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 to ordinary shareholders | 30April 2016 | 31October 2015 | Change % |
| Assets | |||
| Net assets (£'000) 1 | 90,463 | 98,046 | -7.7 |
| Net asset value per ordinary share | 130.07p | 122.50p | +6.2 |
| - With income reinvested | +8.0 | ||
| Ordinary share price (mid-market) | 123.25p | 113.00p | +9.1 |
| - With income reinvested | +11.1 |
| Forthe sixmonthsended 30April2016 | Forthe sixmonthsended 30April2015 | Change % | |
| Revenue | |||
| Net profit after taxation (£'000) | 1,914 | 2,066 | -7.4 |
| Earnings per ordinary share | 2.55p | 2.27p | +12.3 |
1. The change in net assets reflects market movements and share buybacks during the period.
CHAIRMAN'S STATEMENT for the six months to 30 April 2016
PERFORMANCE OVERVIEW
It has been an encouraging start to the year, with your Company producing an 8.0% net asset return per share ('NAV') compared with a return of 7.5% in the Russell 1000 Value Index. The Company's share price return was 11.1% over the same period (all figures in sterling terms with income reinvested). Recent market volatility has underlined the attractiveness of quality dividend growth companies, which our Portfolio Managers favour for the long term.
The end of 2015 was relatively muted for U.S. stocks, but the start of the new year was far from benign as concerns over global growth put investors in a risk averse mood. Renewed volatility from China, a strong U.S. dollar, the impact of the severe oil price declines, and persisting global growth concerns combined to hit markets hard before rebounding by mid-March. Fears of a global recession, which had led to the initial turbulence, have now waned as the U.S. economy has begun stabilising. Unemployment is at its lowest rate for years, consumer spending has increased due in part to lower commodity prices and there has been a pause in the U.S. dollar's rise.
Further information on investment performance is given in the Investment Manager's Report. Since the period end to 27 June 2016, the Company's NAV return was8.2% and the share price return was 3.2% (both in sterling terms with income reinvested).
EARNINGS AND DIVIDENDS
The Company's revenue return per share for the six months ended 30 April 2016 amounted to 2.55p compared with 2.27p per share for the six months to 30 April 2015. The first quarterly dividend of 1.10p per share was paid on 4 April 2016. A second quarterly dividend of 1.20p per share will be paid on 1 July 2016 to shareholders on the register on 20 May 2016. This represents an increase of 9.5% on the paymentsover the compatible period in2015.
DISCOUNT/SHARE REPURCHASES
The discount of the Company's share price to the underlying NAV per share finished the period under review at 5.2% on a cum income basis. The Company traded on an average discount (cum income) of 8.4%, ranging between a discount of 3.7% to 12.7%. The closed-end North America fund peer group had a weighted average discount of 4.6% at 30 April 2016. Atthe close of business on27 June 2016, the Company's shares were trading at a discount of 9.6%.
During the period under review, the Company continued to buy back shares and repurchased 10,490,000 ordinary shares at an average price of 114.99p and at an average discount to NAV of 8.3%. These shares are held in treasury. No shares have been repurchased since the period end and up to and including the date of this report. The Board will continue to monitor the Company's discount to NAV and 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.
CONTINUATION VOTE
I am pleased to report that shareholders who voted at the Annual General Meeting held on 18 February 2016 opted for the Company to continue in being as an investment trust. As set out in the Annual Report, there will be another opportunity to vote on the continuation of the Company in 2019.
OUTLOOK
The start of the year has proved to be volatile, with investors unsettled by slowing economic activity and concerns about the continued effectiveness of unconventional central bank policies. The outcome of the U.K.'s recent referendum on membership of the European Union has added to market uncertainty globally. Its impact on the economic and political prospects for Europe as a whole remains to be seen. In the U.S., the forthcoming presidential election also adds another element of unpredictability to markets.
For the time being, worries of an impending U.S. recession appear to have abated. Although there has been a reduction in jobs growth recently, U.S. employment overall remains strong. Manufacturing weakness, which is concentrated mostly in sectors exposed to energy andexports, is also showing signs of bottoming out as the key headwinds of falling oil prices and faltering emerging market economies begin to subside.
Whilst we appear to be in the midst of a long and muted economic recovery, strong stockselection - and in particular continuing to employ fundamental research to identify high quality companies - will remain the key focus for our Portfolio Managers. In this environment, we believe that the Portfolio Managers' investment approach of focusing oncompanies which have both sound balance sheets and show the prospect of growing dividends will reap rewards in the medium term.
Simon Miller
29 June 2016
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:
- Performance;
- Income/dividend;
- Regulatory;
- Operational;
- Market;
- Financial; and
- Gearing.
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 2015. A detailed explanation can be found in the Strategic Report on pages 7 and 8 and in note 14 on pages 51 to 59 of the Annual Report and Financial Statements which are available on thewebsite maintained by BlackRock at blackrock.co.uk/brna.
In the Board's opinion, an additional uncertainty to those outlined in the Annual Report and Financial Statements now exists. In a referendum held on 23 June 2016, the United Kingdom resolved to leave the European Union ('EU'). The referendum result may affect the Company's risk profile through introducing potentially significant new uncertainties and instability in financial markets as the United Kingdom negotiates its exit from the EU. These uncertainties could have a material effect on the Company's business, financial condition and operations. The process of a major country leaving the EU has no precedent, so we expect an ongoing period of market uncertainty as implications are digested.
In the view of the Board, there have not been any other changes to the fundamental nature ofthese 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 ofinvestments which are considered to be readily realisable and is able to meet all of itsliabilities from its assets and income generated from these assets. Ongoing charges (excluding interest costs and taxation) for the year ended 31 October 2015 were 1.24% of net assets.
RELATED PARTY DISCLOSURE AND TRANSACTIONS WITH THE AIFM AND INVESTMENT MANAGER
BlackRock Fund Managers Limited ('BFM') was appointed as the Company's AIFM with effect from 2 July 2014. BFM has (with the Company's consent) delegated certain portfolio and risk management services, and other ancillary services, to BlackRock Investment Management (UK) Limited ('BIM (UK)'). Both BFM and BIM (UK) are regarded as related parties under the Listing Rules. Details of the management and marketing feespayable 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 ofthe 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 on 21 June 2016 and the above responsibility statement was signed on its behalf by the Chairman.
Simon Miller
For and on behalf of the Board
29 June 2016
INVESTMENT MANAGER'S REPORT
MARKET OVERVIEW
The final two months of 2015 served as a transition point for equity markets, as well as U.S. Federal Reserve ('the Fed') monetary policy. Performance was relatively muted during the period as better than expected U.S. payrolls and economic data was offset by fears of slowing Chinese growth, the impact of lower crude oil prices, and uncertainty related to the Paris terror attacks. Notably, the Fed raised U.S. interest rates for the first time since 2006, and cited potential future rate hikes as being gradual and data dependent.
