Annual Financial Report
BlackRock North American Income Trust plc
INVESTMENT OBJECTIVE
The Company's objective is to provide an attractive and growing level of income
return with capital appreciation over the long term, predominantly through
investment in a diversified portfolio of primarily large-cap U.S. equities.
PERFORMANCE RECORD
Financial Highlights
Attributable 31 31
to October October
ordinary 2014 2013
shareholders
Net assets (£'000) 121,199 111,289
Net asset value per ordinary share 120.76p 112.00p
Ordinary share price (mid-market) - ex 4th
interim dividend 112.00p 112.50p
Ordinary share price (mid-market) - cum 4th
interim dividend(1) 112.00p 113.50p
(Discount)/premium to cum income net asset
value(2) (7.3%) 1.3%
-------- --------
Performance
Net asset value per share (with income
reinvested)(3) +11.8% +17.1%(4)
Russell 1000 Value Index (total return) +16.9% +27.4%(4)
Share price (with income reinvested)(2) +2.4% +16.5%(4)
-------- --------
(1) In the period ended 31 October 2013 the share price went ex-dividend for the 4th
interim dividend of 1p per share on 13 November 2013; however, this interim dividend
was not accounted for in the NAV at 31 October 2013 as a liability in accordance with IFRS.
(2) Based on cum dividend ordinary share price.
(3) Performance return for period ended 31 October 2013 is based on NAV at launch after
launch costs of 1.75% of issue price of 100p.
(4) For the period 24 October 2012 to 31 October 2013
CHAIRMAN'S STATEMENT
Overview
There have been signs of slowly improving growth in the second half of the
year, with U.S. equities benefiting from a number of reassuring economic
reports. The labour market has stabilised, evidenced by a decline in jobless
claims and the unemployment rate. The housing market is on a solid footing and
showing signs of improvement. In addition, consumer balance sheets are healthy
as consumers benefit from low interest rates and a recovering domestic economy.
Economic strength has also helped to support corporate earnings and the
potential for capital expenditure to increase. Despite these positives,
concerns still remain over the possibility for sharp interest rate rises and
heightened geopolitical tensions.
Performance
For the twelve months ended 31 October 2014, the Company's net asset value per
share (NAV) returned 11.8%, compared with a return of 16.9% from the Russell
1000 Value Index, and the share price returned 2.4%. All percentages are
calculated in sterling terms with income reinvested.
Short term relative performance has again been disappointing. However, the
Board believes that attractively valued, high quality companies with histories
of dividend growth can deliver strong risk-adjusted returns over the long term.
Since 31 October 2014 and up until the close of business on 8 December 2014,
the Company's NAV and share price have increased by 4.2% and 4.9% respectively.
Earnings and dividends
Revenue earnings per share for the year ended 31 October 2014 amounted to 4.25p
(period from launch to 31 October 2013: 4.28p). Three quarterly dividends of
1.0 pence per share have been paid during the year on 2 April 2014, 2 July 2014
and 2 October 2014 and a fourth quarterly dividend of 1.0 pence per share has
been declared with a payment date of 5 January 2015.
It is the Directors' intention to pay dividends amounting to at least 4.0 pence
per share for the year ending 31 October 2015. The ability to match or exceed
this target will depend on portfolio dividend distributions and option writing
from our underlying portfolio. This should not be interpreted as a profit
forecast.
Share issues
In the year to 31 October 2014, 1,000,000 shares have been issued at a premium
to NAV for a total consideration of £1,103,000. There are now 100,361,305
shares in issue.
Tender offers
The Directors announced on 14 May 2014 that they had decided not to implement a
semi-annual tender offer as the average discount during the period was below
the level at which the tender would apply. However, on 6 November 2014, it was
announced that a semi-annual tender offer would take place on 2 February 2015.
The tender offer will be for up to 20% of the shares in issue at the prevailing
NAV per share subject to a discount of 2%. A Circular relating to the tender
offer is enclosed with the Annual Report. The Circular will be available on the
BlackRock website at blackrock.co.uk/brna and additional copies may be
requested from the Company's registered office c/o the Secretary, BlackRock
North American Income Trust plc, 12 Throgmorton Avenue, London EC2N 2DL.
The use of regular tender offers as a discount control mechanism is currently
under review by the Board.
Fund Management Team
The Board was pleased to announce the appointment of Tony DeSpirito as
co-manager of the Company's portfolio with effect from 5 August 2014. Going
forward, Kathleen Anderson will remain as a member of the Equity Dividend team
with Tony DeSpirito and Bob Shearer continuing as co-managers.
Alternative Investment Fund Managers Directive
BlackRock Fund Managers Limited (BFM) was appointed as the Company's
Alternative Investment Fund Manager (AIFM or Manager) on 2 July 2014. The Board
has also appointed BNY Mellon Trust & Depositary (UK) Limited to act as the
Company's depositary. In complying with its new regulatory obligations, the
Board can confirm to shareholders that it continues to act independently of the
AIFM and the arrangements in respect of the management fee remain unchanged.
BlackRock Investment Management (UK) Limited (BIM (UK)) continues to act as the
Company's Investment Manager under a delegation agreement with BFM. BIM UK has
delegated discretionary management of the Fund to BlackRock Investment Managers
LLC pursuant to an investment advisory agreement.
Annual General Meeting
The Annual General Meeting of the Company will be held at BlackRock's offices
at 12 Throgmorton Avenue, London EC2N 2DL on Thursday, 12 February 2015 at
12.00 noon. Details of the business of meeting are set out in the Notice of
Meeting on pages 64 to 67 of the Annual Report. The Portfolio Managers will
make a presentation to shareholders on the Company's performance and the
outlook for the year ahead.
Outlook
Recent data suggests continuing U.S. growth with less positive trends in Europe
and elsewhere. The recent economic strength in the U.S. also suggests that the
Federal Reserve will begin to normalise short term interest rates next year.
This view is reflected in the strength of the U.S. dollar which is currently
trading at its best level since the summer of 2010.
As liquidity is withdrawn with the end of the Federal Reserve's quantitative
easing programme, the likelihood of higher interest rates and the return of
volatility, we expect a portfolio of high quality companies to outperform.
SIMON MILLER
Chairman
11 December 2014
STRATEGIC REPORT
The Directors present the Strategic Report of the Company for the year ended 31
October 2014. The aim of the Strategic Report is to provide shareholders with
the information to assess how the Directors have performed their duty to
promote the success of the Company for the collective benefit of shareholders.
Principal activity
The Company carries on business as an investment trust and its principal
activity is portfolio investment.
Objective and investment policy
The Company's investment objective is to provide an attractive and growing
level of income return with capital appreciation over the long term,
predominantly through investment in a diversified portfolio of primarily
large-cap U.S. equities, with a focus on companies that grow and pay their
dividends. The Company may invest through an active options overlay strategy
utilising predominantly covered call options and may also hold other securities
from time-to-time including, inter alia, convertible securities, fixed interest
securities, preference shares, non-convertible preferred stock, and depositary
receipts. The Company may also invest in listed large-cap equities quoted on
exchanges outside the U.S. and may invest in securities denominated in U.S.
dollars and non-U.S. dollar currencies.
Strategy
In order to achieve the Company's investment objective, the 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 will not invest in companies which are not listed,
quoted or traded at the time of investment, although it may have exposure to
such companies where, following investment, the relevant securities cease to be
listed, quoted or traded. Typically it is expected that the investment
portfolio will comprise of between 80 and 120 securities.
