the Investment Manager or BIM (UK)). The Manager, operating under guidelines determined by the Board, has direct responsibility for the decisions relating to the day-to-day running of the Company and is accountable to the Board for the investment, financial and operating performance of the Company.
The Company delegates fund accounting services to the Manager, which in turn sub-delegates these services to The Bank of New York Mellon (International) Limited (BNY). Other service providers include the Depositary (also BNY) and the Registrar, Computershare Investor Services PLC. Details of the contractual terms with the Manager and the Depositary and more details of arrangements in place governing custody services are set out in the Directors' Report. Oversight of service levels of third-party providers is set out on in the Company's Annual Report for the year ended 31 October 2024.
Investment policy
The Company invests primarily in a diversified portfolio of North American* equity securities, with a focus on large-cap and medium-cap companies that pay and grow their dividends. 'North America', in accordance with the United Nations publication 'Standard Country or Area Codes for Statistical Use', means Bermuda, Canada, Greenland, Saint Pierre and Miquelon and United States of America and 'North American' shall be construed accordingly. The Company may also invest in the equity securities of companies outside North America, subject to the restrictions set out below, and may invest in securities denominated in currencies other than the official currencies of the relevant countries or areas within North America. The Company may also hold other securities from time-to-time including, inter alia, options, futures contracts, convertible securities, fixed interest securities, preference shares, non-convertible preferred stock and depositary receipts (such securities other than equity securities, together 'Other Securities'). The Company may also write covered call options in respect of its portfolio.
To achieve the Company's investment objective, the Investment Manager adopts a stock specific approach in managing the Company's portfolio, selecting investments that it believes will both increase in value over the long term and provide income. The Company does not invest in companies which are not listed, quoted or traded on an exchange at the time of investment, although it may have exposure to such companies where, following investment, the relevant securities cease to be listed, quoted or traded on an exchange. Typically, it is expected that the investment portfolio will comprise between 30 and 60 equity securities. As at 31 October 2024, there were 60 holdings in the Company's portfolio.
The Company may invest in derivatives for efficient portfolio management and in options for investment purposes and may, for investment purposes, write covered call options in respect of its portfolio. Any use of derivatives for efficient portfolio management and/or options for investment purposes is made based on the same principles of risk spreading and diversification that apply to the Company's direct investments. For the avoidance of doubt, the Company does not enter into physical or synthetic short positions or write any uncovered options.
Portfolio risk is mitigated by investing in a diversified spread of investments. In particular, the Company observes the following investment restrictions: no single investment (including for the avoidance of doubt, any single derivative instrument) at the time of investment, shall account for more than 10% of the gross asset value of the Company; no more than 25% of the gross asset value of the Company, at the time of investment, shall be invested in securities which are not deemed to be North American securities; no more than 35% of the gross asset value of the Company, at the time of investment, shall be exposed to any one sector; no more than 20% of the gross asset value of the Company, at the time of investment, shall be invested in Other Securities; and no more than 20% of the Company's portfolio will be under option at any given time.
In managing the Company's portfolio, the Investment Manager, in addition to other investment criteria, takes into account the environmental, social and governance (ESG) characteristics of the relevant issuers of securities and seeks to deliver a superior ESG outcome versus the reference index by aiming for the Company's portfolio to achieve: (i) a better ESG score than the reference index; and (ii) a lower carbon emissions intensity score than the reference index. The reference index is the Russell 1000 Value Index, or such other index as may be agreed by the Company and the Investment Manager to be appropriate from time to time. However, there can be no guarantee that these aims will be achieved and the ESG rating of the Company's portfolio and its carbon emission intensity score may vary.
The Company will apply the BlackRock EMEA Baseline Screens as follows: The Investment Manager will limit and/or exclude (as applicable) direct investment in corporate issuers which, at the time of purchase, in the opinion of the Investment Manager, have exposure to, or ties with, the following sectors (i) the production of certain types of controversial weapons or nuclear weapons; (ii) the production or, subject to specific revenue thresholds, distribution of firearms or small arms ammunition intended for retail to civilians; (iii) subject to specific revenue thresholds, the extraction of certain types of fossil fuel and/or the generation of power from them; (iv) the production of tobacco products or, subject to specific revenue thresholds, certain activities in relation to tobacco-related products; and (v) issuers which have been deemed to have failed to comply with United Nations Global Compact Principles.
Should existing holdings, compliant with the above limits and/or exclusions at the time of investment subsequently become ineligible, they will be divested within a reasonable period of time.
The BlackRock EMEA Baseline Screens described above are only applied by the Investment Manager to direct investments made by the Company in corporate issuers and accordingly the Company may have exposure to other investments (including, but not limited to, derivatives, money market instruments, units or shares in collective investment schemes, cash and assets that can be turned into cash quickly) which are inconsistent with the BlackRock EMEA Baseline Screens and other exclusionary screens.
Following application of the screening policy outlined above, those companies which have not yet been excluded from investment are then evaluated by the Investment Manager based on their ability to manage the risks and opportunities associated with ESG-consistent business practices and their ESG risk and opportunity credentials, such as their leadership and governance framework, which is considered essential for growth, their ability to strategically manage longer-term issues surrounding ESG and the potential impact this may have on a company's financials. To undertake the required analyses, the Investment Manager may use data provided by external ESG data providers, proprietary models and local intelligence and may undertake site visits.
The Company may borrow up to 20 per cent of its net asset value (calculated at the time of draw down), although typically borrowings are not expected to exceed 10 per cent of its net asset value at the time of draw down. Borrowings may be used for investment purposes. The Company has entered into an overdraft facility for this purpose. The Company may enter into interest rate hedging arrangements.
The Company's foreign currency investments are not hedged to Sterling as a matter of general policy. However, the investment team may employ currency hedging, either back to Sterling or between currencies (i.e. cross-hedging of portfolio investments).
In order to comply with the current Listing Rules, the Company also complies with the following investment restrictions (which do not form part of the Company's investment policy): the Company will not conduct any trading activity which is significant in the context of its group as a whole; and the Company will not invest more than 10% of its gross asset value in other listed closed-ended investment funds, whether managed by the Investment Manager or not, except that this restriction shall not apply to investments in listed closed-ended investment funds which themselves have stated investment policies to invest no more than 15% of their gross assets in other listed closed-ended investment funds.
Information regarding the Company's investment exposures is contained within the schedule of investments above. Further information regarding investment risk and activity throughout the year can be found in the Investment Manager's Report.
No material change will be made to the investment policy without the approval of shareholders by ordinary resolution.
* Securities may be deemed to be North American securities if: (i) the company's principal operations are conducted from North America; or (ii) the company's equity securities are listed, quoted or traded on a North American stock exchange; or (iii) the company does a substantial amount of business in North America; or (iv) the issuer of securities is included in the Company's reference index.
Performance
Over the year ended 31 October 2024, the Company's net asset value returned +16.0% compared with a return of +23.2% in the Russell 1000 Value Index. The ordinary share price returned +13.8% (all percentages are calculated in Sterling terms with dividends reinvested). The Investment Manager's Report includes a review of the main developments during the year, together with information on investment activity within the Company's portfolio.
Results and dividends
The results for the Company are set out in the Statement of Comprehensive Income. The total return for the year, after taxation, was a profit of £22,572,000 (2023: loss of £9,456,000) of which the revenue return amounted to a profit of £2,604,000 (2023: profit of £2,945,000) and the capital return amounted to a profit of £19,968,000 (2023: loss of £12,401,000).
The Company pays dividends quarterly. Four quarterly interim dividends of 2.00p per share were paid on 26 April 2024, 5 July 2024, 1 October 2024 and 2 January 2025. Total dividends of 8.00p per share were paid or declared in the year ended 31 October 2024 (2023: 8.00p).
Future prospects
The Board's main focus is to provide an attractive level of income together with capital appreciation over the long term, whilst incorporating the ESG commitments described in the Company's investment policy. Subject to shareholder approval, the investment objective and strategy will be changing as set out above, with more details published in a separate Circular to shareholders, but the core focus will remain on providing an attractive level of income and capital appreciation through investment in US equities with a value style. The future of the Company is dependent upon the success of the investment strategy. The outlook for US equity markets in the next twelve months is discussed in both the Chair's Statement and in the Investment Manager's Report.
Social, community and human rights issues
As an investment trust, the Company has no direct social or community responsibilities or impact on the environment. However, the Directors believe that it is important and in shareholders' interests to consider human rights issues and environmental, social and governance factors when selecting and retaining investments. Details of the Company's approach on socially responsible investment are set out in the Company's Annual Report for the year ended 31 October 2024.
Modern Slavery Act
As an investment vehicle, the Company does not provide goods or services in the normal course of business and does not have customers. The Investment Manager considers modern slavery as part of supply chains and labour management within the investment process. Accordingly, the Directors consider that the Company is not required to make any slavery or human trafficking statement under the Modern Slavery Act 2015. In any event, the Board considers the Company's supply chains, dealing predominantly with professional advisers and service providers in the financial services industry, to be low risk in relation to this matter.
Directors, gender representation and employees
The Directors of the Company on 31 October 2024 are set out in the Directors' Biographies in the Company's Annual Report for the year ended 31 October 2024. The Board consists of two male Directors and two female Directors. The Company does not have any executive employees. Further information on the composition and diversity of the Board is set out in the Company's Annual Report for the year ended 31 October 2024.
Key performance indicators
At each Board meeting, the Directors consider a number of performance measures to assess the Company's success in achieving its objectives. The key performance indicators (KPIs) used to measure the progress and performance of the Company over time, and which are comparable to other investment trusts, are set out in the following table.
