Half-year Report
BLACKROCK SMALLER COMPANIES TRUST plc
(LEI: 549300MS535KC2WH4082)
Half yearly financial announcement of results in respect of the six months ended 31 August 2018
FINANCIAL HIGHLIGHTS
| Six months ended 31 August 2018 |
Six months ended 31 August 2017 |
Year ended 28 February 2018 |
|
| Performance | |||
| Net asset value per share (debt at par value) | 1,623.69p | 1,447.17p | 1,506.78p |
| Movement in net asset value per share (debt at par value) | +7.8% | +16.0% | +20.8% |
| Net asset value per share (debt at par value, capital only)1 | 1,602.89p | 1,427.60p | 1,487.48p |
| Movement in net asset value per share (debt at par value) | +7.8% | +15.8% | +20.7% |
| Net asset value per share (debt at fair value)2 | 1,615.93p | 1,438.31p | 1,500.04p |
| Movement in net asset value per share (debt at fair value) | +7.7% | +16.2% | +21.2% |
| Numis Smaller Companies plus AIM (excluding Investment Companies) Index3 | 5,871.55 | 5,763.73 | 5,700.84 |
| Movement in Numis Smaller Companies plus AIM (excluding Investment Companies) Index | +3.0% | +9.5% | +8.3% |
| Ordinary share price | 1,485.00p | 1,239.50p | 1,325.00p |
| Movement in ordinary share price | +12.1% | +16.9% | +25.0% |
| -------- | -------- | -------- | |
| Six months ended 31 August 2018 |
Six months ended 31 August 2017 |
Year ended 28 February 2018 |
|
| Revenue and Dividends | |||
| Revenue return per share | 20.80p | 19.57p | 29.30p |
| Interim dividend per share | 12.00p | 10.00p | 10.00p |
| Final dividend per share | 16.00p | ||
| Change in interim dividend | +20.0% | +25.0% | +25.0% |
| Change in total dividends | +23.8% | ||
| -------- | -------- | -------- | |
| Assets | |||
| Total assets less current liabilities (£’000) | 852,102 | 757,558 | 796,112 |
| Equity shareholders’ funds (£’000) | 777,418 | 692,902 | 721,442 |
| Ongoing charges ratio4 | 0.7% | 0.7% | 0.7% |
| Ongoing charges ratio (including performance fees)5 | N/A | 0.9% | 1.0% |
| Dividend yield | 1.9% | 1.9% | 2.0% |
| Gearing | 7.2% | 8.5% | 9.8% |
| ======== | ======== | ======== |
1 The capital only NAV is calculated without income for the six months period ended 31 August 2018 and 31 August 2017, and for the year ended 28 February 2018, respectively, net of dividends paid in respect of the relevant financial periods. More detail is given in the Glossary section on page 40 of Half-yearly financial report for the period ending 31 August 2018.
2 The basis of calculation for the fair value of the debt is disclosed in note 8.
3 Excludes income reinvested.
4 Ongoing charges ratio calculated as a percentage of average shareholders’ funds and using expenses, excluding finance costs, transaction costs and taxation, in accordance with AIC guidelines.
5 With effect from 1 March 2018, a performance fee is no longer charged. At 31 August 2017 and 28 February 2018, a performance fee was charged. Please see note 4 for further details of the change.
Sources: BlackRock and Datastream.
CHAIRMAN’S STATEMENT
FOR THE SIX MONTHS TO 31 AUGUST 2018
PERFORMANCE
After a difficult start to the calendar year, the UK equity markets rose in the period under review, albeit at a much slower pace than in previous years. Markets were weighed down by concerns over Brexit, escalating trade wars and other geopolitical risks. Against this background, the Company’s net asset value (NAV) increased by 7.8%1 to 1,623.69p per share, significantly outperforming the benchmark by 4.8%. The Company’s share price increased by 12.1%1 to 1,485.00p per share over the same period. Performance relative to the benchmark was driven by a mix of stock selection and gearing, details of which are given in the Investment Manager’s report.
The FTSE 100 Index rose by 2.8%1 over the period, the FTSE 250 Index (excluding Investment Companies) rose by 3.1%1 and the FTSE AIM All Share Index by 2.1%1. The Company’s benchmark (the Numis Smaller Companies plus AIM (excluding Investment Companies) Index) rose by 3.0%1.
Since the period end, and up until the close of business on 25 October 2018, the Company’s NAV per share decreased by 12.7%1 and the share price decreased by 10.8%1, whilst the benchmark fell by 9.9%1.
The robust performance of both the NAV and share price over the longer term are illustrated in the table below.
Performance to 31 August 2018 |
6 months change % |
1 year change % |
3 years change % |
5 years change % |
10 years change % |
| Net asset value per share1 | 7.8 | 12.2 | 56.1 | 101.6 | 311.3 |
| Share price1 | 12.1 | 19.8 | 60.5 | 101.2 | 370.7 |
| Benchmark1 * | 3.0 | 1.9 | 25.3 | 36.6 | 99.9 |
| Net asset value per share (with income reinvested) | 8.8 | 14.1 | 64.2 | 118.2 | 380.6 |
| Share price (with income reinvested) | 13.3 | 22.0 | 69.9 | 119.8 | 463.7 |
| Benchmark (with income reinvested)* | 4.6 | 4.5 | 35.8 | 56.0 | 159.1 |
| ======== | ======== | ======== | ======== | ======== |
* Benchmark – Numis Smaller Companies plus AIM (excluding Investment Companies) Index.
1 Percentages in sterling terms without income reinvested.
RETURNS AND DIVIDENDS
The Company’s revenue return per share for the six months ended 31 August 2018 amounted to 20.80p per share compared with 19.57p for the corresponding period in the previous year, an increase of 6.3%. After adjusting for the impact of special dividends received, which amounted to 2.89p per share (31 August 2017: 2.03p per share), regular dividend income from portfolio companies increased by 3.8% over the same period. The Board is pleased to declare an interim dividend of 12.00p per share (2017: 10.00p per share) representing an increase of 20% over the previous interim dividend. The interim dividend will be paid on 26 November 2018 to shareholders on the Company’s register on 9 November 2018.
GEARING
The Company has a range of borrowing facilities in place to provide a balance between longer term and short term maturities and between fixed and floating rates of interest. Fixed rate borrowings comprise a £15 million debenture maturing in 2022 and a £25 million senior unsecured private placement note which matures in 2037. Variable rate financing available to the Company consists of a £35 million three year revolving loan facility with Scotiabank (Ireland) Limited and an uncommitted overdraft facility of £10 million with The Bank of New York Mellon (International) Limited.
It is the Board’s intention that gearing will not exceed 15% of the net assets of the Company at the time of the drawdown of the relevant borrowings. Under normal operating conditions it is envisaged that gearing will be within a range of 0%-15% of net assets. Gearing levels and sources of funding are reviewed regularly and the Board continues to believe that moderate gearing is in the long term interests of shareholders. At the period end, the Company’s gearing was 7.2% of net assets.
