BLACKROCK NORTH AMERICAN INCOME TRUST PLC
LEI: 549300WWOCXSC241W468 - Article 5 Transparency Directive, DTR 4.2
Half Yearly Financial Report for the six months ended 30 April 2017
PERFORMANCE RECORD
FINANCIAL HIGHLIGHTS
| Attributable to ordinary shareholders | 30April2017 | 31October2016 | Change% |
| Assets | |||
| Net assets (£'000)1 | 114,843 | 109,479 | +4.9 |
| Net asset value per ordinary share - with income reinvested | 166.56p | 158.78p | +4.9 +6.4 |
| Ordinary share price (mid-market) - with income reinvested | 158.00p | 155.75p | +1.4 +2.9 |
| Russell 1000 Value Index (total return) | 1087.31 | 1031.64 | +5.4 |
| Discount to cum income net asset value | 5.1% | 1.9% |
| Forthe sixmonthsended 30April2017 | Forthe sixmonthsended 30April2016 | Change % | |
| Revenue | |||
| Net profit after taxation (£'000) | 1,763 | 1,914 | -7.9 |
| Revenue earnings per ordinary share | 2.56p | 2.55p | +0.4 |
1 The change in net assets reflects market movements and any share buybacks during the period.
ANNUAL PERFORMANCE SINCE LAUNCH ON 24 OCTOBER 2012 TO 30 APRIL 2017
| NAV Total Return | Russell 1000 Value Index Total Return | Share Price Total Return | |
| 2013 | 17.1% | 27.4% | 16.5% |
| 2014 | 11.8% | 16.9% | 2.4% |
| 2015 | 4.9% | 4.1% | 4.7% |
| 2016 | 34.2% | 34.6% | 43.0% |
| 2017 | 6.4% | 5.4% | 2.9% |
Sources: BlackRock and Datastream.
Performance figures have been calculated in sterling terms on a total return basis.
CHAIRMAN'S STATEMENT
for the six months ended 30 April 2017
PERFORMANCE OVERVIEW
U.S. equities registered positive returns in the period under review. Donald Trump's election as U.S. President, whilst causing initial volatility, did not lead to a significant sell-off in financial markets as many commentators had initially feared. In the event, markets rallied on hopes that his proposed infrastructure spending and corporate tax cuts would see economic growth improve.
For the six month period ended 30 April 2017, the Company's net asset value per share (NAV) returned 6.4% compared with a return of 5.4% in the Russell 1000 Value Index. The Company's share price returned 2.9% over the same period (all figures in sterling terms with income reinvested).
Since the period end and up to close of business on 14 June 2017, the Company's NAV has increased by 3.6% and the share price has risen by 0.5% (both percentages in sterling with income reinvested). Further information on the Company's performance is given in the Investment Manager's Report.
EARNINGS AND DIVIDENDS
The Company's revenue return per share for the six months ended 30 April 2017 amounted to 2.56p compared with 2.55p for the six months to 30 April 2016. The fall in sterling against the U.S. dollar has boosted the Company's income. The first quarterly dividend of 1.20p per share was paid on 4 April 2017. A second quarterly dividend of 1.25p per share has been declared and will be paid on 30 June 2017 to shareholders on the register on 19 May 2017. This represents an increase of 6.5% on the payments for the corresponding period in 2016.
DISCOUNT/SHARE REPURCHASES
The Directors continue to monitor the discount at which the ordinary shares trade to their prevailing NAV and in the six months to 30 April 2017 the cum income discount on the ordinary shares has averaged 3.9% and ranged between a premium of 1.6% and a discount of 8.7%.
No shares were repurchased during the six month period under review. Since the end of the period and up to the close of business on 14 June 2017, the Company has repurchased 75,000 ordinary shares at a price of 157.50p per share. These shares have been placed in treasury.The Board will use its buy back authority when appropriate, with the objective of ensuring that the Company's shares do not trade at a significant discount to their underlying NAV.
FUND MANAGEMENT TEAM
As announced on 15 February 2017, Bob Shearer has decided to retire from BlackRock and will therefore step down as co-manager of the Company at the end of August 2017. During the intervening period the Board and the Manager have reviewed the portfolio management arrangements and it has been agreed that, with effect from 1 September 2017, Franco Tapia and David Zhao will assume responsibility for the portfolio as co-managers alongside Tony DeSpirito.
Franco and David are currently portfolio managers for the BlackRock Equity Dividend Fund strategies and co-directors of research. Previously, they were both with Pzena Investment Management for a period of ten years. The investment objective and philosophy of the Company will not change and it will continue to seek income growth and superior risk-adjusted returns.
I wouldlike, on behalf of shareholders, to thank Bob Shearer for his stalwart commitment to the Company andhis careful stewardship of the portfolio since its inception.
OUTLOOK
Employment statistics continue to suggest that momentum behind growth in the U.S. economy remains reasonably strong, although other economic indicators are less conclusive.
Market confidence is likely to be governed by the perception of how deliverable key elements of the new administration's economic plans will be, and in particular whether the proposed changes to corporate taxation and the realisation of infrastructure spending plans will obtain the necessary political support.
Although valuations are relatively high by historic standards, which suggests some moderation in future return expectations is warranted, your Board continues to believe the Manager's focus on high quality companies capable of growing their dividends is well suited to the currentmarket outlook.
Simon Miller
15June 2017
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:
Counterparty;
Investment performance;
Legal & Compliance;
Market;
Operational;
Financial; and
Marketing.
The Board reported on the principal risks and uncertainties faced by the Company in the Annual Report and Financial Statements for the year ended 31 October 2016. A detailed explanation can be found in the Strategic Report on pages 7 and 8 and in note 14 on pages 52 to 60 of the Annual Report and Financial Statements which are available on the website maintained by BlackRock at blackrock.co.uk/brna.
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 objective and the Company's projected income and expenditure, are satisfied that the Company has adequate resources to continue in operational existence for the foreseeable future and is financially sound. For this reason, they continue to adopt the going concern basis in preparing the financial statements. The Company has a portfolio of investments which are considered to be readily realisable and is able to meet all of its liabilities from its assets and income generated from these assets. Ongoing charges (excluding interest costs and after any relief for taxation) are 1.04% of net assets for the year ended 31 October 2016 and it is expected that this is unlikely to change significantly going forward.
RELATED PARTY DISCLOSURE AND TRANSACTIONS WITH THE 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 marketing fees payable are set out in note 4 and note 10.
The related party transactions with the Directors are set out in note 11.
DIRECTORS' RESPONSIBILITY STATEMENT
The Disclosure and Transparency Rules (DTR) of the UK Listing Authority require the Directors to confirm their responsibilities in relation to the preparation and publication of the Interim Management Report and Financial Statements.
The Directors confirm to the best of their knowledge that:
the condensed set of financial statements contained within the half yearly financial report has been prepared in accordance with applicable International Accounting Standard 34 - 'Interim Financial Reporting'; and
the Interim Management Report, together with the 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 and Transparency Rules.
This half yearly financial report has not been audited or reviewed by the Company's auditors.
The half yearly financial report was approved by the Board on15 June 2017 and the above responsibility statement was signed on its behalf by the Chairman.