The first four months of 2016 also proved to be eventful. Headlines during the period were dominated by slowing global growth fears and geopolitical events, which were offset by dovish Fed comments and worldwide central bank easing. Volatility spiked higher during the first six weeks of the calendar year and the S&P 500 Index experienced a 10.3% fall before rebounding sharply higher through the end of the reporting period. For the six month period ended 30 April 2016, U.S. large cap stocks, as represented by the S&P 500 Index, advanced by 0.4% (in U.S. dollar terms).
PORTFOLIO OVERVIEW
Over the six months to 30 April 2016, the Company's NAV return was 8.0% and the share price return was 11.1% (both figures in sterling terms with income reinvested). The largest contributor to relative performance during the period was stock selection in the consumer discretionary sector. Notably, our positions in non-benchmark holdings McDonald's and Dollar General proved to be beneficial as each company reported stronger than expected sales and earnings growth. Stock selection in health care alsocontributed to relative returns for the period - specifically, not owning benchmark holdingAllergan, which came under pressure after the U.S. federal government scuttled its merger with Pfizer. Not owning benchmark holding Kinder Morgan, a pipeline company, and an overweight to exploration & production operators Hess and Pioneer Natural Resources, also proved to be beneficial for our holdings within the energy sector. Lastly, our overweight position to the aerospace & defence industry boosted relative returns for the period.
The largest detractor from relative performance was stock selection and allocation decisions in financials. First, our overweightposition inthe bankingsector hurt relative returns, with notable detractors including portfolio holdings Citigroup and Wells Fargo. Second, stock selection in the insurance industry detracted from relative returns as our overweights to life insurers MetLife and Prudential Financial were negatively impacted byfurther declines in long term interest rates. American International Group, a property and casualty insurer, also underperformed after announcing weaker than expected quarterly earnings.Stock selection in the metals & mining industry also negatively impacted relative performance. In particular, not owning gold producers Freeport-McMoRan and Newmont Mining detracted from performance, as each company benefited from a sharp rally in gold bullion prices during the period. Lastly, stock selection in the consumer staples sector modestly hurt relative returns, as benchmark-only holding, Walmart Stores, rallied during the 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: 2.7% overweight (14.5% 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 (1.4% of portfolio), Aetna (1.4% of portfolio) and UnitedHealth Group (1.2% of portfolio). These companies exhibit many of the quality and stability characteristics that we like, along with solid earnings and dividend growth prospects.
Consumer Discretionary: 2.3% overweight (7.4% of portfolio)
The balance sheet for U.S. consumers continues to improve, aided by a recovering domestic housing market, solid jobs growth, lower gas prices and the beginning of wage growth. Although this is undoubtedly a positive for the economy and consumer-related spending, the Company's overweight in the consumer discretionary sector is premised on stock-specific factors. Our largest position in this sector is Home Depot (2.2% of portfolio).
Industrials: 1.9% overweight (12.3% of portfolio)
The Company's overweight to industrials is concentrated in the aerospace & defence industry. We are particularly bullish on defence stocks given their solid balance sheets, strong free cash flows and the potential for an upward inflection in defence spending. We also maintain exposure to industrial conglomerates such as General Electric (3.3% of portfolio) and Honeywell (1.5% of portfolio) given their diverse revenue streams, stable growth profiles and healthy dividend yields.
Consumer Staples: 0.6% overweight (7.8% of portfolio)
The Company has traditionally maintained an overweight in consumer staples due to thesector's recurring purchase theme, solid-brand leadership, stable earnings and dividend growth potential. We are now only modestly overweight due to concerns about high valuations and potential disruptions from online competition/changing consumer preferences. Within the sector we have a preference for tobacco stocks as they are immune to most of the aforementioned pressures and are beneficiaries of the improved macroeconomic backdrop for low-end consumers.
Materials: 0.4% overweight (3.4% 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 forthe industry and, ultimately, we believe companies with scale, focus and high-quality assets will be able to deliver stronger earnings and dividend growth.
Telecommunication Services: 0.5% underweight (2.3% of portfolio)
We are underweight to telecoms and our allocation remains concentrated in diversified telecommunication bellwether Verizon Communications (1.6% of portfolio). Wireless operations continue to drive revenue in the sector, and the proliferation of data-heavy smartphones should help certain companies in the sector strengthen margins. Service bundling has led to stickier consumers, better earnings visibility and less customer churn, all of which are positives. Overall, this sector should offer relatively high yields and opportunity for steady, longer termgrowth.
Information Technology: 1.0% underweight (9.8% of portfolio)
Although the Company remains underweight in information technology, we are increasingly positive on the sector, with a preference for large-cap, mature companies. Valuations remain attractive and companies such as Oracle (1.6% of portfolio), Qualcomm (1.2% of portfolio), Microsoft (2.0% of portfolio) and Intel (2.3% of portfolio) offer a compelling mix of healthy balance sheets, strong free cash flow generation and growing dividend streams.
Utilities: 0.8% underweight (6.0% of portfolio)
Our exposure to utilities is dominated primarily by regulated names, given their durable dividend profiles and resilience in slow growth environments. From a fundamental standpoint, we believe that the sector is increasingly bifurcated in terms of the differences between strong and weak companies. As such, we are focused on owning firms with clear plans for future growth that are trading at attractive valuations. 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.
Energy: 2.7% underweight (11.0% of portfolio)
Although still underweight to the sector, we have increased our energy allocation in recentmonths. Persistent weakness in crude oil prices and a volatile trading range have created opportunities to invest in quality operators that we believe are trading at a discount. Fundamentally, we believe that crude oil prices are in the midst of a natural bottoming process as supply and demand moves towards a tenuous equilibrium, and continue to favour oil-weighted companies over those levered to natural gas. At the industry level we look forcompanies with experienced management teams and strong balance sheets that are operating on the lower-end of the production cost curve. Companies with the ability to grow production throughout the operating cycle are also attractive from an investment perspective.
Financials: 3.0% underweight (25.5% of portfolio)
While underweight relative to the benchmark index, financials is the Company's largest sector allocation on an absolute basis and we maintain a high level of conviction in thesector. We are particularly bullish on U.S. banks and capital market stocks. Ourbullishness is predicated on our belief that these banks are safer and sounder investments today than before the financial crisis. These banks have improving balance sheets, low credit losses, high capital levels and attractive valuations. In addition, the headwinds from litigation and regulation are diminishing. As such, we believe that the banks are well positioned for future dividend growth.
Positioning and Outlook
Importantly, the U.S. economy remains on a firm footing. Steady job growth in recent years has restored the labour force closer to full employment, incomes are rising (slowly),housing demand appears to be healthy and even manufacturing has recently shown signs of life. For these reasons we believe that the odds of a recession are low and that the U.S. economy is poised to continue its slow growth trajectory as the year unfolds. Nevertheless, divergent central bank policies and global macroeconomic influences remain a key construct of this business cycle, and we remain mindful of the potential formore volatility given current equity market valuations.