DISCOUNT
During the period, the Company’s shares traded at an average discount to NAV (with debt at fair value) of 8.1%. The discount ranged between 1.1% and 12.3% and ended the period at 8.1%. The Company’s shares were trading at a discount of 6.6% as at close of business on 25 October 2018.
BOARD COMPOSITION
After a very enjoyable and productive period as Chairman since 2012, I have decided to step down from the Board at next June's AGM. My successor will be announced in due course.
OUTLOOK
As 2018 progresses, markets across the globe are becoming increasingly volatile, driven by political uncertainty, trade wars and difficult financial conditions. In particular, UK companies face a tougher operating environment as continuing uncertainty over the outcome of Brexit negotiations has impacted consumer confidence and dampened growth.
A divide has opened up between the US economy and other developed economies whose growth is forecast to slow, and the consequent strong dollar creates potential difficulties for emerging markets whose debt is denominated in dollars. Moreover, it will be challenging for the central banks both to adjust interest rates to reflect tighter labour markets and possible inflationary pressures without impacting growth, and also create the scope for significant monetary easing should a recession materialise. Although growth is likely to be more muted going forward, the investment manager retains confidence in the Company’s portfolio holdings and the capability of their management teams to continue to achieve superior growth.
The Company’s portfolio is well diversified with an emphasis on holdings in market leading and well managed companies with strong balance sheets. A significant proportion of portfolio holdings benefit from global exposure. These factors should help to weather possible challenging conditions ahead.
Nicholas Fry
Chairman
29 October 2018
INVESTMENT MANAGER’S REPORT FOR THE SIX MONTHS TO 31 AUGUST 2018
MARKET REVIEW AND OVERALL INVESTMENT PERFORMANCE
After a difficult start to 2018, the UK equity market staged a strong recovery at the beginning of the second quarter. Increased volatility has been a common feature this year. Economic growth in the UK rebounded in the second quarter of 2018, after a poor first quarter which was heavily impacted by adverse weather. The Bank of England increased interest rates by 0.25% to 0.75%. Brexit negotiations, escalating trade conflicts and weakness in emerging markets all clouded the UK and global growth outlook. However, the US economy continued to strengthen as did the US Dollar, while Sterling weakened.
PERFORMANCE REVIEW
The Company’s NAV per share (debt at par) increased by 8.8% outperforming the benchmark index which rose by 4.6% and the FTSE 100 Index which increased by 5.4%. (All percentages stated are on a total return basis.)
Performance during the first six months of the financial year has been driven by good stock selection, with a modest contribution from gearing, whilst sector allocation has slightly detracted. The largest stock specific contributors included YouGov, Gulf Keystone, IntegraFin, Fever-Tree and GB Group, which have all seen share price rises of more than 40% during the six month period, and each contributed between 0.35% and 0.50% to relative performance.
YouGov continues to deliver strong organic growth and improving margins with profits significantly ahead of consensus. The company has been successfully delivering on its strategy of expanding and developing data analytics products for specialised sectors beyond its traditional market research business. We believe this offers a large opportunity for growth. Shares in Gulf Keystone rallied as its Shaikan oil field is performing well, with average production above the upper end of guidance for the company’s 2018 financial year. The company has agreed an investment plan to increase the field production over the next 12-18 months. IntegraFin, the UK savings platform for financial advisors which we purchased at IPO in February, delivered good interim results showing continued strong inflows. Fever-Tree rose as it continues to beat profit expectations, with notably strong performance in its UK home market. Expansion into the much larger US market with mixers for brown spirits, presents a large opportunity for the future. Identity verification software provider GB Group continues to deliver strong revenue and profit growth. The company is executing on its strategy of building closer relationships with its large customer base while driving its international expansion through investment in people and technology and via acquisitions. GB Group now generates more than a third of its revenues from overseas markets.
The largest detractor during the period was Central Asia Metals, which has been weak along with the wider mining sector. Talk around trade wars and underwhelming economic data from China has led to concerns on the outlook for global growth, and weakness in commodity prices. Central Asia Metals continues to operate well, and is a very low cost producer so profits and cash generation remain good; we have had a good update with management in recent weeks. While Central Asia Metals was the largest single detractor, our underweight positioning in miners meant that the mining sector in aggregate was a positive relative contributor. XLMedia shares fell in response to a trading update warning that revenues and profits were expected to be slightly lower as a result of regulatory changes and ongoing uncertainty in certain European markets. We had reduced the position in recent months, and subsequently sold the balance.
ACTIVITY
During the period we have been increasing the concentration of the portfolio by reducing or selling a number of holdings where our conviction has weakened. We have used the proceeds mainly to add to our core holdings. The number of holdings in the portfolio has reduced from 156 at the end of the last financial year to 130 at the end of August.
We added to our positions in IntegraFin, after initially purchasing at the IPO. We believe that the company is benefitting from an attractive industry backdrop; its differentiated business model and proprietary technology provides an attractive long term growth opportunity.
We also added to our holding in construction materials company Breedon, helping the company to fund the purchase of Lagan, which provides exposure to the fast growing Irish construction market.
We also purchased a holding via a placing in Diversified Gas & Oil, an owner and operator of onshore US oil and gas producing assets. The company is focused on growth both organically and through acquisitions of mature, low risk wells, enhancing operations and driving efficiencies to increase profitability. As we have noted in the past, the IPO market provides a regular source of new and interesting growth companies to replenish our portfolio, and 2018 has been no exception. IPOs that we have taken part in during the period include Mind Gym, the behavioural sciences business, Team17 Group, a global independent video games developer and TheWorks.co.uk, a multi-channel retailer of value gifts and stationery.
PORTFOLIO POSITIONING
Portfolio positioning is very much a result of stock selection and therefore sector positioning relative to the benchmark remains broadly unchanged from previous reports, which we feel reflects the conviction that we have in our core holdings. Relative to our benchmark we are overweight financial services companies, industrial engineering and media businesses. Within the financial services sector our holdings have more of a focus on equities, alternatives or outsourcing services. Holdings include IntegraFin, Premier Asset Management Group, Liontrust Asset Management, Polar Capital Holdings and XPS Pensions Group. Our engineering holdings include Bodycote, Gooch & Housego and Trifast. These are all very internationally focused businesses with strong market positions. Our media companies include 4imprint Group and Next Fifteen, which are both heavily exposed to the US, and YouGov which is adapting its business to changing customer demands opening up future channels for growth.
We remain underweight travel & leisure companies, food producers, challenger banks and real estate businesses; many of these companies are much more UK focused.
We have maintained a high exposure to international companies, with just over half of the revenues of our portfolio originating from overseas. We are slightly more cautious on the outlook for the UK. Our UK exposure is very deliberate, either exposed to more defensive businesses, or businesses that are exposed to positive structural or cyclical trends which can benefit from the current environment, such as Countryside Properties and Breedon.
OUTLOOK
As we move through 2018 we are seeing greater divergence within the global economy, notably with continued strength in the US, whilst in Europe and Asia we have seen some softening. Political uncertainty, trade wars and tightening financial conditions will continue to add to market volatility. Given the increasing risks, there is clearly a need for us to be selective in our exposures.
We remain cautious on the UK economy relative to other major developed economies. With escalating tensions around Brexit negotiations, and potential for political instability we see the possibility of below trend economic growth continuing for some time.