Simon Miller
For and on behalf of the Board
15June 2017
INVESTMENT MANAGER'S REPORT
MARKET OVERVIEW
In the final two months of 2016, U.S. stocks ended the year on a high note as Donald Trump's U.S. presidential election victory, coupled with the Republican Party's majority control of Congress, fuelled optimism for more pro-business policies under the new administration. U.S. equities rallied higher as the potential for tax reform, increased infrastructure spending, and reduced government regulation amplified investor expectations for economic growth. These expectations were further supported by the Federal Reserve ('the Fed') and the decision to raise its target for short term interest rates in December 2016, a choice which signified the Fed's growing confidence in the U.S. economy.
The opening months of 2017 revealed much of the same as the U.S. reflation trade gained steam on the heels of stronger macroeconomic data, a second Fed interest rate hike, and generally positive U.S. corporate earnings announcements. Investor optimism remained high and contrasted with low levels of U.S. equity market volatility. From a policy perspective, concern rose during the latter weeks of the reporting period given the new administration's difficulty in gaining support to pass new health care legislation. The immediate impact to equity markets was muted. However, the potential for greater than expected political gridlock in 2017 bears consideration in light of recent developments.
PORTFOLIO OVERVIEW
Over the six months to 30 April 2017, the Company's NAV return was 6.4% and the share price return was 2.9% (both figures in sterling terms with income reinvested). The largest contributor to relative performance during the period was stock selection in the health care sector. Notably, our largest positions in the health care providersand services industry, Anthem and Aetna, performed strongly on the back of above consensus earnings results. Stock selection in financials also contributed to relative returns. Notably, an overweight to U.S. banks such as Bank of America proved to be beneficial as net interest margin expansion and expectations for a less burdensome regulatory environment propelled stocks higher. An underweight to the real estate sector and stock selection within the consumer discretionary sector also bolstered portfolio performance. In consumer discretionary, the top relative contributors included our overweight position in Comcast Corporation and our ownership of non-benchmark holding Home Depot. Lastly, an underweight to, and stock selection within, the energy sector added to relative returns for the period.
The largest detractor from relative performance was a combination of stock selection and allocation decisions in the industrials sector. Notably, an underweight to the machinery and roadand rail industries and stock selection in the aerospaceand defence industry proved to be costly. In regards to machinery, our underweight was predicated on our belief that weak end market fundamentals limited attractive investment opportunities. Strong performance by benchmark holdings during the period reflected strengthening U.S. economic data as well as a positive shift in investor expectations for U.S. nominal GDP growth and tax policy following the U.S. presidential election. In regards to the roadand rail industry, our decision not to own benchmark holding CSX Corporation dragged on relative performance. CSX shares rallied sharply on news that an activist investor sought to install rail road veteran, Hunter Harrison, as CEO of the company. Above consensus quarterly earnings during the first quarter of 2017 also contributed to the stock's strong performance. Lastly, stock selection in the telecommunication services and utilities sectors also dampened relative performance during the reporting period.
The Company's option overwrite component enhanced the portfolio's income during the period. However, writing covered call options in a rising equity environment detracted modestly from absolute performance.
Below is an overview of our allocations (in GBP) at the end of the period.
Health Care: 4.5% overweight (15.5% of portfolio)
The Company's overweight in health care is concentrated in the pharmaceuticals and managed care industries. In pharmaceuticals, valuations are more expensive than in previous years, but we believe that the industry remains attractively priced relative to other defensive, higher-yielding sectors. Underlying fundamentals are also strong, with companies offering robust drug pipelines, improved research and development efficiency, strong free cash flow generation and lower patent expirations going forward. In the managed care industry, notable portfolio holdings include Anthem (2.4% of the portfolio), Aetna (1.7% of the portfolio) and UnitedHealth Group (1.1% of the portfolio). These companies exhibit many of the quality and stability characteristics that we like, along with solid earnings and dividend growth prospects.
Consumer Discretionary: 1.3% overweight (5.8% of portfolio)
After years of deleveraging, the balance sheet for U.S. households has improved. Consumers have also benefited from a recovering domestic housing market, solid jobs growth and improving wage growth. Although these factors are undoubtedly a positive for the economy and consumer-related spending, changing consumer preferences (i.e. spending on experiences versus things) and shifts in consumer behaviour (i.e. growth in internet retail) are notable disruptors to traditional business models. Therefore, the Company's overweight in the consumer discretionary sector is premised on stock-specific ideas. Our largest position in this sector is Comcast Corporation (2.0% of the portfolio).
Materials: 0.9% overweight (3.8% of portfolio)
Our exposure to the materials sector is primarily based in the chemical industry. In particular, we believe that longer term secular trends in global population growth will benefit well positioned companies in the agricultural chemical industry. In addition, we see opportunity in higher margin specialty chemicals. M&A is likely to be a positive catalyst for the industry, and ultimately, we believe that companies with scale, focus and high-quality assets will be able to deliver stronger earnings and dividend growth.
Industrials: 1.3% overweight (11.6% of portfolio)
The Company's overweight to industrials is concentrated in the aerospace & defence industry. We are particularly bullish on the defence stocks given their solid balance sheets, strong free cash flows and the potential for further increases in defence spending in light of geopolitical tensions globally. We also maintain exposure to industrial conglomerates such as General Electric (2.5% of the portfolio) and Honeywell (1.3% of theportfolio) given their diverse revenue streams, stable growth profiles and healthy dividend yields.
Financials: 1.3% overweight (27.5% of portfolio)
Financials is the Company's largest sector allocation and we maintain a high level of conviction in the sector. We are particularly bullish on the U.S. banks and capital markets stocks. Our bullishness is predicated on our belief that these firms are safer and sounder investments today than before the financial crisis. These banks have improved balance sheets, low credit losses and attractive valuations. Further, they offer positive earnings sensitivity to rising U.S. interest rates and may potentially benefit from a less burdensome regulatory environment under President Trump's administration.
Information Technology: 0.3% overweight (10.4% of portfolio)
The Company is slightly overweight in information technology and we are increasingly positive on the sector. Our preference is to own large-cap, cash-rich companies that are competitively insulated from disruptors and well-positioned for growth in areas such as cloud computing. Valuations remain attractive and companies such as Oracle (2.6% of the portfolio), Microsoft (2.4% of the portfolio), Samsung Electronics (2.0% of the portfolio) and Taiwan Semiconductor Manufacturing (1.4% of the portfolio) offer a compelling mix of healthy balance sheets, strong free cash flow generation and growing dividend streams.
Energy: 0.7% underweight (11.1% of portfolio)
In the energy sector we favour oil-weighted companies over those levered to natural gas and prefer integrated oil and independent oiland gas producers with quality management teams that are operating on the lower-end of the production cost curve. Companies with strong balance sheets and cash flows, production growth visibility, operating specialisation and pricing power at the industry level remain most desirable from an investment perspective.
Telecommunication Services: 1.3% underweight (2.2% of portfolio)
We are underweight to telecoms and our allocation remains concentrated in diversified telecommunications operator Verizon Communications (1.4% of the portfolio). Wireless operations drive revenue in the sector and service bundling has led to stickier consumers and better earnings visibility for the sector's bellwether firms.
Utilities: 1.2% underweight (5.1% of portfolio)
Our utilities exposure is concentrated in regulated operators, given their durable dividend profiles and resilience in slow growth environments. Our preference is to own attractively valued companies operating in favourable regulatory environments with clear plans for future growth. We also prefer to invest in firms that are not entirely dependent on demand and are in a unique position to focus on strategic capital expenditures. We believe that these factors will be increasingly important given slowing demand and declining electricity usage rates across the industry.