We have positioned the Company to benefit from the maturing U.S. business cycle and the slow growth environment we see unfolding over time. Our largest exposures remain in the financials, health care and industrials sectors. In recent months we have increased our exposure to financials by initiating new positions in Invesco and The Allstate Corporation. Within the sector we have also increased our exposure to existing holdings, Bank of America and Morgan Stanley. We also continued to add opportunistically to our energy allocation through initiating new positions in Hess and Pioneer Natural Resources. Conversely, we reduced our exposure to the industrials and utilities sectors during the period. Notable sales from the portfolio included Tyco International and ITC Holdings.
More fundamentally, we believe that stocks with sound balance sheets that are growing their dividends are well positioned for today's environment and that this component of the U.S. equity market is cheap, on a relative basis, compared to its historic average.
Bob Shearer and Tony DeSpirito
BlackRock Investment Management LLC
29 June 2016
TEN LARGEST INVESTMENTS 30 April 2016
JPMorgan Chase: 3.8% (2015: 4.1%) 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 JPMorgan offers investors the potential for future earnings power through broadening customer relationships, increasing loan growth and efficient management of costs.
Wells Fargo: 3.5% (2015: 3.9%) is a U.S. diversified bank with a strong west coast franchise and growing national footprint. Wells boasts a strong and stable management team, led by CEO John Stumpf, who has been with the firm for over 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. Finally, the bank has a strong focus on capital return with above average dividends and buybacks versus peers.
General Electric: 3.3% (2015: 3.0%) is a diversified industrials conglomerate with operations in technology infrastructure, energy infrastructure, home and business services and capital services. GE's strong management team, depth and breadth of products, and ability to secure pricing, continue to make it a desirable long term holding.
Pfizer: 3.1% (2015: 2.9%) 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. We are positive on thecompany's prospects for future growth given their pipeline of early Phase I and II drugs with blockbuster potential. Additionally, we believe Pfizer's 2015 acquisition of Hospira will strengthen their global established pharma ('GEP') business, and position the company for share gains in biosimilars, a growth segment of the pharma market.
Bank of America: 2.4% (2015: 1.5%) 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 tothe 'thundering herd' of Merrill Lynch's brokers and wealth managers.
Exxon Mobil: 2.4% (2015: 2.6%) is an integrated oil and gas company based out of the United States. The firm is among a select group of U.S. companies with a credit rating of AA+ or higher. Exxon's geographic footprint and diversified operations continue to make it an industry leader, with the scale and experience to weather volatility in commodity prices. Management remains committed to generating shareholder returns, paying almost US$40 billion in dividends and repurchasing approximately US$130 billion worth of stock over the last five years.
Intel Corporation: 2.3% (2015: 2.4%) is a designer and manufacturer of digital technology platforms. Intel is a dominant player in the computer microprocessor market and we are particularly bullish on the firm's growth potential in its data centre business segment.
Home Depot: 2.2% (2015: 2.4%) is the world's largest home improvement retailer with over 2,200 warehouse-format stores. Home Depot has shown an ability to drive top-line growth and we remain encouraged by the company's focus on the in-store shopping experience and emphasis on controlling costs. Overall, we are positive on the stock given the company's strong execution, insulation from online competition, and the favourable macroeconomic backdrop for home improvement spending.
Citigroup: 2.1% (2015: 3.2%) is a U.S. based money centre bank with a global footprint. We believe Citigroup is attractively valued on both a price-to-earnings and book value basis. The firm has demonstrated an ability to achieve its efficiency targets and cut costs, which we believe will ultimately contribute to stronger earnings power and increasing capital return to shareholders.
Occidental Petroleum: 2.1% (2015: 1.7%) is a U.S. based oil and gas exploration & production company. The firm has three primary business segments including Oil & Gas (O&G), Chemical and Midstream, and Marketing (M&M). Notably, Occidental has a low cost advantage relative to peers given its strong shale acreage within the U.S. Permian basin.
All percentages reflect the value of the holding as a percentage of total investments as of 30 April 2016. Percentages in brackets represent the value of the holding as at 31 October 2015. Together the ten largest investments represent 27.2% of the Company's portfolio (31 October 2015: 27.7%).
PORTFOLIO ANALYSIS 30 April 2016
Sectors | Australia % | Canada % | China % | France % | Netherlands % | SouthKorea % | UnitedKingdom % | UnitedStates % | Total % |
| Consumer Discretionary | - | - | - | - | - | - | - | 7.4 | 7.4 |
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | |
| Consumer Staples | - | - | - | _ | 0.2 | - | 0.8 | 6.8 | 7.8 |
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | |
| Energy | - | - | - | 1.6 | - | - | - | 9.4 | 11.0 |
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | |
| Financials | - | - | - | - | - | - | - | 25.5 | 25.5 |
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | |
| Health Care | - | - | - | - | - | - | 0.8 | 13.7 | 14.5 |
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | |
| Industrials | - | - | - | - | - | - | - | 12.3 | 12.3 |
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | |
| Information Technology | - | - | 0.4 | - | - | 1.0 | - | 8.4 | 9.8 |
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | |
| Materials | - | - | - | - | - | - | - | 3.4 | 3.4 |
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | |
| Telecommunication Services | - | 0.3 | - | - | - | 0.4 | - | 1.6 | 2.3 |
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | |
| Utilities | - | - | - | - | - | - | - | 6.0 | 6.0 |
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | |
| % Portfolio 30.04.16 | - | 0.3 | 0.4 | 1.6 | 0.2 | 1.4 | 1.6 | 94.5 | 100.0 |
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | |
| % Portfolio 31.10.15 | 0.3 | 0.3 | 0.3 | 1.5 | 0.2 | 1.6 | 1.3 | 94.5 | 100.0 |
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- |
INVESTMENTS as at 30 April 2016
Company | Country | Sector | Securities | Marketvalue £'000 | %oftotal portfolio |
| JPMorgan Chase | United States | Financials | Ordinary shares | 3,416 | 3.8 |
| Wells Fargo | United States | Financials | Ordinary shares | 3,122 | 3.5 |
| Options | (6) | ||||
| General Electric | United States | Industrials | Ordinary shares | 2,929 | 3.3 |
| Options | (3) | ||||
| Pfizer | United States | Health Care | Ordinary shares | 2,802 | 3.1 |
| Options | (12) | ||||
| Bank of America | United States | Financials | Ordinary shares | 2,130 | 2.4 |
| Exxon Mobil | United States | Energy | Ordinary shares Options | 2,133 (18) | 2.4 |
| Intel Corporation | United States | Information Technology | Ordinary shares Options | 2,088 (1) | 2.3 |
| Home Depot | United States | Consumer Discretionary | Ordinary shares Options | 1,968 (10) | 2.2 |
