ABRDN DIVERSIFIED INCOME AND GROWTH PLC
The Company's current investment objective is, over the medium term (5 to 7
years), to aim to preserve capital in real terms and to grow the dividend at
least in line with inflation. The Company will target a total portfolio return
of UK Consumer Price Index ("CPI") plus 4 per cent. per annum (before ongoing
charges) over a 5 to 7 year cycle.
Shareholders should note that on 30 November 2016 the Board announced proposals
in relation to a change in the investment objective and policy, fund management
arrangements and a proposed merger with Aberdeen UK Tracker Trust plc. A copy
of that announcement is set out on pages 2 to 5 of the Annual Report and
Financial Statements. A circular in relation to these proposals is expected to
be published in early March 2017.
BlackRock Income Strategies Trust plc
Annual Results Announcement
for the year ended 30 September 2016
Financial Highlights
30 September 30 September Change
2016 2015 %
Net Assets (£'000)1,3 351,521 374,832 -6.21,3
Net Asset value per share (debt at 123.62p 131.00p -5.6
market value)
- with income reinvested 136.75p 137.28p -0.42
Ordinary share price 111.00p 130.50p -14.9
- with income reinvested 123.20p 137.21p -10.22
(Discount)/premium to net asset -9.0% 0.9%
value4
======== ======== ========
1 Net Assets at 30 September 2016 are before provision for the third
interim dividend of 1.635p per share, paid on 10 October 2016; Net Assets at 30
September 2015 are before provision for the third interim dividend of 1.67p per
share, paid on 9 October 2015.
2 Assumes that dividends are reinvested at the relevant share price or NAV
prevailing at the ex-dividend date for NAV and share price return calculations
respectively.
3 The change in net assets reflects market movements during the year and
share buy backs.
4 The premium and discount to NAV in the table above have been calculated
based on the ex-dividend NAV of 121.99 pence per share and 129.33 pence per
share as at 30 September 2016 and 2015 respectively, and not the Company's NAV
per share as disclosed on the Company's balance sheet and in the table above.
This is because accounting standards do not permit interim quarterly dividends
to be reflected in the accounts until they have been paid. As the third
quarterly dividends for 2016 and 2015 respectively had gone ex-dividend in the
Company's share price at 30 September as disclosed in the table above, any
share rating calculated based on this ex-dividend price also needs to be
calculated using an ex-dividend NAV.
Year ended Year ended
30 September 30 September Change
2016 2015 %
Net revenue return after taxation (£ 20,602 20,163 2.2
'000)
Revenue return per share 7.56p 7.07p 6.9
Dividends:
First quarterly dividend 1.635p 1.500p 9.0
Second quarterly dividend 1.635p 1.670p -2.1
Third quarterly dividend 1.635p 1.670p -2.1
Fourth quarterly dividend 1.635p 1.700p -3.8
-------- -------- --------
Total dividends 6.540p 6.540p 0.0
======== ======== ========
Chairman's statement for the year ended 30 September 2016
OVERVIEW
2016 was a challenging and very disappointing year for your Company.
Two years ago, on 26 February 2015, shareholders overwhelmingly approved a new
investment objective and policy for the Company. The core components of this
new investment objective and policy were capital preservation and dividend
growth in line with inflation. This was, in part, designed to generate demand
from investors as a result of the changes in the UK savings and pensions market
and also because we believed that the changes would be attractive for all of
our shareholders. We appointed BlackRock Fund Managers Limited as the
Alternative Investment Fund Manager ('AIFM') at that time.
In July 2016 your Board became increasingly concerned about the Company's
investment performance, the ability to achieve the investment objective and
policy (with an acceptable level of risk) and the maintenance of the dividend.
This followed a sharp fall in the NAV (cum income, debt at fair value) of the
Company in June 2016 by 5.3% (4.0% with dividends reinvested). In addition
there was an increasing dependency on derivative income to service both the
interest payments on our Bonds and the Company's dividend. Throughout July 2016
the Board undertook a detailed review and analysis of the portfolio and its
performance as well as the cost of our Bonds and the dividend. We focused, in
particular, on the income generation capacity of the portfolio and also,
looking forward, what it would take for BlackRock to deliver the investment
objective and dividend.
This analysis, undertaken with our advisers and BlackRock, culminated in our
announcement on 1 August 2016 of a review of our investment objective and
policy and a subsequent announcement on 28 September 2016 that we were inviting
fund management groups, with both established multi-asset management
credentials and experience of managing listed closed-end funds, to present
proposals to the Board.
On 30 November 2016, we announced, as set out on pages 2 to 5 of the Annual
Report and Financial Statements, the outcome of a comprehensive strategic
review, which comprises a number of very significant actual and proposed
changes, including the appointment of Aberdeen Asset Management as the new
investment manager. Although it is extremely unusual to change an investment
manager, and indeed investment objective and policy, so soon after appointment
and adoption, we are confident that this is the right course of action and in
our shareholders' best interests.
In early March 2017, subject to regulatory approval, shareholders should expect
to receive a circular which will contain details of the various recommended
proposals that require shareholder approval. However, in advance of that
circular being sent to you I thought it would be helpful to summarise below the
outcomes of the strategic review and to do so by highlighting to shareholders
where we are making or proposing changes and what will continue unchanged.
What we are changing or proposing to shareholders that we change:
We will:
* Appoint Aberdeen's Diversified Multi-Asset team, with Mike Brooks and Tony
Foster as new lead portfolio managers, and then rename the Company Aberdeen
Diversified Income and Growth Trust plc ("ADIGT");
* Propose to change the investment objective to target returns of LIBOR+5.5%
per annum (net of fees) over rolling five-year periods;
* Propose a merger with Aberdeen UK Tracker Trust plc ("AUKT") thereby
significantly increasing the size of the Company;
* Revise the dividend policy to include a reduction in the current annual
dividend level by approximately 20% (in recognition of the current low
yield environment); and
* Replace the nil discount policy with a more flexible approach that
recognises the constraints imposed by gearing and by the more illiquid
nature of the investment portfolio.
As part of the overall changes, we will also be proposing a cash exit for all
eligible shareholders via a tender offer for up to 20% of the shares in issue
at a tender price equal to NAV (cum income, debt at fair value) less 4% and the
costs and expenses of the tender offer. This tender offer will be subject to
shareholder approval and inter-conditional on shareholders approving the above
changes in the investment objective and policy, and the merger.
What is unchanged:
We will:
* Retain our commitment to, and confidence in, the ability of a multi-asset
strategy to deliver returns that are attractive to shareholders and
investors;
* Retain our commitment to generating an attractive income for our
shareholders, even after the reduction of the dividend by approximately
20%;
* Retain our commitment to manage the supply/demand balance of our shares. We
will seek to renew the Company's existing 14.99% buy-back authority at the
forthcoming Annual General Meeting ("AGM"); and
* Retain our existing gearing.
PERFORMANCE
We are very disappointed by the performance that all shareholders have had to
endure under the current investment objective and policy that has been pursued
since February 2015, and hence our intervention with the strategic review.
Whilst we have declared attractive quarterly dividends totalling 11.58 pence
per share since the current investment objective and policy was adopted, the
NAV (cum income, debt at fair value without income reinvested) has declined by
a clearly unacceptable 15.9% over the period from 27 February 2015 to 30
September 2016, contrary to our capital preservation objective.
In the 12 months to 30 September 2016, the Company's NAV (cum income, debt at
fair value without income reinvested) fell by 5.6%. The share price over the
same period fell by 14.9% as the discount to NAV widened to 9.0%.
EARNINGS AND DIVIDENDS
The Company's revenue return for the year to 30 September 2016 amounted to 7.56
pence per share, compared to 7.07 pence per share for 2015, an increase of
6.9%. The increase is primarily due to a higher level of derivative income,
which generated 40.4% of the income in the year ended 30 September 2016 as
compared to 26.9% in the year to 30 September 2015.
We paid total dividends for the year of 6.54 pence per share in equal quarterly
instalments, in line with total dividends of 6.54 pence per share paid in
respect of the year to 30 September 2015.
Since the implementation of the current objective and policy in February 2015,
there has been an overall decline in the yield of many investments in the
market. In view of the changes and having considered the increase in risk to
capital of continuing the current dividend, the Board proposes to adopt a new
dividend policy outlined below.
Our intention is to pay an interim dividend of at least 1.635 pence in respect
of the first quarter ending 31 December 2016 (a dividend of 1.635 pence was
paid for the quarter ended 31 December 2015). In addition, the Board intends to
declare a further dividend for the period from 1 January 2017 to the date of
the implementation of the merger with AUKT and thereafter to reduce the
subsequent quarterly dividends by an amount equivalent to an annualised
reduction in the current dividend level of approximately 20%.
The proposed revision to the investment objective and policy, together with the
rebasing of the dividend, will allow the Company to continue to pay an
attractive quarterly dividend. The Board believes that the new dividend policy,
together with the aim to target total returns with lower volatility, will
continue to be appealing to existing shareholders, the shareholders of AUKT and
future investors.
In line with good corporate governance the Board will put the Company's
dividend policy forward for shareholder approval at its AGM.
GEARING
As part of its review, the Board considered the balance sheet and, in
particular, the cost and effect of the £60 million 6.25% Bonds due 2031 (the
'Bonds'), and the merits of early repayment to reduce the level of gearing and
interest costs payable by the Company. The terms of these Bonds require a
repayment value priced with reference to UK Government Bonds ('Gilts'). At the
time of our analysis in September 2016, Gilts were trading at the lowest yields
experienced in their 300 year history, and as a result any early repayment
would have been very expensive to shareholders. We therefore concluded that
retaining the existing Bonds was in shareholders' best interests.