However, we are positive on the prospects for many UK small and midcap companies. Many of our holdings are continuing to perform well, although a few have found conditions tougher. Our fastest growing companies have been re-rated, in some cases significantly, in expectation of them beating earnings expectations.
Importantly, we retain considerable confidence in the management teams of the companies in which we have invested, and their ability to adapt to more challenging trading environments and continue to outperform.
Mike Prentis and Roland Arnold
BlackRock Investment Management (UK) Limited
29 October 2018
INVESTMENT EXPOSURE
PORTFOLIO BY SIZE OF INVESTMENT AS AT 31 AUGUST 2018
Number of investments |
Market value of investment as % of portfolio |
|
| £0m to £1m | 2 | 0.2 |
| £1m to £2m | 2 | 0.3 |
| £2m to £3m | 14 | 4.3 |
| £3m to £4m | 22 | 9.7 |
| £4m to £5m | 22 | 11.6 |
| £5m to £6m | 14 | 9.4 |
| £6m to £7m | 9 | 7.1 |
| £7m to £8m | 11 | 9.9 |
| £8m to £9m | 6 | 6.2 |
| £9m to £10m | 8 | 9 |
| £10m to £11m | 9 | 11.2 |
| £11m to £12m | 4 | 5.6 |
| £12m to £13m | 3 | 4.5 |
| £13m to £14m | 1 | 1.5 |
| £14m to £15m | 1 | 1.8 |
| £15m to £16m | 2 | 3.7 |
| £16m to £17m | 2 | 4 |
Source: BlackRock.
MARKET CAPITALISATION OF OUR PORTFOLIO COMPANIES AS AT 31 AUGUST 2018
| % Market capitalisation of investment portfolio |
|
| £0m to £100m | 2.7 |
| £100m to £400m | 37.0 |
| £400m to £1bn | 40.4 |
| £1bn+ | 19.9 |
Source: BlackRock.
TWENTY LARGEST INVESTMENTS AS AT 31 AUGUST 2018
Company |
Business activity |
Market value £’000 |
% of total portfolio |
| Robert Walters | Provision of specialist professional recruitment services | 16,543 | 2.0 |
| 4imprint Group | Supply of promotional merchandise in the US | 16,485 | 2.0 |
| Dechra Pharmaceuticals | Development and supply of pharmaceutical and other products focused on the veterinary market | 15,493 | 1.9 |
| YouGov | Provision of survey data specialist data analytics | 15,387 | 1.8 |
| IntegraFin | UK savings platform for financial advisors | 14,736 | 1.8 |
| Premier Asset Management Group | Retail asset management | 13,358 | 1.6 |
| Polar Capital Holdings | Specialist asset management | 12,541 | 1.5 |
| Bodycote | Provision of thermal processing services | 12,497 | 1.5 |
| Liontrust Asset Management | Specialist asset management | 12,274 | 1.5 |
| Big Yellow | Provision of self storage facilities | 11,893 | 1.4 |
| Accesso Technology | Development and supply of ticketing and virtual queuing solutions for leisure attractions | 11,859 | 1.4 |
| Hill & Smith | Production of infrastructure products and supply of galvanizing services | 11,370 | 1.4 |
| GB Group | Provision of identity verification software | 11,260 | 1.3 |
| Restore | Management of business information in both paper and digital form | 10,815 | 1.3 |
| Central Asia Metals | Production of base metals with operations in Kazakhstan and Macedonia | 10,755 | 1.3 |
| CVS Group | Operation of veterinary surgeries | 10,694 | 1.3 |
| Johnson Service Group | Provision of textile rental and related services | 10,616 | 1.3 |
| Avon Rubber | Production of safety masks and dairy related products | 10,389 | 1.2 |
| Morgan Sindall | Supply of office fit out, construction and urban regeneration services | 10,351 | 1.2 |
| Alliance Pharma | Distributor of pharmaceutical and healthcare products | 10,277 | 1.2 |
| -------- | -------- | ||
| Twenty largest investments | 249,593 | 29.9 | |
| -------- | -------- | ||
| Remaining investments | 583,840 | 70.1 | |
| -------- | -------- | ||
| Total | 833,433 | 100.0 | |
| ======== | ======== |
Details of the full portfolio are available on the Company’s website at blackrock.co.uk/brsc.
DISTRIBUTION OF INVESTMENTS AS AT 31 AUGUST 2018
ANALYSIS OF PORTFOLIO VALUE BY SECTOR
| % of portfolio | |
| Aerospace & Defence | 1.8 |
| Beverages | 1.8 |
| Chemicals | 2.7 |
| Construction & Materials | 5.0 |
| Electronic & Electrical Equipment | 3.5 |
| Financial Services | 16.1 |
| Gas, Water & Multiutilities | 0.4 |
| General Industrials | 2.1 |
| General Retailers | 3.0 |
| Health Care Equipment & Services | 3.4 |
| Household Goods & Home Construction | 2.4 |
| Industrial Engineering | 5.9 |
| Industrial Transportation | 2.4 |
| Leisure Goods | 1.5 |
| Media | 7.4 |
| Mining | 2.9 |
| Oil & Gas Producers | 5.3 |
| Personal Goods | 2.4 |
| Pharmaceuticals & Biotechnology | 4.9 |
| Real Estate Investment & Services | 2.2 |
| Real Estate Investment Trusts | 2.8 |
| Software & Computer Services | 7.7 |
| Support Services | 9.6 |
| Travel & Leisure | 2.8 |
Source: BlackRock.
INTERIM MANAGEMENT REPORT AND RESPONSIBILITY STATEMENT
The Chairman’s Statement and the Investment Manager’s Report give details of the important events which have occurred during the period and their impact on the financial statements.
PRINCIPAL RISKS AND UNCERTAINTIES
The principal risks faced by the Company can be divided into various areas as follows:
-
Investment performance risk;
-
Market risk;
-
Income/dividend risk;
-
Legal & compliance risk;
-
Operational risk;
-
Financial risk; and
-
Marketing risk.
The Board reported on the principal risks and uncertainties faced by the Company in the Annual Report and Financial Statements for the year ended 28 February 2018. A detailed explanation can be found in the Strategic Report on pages 16 to 18, and in note 16 on pages 59 to 66 of the Annual Report and Financial Statements which is available on the website maintained by BlackRock, at blackrock.co.uk/brsc.
In the view of the Board, there have not been any changes to the fundamental nature of these risks since the previous report and these principal risks and uncertainties are equally applicable to the remaining six months of the financial year as they were to the six months under review.
GOING CONCERN
The Directors, having considered the nature and liquidity of the portfolio, the Company’s investment objectives and the Company’s projected income and expenditure, are satisfied that the Company has adequate resources to continue in operational existence for the foreseeable future, and is financially sound. For this reason, they continue to adopt the going concern basis in preparing the financial statements. The Company is able to meet all of its liabilities from its assets and income generated from these assets and the ongoing charges (excluding finance costs, transaction costs and taxation) are approximately 0.7% of net assets. Ongoing charges with performance fees included were 1.0% of net assets for the year ended 28 February 2018. As announced on 17 April 2018, the performance fee has been removed under the new fee basis. The ongoing charges (excluding finance costs, transaction costs and taxation) are estimated to be approximately 0.7% following the implementation of the Company’s new management fee arrangements.