Business model and investment policy
Risk is spread by investing in a diversified spread of investments. In
particular, no single investment (including any single derivative instrument)
will account for more than 10% of the Company's gross assets at the time of
investment; no more than 20% of gross assets, at the time of investment, shall
be invested in securities issued outside of the U.S.; no more than 25% of gross
assets shall be exposed to any one sector at the time of investment; and no
more than 20% of the Company's portfolio shall be under option at any given
time.
The Company may invest in derivatives for efficient portfolio management and
may, for investment purposes, employ an active options overlay strategy
utilising predominantly covered call options. Any use of derivatives and
options will be made on the basis of the same principles of risk spreading and
diversification that apply to the Company's direct investments. The Company
will not enter into physical or synthetic short positions or write any
uncovered options.
The Company's foreign currency investments will not be 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).
While the Company may hold shares in other investment companies (including
investment trusts), the Board has agreed that the Company will not invest more
than 10% in aggregate of the Fund in other listed closed-ended investment funds
(save to the extent that such closed-ended investment funds have published
investment policies to invest no more than 15% of their total assets in such
other listed closed-ended investment funds).
The Company may borrow up to 20% of its net assets (calculated at the time of
draw down), although the Board intends only to utilise borrowings representing
up to 10% of net assets at the time of draw down. Borrowings may be used for
investment purposes and the Company has a multi-currency overdraft facility
with its custodian.
Information regarding the Company's investment exposures is contained within
the schedule of investments. 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 shareholder
approval.
Performance
Over the year ended 31 October 2014, the Company's net asset value returned
11.8% compared with a return of 16.9% in the Russell 1000 Value Index. The
ordinary share price returned 2.4% (all percentages are calculated in sterling
terms with income 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 period, after taxation, was £12,654,000 (2013:
£12,308,000) of which the revenue return amounted to £4,256,000 (2013: £
3,254,000) and the capital return amounted to £8,398,000 (2013: £9,054,000).
The Company pays dividends quarterly and for the year ended 31 October 2014 the
Company's target was to pay dividends amounting to at least 4.0 pence per
share. Three quarterly interim dividends of 1.0 pence per share were paid on
2 April 2014, 2 July 2014 and 2 October 2014 and a fourth quarterly dividend of
1.0 pence per share has been declared and will be paid on 5 January 2015. Total
dividends of 4.0 pence per share were paid in relation to the period from
launch to 31 October 2013.
Key performance indicators
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 those reported by other investment trusts are as follows.
Year Period
ended ended
31 31
October October
2014 2013
Net asset value per share 120.76p 112.00p
Share price - ex-dividend 112.00p 112.50p
Share price - cum dividend(1) 112.00p 113.50p
Benchmark Index(2) 16.9% 27.4%
Dividends per share 4.00p 4.00p
(Discount)/premium to net asset
value(1) (7.3%) 1.3%
Ongoing charges(3) 1.3% 1.4%
======== ========
(1) In the period ended 31 October 2013, the share price went ex-dividend on
13 November 2013 for the fourth interim dividend; however, this dividend was
not accounted for as a liability in the NAV at the year-end in accordance with
IFRS.
(2) Russell 1000 Value Index.
(3) Ongoing charges represent the management fee and all other operating expenses
excluding interest as a % of average shareholders' funds.
The ongoing charges ratio has decreased in the year due to the increase in net
assets arising from the issue of shares and market movements during the year.
Performance is assessed on a total return basis for both the NAV and the share
price. The performance of the benchmark is assessed on a total return basis.
The Board monitors the above KPIs on a regular basis. Additionally, it
regularly reviews a number of indices and ratios to understand the impact on
the Company's relative performance of the various components such as asset
allocation and stock selection. The Board also reviews the performance of the
Company against its peer group of investment trusts with similar investment
objectives.
Share rating and share buy backs
The Directors recognise that it is in the long term interests of shareholders
that shares do not trade at a significant discount to their prevailing net
asset value. The Board believes this may be achieved through the use of regular
tender offers and the use of share buy back powers. In the year under review,
the Company's shares have traded in the range of a premium of 3.3% to a
discount of 9.4% on a cum income basis and were trading at a discount of 6.6%
as at close of business on 8 December 2014.
Principal risks
The key risks faced by the Company are set out below. The Board regularly
reviews and agrees policies for managing each risk, as summarised below.
* Performance risk - The Board is responsible for deciding the investment
strategy to fulfil the Company's objectives and for monitoring the
performance of the Investment Manager. An inappropriate strategy may lead
to underperformance against the benchmark index and the Company's peer
group. To manage this risk the Investment Manager provides an explanation
of significant stock selection decisions and the rationale for the
composition of the investment portfolio. The Board monitors and mandates 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 Company's investment
policy. The Board also receives and reviews regular reports showing an
analysis of the Company's performance against the Russell 1000 Value Index
and other similar indices.
* Income/dividend risk - The amount of dividends and future dividend growth
will depend on the Company's underlying portfolio and option income earned
by the Company. Any change in the tax treatment of the dividends or
interest received by the Company (including as a result of withholding
taxes or exchange controls imposed by jurisdictions in which the Company
invests) may reduce the level of dividends received by shareholders. The
Board monitors this risk through the receipt of detailed income forecasts
and considers the level of income at each meeting.
* Regulatory risk - The Company operates as an investment trust in accordance
with the requirements of Chapter 4 of Part 24 of the Corporation Tax Act
2010. As such, the Company is exempt from capital gains tax on the profits
realised from the sale of its investments. The Investment Manager monitors
investment movements, the level and type of forecast income and expenditure
and the amount of proposed dividends, if any, to ensure that the provisions
of Chapter 4 of Part 24 of the Corporation Tax Act 2010 are not breached
and the results are reported to the Board at each meeting. Following
authorisation under the Alternative Investment Fund Managers Directive
(AIFMD), the Company and its appointed Alternative Investment Fund Manager
(AIFM or Manager) are subject to the risks that the requirements of the
Directive are not correctly complied with. The Board and the Manager also
monitor changes in government policy and legislation which may have an
impact on the Company.
* Operational risk - In common with most other investment trust companies,
the Company has no employees. The Company therefore relies upon the
services provided by third parties and is dependent on the control systems
of the Manager, BNY Mellon Trust & Depositary (UK) Limited (the Depositary)
and the Bank of New York Mellon (International) Limited, who maintain the
Company's accounting records. The security of the Company's assets, dealing
procedures, accounting records and maintenance of regulatory and legal
requirements, depend on the effective operation of these systems. These
have been regularly tested and monitored throughout the year which is
evidenced through their Service Organisation Control (SOC 1) Reports to
provide assurance regarding the effective operation of internal controls
which are reported on by their service auditors and give assurance
regarding the effective operation of controls. The Board also considers
succession arrangements for key employees of the Manager and the business
continuity arrangements for the Company's key service providers.
* Market 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
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.
The Board considers asset allocation, stock selection and the level 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.
* Financial risk - The Company's investment activities expose it to a variety
of financial risks which include market risk, currency risk, interest rate
risk, market price risk, liquidity risk and credit risk. Further details
are disclosed in note 14 to the Financial Statements on pages 49 to 58 of
the Annual Report, together with a summary of the policies for managing
these risks.
* Gearing risk - The Company has the power to borrow money (gearing) and does
so when the Investment Manager is confident that market conditions and
opportunities exist to enhance investment returns. However, if the
investments fall in value, any borrowings will magnify the extent of this
loss. All borrowings require the approval of the Board and gearing levels
are discussed by the Board and Investment Manager.
Future prospects
The Board's main focus is to provide an attractive and growing level of income
return with capital appreciation over the long term and the future of the
Company is dependent upon the success of the investment strategy. The outlook
for the Company is discussed in both the Chairman's Statement and in the
Investment Manager's Report .