One of the benefits of the proposed merger is that it will bring greater
strength to our balance sheet, reducing the Company's gearing ratio.
DISCOUNT CONTROL
Prior to the strategic review, the Board had been implementing a nil discount
policy through share issuance and buy-backs at, or close to, NAV. In the year
ended 30 September 2016 the Company purchased 7.6 million shares pursuant to
this policy at a cost of £8.9 million (excluding stamp duty). In the same
period, 200,000 shares were issued at a premium to NAV for total proceeds of £
271,200, before the deduction of issue costs.
Having reviewed the investment objective and policy and as part of its overall
strategic review, the Board has decided not to continue with a nil discount
policy. The Board will consider implementing share buybacks to provide
liquidity to shareholders from time to time and other forms of discount control
deemed to be appropriate at that time.
The Board will therefore seek to renew the Company's existing 14.99% share
buyback authority at the forthcoming AGM in 2017.
BOARD COMPOSITION
All the Directors will stand for re-election at the AGM, although Lynn Ruddick
and Jimmy West will then retire from the Board if shareholders of both AUKT and
the Company approve the proposed merger.
Assuming the merger becomes effective then Kevin Ingram, Paul Yates and Tom
Challenor, each Directors of AUKT, will join the Board of ADIGT.
SAVINGS PLAN HOLDERS
Given the proposed changes to the Company and irrespective of the outcome of
the vote to change the investment policy the Board will appoint Aberdeen Asset
Management as its investment manager and, as a consequence, the Company's
shares will cease to qualify for inclusion within the BlackRock Savings plan
with effect from 13 February 2017. A letter from BlackRock to all its plan
holders will be mailed in due course, setting out the available options for
your shareholding in the Company.
SHAREHOLDER CIRCULAR
We recommend that shareholders read the circular which we expect to be
published in early March 2017 in relation to the proposed changes. Resolutions
relating to the proposed changes will be put to shareholders at a separate
general meeting expected to be held on the same date as the AGM.
AGM
The AGM will be held on 30 March 2017 to be held at Drapers' Hall, Throgmorton
Avenue, London EC2N 2DQ. Shareholders should expect a notice of this AGM
together with Forms of Proxy to be sent to you separately in early March 2017.
OUTLOOK
As I said at the outset of this statement, this has been a challenging and very
disappointing year for the Company.
Looking forward, however, we believe that the combined set of changes, some of
which require shareholder approval, will reposition us to be an attractive
proposition for investors and a company which can successfully seize the
opportunities created by the changing UK savings and pensions market.
Importantly, our repositioning recognises the reality of the current
macro-economic environment and, in particular, the low yield environment.
We remain steadfastly resolved and committed to generating the performance that
you rightly expect and to drive the growth and success of Aberdeen Diversified
Income and Growth Trust.
JAMES M LONG
Chairman
26 January 2017
Strategic Report
The Directors present the Strategic Report of the Company for the year ended 30
September 2016.
INTRODUCTION
The Company carries on business as an investment trust. Its Ordinary Shares are
traded on the main market of the London Stock Exchange. The Board of Directors
is responsible for the overall stewardship of the Company, including investment
and dividend policies, corporate and gearing strategy, corporate governance
procedures and risk management. Biographical details of the Directors, all of
whom are non-executive, can be found on page 27 of the Annual Report and
Financial Statements.
Change of Manager
Throughout the year under review, the Company's AIFM was BlackRock Fund
Managers Limited ('BFM') ('the Manager'). A summary of the terms of the
management agreement is contained in note 4 on page 57 of the Annual Report and
Financial Statements.
As set out in the Chairman's Statement, the Board has resolved to appoint
Aberdeen Fund Managers Limited ('AFML' or 'Aberdeen'), a subsidiary of Aberdeen
Asset Management plc as the Company's AIFM to provide it with discretionary
portfolio management and risk management services with effect from 11 February
2017.
Aberdeen will be paid an annual management fee of 0.5% of net assets up to £300
million and 0.45% on the net assets above £300 million. This contrasts with the
existing annual management fee of 0.4%, payable on gross assets.
Aberdeen has also agreed to make a contribution towards the costs of the
proposals incurred by the Company. Any investments made in Aberdeen funds
investing directly in alternative assets including, but not limited to
infrastructure and property, will be charged at Aberdeen's lowest institutional
rate. To avoid double charging these investments will be excluded from the
calculation of the overall base management fee described above.
Under the terms of the existing investment management agreement, BlackRock is
entitled to six months' notice. Protective notice to terminate the existing
investment management agreement was served on BlackRock on 4 October 2016 and
Aberdeen has agreed with the Company to meet any compensation payable to
BlackRock in respect of the balance of its notice period, subject to Aberdeen
being appointed as the Company's AIFM.
The Company will retain the right to terminate the new investment management
agreements with Aberdeen on six months' notice, subject to an initial period of
two years.
Additional details on the changes to the Company's investment objective and
policy and other proposals will be set out in the circular which shareholders
should expect to receive in early March 2017.
Current Investment Strategy
The Company's current investment strategy is set out in its objective and
investment policy as set out below.
Current Objective
The Company's investment objective is, over the medium term (5 to 7 years), to
aim to preserve capital in real terms and grow the dividend in line with
inflation. The Company targets a total portfolio return of UK Consumer Price
Index ('CPI') plus 4% per annum (before ongoing charges), over a five to seven
year cycle.
Current Investment Policy
The Company invests globally using a flexible multi-asset approach. The Company
has not set maximum or minimum exposures for any geographical regions or
sectors and will achieve an appropriate spread of risk by investing in a
diversified portfolio of securities and other assets. It is the current
intention that approximately 40% of the portfolio will be invested in UK equity
income stocks and the balance of the portfolio will be invested on a tactical
asset allocation basis, including in pooled investment funds, but these
allocations may change significantly over time.
No individual company exposure in the portfolio may exceed 10% of the Company's
total assets at the time of investment, other than in money market funds,
treasuries and gilts. No more than 15% of the Company's total assets, at the
time of investment, may be invested in aggregate in unlisted alternative assets
(including direct lending, commercial property, and renewable energy and
mortgage strategies). The Company will not normally invest more than 2% of its
total assets in the unlisted securities issued by any individual company at the
time of investment, with the exception of pooled investment funds. The Company
may invest in exchange-traded funds provided they are listed on a recognised
investment exchange.
No more than 10% of the Company's total assets may be invested in aggregate in
other listed closed-ended investment companies unless such investment companies
themselves have published investment policies to invest no more than 15% of
their total assets in other closed-ended investment companies, in which case
the limit is 15%. The Company may use derivatives to enhance portfolio returns
(of a capital or income nature) and efficient portfolio management, that is, to
reduce, transfer or eliminate risk in its investments, including protection
against currency risks, or to gain exposure to a specific market. The Company
uses gearing, through borrowings and derivatives, to enhance income and capital
returns over the long term. The borrowings may be in sterling or other
currencies. The Company's articles of association contain a borrowing limit
equal to the value of its adjusted total of capital and reserves. However,
borrowings would not normally be expected to exceed 20% of shareholders' funds.
Total gearing, including net derivative exposure, would not normally be
expected to result in a net economic equity exposure in excess of 120%.
The Company may invest from time to time in funds managed by BlackRock. To the
extent that management or performance fees are charged in respect of these
holdings, the Company will be rebated these fees on a regular basis to ensure
that no double charging occurs.
No material change will be made to the Company's investment policy without
shareholder approval.
Current Investment Strategy
The Company invests in accordance with the objective given above. The Board is
collectively responsible to shareholders for the long term success of the
Company and is its governing body. There is a clear division of responsibility
between the Board and the Manager. Matters for the Board include setting the
Company's strategy, including its investment objective and policy, setting
limits on gearing (both borrowings and the effect of derivatives), capital
structure, governance, and appointing and monitoring of the performance of
service providers, including the Manager.
Investment of Assets
The Board considers compliance with the Company's investment policy and other
investment restrictions on a regular basis. An analysis of the portfolio at 30
September 2016 is set out in the Investment Manager's Report.
Proposed Changes to Investment Objective and Policy
The proposed changes to the Company's investment objective and policy, as
outlined in the announcement on pages 2 to 5 of the Annual Report and Financial
Statements, will be set out in more detail in the circular which shareholders
should expect to receive in early March 2017.
Proposed Merger with Aberdeen UK Tracker Trust plc
As set out in the announcement on pages 2 to 5 of the Annual Report and
Financial Statements, the Board has entered into a 'heads of terms' agreement
with Aberdeen and the Board of AUKT in relation to the future merger of AUKT.
The merger is conditional on regulatory and tax approvals being obtained and
will be subject to approval by both BIST shareholders and AUKT shareholders.
The Company and AUKT will each pay for its own costs of implementing the
merger. Aberdeen has agreed to make a contribution to BIST in relation to its
costs of implementing the merger, thereby reducing the costs for existing BIST
shareholders.
More information will be included in the circular that shareholders should
expect to receive in early March 2017.
Dividend Policy
Details of the Company's dividend policy are set out in the Chairman's
Statement.