| Citigroup | United States | Financials | Ordinary shares | 1,903 | 2.1 |
| Occidental Petroleum | United States | Energy | Ordinary shares | 1,870 | 2.1 |
| Options | (21) | ||||
| Merck | United States | Health Care | Ordinary shares | 1,846 | 2.1 |
| Options | (12) | ||||
| Microsoft | United States | Information Technology | Ordinary shares Options | 1,819 (2) | 2.0 |
| Dollar General | United States | Consumer Discretionary | Ordinary shares Options | 1,808 (5) | 2.0 |
| Johnson & Johnson | United States | Health Care | Ordinary shares | 1,673 | 1.9 |
| Options | (12) | ||||
| SunTrust Banks | United States | Financials | Ordinary shares | 1,670 | 1.9 |
| Options | (22) | ||||
| Procter & Gamble | United States | Consumer Staples | Ordinary shares | 1,640 | 1.8 |
| Options | - | ||||
| US Bancorp | United States | Financials | Ordinary shares | 1,584 | 1.8 |
| Options | (6) | ||||
| Total | France | Energy | Ordinary shares | 1,472 | 1.6 |
| Options | (27) | ||||
| Raytheon | United States | Industrials | Ordinary shares | 1,463 | 1.6 |
| Options | (5) | ||||
| Oracle | United States | Information Technology | Ordinary shares Options | 1,461 (4) | 1.6 |
| Comcast | United States | Consumer Discretionary | Ordinary shares Options | 1,399 (4) | 1.6 |
| Verizon Communications | United States | Telecommunication Services | Ordinary shares Options | 1,385 (6) | 1.6 |
| Northrop Grumman | United States | Industrials | Ordinary shares Options | 1,384 (6) | 1.5 |
| Honeywell International | United States | Industrials | Ordinary shares Options | 1,354 (6) | 1.5 |
| Du Pont | United States | Materials | Ordinary shares | 1,293 | 1.4 |
| Anthem | United States | Health Care | Ordinary shares Options | 1,288 (6) | 1.4 |
| American International Group | United States | Financials | Ordinary shares | 1,259 | 1.4 |
| Chevron | United States | Energy | Ordinary shares | 1,235 | 1.4 |
| Options | (12) | ||||
| Prudential Financial | United States | Financials | Ordinary shares | 1,233 | 1.4 |
| Options | (12) | ||||
| Aetna | United States | Health Care | Ordinary shares | 1,232 | 1.4 |
| Kroger | United States | Consumer Staples | Ordinary shares | 1,208 | 1.4 |
| Options | (4) | ||||
| NextEra Energy | United States | Utilities | Ordinary shares Options | 1,187 (3) | 1.3 |
| Lockheed Martin | United States | Industrials | Ordinary shares | 1,187 | 1.3 |
| Options | (10) | ||||
| Coca-Cola | United States | Consumer Staples | Ordinary shares | 1,184 | 1.3 |
| Options | - | ||||
| Dow Chemical | United States | Materials | Ordinary shares | 1,139 | 1.3 |
| Metlife | United States | Financials | Ordinary shares | 1,117 | 1.3 |
| Options | (4) | ||||
| UnitedHealth Group | United States | Health Care | Ordinary shares | 1,100 | 1.2 |
| Options | (7) | ||||
| Morgan Stanley | United States | Financials | Ordinary shares | 1,073 | 1.2 |
| Quest Diagnostics | United States | Health Care | Ordinary shares | 1,045 | 1.2 |
| Options | (12) | ||||
| Qualcomm | United States | Information Technology | Ordinary shares Options | 1,037 (1) | 1.2 |
| Dominion Resources | United States | Utilities | Ordinary shares Options | 957 (1) | 1.1 |
| Samsung Electronics | South Korea | Information Technology | Ordinary shares | 928 | 1.0 |
| United Parcel Service | United States | Industrials | Ordinary shares | 913 | 1.0 |
| Options | (2) | ||||
| Travelers Companies | United States | Financials | Ordinary shares | 859 | 1.0 |
| Options | - | ||||
| Motorola Solutions | United States | Information Technology | Ordinary shares Options | 854 (3) | 1.0 |
| Goldman Sachs | United States | Financials | Ordinary shares | 849 | 1.0 |
| CME | United States | Financials | Ordinary shares Options | 839 (2) | 0.9 |
| Pioneer Natural Resources | United States | Energy | Ordinary shares Options | 825 (19) | 0.9 |
| AstraZeneca | United Kingdom | Health Care | Ordinary shares Options | 751 (1) | 0.8 |
| McDonald's | United States | Consumer Discretionary | Ordinary shares Options | 721 (4) | 0.8 |
| Gap | United States | Consumer Discretionary | Ordinary shares Options | 717 - | 0.8 |
| Diaego | United Kingdom | Consumer Staples | Ordinary shares Options | 685 (2) | 0.8 |
| Marathon Petroleum | United States | Energy | Ordinary shares Options | 650 (2) | 0.7 |
| Hess | United States | Energy | Ordinary shares Options | 610 (8) | 0.7 |
| Becton Dickinson | United States | Health Care | Ordinary shares | 607 | 0.7 |
| Options | (5) | ||||
| Public Service Enterprise | United States | Utilities | Ordinary shares Options | 591 (2) | 0.7 |
| CMS Energy | United States | Utilities | Ordinary shares | 583 | 0.7 |
| Options | (1) | ||||
| Reynolds American | United States | Consumer Staples | Ordinary shares | 567 | 0.6 |
| Options | (2) | ||||
| Invesco | United States | Financials | Ordinary shares | 561 | 0.6 |
| Union Pacific | United States | Industrials | Ordinary shares | 551 | 0.6 |
| Options | (9) | ||||
| Altria Group | United States | Consumer Staples | Ordinary shares | 546 | 0.6 |
| Options | (8) | ||||
| American Water Works Association | United States | Utilities | Ordinary shares Options | 532 (8) | 0.6 |
| Exelon | United States | Utilities | Ordinary shares | 515 | 0.6 |
| Options | (2) | ||||
| WEC Energy | United States | Utilities | Ordinary shares | 507 | 0.6 |
| Nielson | United States | Industrials | Ordinary shares | 503 | 0.6 |
| Options | (2) | ||||
| Mondelez International | United States | Consumer Staples | Ordinary shares Options | 498 (6) | 0.6 |
| Philip Morris International | United States | Consumer Staples | Ordinary shares Options | 496 (2) | 0.5 |
| Schlumberger | United States | Energy | Ordinary shares | 454 | 0.5 |
| Options | (3) | ||||
| Weyerhaeuser | United States | Financials | Ordinary shares | 437 | 0.5 |
| Options | (1) | ||||
| Allstate | United States | Financials | Ordinary shares | 434 | 0.5 |
| Options | (1) | ||||
| International Paper | United States | Materials | Ordinary shares | 410 | 0.4 |
| Options | (3) | ||||
| 3M | United States | Industrials | Ordinary shares | 399 | 0.4 |
| Options | - | ||||
| Lenovo | China | Information Technology | Ordinary shares Options | 386 (2) | 0.4 |
| SK Telecom | South Korea | Telecommunication Services | Ordinary shares Options | 384 - | 0.4 |
| Spectra Energy | United States | Utilities | Ordinary shares Options | 384 (3) | 0.4 |
| ConocoPhillips | United States | Energy | Ordinary shares Options | 352 (5) | 0.4 |
| Bristol-Myers Squibb | United States | Health Care | Ordinary shares Options | 338 (5) | 0.4 |
| BCE | Canada | Telecommunication services | Ordinary shares Options | 302 (2) | 0.3 |
| Marathon Oil | United States | Energy | Ordinary shares Options | 302 (1) | 0.3 |
| Nvidia | United States | Information Technology | Ordinary shares Options | 292 (1) | 0.3 |
| Praxair | United States | Materials | Ordinary shares Options | 283 (3) | 0.3 |
| Rockwell Automation | United States | Industrials | Ordinary shares Options | 269 (1) | 0.3 |
| AbbVie | United States | Health Care | Ordinary shares | 254 | 0.3 |
| American Express | United States | Financials | Ordinary shares Options | 231 - | 0.2 |
| Unilever | Netherlands | Consumer Staples | Ordinary shares Options | 203 (1) | 0.2 |
| United Technologies | United States | Industrials | Ordinary shares Options | 175 (1) | 0.2 |
| ---------- | -------- | ||||
| Portfolio | 89,257 | 100.0 | |||
| ====== | ===== |
The negative valuation of £383,000 in respect of options held represents the notional cost of repurchasing the contracts at market prices as at 30 April 2016 (30 April 2015: £194,000).