Consumer Staples: 2.0% underweight (6.6% of portfolio)
The Company has traditionally maintained an overweight in consumer staples due to the solid-brand leadership, healthy balance sheets, stable earnings, and dividend growth potential of the sector. In recent years some of these secular advantages have become more challenged due to greater end market competition from local brands and disruption from the rapid adoption of online shopping and its unlimited shelf space. Further, changing consumer preferences towards healthand wellness, as well as spending on experiences versus products, has created new challenges for the traditional consumer staples business model. Although we remain underweight the sector due to elevated valuations, more recently we have added exposure to stock specific opportunities that we believe offer above peer earnings and dividend growth potential.
Real Estate: 4.3% underweight (0.4% of portfolio)
The Company is underweight to the real estate sector given our view that valuations are expensive. Notably, the correlation of returns exhibited by real estate companies, relative to the performance of long term U.S. Treasury bonds, are elevated relative to history. We anticipate U.S. interest rates increasing from current levels, and believe that this outcome may negatively impact the sector's performance.
POSITIONING AND OUTLOOK
In our view, U.S. economic data is supportive of recent investor optimism. Steady job growth in recent years has restored the labour force to near full employment, wage growth is generally accelerating, and consumer confidence isaround its highest levels since December 2000. Business confidence and activity data are also trending higher and, in our view, the potential for reduced regulation is a potentially underappreciated tailwind for U.S. economic growth. To the extent that expectations for stronger economic and earnings growth are realised, we believe that stocks have a reasonable path forward to achieve further gains in this business cycle.
Importantly, we believe that more moderate return expectations are prudent given elevated U.S. equity market valuations relative to history. Further, weaker than expected nominal growth, fading earnings momentum, and a lack of clarity in regards to fiscal and foreign policy are important risks to monitor in the months ahead. As such, we continue to emphasise the core tenets of our investment philosophy: disciplined application of value investment principles, an emphasis on owning quality and sustainable businesses, dividend growth and a long term investment horizon. We believe that attractively-priced, dividend growth stocks with sound balance sheets are particularly well positioned for today's environment. Many of these companies have competitive yields relative to 10 year and 30 year U.S. Treasuries and offer the potential for future capital appreciation and income growth.
Tony DeSpirito and Bob Shearer
BlackRock Investment Management LLC
15June 2017
TEN LARGEST INVESTMENTS
as at 30 April 2017
JPMorgan Chase: 4.3% (2016: 3.5%) is a U.S. based diversified financial company. 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 that JPMorgan offers investors the potential for future earnings power through broadening customer relationships, increasing loan growth and efficient management of expenses.
Bank of America: 3.9% (2016: 3.4%) is one of the largest financial institutions in the U.S. and the world, with lending operations in the consumer, small-business, and corporate markets in addition to asset management and investment banking divisions. Bank of America's advantages range from its massive deposit and consumer lending franchise to the 'thundering herd' of Merrill Lynch's brokers and wealth managers.
Pfizer: 3.7% (2016: 3.4%) is a diversified pharmaceutical firm with a history of generating returns in excess of its cost of capital, which has translated to strong free cash flow generation and an attractive and consistent dividend yield over time. Pfizer trades at an attractive valuation, offers investors a healthy drug pipeline, and has the balance sheet flexibility to deliver long term shareholder value through a variety of avenues.
Citigroup: 3.3% (2016: 2.5%) is a U.S. based money center bank with a global footprint. We believe that Citigroup is attractively valued on both a price-to-earnings and book value basis. Further, we believe that the company has several 'self-help' opportunities that may potentially contribute to improved earnings power and a re-rating of the stock to a higher earnings multiple.
Dow Chemical: 3.0% (2016: 1.3%) is an American multi-national chemical corporation that manufactures plastics, chemicals, and agricultural products. The stock trades at an attractive valuation, has a healthy dividend yield, and offers investors a business with multiple organic growth opportunities. Further, Dow Chemical has a merger agreement in place with E. I. du Pont de Nemours. We have a favourable view of the deal and believe that it offers a variety of potential cost and growth synergies should it gain regulatory approval.
Wells Fargo: 2.8% (2016: 2.7%) is a U.S. diversified bank with a strong west coast franchise and growing national footprint. Wells Fargo is an industry leader and has historically demonstrated a strong focus on capital return, including above average dividends and share buybacks relative to banking peers.
Oracle: 2.6% (2016: 1.8%) is a multinational computer technology corporation that specialises in database & enterprise software solutions. We believe that the stock is attractively valued given the stickiness of Oracle's business and the potential revenue growth from its current product cycle. Further, the company boasts attractive margins and strong free cash flow generation.
General Electric: 2.5% (2016: 3.2%) is a diversified industrials conglomerate with operations in technology infrastructure, energy infrastructure, home and business services and capital services. We believe that the firm's strong management team, breadth of products, and ability to secure pricing, make it a desirable long term holding.
Anthem: 2.4% (2016: 1.5%) is an American health insurance company with exposure to the commercial risk, Medicare, Medicaid and individual markets. Anthem has benefited from new membership growth and downward pressure on cost trend in recent years. Further, we believe that the company has underappreciated scale advantages and the potential for improved profitability within its pharmacy benefit-management business.
Microsoft: 2.4% (2016: 2.4%) is a global technology leader that is engaged in developing and licensing both software and hardware products & services. We view Microsoft as an attractive long term investment given the firm's overall 'ecosystem', which historically has resulted in pricing power and efficient free cash flow generation over time. As technology spending continues to shift towards the cloud (i.e. delivery of software and services over the internet), we believe that Microsoft has the right mix of assets and enterprise business relationships to drive topline growth.
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 2016. Together, the ten largest investments represent 30.9% of the Company's portfolio (31 October 2016: 27.4%).