Tender Offer
Prior to the date on which the merger becomes effective, the Company will
propose a tender offer for up to 20% of its ordinary shares in issue (excluding
any shares in treasury) at a tender price equal to NAV (cum income, debt at
market value) less 4% and the costs and expenses of the tender offer. More
details will be included in the circular that shareholders should expect to
receive in early March 2017.
Discount Control Policy
Prior to the strategic review, the Board had been implementing a nil discount
control policy through share buybacks at a discount to NAV. In the year ended
30 September 2016 the Company purchased 7.6 million shares pursuant to this
policy at a cost of £8.9 million (excluding stamp duty). In the same period,
200,000 shares were issued at a premium to NAV for total proceeds of £271,200,
before the deduction of issue costs.
Having reviewed the investment objective and policy and as part of its overall
strategic review, the Board has decided not to continue with a nil discount
policy. Where appropriate the Board will consider implementing share buybacks
to provide liquidity to shareholders from time to time and other forms of
discount control deemed to be appropriate at that time, taking into account the
more illiquid underlying portfolio mix.
Full details of the proposed discount control policy will be set out in the
circular that shareholders should expect to receive in early March 2017.
PERFORMANCE
Details of the Company's performance for the year are given in the Performance
Record on page 7 of the Annual Report and Financial Statements. The Investment
Manager's Report includes information on investment activity within the
Company's portfolio during the year.
RESULTS AND DIVIDENDS
The Company's revenue return for the year amounted to 7.56 pence per share
(2015: 7.07 pence per share) an increase of 6.9%.
The Company's ongoing charges for the year were 0.6% of shareholders' funds
(2015: 0.7%).
A first quarterly dividend of 1.635 pence per share was paid on 8 April 2016 to
shareholders on the register on 11 March 2016; the second and third interim
quarterly dividends of 1.635 pence per share were paid on 22 July 2016 and 10
October 2016 respectively. The fourth quarterly dividend of 1.635p per share
was declared on 29 September 2016 and will be paid to shareholders on 27
January 2017. This brings the total dividends for the year to 6.54 pence per
share, in line with total dividends of 6.54p per share paid in respect of the
year to 30 September 2015.
KEY PERFORMANCE INDICATORS
The key performance indicators ("KPIs") used by the Directors to measure the
progress and performance of the Company over time are set out below.
Comparative performance
The Board reviews the performance of the portfolio as well as the net asset
value and share price for the Company over a range of time periods and compares
this to the return on the Company's target of CPI plus 4%. The Board also
reviews NAV and share price performance in comparison to the performance of
other competitors in the Company's peer group, the Association of Investment
Companies' Flexible Investment sector, and to a range of other opportunity sets
in the marketplace to assess how the Company's performance compares in the
shorter term, given the limited relevance of the target index over shorter
periods. These opportunity sets include (but are not limited to) UK Equities,
Global Equities, Gold, Commodities, Gilts, Index Linked Gilts, US 10 year
Treasury Stock, German 10 year Bunds, UK Corporate Bonds, Global Corporate
Bonds, Global High Yield Bonds, Emerging Market Debt, Real Estate Investment
Trusts and Cash.
The Board also monitors the Company's yield and compares this to the yield
generated by competitors in the Company's peer group and to the yield that
investors can obtain from the opportunity set asset classes listed above. The
Board reviews the sustainability of the Company's dividend policy and regularly
reviews revenue forecasts and analysis provided by the Manager on the sources
of portfolio income in order to monitor the extent to which dividends are
covered by revenue.
The Company's performance has been as follows:
Period Period
from from
Year to 27 Feb to 1 Oct to
30 Sep 30 Sep 26 Feb
2016 2015 2015
Manager BlackRock BlackRock F&C
Change in NAV1 -5.6% -10.9% 1.3%
Change in NAV (with income -0.4% -7.7% 3.7%
reinvested)1,2
CPI plus 4%/change in target index3 4.9% 2.9% 7.6%
======== ======== ========
1 Calculations based on NAV with debt at market value.
2 With income reinvested.
3 The Company's benchmark prior to 27 February 2015 was a composite index of
80% FTSE All-Share Index and 20% FTSE World ex UK Index. With effect from 27
February 2015, the Company's objective is to return, on a NAV less costs basis,
CPI plus 4% over a 5 to 7 year cycle.
Source: BlackRock and F&C.
Portfolio Risk
Risk analysis for a multi-asset portfolio is more complex due to the need to
ensure that correlation of risk is appropriate across the various portfolio
strategies as well as within individual portfolios. The Board reviews portfolio
risk to ensure that the risks being taken within the portfolio are
appropriately diversified and relevant to the Company's portfolio objective and
market conditions.
The Portfolio Risk statistics, which the Board monitors, estimate the level of
return above or below the return on cash (which is measured by the ML GBP 3
Month cash index) that the Company is expected to deliver in two out of any
three years. For example, a Portfolio Risk percentage of 10.0% means that the
Company's portfolio would be expected to deliver returns of up to 10.0% above
or below the return that would be generated from cash (as measured by the ML
GBP 3 Month cash index) two years out of three, or with a 2/3 probability. The
Company's Portfolio Beta and Portfolio Risk statistics are set out in the table
below.
As at As at
30 Sep 30 Sep
2016 2015
Portfolio Beta (vs MSCI World Index) 0.5 0.7
Portfolio Risk 10.0% 8.2%
======== ========
Source: BlackRock.
The Board monitors the portfolio Beta relative to the MSCI World Index. As at
30 September 2016, the Company's portfolio had a Beta of 0.5 (30 September
2015: 0.7), meaning that for a movement of 1% in the MSCI World Index, the NAV
of the Company would be expected to move in the same direction by 0.5%.
The Board also reviews portfolio attribution data to understand the impact on
the Company's relative performance of the various components such as asset
allocation, stock selection and gearing.
Premium/discount to net asset value ('NAV')
The Board monitors the level of the Company's premium or discount to NAV and
considers strategies for managing this. Prior to the strategic review, the
Board had been implementing a nil discount control policy through share
buybacks at a discount to NAV. In the year ended 30 September 2016 the Company
purchased 7.6 million shares pursuant to this policy at a cost of £8,934,698
(excluding stamp duty). These shares were bought back at an average discount of
4.2% per share (based on the latest published NAV at the time of purchase).
In the same period, 200,000 shares were issued at a premium to NAV for total
proceeds of £271,200, before the deduction of issue costs. The shares were
allotted to Cenkos Securities (the Company's brokers). Having reviewed the
investment objective and policy and as part of its overall strategic review,
the Board has decided not to continue with a nil discount policy. Further
details of the Company's proposed discount control policy will be included in
the circular that shareholders should expect to receive in early March 2017.
Information regarding the Company's share rating is set out in the table below.
As at As at As at As at
30 Sep 30 Sep 26 Feb 30 Sep
2016 2015 2015 2014
(Discount)/premium to NAV (9.0%) 0.9% (6.6%) (5.5%)
(debt at market value)
======== ======== ======== ========
Source: BlackRock.
Ongoing charges
The ongoing charges ratio reflects those expenses which are likely to recur in
the foreseeable future, whether charged to capital or revenue, and which relate
to the operation of the investment company as a collective investment fund,
excluding the costs of acquisition or disposal of investments, financing
charges and gains or losses arising on investments. The ongoing charges are
based on actual costs incurred in the year as being the best estimate of future
costs. The Board reviews the ongoing charges and monitors the expenses incurred
by the Company. The Company's ongoing charges for the year to 30 September 2016
were 0.6% of net assets (2015: 0.7%).
PRINCIPAL RISKS
The key risks faced by the Company are set out below. The Board has in place a
robust process to assess and monitor the principal risks of the Company. A core
element of this is the Company's risk register, which identifies the risks
facing the Company and assesses the likelihood and potential impact of each
risk, and the quality of the controls operating to mitigate the risk. A
residual risk rating is then calculated for each risk based on the outcome of
this assessment. This approach allows the effect of any mitigating procedures
to be reflected in the final assessment.
The register, its method of preparation and the operation of the key controls
in the Manager's and third party service providers systems of internal control
are reviewed on a regular basis by the Audit Committee. In order to gain a more
comprehensive understanding of the Manager's and other third party service
providers' risk management processes, and how these apply to the Company's
business, BlackRock's internal audit department provided an annual presentation
to the Audit Committee Chairman setting out the results of testing performed in
relation to BlackRock's internal control processes. The Audit Committee also
periodically receives presentations from BlackRock's Risk & Quantitative
Analysis teams, and reviews Service Organisation Control (SOC 1) reports from
BlackRock and from the Company's custodian (Bank of New York Mellon
(International) Limited). The custodian is appointed by the Company's
Depositary and does not have a direct contractual relationship with the
Company.
The Board is confident that the procedures that the Company has in place are
sufficient to ensure that the necessary monitoring of risks and controls has
been carried out throughout the year ended 30 September 2016.
The principal risks and uncertainties faced by the Company in the year ended 30
September 2016, together with the potential effects, controls and mitigating
factors, are set out below.
Performance risk - The Board is responsible for determining the investment
policy to fulfil the Company's objectives and for monitoring the performance of
the Company's investment manager ("Investment Manager") and the strategy
adopted. An inappropriate policy or strategy may lead to poor performance,
dissatisfied shareholders and a widening discount. The Company may invest in
unlisted alternative investments (such as direct lending, commercial property,
renewable power or mortgage strategies). These types of investments are
expected to have a different risk and return profile to the rest of the
Company's investment portfolio. They may be relatively illiquid and it may be
difficult for the Company to realise these investments over a short time
period, which may have a negative impact on performance. The Company may also
use derivative instruments for the purposes of efficient portfolio management
and/or to hedge market and currency risk. In addition, the Company may use
complex derivative strategies in pursuit of the proposed investment policy
including the creation of synthetic short positions to take advantage of
negative investment views, using synthetic long positions to gain market
exposure or a combination of long and short strategies to implement investment
views in respect of one or more issuers, whilst neutralising market exposure
within the transaction.