RELATED PARTY DISCLOSURE AND TRANSACTIONS WITH THE AIFM AND INVESTMENT MANAGER
BlackRock Fund Managers Limited (BFM) was appointed as the Company’s AIFM with effect from 2 July 2014. BFM has (with the Company’s consent) delegated certain portfolio and risk management services, and other ancillary services, to BlackRock Investment Management (UK) Limited (BIM (UK)). Both BFM and BIM (UK) are regarded as related parties under the Listing Rules. Details of the management and performance fees payable are set out in note 4 and note 12.
The related party transactions with the Directors are set out in note 13.
DIRECTORS’ RESPONSIBILITY STATEMENT
The Disclosure Guidance and Transparency Rules (DTR) of the UK Listing Authority require the Directors to confirm their responsibilities in relation to the preparation and publication of the Interim Management Report and Financial Statements. The Directors confirm to the best of their knowledge that:
-
the condensed set of financial statements contained within the half yearly financial report has been prepared in accordance with applicable Financial Reporting Council’s Standard, FRS 104 ‘Interim Financial Reporting’; and
-
the Interim Management Report together with the Chairman’s Statement and Investment Manager’s Report, include a fair review of the information required by 4.2.7R and 4.2.8R of the FCA’s Disclosure Guidance and Transparency Rules.
The half yearly financial report has not been audited or reviewed by the Company’s Auditors.
The half yearly financial report was approved by the Board on 29 October 2018 and the above responsibility statement was signed on its behalf by the Chairman.
Nicholas Fry
For and on behalf of the Board
29 October 2018
INCOME STATEMENT FOR THE SIX MONTHS ENDED 31 AUGUST 2018
| Notes | Six months ended 31 August 2018 | Six months ended 31 August 2017 | Year ended 28 February 2018 | ||||||||
| Revenue £’000 (unaudited) |
Capital £’000 (unaudited) |
Total £’000 (unaudited) |
Revenue £’000 (unaudited) |
Capital £’000 (unaudited) |
Total £’000 (unaudited) |
Revenue £’000 (audited) |
Capital £’000 (audited) |
Total £’000 (audited) |
|||
| Gains on investments held at fair value through profit or loss | – | 56,469 | 56,469 | – | 96,614 | 96,614 | – | 127,657 | 127,657 | ||
| Gains/(losses) on foreign exchange | – | 8 | 8 | – | (5) | (5) | – | (8) | (8) | ||
| Income from investments held at fair value through profit or loss | 3 | 11,215 | – | 11,215 | 10,444 | – | 10,444 | 16,235 | 21 | 16,256 | |
| Other income | 3 | 32 | – | 32 | 8 | – | 8 | 16 | – | 16 | |
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | |||
| Total income | 11,247 | 56,477 | 67,724 | 10,452 | 96,609 | 107,061 | 16,251 | 127,670 | 143,921 | ||
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | |||
| Expenses | |||||||||||
| Investment management and performance fees | 4 | (619) | (1,859) | (2,478) | (480) | (3,186) | (3,666) | (971) | (4,707) | (5,678) | |
| Operating expenses | 5 | (320) | (14) | (334) | (280) | (9) | (289) | (625) | (22) | (647) | |
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | |||
| Total operating expenses | (939) | (1,873) | (2,812) | (760) | (3,195) | (3,955) | (1,596) | (4,729) | (6,325) | ||
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | |||
| Net profit on ordinary activities before finance costs and taxation | 10,308 | 54,604 | 64,912 | 9,692 | 93,414 | 103,106 | 14,655 | 122,941 | 137,596 | ||
| Finance costs | 6 | (308) | (924) | (1,232) | (244) | (730) | (974) | (530) | (1,589) | (2,119) | |
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | |||
| Net profit on ordinary activities before taxation | 10,000 | 53,680 | 63,680 | 9,448 | 92,684 | 102,132 | 14,125 | 121,352 | 135,477 | ||
| Taxation | (43) | – | (43) | (79) | – | (79) | (96) | – | (96) | ||
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | |||
| Net profit on ordinary activities after taxation | 9,957 | 53,680 | 63,637 | 9,369 | 92,684 | 102,053 | 14,029 | 121,352 | 135,381 | ||
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | |||
| Revenue return per ordinary share (pence) | 8 | 20.80 | 112.11 | 132.91 | 19.57 | 193.57 | 213.14 | 29.30 | 253.45 | 282.75 | |
| ======== | ======== | ======== | ======== | ======== | ======== | ======== | ======== | ======== | |||
The total column of this statement represents the Company’s Profit and Loss Account. The supplementary revenue and capital columns are both prepared under guidance published by the Association of Investment Companies (AIC). All items in the above statement derive from continuing operations. No operations were acquired or discontinued during the period. All income is attributable to the equity holders of the Company.
The net profit for the period disclosed above represents the Company’s total comprehensive income.
STATEMENT OF CHANGES IN EQUITY FOR THE SIX MONTHS ENDED 31 AUGUST 2018
| Called up share capital £’000 |
Share premium account £’000 |
Capital redemption reserve £’000 |
Capital reserves £’000 |
Revenue reserve £’000 |
Total £’000 |
||
| For the six months ended 31 August 2018 (unaudited) | |||||||
| At 28 February 2018 | 12,498 | 38,952 | 1,982 | 646,791 | 21,219 | 721,442 | |
| Total comprehensive income: | |||||||
| Profit for the period | – | – | – | 53,680 | 9,957 | 63,637 | |
| Transactions with owners, recorded directly to equity: | |||||||
| Dividends paid(a) | – | – | – | – | (7,661) | (7,661) | |
| -------- | -------- | -------- | -------- | -------- | -------- | ||
| At 31 August 2018 | 12,498 | 38,952 | 1,982 | 700,471 | 23,515 | 777,418 | |
| -------- | -------- | -------- | -------- | -------- | -------- | ||
| For the six months ended 31 August 2017 (unaudited) | |||||||
| At 28 February 2017 | 12,498 | 38,952 | 1,982 | 525,439 | 18,202 | 597,073 | |
| Total comprehensive income: | |||||||
| Profit for the period | – | – | – | 92,684 | 9,369 | 102,053 | |
| Transactions with owners, recorded directly to equity: | |||||||
| Dividends paid(b) | – | – | – | – | (6,224) | (6,224) | |
| -------- | -------- | -------- | -------- | -------- | -------- | ||
| At 31 August 2017 | 12,498 | 38,952 | 1,982 | 618,123 | 21,347 | 692,902 | |
| -------- | -------- | -------- | -------- | -------- | -------- | ||
| For the year ended 28 February 2018 (audited) | |||||||
| At 28 February 2017 | 12,498 | 38,952 | 1,982 | 525,439 | 18,202 | 597,073 | |
| Total comprehensive income: | |||||||
| Profit for the year | – | – | – | 121,352 | 14,029 | 135,381 | |
| Transactions with owners, recorded directly to equity: | |||||||
| Dividends paid(b), (c) | – | – | – | – | (11,012) | (11,012) | |
| -------- | -------- | -------- | -------- | -------- | -------- | ||
| At 28 February 2018 | 12,498 | 38,952 | 1,982 | 646,791 | 21,219 | 721,442 | |
| ======== | ======== | ======== | ======== | ======== | ======== |
(a) Final dividend of 16.00p per share for the year ended 28 February 2018, declared on 27 April 2018 and paid on 15 June 2018.