STATEMENT OF COMPREHENSIVE INCOME
for the six months ended 30 April 2016
| Revenue £'000 | Revenue £'000 | Revenue £'000 | Capital £'000 | Capital £'000 | Capital £'000 | Total £'000 | Total £'000 | Total £'000 | ||
Notes | Six months ended 30.04.16 (unaudited) | Six months ended 30.04.15 (unaudited) | Year ended 31.10.15 (audited) | Six months ended 30.04.16 (unaudited) | Six months ended 30.04.15 (unaudited) | Year ended 31.10.15 (audited) | Six months ended 30.04.16 (unaudited) | Six months ended 30.04.15 (unaudited) | Year ended 31.10.15 (audited) | |
| Income from investments held at fair valuethrough profit or loss | 3 | 1,399 | 1,505 | 2,814 | - | - | - | 1,399 | 1,505 | 2,814 |
| Other income | 3 | 1,164 | 1,300 | 2,425 | - | - | - | 1,164 | 1,300 | 2,425 |
| ---------- 2,563 | ---------- 2,805 | --------- 5,239 | ---------- - | ---------- - | ---------- - | --------- 2,563 | --------- 2,805 | ---------- 5,239 | ||
| ---------- | ---------- | ---------- | ---------- | ---------- | ---------- | ---------- | ---------- | ---------- | ||
Profits on investments held at fair value through profit or loss | - | - | - | 4,567 | 5,021 | 2,572 | 4,567 | 5,021 | 2,572 | |
| Losses on foreign exchange | - | - | - | (10) | (353) | (175) | (10) | (353) | (175) | |
| ---------- | ---------- | ---------- | ---------- | ---------- | ---------- | ---------- | ---------- | ---------- | ||
| Total revenue | 2,563 | 2,805 | 5,239 | 4,557 | 4,668 | 2,397 | 7,120 | 7,473 | 7,636 | |
| --------- | --------- | -------- | -------- | -------- | -------- | --------- | --------- | --------- | ||
| Expenses | ||||||||||
| Investment management fees | 4 | (88) | (132) | (244) | (264) | (397) | (733) | (352) | (529) | (977) |
| Operating expenses | 5 | (175) | (191) | (329) | (17) | (26) | (25) | (192) | (217) | (354) |
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | --------- | ||
| Total operating expenses | (263) | (323) | (573) | (281) | (423) | (758) | (544) | (746) | (1,331) | |
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | --------- | ||
| Net profit on ordinary activities before finance costs and taxation | 2,300 | 2,482 | 4,666 | 4,276 | 4,245 | 1,639 | 6,576 | 6,727 | 6,305 | |
| Finance costs | - | - | - | - | - | (1) | - | - | (1) | |
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | ||
| Net profit on ordinary activities beforetaxation | 2,300 | 2,482 | 4,666 | 4,276 | 4,245 | 1,638 | 6,576 | 6,727 | 6,304 | |
| Taxation | (386) | (416) | (783) | 53 | 81 | 150 | (333) | (335) | (633) | |
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | ||
| Profit for the period | 1,914 | 2,066 | 3,883 | 4,329 | 4,326 | 1,788 | 6,243 | 6,392 | 5,671 | |
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | ||
| Earnings per ordinary share | 7 | 2.55p | 2.27p | 4.54p | 5.75p | 4.76p | 2.10p | 8.30p | 7.03p | 6.64p |
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- |
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 recognised gains or losses. 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 2016
| Called-up share capital | Share premium account | Capital redemption reserve | Special reserve | Capital reserves | Revenue reserve | Total | ||
| Note | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| 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 (a) | 6 | - | - | - | - | - | (1,679) | (1,679) |
| -------- | ---------- | -------- | ---------- | ---------- | --------- | --------- | ||
| At 30 April 2016 | 1,004 | 36,774 | 1,460 | 25,809 | 23,519 | 1,897 | 90,463 | |
| -------- | ---------- | -------- | ---------- | ---------- | --------- | --------- | ||
| For the six months ended 30 April 2015 (unaudited) | ||||||||
| At 31 October 2014 | 1,004 | 36,774 | 1,460 | 63,213 | 17,402 | 1,346 | 121,199 | |
| Total comprehensive income: | ||||||||
| Net profit for the period | - | - | - | - | 4,326 | 2,066 | 6,392 | |
| Transaction with owners, recorded directly to equity: | ||||||||
| Ordinary shares purchased into treasury pursuant to a tender offer | - | - | - | (24,737) | - | - | (24,737) | |
| Tender offer costs | - | - | - | (216) | - | - | (216) | |
| Dividends paid (b) | 6 | - | - | - | - | - | (1,807) | (1,807) |
| -------- | ---------- | -------- | ---------- | ---------- | -------- | ----------- | ||
| At 30 April 2015 | 1,004 | 36,774 | 1,460 | 38,260 | 21,728 | 1,605 | 100,831 | |
| -------- | ---------- | -------- | ---------- | ---------- | -------- | ----------- | ||
| For the year ended 31 October 2015 (audited) | ||||||||
| At 31 October 2014 | 1,004 | 36,774 | 1,460 | 63,213 | 17,402 | 1,346 | 121,199 | |
| Total comprehensive income: | ||||||||
| Net profit for the year | - | - | - | - | 1,788 | 3,883 | 5,671 | |
| Transaction with owners, recorded directly to equity: | ||||||||
| Ordinary shares purchased into treasury pursuant to a tender offer | - | - | - | (24,737) | - | - | (24,737) | |
| Tender offer costs | - | - | - | (233) | - | - | (233) | |
| Ordinary shares purchased into treasury | - | - | - | (287) | - | - | (287) | |
| Dividends paid (c) | 6 | - | - | - | - | - | (3,567) | (3,567) |
| -------- | --------- | -------- | --------- | ---------- | --------- | ---------- | ||
| At 31 October 2015 | 1,004 | 36,774 | 1,460 | 37,956 | 19,190 | 1,662 | 98,046 | |
| -------- | --------- | -------- | --------- | ---------- | --------- | ---------- |
(a) 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 ending 31 October 2016, declared on 18 February 2016 and paid on 4 April 2016.