To manage these risks the Board regularly reviews the Company's investment
mandate and long term strategy, and has put in place appropriate limits over
levels of unlisted alternative assets, gearing and the use of derivatives. No
more than 15% of the Company's total assets, at the time of investment, may be
invested in aggregate in unlisted alternative assets. Total gearing, including
net derivative exposure, would not normally be expected to result in net
economic equity exposure in excess of 120%. Derivative strategies are only
undertaken within guidelines established by the Board.
Levels of portfolio exposure through derivatives, including the extent to which
the portfolio is geared in this manner and the value of any short positions,
are reported regularly to the Board and monitored. The Board also reviews the
controls put in place by the Investment Manager to monitor and to minimise
counterparty exposure, which include intraday monitoring of exposures to ensure
these are within set limits. The Investment Manager provides an explanation of
significant stock selection decisions, the rationale for the composition of the
investment portfolio and movements in the level of gearing. The Board monitors
the maintenance of an adequate spread of investments in order to minimise the
risks associated with particular countries or factors specific to particular
sectors, based on the diversification requirements inherent in the Company's
investment policy.
Gearing risk - The Company has the authority to borrow money or increase levels
of market exposure through the use of derivatives (gearing) and does so when
the Investment Manager is confident that market conditions and opportunities
exist to enhance investment returns. However, if the investments fall in value,
any borrowings will magnify the extent of this loss. In addition, the Company
has in place fixed borrowings in the form of a £60 million 6.25% Bond 2031. All
borrowings require the approval of the Board and gearing levels are reviewed
regularly by the Board and the Investment Manager. Borrowings (including the
Bond) would not normally be expected to exceed 20% of shareholders' funds.
Total gearing, including net derivative exposure, would not normally be
expected to result in net economic equity exposure in excess of 120%.
Income/dividend risk - The amount of dividends will depend on the Company's
underlying portfolio. Any change in the tax treatment of the dividends or
interest received by the Company (including as a result of withholding taxes or
exchange controls imposed by jurisdictions in which the Company invests) may
reduce the level of dividends received by shareholders. The Board monitors this
risk through the receipt of detailed income forecasts and considers the level
of income at each meeting. To the extent that underlying dividend income is
insufficient to meet the Company's dividend policy, the Company has the ability
to generate revenue through option writing. This may result in a reduction in
capital return and the Board monitors the level of option writing and the total
returns generated from option contracts to ensure that the level of option
writing is appropriate and in line with the Company's investment objective and
dividend policy.
Regulatory risk - The Company operates as an investment trust in accordance
with Chapter 4 of Part 24 of the Corporation Tax Act 2010. As such, the Company
is exempt from capital gains tax on the profits realised from the sale of its
investments. The Investment Manager monitors investment movements, the level
and type of forecast income and expenditure and the amount of proposed
dividends, if any, to ensure that the provisions of Chapter 4 of Part 24 of the
Corporation Tax Act 2010 are not breached and the results are reported to the
Board at each meeting. Following authorisation under the Alternative Investment
Fund Managers Directive (AIFMD), the Company and its appointed Alternative
Investment Fund Manager (AIFM) are subject to the risk that the requirements of
this Directive are not correctly complied with. The Board and the AIFM also
monitor changes in government policy and legislation which may have an impact
on the Company.
Operational risk - In common with most other investment trust companies, the
Company has no employees. The Company therefore relies upon the services
provided by third parties and is dependent on the control systems of the
Manager, BNY Mellon Trust & Depositary (UK) Limited (the Depositary) and the
Bank of New York Mellon (International) Limited, who maintain the Company's
accounting records. The security of the Company's assets, dealing procedures,
accounting records and maintenance of regulatory and legal requirements, depend
on the effective operation of these systems. These have been regularly tested
and monitored throughout the year which is evidenced through their SOC 1
reports to provide assurance regarding the effective operation of internal
controls which are reported on by their reporting accountants and give
assurance regarding the effective operation of controls. The Board also
considers succession arrangements for key employees of the Investment Manager
and the business continuity arrangements for the Company's key service
providers.
Market Risk - Market risk arises from volatility in the prices of the Company's
investments. It represents the potential loss the Company might suffer through
holding investments in the face of negative market movements. The Company
invests in global equities across a range of countries, and changes in general
economic and market conditions in certain countries, such as interest rates,
exchange rates, rates of inflation, industry conditions, competition, political
events and trends, tax laws, national and international conflicts, economic
sanctions and other factors can also substantially and adversely affect the
securities and, as a consequence, the Company's prospects and share price. The
Board considers the diversification of the portfolio, the portfolio risk and
portfolio beta, asset allocation, stock selection, unquoted investments and
levels of gearing on a regular basis and has set investment restrictions and
guidelines which are monitored and reported on by the Investment Manager. The
Board monitors the implementation and results of the investment process with
the Investment Manager.
Financial risks - The Company's investment activities expose it to a variety of
financial risks which include foreign currency risk and interest rate risk.
Further details are disclosed in note 17 to the financial statements, together
with a summary of the policies for managing these risks.
VIABILITY STATEMENT
In accordance with provision C.2.2 of the 2016 Code on UK Corporate Governance,
the Directors have assessed the prospects of the Company over a longer period
than the 12 months required by the "Going Concern" provision. The Board
conducted this review for the period up to the AGM in 2022, being a five year
period from the date that this Annual Report is due to be approved by
shareholders. The five year review period was selected because it is aligned
with the medium term performance period of five to seven years over which the
Company is assessed in its objective of targeting a total portfolio return of
CPI plus 4%. It is also aligned to the proposed new investment objective, which
is to target returns of LIBOR +5.5% per annum (net of fees) over rolling
five-year periods.
In making this assessment the Board has considered the following factors:
- The Company's principal risks as set out above;
- The relevance and attractiveness to existing shareholders and potential new
investors of the proposed changes to the Company's investment policy, which
targets a truly diversified multi-asset approach to generate highly attractive
long-term income and capital returns;
- The strength and experience of the new investment management team at
Aberdeen; and
- The level of demand for the Company's shares.
The Board has also considered a number of financial metrics, including:
- The level of current and historic ongoing charges incurred by the Company;
- The premium or discount to NAV;
- The level of income generated by the Company;
- Future income forecasts; and
- The liquidity of the Company's portfolio.
As an investment Company with a relatively liquid portfolio and largely fixed
overheads which comprise a very small percentage of net assets (0.6%), the
Board has concluded that, even in exceptionally stressed operating conditions,
the Company would be able to meet its ongoing operating costs as they fall due.
However, investment companies may face other challenges, such as a significant
decrease in size through tenders or share buy-back activity resulting in the
company no longer being of sufficient market capitalisation to represent a
viable investment proposition and to continue in operation. The Board is
proposing to offer a tender of up to 20% of the Company's share capital. In
addition, the Company has in place the authority to buy back up to 14.99% of
issued share capital. The Board has considered the potential impact of
operating both of these discount control mechanisms on the Company's market
capitalisation over the five year time horizon under review, and in particular
has noted the following:
- The Company's proposed new investment policy (which offers both risk
diversification through the use of a multi asset portfolio and an attractive
dividend yield);
- The enhanced liquidity that is expected to be generated by the increase to
the size of the Company's asset base as a result of the merger with the
Aberdeen UK Tracker Trust plc;
- The enhanced liquidity and anticipated demand for the Company's shares on
the secondary market as a result of the increased size of the Company post the
merger; and
- The decision to replace the current nil discount policy with a more flexible
approach.
The Board is confident that the proposed discount control mechanisms that the
Company will have in place will not have a detrimental impact on the Company's
viability. Based on the results of their analysis, the Directors have a
reasonable expectation that the Company will be able to continue in operation
and meet its liabilities as they fall due over the period of their assessment.
FUTURE PROSPECTS
Subject to Shareholder approval in March 2017, the Board's main focus will be
on the delivery of the new investment objective to target returns of LIBOR
+5.5% per annum (net of fees) over rolling five-year periods and maintaining a
steady dividend at an attractive but realistic yield (after reducing the
current dividend payment by approximately 20%). The future of the Company is
dependent upon the success of the investment strategy. The outlook for the
Company is discussed in the Chairman's Statement.
MODERN SLAVERY ACT
As an investment vehicle the Company does not provide goods or services in the
normal course of business, and does not have customers. Accordingly, the
Directors consider that the Company is not required to make any slavery or
human trafficking statement under the Modern Slavery Act 2015. In any event,
the Board considers the Company's supply chain, dealing predominantly with
professional advisers and service providers in the financial services industry,
to be low risk in relation to this matter.
SOCIAL, COMMUNITY AND HUMAN RIGHTS ISSUES
As an investment trust, the Company has no direct social or community
responsibilities. However, the Company believes that it is in shareholders'
interests to consider environmental, social and governance factors and human
rights issues when selecting and retaining investments. Details of the
Company's policy on socially responsible investment are set out on page 38 of
the Annual Report and Financial Statements.