Additionally, the Board regularly reviews the performance of the portfolio, as well as the net asset value and share price of the Company and compares this against various companies and indices. The Board also reviews the performance of the portfolio against a reference index, the Russell 1000 Value Index. Information on the Company's performance is given in the Chair's Statement.
Year ended | Year ended | |
Net asset value per ordinary share | 216.24p | 193.51p |
Ordinary share price (mid-market) | 190.00p | 174.00p |
Net asset value total return1,2 | 16.0% | -5.6% |
Reference index - net total return3 | 23.2% | -5.3% |
Share price total return1,2 | 13.8% | -8.1% |
Dividends per share | 8.00p | 8.00p |
Discount to cum income net asset value2,4 | 12.1% | 10.1% |
Revenue return per share | 3.39p | 3.67p |
Ongoing charges5 | 1.06% | 1.03% |
| ========= | ========= |
1 This measures the Company's share price and NAV total return, which assumes dividends paid by the Company have been reinvested.
2 Alternative Performance Measures, see Glossary in the Company's Annual Report for the year ended 31 October 2024.
3 Russell 1000 Value Index.
4 This is the difference between the share price and the NAV per share with debt at par. It is an indicator of the need for shares to be bought back or, in the event of a premium to NAV per share, issued.
5 Ongoing charges represent 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 as a % of average daily net assets.
Principal risks
The Company is exposed to a variety of risks and uncertainties. As required by the 2018 UK Corporate Governance Code (the UK Code), the Board has put in place a robust ongoing process to identify, assess and monitor the principal and emerging risks facing the Company, including those that would threaten its business model. A core element of this process is the Company's risk register which identifies the risks facing the Company and assesses the likelihood and potential impact of each risk and the quality of controls operating to mitigate it. A residual risk rating is then calculated for each risk based on the outcome of the assessment.
The risk register, its method of preparation and the operation of key controls in BlackRock's and third-party service providers' systems of internal control, are reviewed on a regular basis by the Audit Committee. In order to gain a more comprehensive understanding of BlackRock's and other third-party service providers' risk management processes and how these apply to the Company's business, BlackRock's internal audit department provides an annual presentation to the Audit Committee chairs of the BlackRock investment trusts setting out the results of testing performed in relation to BlackRock's internal control processes. The Audit Committee also periodically receives and reviews internal control reports from BlackRock and the Company's service providers.
The Board has undertaken a robust assessment of both the principal and emerging risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity. For instance, the risk that unforeseen or unprecedented events including (but not limited to) heightened geopolitical tensions such as the war in Ukraine and the conflict in the Middle East, inflation and the current cost of living crisis has had a significant impact on global markets. The Board has taken into consideration the risks posed to the Company by these events and incorporated these into the Company's risk register. The threat of climate change has also reinforced the importance of environmental responsibility.
Emerging risks are considered by the Board as they come into view and are incorporated into the existing review of the Company's risk register. Additionally, the Manager considers emerging risks in numerous forums and the Risk and Quantitative Analysis team produces an annual risk survey. Any material risks of relevance to the Company identified through the annual risk survey will be communicated to the Board.
Emerging risks that have been considered by the Board over the year include the impact of climate change, escalating geo-political conflict and technological advances.
The key emerging risks identified are as follows:
Climate change: Investors can no longer ignore the impact that the world's changing climate will have on their portfolios, with the impact of climate change on returns, including climate-related natural disasters, now potentially significant and with the potential to escalate more swiftly than one is able to predict. The Board receives ESG reports from the Manager on the portfolio and the way ESG considerations are integrated into the investment decision making, so as to mitigate risk at the level of stock selection and portfolio construction.
Geopolitical risk: Escalating geopolitical tensions (including, but not limited to tensions in the Middle East and the ongoing war in Ukraine, or deteriorating relations between China and the US/other countries) have a significant negative impact on global markets, with an increasing use of tariffs and domestic regulations making global trade more complex and driving economic fragmentation.
Artificial Intelligence (AI): Advances in computing power means that AI has become a powerful tool that will impact a huge range of areas and with a wide range of applications that have the potential to dislocate established business models and disrupt labour markets, creating uncertainty in corporate valuations. The significant energy required to power this technological revolution will create further pressure on environmental resources and carbon emissions.
The Board will continue to assess these risks on an ongoing basis. In relation to the UK Code, the Board is confident that the procedures that the Company has put in place are sufficient to ensure that the necessary monitoring of risks and controls has been carried out throughout the reporting period.
The principal risks and uncertainties faced by the Company during the financial year, together with the potential effects, controls and mitigating factors are set out below.
Market
Principal risk
Market risk arises from volatility in the prices of the Company's investments. It represents the potential loss the Company might suffer through realising investments in the face of negative market movements.
Changes in general economic and market conditions, such as currency exchange rates, interest rates, rates of inflation, industry conditions, tax laws, political events and trends can also substantially and adversely affect the securities and, as a consequence, the Company's prospects and share price.
Market risk includes the potential impact of events which are outside the Company's control, including (but not limited to) heightened geopolitical tensions and military conflict, a global pandemic and high inflation.
Companies operating in sectors in which the Company invests may be impacted by new legislation governing climate change and environmental issues, which may have a negative impact on their valuation and share price.
Mitigation/Control
The Board considers the diversification of the portfolio, asset allocation, stock selection and levels of gearing on a regular basis and has set investment restrictions and guidelines which are monitored and reported on by the Investment Manager.
The Board monitors the implementation and results of the investment process with the Investment Manager.
The Board also recognises the benefits of a closed-end fund structure in extremely volatile markets such as those experienced as a consequence of the COVID-19 pandemic and the conflicts in Ukraine and the Middle East. Unlike open-ended counterparts, closed-end funds are not obliged to sell-down portfolio holdings at low valuations to meet liquidity requirements for redemptions. During times of elevated volatility and market stress, the ability of a closed-end fund structure to remain invested for the long term enables the portfolio managers to adhere to disciplined fundamental analysis from a bottom-up perspective and be ready to respond to dislocations in the market as opportunities present themselves.
The portfolio managers spend a considerable amount of time understanding the ESG risks and opportunities facing investee companies and conduct research and due diligence on new investments and when monitoring investments in the portfolio.
Investment performance
Principal risk
Returns achieved are reliant primarily upon the performance of the portfolio.
The Board is responsible for:
- deciding the investment strategy to fulfil the Company's objective; and
- monitoring the performance of the Investment Manager and the implementation of the investment strategy.
An inappropriate investment strategy may lead to:
- underperformance compared to the reference index;
- a reduction or permanent loss of capital; and
- dissatisfied shareholders and reputational damage.
Mitigation/Control
To manage this risk the Board:
- regularly reviews the Company's investment mandate and long-term strategy;
- has set investment restrictions and guidelines which the Investment Manager monitors and regularly reports on;
- receives from the Investment Manager a regular explanation of stock selection decisions, portfolio exposure, gearing and any changes in gearing and the rationale for the composition of the investment portfolio;
- monitors and maintains an adequate spread of investments in order to minimise the risks associated with particular countries or factors specific to particular sectors, based on the diversification requirements inherent in the investment policy; and
- receives and reviews regular reports showing an analysis of the Company's performance against the Russell 1000 Value Index and other similar indices.
Operational
Principal risk
In common with most other investment trust companies, the Company has no employees. The Company therefore relies on the services provided by third-parties and is dependent on the control systems of the Manager, the Depositary and Fund Accountant, which maintain the Company's assets, dealing procedures and accounting records.
The security of the Company's assets, dealing procedures, accounting records and adherence to regulatory and legal requirements depend on the effective operation of the systems of these other third-party service providers. There is a risk that a major disaster, such as floods, fire, a global pandemic, or terrorist activity, renders the Company's service providers unable to conduct business at normal operating effectiveness.
Failure by any service provider to carry out its obligations could have a material adverse effect on the Company's performance. Disruption to the accounting, payment systems or custody records (including cyber security risk) could prevent the accurate reporting and monitoring of the Company's financial position.
Mitigation/Control
Due diligence is undertaken before contracts are entered into with third-party service providers. Thereafter, the performance of the provider is subject to regular review and reported to the Board.
The Board reviews on a regular basis an assessment of the fraud risks that the Company could potentially be exposed to and also a summary of the controls put in place by the Manager, Depositary, Custodian, Fund Accountant and Registrar specifically to mitigate these risks.
Most third-party service providers produce Service Organisation Control (SOC 1) reports to provide assurance regarding the effective operation of internal controls as reported on by their reporting accountants. These reports are provided to the Audit Committee for review. The Committee would seek further representations from service providers if not satisfied with the effectiveness of their control environment.
The Company's financial instruments held in custody are subject to a strict liability regime and, in the event of a loss of such financial instruments held in custody, the Depositary must return financial instruments of an identical type or the corresponding amount, unless able to demonstrate the loss was a result of an event beyond its reasonable control.
The Board reviews the overall performance of the Manager, Investment Manager and all other third-party service providers on a regular basis and compliance with the Investment Management Agreement annually.
The Board also considers the business continuity arrangements of the Company's key service providers on an ongoing basis and reviews these as part of its review of the Company's risk register.
Legal & Regulatory Compliance
Principal risk
The Company has been approved by HM Revenue & Customs as an investment trust, subject to continuing to meet the relevant eligibility conditions, and operates as an investment trust in accordance with Chapter 4 of Part 24 of the Corporation Tax Act 2010. As such, the Company is exempt from corporation tax on capital gains on the profits realised from the sale of its investments.