(b) Final dividend of 1.0p per share for the year ended 31 October 2014, declared on 6 November 2014 and paid on 5 January 2015 and 1st interim dividend of 1.0p per share for the year ended 31 October 2015, declared on 12 February 2015 and paid on 7 April 2015.
(c) 4th interim dividend of 1.0p per share for the year ended 31 October 2014, declared on 6 November 2014 and paid on 5 January 2015; 1st interim dividend of 1.0p per share for the year ended 31October 2015, declared on 12 February 2015 and paid on 7 April 2015; 2nd interim dividend of 1.10p per share for the year ended 31 October 2015, declared on 6 May 2015 and paid on 1July 2015; and 3rd interim dividend of 1.10p per share for the year ended 31 October 2015, declared on 5 August 2015 and paid on 7 October 2015.
The transaction costs incurred on the acquisition and disposal of investments are included within the capital reserves and amounted to £46,000 for the six months ended 30 April 2016 (six months ended 30 April 2015: £10,000; year ended 31 October 2015: £47,000).
STATEMENT OF FINANCIAL POSITION as at 30 April 2016
Notes | 30April 2016 £'000 (unaudited) | 30April 2015 £'000 (unaudited) | 31October 2015 £'000 (audited) | |
| Non current assets | ||||
| Investments held at fair value through profit or loss | 89,640 | 101,120 | 95,936 | |
| ------------ | -------------- | ----------- | ||
| Current assets | ||||
| Other receivables | 1,893 | 225 | 2,755 | |
| Cash held on margin deposit with brokers | 234 | - | - | |
| Cash and cash equivalents | 340 | 1,583 | 2,003 | |
| ------------ | -------------- | ----------- | ||
| 2,467 | 1,808 | 4,758 | ||
| ------------ | -------------- | ----------- | ||
| Total assets | 92,107 | 102,928 | 100,694 | |
| Current liabilities | ||||
| Derivative financial instruments held at fair value through profit or loss | (383) | (194) | (618) | |
| Other payables | (1,261) | (1,903) | (2,030) | |
| -------------- | -------------- | -------- | ||
| (1,644) | (2,097) | (2,648) | ||
| -------------- | -------------- | -------- | ||
| Net current assets/(liabilities) | 823 | (289) | 2,110 | |
| -------------- | -------------- | -------- | ||
| Net assets | 90,463 | 100,831 | 98,046 | |
| ======== | ======== | ======== | ||
| 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 | 25,809 | 38,260 | 37,956 | |
| Capital reserves | 23,519 | 21,728 | 19,190 | |
| Revenue reserve | 1,897 | 1,605 | 1,662 | |
| -------------- | -------------- | -------------- | ||
| Total equity shareholders' funds | 90,463 | 100,831 | 98,046 | |
| ======== | ======== | ======== | ||
| Net asset value per ordinary share | 7 | 130.07p | 125.59p | 122.50p |
| ======== | ======== | ======== |
CASH FLOW STATEMENT for the six months ended 30 April 2016
| Sixmonthsended 30April2016 £'000 (unaudited) | Sixmonthsended 30April2015 £'000 (unaudited) | Yearended 31October2015 £'000 (audited) | |
| Net cash inflow before financing activities | 12,212 | 28,016 | 30,303 |
| -------------- | -------------- | -------------- | |
| Financing activities | |||
| Interest paid | - | - | (1) |
| Ordinary shares purchased into treasury pursuant to tender offer | - | (24,737) | (24,737) |
| Ordinary shares purchased into treasury | (12,147) | - | (287) |
| Tender offer costs paid | - | (216) | (216) |
| Share issue costs paid | (39) | (243) | (240) |
| Dividends paid | (1,679) | (1,807) | (3,567) |
| -------------- | -------------- | -------------- | |
| Net cash outflow from financing activities | (13,865) | (27,003) | (29,048) |
| -------------- | -------------- | -------------- | |
| Effect of foreign exchange rate changes | (10) | (353) | (175) |
| -------------- | --------------- | -------------- | |
| (Decrease)/increase in cash and cash equivalents | (1,663) | 660 | 1,080 |
| -------------- | -------------- | -------------- | |
| Cash and cash equivalents at start of period | 2,003 | 923 | 923 |
| Cash and cash equivalents at end of period | 340 | 1,583 | 2,003 |
| Comprised of: | -------------- | -------------- | -------------- |
| Cash and cash equivalents | 340 | 1,583 | 2,003 |
| -------------- | -------------- | -------------- | |
| 340 | 1,583 | 2,003 | |
| ======== | ======== | ======== |
RECONCILIATION OF NET PROFIT BEFORE FINANCE COSTS AND TAXATION TO NET CASH FLOW FROM OPERATINGACTIVITIES for the six months ended 30 April 2016
| Sixmonthsended 30April2016 £'000 (unaudited) | Sixmonthsended 30April2015 £'000 (unaudited) | Yearended 31October2015 £'000 (audited) | |
| Operating activities | |||
| Profit before taxation* | 6,576 | 6,727 | 6,304 |
| Add back interest paid | - | - | 1 |
| Profits on investments held at fair value through profit or loss | (4,567) | (5,021) | (2,572) |
| Net losses on foreign exchange | 10 | 353 | 175 |
| Sales of investments held at fair value through profitor loss | 45,651 | 71,282 | 101,048 |
| Purchases of investments held at fair value throughprofit or loss | (34,685) | (45,968) | (72,575) |
| Decrease/(increase) in other receivables | 20 | (127) | (16) |
| (Decrease)/increase in other payables | (236) | 307 | (3) |
| Increase in amounts due from brokers | - | (16) | (2,523) |
| Net movement in cash held on margin deposit withbrokers | (234) | - | - |
| Increase in amounts due to brokers | - | 812 | 1,090 |
| Taxation on investment income included within gross income | (323) | (333) | (626) |
| -------------- | -------------- | -------------- | |
| Net cash inflow from operating activities | 12,212 | 28,016 | 30,303 |
| -------------- | -------------- | -------------- |
*Includes dividends and interest received during the period of £1,200,000 and £1,000 (six months ended 30 April 2015: £1,300,000 and £1,000; year ended 31 October 2015: £2,407,000 and £2,000) respectively.