(b) Final dividend of 13.00p per share for the year ended 28 February 2017, declared on 2 May 2017 and paid on 19 June 2017.
(c) Interim dividend paid in respect of the year ended 28 February 2018 of 10.00p was declared on 30 October 2017 and paid on 15 December 2017.
The transaction costs incurred on the acquisition and disposal of investments are included within the capital reserves and amounted to £601,000 for the six months ended 31 August 2018 (six months ended 31 August 2017: £571,000; year ended 28 February 2018: £1,173,000).
BALANCE SHEET AS AT 31 AUGUST 2018
Notes |
31 August 2018 £’000 (unaudited) |
31 August 2017 £’000 (unaudited) |
28 February 2018 £’000 (audited) |
|
| Fixed assets | ||||
| Investments held at fair value through profit or loss | 11 | 833,433 | 751,934 | 792,060 |
| -------- | -------- | -------- | ||
| Current assets | ||||
| Debtors | 1,537 | 3,948 | 2,680 | |
| Cash and cash equivalents | 19,556 | 9,938 | 13,792 | |
| -------- | -------- | -------- | ||
| 21,093 | 13,886 | 16,472 | ||
| -------- | -------- | -------- | ||
| Creditors – amounts falling due within one year | ||||
| Other creditors | (2,424) | (8,262) | (12,420) | |
| -------- | -------- | -------- | ||
| Net current assets | 18,669 | 5,624 | 4,052 | |
| -------- | -------- | -------- | ||
| Total assets less current liabilities | 852,102 | 757,558 | 796,112 | |
| Creditors – amounts falling due after more than one year | 9 | (74,684) | (64,656) | (74,670) |
| -------- | -------- | -------- | ||
| Net assets | 777,418 | 692,902 | 721,442 | |
| ======== | ======== | ======== | ||
| Capital and reserves | ||||
| Called up share capital | 10 | 12,498 | 12,498 | 12,498 |
| Share premium account | 38,952 | 38,952 | 38,952 | |
| Capital redemption reserve | 1,982 | 1,982 | 1,982 | |
| Capital reserves | 700,471 | 618,123 | 646,791 | |
| Revenue reserve | 23,515 | 21,347 | 21,219 | |
| -------- | -------- | -------- | ||
| Total shareholders’ funds | 8 | 777,418 | 692,902 | 721,442 |
| ======== | ======== | ======== | ||
| Net asset value per ordinary share (debt at par value) (pence) | 8 | 1,623.69 | 1,447.17 | 1,506.78 |
| ======== | ======== | ======== | ||
| Net asset value per ordinary share (debt at fair value) (pence) | 8 | 1,615.93 | 1,438.31 | 1,500.04 |
| ======== | ======== | ======== |
STATEMENT OF CASH FLOWS FOR THE SIX MONTHS ENDED 31 AUGUST 2018
| Six months ended 31 August 2018 £’000 (unaudited) |
Six months ended 31 August 2017 £’000 (unaudited) |
Year ended 28 February 2018 £’000 (audited) |
|
| Operating activities | |||
| Net profit before taxation | 63,680 | 102,132 | 135,477 |
| Add back finance costs | 1,232 | 974 | 2,119 |
| Gains on investments held at fair value through profit or loss | (56,469) | (96,614) | (127,678) |
| Net movement in foreign exchange | (8) | 5 | 8 |
| Sales of investments held at fair value through profit or loss | 193,819 | 123,899 | 273,726 |
| Purchases of investments held at fair value through profit or loss | (184,102) | (128,426) | (282,890) |
| Increase in debtors | (853) | (923) | (183) |
| (Decrease)/increase in other creditors | (2,594) | 1,255 | 1,486 |
| Taxation on investment income | (71) | (79) | (96) |
| -------- | -------- | -------- | |
| Net cash generated from operating activities | 14,634 | 2,223 | 1,969 |
| -------- | -------- | -------- | |
| Financing activities | |||
| Proceeds from loan note issue | – | 25,000 | 25,000 |
| Issue costs of loan note | – | (278) | (278) |
| Repayment of revolving credit facility | – | (10,000) | – |
| Interest paid | (1,217) | (807) | (1,908) |
| Dividends paid | (7,661) | (6,224) | (11,012) |
| -------- | -------- | -------- | |
| Net cash (used in)/generated from financing activities | (8,878) | 7,691 | 11,802 |
| -------- | -------- | -------- | |
| Increase in cash and cash equivalents | 5,756 | 9,914 | 13,771 |
| -------- | -------- | -------- | |
| Cash and cash equivalents at beginning of the period/year | 13,792 | 29 | 29 |
| Effect of foreign exchange rate changes | 8 | (5) | (8) |
| -------- | -------- | -------- | |
| Cash and cash equivalents at end of period/year | 19,556 | 9,938 | 13,792 |
| -------- | -------- | -------- | |
| Comprised of: | |||
| Cash at bank | 3,984 | 3,447 | 3,813 |
| BlackRock Institutional Cash Series plc – Sterling Liquidity Fund | 15,572 | 6,491 | 9,979 |
| -------- | -------- | -------- | |
| 19,556 | 9,938 | 13,792 | |
| ======== | ======== | ======== |
NOTES TO THE FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 31 AUGUST 2018
1. PRINCIPAL ACTIVITY
The principal activity of the Company is that of an investment trust company within the meaning of section 1158 of the Corporation Tax Act 2010.
2. BASIS OF PREPARATION
The Company presents its results and positions under FRS 102, ‘The Financial Reporting Standard applicable in the UK and Republic of Ireland’ (FRS 102), which forms part of revised Generally Accepted Accounting Practice (New UK GAAP) issued by the Financial Reporting Council (FRC) in 2013.
The condensed set of financial statements has been prepared on a going concern basis in accordance with FRS 102 and FRS 104, ‘Interim Financial Reporting’ issued by the FRC in March 2015 and the revised Statement of Recommended Practice – ‘Financial Statements of Investment Trust Companies and Venture Capital Trusts’ (SORP) issued by the Association of Investment Companies (AIC) in November 2014 and updated in January 2017.
The accounting policies applied for the condensed set of financial statements with regard to measurement and classification are as set out in the Company’s Annual Report and Financial Statements for the year ended 28 February 2018. This reflects the Company’s application of Sections 11 and 12 of FRS 102, in relation to financial instruments, in full.