DIRECTORS, GENDER REPRESENTATION AND EMPLOYEES
The Directors of the Company on 30 September 2016, all of whom held office
throughout the year, are set out in the Directors' biographies on page 27 of
the Annual Report and Financial Statements. The Board consists of five men and
one woman. The Company does not have any employees.
By order of the Board
BlackRock Investment Management (UK) Limited
Company Secretary
26 January 2017
Statement of Directors' Responsibilities in respect of the Annual Report and
Financial Statements
The Directors are responsible for preparing the Annual Report, the Directors'
Remuneration Report and the Financial Statements in accordance with applicable
United Kingdom law and regulations.
Company law requires the Directors to prepare financial statements for each
financial year. Under that law, the Directors are required to prepare the
financial statements under UK Generally Accepted Accounting Practice (UK
Accounting Standards and Applicable Law).
Under Company law the Directors must not approve the financial statements
unless they are satisfied that they give a true and fair view of the state of
affairs of the Company and of the profit or loss of the Company for that
period.
In preparing these financial statements, the Directors are required to:
* present fairly the financial position, financial performance and cash flows
of the Company;
* select suitable accounting policies and then apply them consistently;
* present information, including accounting policies, in a manner that
provides relevant, reliable, comparable and understandable information;
* make judgements and estimates that are reasonable and prudent;
* state whether the financial statements have been prepared in accordance
with UK Accounting Standards, subject to any material departures disclosed
and explained in the financial statements;
* prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Company's transactions and disclose with
reasonable accuracy at any time the financial position of the Company and
enable them to ensure that the financial statements comply with the Companies
Act 2006. They are also responsible for safeguarding the assets of the Company
and hence for taking reasonable steps for the prevention and detection of fraud
and other irregularities.
The Directors are also responsible for preparing the Strategic Report, the
Directors' Report, the Directors' Remuneration Report and the Corporate
Governance Statement in accordance with the Companies Act 2006 and applicable
regulations, including the requirements of the Listing Rules and the Disclosure
and Transparency Rules. The Directors have delegated responsibility to the
Investment Manager and the AIFM for the maintenance and integrity of the
Company's corporate and financial information included on BlackRock's website.
Legislation in the United Kingdom governing the preparation and dissemination
of financial statements may differ from legislation in other jurisdictions.
Each of the Directors confirm to the best of their knowledge that:
* the financial statements, which have been prepared in accordance with the
applicable set of accounting standards, give a true and fair view of the
assets, liabilities, financial position, net return and cash flows of the
Company; and
* the Strategic Report includes a fair review of the development and
performance of the business and the position of the Company, together with
a description of the principal risks and uncertainties that it faces.
The 2014 UK Corporate Governance Code also requires Directors to ensure that
the Annual Report and Accounts are fair, balanced and understandable. In order
to reach a conclusion on this matter, the Board has requested that the Audit
Committee advise on whether it considers that the Annual Report and Accounts
fulfils these requirements. The process by which the Audit Committee has
reached these conclusions is set out in the Audit Committee's report on pages
40 to 43 of the Annual Report and Financial Statements. As a result, the Board
has concluded that the Annual Report for the year ended 30 September 2016,
taken as a whole, is fair, balanced and understandable and provides the
information necessary for shareholders to assess the Company's performance,
business model and strategy.
For and on behalf of the Board
JAMES M LONG
Chairman
26 January 2017
Investment manager's report - BlackRock Investment Management (UK) Limited
This report covers the year ended 30 September 2016.
Performance
Year to 27 February -
30 September 30 September
2016 2015
NAV1 -0.4% -7.7%
-------- --------
Share price1 -10.2% -0.2%
-------- --------
CPI + 4%2 +4.9% +2.9%
-------- --------
Dividends paid 6.54p 6.54p
======== ========
As at As at
30 September 30 September
2016 2015
NAV3 121.99p 129.30p
-------- --------
Share price 111.00p 130.50p
-------- --------
(Discount)/Premium (9.0%) 0.9%
-------- --------
Yield4 5.9% 5.0%
======== ========
1 Performance calculations are based on the Company's NAV with debt at market
value. Both NAV and share price performance calculations assume that dividends
are reinvested on the ex-dividend date.
2 The Company's investment objective is, over the medium term (5 to 7 years),
to aim to preserve capital in real terms and to grow the dividend at least in
line with inflation. The Company targets a total portfolio return of UK
Consumer Price Index ("CPI") plus 4% per annum.
3 Cum income NAV with debt at market value adjusted to reflect the fact that
the Q3 dividends for 2015 and 2016 had gone ex-dividend prior to 30 September.
4 Yield calculations are based on dividends announced in the last 12 months as
at the date of release of this announcement.
The Company's performance for the year ended 30 September 2016, details of
which are summarised in the table above, has been disappointing, impacted by
the challenges of navigating the various periods of heightened volatility that
have characterised markets through the course of the year. As well as falling
short on an absolute basis, the Company's multi-asset strategy has also lagged
an investment in the stock market, justifiably adding to shareholder
frustrations given the relatively recent change in approach with the transition
of management from F&C to BlackRock in February 2015.
Although the portfolio return was negative in absolute terms, the revenue
return of 7.56 pence per share delivered on the income objective of the
Company. Revenues were comprised of approximately 40.4% option premium income
(2015: 26.9%), and 44.6% dividend income (2015: 61.2%) with the balance
relating mainly to fixed interest income. The increased focus on option premium
income partly reflects the fact that for 2015 the Company's portfolio was
managed under the previous investment objective for the first five months of
the year, which had a heavier weighting to dividend income and no multi-asset
component.
The market environment has been challenging for the portfolio's dynamic asset
allocation strategy. During the year there have been several periods of short
and sharp sell-offs followed by rapid recoveries. For example, in the first
three months of 2016, markets were dominated by concerns around China, volatile
oil price movements and greater divergence in central bank monetary policy.
This resulted in a notable sell-off in equities and negative excess returns
from credit as investors sought out more traditional 'safe-haven' assets such
as developed market government bonds and precious metals. Risk sentiment
remained fragile into February as concerns about negative interest rate policy
(in Japan and Europe specifically) weighed heavily on financials. However,
concerns abated somewhat in March as central banks vocalised a more
accommodative stance towards monetary policy. This contributed to weakness in
the US Dollar, a lift in the price of commodities, reduced liquidity concerns
in China and ultimately an improvement in the performance of risk assets
through March. In the summer months, we observed a similar dynamic around the
period that markets began to focus on Brexit. In these two episodes of gyrating
markets, our investment stance was to reduce equity exposure, fearing a larger
correction due to increased political and economic uncertainty. This meant that
the portfolio missed out on much of the subsequent strong equity and credit
rallies that followed the sell-off.
We can identify three key drivers of our investment results over the past year.
Firstly, the fall in interest rates to historic lows caused a significant hit
to NAV from the Company's 6.25% 30 year Bonds ('the Bond'). The price of these
reacts to movements in gilt yields and 2016 has seen a significant fall in
these. Yields in the UK bond market have fallen due to large demand for the
relative safety of government bonds, the resumption of a Bank of England bond
buying programme and the Bank's decision to cut interest rates after the
results of the EU referendum. The investment portfolio was not positioned for
such a severe fall in bond yields; this meant that our fixed income holdings
did not provide a sufficient 'hedge' and the Company's Bond hurt performance.
Secondly, in a period of strong returns from the domestic and global stock
markets, our cautious positioning, which was largely expressed through equity
market hedges, weighed on performance. The portfolio was positioned for a
normalisation in monetary policy and a reduction in the extreme quantitative
easing (QE) measures adopted by the Federal Reserve and the Bank of England. As
this support was withdrawn, we expected a correction in equity markets. We also
expected interest rates to rise as inflationary pressure increased. Our
cautious equity allocations generated reasonable returns, but we undoubtedly
gained less than a more aggressively positioned portfolio. Our currency hedging
policy has also prevented the Company from enjoying some of the extraordinary
performance experienced by Sterling-based investors who elected to leave their
overseas holdings exposed to fluctuations in the currency. Our policy is to
hedge the currency risk associated with overseas exposures back to Sterling by
default and then take active currency positions in markets that are backed by
our asset allocation views. As such, we hedged the vast majority of our
overseas assets back to Sterling and did not benefit from the large falls in
the value of the pound.
Finally, several of our asset allocation views have simply not paid off. In
currencies, for instance, being long of the US Dollar versus the Euro, Japanese
Yen and emerging market currencies was a source of negative performance. This
view was based on the US Dollar's status as a safe haven currency, loose
monetary policy in Europe and Japan, slowing emerging market growth and the
likelihood of rising rates in the US at a time when other large economies would
be easing policy. However, the continued weakness of the US Dollar driven by
ongoing expectations of unusually slow monetary tightening caused these
positions to underperform and this was a meaningful detractor from portfolio
returns. In equities, our exposure to European markets has hurt performance as
well as our position in stocks that we expected to benefit from a weaker oil
price. Our Portuguese government bond holdings were also negatively impacted by
some of the volatility experienced in the early months of the year.
In summary, it should be noted that there have been a number of positive asset
allocation views, such as the decision to buy gold related investments and our
exposure to inflation linked bonds in the US. However, our asset allocation
decisions overall have dampened the return potential of some of our longer-term
income and growth holdings in UK equities and credit markets.
Portfolio Composition1
2016 2015
% %
UK Equity 29.8 42.9
Overseas Developed Market Equities 13.0 12.2
Emerging Market Equities 2.7 2.8
Volatility Strategies 5.4 11.8
Fixed Income 41.5 25.3
Alternatives 13.0 4.0
Commodities 7.6 -
Cash -13.0 1.0
======== ========
1 All percentages reflect the value of each sector as a percentage of total
investments as adjusted for the gross market exposure of derivative positions
held to hedge each strategy.