Social, community and human rights issues
As an investment trust, the Company has no direct social or community
responsibilities. However, the Company believes that it is in shareholders'
interests to consider environmental, social and governance factors and human
rights issues when selecting and retaining investments. Details of the
Company's policy on socially responsible investment are set out on page 26 of
the Annual Report.
Directors, gender representation and employees
The Directors of the Company on 31 October 2014 are set out in the Directors'
biographies on page 15 of the Annual Report. The Board consists of three male
Directors and one female Director. The Company does not have any employees.
The information set out on pages 8 to 14 of the Annual Report, including the
Investment Manager's Report, forms part of this Strategic Report. The Strategic
Report was approved by the Board at its meeting on 11 December 2014.
By order of the Board
BlackRock Investment Management (UK) Limited
Company Secretary
11 December 2014
INVESTMENT MANAGER'S REPORT
Market overview
For the year ending 31 October 2014, U.S. large cap stocks, as represented by
the S&P 500® Index, advanced 17.3% (in U.S. dollar terms). During this period,
the U.S. economy has continued to demonstrate tangible improvements including
employment growth, stronger business and consumer confidence and a rebound in
domestic manufacturing. GDP growth, although uneven, has advanced higher as
well with third quarter 2014 real GDP rising at a 3.5% annualised rate. These
positive market developments have offset potential negative catalysts including
the end to the Federal Reserve's quantitative easing programme, the prospect
for rising U.S. interest rates, mounting geopolitical tensions in Ukraine and
Iraq, and the Ebola epidemic in West Africa.
Portfolio overview
The largest contributor to relative performance during the year was stock
selection within the industrials sector. The Company being overweight to U.S.
defence contractors proved beneficial, as did our position in non-benchmark
holding Union Pacific, which continues to benefit from stronger volumes and a
recovering domestic economy. Stock selection in consumer discretionary also
added to relative performance. Notably, top ten holding Home Depot has
outperformed due to a pick-up in home improvement spending by the U.S. consumer.
Additionally, a combination of stock selection and an underweight to the energy
sector has contributed to relative performance for the year. The largest
detractor from performance was stock selection in consumer staples, as portfolio
holdings in the beverages, tobacco and food products industries underperformed.
Notable detractors Include Diageo, Philip Morris and Kimberley Clark. Our preference
for owning multinational companies with revenue exposure to overseas markets proved
costly, as weaker growth in Europe and Emerging Markets, as well as the stronger U.S.
Dollar, proved to be headwinds.
Secondly, a combination of stock selection in the pharmaceuticals industry and
an underweight to the health care providers and service industry detracted from
relative performance in the health care sector. In pharmaceuticals, our
overweight to Bristol-Myers Squibb was the largest single detractor. We remain
positive on the stock and believe their strong immuno-oncology pipeline gives
the firm multiple potential drivers for market share gain going forward. In
health care providers & services, our underweight to the industry has been
driven, at least in part, by our caution over the longer term growth prospects
of these stocks although we are observant of the reforms introduced by the
Affordable Care Act and continue to assess how the new health care regime will
affect selected names. Lastly, a combination of stock selection and an
underweight to information technology detracted from relative performance for
the one year period. Our ownership of non-benchmark holding International
Business Machines was the largest single detractor in the sector. Not owning
benchmark holdings Hewlett-Packard and Apple also hurt relative performance for
the period.
In terms of portfolio positioning, our largest allocations are in the
financials, industrials and energy sectors, which cumulatively make up just
over 50% of the portfolio. During the trailing one year period, we increased
our exposure to financials and information technology as these are areas where
we are seeing the strongest fundamentals, the greatest potential for dividend
growth and the most attractive valuations. Conversely, we reduced our exposure
to consumer staples given less strong fundamentals and expensive valuations,
and reduced our exposure to select energy holdings as well.
Below is a comprehensive overview of our allocations at the end of the year.
Industrials: 4.8% overweight (15.1% of portfolio)
We are overweight industrials given our belief the sector stands to benefit
from a strengthening U.S. economy and a pick up in capital spending. We are
most bullish on large-cap defence stocks due to their strong free cash flows,
attractive valuations and dividend growth potential. These stocks should also
benefit from a potential for upward inflection in defence spending (domestic
and international) in light of geopolitical concerns. We also maintain exposure
to industrial conglomerates given their diverse revenue streams, stable growth
profiles and healthy dividends.
Consumer Discretionary: 2.7% overweight (8.9% of portfolio)
The balance sheet for U.S. consumers is improving, aided by a recovering
domestic housing market, recent robust equity returns and stronger jobs growth.
These factors have generated an increase in consumer confidence, which
currently rests near five-year highs. We maintain an overweight position in the
sector with a preference for less-cyclical companies not exclusively dependent
on the ebb and flow of the purchasing power and sentiment of the U.S. consumer.
Materials: 2.4% overweight (5.6% of portfolio)
We believe infrastructure development and spending will continue to be a
critical part of the investment landscape, both in the United States and
abroad. Ultimately, we believe companies with higher quality and diverse assets
in locations close to developing markets will be able to reap the benefits of
high barriers to entry within local industries and deliver stronger growth.
Consumer Staples: 0.3% overweight (7.4% of portfolio)
In consumer staples, we are attracted to the sector's recurring purchase theme,
solid brand leadership and stable earnings growth potential. We believe there
is ample room for additional cost cutting, which may ultimately provide an
opportunity for accelerating earnings growth and multiple expansions within the
sector. We continue to like companies in the space who are supplying essential
goods into Emerging Market regions and believe the current slowdown in Emerging
Markets is cyclical and not a secular issue.
Telecommunications: 0.1% equal weight (2.2% of portfolio)
Within telecoms, our allocation remains concentrated in diversified
telecommunication bellwethers such as Verizon Communications. Wireless
operations continue to drive revenue in the sector, and the proliferation of
data-heavy smartphones should help certain companies in the space strengthen
margins. Service bundling has led to stickier consumers, better earnings
visibility and less customer churn, all of which are positives for the
industry.
Utilities: 1.0% underweight (5.4% of portfolio)
We have reduced our exposure to utilities during the past year, primarily due
to valuation. We are now modestly underweight the sector and maintain the
majority of our exposure in electric and multi-utilities given their durable
dividend profiles and resilience in slow growth environments.
Energy: 1.4% underweight (10.8% of portfolio)
Despite the recent pullback in energy prices, we believe long term fundamentals
remain positive as global energy demand continues to increase. Within the
sector, we favour oil–weighted companies over those levered to natural gas, and
we favour the large-cap integrated oil and independent oil & gas producers due
to valuation, their diverse revenue streams, balance sheet strength and robust
dividend profiles. Strong competitive positioning, operating specialisation and
pricing power at the industry level remain most desirable from an investment
perspective.
Information Technology: 1.9% underweight (7.3% of portfolio)
We are increasingly positive on the technology sector, with a preference for
owning large-cap, mature technology companies. Despite strong performance
year-to-date, we believe valuations remain attractive and companies such as
Microsoft and Intel offer a compelling mix of healthy balance sheets, strong
free cash flow generation and growing dividend streams. In addition, we believe
the technology sector should continue to benefit from an increase in capital
spending.
Financials: 2.6% underweight (26.8% of portfolio)
This sector represents the Company's largest absolute sector allocation and we
are particularly bullish on the U.S. banks and capital markets stocks. Our
bullishness is predicated on our belief that the U.S. economy is slowly, but
unmistakably, growing stronger. In addition, these stocks have improving
balance sheets, low credit losses, high capital levels, attractive valuations
and improving prospects for dividend growth.