Any breach of the relevant eligibility conditions could lead to the Company losing investment trust status and being subject to corporation tax on capital gains realised within the Company's portfolio. In such event, the investment returns of the Company may be adversely affected.
A serious regulatory breach could result in the Company and/or the Directors being fined or the subject of criminal proceedings, or the suspension of the Company's shares which would in turn lead to a breach of the Corporation Tax Act 2010.
Amongst other relevant laws, the Company is required to comply with the provisions of the Companies Act 2006, the Alternative Investment Fund Managers' Directive, the UK Listing Rules, Disclosure Guidance and Transparency Rules, the Sanctions and Anti-Money Laundering Act 2018 and the Market Abuse Regulation.
Mitigation/Control
The Investment Manager monitors investment movements, the level and type of forecast income and expenditure and the amount of proposed dividends to ensure that the provisions of Chapter 4 of Part 24 of the Corporation Tax Act 2010 are not breached. The results are reported to the Board at each meeting.
Compliance with the accounting rules affecting investment trusts is also carefully and regularly monitored.
The Company Secretary, Manager and the Company's professional advisers provide regular reports to the Board in respect of compliance with all applicable rules and regulations. The Board and Manager also monitor changes in government policy and legislation which may have an impact on the Company.
The Company's Investment Manager, BlackRock, at all times complies with the sanctions administered by the UK Office of Financial Sanctions Implementation, the United States Treasury's Office of Foreign Assets Control, the United Nations, European Union member states and any other applicable regimes.
Financial
Principal risk
The Company's investment activities expose it to a variety of financial risks which include market risk, counterparty credit risk, liquidity risk and the valuation of financial instruments.
Mitigation/Control
Details of these risks are disclosed in note 15 to the financial statements in the Company's Annual Report for the year ended 31 October 2024, together with a summary of the policies for managing these risks.
Marketing
Principal risk
Marketing efforts are inadequate or do not comply with relevant regulatory requirements. There is a failure to communicate adequately with shareholders or reach out to potential new shareholders resulting in reduced demand for the Company's shares and a widening of the discount.
Mitigation/Control
The Board reviews marketing strategy and initiatives and the Manager is required to provide regular updates on progress. BlackRock has a dedicated investment trust sales team visiting both existing and potential clients on a regular basis. The Manager also devotes considerable resources marketing to self-directed private investors. Data on client meetings and issues raised are provided to the Board on a regular basis.
All investment trust marketing documents are subject to appropriate review and authorisation.
Section 172 statement: Promoting the success of the Company
The Companies (Miscellaneous Reporting) Regulations 2018 require directors to explain in greater detail how they have discharged their duties under Section 172(1) of the Companies Act 2006 in promoting the success of their companies for the benefit of members as a whole. This includes the likely consequences of their decisions in the longer term and how they have taken wider stakeholders' needs into account.
The disclosure that follows covers how the Board has engaged with and understands the views of stakeholders and how stakeholders' needs have been taken into account, the outcome of this engagement and the impact that it has had on the Board's decisions. The Board considers the main stakeholders in the Company to be the Manager, Investment Manager and the shareholders. In addition to this, the Board considers investee companies and key service providers of the Company to be stakeholders; the latter comprise the Company's Custodian, Depositary, Registrar and Broker.
Stakeholders
Shareholders
Continued shareholder support and engagement are critical to the continued existence of the Company and the successful delivery of its long-term strategy. The Board is focused on fostering good working relationships with shareholders and on understanding the views of shareholders in order to incorporate them into the Board's strategy and objectives in delivering an attractive level of income return together with capital appreciation over the long term, whilst also incorporating the ESG commitments as described in the Company's investment policy.
Manager and Investment Manager
The Company's Board has delegated the management of the Company's portfolio to BlackRock Investment Management (UK) Limited (the Manager), as well as ancillary functions such as administration, secretarial, accounting and marketing services. The Manager has sub-delegated portfolio management to the Investment Manager (BlackRock Investment Management LLC). Successful management of shareholders' assets by the Investment Manager is critical for the Company to deliver successfully its investment strategy and meet its objective. The Company is also reliant on the Manager as AIFM to provide support in meeting relevant regulatory obligations under the AIFMD and other relevant legislation.
Other key service providers
In order for the Company to function as an investment trust on the London Stock Exchange's (LSE) main market for listed securities and generally function as an investment trust with a listing on the official list of the FCA, the Board relies on a diverse range of advisors for support in meeting relevant obligations and safeguarding the Company's assets. For this reason, the Board considers the Company's Custodian, Depositary, Registrar and Broker to be stakeholders. The Board maintains regular contact with its key external service providers and receives regular reporting from them through the Board and Committee meetings, as well as outside of the regular meeting cycle.
Investee companies
Portfolio holdings are ultimately shareholders' assets and the Board recognises the importance of good stewardship and communication with investee companies in meeting the Company's investment objective and strategy. The Board monitors the Manager's stewardship activities and receives regular feedback from the Manager in respect of meetings with the management.
A summary of the key areas of engagement undertaken by the Board with its key stakeholders in the year under review and how Directors have acted upon this to promote the long-term success of the Company are set out below.
Area of Engagement
Investment mandate and objective
Issue
The Board is committed to promoting the role and success of the Company in delivering on its investment mandate to shareholders over the long term. The Board also has responsibility to shareholders to ensure that the Company's portfolio of assets is invested in line with the stated investment objective and in a way that ensures an appropriate balance between spread of risk and portfolio returns.
Engagement
The Board worked closely with the Investment Manager throughout the year in further developing investment strategy and underlying policies in the interests of shareholders and future investors. During the year the Board held meetings with a wide range of BlackRock personnel ahead of the introduction of the SDR changes. They considered the implications for the existing strategy of the regulatory changes before concluding to make the name change as announced on 13 November 2024.
As part of a wider exercise, the Board has undertaken a review of the challenges facing the Company and, along with its adviser, considered a number of different strategies. Amongst these, the Board asked BlackRock to put forward alternatives approaches for the management of the Company's portfolio.
Impact
On 13 November 2024, the Company's name was changed to BlackRock American Income Trust plc and, to reflect the Naming & Marketing Rules under SDR, the Company was required to make non-material changes to its investment objective and investment policy. The Company's current investment objective is to provide an attractive level of income together with capital appreciation over the long term, whilst incorporating the ESG commitments described in the Company's investment policy.
As part of a wider exercise the Board has undertaken a detailed review of the Company's strategy and is proposing a number of additional changes as set out above, with more details published in a separate Circular to shareholders.
Shareholders
Issue
Continued shareholder support and engagement are critical to the continued existence of the Company and the successful delivery of its long-term strategy.
Engagement
The Board is committed to maintaining open channels of communication and engaging with shareholders. The Company welcomes and encourages attendance and participation from shareholders at its Annual General Meetings. Shareholders will have the opportunity to meet the Directors and Investment Manager and to address questions to them directly. The Investment Manager will also provide a presentation on the Company's performance and outlook. The Chair and Senior Independent Director offer meetings to all major shareholders and also meet directly with shareholders providing a forum for canvassing their views and enabling the Board to be aware of any issues of concern.
The Annual Report and Half Yearly Financial Report are available on the BlackRock website and are also circulated to shareholders. In addition, regular updates on performance, monthly factsheets, the daily NAV and other information are also published on the Manager's website at www.blackrock.com/uk/brai. The Company's website and marketing initiatives are geared to providing a breadth and depth of informative and engaging content.
The Board also works closely with the Manager to develop the Company's marketing strategy. Unlike trading companies, one-to-one shareholder meetings normally take the form of a meeting with the Investment Manager as opposed to members of the Board. The Company's willingness to enter into discussions with institutional shareholders is also demonstrated by the programmes of institutional presentations by the portfolio managers. Additionally, the Investment Manager regularly presents at professional and private investor events to help explain and promote the Company's strategy.
If shareholders wish to raise issues or concerns with the Board, they are welcome to do so at any time. The Chair is available to meet directly with shareholders periodically to understand their views on governance and the Company's performance where they wish to do so. She may be contacted via the Company Secretary whose details are given in the Company's Annual Report for the year ended 31 October 2024.
Impact
The Board values any feedback and questions from shareholders ahead of and during Annual General Meetings in order to gain an understanding of their views and will take action when and as appropriate. Feedback and questions will also help the Company evolve its reporting, aiming to make reports more transparent and understandable.
During the year the Chair and Senior Independent Director offered meetings to all identifiable major shareholders and met with a number of them, without any representatives of the management group present. These meetings, and private Board discussions with its Broker Cavendish, are particularly important as the Company approaches its continuation vote. Feedback from all substantive meetings between the Investment Manager and shareholders is also shared with the Board. The Directors also receive updates from the Company's Broker on any feedback from shareholders, as well as share trading activity, share price performance and updates from the Investment Manager.
Portfolio holdings are ultimately shareholders' assets and the Board recognises the importance of good stewardship and communication with investee companies in meeting the Company's investment objective and strategy. The Board monitors the Manager's stewardship activities and receives regular feedback from the Investment Manager in respect of meetings with the management of portfolio companies.
Responsible investing
Issue
Good governance and consideration of ESG investment are key factors in making investment decisions. Climate change is becoming a defining factor in companies' long-term prospects across the investment spectrum, with significant and lasting implications for economic growth and prosperity.