UK Equities 29.8%
The UK equity portfolio, managed by BlackRock specialist Mark Wharrier, was the
largest single contributor to overall total returns, and also a meaningful
contributor to portfolio income. However, whilst the total return from the UK
equity portfolio has been strongly positive, it has lagged behind the FTSE
All-Share Index. At the sector level, the strong performance of the mining
sector acted as a drag on relative performance given our low exposure to the
sector. On the positive side, several of our positions performed very strongly,
including ARM Holdings, Rentokil Initial and John Laing Group. We reduced
exposure to financial stocks by selling Aviva, Legal & General Group and
Barclays, reflecting the more challenging operating environment they face.
Brexit created market volatility which we used as an opportunity to add to
positions in ITV, BT Group and Sky at levels that we believed were pricing in a
significant UK recession, which we felt to be an unlikely outcome.
Overseas Developed Market Equities 13.0%
Our globally diversified equity fund exposures were positive contributors to
performance, driven predominantly by an improving American economy and the low
interest rate environment. The portfolio also benefitted from our decision to
increase US exposure over the period as we became more positive on the outlook
for the economy and corporate earnings, especially relative to Europe and the
UK. Our Japanese equity exposure was removed after experiencing some losses
during the first quarter, and our decision to hedge global industrial equities
also hurt performance as this sector outperformed broader developed market
equities during the market rebound in February and March 2016.
Emerging Market Equities 2.7%
Our holdings in emerging market income stocks benefitted from the low yield
environment as well as the strong performance of emerging market equities.
Exposure was kept at low levels due to our caution around the long-term outlook
for Chinese growth.
Volatility Strategies 5.4%
Over the year under review, total return swaps (TRS) were used within this
category to express views on market volatility. TRS offer low transaction costs
and high liquidity, and therefore are an efficient way to gain portfolio
exposure. The view that oil prices would remain low was implemented through
taking out TRS on a basket of global equities which were expected to benefit
from structurally lower global oil prices; unfortunately this view did not play
out and the position generated losses of approximately £1 million. In addition,
TRS were used to implement a systematic volatility strategy designed to exploit
the difference between implied volatility in US and European equity indices;
this also generated losses for the portfolio of £2 million. Other TRS
exploiting volatility pricing differentials and harvesting returns from the
commodities futures market were more successful.
Fixed Income 41.5%
Our fixed income exposure reflected our preference for corporate bonds (both
high yield and investment grade) with limited UK Gilts held within the
portfolio. We began to build some exposure to emerging market debt towards the
end of the summer as we expected investors to begin to search further afield
for income. Within credit markets, our European credit index strategy
benefitted from the European Central Bank's efforts to lower borrowing costs
for European companies. Our actively managed high yield credit portfolio
benefitted from exposure to high yield bonds and some modest additional
performance generated from exposure to financial credit and asset-backed
securities. The largest detractor during the period by a large margin was
exposure to Novo Banco, after the Portuguese central bank decided to impose
losses on the securities in December 2015. BlackRock is leading a group of Novo
Banco bondholders suing the Bank of Portugal and has chosen to participate in
this suit in the best interests of our clients. We added some exposure to UK
corporate bonds, which help manage some of the risks associated with the
Company's 6.25% Bonds as well as being supported by the Bank of England's
purchasing programme.
Alternatives 13.0%
Our portfolio of alternative assets broadly performed strongly over the year.
Funding Circle SME Income Fund and Bluefield Solar Income Fund both produced
strong returns, as well as a meaningful contribution to income. We began the
process of increasing our exposure to long-term, unlisted alternative assets
over the year and early signs are encouraging, with particularly strong returns
coming from our small investment in the Forward Partners early-stage venture
capital fund. We also added exposure to UK mortgages over the period, although
at this early stage returns are minimal. The one significant detractor was our
small position in the Woodford Patient Capital Trust, which struggled as share
prices in the biotech sector fell.
Commodities 7.6%
Our exposure to commodities is predominantly through a holding in the iShares
Gold Trust, a vehicle that tracks the price of gold. We added a significant
exposure early in 2016, noting that the diversification and growth potential
would be supported in a period of uncertainty around the impact of negative
rates on the banking sector, near term political risks and volatile investor
sentiment. Gold has been a successful position over this period, contributing
positively to performance.
Negative Cash after adjusting for derivative exposures -13.0%
The Company had a small overdraft representing approximately 1% of net assets
as at 30 September 2016. In addition, the Company had a range of derivative
instruments which, to the extent that the Company had gained similar levels of
market exposure through direct investment instead, would have resulted in
physical cash balances being lower by approximately 12% and the Company being
geared through the use of derivatives and negative cash balances by
approximately 13%.
Adam Ryan
BlackRock Investment Management (UK) Limited
26 January 2017
Ten largest equity investments as at 30 September 2016
iShares Gold Trust1: 6.3% (2015: Nil) is an exchange traded fund that seeks to
reflect generally the performance of the price of gold. The fund is managed by
BlackRock.
BlackRock Impact World Equity Fund1: 3.9% (2015: Nil) seeks to achieve exposure
to equity securities with a measurable positive societal impact. The fund will
seek to achieve this investment objective by taking long and synthetic long
exposures. The fund will seek to gain at least 80% of its investment exposure
directly through equities and equity-related securities (including derivatives)
of, or giving exposure to, companies domiciled in or exercising the predominant
part of their economic activity in developed markets. The fund is managed by
BlackRock.
BlackRock Throgmorton Trust plc1: 2.5% (2015: 2.6%) is an investment trust
company with an investment objective to provide shareholders with capital
growth and an attractive total return by investing primarily in UK smaller
companies and mid-capitalisation companies listed on the main market of the
London Stock Exchange. The company's benchmark is the Numis Smaller Companies
excluding AIM (excluding Investment Companies) Index. The fund is managed by
BlackRock.
Funding Circle SME Income Fund: 2.2% (2015: Nil) seeks to generate income
through investments in UK residential mortgages.
BGF Emerging Markets Equity Income Fund1: 2.1% (2015: 1.6%) is a diversified
portfolio of predominantly emerging market equities selected for their ability
to generate income from dividends. The fund can also hold developed market
securities that have significant business operations in emerging markets. The
fund is managed by BlackRock.
MAS Mortgage Holdings1, 2: 2.1% (2015: Nil) is a holding company set up to hold
investments in UK buy-to-let mortgages, which are managed by BlackRock's
in-house mortgage team. These investments are designed and managed to provide a
high and sustainable level of income with conservative levels of capital risk.
British American Tobacco: 2.0% (2015: 2.5%) is one of the world's leading
tobacco groups, with more than 200 brands in the portfolio selling in
approximately 180 markets worldwide.
Unilever: 1.7% (2015: 1.3%) is a global consumer products group with strong
market positions in emerging markets and a growing bias towards personal care.
AstraZeneca: 1.7% (2015: 2.5%) is a global pharmaceutical company, operating in
the research, development, manufacture and marketing of pharmaceutical
products.
Scottish Mortgage Investment Trust: 1.5% (2015: 1.1%) is an investment trust
company with an investment objective to invest in a high conviction global
portfolio of companies with the aim of maximising its total return over the
long term. The managers look for strong businesses with above-average returns
and aim to achieve a greater return than the FTSE All-World Index (in sterling
terms) over a five year rolling period.
Largest fixed income investments (included within top ten overall portfolio
holdings)
iShares Core GBP Corporate Bond Fund1: 7.0% (2015: Nil) is an exchange traded
fund that seeks to track the performance of an index composed of Sterling
denominated investment grade corporate bonds. The fund is managed by BlackRock.
BGF Global Corporate Bond Fund1: 6.2% (2015: 5.8%) aims to maximise returns
through a combination of capital growth and income from the fund's assets. The
fund invests globally, and at least 70% of its total assets are held in fixed
income securities. These include bonds and money market instruments. At least
70% of the fund's total assets will be issued by companies and will be
investment grade at the time of purchase. The fund is managed by BlackRock.
US Treasury 0.375% 15 July 2025: 4.1% (2015: Nil) is a debt security issued by
the United States of America Government, used to access US government bonds.
Turkey 10.7% 17 February 2021: 2.8% (2015: Nil) is a debt security issued by
the Turkish Government, used to access Turkish government bonds.
BlackStone GSO Loan Financing: 2.7% (2015: 2.4%) is a United Kingdom-based
closed-ended investment company. The company's investment objective is to
provide shareholders with stable and growing income returns, and to grow the
capital value of the investment portfolio by exposure predominately to floating
rate senior secured loans directly and indirectly through collateralized loan
obligation income notes. The company invests in sectors, such as healthcare and
pharma; business services; chemical, plastic and rubber; capital equipment;
construction and building; broadcast and subscription; retail; beverage, food
and tobacco; hotel, gaming and leisure, and banking and finance.
UK Government 2% 7 September 2025: 2.2% (2015: Nil) is a debt security issued
by the United Kingdom Government, used to access UK government bonds.
1 Denotes BlackRock managed products
2 Unquoted holding
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
30 September 2015. Together, the ten largest investments represent 26.1% of the
Company's portfolio (ten largest investments at 30 September 2015: 24.5%).