3. INCOME
| Six months ended 31 August 2018 £’000 (unaudited) |
Six months ended 31 August 2017 £’000 (unaudited) |
Year ended 28 February 2018 £’000 (audited) |
|
| Investment income: | |||
| UK listed dividends | 8,165 | 7,257 | 11,654 |
| UK listed scrip dividends | – | 27 | 144 |
| UK listed special dividends | 1,227 | 591 | 591 |
| UK listed REIT | 360 | 530 | 879 |
| Overseas listed dividends | 1,305 | 1,660 | 2,473 |
| Overseas listed scrip dividends | – | – | 70 |
| Overseas listed special dividends | 158 | 379 | 424 |
| -------- | -------- | -------- | |
| 11,215 | 10,444 | 16,235 | |
| -------- | -------- | -------- | |
| Other income: | |||
| Bank interest | 3 | – | 1 |
| Interest from BlackRock Institutional Cash Series plc – Sterling Liquidity Fund | 29 | 8 | 15 |
| -------- | -------- | -------- | |
| 32 | 8 | 16 | |
| -------- | -------- | -------- | |
| Total | 11,247 | 10,452 | 16,251 |
| ======== | ======== | ======== |
Dividends and interest received in cash in the period amounted to £10,382,000 and £22,000 (six months ending 31 August 2017: £9,531,000 and £6,000; year ended 28 February 2018: £15,829,000 and £15,000) respectively.
Special dividends of £nil (six months ended 31 August 2017: £nil; 28 February 2018: £21,000) have been recognised in capital and deducted from investment cost.
COMPARATIVE FIGURES
Interest of £29,000 (six months ended 31 August 2017: £8,000; year ended 28 February 2018: £15,000) from BlackRock Institutional Cash Series plc - Sterling Liquidity Fund has been reclassified from “Income from investments held at fair value through profit or loss†to “Other Income†on the Income Statement. This reclassification had no impact on the revenue return for the respective periods or the net assets as at 31 August 2018.
4. INVESTMENT MANAGEMENT AND PERFORMANCE FEES
| Six months ended 31 August 2018 (unaudited) |
Six months ended 31 August 2017 (unaudited) |
Year ended 28 February 2018 (audited) |
|||||||
| Revenue £’000 |
Capital £’000 |
Total £’000 |
Revenue £’000 |
Capital £’000 |
Total £’000 |
Revenue £’000 |
Capital £’000 |
Total £’000 |
|
| Investment management fee | 619 | 1,859 | 2,478 | 480 | 1,440 | 1,920 | 971 | 2,913 | 3,884 |
| Performance fee | – | – | – | – | 1,746 | 1,746 | – | 1,794 | 1,794 |
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | |
| Total | 619 | 1,859 | 2,478 | 480 | 3,186 | 3,666 | 971 | 4,707 | 5,678 |
| ======== | ======== | ======== | ======== | ======== | ======== | ======== | ======== | ======== | |
Fees for the six months ended 31 August 2017 and the year ended 28 February 2018 were as follows:
Up until 28 February 2018, the investment management fee was based on a rate of 0.65% of the first £50 million of the Company’s assets, reducing to 0.50% above this level. The fee rate was applied to an asset amount calculated as total assets (excluding current year income) less the current liabilities of the Company (the “Fee Asset Amountâ€).
The fee was calculated at the rate of one quarter of 0.65% of the Fee Asset Amount up to the initial threshold of £50 million, and one quarter of the fee rate of 0.50% multiplied by the Fee Asset Amount in excess thereof at the end of each quarter. The investment management fee was allocated 75% to the capital column and 25% to the revenue column of the income statement.
A performance fee was calculated at the rate of 10% of the annualised excess performance over the benchmark for the two years preceding the current financial year end, applied to the Average Assets of the Company. Average Assets were defined as the Fee Asset Amount at the start of the year and at the year end date added together and divided by two. The fee was payable annually in April and was capped at 0.25% of Average Assets.
The annualised excess performance against the Company’s benchmark for the two years ended 28 February 2018 was 9.0% (28 February 2017: 7.0%). The fee was restricted by the 0.25% cap and £1,794,000 was accrued for the year ended 28 February 2018 (six months ended 31 August 2017: £1,746,000).
Performance fees were wholly allocated to the capital column of the income statement as the performance was predominantly generated through capital returns of the investment portfolio.
With effect from 1 March 2018, the Company has no longer been charged a performance fee and, from the same date, the investment management fee has been based on a rate of 0.6% of the first £750 million of the Fee Asset Amount, reducing to 0.5% above this level. The fee is calculated at the rate of one quarter of 0.6% of the Fee Asset Amount up to the initial threshold of £750 million, and one quarter of 0.5% of the Fee Asset Amount in excess thereof, at the end of each quarter. The investment management fee is allocated 75% to the capital column and 25% to the revenue column of the income statement.
5. OTHER OPERATING EXPENSES
| Six months ended 31 August 2018 £’000 (unaudited) |
Six months ended 31 August 2017 £’000 (unaudited) |
Year ended 28 February 2018 £’000 (audited) |
|
| Taken to revenue: | |||
| Custody fees | 3 | 3 | 5 |
| Depositary fees | 55 | 45 | 94 |
| Auditor’s remuneration: | |||
| – audit services | 13 | 13 | 27 |
| – non audit services1 | 6 | 2 | 3 |
| Registrar’s fees | 23 | 8 | 26 |
| Directors’ emoluments | 76 | 76 | 150 |
| Marketing fees | 49 | 54 | 155 |
| Other administration costs | 95 | 79 | 165 |
| -------- | -------- | -------- | |
| 320 | 280 | 625 | |
| ======== | ======== | ======== | |
| Taken to capital: | |||
| Transaction charges | 14 | 9 | 22 |
| -------- | -------- | -------- | |
| 334 | 289 | 647 | |
| ======== | ======== | ======== |
-
Fees for non audit services relate to the debenture compliance work carried out by the Auditors and a review by the Auditors in respect of the impact of the new management fee arrangements (as set out in note 4).
6. FINANCE COSTS
| Six months ended 31 August 2018 (unaudited) |
Six months ended 31 August 2017 (unaudited) |
Year ended 28 February 2018 (audited) |
|||||||
| Revenue £’000 |
Capital £’000 |
Total £’000 |
Revenue £’000 |
Capital £’000 |
Total £’000 |
Revenue £’000 |
Capital £’000 |
Total £’000 |
|
| Interest on 7.75% debenture stock 2022 | 147 | 443 | 590 | 145 | 436 | 581 | 290 | 871 | 1,161 |
| Interest on 2.74% loan note 2037 | 86 | 257 | 343 | 47 | 140 | 187 | 131 | 392 | 523 |
| Interest on bank loan | 71 | 213 | 284 | 49 | 146 | 195 | 102 | 305 | 407 |
| Interest on overdraft | – | – | – | – | – | – | – | 1 | 1 |
| Amortised debenture stock issue expenses | 2 | 6 | 8 | 2 | 5 | 7 | 4 | 11 | 15 |
| Amortised loan note issue expenses | 2 | 5 | 7 | 1 | 3 | 4 | 3 | 9 | 12 |
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | |
| Total | 308 | 924 | 1,232 | 244 | 730 | 974 | 530 | 1,589 | 2,119 |
| ======== | ======== | ======== | ======== | ======== | ======== | ======== | ======== | ======== | |
Finance costs have been allocated 75% to the capital column and 25% to the revenue column of the Income Statement in line with the Directors’ expected long term split of returns from the investment portfolio.