Engagement
The Board believes that responsible investment is important to the longer-term delivery of the Company's success. The Board works closely with the Investment Manager to review regularly and challenge the Company's performance, investment strategy and underlying policies to ensure that the Company's investment objective continues to be met in an effective and responsible way in the interests of shareholders and future investors.
The Investment Manager's approach to the consideration of ESG factors in respect of the Company's portfolio, as well as the Investment Manager's engagement with investee companies to encourage the adoption of business practices which support long-term value creation, are kept under review by the Board. The Board also expects to be informed by the Manager of any sensitive voting issues involving the Company's investments.
The Investment Manager reports to the Board in respect of its ESG policies and how these are integrated into the investment process; a summary of BlackRock's approach to ESG is set out in the Company's Annual Report for the year ended 31 October 2024. The Investment Manager's engagement and voting policy is detailed in the Company's Annual Report for the year ended 31 October 2024 and on the BlackRock website.
Impact
The Board and Investment Manager believe there is likely to be a positive correlation between strong ESG practices and investment performance over time.
The proposal to amend the Company's investment objective and investment policy will remove the current ESG commitments. If the amendment is approved, the Company will cease to meet the requirements of an Article 8 fund under the European Union Sustainable Finance Disclosure Regulation and will become an Article 6 fund. Whilst ESG information and data still form some of the important inputs of the research and investment process, by removing the ESG commitments the portfolio managers will have access to the entire investment universe and will be better able to seek out the best total return for shareholders.
Management of share rating
Issue
The Board recognises that it is in the long-term interests of shareholders that the Company's shares do not trade at a significant discount (or premium) to their prevailing NAV. The Board believes this may be achieved by the use of share buy back powers and the issue of shares.
Engagement
The Board monitors the Company's share rating on an ongoing basis and receives regular updates from the Manager and the Company's Broker, Cavendish Securities, regarding the level of discount/premium.
The Board believes that the best way of maintaining the share rating at an optimal level over the long term is to create demand for the shares in the secondary market. To this end, the Investment Manager is devoting considerable effort to broadening the awareness of the Company, particularly to wealth managers and to the wider retail market.
In addition, the Board has worked closely with the Manager to develop the Company's marketing strategy, with the aim of ensuring effective communication with existing shareholders and to attract new shareholders to the Company in order to improve liquidity in the Company's shares and to sustain the share rating of the Company.
Impact
The Board continues to monitor the Company's premium/discount to NAV and will look to buy back or issue shares if it is deemed to be in the interests of shareholders as a whole. During the financial year and up to the date of this report the Company did not reissue any shares. The Company bought back 11,417,060 shares both during the financial year and since the year end.
The Company's average discount for the year to 31 October 2024 was 9.6% and the discount at 25 February 2025 stood at 7.4%. In addition, the Board convened a General Meeting to renew the Company's share buyback powers. The resolution was passed on 23 January 2025.
Service levels of third-party providers
Issue
The Board acknowledges the importance of ensuring that the Company's principal suppliers are providing a suitable level of service, including the Manager in respect of investment performance and delivering on the Company's investment mandate; the Custodian and Depositary in respect of their duties towards safeguarding the Company's assets; the Registrar in its maintenance of the Company's share register and dealing with investor queries; and the Company's Broker in respect of the provision of advice and acting as a market maker for the Company's shares.
Engagement
The Manager reports to the Board on the Company's performance on a regular basis. The Board carries out a robust annual evaluation of the Manager's performance, their commitment and available resources.
The Board performs an annual review of the service levels of all third-party service providers and concludes on their suitability to continue in their role. The Board receives regular updates from the AIFM, Depositary, Registrar and Broker on an ongoing basis. For example, our Broker, Cavendish Securities, reports to the Board at each board meeting and provides direct unfiltered feedback on the views of the shareholders, wider market considerations and offers Company specific advice. They also arrange meetings for major shareholders to meet the Chair, or other Directors, outside the normal general meeting cycle. The AIFM and Depositary also attend the Audit Committee meetings and provide a report on their monitoring activities, whilst the Registrar produces a quarterly report to monitor their level of service and ensure it is acceptable.
The Board works closely with the Manager to gain comfort that relevant business continuity plans are operating effectively for all of the Company's key service providers.
Impact
If the Company's continuation vote is passed, the Board will proceed with the appointment of a new Director.
The Board has received updates in respect of business continuity planning from the Company's Manager, Custodian, Depositary, Fund Accountant, Registrar and Printer and is confident that arrangements are in place to ensure a good level of service will continue to be provided.
Board composition
Issue
The Board is committed to ensuring that its own composition brings an appropriate balance of knowledge, experience and skills, and that it is compliant with best corporate governance practice under the UK Code, including guidance on tenure and the composition of the Board's committees.
Engagement
The Board has engaged the services of an external search consultant, Cornforth Consulting Ltd, to identify potential candidates to replace Ms Ryder who will be retiring as a Director following the forthcoming Annual General Meeting. The Nomination Committee agreed the selection criteria and the method of selection, recruitment and appointment.
All Directors are subject to a formal evaluation process on an annual basis (more details and the conclusions of the 2024 evaluation process are given in the Company's Annual Report for the year ended 31 October 2024). All Directors stand for re-election by shareholders annually.
Shareholders may attend the Annual General Meeting and raise any queries in respect of Board composition or individual Directors in person or may contact the Company Secretary or the Chair using the details provided in the Company's Annual Report for the year ended 31 October 2024 with any issues.
Impact
If the Company's continuation vote is passed, the Board will proceed with the appointment of a new Director.
As at the date of this report, the Board was comprised of two men and two women. The Board considers that the tenure of the Chair and Directors should be determined principally by how the Board's purpose in providing strategic leadership, governance and bringing challenge and support to the Manager can best be maintained, whilst also recognising the importance of independence, refreshment, diversity and retention of accumulated knowledge. It firmly believes that an appropriate balance of these factors is essential for an effective functioning board and, at times, will naturally result in some longer serving Directors. Furthermore, the Board wishes to retain the flexibility to recruit outstanding candidates when they become available rather than simply adding new Directors based upon a predetermined timetable.
Details of each Directors' contribution to the success and promotion of the Company are set out in the Directors' Report and details of Directors' biographies can be found in the Company's Annual Report for the year ended 31 October 2024.
The Directors are not aware of any issues that have been raised directly by shareholders in respect of Board composition in the year under review. Details of the proxy voting results in favour and against individual Directors' re-election at the 2024 Annual General Meeting are given on the Manager's website at www.blackrock.com/uk/brai.
Viability statement
In accordance with provision 31 of the 2018 UK Corporate Governance Code, the Directors have assessed the prospects of the Company over a longer period than the twelve months referred to by the 'Going Concern' guidelines.
The Directors expect the Company to continue as a going concern and is proposing to change its investment strategy to adopt a systematic active investment process subject to approval by shareholders. The new strategy has committed to a conditional 100% tender offer if the Company does not outperform its benchmark index by 0.50% per annum over each three-year period from 1 May 2025 which they believe is attractive to existing and prospective shareholders. The Directors assess viability over a rolling three-year period as they believe it best balances the Company's long-term objective, its financial flexibility and scope with the difficulty in forecasting economic conditions which could affect both the Company and its shareholders. The Company also undertakes a continuation vote every three years with the next one scheduled to take place at the forthcoming Annual General Meeting.
In making an assessment on the viability of the Company, the Board has considered the following:
- the expected support for a continuation vote and the change in investment strategy as described in the Going Concern Statement in the Company's Annual Report for the year ended 31 October 2024;
- the impact of a significant fall in US equity markets on the value of the Company's investment portfolio;
- the principal and emerging risks and uncertainties, as set out above, and their potential impact;
- the level of ongoing demand for the Company's shares;
- a significant reduction in the Company's ongoing charges in the new investment strategy;
- the Company's share price discount/premium to NAV;
- the liquidity of the Company's portfolio; and
- the level of income generated by the Company and future income and expenditure forecasts.
The Directors have concluded that there is a reasonable expectation that the Company will continue in operation and meet its liabilities as they fall due over the period of their assessment based on the following considerations:
- the Investment Manager's compliance with the investment objective and policy, its investment strategy and asset allocation;
- the portfolio mainly comprises readily realisable assets with low value at risk which continue to offer a broad range of investment opportunities for shareholders as part of a balanced investment portfolio;
- the ongoing processes for monitoring operating costs and income which are considered to be reasonable in comparison to the Company's total assets; and
- the Board's discount management policy.
In addition, the Board's assessment of the Company's ability to operate in the foreseeable future is included in the Going Concern Statement which can be found in the Directors' Report.
BY ORDER OF THE BOARD
CAROLINE DRISCOLL
FOR AND ON BEHALF OF
BLACKROCK INVESTMENT MANAGEMENT (UK) LIMITED
Company Secretary
27 February 2025
Related Party and Transactions with the Investment Manager and AIFM
BlackRock Fund Managers Limited (BFM) provides management and administration services to the Company under a contract which is terminable on six months' notice. BFM has (with the Company's consent) delegated certain portfolio and risk management services, and other ancillary services, to BlackRock Investment Management (UK) Limited (BIM (UK)). Further details of the investment management contract are disclosed in the Directors' Report in the Company's Annual Report for the year ended 31 October 2024.
The investment management fee due for the year ended 31 October 2024 amounted to £1,146,000 (2023: £1,144,000). At the year end, £1,128,000 was outstanding in respect of the management fee (2023: £837,000).