Health Care: 3.3% underweight (10.5% of portfolio)
Our traditional underweight in health care has been driven, at least in part,
by our wariness of the longer term growth prospects of the health care services
sector. Although still underweight, we are intrigued by the changes wrought by
the Affordable Care Act and continue to evaluate its impact on select names. We
remain focused on the opportunities in the pharmaceutical manufacturers.
Positioning and outlook
We remain constructive on the U.S. economy given improvements in U.S.
employment data and benign levels of inflation. Improved employment prospects
and lower energy prices have contributed to a rise in consumer confidence,
which has rebounded to its long-run average. Additionally, U.S. consumer
balance sheets are stronger, with debt service relative to disposable income at
its lowest level in thirty years. On the corporate side, U.S. manufacturing
data remains strong and corporations are flush with cash. With strong balance
sheets and increasing business confidence, we see the potential for
acceleration in their capital spending. We believe these factors point toward
improving growth ahead for the U.S. economy.
BOB SHEARER AND TONY DESPIRITO
BlackRock Investment Management LLC
11 December 2014
TEN LARGEST INVESTMENTS AS AT 31 OCTOBER 2014
Wells Fargo: 3.7% (2013: 3.2%) is a U.S. diversified bank with over $1 trillion
in assets. Wells Fargo boasts a strong and stable management team, led by CEO
John Stumpf, who has been with the firm for nearly 30 years. Wells Fargo is
an industry leader in cross-selling financial products and services, which has
built deep customer relationships and added to the bank's pricing and earnings
power.
JPMorgan Chase: 3.4% (2013: 3.1%) is a U.S. based diversified financial company
with over $2 trillion in assets and operations in dozens of countries.
JPMorgan's capital base remains one of the strongest in the industry and it
provides a measure of safety and financial flexibility. Overall, we believe
JPMorgan offers strong earnings power while also affording shareholders a
healthy and sustainable dividend yield.
Comcast: 2.9% (2013: 2.5%) is the largest operator in the U.S. cable industry
and the firm offers a unique business model as they own both the cable network
as well as some of their own programming (NBC Universal). We are also positive
on Comcast's bid to acquire its biggest rival Time Warner Cable (TWC). Despite
regulatory hurdles, the TWC deal will give Comcast greater scale and more
leverage in negotiations with content providers.
General Electric: 2.7% (2013: 2.6%) is a diversified industrials conglomerate
with operations in technology infrastructure, energy infrastructure, home and
business services and capital services. We believe General Electric has the
potential to deliver stronger topline results through both organic growth and
industrial margin expansion. Lastly, we believe the firm's strong management
team, depth and breadth of products and ability to secure pricing make it a
desirable long term holding.
Home Depot: 2.6% (2013: 2.4%) is the world's largest home improvement retailer
with over 2,200 warehouse-format stores and more than 365,000 employees. The
firm has benefited from a recent pick-up in U.S. home improvement spending as
well as from advances in the domestic housing market. We remain positive on
Home Depot's commitment to the dividend, as they announced a 20% increase in
their quarterly distribution during 2014.
Chevron: 2.5% (2013: 3.1%) is the second largest integrated oil company in the
U.S. with exploration, production and refining operations worldwide. Chevron
has one of the strongest balance sheets and lowest debt to capital ratios among
its peers and currently generates a sector leading profitability per barrel of
oil. We believe the firm's success in deep water exploration in recent years
will be a significant driver of earnings growth moving forward.
Microsoft: 2.3% (2013: 1.5%) is a leading developer of software, hardware and
services in the technology sector. Microsoft boasts a strong balance sheet,
healthy measures of free cash flow and trades at an attractive current
valuation. We believe Microsoft will be one of the surviving "ecosystems" in
the tech industry and thus will have more pricing power than its peers in the
coming years.
Pfizer: 2.3% (2013: 2.5%) is the world's largest pharmaceuticals company with
annual sales of approximately $60 billion. Pfizer offers investors strong free
cash flow, a history of generating high returns on invested capital and an
attractive and consistent dividend yield. At this stage in the company's
business cycle, we believe it will be important for the firm's pipeline of
Phase I and II drugs to deliver on their blockbuster potential.
Merck: 2.3% (2013: 1.9%) is a global pharmaceuticals company with over 71,000
employees worldwide. We believe Merck is through the worst of its patent cliff
and that the firm is favourably positioned for long term growth. New drugs such
as Januvia (for diabetes), Isentress (for HIV) and the Gardasil vaccine
represent potential blockbusters. Additionally, we believe Merck's
restructuring efforts should reduce costs and improve margins over the long
term.
Raytheon: 2.2% (2013: 1.7%) is a defence contractor that benefits from spending
on reconnaissance-type products within the defense market. The firm is not
highly dependent on individual programmes that we believe could be at risk in
the current environment. We are positive on management's dedication to
shareholders, as the firm expects to return approximately 50% of its free cash
flow to investors over the long term and has been a strong dividend payer.
Additionally, we are positive on the firm's international sales, which
represent 27% of total sales which is in the top end of the U.S. aerospace &
defence industry, and may prove to be a tailwind amid rising geopolitical
tensions globally.
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
2013.
Together the ten largest investments represent 26.9% of the Company's portfolio
(31 October 2013: 25.5%).
All data in U.S. dollar terms.