PORTFOLIO ANALYSIS
30 April 2017
Sectors | Canada % | China % | France % | Ireland % | Netherlands % | South Korea % | United Kingdom % | United States % | Total % | 31.10.16 Total % |
| Financials | - | - | - | - | - | - | - | 27.5 | 27.5 | 25.8 |
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | |
| Health Care | - | - | - | - | - | - | 1.6 | 13.9 | 15.5 | 14.7 |
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | |
| Industrials | - | - | - | 0.8 | 1.0 | - | 0.2 | 9.6 | 11.6 | 12.5 |
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | |
| Energy | 2.0 | - | 1.7 | - | - | - | - | 7.4 | 11.1 | 11.9 |
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | |
| Information Technology | 0.2 | 0.4 | - | - | - | - | - | 9.8 | 10.4 | 9.4 |
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | |
| Consumer Staples | - | - | - | - | 1.2 | - | 1.1 | 4.3 | 6.6 | 7.3 |
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | |
| Consumer Discretionary | - | - | 0.6 | - | - | - | - | 5.2 | 5.8 | 6.1 |
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | |
| Utilities | - | - | - | - | - | - | - | 5.1 | 5.1 | 5.9 |
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | |
| Materials | - | - | - | - | - | - | - | 3.8 | 3.8 | 3.6 |
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | |
| Telecommunication Services | 0.3 | - | - | - | - | 0.5 | - | 1.4 | 2.2 | 2.4 |
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | |
| Real Estate | - | - | - | - | - | - | - | 0.4 | 0.4 | 0.4 |
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | |
| % Portfolio 30.04.17 | 2.5 | 0.4 | 2.3 | 0.8 | 2.2 | 0.5 | 2.9 | 88.4 | 100.0 | |
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | |
| % Portfolio 31.10.16 | 1.8 | 0.5 | 2.1 | 0.4 | 0.8 | 0.6 | 2.1 | 91.7 | 100.0 | 100.0 |
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- |
INVESTMENTS
as at 30 April 2017
Company | Country | Sector | Securities | Market value £'000 | %of total portfolio |
| JPMorgan Chase | United States | Financials | Ordinary shares Option | 4,726 (11) | 4.3 |
| Bank of America | United States | Financials | Ordinary shares Option | 4,278 (4) | 3.9 |
| Pfizer | United States | Health Care | Ordinary shares Option | 4,028 (5) | 3.7 |
| Citigroup | United States | Financials | Ordinary shares Option | 3,661 (8) | 3.3 |
| Dow Chemical | United States | Materials | Ordinary shares Option | 3,306 (9) | 3.0 |
| Wells Fargo | United States | Financials | Ordinary shares Option | 3,090 (5) | 2.8 |
| Oracle | United States | Information Technology | Ordinary shares Option | 2,819 (7) | 2.6 |
| General Electric | United States | Industrials | Ordinary shares Option | 2,717 (7) | 2.5 |
| Anthem | United States | Health Care | Ordinary shares Option | 2,597 - | 2.4 |
| Microsoft | United States | Information Technology | Ordinary shares Option | 2,609 (29) | 2.4 |
| Merck | United States | Health Care | Ordinary shares Option | 2,376 (2) | 2.2 |
| Comcast Corporation | United States | Consumer Discretionary | Ordinary shares Option | 2,226 (11) | 2.0 |
| Samsung Electronics | United States | Information Technology | Ordinary shares Option | 2,136 - | 2.0 |
| American International Group | United States | Financials | Ordinary shares Option | 2,073 (3) | 1.9 |
| Morgan Stanley | United States | Financials | Ordinary shares Option | 2,046 (10) | 1.9 |
| Total | France | Energy | Ordinary shares Option | 1,907 (2) | 1.7 |
| Aetna | United States | Health Care | Ordinary shares Option | 1,805 (14) | 1.7 |
| AstraZeneca | United Kingdom | Health Care | Ordinary shares Option | 1,792 (4) | 1.6 |
| Occidental Petroleum | United States | Energy | Ordinary shares Option | 1,774 (2) | 1.6 |
| Suncor Energy | Canada | Energy | Ordinary shares Option | 1,770 (3) | 1.6 |
| Northrop Grumman | United States | Industrials | Ordinary shares Option | 1,702 (5) | 1.6 |
| US Bancorp | United States | Financials | Ordinary shares Option | 1,678 (3) | 1.5 |
| Prudential Financial | United States | Financials | Ordinary shares Option | 1,647 (6) | 1.5 |
| Chevron | United States | Energy | Ordinary shares Option | 1,586 - | 1.5 |
| Taiwan Semiconductor Manufacturing | United States | Information Technology | Ordinary shares Option | 1,557 (9) | 1.4 |
| NextEra Energy | United States | Utilities | Ordinary shares Option | 1,526 (2) | 1.4 |
| Verizon Communications | United States | Telecommunication Services | Ordinary shares Option | 1,518 (1) | 1.4 |
| Honeywell | United States | Industrials | Ordinary shares Option | 1,508 (4) | 1.3 |
| Lockheed Martin | United States | Industrials | Ordinary shares Option | 1,383 (1) | 1.3 |
| Unilever | Netherlands | Consumer Staples | Ordinary shares Option | 1,352 (5) | 1.2 |
| MetLife | United States | Financials | Ordinary shares Option | 1,324 (1) | 1.2 |
| Kroger | United States | Consumer Staples | Ordinary shares Option | 1,286 (3) | 1.2 |
| Hess | United States | Energy | Ordinary shares Option | 1,272 (4) | 1.2 |
| Exxon Mobil | United States | Energy | Ordinary shares Option | 1,264 (2) | 1.2 |
| Goldman Sachs | United States | Financials | Ordinary shares Option | 1,214 - | 1.1 |
| Diageo | United Kingdom | Consumer Staples | Ordinary shares Option | 1,193 (5) | 1.1 |
| Home Depot | United States | Consumer Discretionary | Ordinary shares Option | 1,197 (16) | 1.1 |
| UnitedHealth Group | United States | Health Care | Ordinary shares Option | 1,185 (14) | 1.1 |
| SunTrust Banks | United States | Financials | Ordinary shares Option | 1,170 (2) | 1.1 |
| Dominion Resources | United States | Utilities | Ordinary shares Option | 1,132 (3) | 1.0 |
| Koninklijke Philips | Netherlands | Industrials | Ordinary shares Option | 1,140 (16) | 1.0 |
| Procter & Gamble | United States | Consumer Staples | Ordinary shares Option | 1,121 (1) | 1.0 |
| Dollar General | United States | Consumer Discretionary | Ordinary shares Option | 1,110 (4) | 1.0 |
| Public Service Enterprise | United States | Utilities | Ordinary shares Option | 998 (2) | 0.9 |
| Quest Diagnostics | United States | Health Care | Ordinary shares Option | 946 (19) | 0.9 |
| Coca-Cola | United States | Consumer Staples | Ordinary shares Option | 907 (3) | 0.8 |
| Motorola Solutions | United States | Information Technology | Ordinary shares Option | 901 (5) | 0.8 |
| Marathon Petroleum | United States | Energy | Ordinary shares Option | 882 (7) | 0.8 |
| United Parcel Service | United States | Industrials | Ordinary shares Option | 856 (5) | 0.8 |
| Experian | Ireland | Industrials | Ordinary shares Option | 821 (5) | 0.8 |
| Becton Dickinson | United States | Health Care | Ordinary shares Option | 783 (4) | 0.7 |
| Travelers Companies | United States | Financials | Ordinary shares Option | 773 (1) | 0.7 |
| 3M | United States | Industrials | Ordinary shares Option | 745 (1) | 0.7 |
| PG & E | United States | Utilities | Ordinary shares Option | 712 (2) | 0.7 |
| Publicis | France | Consumer Discretionary | Ordinary shares Option | 673 (2) | 0.6 |
| Gap | United States | Consumer Discretionary | Ordinary shares Option | 671 (1) | 0.6 |
| Invesco | United States | Financials | Ordinary shares Option | 661 (2) | 0.6 |
| Union Pacific | United States | Industrials | Ordinary shares Option | 663 (5) | 0.6 |
| Qualcomm | United States | Information Technology | Ordinary shares Option | 635 (3) | 0.6 |
| Keycorp | United States | Financials | Ordinary shares Option | 623 (2) | 0.6 |
| Johnson & Johnson | United States | Health Care | Ordinary shares Option | 623 (4) | 0.6 |
| Nielsen | United States | Industrials | Ordinary shares Option | 610 (1) | 0.6 |
| Exelon | United States | Utilities | Ordinary shares Option | 605 (1) | 0.5 |
| SK Telecom | South Korea | Telecommunication Services | Ordinary shares Option | 600 (1) | 0.5 |