In addition to the above services, BIM (UK) has provided the Company with marketing services. The total fees paid or payable for these services for the year ended 31 October 2024 amounted to £87,000 excluding VAT (2023: £94,000). Marketing fees of £35,000 excluding VAT (2023: £123,000) were outstanding as at the year end.
The Company has an investment in the BlackRock Institutional Cash Series plc - US Dollar Liquid Environmentally Aware Fund of £801,000 (2023: £879,000) at the year end, which is a fund managed by a company within the BlackRock Group. The Company's investment in the Cash Fund is held in a share class on which no management fees are paid to BlackRock to avoid double dipping.
The ultimate holding company of the Manager and the Investment Manager is BlackRock, Inc., a company incorporated in Delaware, USA.
As at 31 October 2024, the Board consisted of four non-executive Directors, all of whom were considered to be independent by the Board. None of the Directors has a service contract with the Company. For the year ended 31 October 2024, the Chair received an annual fee of £44,000, the Chairman of the Audit Committee received an annual fee of £38,000 and each other Director received an annual fee of £31,500. With effect from 1 November 2024, the Chair receives an annual fee of £45,000, the Chairman of the Audit Committee receives an annual fee of £39,000 and each other Director receives an annual fee of £32,500.
As at 31 October 2024, all members of the Board held shares in the Company. Alice Ryder held 9,047 ordinary shares, David Barron held 11,500 ordinary shares, Melanie Roberts held 10,000 ordinary shares and Solomon Soquar held 10,000 ordinary shares.
All of the holdings of the Directors are beneficial. Since the year end there have been no further changes to the Directors' share interests.
Statement of Directors' Responsibilities in respect of the Annual Report and Financial Statements
The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable United Kingdom law and regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under that law, the Directors have elected to prepare the financial statements under UK-adopted International Accounting Standards (IAS) in conformity with the requirements of the Companies Act 2006. Under Company law, the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company as at the end of each financial year and of the profit or loss of the Company for that period.
In preparing those financial statements, the Directors are required to:
- present fairly the financial position, financial performance and cash flows of the Company;
- select suitable accounting policies in accordance with IAS 8, 'Accounting Policies, Changes in Accounting Estimates and Errors,' and then apply them consistently;
- present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;
- make judgements and estimates that are reasonable and prudent;
- state whether the financial statements have been prepared in accordance with IAS in conformity with the requirements of the Companies Act 2006, subject to any material departures disclosed and explained in the financial statements;
- provide additional disclosures when compliance with the specific requirements in IAS in conformity with the requirements of the Companies Act 2006 is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the Company's financial position and financial performance; and
- prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors are also responsible for preparing the Strategic Report, Directors' Report, the Directors' Remuneration Report, the Corporate Governance Statement and the Report of the Audit Committee in accordance with the Companies Act 2006 and applicable regulations, including the requirements of the Listing Rules and the Disclosure Guidance and Transparency Rules. The Directors have delegated responsibility to the Manager for the maintenance and integrity of the Company's corporate and financial information included on the BlackRock website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Each of the Directors, whose names are listed in the Company's Annual Report for the year ended 31 October 2024, confirm to the best of their knowledge that:
- the financial statements, which have been prepared in accordance with IAS in conformity with the requirements of the Companies Act 2006, give a true and fair view of the assets, liabilities, financial position and net profit of the Company; and
- the Strategic Report contained in the Annual Report and Financial Statements includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces.
The 2018 UK Corporate Governance Code also requires Directors to ensure that the Annual Report and Financial Statements are fair, balanced and understandable. In order to reach a conclusion on this matter, the Board has requested that the Audit Committee advise on whether it considers that the Annual Report and Financial Statements fulfil these requirements. The process by which the Committee has reached these conclusions is set out in the Audit Committee's report in the Company's Annual Report for the year ended 31 October 2024. As a result, the Board has concluded that the Annual Report and Financial Statements for the year ended 31 October 2024, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company's position, performance, business model and strategy.
For and on behalf of the Board
ALICE RYDER
Chair
27 February 2025
Statement of Comprehensive Income for the year ended 31 October 2024
|
| 2024 | 2023 | ||||
| Revenue | Capital | Total | Revenue | Capital | Total | |
Income from investments held at fair value through profit or loss | 3 | 3,842 | - | 3,842 | 4,252 | - | 4,252 |
Other income | 3 | 13 | - | 13 | 11 | - | 11 |
|
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- |
Total income |
| 3,855 | - | 3,855 | 4,263 | - | 4,263 |
|
| ========= | ========= | ========= | ========= | ========= | ========= |
Net profit/(loss) on investments and options held at fair value through profit or loss |
| - | 20,909 | 20,909 | - | (11,550) | (11,550) |
Net (loss)/gain on foreign exchange |
| - | (67) | (67) | - | 50 | 50 |
|
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- |
Total |
| 3,855 | 20,842 | 24,697 | 4,263 | (11,500) | (7,237) |
|
| ========= | ========= | ========= | ========= | ========= | ========= |
Expenses |
|
|
|
|
|
|
|
Investment management fee | 4 | (286) | (860) | (1,146) | (286) | (858) | (1,144) |
Other operating expenses | 5 | (534) | (10) | (544) | (521) | (4) | (525) |
|
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- |
Total operating expenses |
| (820) | (870) | (1,690) | (807) | (862) | (1,669) |
|
| ========= | ========= | ========= | ========= | ========= | ========= |
Net profit/(loss) on ordinary activities before finance costs and taxation |
| 3,035 | 19,972 | 23,007 | 3,456 | (12,362) | (8,906) |
Finance costs |
| (2) | (4) | (6) | (13) | (39) | (52) |
|
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- |
Net profit/(loss) on ordinary activities before taxation |
| 3,033 | 19,968 | 23,001 | 3,443 | (12,401) | (8,958) |
Taxation |
| (429) | - | (429) | (498) | - | (498) |
|
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- |
Profit/(loss) for the year |
| 2,604 | 19,968 | 22,572 | 2,945 | (12,401) | (9,456) |
|
| ========= | ========= | ========= | ========= | ========= | ========= |
Earnings/(loss) per ordinary share (pence) | 7 | 3.39 | 25.97 | 29.36 | 3.67 | (15.46) | (11.79) |
|
| ========= | ========= | ========= | ========= | ========= | ========= |
The total columns of this statement represent the Company's Statement of Comprehensive Income, prepared in accordance with UK-adopted International Accounting Standards (IAS). The supplementary revenue and capital accounts are both prepared under guidance published by the Association of Investment Companies (AIC). All items in the above statement derive from continuing operations. No operations were acquired or discontinued during the year. All income is attributable to the equity holders of the Company.
The Company does not have any other comprehensive income/(loss) (2023: £nil). The net profit/(loss) for the year disclosed above represents the Company's total comprehensive income.
Statement of Changes in Equity for the year ended 31 October 2024
| Called | Capital |
|
|
|
| |
For the year ended 31 October 2024 |
|
|
|
|
|
|
|
At 31 October 2023 |
| 1,004 | 1,460 | 82,540 | 69,201 | 584 | 154,789 |
Total comprehensive income: |
|
|
|
|
|
|
|
Net profit for the year |
| - | - | - | 19,968 | 2,604 | 22,572 |
Transactions with owners, recorded directly to equity: |
|
|
|
|
|
|
|
Ordinary shares bought back into treasury | 8,9 | - | - | (16,067) | - | - | (16,067) |
Share buyback costs | 8,9 | - | - | (61) | - | - | (61) |
Dividends paid | 6 | - | - | - | (3,477) | (2,689) | (6,166) |
|
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- |
At 31 October 2024 |
| 1,004 | 1,460 | 66,412 | 85,692 | 499 | 155,067 |
|
| ========= | ========= | ========= | ========= | ========= | ========= |
For the year ended 31 October 2023 |
|
|
|
|
|
|
|
At 31 October 2022 |
| 1,004 | 1,460 | 82,963 | 84,940 | 719 | 171,086 |
Total comprehensive (loss)/income: |
|
|
|
|
|
|
|
Net (loss)/profit for the year |
| - | - | - | (12,401) | 2,945 | (9,456) |
Transactions with owners, recorded directly to equity: |
|
|
|
|
|
|
|
Ordinary shares bought back into treasury | 8,9 | - | - | (421) | - | - | (421) |
Share buyback costs | 8,9 | - | - | (2) | - | - | (2) |
Dividends paid | 6 | - | - | - | (3,338) | (3,080) | (6,418) |
|
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- |
At 31 October 2023 |
| 1,004 | 1,460 | 82,540 | 69,201 | 584 | 154,789 |
|
| ========= | ========= | ========= | ========= | ========= | ========= |
For information on the Company's distributable reserves please refer to note 14 in the Company's Annual Report for the year ended 31 October 2024.