INVESTMENTS AS AT 31 OCTOBER 2014
Company Country Sector Securities Market % of total
value portfolio
£'000
Wells Fargo United Financials Ordinary 4,565 3.7
States Shares
Options (30)
JPMorgan Chase United Financials Ordinary 4,130 3.4
States Shares
Options (31)
Comcast United Consumer Ordinary 3,526 2.9
States Discretionary Shares
Options (13)
General Electric United Industrials Ordinary 3,258 2.7
States Shares
Options (6)
Home Depot United Consumer Ordinary 3,214 2.6
States Discretionary Shares
Options (20)
Chevron United Energy Ordinary 3,000 2.5
States Shares
Options (2)
Microsoft United Information Ordinary 2,851 2.3
States Technology Shares
Options (11)
Pfizer United Health Care Ordinary 2,838 2.3
States Shares
Options (12)
Merck United Health Care Ordinary 2,760 2.3
States Shares
Options (15)
Raytheon United Industrials Ordinary 2,645 2.2
States Shares
Options (24)
Exxon Mobil United Energy Ordinary 2,591 2.1
States Shares
Options (2)
DuPont United Materials Ordinary 2,474 2.0
States Shares
Options (9)
Intel Corporation United Information Ordinary 2,418 2.0
States Technology Shares
Options (12)
Bristol-Myers United Health Care Ordinary 2,415 2.0
Squibb States Shares
Options (35)
Johnson & Johnson United Health Care Ordinary 2,328 1.9
States Shares
Options (31)
Verizon United Telecommunication Ordinary 2,272 1.9
Communications States Services Shares
Options (7)
Procter & Gamble United Consumer Staples Ordinary 2,252 1.7
States Shares
Options (14)
Bank of America United Financials Ordinary 2,063 1.7
States Shares
Options (12)
US Bancorp United Financials Ordinary 2,068 1.7
States Shares
Options (17)
Suntrust Banks United Financials Ordinary 2,025 1.7
States Shares
Options (11)
Citigroup United Financials Ordinary 1,931 1.6
States Shares
Options (12)
Northrop Grumman United Industrials Ordinary 1,914 1.6
States Shares
Options (22)
American Express United Financials Ordinary 1,847 1.5
States Shares
Options (20)
MetLife United Financials Ordinary 1,819 1.5
States Shares
Options (20)
Prudential United Financials Ordinary 1,790 1.5
Financial States Shares
Options (10)
McDonald's United Consumer Ordinary 1,667 1.4
States Discretionary Shares
Travelers Companies United Financials Ordinary 1,629 1.3
States Shares
Options (19)
Total France Energy Ordinary 1,596 1.3
Shares
Honeywell United Industrials Ordinary 1,582 1.3
States Shares
Options (15)
Union Pacific United Industrials Ordinary 1,516 1.2
States Shares
Options (9)
3M Company United Industrials Ordinary 1,475 1.2
States Shares
Options (10)
NextEra Energy United Utilities Ordinary 1,449 1.2
States Shares
Options (11)
United Parcel United Industrials Ordinary 1,434 1.2
Services States Shares
Options (13)
Dominion Resources United Utilities Ordinary 1,377 1.1
States Shares
Options (9)
United Technologies United Industrials Ordinary 1,351 1.1
States Shares
Options (8)
Ace United Financials Ordinary 1,321 1.1
States Shares
Options (5)
International Paper United Materials Ordinary 1,289 1.1
Company States Shares
Options (8)
Morgan Stanley United Financials Ordinary 1,287 1.0
States Shares
Options (6)
VF Corporation United Consumer Ordinary 1,280 1.0
States Discretionary Shares
Options (9)
Qualcomm United Information Ordinary 1,223 1.0
States Technology Shares
Options (10)
Diageo United Consumer Staples Ordinary 1,204 1.0
Kingdom Shares
Options (2)
Marathon Petroleum United Energy Ordinary 1,200 1.0
States Shares
Options (7)
Occidental United Energy Ordinary 1,181 1.0
Petroleum States Shares
Options (2)
CME United Financials Ordinary 1,166 0.9
States Shares
Options (3)
Lockheed United Industrials Ordinary 1,143 0.9
States Shares
Options (8)
International United Information Ordinary 1,092 0.9
Business Machines States Technology Shares
Chubb United Financials Ordinary 1,068 0.9
States Shares
Options (13)
BHP Billiton Australia Materials Ordinary 1,046 0.9
Shares
Fifth Third Bank United Financials Ordinary 1,024 0.8
States Shares
Options (5)
America Water Works United Utilities Ordinary 998 0.8
Association States Shares
Options (10)
Marathon Oil United Energy Ordinary 994 0.8
States Shares
Options (16)
Motorola United Information Ordinary 967 0.8
States Technology Shares
Options (5)
Kroger United Consumer Staples Ordinary 943 0.8
States Shares
Options (10)
Goldman Sachs United Financials Ordinary 939 0.8
States Shares
Options (10)
Toronto-Dominion Canada Financials Ordinary 930 0.8
Bank Shares
Options (7)
Dow Chemical United Materials Ordinary 907 0.7
States Shares
Options (8)
Praxair United Materials Ordinary 828 0.7
States Shares
Options (4)
Schlumberger United Energy Ordinary 758 0.6
States Shares
Options (1)
Sempra Energy United Utilities Ordinary 737 0.6
States Shares
Options (2)
Altria United Consumer Staples Ordinary 707 0.6
States Shares
Options (3)
ConocoPhillips United Energy Ordinary 688 0.6
States Shares
Options (2)
Johnson Controls United Consumer Ordinary 690 0.6
States Discretionary Shares
Options (5)
Becton Dickinson United Health Care Ordinary 692 0.6
States Shares
Options (14)
AbbVie United Health Care Ordinary 694 0.5
States Shares
Options (17)
Spectra Energy United Energy Ordinary 621 0.5
States Shares
Options (1)
Philip Morris United Consumer Staples Ordinary 613 0.5
International States Shares
Options (2)
Lorillard United Consumer Staples Ordinary 607 0.5
States Shares
Coca-Cola United Consumer Staples Ordinary 607 0.5
States Shares
Options (1)
Tyco International United Industrials Ordinary 601 0.5
States Shares
Options (2)
Weyerhaeuser United Financials Ordinary 601 0.5
States Shares
Options (5)
Quest Diagnostics United Health Care Ordinary 587 0.5
States Shares
Options (2)
Wisconsin Energy United Utilities Ordinary 578 0.5
States Shares
Options (1)
Duke Energy United Utilities Ordinary 579 0.5
States Shares
Options (3)
Mondelez United Consumer Staples Ordinary 564 0.5
International States Shares
Options (2)
Northeast Utilities United Utilities Ordinary 559 0.5
States Shares
Options (9)
American Tower United Financials Ordinary 543 0.4
States Shares
Unilever Netherlands Consumer Staples Ordinary 531 0.4
Shares
CSX United Industrials Ordinary 522 0.4
States Shares
Options (9)
Rockwell Automation United Industrials Ordinary 486 0.4
States Shares
Phillips 66 United Energy Ordinary 484 0.4
States Shares
Options (2)
Abbott Laboratories United Health Care Ordinary 482 0.4
States Shares
Options (6)
Nielsen United Industrials Ordinary 462 0.4
States Shares
Mattel United Consumer Ordinary 433 0.4
States Discretionary Shares
Options
ITC Holdings United Utilities Ordinary 390 0.3
States Shares
Options (7)
Automatic Data United Information Ordinary 388 0.3
Processing States Technology Shares
Options (6)
BCE Canada Telecommunication Ordinary 379 0.3
Services Shares
WalMart United Consumer Staples Ordinary 376 0.3
States Shares
Options (1)
Southern Copper Peru Materials Ordinary 318 0.3
Shares
Kraft Foods United Consumer Staples Ordinary 309 0.2
States Shares
Options (1)
General Mills United Consumer Staples Ordinary 279 0.2
States Shares
Options (2)
-------- --------
Total investments 121,219 100.0
======== ========
All investments are in ordinary shares unless otherwise stated. The number of
holdings as at 31 October 2014 was 90 (31 October 2013: 92). The total number
of individual open options as at 31 October 2014 was 130 (31 October 2013:
188).
The negative valuations of £746,000 in respect of options held represent the
notional cost of repurchasing the contracts at market prices as at 31 October
2014 (31 October 2013: £475,000). At 31 October 2014, the Company did not hold
any equity interests comprising more than 3% of any company's share capital.
RELATED PARTY TRANSACTIONS
BlackRock Investment Management (UK) Limited (BIM (UK)) provided management and
administration services to the Company under a contract which was terminated
with effect from 2 July 2014. BlackRock Fund Managers Limited (BFM) was
appointed as the Company's AIFM with effect from 2 July 2014. BIM (UK)
continues to act as the Company's Investment Manager under a delegation
agreement with BFM. Further details of the investment management contract are
disclosed in the Directors' Report on pages 16 and 17 of the Annual Report.
The investment management fee due to BIM (UK) and BFM for the year ended 31
October 2014 amounted to £1,092,000 (2013: £873,000). At the year end, £356,000
was outstanding in respect of the management fee (2013: £482,000). The
management fees were until 2 July 2014 payable to BIM (UK) and thereafter to
BFM.
In addition to the above services, with effect from 1 November 2013, BIM (UK)
has provided the Company with marketing services. The total fees paid or
payable for these services for the year ended 31 October 2014 amounted to £
77,000 excluding VAT (2013: nil), of which £77,000 (2013: nil) was outstanding
at 31 October 2014.
The Board consists of four non-executive Directors, all of whom are considered
to be independent of the Investment Manager by the Board. None of the Directors
has a service contract with the Company. For the year ended 31 October 2014,
the Chairman received an annual fee of £30,000, the Chairman of the Audit and
Management Engagement Committee received an annual fee of £25,000 and each of
the other Directors received an annual fee of £21,000.