| Marsh & McLennan | United States | Financials | Ordinary shares Option | 586 (2) | 0.5 |
| Allstate | United States | Financials | Ordinary shares Option | 586 (3) | 0.5 |
| Mckesson | United States | Health Care | Ordinary shares Option | 556 (3) | 0.5 |
| International Paper | United States | Materials | Ordinary shares Option | 551 (2) | 0.5 |
| First Energy | United States | Utilities | Ordinary shares Option | 538 (1) | 0.5 |
| Marathon Oil | United States | Energy | Ordinary shares Option | 525 (1) | 0.5 |
| Mondelez International | United States | Consumer Staples | Ordinary shares Option | 507 (1) | 0.5 |
| Hilton Worldwide Holdings | United States | Consumer Discretionary | Ordinary shares Option | 500 - | 0.5 |
| Enbridge | Canada | Energy | Ordinary shares Option | 497 (1) | 0.4 |
| Lenovo | China | Information Technology | Ordinary shares Option | 474 - | 0.4 |
| Weyerhaeuser | United States | Real Estate | Ordinary shares Option | 464 (1) | 0.4 |
| Altria Group | United States | Consumer Staples | Ordinary shares Option | 444 - | 0.4 |
| Philip Morris International | United States | Consumer Staples | Ordinary shares Option | 444 (1) | 0.4 |
| Schlumberger | United States | Energy | Ordinary shares Option | 420 (1) | 0.4 |
| Praxair | United States | Materials | Ordinary shares Option | 334 (4) | 0.3 |
| BCE | Canada | Telecommunication Services | Ordinary shares Option | 293 (1) | 0.3 |
| Anadarko Petroleum | United States | Energy | Ordinary shares Option | 287 (1) | 0.2 |
| Constellation Software | Canada | Information Technology | Ordinary shares Option | 212 - | 0.2 |
| Rockwell Automation | United States | Industrials | Ordinary shares Option | 182 (1) | 0.2 |
| Pentair | United Kingdom | Industrials | Ordinary shares Option | 179 (1) | 0.2 |
| American Water Works Association | United States | Utilities | Ordinary shares Option | 161 - | 0.1 |
| CME | United States | Financials | Ordinary shares Option | 156 - | 0.1 |
| Cardinal Health | United States | Health Care | Ordinary shares Option | 54 - | 0.1 |
| -------- | -------- | ||||
| Portfolio | 109,095 | 100.0 | |||
| ====== | ===== | ||||
| Comprising: | |||||
| - Equity investments | 109,439 | ||||
| - Derivative financial instruments - written options | (344) | ||||
| -------- | |||||
| 109,095 | |||||
| ====== |
The negative valuation of £344,000 in respect of options held represents the notional cost of repurchasing the contracts at market prices as at 30 April 2017.
STATEMENT OF COMPREHENSIVE INCOME
for the six months ended 30 April 2017
| Revenue £'000 | Capital £'000 | Total £'000 | ||||||||
Notes | Six months ended 30.04.17 (unaudited) | Six months ended 30.04.16 (unaudited) | Year ended 31.10.16 (audited) | Six months ended 30.04.17 (unaudited) | Six months ended 30.04.16 (unaudited) | Year ended 31.10.16 (audited) | Six months ended 30.04.17 (unaudited) | Six months ended 30.04.16 (unaudited) | Year ended 31.10.16 (audited) | |
| Income from investments held at fair value through profit or loss | 3 | 1,480 | 1,399 | 2,772 | - | - | - | 1,480 | 1,399 | 2,772 |
| Other income | 3 | 877 | 1,164 | 2,144 | - | - | - | 877 | 1,164 | 2,144 |
| -------- | -------- | -------- | -------- | --------- | --------- | --------- | -------- | ---------- | ||
| Total revenue | 2,357 | 2,563 | 4,916 | - | - | - | 2,357 | 2,563 | 4,916 | |
| -------- | -------- | -------- | -------- | -------- | --------- | --------- | -------- | --------- | ||
| Profit on investments held at fair value through profit or loss | - | - | - | 5,895 | 4,567 | 24,078 | 5,895 | 4,567 | 24,078 | |
| (Loss)/profit on foreign exchange | - | - | - | (375) | (10) | 378 | (375) | (10) | 378 | |
| --------- | -------- | --------- | -------- | -------- | --------- | -------- | -------- | --------- | ||
| Total | 2,357 | 2,563 | 4,916 | 5,520 | 4,557 | 24,456 | 7,877 | 7,120 | 29,372 | |
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | --------- | ||
| Expenses | ||||||||||
| Investment management fees | 4 | (106) | (88) | (187) | (319) | (264) | (560) | (425) | (352) | (747) |
| Operating expenses | 5 | (172) | (175) | (267) | (7) | (17) | (37) | (179) | (192) | (304) |
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | ||
| Total operating expenses | (278) | (263) | (454) | (326) | (281) | (597) | (604) | (544) | (1,051) | |
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | ||
| Net profit on ordinary activities before taxation | 2,079 | 2,300 | 4,462 | 5,194 | 4,276 | 23,859 | 7,273 | 6,576 | 28,321 | |
| Taxation (charge)/credit | (316) | (386) | (732) | 62 | 53 | 112 | (254) | (333) | (620) | |
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | ||
| Net profit for the period | 1,763 | 1,914 | 3,730 | 5,256 | 4,329 | 23,971 | 7,019 | 6,243 | 27,701 | |
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | ||
| Earnings per ordinary share (pence) | 7 | 2.56p | 2.55p | 5.17p | 7.62p | 5.75p | 33.20p | 10.18p | 8.30p | 38.37p |
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | ||
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 (EU). 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 disposed of during the period.
The Company does not have any other comprehensive income. 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 30 April 2017
Note | Called-up share capital £'000 | Share premium account £'000 | Capital redemption reserve £'000 | Special reserve £'000 | Capital reserves £'000 | Revenue reserve £'000 | Total £'000 | |
| For the six months ended 30 April 2017 (unaudited) | ||||||||
| At 31 October 2016 | 1,004 | 36,774 | 1,460 | 25,029 | 43,161 | 2,051 | 109,479 | |
| Total comprehensive income: | ||||||||
| Net profit for the period | - | - | - | - | 5,256 | 1,763 | 7,019 | |
| Transaction with owners, recorded directly to equity: | ||||||||
| Dividends paid (a) | 6 | - | - | - | - | - | (1,655) | (1,655) |
| -------- | --------- | -------- | --------- | --------- | -------- | ----------- | ||
| At 30 April 2017 | 1,004 | 36,774 | 1,460 | 25,029 | 48,417 | 2,159 | 114,843 | |
| -------- | -------- | -------- | -------- | -------- | -------- | ---------- | ||
| For the six months ended 30 April 2016 (unaudited) | ||||||||
| At 31 October 2015 | 1,004 | 36,774 | 1,460 | 37,956 | 19,190 | 1,662 | 98,046 | |
| Total comprehensive income: | ||||||||
| Net profit for the period | - | - | - | - | 4,329 | 1,914 | 6,243 | |
| Transaction with owners, recorded directly to equity: | ||||||||
| Ordinary shares purchased into treasury | - | - | - | (12,147) | - | - | (12,147) | |
| Dividends paid (b) | - | - | - | - | - | (1,679) | (1,679) | |
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | ||
| At 30 April 2016 | 1,004 | 36,774 | 1,460 | 25,809 | 23,519 | 1,897 | 90,463 | |
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | ||
| For the year ended 31 October 2016 (audited) | ||||||||
| At 31 October 2015 | 1,004 | 36,774 | 1,460 | 37,956 | 19,190 | 1,662 | 98,046 | |
| Total comprehensive income: | ||||||||
| Net profit for the year | - | - | - | - | 23,971 | 3,730 | 27,701 | |
| Transaction with owners, recorded directly to equity: | ||||||||
| Share purchase costs | - | - | - | 60 | - | - | 60 | |
| Ordinary shares purchased into treasury | - | - | - | (12,987) | - | - | (12,987) | |
| Dividends paid (c) | - | - | - | - | - | (3,341) | (3,341) | |
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | ||
| At 31 October 2016 | 1,004 | 36,774 | 1,460 | 25,029 | 43,161 | 2,051 | 109,479 | |
| -------- | -------- | -------- | -------- | -------- | -------- | -------- |
(a)4th interim dividend of 1.20p per share for the year ended 31 October 2016, declared on 3 November 2016 and paid on 5 January 2017 and 1st interim dividend of 1.20p per share for the year ending 31 October 2017, declared on 21 February 2017 and paid on 4 April 2017.