Statement of Financial Position as at 31 October 2024
| 2024 | 2023 | |
Non current assets |
|
|
|
Investments held at fair value through profit or loss |
| 155,578 | 154,212 |
Current assets |
|
|
|
Current tax asset |
| 97 | 130 |
Other receivables |
| 212 | 2,614 |
Cash and cash equivalents |
| 1,075 | 1,092 |
|
| --------------- | --------------- |
Total current assets |
| 1,384 | 3,836 |
|
| --------------- | --------------- |
Total assets |
| 156,962 | 158,048 |
|
| ========= | ========= |
Current liabilities |
|
|
|
Current tax liability |
| - | (6) |
Other payables |
| (1,895) | (3,253) |
|
| --------------- | --------------- |
Total current liabilities |
| (1,895) | (3,259) |
|
| --------------- | --------------- |
Net assets |
| 155,067 | 154,789 |
|
| ========= | ========= |
Equity |
|
|
|
Called up share capital |
| 1,004 | 1,004 |
Capital redemption reserve | 9 | 1,460 | 1,460 |
Special reserve | 9 | 66,412 | 82,540 |
Capital reserves | 9 | 85,692 | 69,201 |
Revenue reserve | 9 | 499 | 584 |
|
| --------------- | --------------- |
Total shareholders' funds |
| 155,067 | 154,789 |
|
| --------------- | --------------- |
Net asset value per ordinary share (pence) | 7 | 216.24 | 193.51 |
|
| ========= | ========= |
Cash Flow Statement for the year ended 31 October 2024
2024 | 2023 | |
Operating activities |
|
|
Net profit/(loss) on ordinary activities before taxation | 23,001 | (8,958) |
Add back finance costs | 6 | 52 |
Net (profit)/loss on investments and options held at fair value through profit or loss (including transaction costs) | (20,909) | 11,550 |
Net loss/(gain) on foreign exchange | 67 | (50) |
Sales of investments held at fair value through profit or loss | 133,284 | 98,933 |
Purchases of investments held at fair value through profit or loss | (113,741) | (89,270) |
Decrease in other receivables | 17 | 61 |
Increase in other payables | 208 | 195 |
Decrease in amounts due from brokers | 2,385 | 612 |
Decrease in amounts due to brokers | (1,918) | (911) |
| --------------- | --------------- |
Net cash inflow from operating activities before taxation | 22,400 | 12,214 |
Taxation paid | (402) | (483) |
| --------------- | --------------- |
Net cash inflow from operating activities | 21,998 | 11,731 |
| ========= | ========= |
Financing activities |
|
|
Interest paid | (6) | (52) |
Payments for ordinary shares bought back into treasury | (15,776) | (423) |
Dividends paid | (6,166) | (6,418) |
| --------------- | --------------- |
Net cash outflow from financing activities | (21,948) | (6,893) |
| ========= | ========= |
Increase in cash and cash equivalents | 50 | 4,838 |
Effect of foreign exchange rate changes | (67) | 50 |
| --------------- | --------------- |
Change in cash and cash equivalents | (17) | 4,888 |
Cash and cash equivalents at start of year | 1,092 | (3,796) |
| --------------- | --------------- |
Cash and cash equivalents at end of year | 1,075 | 1,092 |
| ========= | ========= |
Comprised of: |
|
|
Cash at bank | 274 | 213 |
Cash Fund1 | 801 | 879 |
| --------------- | --------------- |
| 1,075 | 1,092 |
| ========= | ========= |
1 Cash Fund represents funds held on deposit with the BlackRock Institutional Cash Series plc - US Dollar Liquid Environmentally Aware Fund.
Notes to the Financial Statements for the year ended 31 October 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. The Company was incorporated in England and Wales on 30 August 2012 and this is the eleventh Annual Report.
2. Accounting policies
The principal accounting policies adopted by the Company have been applied consistently, other than where new policies have been adopted and are set out below.
(a) Basis of preparation
The financial statements have been prepared under the historic cost convention modified by the revaluation of certain financial assets and financial liabilities held at fair value through profit or loss and in accordance with UK-adopted International Accounting Standards (IAS). All of the Company's operations are of a continuing nature.
Insofar as the Statement of Recommended Practice (SORP) for investment trust companies and venture capital trusts, issued by the Association of Investment Companies (AIC) in October 2019 and updated in July 2022, is compatible with UK-adopted IAS, the financial statements have been prepared in accordance with the guidance set out in the SORP.
Substantially, all of the assets of the Company consist of securities that are readily realisable and, accordingly, the Directors are satisfied that the Company has adequate resources to continue in operational existence for the foreseeable future for the period to 28 February 2026, being a period of at least twelve months from the date of approval of the financial statements and therefore consider the going concern assumption to be appropriate. (See the Directors' Report in the Annual Report for further details on going concern.) The Directors have reviewed the income and expense projections, the continuation vote coming up at the forthcoming AGM and the nature, liquidity and stock volatility of the investment portfolio in making their assessment.
The Directors have considered the impact of climate change on the value of the investments included in the Financial Statements and have concluded there was no further impact of climate change to be considered as the investments are valued based on market pricing as required by IFRS 13.
None of the Company's other assets and liabilities were considered to be potentially impacted by climate change.
The Company's financial statements are presented in Sterling, which is the functional currency of the Company and the currency of the primary economic environment in which the Company operates. All values are rounded to the nearest thousand pounds (£'000) except where otherwise indicated.
Adoption of new and amended International Accounting Standards and interpretations:
IFRS 17 - Insurance contracts (effective 1 January 2023). This standard replaced IFRS 4 and applies to all types of insurancecontracts. IFRS 17 provides a consistent and comprehensive model for insurance contracts covering all relevant accounting aspects.
IAS 12 - Deferred tax related to assets and liabilities arising from a single transaction (effective 1 January 2023). TheInternational 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.
IAS 8 - Definition of accounting estimates (effective 1 January 2023). The IASB has amended IAS 8 Accounting Policies,Changes in Accounting Estimates and Errors to help distinguish between accounting policies and accounting estimates, replacing the definition of accounting estimates.
IAS 1 and IFRS Practice Statement 2 - Disclosure of accounting policies (effective 1 January 2023). The IASB has amendedIAS 1 Presentation of Financial Statements to help preparers in deciding which accounting policies to disclose in their financial statements by stating that an entity is now required to disclose material accounting policies instead of significant accounting policies.
IAS 12 - International Tax Reform Pillar Two Model Rules (effective 1 January 2023). The IASB has published amendmentsto IAS 12 Income Taxes to respond to stakeholders' concerns about the potential implications of the imminent implementation of the OECD pillar two rules on the accounting for income taxes. The amendment is an exception to the requirements in IAS 12 that an entity does not recognise and does not disclose information about deferred tax assets as liabilities related to the OECD pillar two income taxes and a requirement that current tax expenses must be disclosed separately to pillar two income taxes.
The amendment of these standards did not have any significant impact on the Company.
Relevant International Accounting Standards that have yet to be adopted:
IAS 1 - Classification of liabilities as current or non current (effective 1 January 2024). The IASB has amended IAS 1 Presentation of Financial Statements to clarify its requirement for the presentation of liabilities depending on the rights that exist at the end of the reporting period. The amendment requires liabilities to be classified as non current if the entity has a substantive right to defer settlement for at least 12 months at the end of the reporting period. The amendment no longer refers to unconditional rights.
IAS 1 - Non current liabilities with covenants (effective 1 January 2024). The IASB has amended IAS 1 Presentation of Financial Statements to introduce additional disclosures for liabilities with covenants within 12 months of the reporting period. The additional disclosures include the nature of covenants, when the entity is required to comply with covenants, the carrying amount of related liabilities and circumstances that may indicate that the entity will have difficulty complying with the covenants.
IAS 21 - Lack of exchangeability (effective 1 January 2025). The IASB issued amendments to IAS 21 The Effects of Changesin Foreign Exchange Rates to specify how an entity should assess whether a currency is exchangeable and how it should determine a spot exchange rate when exchangeability is lacking. The amendments also require disclosure of information that enables users of its financial statements to understand how the currency not being exchangeable into the other currency affects, or is expected to affect, the entity's financial performance, financial position and cash flows.
IFRS 18 - Presentation and disclosure in financial statements (effective 1 January 2027). The IASB issued IFRS 18, whichreplaces IAS 1 Presentation of Financial Statements. IFRS 18 introduces new requirements for presentation within the statement of profit or loss, including specified totals and subtotals. Furthermore, entities are required to classify all income and expenses within the statement of profit or loss into one of five categories: operating, investing, financing, income taxes and discontinued operations, whereof the first three are new. It also requires disclosure of newly defined management defined performance measures, subtotals of income and expenses, and includes new requirements for aggregation and disaggregation of financial information based on the identified 'roles' of the primary financial statements and the notes.
None of the standards that have been issued, but are not yet effective, are expected to have a material impact on the Company.
(b) Presentation of the Statement of Comprehensive Income
In order to better reflect the activities of an investment trust company and in accordance with guidance issued by the AIC, supplementary information which analyses the Statement of Comprehensive Income between items of a revenue and a capital nature has been presented alongside the Statement of Comprehensive Income.
(c) Segmental reporting
The Directors are of the opinion that the Company is engaged in a single segment of business being investment business.
(d) Income
Dividends receivable on equity shares are recognised as revenue for the year on an ex-dividend basis. Where no ex-dividend date is available, dividends receivable on or before the year end are treated as revenue for the year. Provision is made for any dividends not expected to be received. Special dividends, if any, are treated as a capital or a revenue receipt depending on the facts or circumstances of each particular case. The return on a debt security is recognised on a time apportionment basis so as to reflect the effective yield on the debt security.
Deposit interest receivable is accounted for on an accruals basis. Interest income from the Cash Fund is accounted for on an accruals basis.
Where the Company has elected to receive its dividends in the form of additional shares rather than in cash, the cash equivalent of the dividend is recognised as income. Any excess in the value of the shares received over the amount of the cash dividend is recognised in capital.