Portfolio valuation as at 30 September 2016
Company Market value Gross market
Market value as a % of exposure1
Sector £'000 net assets £'000
Equities
UK Equities
BlackRock Throgmorton Trust* Financials 10,456 3.0 10,456
British American Tobacco Consumer Goods 8,515 2.4 8,515
Unilever Consumer Goods 7,296 2.1 7,296
AstraZeneca Health Care 7,258 2.1 7,258
BT Group Telecommunications 5,614 1.6 5,614
John Laing Group Financials 5,245 1.5 5,245
Vodafone Telecommunications 5,221 1.5 5,221
Sky Consumer Services 5,095 1.4 5,095
RELX Consumer Services 4,799 1.4 4,799
Royal Dutch Shell 'B' Oil & Gas 4,671 1.3 4,671
GlaxoSmithKline Health Care 4,569 1.3 4,569
Lloyds Banking Group Financials 4,450 1.3 4,450
HSBC Holdings Financials 3,995 1.1 3,995
Rentokil Initial Industrials 3,619 1.0 3,619
Carnival Consumer Services 3,472 1.0 3,472
Wolseley Industrials 3,449 1.0 3,449
BP Group Oil & Gas 3,432 1.0 3,432
Altria Group Consumer Goods 3,430 1.0 3,430
Intercontinental Hotels Group Consumer Services 3,155 0.9 3,155
Inchcape Consumer Services 3,127 0.9 3,127
Tesco Consumer Services 3,079 0.9 3,079
Imperial Brands Consumer Goods 3,023 0.8 3,023
BAE Systems Industrials 2,987 0.8 2,987
Stagecoach Group Consumer Services 2,969 0.8 2,969
RPC Group Industrials 2,813 0.8 2,813
Hays Industrials 2,693 0.7 2,693
Shire Health Care 2,534 0.7 2,534
Admiral Group Financials 2,494 0.7 2,494
Smith (DS) Industrials 2,455 0.7 2,455
Provident Financial Financials 2,361 0.7 2,361
ITV Consumer Services 2,095 0.6 2,095
Hargreaves Lansdown Financials 2,075 0.6 2,075
Kier Group Industrials 2,075 0.6 2,075
Direct Line Insurance Financials 2,061 0.6 2,061
Dixons Carphone Consumer Services 2,010 0.6 2,010
Cineworld Group Consumer Services 1,894 0.5 1,894
Compagnie Financiere Richemont Consumer Goods 1,645 0.5 1,645
Next Consumer Services 1,314 0.4 1,314
Foxtons Group Financials 1,093 0.3 1,093
Elementis Basic Materials 1,058 0.3 1,058
-------- -------- --------
Total 145,596 41.4 145,596
======== ======== ========
UK Equity Hedges (618) (0.2) (23,239)
======== ======== ========
Total 144,978 41.2 122,357
======== ======== ========
Company Market value
as a % of Gross market
Market value net exposure1
Sector £'000 assets £'000
Overseas Developed Market Equities
BlackRock Impact World Equity Fund* Financials 16,386 4.7 16,386
Scottish Mortgage Investment Trust Financials 6,168 1.8 6,168
Goodyear Tire & Rubber Consumer Goods 524 0.2 524
Amazon.com Consumer 513 0.2 513
Services
Accenture 'A' Industrials 506 0.2 506
Edwards Lifesciences Health Care 501 0.2 501
MasterCard 'A' Financials 498 0.2 498
Varian Medical Systems Health Care 498 0.2 498
CBS Corporation 'B' Consumer 496 0.2 496
Services
S&P Global Financials 495 0.2 495
Fedex Industrials 490 0.2 490
Facebook 'A' Technology 487 0.2 487
Equifax Financials 485 0.2 485
Verisign Technology 482 0.2 482
International Paper Basic Materials 482 0.2 482
Tripadvisor Consumer 477 0.2 477
Services
General Dynamics Industrials 477 0.2 477
Harris Corporation Technology 477 0.2 477
L-3 Communications Industrials 476 0.1 476
FMC Basic Materials 476 0.1 476
Yum! Brands Consumer 474 0.1 474
Services
Cummins Industrials 473 0.1 473
Motorola Solutions Technology 473 0.1 473
Southern Company Utilities 471 0.1 471
Texas Instruments Technology 471 0.1 471
Eli Lilly Health Care 471 0.1 471
Alaska Air Group Consumer 467 0.1 467
Services
American Airlines Consumer 466 0.1 466
Services
United Parcel Service Industrials 466 0.1 466
Fluor Industrials 465 0.1 465
Dow Chemical Basic Materials 463 0.1 463
Total System Services Industrials 463 0.1 463
Textron Industrials 463 0.1 463
Northrop Grumman Industrials 462 0.1 462
Du Pont (E.I) De Nemours Basic Materials 461 0.1 461
Pitney Bowes Technology 459 0.1 459
Intuit Technology 458 0.1 458
Philip Morris Consumer Goods 457 0.1 457
Boeing Industrials 457 0.1 457
Monsanto Consumer Goods 454 0.1 454
Davita Healthcare Health Care 453 0.1 453
Raytheon Industrials 451 0.1 451
Occidental Petroleum Oil & Gas 449 0.1 449
Brown-Forman 'B' Consumer Goods 446 0.1 446
21st Century Fox Consumer 445 0.1 445
Services
Block (H&R) Consumer 444 0.1 444
Services
Lockheed Martin Industrials 437 0.1 437
Viacom 'B' Consumer 416 0.1 416
Services
Mallinckrodt Health Care 412 0.1 412
Vertex Pharmaceuticals Health Care 408 0.1 408
Hershey Consumer Goods 402 0.1 402
Overseas Developed Market Hedges (5,566) (1.6) (23,753)
-------- -------- --------
Total 39,885 11.4 21,698
======== ======== ========
Emerging Market Equities
BGF Emerging Markets Equity Income 8,785 2.5 8,785
Fund*
BGF ASEAN Leaders Fund* 2,553 0.7 2,553
-------- -------- --------
Total 11,338 3.2 11,338
======== ======== ========
Total Equities 196,201 55.8 155,393
======== ======== ========
Market value Gross market
Market value as a % of exposure1
£'000 net assets £'000
Volatility Strategies
Commodity Strategies
TRS - MLBX Commodity Volatility Carry Total Return (82) 0.0 1,469
TRS - MLBX Commodity Volatility Carry Total Return (237) (0.1) 5,073
TRS - GS Vol of Vol Carry Excess Return Strategy (805) (0.2) 3,789
Other
TRS - BAML Vortex Strategy 715 0.2 11,345
USD MXN Put Option 56 0.0 46
USD MXN Put Option 54 0.0 45
FX Volatility Swap EUR USD @ 10.15 (17) 0.0 -
FX Volatility Swap EUR USD @ 10.1 (18) 0.0 -
FX Volatility Swap GBP USD @ 12.5 (19) 0.0 -
FX Volatility Swap GBP USD @ 11.1 (42) 0.0 -
-------- -------- --------
Total Volatility Strategies (395) (0.1) 21,767
======== ======== ========
Market value Gross market
Market value as a % of exposure1
£'000 net assets £'000
Fixed Income
International Government Bonds
US Treasury 0.375% 15 Jul 2025 17,029 4.8 17,029
Turkey 10.7% 17 Feb 2021 11,579 3.3 11,579
Mexico 10% 05 Dec 2024 7,889 2.2 7,889
Poland 2.5% 25 Jul 2026 4,854 1.4 4,854
Mexico 8% 11 Jun 2020 3,859 1.2 3,859
US Treasury 0.625% 15 Jan 2026 2,607 0.7 2,607
Ireland 7.375% 29 Dec 2049 165 0.0 165
International Government Bond Hedges (69) 0.0 7,945
-------- -------- --------
Total 47,913 13.6 55,927
======== ======== ========
UK Government Bonds
UK Government 2% 7 Sep 2025 9,259 2.6 9,259
-------- -------- --------
Total 9,259 2.6 9,259
-------- -------- --------
Investment Grade Corporate Bonds
BGF Global Corporate Bond Fund* 25,844 7.4 25,844
Fiat Finance 5.625% 12 Jun 2017 30 0.0 30
-------- -------- --------
iShares Core GBP Corporate Bond Fund* 29,264 8.3 29,264
-------- -------- --------
Total 55,138 15.7 55,138
======== ======== ========
High Yield Bonds
Aroundtown Property 3% 05 May 2020 462 0.1 462
Orange 5.875% 28 Feb 2049 406 0.1 406
Telefonica 5.875% 31 Mar 2049 374 0.1 374
Allied Irish Banks 4.125% 26 Nov 2025 333 0.1 333
Matterhorn Telecom 3.875% 01 May 2022 321 0.1 321
BBVA 6.75% Perpetual 321 0.1 321
Ibercaja Banco 5% 28 Jul 2025 317 0.1 317
UPCB Finance 4% 15 Jan 2027 317 0.1 317
Trinseo 6.375% 01 May 2022 316 0.1 316
Progroup 5.125% 01 May 2022 312 0.1 312
Softbank 4.75% 30 Jul 2025 307 0.1 307
Belden 5.5% 15 Apr 2023 305 0.1 305
Altice 7.25% 15 May 2022 305 0.1 305