(b) 4th interim dividend of 1.10p per share for the year ended 31 October 2015, declared on 4 November 2015 and paid on 5 January 2016 and 1st interim dividend of 1.10p per share for the year ended 31 October 2016, declared on 18 February 2016 and paid on 4 April 2016.
(c) 4th interim dividend of 1.10p per share for the year ended 31 October 2015, declared on 4 November 2015 and paid on 5 January 2016; 1st interim dividend of 1.10p per share for the year ended 31 October 2016, declared on 18 February 2016 and paid on 4 April 2016; 2nd interim dividend of 1.20p per share for the year ended 31 October 2016, declared on 4 May 2016 and paid on 1 July 2016; and 3rd interim dividend of 1.20p per share for the year ended 31 October 2016, declared on 3 August 2016 and paid on 7 October 2016.
Costs related to acquisition and disposal of investments amounted to £37,000 and £18,000 respectively for the six months ended 30 April 2017 (six months ended 30 April 2016: £29,000 and £17,000; year ended 31 October 2016: £63,000 and £35,000). All transaction costs have been included within the capital reserves.
STATEMENT OF FINANCIAL POSITION
as at 30 April 2017
Notes | 30April2017 £'000 (unaudited) | 30April2016 £'000 (unaudited) | 31October2016 £'000 (audited) | |
| Non current assets | ||||
| Investments held at fair value through profit or loss | 109,439 | 89,640 | 105,726 | |
| -------- | -------- | -------- | ||
| Current assets | ||||
| Other receivables | 478 | 1,893 | 154 | |
| Cash and cash equivalents | 6,038 | 340 | 4,686 | |
| Cash held on margin deposit with brokers | - | 234 | 125 | |
| -------- | -------- | -------- | ||
| 6,516 | 2,467 | 4,965 | ||
| -------- | -------- | -------- | ||
| Total assets | 115,955 | 92,107 | 110,691 | |
| Current liabilities | ||||
| Other payables | (768) | (1,261) | (901) | |
| Derivative financial instruments held at fair value through profit or loss | (344) | (383) | (311) | |
| -------- | -------- | -------- | ||
| (1,112) | (1,644) | (1,212) | ||
| -------- | -------- | -------- | ||
| Net current assets | 5,404 | 823 | 3,753 | |
| -------- | -------- | -------- | ||
| Net assets | 114,843 | 90,463 | 109,479 | |
| ====== | ====== | ====== | ||
| Equity attributable to equity holders | ||||
| Called up share capital | 8 | 1,004 | 1,004 | 1,004 |
| Share premium account | 36,774 | 36,774 | 36,774 | |
| Capital redemption reserve | 1,460 | 1,460 | 1,460 | |
| Special reserve | 25,029 | 25,809 | 25,029 | |
| Capital reserves | 48,417 | 23,519 | 43,161 | |
| Revenue reserve | 2,159 | 1,897 | 2,051 | |
| -------- | -------- | -------- | ||
| Total equity | 114,843 | 90,463 | 109,479 | |
| ====== | ====== | ====== | ||
| Net asset value per ordinary share (pence) | 7 | 166.56p | 130.07p | 158.78p |
| ====== | ====== | ====== |
CASH FLOW STATEMENT
for the six months ended 30 April 2017
| Sixmonthsended 30April2017 £'000 (unaudited) | Sixmonthsended 30April2016 £'000 (unaudited) | Yearended 31October2016 £'000 (audited) | |
| Net cash inflow from operating activities | 3,382 | 12,212 | 18,609 |
| -------- | --------- | --------- | |
| Financing activities | |||
| Ordinary shares purchased into treasury | - | (12,147) | (12,987) |
| Share issue costs paid | - | (39) | (36) |
| Share issue costs rebated | - | - | 60 |
| Dividends paid | (1,655) | (1,679) | (3,341) |
| -------- | ---------- | --------- | |
| Net cash outflow from financing activities | (1,655) | (13,865) | (16,304) |
| -------- | --------- | --------- | |
| Increase/(decrease) in cash and cash equivalents | 1,727 | (1,653) | 2,305 |
| Effect of foreign exchange rate changes | (375) | (10) | 378 |
| -------- | -------- | -------- | |
| Change in cash and cash equivalents | 1,352 | (1,663) | 2,683 |
| Cash and cash equivalents at start of period | 4,686 | 2,003 | 2,003 |
| -------- | -------- | -------- | |
| Cash and cash equivalents at end of period | 6,038 | 340 | 4,686 |
| Comprised of: | |||
| ===== | ===== | ===== | |
| Cash at bank | 6,038 | 340 | 4,686 |
| ===== | ===== | ===== | |
| 6,038 | 340 | 4,686 | |
| ===== | ===== | ===== |
RECONCILIATION OF NET PROFIT BEFORE TAXATION TO NET CASH FLOW FROM OPERATING ACTIVITIES
for the six months ended 30 April 2017
| Sixmonthsended 30April2017 £'000 (unaudited) | Sixmonthsended 30April2016 £'000 (unaudited) | Yearended 31October2016 £'000 (audited) | |
| Operating activities | |||
| Net profit before taxation | 7,273 | 6,576 | 28,321 |
| Profits on investments held at fair value through profit or loss | (5,895) | (4,567) | (24,078) |
| Net loss/(profit) on foreign exchange | 375 | 10 | (378) |
| Sales of investments held at fair value through profit or loss | 43,167 | 44,812 | 78,286 |
| Purchases of investments held at fair value through profit or loss | (40,952) | (35,183) | (64,305) |
| Decrease/(increase) in other receivables | 12 | 20 | (4) |
| Decrease in other payables | (102) | (236) | (21) |
| (Increase)/decrease in amounts due from brokers | (349) | 839 | 2,619 |
| Net increase/(decrease) in cash held on margin deposit with brokers | 125 | (234) | (125) |
| (Decrease)/increase in amounts due to brokers | (18) | 498 | (1,017) |
| Taxation on investment income included within gross income | (254) | (323) | (689) |
| ------- | --------- | ---------- | |
| Net cash inflow from operating activities | 3,382 | 12,212 | 18,609 |
| ===== | ===== | ====== |
NOTES TO THE FINANCIAL STATEMENTS
for the six months ended 30 April 2017
1. PRINCIPAL ACTIVITY
The principal activity of the Company is that of an investment trust company within the meaning of section 1158 of the Corporation Tax Act 2010.