The related party transactions with Directors are set out in the Directors'
Remuneration Report on pages 22 and 23 of the Annual Report. At 31 October
2014, £9,489 (2013: £8,080) was outstanding in respect of Directors' fees.
Statement of Directors' Responsibilities in respect of the Annual Report and
Financial Statements
The Directors are responsible for preparing the Annual Report and 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 IFRS as adopted by the European Union.
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 IFRS as adopted by the European Union, subject to any material
departures disclosed and explained in the financial statements;
* provide additional disclosures when compliance with the specific
requirements in IFRS as adopted by the European Union is insufficient to
enable users to understand the impact of particular transactions, other
events and conditions on the Company`s financial position and financial
performance; and
* prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Company's transactions and disclose with
reasonable accuracy at any time the financial position of the Company and
enable them to ensure that the financial statements comply with the Companies
Act 2006. They are also responsible for safeguarding the assets of the Company
and hence for taking reasonable steps for the prevention and detection of fraud
and other irregularities.
The Directors are also responsible for preparing the Strategic Report,
Directors' Report, the Directors' Remuneration Report, the Corporate Governance
Statement and the Report of the Audit and Management Engagement Committee in
accordance with the Companies Act 2006 and applicable regulations, including
the requirements of the Listing Rules and the Disclosure 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 on page 15 of the Annual Report,
confirm to the best of their knowledge that:
* the financial statements, which have been prepared in accordance with IFRS
as adopted by the European Union, give a true and fair view of the assets,
liabilities, financial position and net return 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 2012 UK Corporate Governance Code also requires Directors to ensure that
the Annual Report and Financial Statements are fair, balanced and
understandable. In order to reach a conclusion on this matter, the Board has
requested that the Audit and Management Engagement Committee advise on whether
it considers that the Annual Report and Financial Statements fulfil these
requirements. The process by which the Committee has reached these conclusions
is set out in the Audit and Management Engagement Committee's report on pages
28 to 30 of the Annual Report. As a result, the Board has concluded that the
Annual Report and Financial Statements for the year ended 31 October 2014,
taken as a whole, are fair, balanced and understandable and provide the
information necessary for shareholders to assess the Company's performance,
business model and strategy.
For and on behalf of the Board
SIMON MILLER
Chairman
11 December 2014
STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 OCTOBER 2014
Notes Revenue Revenue Capital Capital Total Total
2014 2013 2014 2013 2014 2013
£'000 £'000 £'000 £'000 £'000 £'000
Gains on investments
held at fair value
through profit or
loss - - 9,067 8,825 9,067 8,825
Gains on foreign
exchange - - 13 754 13 754
Income from investments
held at
fair value through
profit or loss 3 3,123 2,600 - - 3,123 2,600
-------- -------- -------- -------- -------- --------
Other income 3 2,670 1,868 - - 2,670 1,868
Total income 5,793 4,468 9,080 9,579 14,873 14,047
Expenses
-------- -------- -------- -------- -------- --------
Investment management
fees 4 (273) (218) (819) (655) (1,092) (873)
Other operating
expenses 5 (386) (326) (37) (15) (423) (341)
-------- -------- -------- -------- -------- --------
Total operating
expenses (659) (544) (856) (670) (1,515) (1,214)
-------- -------- -------- -------- -------- --------
Net profit on
ordinary activities
before finance costs
and taxation 5,134 3,924 8,224 8,909 13,358 12,833
Finance costs (2) (4) (6) (11) (8) (15)
-------- -------- -------- -------- -------- --------
Net profit on
ordinary activities
before taxation 5,132 3,920 8,218 8,898 13,350 12,818
Taxation (876) (666) 180 156 (696) (510)
-------- -------- -------- -------- -------- --------
Net profit on
ordinary activities
after taxation 4,256 3,254 8,398 9,054 12,654 12,308
-------- -------- -------- -------- -------- --------
Earnings per ordinary
share (basic and
diluted) 7 4.25p 4.28p 8.38p 11.91p 12.63p 16.19p
======== ======== ======== ======== ======== ========
The total column of this statement represents the Company's Statement of
Comprehensive Income, prepared in accordance with International Financial
Reporting Standards (IFRS) as adopted by the European Union. The supplementary
revenue and capital columns are both prepared under guidance published by the
Association of Investment Companies (AIC). All items in the above statement
derive from continuing operations. No operations were acquired or discontinued
during the year.
The Company does not have any other recognised gains or losses. The net profit
for the year disclosed above represents the Company's total comprehensive
income.
STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 OCTOBER 2014
Notes Called Share Capital Special Capital Revenue Total
up premium redemption reserve reserves reserve £'000
share account reserve £'000 £'000 £'000
capital £'000 £'000
For the year ended
31 October 2014
At 31 October 2013 994 35,671 1,460 63,213 9,004 947 111,289
Total Comprehensive
Income:
Net profit for the
year - - - - 8,398 4,256 12,654
Transaction with
owners, recorded
directly to equity:
Issue of ordinary
shares 10 1,108 - - - - 1,118
Share issue costs - (5) - - - - (5)
Dividend paid 6 - - - - - (3,857) (3,857)
-------- -------- -------- -------- -------- -------- --------
At 31 October 2014 1,004 36,774 1,460 63,213 17,402 1,346 121,199
-------- -------- -------- -------- -------- -------- --------
For the period ended
31 October 2013
Total Comprehensive
Income:
Net profit for the
period - - - - 9,054 3,254 12,308
Transaction with
owners, recorded
directly to equity:
Issue of management
shares 50 - - - - - 50
Issue of ordinary
shares 854 86,833 - - - - 87,687
Share issue costs - (1,899) - - - - (1,899)
Dividend paid 6 - - - - - (2,307) (2,307)
Cancellation of
share premium
account - (63,213) - 63,213 - - -
Share issue - C
shares 1,550 13,950 - - - - 15,500
Share conversion - C
shares to ordinary
shares (1,410) - 1,410 - - - -
Redemption and
cancellation of
management shares (50) - 50 - (50) - (50)
-------- -------- -------- -------- -------- -------- --------
At 31 October 2013 994 35,671 1,460 63,213 9,004 947 111,289
======== ======== ======== ======== ======== ======== ========
STATEMENT OF FINANCIAL POSITION AS AT 31 OCTOBER 2014
Notes 31 31
October October
2014 2013
£'000 £'000
Non-current assets
Investments designated as held at fair value
through profit or loss 121,965 112,429
-------- --------
Current assets
Other receivables 218 1,097
Cash and cash equivalents 923 227
-------- --------
1,141 1,324
-------- --------
Current liabilities
Bank overdraft - (555)
Derivative financial liabilities held at fair
value through profit or loss (746) (475)
Other payables (1,161) (1,434)
-------- --------
(1,907) (2,464)
-------- --------
Net current liabilities (766) (1,140)
-------- --------
Net assets 121,199 111,289
======== ========
Capital and reserves
Called-up share capital 1,004 994
Share premium 36,774 35,671
Capital redemption reserve 1,460 1,460
Special reserve 63,213 63,213
Capital reserves 17,402 9,004
Revenue reserve 1,346 947
-------- --------
Total equity shareholders' funds 121,199 111,289
======== ========
Net asset value per share 7 120.76p 112.00p
======== ========
CASH FLOW STATEMENT FOR THE YEAR ENDED 31 OCTOBER 2014
Year Period
ended from
31 30
October August
2014 2012
£'000 to
31
October
2013
£'000
Operating activities
Profit before taxation 13,350 12,818
Add back interest paid 8 15
Less: gains on investments held at fair value through
profit or loss (9,067) (8,825)
Net movement on foreign exchange (13) (754)
Sales of investments held at fair value through
profit or loss 91,353 52,861
Purchases of investments held at fair value through
profit or loss (91,551) (155,990)
Decrease/(increase) in other receivables 88 (169)
Increase in other payables 89 666
Decrease/(increase) in amounts due from brokers 129 (228)
(Decrease)/increase in amounts due to brokers (351) 352
------------ ------------
Net cash inflow/(outflow) from operating activities
before interest and taxation 4,035 (99,254)
Interest paid (8) (15)
Taxation on investment income included within gross
income (720) (406)
------------ ------------
Net cash inflow/(outflow) from operating activities 3,307 (99,675)
Financing activities
Dividends paid (3,857) (2,307)
Proceeds from issue of ordinary shares 1,796 102,509
Share issue costs paid (8) (1,609)
------------ ------------
Net cash (outflow)/inflow from financing activities (2,069) 98,593
----------- -----------
Increase/(decrease) in cash and cash equivalents 1,238 (1,082)
------------ -----------
Cash and cash equivalents at start of period (328) -
Effect of foreign exchange rate changes 13 754
----------- ---------
Cash and cash equivalents at end of period 923 (328)
======== ========
Comprised of:
Cash and cash equivalents 923 227
Bank overdraft - (555)
======== ========
923 (328)
======== ========
NOTES TO THE FINANCIAL STATEMENTS
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
comparative financial statements cover the period from the date of
incorporation on 30 August 2012 to 31 October 2013. The Company's ordinary
shares were listed on the Official List of the UK Listing Authority and
admitted to trading on the main market for listed securities of the London
Stock Exchange on 24 October 2012.