(e) Expenses
All expenses, including finance costs, are accounted for on an accruals basis. Expenses have been charged wholly to the revenue account of the Statement of Comprehensive Income, except as follows:
- expenses which are incidental to the acquisition or sale of an investment are charged to the capital account of the Statement of Comprehensive Income. Details of transaction costs on the purchases and sales of investments are disclosed within note 10 to the financial statements in the Company's Annual Report for the year ended 31 October 2024;
- expenses are treated as capital where a connection with the maintenance or enhancement of the value of the investments can be demonstrated;
- the investment management fee and finance costs have been allocated 25% to the revenue account and 75% to the capital account of the Statement of Comprehensive Income in line with the Board's expected long-term split of returns, in the form of capital gains and income, respectively, from the investment portfolio.
(f) Taxation
The tax expense represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on the taxable profit for the year. Taxable profit differs from net profit as reported in the Statement of Comprehensive Income because it excludes items of income or expenses that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Company's liability for current tax is calculated using tax rates that were applicable at the balance sheet date.
Where expenses are allocated between capital and revenue accounts, any tax relief in respect of expenses is allocated between capital and revenue returns on the marginal basis using the Company's effective rate of corporation tax for the accounting period.
Deferred taxation is recognised in respect of all temporary differences that have originated but not reversed at the financial reporting date, where transactions or events that result in an obligation to pay more taxation in the future or right to pay less taxation in the future have occurred at the financial reporting date. This is subject to deferred taxation assets only being recognised if it is considered more likely than not that there will be suitable profits from which the future reversal of the temporary differences can be deducted. Deferred taxation assets and liabilities are measured at the rates applicable to the legal jurisdictions in which they arise.
(g) Investments held at fair value through profit or loss
In accordance with IFRS 9, the Company classifies its investments at initial recognition as held at fair value through profit or loss and are managed and evaluated on a fair value basis in accordance with its investment strategy and business model.
All investments are measured initially and subsequently at fair value through profit or loss. Purchases of investments are recognised on a trade date basis. Sales of investments are recognised at the trade date of the disposal.
The fair value of the financial investments is based on their quoted bid price at the financial reporting date, without deduction for the estimated selling costs. This policy applies to all current and non-current asset investments held by the Company.
Changes in the value of investments held at fair value through profit or loss and gains and losses on disposal are recognised in the Statement of Comprehensive Income as "Net profit/(loss) on investments and options held at fair value through profit or loss". Also included within the heading are transaction costs in relation to the purchase or sale of investments.
For all financial instruments not traded in an active market, the fair value is determined by using various valuation techniques. Valuation techniques include market approach (i.e., using recent arm's length market transactions adjusted as necessary and reference to the current market value of another instrument that is substantially the same) and the income approach (i.e., discounted cash flow analysis and option pricing models making as much use of available and supportable market data where possible).
(h) Other receivables and other payables
Other receivables and other payables do not carry any interest and are short term in nature and are accordingly stated on an amortised cost basis.
(i) Dividends payable
Under IAS, final dividends should not be accrued in the financial statements unless they have been approved by shareholders before the financial reporting date. Interim dividends should not be recognised in the financial statements unless they have been paid.
Dividends payable to equity shareholders are recognised in the Statement of Changes in Equity.
(j) Foreign currency translation
Transactions involving foreign currencies are converted at the rate ruling at the date of the transaction. Foreign currency monetary assets and liabilities and non-monetary assets held at fair value are translated into Sterling at the rate ruling on the financial reporting date. Foreign exchange differences arising on translation are recognised in the Statement of Comprehensive Income as a revenue or capital item depending on the income or expense to which they relate. For investment transactions and investments held at the year end, denominated in a foreign currency, the resulting gains or losses are included in the profit/(loss) on investments and options held at fair value through profit or loss in the Statement of Comprehensive Income.
(k) Cash and cash equivalents
Cash comprises cash in hand, bank overdrafts and on demand deposits. Cash equivalents are short term, highly liquid investments that are readily convertible to known amounts of cash and that are subject to an insignificant risk of changes in value.
The Company can invest in a Cash Fund which is managed as part of the Company's investment policy and, accordingly, the investment is managed as part of the Company's cash and cash equivalents as defined under IAS 7 and is presented as a cash equivalent in the Financial Statements.
(l) Bank borrowings
Bank overdrafts and loans are recorded as the proceeds received. Finance charges, including any premium payable on settlement or redemption and direct issue costs, are accounted for on an accruals basis in the Statement of Comprehensive Income using the effective interest rate method and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise.
(m) Share repurchases
Shares repurchased and subsequently cancelled - share capital is reduced by the nominal value of the shares repurchased and the capital redemption reserve is correspondingly increased in accordance with Section 733 of the Companies Act 2006. The full cost of the repurchase is charged to the special reserve.
Shares repurchased and held in treasury - the full cost of the repurchase is charged to the special reserve.
(n) Critical accounting estimates and judgements
The Company makes estimates and assumptions concerning the future. The resulting accounting estimates and assumptions will, by definition, seldom equal the related actual results. Estimates and judgements are regularly evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The Directors do not believe that any accounting judgements or estimates have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities within the next financial year.
3. Income
2024 | 2023 | |
Investment income: |
|
|
UK dividends | 518 | 334 |
Overseas dividends | 3,107 | 3,839 |
Overseas special dividends | 12 | - |
Overseas REIT1 dividends | 176 | 34 |
Interest from Cash Fund | 29 | 45 |
| --------------- | --------------- |
Total investment income | 3,842 | 4,252 |
Deposit interest | 13 | 11 |
| --------------- | --------------- |
Total | 3,855 | 4,263 |
| ========= | ========= |
1 Real Estate Investment Trust.
Dividends and interest received in cash during the year amounted to £3,363,000 and £43,000 (2023: £3,724,000 and £51,000).
Special dividends of £nil have been recognised in capital (2023: £nil).
4. Investment management fee
| 2024 | 2023 | ||||
Revenue | Capital | Total | Revenue | Capital | Total | |
Investment management fee | 286 | 860 | 1,146 | 286 | 858 | 1,144 |
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- |
Total | 286 | 860 | 1,146 | 286 | 858 | 1,144 |
| ========= | ========= | ========= | ========= | ========= | ========= |
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
2024 | 2023 | |
Allocated to revenue: |
|
|
Custody fee | 2 | 2 |
Auditors' remuneration - audit services1 | 47 | 39 |
Registrar's fee | 30 | 28 |
Directors' emoluments2 | 145 | 142 |
Broker fees | 40 | 40 |
Depositary fees | 16 | 16 |
Printing fees | 43 | 31 |
Legal and professional fees | 16 | 14 |
Marketing fees | 87 | 94 |
AIC fees | 12 | 13 |
FCA fees | 12 | 11 |
Write back of prior year expenses3 | (43) | (11) |
Other administrative costs | 127 | 102 |
| --------------- | --------------- |
Total revenue expenses | 534 | 521 |
| ========= | ========= |
Allocated to capital: |
|
|
Custody transaction charges | 10 | 4 |
| --------------- | --------------- |
Total | 544 | 525 |
| ========= | ========= |
The Company's ongoing charges4, 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 were: |
|
|
| ========= | ========= |
1 No non-audit services were provided by the Company's auditor (2023: none).
2 Further information on Directors' emoluments can be found in the Directors' Remuneration Report in the Company's Annual Report for the year ended 31 October 2024. The Company has no employees.
3 Relates to Directors' expenses and legal fees written back during the year (2023: Directors' expenses).
4 Alternative Performance Measure, see Glossary in the Company's Annual Report for the year ended 31 October 2024.
6. Dividends
|
|
| 2024 | 2023 |
4th interim dividend of 2.00p per share for the year ended 31 October 2023 (2022: 2.00p) | 24 November 2023 | 2 January 2024 | 1,597 | 1,604 |
1st interim dividend of 2.00p per share for the year ended 31 October 2024 (2023: 2.00p) | 29 March 2024 | 26 April 2024 | 1,560 | 1,605 |
2nd interim dividend of 2.00p per share for the year ended 31 October 2024 (2023: 2.00p) | 7 June 2024 | 5 July 2024 | 1,521 | 1,605 |
3rd interim dividend of 2.00p per share for the year ended 31 October 2024 (2023: 2.00p) | 16 August 2024 | 1 October 2024 | 1,488 | 1,604 |
|
|
| --------------- | --------------- |
Accounted for in the financial statements |
|
| 6,166 | 6,418 |
|
|
| ========= | ========= |
The total dividends payable in respect of the year ended 31 October 2024 which form the basis of Section 1158 of the Corporation Tax Act 2010 and Section 833 of the Companies Act 2006, and the amounts declared, meet the relevant requirements as set out in this legislation.
| 2024 | 2023 |
1st interim dividend of 2.00p per share for the year ended 31 October 2024 (2023: 2.00p) | 1,560 | 1,605 |
2nd interim dividend of 2.00p per share for the year ended 31 October 2024 (2023: 2.00p) | 1,521 | 1,605 |
3rd interim dividend of 2.00p per share for the year ended 31 October 2024 (2023: 2.00p) | 1,488 | 1,604 |
4th interim dividend of 2.00p per share payable on 2 January 2025 for the year ended 31 October 20241 (2023: 2.00p) | 1,410 | 1,597 |
| --------------- | --------------- |
| 5,979 | 6,411 |
| ========= | ========= |
1 Based on 70,524,781 ordinary shares in issue on 21 November 2024 (the ex-dividend date).
7. Earnings and net asset value per ordinary share
Revenue earnings, capital earnings/(loss) and net asset value per ordinary share are shown below and have been calculated using the following:
Year ended | Year ended | |
Net revenue profit attributable to ordinary shareholders (£'000) | 2,604 | 2,945 |
Net capital profit/(loss) attributable to ordinary shareholders (£'000) | 19,968 | (12,401) |
| --------------- | --------------- |
Total profit/(loss) attributable to ordinary shareholders (£'000) | 22,572 | (9,456) |
| ========= | ========= |
Equity shareholders' funds (£'000) | 155,067 | 154,789 |
| ========= | ========= |
The weighted average number of ordinary shares in issue during the year on which the earnings per ordinary share was calculated was: | 76,877,643 | 80,225,591 |
The actual number of ordinary shares in issue at the year end on which the net asset value per ordinary share was calculated was: | 71,708,970 | 79,989,044 |
Earnings/(loss) per ordinary share |
|
|
Revenue earnings per share (pence) - basic and diluted | 3.39 | 3.67 |
Capital earnings/(loss) per share (pence) - basic and diluted | 25.97 | (15.46) |
| --------------- | --------------- |
Total earnings/(loss) per share (pence) - basic and diluted | 29.36 | (11.79) |
| ========= | ========= |
As at | As at | |
Net asset value per ordinary share (pence) | 216.24 | 193.51 |
Ordinary share price (pence) | 190.00 | 174.00 |
| ========= | ========= |
There were no dilutive securities at the year end.