2. BASIS OF PRESENTATION
The half yearly financial statements have been prepared using the same accounting policies as set out in the Company's Annual Report and Financial Statements for the year ended 31 October 2016 (which were prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union (EU) and as applied in accordance with the provisions of the Companies Act 2006) and in accordance with International Accounting Standard 34, 'Interim Financial Reporting'. Insofar as the Statement of Recommended Practice (SORP) for investment trust companies and venture capital trusts issued by the Association of Investment Companies (AIC), revised in November 2014 is compatible with IFRS, the financial statements have been prepared in accordance with guidance set out in the SORP.
3. INCOME
| Sixmonthsended 30April2017 £'000 (unaudited) | Sixmonthsended 30April2016 £'000 (unaudited) | Yearended 31October2016 £'000 (audited) | |
| Investment income: | |||
| Overseas listed dividends | 1,375 | 1,365 | 2,698 |
| Overseas special dividends | 25 | - | - |
| UK listed dividends | 80 | 34 | 74 |
| ======== | ======== | ======== | |
| 1,480 | 1,399 | 2,772 | |
| ======== | ======== | ======== | |
| Other income: | |||
| Deposit interest | 5 | - | 1 |
| Option premium income | 872 | 1,164 | 2,143 |
| ======== | ======== | ======== | |
| 877 | 1,164 | 2,144 | |
| ======== | ======== | ======== | |
| Total income | 2,357 | 2,563 | 4,916 |
| ======== | ======== | ======== |
During the period, the Company received premiums totalling £888,000 (six months ended 30 April 2016: £1,288,000; year ended 31 October 2016: £2,149,000) for writing covered call options for the purposes of revenue generation. Option premiums of £872,000 (sixmonths ended 30 April 2016: £1,164,000; year ended 31 October 2016: £2,143,000) were amortised to income. All derivative transactions were based on constituent stocks in the Russell 1000 Value Index. At 30 April 2017, there were 218 open positions with an associated liability of £344,000 (30 April 2016: 158 open positions with an associated liability of £383,000; 31October 2016: 186 open positions with an associated liability of £311,000).
Dividends and interest received during the period amounted to £1,477,000 and £5,000 (sixmonths ended 30 April 2016: £1,200,000 and £1,000; year ended 31 October 2016: £2,786,000 and £1,000) respectively.
4. INVESTMENT MANAGEMENT FEE
| Six months ended 30 April 2017 (unaudited) | Six months ended 30 April 2016 (unaudited) | Year ended 31 October 2016 (audited) | |||||||
| Revenue £'000 | Capital £'000 | Total £'000 | Revenue £'000 | Capital £'000 | Total £'000 | Revenue £'000 | Capital £'000 | Total £'000 | |
| Investment management fee | 106 | 319 | 425 | 88 | 264 | 352 | 187 | 560 | 747 |
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | |
| Total | 106 | 319 | 425 | 88 | 264 | 352 | 187 | 560 | 747 |
| ===== | ===== | ===== | ===== | ===== | ===== | ==== | ===== | ===== | |
With effect from 1 November 2015, the investment management fee is payable quarterly in arrears calculated at the rate of 0.75% per annum of the Company's net assets.
5. OPERATING EXPENSES
| Sixmonthsended 30April2017 £'000 (unaudited) | Sixmonthsended 30April2016 £'000 (unaudited) | Yearended 31October2016 £'000 (audited) | |
| Allocated to revenue: | |||
| Custody fee | 2 | 2 | 3 |
| Auditors' remuneration - audit services | 14 | 14 | 28 |
| Registrar's fee | 11 | 13 | 27 |
| Directors' emoluments | 58 | 53 | 105 |
| Broker fees | 20 | 20 | 40 |
| Depositary fees | 7 | 5 | 11 |
| Marketing fees | 30 | 23 | 35 |
| Marketing fees written back | (7) | - | (59) |
| Other administration costs | 37 | 45 | 77 |
| -------- | -------- | -------- | |
| 172 | 175 | 267 | |
| -------- | -------- | -------- | |
| Allocated to capital: | |||
| Transaction charges - capital | 7 | 17 | 37 |
| ====== | ====== | ====== | |
| 179 | 192 | 304 | |
| ====== | ====== | ====== |
6. DIVIDENDS
The Directors have declared a second quarterly interim dividend of 1.25p per share. The dividend will be paid on 30 June 2017 to shareholders on the Company's register on 19 May 2017. This dividend has not been accrued in the financial statements for the six months ended 30 April 2017, as under IFRS, interim dividends are not recognised until paid. Dividends are debited directly to reserves.
Dividends on equity shares during the period were:
| Sixmonthsended 30April2017 £'000 (unaudited) | |
| Fourth interim dividend of 1.20p per ordinary share paid on 5 January 2017* | 827 |
| First interim dividend of 1.20p per ordinary share paid on 4 April 2017* | 828 |
| -------- | |
| 1,655 | |
| Second interim dividend of 1.25p per ordinary share payable on 30 June 2017* | 862 |
| -------- | |
| 2,517 | |
| ===== |
* Based on 68,949,044 ordinary shares.
7. EARNINGS AND NET ASSET VALUE PER ORDINARY SHARE
Total revenue and capital returns per share and net asset value per share are shown below and have been calculated using the following:
| Sixmonthsended 30April2017 (unaudited) | Sixmonthsended 30April2016 (unaudited) | Yearended 31October2016 (audited) | |
| Net revenue profit attributable to ordinary shareholders (£'000) | 1,763 | 1,914 | 3,730 |
| Net capital profit attributable to ordinary shareholders (£'000) | 5,256 | 4,329 | 23,971 |
| -------- | -------- | -------- | |
| Total profit attributable to ordinary shareholders (£'000) | 7,019 | 6,243 | 27,701 |
| -------- | -------- | -------- | |
| Total equity attributable to equity holders (£'000) | 114,843 | 90,463 | 109,479 |
| -------- | -------- | -------- | |
| The weighted average number of ordinary shares in issue during the period on which the return per ordinary share was calculated was: | 68,949,044 | 75,203,163 | 72,193,444 |
| -------- | -------- | -------- | |
| The actual number of ordinary shares in issue at the end of the period on which the net asset value was calculated was: | 68,949,044 | 69,549,044 | 68,949,044 |
| -------- | -------- | -------- | |
| Revenue earnings per share | 2.56p | 2.55p | 5.17p |
| Capital earnings per share | 7.62p | 5.75p | 33.20p |
| --------- | --------- | ---------- | |
| Total earnings per share | 10.18p | 8.30p | 38.37p |
| --------- | -------- | --------- | |
| Net asset value per share | 166.56p | 130.07p | 158.78p |
| Share price | 158.00p | 123.25p | 155.75p |
| -------- | -------- | -------- |
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. SHARE CAPITAL
| Ordinary sharesin issue (number) | Treasury shares (number) | Total shares (number) | Nominal value £'000 | |
| Allotted, called up and fully paid share capital comprised: | ||||
| Ordinary shares of 1 pence each: | ||||
| At 1 November 2016 and at 30 April 2017 | 68,949,044 | 31,412,261 | 100,361,305 | 1,004 |
| ======== | ======== | ======== | ======== |
During the period to 30 April 2017, no ordinary shares were purchased for cancellation or transferred to treasury (six months ended 30 April 2016: 10,490,000 ordinary shares at a total cost of £12,147,000; year ended 31 October 2016: 11,090,000 ordinary shares at a total cost of £12,927,000).