2. Accounting policies
The principal accounting policies adopted by the Company are set out below.
(a) Basis of preparation
The financial statements have been prepared under the historical cost
convention modified by revaluation of financial assets and financial
liabilities held at fair value through profit or loss and in accordance with
International Financial Reporting Standards (IFRS) as adopted by the European
Union, International Financial Reporting Interpretations Committee
interpretations and as applied in accordance with the provisions of the
Companies Act 2006. All of the Company's operations are of a continuing nature.
The Company's financial statements are presented in sterling because that is
the currency of the Company's share capital, the currency of the country in
which the majority of shareholders reside and the currency in which the
shareholders' dividend distributions will be made. All values are rounded to
the nearest thousand pounds (£'000) except where otherwise indicated.
Insofar as the Statement of Recommended Practice (SORP) for investment trust
companies and venture capital trusts issued by the AIC, revised in January
2009, is compatible with IFRS, the financial statements have been prepared in
accordance with the guidance set out in the SORP.
A number of new standards, amendments to standards and interpretations are
effective for annual periods beginning on or after 1 November 2014, and have
not been applied in preparing these financial statements (major changes and new
standards issued detailed below). None of these are expected to have a
significant effect on the measurement of the amounts recognised in the
financial statements of the Company.
IFRS 9 Financial Instruments (2014) replaces IAS 39 and deals with a package of
improvements including principally a revised model for classification and
measurement of financial instruments, a forward looking expected loss
impairment model and a revised framework for hedge accounting. In terms of
classification and measurement the revised standard is principles based
depending on the business model and nature of cash flows. Under this approach
instruments are measured at either amortised cost or fair value, though the
standard retains the fair value option allowing designation of debt instruments
at initial recognition to be measured at fair value.
The standard is effective from 1 January 2018 with earlier application
permitted but has not yet been endorsed by the European Commission. The Company
does not plan to early adopt this standard.
IFRS 10 Consolidated Financial Statements Investment Entities amendments
(effective 1 January 2014) establish a single control model that applies to all
entities including special purpose entities. The changes introduced by the
Investment Entities amendments require management to exercise significant
judgement to determine which entities are controlled, and therefore are
required to be consolidated by a parent.
The Company does not prepare consolidated financial statements hence the
provisions of these amendments are not applicable.
IFRS 12 Disclosure of Interest in Other Entities (effective 1 January 2014)
requires additional disclosures that relate to an entity's interests in
subsidiaries, joint arrangements, associates and structured entities.
This is not applicable to the Company as it does not prepare consolidated
financial statements.
IFRS 14 Regulatory Deferral Accounts (effective 1 January 2016) allows first
time IFRS adopters to continue to account for `regulatory deferral account
balances' in accordance with previous GAAP.
As the Company has already adopted IFRS the provisions of this standard are not
applicable.
IFRS 15 Revenue from Contracts with Customers (effective 1 January 2017)
specifies how and when an entity should recognise revenue and enhances the
nature of revenue disclosures.
Given the nature of the Company's revenue streams from financial instruments
the provisions of this standard are not expected to be applicable.
(b) Presentation of the Statement of Comprehensive Income
In order to reflect better 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 period end are treated as revenue for the period.
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. Interest income and expenses are
accounted for on an accruals basis.
Options may be purchased or written over securities held in the portfolio for
generating or protecting capital returns, or for generating or maintaining
revenue returns. Where the purpose of the option is the generation of income,
the premium is treated as a revenue item. Where the purpose of the option is
the maintenance of capital, the premium is treated as a capital item.
Option premium income is recognised as revenue evenly over the life of the
option contract and included in the revenue column of the Statement of
Comprehensive Income unless the option has been written for the maintenance and
enhancement of the Company's investment portfolio and represents an incidental
part of a larger capital transaction, in which case any premia arising are
allocated to the capital column of the Statement of Comprehensive Income.
(e) Expenses
All expenses, including finance costs, are accounted for on an accruals basis.
Expenses have been charged wholly to the revenue column of the Statement of
Comprehensive Income, except as follows:
* expenses which are incidental to the acquisition of an investment are
included within the cost of the investment. Details of transaction costs on
the purchases and sales of investments are disclosed within note 9 on pages
47 and 48 of the Annual Report;
* expenses are treated as capital where a connection with the maintenance or
enhancement of the value of the investments can be demonstrated; and
* the investment management fees and finance costs of borrowing borne by the
Company have been allocated 75% to the capital column and 25% to the
revenue column of the Statement of Comprehensive Income in line with the
Board's expectations of the 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. Tax payable is based on the taxable profit for the year. Taxable profit
differs from profit before tax as reported in the Statement of Comprehensive
Income because it excludes items of income or expense 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 have been enacted or substantively enacted by the balance sheet
date.
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 tax in the
future or right to pay less tax in the future have occurred at the financial
reporting date. This is subject to deferred tax assets only being recognised if
it is considered more likely than not that there will be suitable profits from
which the future reversal of the temporary differences can be deducted.
Deferred tax assets and liabilities are measured at the rates applicable to the
legal jurisdictions in which they arise.
(g) Investments held at fair value through profit or loss
The Company's investments are classified as held at fair value through profit
or loss in accordance with IAS 39 - 'Financial Instruments: Recognition and
Measurement' and are managed and evaluated on a fair value basis in accordance
with its investment strategy.
All investments are initially recognised as held 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. Proceeds are
measured at fair value, which is regarded as the proceeds of sale less any
transaction costs.
The fair value of the financial investments is based on their quoted bid price,
or as otherwise stated 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 `Gains or losses on investments held at fair value
through profit or loss'. Also included within the heading are transaction costs
in relation to the purchase or sale of investments.
(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 at their nominal value.
(i) Dividends payable
Interim dividends are recognised when paid to shareholders. Final dividends, if
any, are only recognised after they have been approved by shareholders.
(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 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.