NOTES TO THE FINANCIAL STATEMENTS for the six months ended 30 April 2016
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 2015 (which were prepared in accordance with International Financial Reporting Standards ('IFRS') as adopted by the European Union ('EU') and as applied inaccordance 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 ('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 30April2016 £'000 (unaudited) | Sixmonthsended 30April2015 £'000 (unaudited) | Yearended 31October2015 £'000 (audited) | |
| Investment income: | |||
| Overseas listed dividends | 1,365 | 1,494 | 2,788 |
| UK listed dividends | 34 | 11 | 26 |
| -------------- | -------------- | -------------- | |
| 1,399 | 1,505 | 2,814 | |
| Other income: | |||
| Deposit interest on cash balances | - | 1 | 2 |
| Option premium income | 1,164 | 1,299 | 2,423 |
| -------------- | -------------- | -------------- | |
| 1,164 | 1,300 | 2,425 | |
| -------------- | -------------- | -------------- | |
| Total income | 2,563 | 2,805 | 5,239 |
| ======== | ======== | ======== |
During the period, the Company received option premiums totalling £1,288,000 (period ended 30April 2015: £1,436,000; year ended 31 October 2015: £2,348,000) for writing covered call options for the purposes of revenue generation. Option premiums of £1,164,000 (period ended 30 April 2015: £1,299,000; year ended 31 October 2015: £2,423,000) were amortised to income. All derivative transactions were based on constituent stocks in the Russell 1000 Value Index. At 30 April 2016, there were 158 open positions with an associated liability of £383,000 (30 April 2015: 123 open positions with an associated liability of £194,000; 31October 2015: 151 open positions with an associated liability of £618,000).
4. INVESTMENT MANAGEMENT FEE
| Six months ended 30 April 2016 (unaudited) | Six months ended 30 April 2016 (unaudited) | Six months ended 30 April 2016 (unaudited) | Six months ended 30 April 2015 (unaudited) | Six months ended 30 April 2015 (unaudited) | Six months ended 30 April 2015 (unaudited) | Year ended 31 October 2015 (audited) | Year ended 31 October 2015 (audited) | Year ended 31 October 2015 (audited) | |
| Revenue £'000 | Capital £'000 | Total £'000 | Revenue £'000 | Capital £'000 | Total £'000 | Revenue £'000 | Capital £'000 | Total £'000 | |
| Investment management fee | 88 | 264 | 352 | 132 | 397 | 529 | 244 | 733 | 977 |
| -------------- | -------------- | -------------- | -------------- | -------------- | -------------- | -------------- | -------------- | -------------- | |
| Total | 88 | 264 | 352 | 132 | 397 | 529 | 244 | 733 | 977 |
| ======== | ======== | ======== | ======== | ======== | ======== | ======== | ======== | ======== |
Until 31 October 2015, the Company had a management agreement with BlackRock Fund Managers Limited (BFM) under which BFM was entitled to an investment management fee, payable in arrears, calculated at the rate of 0.25 per cent per quarter of the Company's average market capitalisation. Average market capitalisation was calculated as the aggregate of the closing mid-market share price, multiplied by the number of shares in issue on each business day during the quarter, divided by the number of business days in the quarter.
With effect from 1 November 2015, the investment management fee is payable quarterly in arrears, calculated at therate of 0.75 per cent per annum (0.1875 per cent per quarter) of net assets.
5. Operating expenses
| Sixmonthsended 30April2016 £'000 (unaudited) | Sixmonthsended 30April2015 £'000 (unaudited) | Yearended 31October2015 £'000 (audited) | |
| Allocated to revenue: | |||
| Custody fee | 2 | 3 | 4 |
| Auditors' remuneration - audit services | 14 | 13 | 27 |
| Registrar's fee | 13 | 9 | 26 |
| Directors' emoluments | 53 | 49 | 101 |
| Broker fees | 20 | 20 | 40 |
| Depositary fees | 5 | 7 | 12 |
| Marketing fees | 23 | 42 | 28 |
| Other administration costs | 45 | 48 | 91 |
| -------------- | -------------- | --------------- | |
| 175 | 191 | 329 | |
| Allocated to capital: | |||
| -------------- | -------------- | -------------- | |
| Transaction charges - capital | 17 | 26 | 25 |
| -------------- | -------------- | -------------- | |
| 192 | 217 | 354 | |
| ======== | ======== | ======== |
6. DIVIDENDS
The Directors have declared a second quarterly interim dividend of 1.20p per share. Thedividend will be paid on 1 July 2016 to shareholders on the Company's register on 20May 2016. This dividend has not been accrued in the financial statements for the sixmonths ended 30 April 2016 as, under IFRS, interim dividends are not recognised untilpaid. Dividends are debited directly to reserves.
Dividends on equity shares during the period were:
| Sixmonthsended 30April2016 £'000 (unaudited) | |
| Dividends on equity shares: | |
| Fourth interim dividend of 1.10p per ordinary share paid on 5 January 2016* | 877 |
| First interim dividend of 1.10p per ordinary share paid on 4 April 2016** | 802 |
| -------------- | |
| 1,679 | |
| Second interim dividend of 1.20p per ordinary share payable on 1 July 2016*** | 835 |
| -------------- | |
| 2,514 | |
| ======== |
* Based on 79,739,044 ordinary shares.