No treasury shares were cancelled during the period (six months ended 30 April 2016: nil; year ended 31 October 2016: nil).
Since 30 April 2017 and up to the close of business on 14 June 2017, 75,000 ordinary shares have been purchased at a price of 157.50p per share andplaced in treasury.
9. VALUATION OF FINANCIAL INSTRUMENTS
Financial assets and financial liabilities are either carried in the Statement of Financial Position at their fair value (investments and derivatives) or at an amount which is a reasonable approximation of fair value (due from brokers, dividends and interest receivable, due to brokers, accruals, cash at bank and bank overdrafts). IFRS 13 requires the Company to classify fair value measurements using a fair value hierarchy that reflects the significance of inputs used in making the measurements. The valuation techniques used by the Company are explained in the accounting policies note 2(g) as set out in the Company's Annual Report and Financial Statements for the year ended 31 October 2016.
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 in an active market for an identical instrument. 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.
Level 2 - Valuation techniques used to price securities based on observable inputs. Valuation techniques used for non-standard instruments such as options, currency swaps and other over-the-counter derivatives include the use of comparable recent arm's length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, option pricing models and other valuation techniques commonly used by market participants making the maximum use of market inputs.
Level 3 - Valuation techniques using significant unobservable inputs other than quoted prices within Level 1. This category includes all instruments where the valuation technique includes inputs not based on observable market data and unobservable inputs could have a significant impact on the instrument's valuation. This category includes instruments that are valued based on quoted prices for similar instruments where significant unobservable adjustments or assumptions are required to reflect differences between the instruments and instruments for which there is no active market. The level in the hierarchy within 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 in its entirety.
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 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.
There has been no change to the valuation techniques during the period under review or as at the date of this report.
The table below sets out fair value measurements using the IFRS 13 fair value hierarchy.
Financial assets/(liabilities) at fair value through profit or loss at 30 April 2017 (unaudited) | Level1 £'000 | Level2 £'000 | Level3 £'000 | Total £'000 |
| Assets: | ||||
| Equity investments | 109,439 | - | - | 109,439 |
| Liabilities: | ||||
| Derivative financial instruments - written options | - | (344) | - | (344) |
| -------- | -------- | -------- | -------- | |
| 109,439 | (344) | - | 109,095 | |
| ======== | ======== | ======== | ======== |
Financial assets/(liabilities) at fair value through profit or loss at 30 April 2016 (unaudited) | Level1 £'000 | Level2 £'000 | Level3 £'000 | Total £'000 |
| Assets: | ||||
| Equity investments | 89,640 | - | - | 89,640 |
| Liabilities: | ||||
| Derivative financial instruments - written options | - | (383) | - | (383) |
| -------- | -------- | -------- | -------- | |
| 89,640 | (383) | - | 89,257 | |
| ======== | ======== | ======== | ======== |
Financial assets/(liabilities) at fair value through profit or loss at 31 October 2016 (audited) | Level1 £'000 | Level2 £'000 | Level3 £'000 | Total £'000 |
| Assets: | ||||
| Equity investments | 105,726 | - | - | 105,726 |
| Liabilities: | ||||
| Derivative financial instruments - written options | (251) | (60) | - | (311) |
| -------- | -------- | -------- | -------- | |
| 105,475 | (60) | - | 105,415 | |
| ======== | ======== | ======== | ======== |
There were no transfers between levels for financial assets and financial liabilities during the period recorded at fair value as at 30 April 2017, 30 April 2016 and 31 October 2016. The Company did not hold any level 3 securities throughout the financial period under review or as at 30 April 2017, 30 April 2016 and 31 October 2016.
10. TRANSACTIONS WITH THE AIFM AND INVESTMENT MANAGER
BlackRock Fund Managers Limited (BFM) is the Company's Alternative Investment Fund Manager (AIFM). 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)).
The investment management fee due to BFM for the six months ended 30 April 2017 amounted to £425,000 (six months ended 30 April 2016: £352,000; year ended 31 October 2016: £747,000). At the period end £427,000 was outstanding in respect of the investment management fee (30 April 2016: £170,000; 31 October 2016: £400,000).
In addition to the above services, BlackRock has provided the Company with marketing services. The total fees paid or payable for these services for the period ended 30 April 2017 amounted to £30,000 excluding VAT (six months ended 30 April 2016: £23,000; year ended 31 October 2016: £35,000). Marketing fees of £38,000 excluding VAT (30 April 2016: £96,000; 31 October 2016: £20,000) were outstanding as at 30 April 2017.
11. RELATED PARTY DISCLOSURE
The Board consists of four 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 £36,000, the Chairman of the Audit and Management Engagement Committee receives an annual fee of £30,000 and the other Directors each receive an annual fee of £25,000. At 30 April 2017 an amount of £10,000 (30April 2016: £8,000; 31 October 2016: £8,000) was outstanding in respect of Directors' fees.
At 30 April 2017 interests of the Directors in the ordinary shares of the Company were as set out below:
| Sixmonthsended 30April2017 (unaudited) | Sixmonthsended 30April2016 (unaudited) | Yearended 31October2016 (audited) | |
| Simon Miller (Chairman) | 38,094 | 38,094 | 38,094 |
| Christopher Casey | 19,047 | 19,047 | 19,047 |
| Andrew Irvine | 38,094 | 38,094 | 38,094 |
| Alice Ryder | 9,047 | 9,047 | 9,047 |
Since the period end and up to the date of this report there have been no changes in Directors' holdings.
12. CONTINGENT LIABILITIES
There were no contingent liabilities at 30 April 2017 (30 April 2016 and 31 October 2016: nil).
13. PUBLICATION OF NON STATUTORY ACCOUNTS
The financial information contained in this half yearly financial report does not constitute statutory accounts as defined in section 435 of the Companies Act 2006. The financial information for the six months ended 30 April 2017 and 30 April 2016 has not been audited.
The information for the year ended 31 October 2016 has been extracted from the latest published audited financial statements which have been filed with the Registrar of Companies. The report of the auditors on those financial statements contained no qualifications or statement under sections 498(2) or 498(3) of the Companies Act 2006.
14. ANNUAL RESULTS
The Board expects to announce the annual results for the year ending 31 October 2017 in late December 2017.
Copies of the annual results announcement can be obtained from the Secretary on 0207743 3000 or cosec@blackrock.com. The Annual Report and Financial Statements should be available by the beginning of January 2018, with the Annual General Meeting being held in March 2018.
FOR FUTHER INFORMATION, PLEASE CONTACT:
Simon White, Managing Director, Investment Trusts, BlackRock Investment Management (UK) Limited
Tel: 020 7743 5284
Press enquiries:
Lucy Horne, Lansons Communications - Tel: 020 7294 3689
E-mail: lucyh@lansons.com
15 June 2017
12 Throgmorton Avenue
London EC 2N 2DL
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