(k) Cash and cash equivalents
Cash comprises cash in hand and on demand deposits. Cash equivalents are short
term, highly liquid investments that are readily convertible to known amounts
of cash and that are subject to an insignificant risk of changes in value.
(l) Bank borrowings
Bank overdrafts are recorded as the proceeds received. Finance charges 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 instruments to the extent that they are not settled in the period in
which they arise.
(m) Derivatives
Derivatives are held at fair value based on the bid/offer prices of the options
written to which the Company is exposed. The value of the option is
subsequently marked to market to reflect the fair value of the option based on
traded prices. Where the premium is taken to revenue, an appropriate amount is
shown as capital return such that the total return reflects the overall
change in the fair value of the option. When an option is closed out or exercised
the gain or loss is accounted for as a capital gain or loss.
3. Income
2014 2013
£'000 £'000
Investment income:
UK listed dividends 35 42
Overseas listed dividends 3,088 2,558
-------- --------
3,123 2,600
-------- --------
Other income:
Deposit interest 4 2
Option premium income 2,666 1,866
-------- --------
2,670 1,868
-------- --------
Total 5,793 4,468
======== ========
During the year, the Company received option premium income totalling
£2,747,000 (period ended 31 October 2013: £2,017,000) for writing covered call
options for the purposes of revenue generation, of which £2,666,000 (period
ended 31 October 2013: £1,866,000) was amortised to income. All derivative
transactions were based on constituent stocks in the Russell 1000 Value Index.
At 31 October 2014, there were 130 (2013: 188) open positions with an
associated liability of £746,000 (2013: £475,000).
4. Investment management fees
2014 2013
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Investment management
fee 273 819 1,092 218 655 873
-------- -------- -------- -------- -------- --------
Total 273 819 1,092 218 655 873
======== ======== ======== ======== ======== ========
The investment management fee is payable in quarterly arrears, calculated at
the rate of one-quarter of 1% per quarter of the Company's market
capitalisation.
5. Other operating expenses
2014 2013
£'000 £'000
Custody fee 5 22
Auditors' remuneration:
- audit services 26 26
- other non-audit services 6 14
Registrar's fee 30 20
Directors' emoluments 104 86
Other administration costs 215 158
-------- --------
386 326
======== ========
The Company's ongoing charges, calculated as a percentage of average net assets
and using expenses, excluding interest costs were 1.3% (2013: 1.4%).
Fees for non-audit assurance services of £6,000 (2013: £6,000) excluding VAT
were paid to Ernst & Young LLP and relate to the review of the interim
financial statements. In addition, in 2013 the auditors performed work in
respect of the Company's C share issue for fees of £8,000 excluding VAT.
For the period ended 31 October 2013 a fee of £70,000 (excluding VAT) was paid
to Ernst & Young LLP for services provided in relation to the launch of the
Company and issue of ordinary shares. These have been included within share
issue costs of £1,899,000 and debited to the share premium account within the
Statement of Changes in Equity for that period.
For the year ended 31 October 2014, expenses of £37,000 (2013: £15,000) were
charged to the capital column of the Statement of Comprehensive Income which
relate to transaction costs.
6. Dividends
The Directors have declared a fourth interim dividend of 1.0p per share. The
dividend will be paid on 5 January 2015, to shareholders on the Company's
register on 14 November 2014. The fourth interim dividend has not been
recognised as a liability in the financial statements as interim dividends are
not recognised in the financial statements until they are paid. They are also
debited directly to revenue reserves.
The interim dividend payable in respect of the year ended 31 October 2014 meets
the requirements of section 1158 of the Corporation Tax Act 2010 and section
833 of the Companies Act 2006.
Dividends on equity shares:
2014 2013
£'000 £'000
4th interim dividend of 1.0p paid for the year ended
31 October 2013 (2012: n/a) 845 -
1st interim dividend of 1.0p paid for the year ended
31 October 2014 (2013: 1.0p) 1,004 701
2nd interim dividend of 1.0p paid for the year ended
31 October 2014 (2013: 1.0p) 1,004 761
3rd interim dividend of 1.0p paid for the year ended
31 October 2014 (2013: 1.0p) 1,004 845
-------- --------
Accounted for in the financial statements 3,857 2,307
-------- --------
4th interim dividend of 1.0p payable on 5 January 2015
for the year ended 31 October 2014 (2013: 1.0p) 1,004 845
-------- --------
4,861 3,152
======== ========
7. Earnings and net asset value per ordinary share
2014 2013
Net revenue profit attributable to ordinary shareholders
(£'000) 4,256 3,254
Net capital profit attributable to ordinary shareholders
(£'000) 8,398 9,054
-------- --------
Total profit attributable to ordinary shareholders
(£'000) 12,654 12,308
-------- --------
Total equity attributable to shareholders (£'000) 121,199 111,289
-------- --------
The weighted average number of ordinary shares in issue
during the year, on which the earnings per ordinary share
was calculated, was: 100,180,757 76,004,895
======== ========
The actual number of ordinary shares in issue at the year 100,361,305 99,361,305
end, on which the net asset value per ordinary share was
calculated, was:
======== ========
Revenue earnings per share 4.25p 4.28p
======== ========
Capital earnings per share 8.38p 11.91p
======== ========
Total earnings per share 12.63p 16.19p
======== ========
Net asset value per share - basic and diluted 120.76p 112.00p
======== ========
Share price - ex-dividend 112.00p 112.50p
======== ========
Basic and diluted earnings per share and net asset value per share are the same
as the Company does not have any dilutive securities outstanding.
8. Called up share capital
Number Nominal
of value
ordinary £'000
shares
in
issue
Allotted, called up and fully paid share capital
comprised:
Ordinary shares of 1 pence each
Allotted, issued and fully paid:
At 31 October 2013 99,361,305 994
Issue of ordinary shares 1,000,000 10
----------- --------
At 31 October 2014 100,361,305 1,004
=========== ========
During the year ended 31 October 2014, the Company issued 1,000,000 shares for
a total consideration of £1,103,000 after deduction of issue costs (period
ended 31 October 2013: 34,361,305 shares for a total consideration of
£37,425,000). Since 31 October 2014, and up to the date of this report, the
Company has not issued any ordinary shares.
9. Contingent liabilities
There were no contingent liabilities at 31 October 2014 (2013: nil).
10. 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 2014 Annual Report
and Financial Statements will be filed with the Registrar of Companies shortly.
The report of the auditor for the year ended 31 October 2014 contains no
qualification or statement under section 498(2) or (3) of the Companies Act
2006.
This announcement was approved by the Board of Directors on 11 December 2014.
11. Annual report
Copies of the Annual Report will be sent to members shortly and will be
available from the registered office c/o The Company Secretary, BlackRock North
American Income Trust plc, 12 Throgmorton Avenue, London EC2N 2DL.
12. Annual General Meeting
The Annual General Meeting of the Company will be held at 12 Throgmorton
Avenue, London EC2N 2DL on Thursday, 12 February 2015 at 12.00 noon.
ENDS
The Annual Report will also be available on the BlackRock website at blackrock.co.uk/brna.
Neither the contents of the Manager's website nor the contents of any website accessible
from hyperlinks on the Manager's website (or any other website) is incorporated into, or
forms part of, this announcement.
For further information, please contact:
Jonathan Ruck Keene, Head of Closed End Funds Group, BlackRock Investment
Management (UK) Limited
Tel: 020 7743 2178
Julia Wennstrom, Media Relations, BlackRock Investment Management (UK) Limited
Tel: 020 7743 4142
11 December 2014
12 Throgmorton Avenue
London
EC2N 2DL
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