** Based on 72,899,044 ordinary shares.
*** Based on 69,549,044 ordinary shares.
7. EARNINGS AND NET ASSET VALUE PER ORDINARY SHARE
Net revenue and capital returns per share and net asset value per share are shown below and have been calculated using the following:
| Sixmonthsended 30April2016 (unaudited) | Sixmonthsended 30April2015 (unaudited) | Yearended 31October2015 (audited) | |
| Net revenue profit attributable to ordinary shareholders (£'000) | 1,914 | 2,066 | 3,883 |
| Net capital profit attributable to ordinary shareholders (£'000) | 4,329 | 4,326 | 1,788 |
| --------------- | --------------- | ---------------- | |
| Total profit attributable to ordinary shareholders (£'000) | 6,243 | 6,392 | 5,671 |
| --------------- | --------------- | ---------------- | |
| Total equity attributable to equity holders (£'000) | 90,463 | 100,831 | 98,046 |
| --------------- | --------------- | ---------------- | |
| The weighted average number of ordinary shares in issue during the period on which the return perordinary share was calculated was: | 75,203,163 | 90,935,105 | 85,447,775 |
| --------------- | --------------- | ---------------- | |
| The actual number of ordinary shares in issue at the end of the period on which the net asset valuewas calculated was: | 69,549,044 | 80,289,044 | 80,039,044 |
| --------------- | --------------- | ---------------- | |
| Revenue earnings per share | 2.55p | 2.27p | 4.54p |
| Capital earnings per share | 5.75p | 4.76p | 2.10p |
| -------------- | -------------- | --------------- | |
| Total earnings per share | 8.30p | 7.03p | 6.64p |
| -------------- | -------------- | --------------- | |
| Net asset value per share | 130.07p | 125.59p | 122.50p |
| -------------- | -------------- | --------------- | |
| Share price | 123.25p | 117.50p | 113.00p |
| -------------- | -------------- | --------------- | |
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 sharesinissue (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 2015 | 80,039,044 | 20,322,261 | 100,361,305 | 1,004 |
| Purchase of ordinary shares in theperiod | (10,490,000) | 10,490,000 | - | - |
| ---------------- | --------------- | ------------------ | -------------- | |
| At 30 April 2016 | 69,549,044 | 30,812,261 | 100,361,305 | 1,004 |
| ========= | ========= | ========== | ======== |
During the period to 30 April 2016, 10,490,000 ordinary shares were purchased (period ended 30 April 2015: 20,072,261; year ended 31 October 2015: 20,322,261) and held in treasury at a total cost of £12,147,000 including expenses (six months ended 30 April 2015: £24,953,000; year ended 31 October 2015: £25,257,00
No ordinary shares were cancelled during the period (six months ended 30 April 2015 and year ended 31 October 2015: nil). Since the period end and up to the date of this report, no further ordinary shares have been repurchased.
9. VALUATION OF FINANCIAL INSTRUMENTS
Financial assets and financial liabilities are either carried in the Statement of Financial Position at their fair value (investment and derivatives) or at an amount which is a reasonable approximation of fair value (other receivables and payables, cash held on margin deposits with brokers and cash and cash equivalents). IFRS 13 requires the Company toclassify fair value measurements using a fair value hierarchy that reflects the significance of inputs used in making the measurements. The valuation techniques usedby the Company are explained in the accounting policies note 14 as set out in the Company's Annual Report and Financial Statements for the year ended 31 October 2015.
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 as follows.
The fair value hierarchy has the following levels:
Level 1 - Quoted market price in an active market for an identical instrument. These include exchange traded derivative option contracts. 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. This category includes instruments valued using quoted prices for similar instruments in markets that are considered less than active; or other valuation techniques where all significant inputs are directly or indirectly observable from market data.
Valuation techniques used for non-standardised financial 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 and relying as little as possible on entity specific inputs.
Level 3 - Valuation techniques using significant unobservable inputs. This category includes all instruments where the valuation technique includes inputs not based on observable data and the 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.
For this purpose, the significance of an input is assessed against 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 determination of what constitutes 'observable' requires significant judgement by theInvestment Manager. 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 involvedin the relevant market.
Over-the-counter derivative option contracts have been classified as level 2 investments as their valuation has been based on market observable inputs represented by the underlying quoted securities to which these contracts expose the Company.
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 2016 | 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 30 April 2015 | Level1 £'000 | Level2 £'000 | Level3 £'000 | Total £'000 |
| Assets: | ||||
| Equity investments | 101,120 | - | - | 101,120 |
| Liabilities: | ||||
| Derivative financial instruments - written options | (161) | (33) | - | (194) |
| ---------- | ----------- | ----------- | ----------- | |
| 100,959 | (33) | - | 100,926 | |
| ====== | ====== | ====== | ====== |
| Financial assets/(liabilities) at fair value through profit or loss at 31 October 2015 | Level1 £'000 | Level2 £'000 | Level3 £'000 | Total £'000 |
| Assets: | ||||
| Equity investments | 95,936 | - | - | 95,936 |
| Liabilities: | ||||
| Derivative financial instruments - written options | (473) | (145) | - | (618) |
| ---------- | ----------- | ----------- | ----------- | |
| 95,463 | (145) | - | 95,318 | |
| ====== | ====== | ====== | ====== |
There were no transfers between levels for financial assets and financial liabilities during the period recorded at fair value as at 30 April 2016, 30 April 2015 and 31 October 2015. The Company did not hold any level 3 securities throughout the financial period under review or as at 30 April 2015 and 31 October 2015.
10. TRANSACTIONS WITH THE AIFM AND INVESTMENT MANAGER
BlackRock Fund Managers Limited ('BFM') was appointed as the Company's Alternative Investment Fund Manager ('AIFM') with effect from 2 July 2014. BFM provides management and administration services to the Company under a contract which is terminable on sixmonths' notice in writing. 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 fees due to BFM for the six months ended 30 April 2016 were £352,000 (six months ended 30 April 2015: £529,000; year ended 31 October 2015: £977,000). At the period end, an amount of £170,000 (six months ended 30 April 2015: £529,000; year ended 31 October 2015: £448,000) was outstanding in respect of the investment management fees.
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 2016 amounted to £23,000 excluding VAT (six months ended 30 April 2015: £42,000; year ended 31 October 2015: £28,000). Marketing fees of £96,000 (six months ended 30 April 2015: £119,000; year ended 31 October 2015: £105,000) were outstanding as at 30 April 2016.
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 £30,000, the Chairman of the Audit and Management Engagement Committee receives an annual fee of £25,000 and the other Directors each receive an annual fee of £21,000. At 30 April 2016, an amount of £8,000 (30 April 2015: £8,080; 31 October 2015: £8,000) was outstanding in respect of Directors' fees.
At 30 April 2016, interests of the Directors in the ordinary shares of the Company are as set out below:
| Sixmonthsended 30April2016 (unaudited) | Sixmonthsended 30April2015 (unaudited) | Yearended 31October2015 (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 2016 (30 April 2015 and 31 October 2015: 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 2016 and 30 April 2015 has not been audited.
The information for the year ended 31 October 2015 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 the 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 ended 31 October 2016 in late December 2016.
Copies of the annual results announcement can be obtained from the Secretary on 0207743 3000. The Annual Report and Financial Statements should be available by the beginning of January 2017 with the Annual General Meeting being held in February 2017.
ENDS
The half yearly financial report will also be available on the BlackRock Investment Management website at http://www.blackrock.co.uk/brna. Neither the contents of the Investment Manager's website nor the contents of any website accessible from hyperlinks on the Investment Manager's website (or any other website) is incorporated into, or forms part of, this announcement.
For further information please contact:
Simon White, Managing Director Investment Trusts - 020 7743 3000
Press enquires:
Lucy Horne , Lansons Communications - 020 7294 3689
E-mail: lucyh@lansons.com
BlackRock Investment Management (UK) Limited
12 Throgmorton Avenue
London
EC2N 2DL
29 June 2016