8. Share capital
Ordinary |
|
|
| |
Allotted, called up and fully paid share capital comprised: |
|
|
|
|
Ordinary shares of 1 pence each: |
|
|
|
|
At 31 October 2023 | 79,989,044 | 20,372,261 | 100,361,305 | 1,004 |
Ordinary shares bought back into treasury | (8,280,074) | 8,280,074 | - | - |
| ----------------- | ----------------- | ----------------- | ----------------- |
At 31 October 2024 | 71,708,970 | 28,652,335 | 100,361,305 | 1,004 |
| ========== | ========== | ========== | ========== |
During the year ended 31 October 2024, the Company bought back and transferred 8,280,074 (2023: 240,000) shares into treasury for a total consideration including costs of £16,128,000 (2023: £423,000).
Since 31 October 2024 and up to the date of this report, 3,136,986shares have been bought back into treasury for a total consideration including costs of £6,449,000.
9. Reserves
|
| Distributable reserves | |||
|
|
| Capital |
| |
At 31 October 2023 | 1,460 | 82,540 | 75,840 | (6,639) | 584 |
Movement during the year: |
|
|
|
|
|
Total comprehensive income: |
|
|
|
|
|
Net profit for the year | - | - | 10,333 | 9,635 | 2,604 |
Transactions with owners, recorded directly to equity: |
|
|
|
|
|
Ordinary shares bought back into treasury | - | (16,067) | - | - | - |
Share buyback costs | - | (61) | - | - | - |
Dividends paid | - | - | (3,477) | - | (2,689) |
| --------------- | --------------- | --------------- | --------------- | --------------- |
At 31 October 2024 | 1,460 | 66,412 | 82,696 | 2,996 | 499 |
| ========= | ========= | ========= | ========= | ========= |
|
| Distributable reserves | |||
|
|
| Capital |
| |
At 31 October 2022 | 1,460 | 82,963 | 73,260 | 11,680 | 719 |
Movement during the year: |
|
|
|
|
|
Total comprehensive income: |
|
|
|
|
|
Net profit/(loss) for the year | - | - | 5,918 | (18,319) | 2,945 |
Transactions with owners, recorded directly to equity: |
|
|
|
|
|
Ordinary shares bought back into treasury | - | (421) | - | - | - |
Share buyback costs | - | (2) | - | - | - |
Dividends paid | - | - | (3,338) | - | (3,080) |
| --------------- | --------------- | --------------- | --------------- | --------------- |
At 31 October 2023 | 1,460 | 82,540 | 75,840 | (6,639) | 584 |
| ========= | ========= | ========= | ========= | ========= |
The capital redemption reserve is not a distributable reserve 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 reserves may be used as distributable reserves for all purposes and, in particular, the repurchase by the Company of its ordinary shares and for payments such as dividends. In accordance with the Company's Articles of Association, the special reserve, capital reserves and the revenue reserve may be distributed by way of dividend. At 31 October 2024, the gain on the capital reserve arising on the revaluation of investments was £2,996,000 (2023: no gain). The gains on revaluation of investments are subject to fair value movements and may not be readily realisable at short notice, as such any gains 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.
10. Valuation of financial instruments
Financial assets and financial liabilities are either carried in the Statement of Financial Position at their fair value (investments) or at an amount which is a reasonable approximation of fair value (due from brokers, dividends and interest receivable, due to brokers, accruals, cash at bank and bank overdrafts). IFRS 13 requires the Company to classify fair value measurements using a fair value hierarchy that reflects the significance of inputs used in making the measurements. The valuation techniques used by the Company are explained in the accounting policies note 2(g) to the Financial Statements in the Company's Annual Report for the year ended 31 October 2024.
Categorisation within the hierarchy has been determined on the basis of the lowest level of input that is significant to the fair value measurement of the relevant asset.
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 all 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 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 climate change risk. The determination of what constitutes 'observable' inputs requires significant judgement by the Investment Manager and these risks are adequately captured in the assumptions and inputs used in measurement of Level 3 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.
| Level 1 | Level 2 | Level 3 | Total |
Equity investments at 31 October 2024 | 155,578 | - | - | 155,578 |
Equity investments at 31 October 2023 | 154,212 | - | - | 154,212 |
| ========= | ========= | ========= | ========= |
There were no transfers between levels of financial assets and financial liabilities during the year recorded at fair value as at 31 October 2024 and 31 October 2023. The Company did not hold any Level 3 securities throughout the financial year or as at 31 October 2023 (2023: nil).
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 price related risks, including climate risk, in accordance with the fair value related requirements of the Company's financial reporting framework.
11. Related party disclosure
Directors' Emoluments
At the date of this report, the Board consists of four non-executive Directors, all of whom are considered to be independent of the Manager by the Board.
Disclosures of the Directors' interests in the ordinary shares of the Company and fees and expenses payable to the Directors are set out in the Directors' Remuneration Report in the Company's Annual Report for the year ended 31 October 2024. At 31 October 2024, £12,000 (2023: £12,000) was outstanding in respect of Directors' fees.
Significant Holdings
The following investors are:
a. funds managed by the BlackRock Group or are affiliates of BlackRock Inc. (Related BlackRock Funds); or
b. investors (other than those listed in (a) above) who held more than 20% of the voting shares in issue in the Company and are, as a result, considered to be related parties to the Company (Significant Investors).
| Total % of shares held by |
| |
As at 31 October 2024 | 0.9 | n/a | n/a |
As at 31 October 2023 | 0.8 | n/a | n/a |
| ========= | ========= | ========= |
12. Transactions with the Investment Manager and AIFM
BlackRock Fund Managers Limited (BFM) provides management and administration services to the Company under a contract which is terminable on six months' notice. BFM has (with the Company's consent) delegated certain portfolio and risk management services, and other ancillary services, to BlackRock Investment Management (UK) Limited (BIM (UK)). Further details of the investment management contract are disclosed in the Directors' Report in the Company's Annual Report for the year ended 31 October 2024.
The investment management fee due for the year ended 31 October 2024 amounted to £1,146,000 (2023: £1,144,000). At the year end, £1,128,000 was outstanding in respect of the management fee (2023: £837,000).
In addition to the above services, BIM (UK) has provided the Company with marketing services. The total fees paid or payable for these services for the year ended 31 October 2024 amounted to £87,000 excluding VAT (2023: £94,000). Marketing fees of £35,000 excluding VAT (2023: £123,000) were outstanding as at the year end.
The Company has an investment in the BlackRock Institutional Cash Series plc - US Dollar Liquid Environmentally Aware Fund of £801,000 (2023: £879,000) at the year end, which is a fund managed by a company within the BlackRock Group. The Company's investment in the Cash Fund is held in a share class on which no management fees are paid to BlackRock to avoid double dipping.
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 31 October 2024 (2023: none).
14. Publication of non-statutory accounts
The financial information contained in this announcement does not constitute statutory accounts as defined in the Companies Act 2006. The Annual Report and Financial Statements for the year ended 31 October 2024 will be filed with the Registrar of Companies after the Annual General Meeting.
The figures set out above have been reported upon by the auditors, whose report for the year ended 31 October 2024 contains no qualification or statement under section 498(2) or (3) of the Companies Act 2006.
The comparative figures are extracts from the audited financial statements of BlackRock American Income Trust plc for the year ended 31 October 2023, which have been filed with the Registrar of Companies. The report of the auditor on those financial statements contained no qualification or statement under section 498 of the Companies Act.
15. Annual Report
Copies of the Annual Report and Financial Statements will be published shortly and will be available from the registered office, c/o The Company Secretary, BlackRock American Income Trust plc, 12 Throgmorton Avenue, London EC2N 2DL.
16. Annual General Meeting
The Annual General Meeting of the Company will be held at the offices of BlackRock, 12 Throgmorton Avenue, London EC2N 2DL on Wednesday, 16 April 2025 at 12.00 noon.
ENDS
The Annual Report will also be available on the BlackRock website at blackrock.com/uk/brai. 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:
Charles Kilner, Director, Investment Trusts, BlackRock Investment Management (UK) Limited
Tel: 020 7743 3000
Press enquiries:
Ed Hooper, Lansons Communications
Tel: 020 7294 3620
E-mail: BlackRockInvestmentTrusts@lansons.com or EdH@lansons.com
12 Throgmorton Avenue
London
EC2N 2DL
27 February 2025
 Release |