7. DIVIDENDS
In accordance with FRS 102, Section 32 ‘Events After the End of the Reporting Period’, the interim dividend payable on the ordinary shares has not been included as a liability in the financial statements, as interim dividends are only recognised when they have been paid.
The Board has declared an interim dividend of 12.00p per share (2017: 10.00p per share), payable on 26 November 2018 to shareholders on the Company’s register as at 9 November 2018; the ex dividend date is 8 November 2018. The total cost of this dividend, based on 47,879,792 shares in issue at 29 October 2018, is £5,746,000 (2017: £4,788,000).
8. RETURNS AND NET ASSET VALUE PER SHARE
Revenue, capital returns and net asset value per ordinary share are shown below and have been calculated using the following:
| Six months ended 31 August 2018 (unaudited) |
Six months ended 31 August 2017 (unaudited) |
Year ended 28 February 2018 (audited) |
|
| Revenue return attributable to ordinary shareholders (£’000) | 9,957 | 9,369 | 14,029 |
| -------- | -------- | -------- | |
| Capital return attributable to ordinary shareholders (£’000) | 53,680 | 92,684 | 121,352 |
| -------- | -------- | -------- | |
| Total profit attributable to ordinary shareholders (£’000) | 63,637 | 102,053 | 135,381 |
| -------- | -------- | -------- | |
| Equity shareholders’ funds (£’000) | 777,418 | 692,902 | 721,442 |
| -------- | -------- | -------- | |
| The weighted average number of ordinary shares in issue during the period on which the basic return per ordinary share was calculated was: | 47,879,792 | 47,879,792 | 47,879,792 |
| -------- | -------- | -------- | |
| The actual number of ordinary shares in issue at the end of each period on which the undiluted net asset value was calculated was: | 47,879,792 | 47,879,792 | 47,879,792 |
| -------- | -------- | -------- | |
| Revenue return per ordinary share (pence) | 20.80 | 19.57 | 29.30 |
| -------- | -------- | -------- | |
| Capital return per ordinary share (pence) | 112.11 | 193.57 | 253.45 |
| -------- | -------- | -------- | |
| Total return per ordinary share (pence) | 132.91 | 213.14 | 282.75 |
| ======== | ======== | ======== |
| As at 31 August 2018 (unaudited) |
As at 31 August 2017 (unaudited) |
As at 28 February 2018 (audited) |
|
| Net asset value per ordinary share (debt at par value) (pence) | 1,623.69 | 1,447.17 | 1,506.78 |
| -------- | -------- | -------- | |
| Net asset value per ordinary share (debt at fair value) (pence) | 1,615.93 | 1,438.31 | 1,500.04 |
| -------- | -------- | -------- | |
| Net asset value per ordinary share (debt at par value, capital only) (pence) | 1,602.89 | 1,427.60 | 1,487.48 |
| -------- | -------- | -------- | |
| Ordinary share price (pence) | 1,485.00 | 1,239.50 | 1,325.00 |
| ======== | ======== | ======== |
9. CREDITORS – AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
| Six months ended 31 August 2018 £’000 (unaudited) |
Six months ended 31 August 2017 £’000 (unaudited) |
Year ended 28 February 2018 £’000 (audited) |
|
| 7.75% debenture stock 2022 | 15,000 | 15,000 | 15,000 |
| Unamortised debenture stock issue expenses | (57) | (71) | (64) |
| -------- | -------- | -------- | |
| 14,943 | 14,929 | 14,936 | |
| -------- | -------- | -------- | |
| 2.74% loan note 2037 | 25,000 | 25,000 | 25,000 |
| Unamortised loan note issue expenses | (259) | (273) | (266) |
| -------- | -------- | -------- | |
| 24,741 | 24,727 | 24,734 | |
| -------- | -------- | -------- | |
| Revolving loan facility – Scotiabank (Ireland) Limited | 35,000 | 25,000 | 35,000 |
| -------- | -------- | -------- | |
| Total | 74,684 | 64,656 | 74,670 |
| ======== | ======== | ======== |
The fair value of the 7.75% debenture stock using the last available quoted offer price from the London Stock Exchange as at 31 August 2018 was 126.50p per debenture (31 August 2017: 128.00p; 28 February 2018: 127.00p), a total of £18,975,000 (31 August 2017: £19,200,000; 28 February 2018: £19,050,000). The fair value of the 2.74% loan note has been determined based on a comparative yield for UK Gilts for similar duration maturity and spreads, and as at 31 August 2018 equated to a valuation of 97.69p per note (31 August 2017: 98.79p; 28 February 2018: 95.38p), a total of £24,423,000 (31 August 2017: £24,698,000; 28 February 2018: £23,845,000).
The £15 million debenture stock was issued on 8 July 1997. Interest on the stock is payable in equal half yearly instalments on 31 July and 31 January in each year. The stock is secured by a first floating charge over the whole of the assets of the Company and is redeemable at par on 31 July 2022.
The £25 million loan note was issued on 24 May 2017. Interest on the note is payable in equal half yearly instalments on 24 May and 24 November in each year. The loan note is unsecured and is redeemable at par on 24 May 2037.
The Company has in place a £35 million three year multi–currency revolving loan facility with Scotiabank (Ireland) Limited. At 31 August 2018, £35 million of the facility had been utilised. Under the amended agreement the termination date of this facility is the third anniversary of the effective date being May 2021. Interest on this facility is reset every three months and is currently charged at the rate of 1.75% (six months ended 31 August 2017: 1.20%, year ended 28 February 2018: 1.47%).
10. CALLED UP SHARE CAPITAL
| Ordinary shares (number) |
Treasury shares (number) |
Total shares in issue (number) |
Nominal value £’000 |
|
| Allotted, called up and fully paid share capital comprised: | ||||
| Ordinary shares of 25p each: | ||||
| -------- | -------- | -------- | -------- | |
| At 31 August 2018 | 47,879,792 | 2,113,731 | 49,993,523 | 12,498 |
| ======== | ======== | ======== | ======== |
There has been no change in share capital in the six months to 31 August 2018 or up to the date of this report.
11. VALUATION OF FINANCIAL INSTRUMENTS
Financial assets and financial liabilities are either carried in the Balance Sheet at their fair value (investments) or at an amount which is a reasonable approximation of fair value (due from brokers, dividends and interest receivable, due to brokers, accruals, cash and cash equivalents and overdrafts). Section 11 of FRS 102 requires the Company to classify fair value measurements using a fair value hierarchy that reflects the significance of inputs used in making the measurements. The valuation techniques used by the Company are explained in the accounting policies note on page 51 of the Annual Report and Financial Statements for the year ended 28 February 2018.
Categorisation within the hierarchy has been determined on the basis of the lowest level input that is significant to the fair value measurement of the relevant asset.
The fair value hierarchy has the following levels:
Level 1 – Quoted market price for identical instruments in active markets
A financial instrument is regarded as quoted in an active market if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service or regulatory agency and those prices represent actual and regularly occurring market transactions on an arm’s length basis. The Company does not adjust the quoted price for these instruments.
Level 2 – Valuation techniques using observable inputs
This category includes instruments valued using quoted prices in active markets for similar instruments 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 observable market data and the observable inputs could have a significant impact on the instrument’s valuation.
This category also includes instruments that are valued based on quoted prices for similar instruments where significant entity determined adjustments or assumptions are required to reflect differences between the instruments and instruments for which there is no active market. The Investment Manager considers observable data to be that market data that is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market.
The level in the fair value hierarchy within which the fair value measurement is categorised in its entirety is determined on the basis of the lowest level input that is significant to the fair value measurement. If a fair value measurement uses observable inputs that require significant adjustment based on unobservable inputs, that measurement is a Level 3 measurement.
Assessing the significance of a particular input to the fair value measurement in its entirety requires judgement, considering factors specific to the asset or liability. The determination of what constitutes ‘observable’ inputs requires significant judgement by the Investment Manager.
The table below is an analysis of the Company’s financial instruments measured at fair value at the balance sheet date.
| Financial assets at fair value through profit or loss at 31 August 2018 |
Level 1 £’000 (unaudited) |
Level 2 £’000 (unaudited) |
Level 3 £’000 (unaudited) |
Total £’000 (unaudited) |
| Assets: | ||||
| Equity investments | 833,433 | – | – | 833,433 |
| -------- | -------- | -------- | -------- | |
| Total | 833,433 | – | – | 833,433 |
| ======== | ======== | ======== | ======== |
| Financial assets at fair value through profit or loss at 31 August 2017 |
Level 1 £’000 (unaudited) |
Level 2 £’000 (unaudited) |
Level 3 £’000 (unaudited) |
Total £’000 (unaudited) |
| Assets: | ||||
| Equity investments | 751,934 | – | – | 751,934 |
| -------- | -------- | -------- | -------- | |
| Total | 751,934 | – | – | 751,934 |
| ======== | ======== | ======== | ======== |
| Financial assets at fair value through profit or loss at 28 February 2018 |
Level 1 £’000 (audited) |
Level 2 £’000 (audited) |
Level 3 £’000 (audited) |
Total £’000 (audited) |
| Assets: | ||||
| Equity investments | 792,060 | – | – | 792,060 |
| -------- | -------- | -------- | -------- | |
| Total | 792,060 | – | – | 792,060 |
| ======== | ======== | ======== | ======== |
There were no transfers between levels for financial assets and financial liabilities during the period recorded at fair value as at 31 August 2018, 28 February 2018 and 31 August 2017. The Company did not hold any Level 3 securities throughout the six month period or as at 31 August 2018 (31 August 2017: nil; 28 February 2018: nil).
12. TRANSACTIONS WITH THE MANAGER AND THE INVESTMENT MANAGER
The Manager was appointed as the Company’s Alternative Investment Fund Manager (AIFM) with effect from 2 July 2014. The Manager has (with the Company’s consent) delegated certain portfolio and risk management services, and other ancillary services, to the Investment Manager. Details of the fees payable to the Manager are set out in note 4.
The investment management fee payable for the six months ended 31 August 2018 amounted to £2,478,000 (six months ended 31 August 2017: £1,920,000; year ended 28 February 2018: £3,884,000). As set out in note 4, with effect from 1 March 2018 the Company no longer has any performance fee arrangements in place. The performance fees accrued for the six months ended 31 August 2017 totalled £1,746,000 and for the year ended 28 February 2018 totalled £1,794,000.
At the period end, £1,238,000 was outstanding in respect of the management fee (31 August 2017: £1,920,000; 28 February 2018: £1,965,000). There were no amounts outstanding in respect of the performance fee at the period end as this ceased to apply from 1 March 2018. As at 31 August 2017 £1,746,000 was outstanding in respect of the performance fee (28 February 2018: £1,794,000).
In addition to the above services, BIM (UK) provided the Company with marketing services. The total fees paid or payable for these services for the period ended 31 August 2018 amounted to £49,000, including VAT (six months ended 31 August 2017: £54,000, year ended 28 February 2018: £155,000). Marketing fees of £88,000 were outstanding at 31 August 2018 (31 August 2017: £88,000; 28 February 2018: £189,000).
The Company has an investment in the BlackRock Institutional Cash Series plc – Sterling Liquidity Fund of £15,572,000 as at 31 August 2018 (31 August 2017: £6,491,000; 28 February 2018:£9,979,000).
13. RELATED PARTY DISCLOSURE
The Board consists of five non-executive Directors, all of whom are considered to be independent by the Board. None of the Directors has a service contract with the Company. The Chairman receives an annual fee of £40,000, the Chairman of the Audit Committee receives an annual fee of £30,000 and each of the other Directors receives an annual fee of £26,750.
At the period end members of the Board held ordinary shares in the Company as set out below:
| Ordinary shares 29 October 2018 |
Ordinary shares 31 August 2018 |
|
| Nicholas Fry (Chairman) | 40,000 | 40,000 |
| Caroline Burton | 5,500 | 5,500 |
| Michael Peacock | 1,000 | 1,000 |
| Robert Robertson | 91,062 | 91,062 |
| Susan Platts-Martin | 2,000 | 2,000 |
| ======== | ======== |
14. PUBLICATION OF NON STATUTORY ACCOUNTS
The financial information contained in this half yearly report does not constitute statutory accounts as defined in section 435 of the Companies Act 2006. The financial information for the six months ended 31 August 2018 and 31 August 2017 has not been audited, or reviewed by the Company’s auditors.
The information for the year ended 28 February 2018 has been extracted from the latest published audited financial statements, which have been filed with the Registrar of Companies. The report of the auditor in those financial statements contained no qualification or statement under sections 498(2) or (3) of the Companies Act 2006.
15. CONTINGENT LIABILITIES
There were no contingent liabilities at 31 August 2018, 31 August 2017 or 28 February 2018.
16. ANNUAL RESULTS
The Board expects to announce the annual results for the year ending 28 February 2019 in late April 2019. Copies of the annual results announcement can be obtained from the Secretary on 020 7743 3000 and a copy of the Annual Report is available from the Company’s website at blackrock.co.uk/brsc. The Annual Report should be available by beginning of May 2019 with the Annual General Meeting being held in June 2019.
For further information, please contact:
Simon White, Managing Director, Investment Trusts, BlackRock Investment Management (UK) Limited
Tel: 020 7743 5284
Mike Prentis and Roland Arnold, Fund Managers, BlackRock Investment Management (UK) Limited
Tel: 0207 743 2312, 0207 743 5113
Press enquiries:
Lucy Horne, Lansons Communications – Tel: 020 7294 3689
E-mail: lucyh@lansons.com
29 October 2018
12 Throgmorton Avenue
London EC2N 2DL
END
The Half Yearly Financial Report will also be available on the BlackRock Investment Management website at http://www.blackrock.co.uk/brsc. Neither the contents of the Manager’s website nor the contents of any website accessible from hyperlinks on the Manager’s website (or any other website) is incorporated into, or forms part of, this announcement.
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