SGD 5.625% 15 May 2019 303 0.1 303
LGE Holdco 7.125% 15 May 2024 302 0.1 302
Telecom Italia Finance 7.75% 24 Jan 2033 296 0.1 296
UBS 7% Perpetual 295 0.1 295
Pfleiderer 7.875% 01 Aug 2019 293 0.1 293
Wind Acquisition Finance 7% 23 Apr 2021 280 0.1 280
PSPC Escrow 6% 01 Feb 2023 275 0.1 275
Virgin Media 5.5% 15 Sep 2024 274 0.1 274
BNP Paribas 7.375% Perpetual 269 0.1 269
Swissport 6.75% 15 Dec 2021 268 0.1 268
Banco Popular Espanol 11.5% convertible bond 265 0.1 265
Bankia 4% 22 May 2024 258 0.1 258
Cadogan FRN 25 May 2029 256 0.1 256
Unicredit 6.95% 31 Oct 2022 255 0.1 255
Unique Pub Finance 6.464% 30 Mar 2032 255 0.1 255
Veritas 7.5% 01 Feb 2023 245 0.1 245
AA Bond 5.5% 31 Jul 2043 243 0.1 243
Enel Spa 6.625% 15 Sep 2076 241 0.1 241
International Game Technology 4.75% 15 Feb 2023 235 0.1 235
Verisure 6% 01 Nov 2022 233 0.1 233
Banco Santander 6.25% Perpetual 232 0.1 232
Voyage Care Bond Co 6.5% 01 Aug 2018 231 0.1 231
Logistics FRN 20 Aug 2025 230 0.1 230
Annington Finance 13% 15 Jan 2023 228 0.1 228
United Group 7.875% 15 Nov 2020 225 0.1 225
Ineos Finance 4% 01 May 2023 224 0.1 224
Numericable 5.625% 15 May 2024 212 0.1 212
Unitymedia KabelBW 4% 15 Jan 2025 211 0.1 211
Cognita 7.75% 15 Aug 2021 210 0.1 210
Senvion 6.625% 15 Nov 2020 209 0.1 209
Virgin Media 5.125% 15 Jan 2025 205 0.1 205
Harvest CLO FRN 15 Oct 2029 198 0.1 198
Telenet Finance 6.75% 15 Aug 2024 190 0.1 190
BHP Billiton 4.75% 22 Apr 2076 187 0.1 187
JH-Holding Finance 8.25% 01 Dec 2022 186 0.1 186
Tullow Oil 6.625% 12 Jul 2021 184 0.1 184
Origin Energy 7.875% 16 Jun 2071 183 0.1 183
Rabobank - Cooperatieve 6.625% Perpetual 182 0.1 182
Portaventura Entertainment 7.25% 01 Dec 2020 180 0.1 180
XPO Logistics 5.75% 15 Jun 2021 176 0.1 176
Areva 4.875% 23 Sep 2024 175 0.1 175
OTE 3.5% 9 Jun 2020 175 0.1 175
Punch Taverns 5.267% 30 Mar 2024 175 0.0 175
Bilbao 10.5% 01 Dec 2018 172 0.0 172
Anglo American 2.5% 29 Apr 2021 172 0.0 172
Carlyle FRN 21 Sep 2029 172 0.0 172
WFS Global Holdings 9.5% 15 Jul 2022 171 0.0 171
Credit Agricole 4.5% 31 Oct 2049 171 0.0 171
Avis Budget 4.125% 15 Nov 2024 169 0.0 169
Avoca Clothing FRN 15 Jan 2029 163 0.0 163
Gates Global LLC 5.75% 15 Jul 2022 160 0.0 160
Intesa Sanpaolo 7% 29 Dec 2049 159 0.0 159
CPUK Finance 7% 28 Feb 2042 158 0.0 158
Assicurazioni Generali Spa 6.416% Perpetual 152 0.0 152
Novafives 4.5% 30 Jun 2021 151 0.0 151
Ardagh Packaging Finance 4.25% 15 Jan 2022 151 0.0 151
Société Générale 7.375% 29 Dec 2049 151 0.0 151
Onorato Armatori 7.75% 15 Feb 2023 150 0.0 150
Jerrold Finco 6.25% 15 Sep 2021 150 0.0 150
Arbour CLO FRN 15 Jan 2030 149 0.0 149
Norske Skogindustrier 11.75% 15 Dec 2019 146 0.0 146
Credit Suisse 6.25% 29 Dec 2049 146 0.0 146
Adagio CLO FRN 15 Oct 2029 139 0.0 139
Tullow Oil 6% 01 Nov 2020 139 0.0 139
Ardagh Packaging Finance 6.75% 15 May 2024 136 0.0 136
Intesa Sanpaolo 7.7% Perpetual 135 0.0 135
Schaeffler 3.25% 15 Sep 2023 129 0.0 129
Cirsa Funding Luxembourg 5.875% 15 May 2023 119 0.0 119
Schaeffler 2.75% 15 Sep 2021 108 0.0 108
Schaeffler 3.75% 15 Sep 2026 108 0.0 108
Vougeot Bidco 7.875% 15 Jul 2020 104 0.0 104
Garfunkel 8.5% 01 Nov 2022 102 0.0 102
Virgin Media Secured Finance 4.875% 15 Jan 2027 100 0.0 100
Repsol International Finance 4.5% 25 Mar 2075 100 0.0 100
Enel Spa 5.625% 12 Jan 2075 92 0.0 92
Telefonica 5% 31 Mar 2049 90 0.0 90
Euro Gala FRN 10 Nov 2030 85 0.0 85
HBOS Capital Funding 6.85% 29 Mar 2049 78 0.0 78
Banco Espirito Santo 4% 21 Jan 2019 76 0.0 76
Banco Espirito Santo 4.75% 15 Jan 2018 57 0.0 57
Gemgarto FRN 16 Feb 2054 46 0.0 46
iTraxx Xover Super Senior Tranche CDS (90) 0.0 30,092
-------- -------- --------
Total 19,211 5.5 49,393
======== ======== ========
Total Fixed Income 131,521 37.4 169,717
======== ======== ========
Market value Gross market
Market value as a % of exposure1
£'000 net assets £'000
Alternatives
Listed Alternatives
Blackstone GSO Loan Financing 11,409 3.2 11,409
Funding Circle SME Income Fund 9,307 2.6 9,307
Foresight Solar Fund 4,916 1.4 4,916
iShares UK Property* 4,354 1.2 4,354
JP Morgan Global Convertibles Income Fund 3,686 1.1 3,686
NB Distressed Debt Investment Fund 3,489 1.0 3,489
Woodford Patient Capital Trust 3,001 0.9 3,001
-------- -------- --------
Total 40,162 11.4 40,162
======== ======== ========
Unlisted Alternatives
MAS Mortgage Holdings* 8,721 2.5 8,721
Forward Partners 1 4,400 1.2 4,400
-------- -------- --------
Total 13,121 3.7 13,121
======== ======== ========
Total Alternatives 53,283 15.1 53,283
======== ======== ========
Market value Gross market
Market value as a % of exposure1
£'000 net assets £'000
Commodities
iShares Gold Trust* 26,658 7.6 26,658
iShares Physical Gold* 4,874 1.4 4,874
-------- -------- --------
Total Commodities 31,532 9.0 31,532
======== ======== ========
Market value
Market value as a % of
£'000 net assets
Total Forward Currency Contracts (368) (0.1)
-------- --------
BlackRock's Institutional Cash Series plc - Sterling Liquidity 1,248 0.4
Fund*
Add: Derivatives 6,738 1.9
Add: Forward Currency Contracts 368 0.1
-------- --------
Total investments 420,128 119.5
======== ========
Cash and cash equivalents (15,881) (4.5)
Net other liabilities (52,726) (15.0)
======== ========
Net assets 351,521 100.0
======== ========
1 Gross market exposure is the market value of the underlying shares to which
the portfolio is exposed via the contract.
* Denotes BlackRock managed products.
Income statement for the year ended 30 September 2016
Revenue Revenue Capital Capital Total Total
2016 2015 2016 2015 2016 2015
Notes £'000 £'000 £'000 £'000 £'000 £'000
Gains/(losses) on investments held at - - 11,623 (35,518) 11,623 (35,518)
fair value through profit or loss
(Losses)/gains on foreign exchange - - (25,019) 6,444 (25,019) 6,444
Income from investments held at fair 3 23,198 23,024 - - 23,198 23,024
value through profit or loss
Other income 3 67 96 - - 67 96
-------- -------- -------- -------- -------- --------
Total income 23,265 23,120 (13,396) (29,074) 9,869 (5,954)
======== ======== ======== ======== ======== ========
Expenses
Investment management fees 4 (486) (624) (902) (1,159) (1,388) (1,783)
Operating expenses 5 (758) (957) (209) (24) (967) (981)
-------- -------- -------- -------- -------- --------
Total operating expenses (1,244) (1,581) (1,111) (1,183) (2,355) (2,764)
======== ======== ======== ======== ======== ========
Net profit/(loss) on ordinary 22,021 21,539 (14,507) (30,257) 7,514 (8,718)
activities before finance costs and
taxation
Finance costs 6 (1,346) (1,410) (2,492) (2,616) (3,838) (4,026)
-------- -------- -------- -------- -------- --------
Net profit/(loss) on ordinary 20,675 20,129 (16,999) (32,873) 3,676 (12,744)
activities before taxation
Taxation (73) 34 - - (73) 34
-------- -------- -------- -------- -------- --------
Net profit/(loss) on ordinary 8 20,602 20,163 (16,999) (32,873) 3,603 (12,710)
activities after taxation
-------- -------- -------- -------- -------- --------
Earnings/(loss) per ordinary share 8 7.56p 7.07p (6.24)p (11.52)p 1.32p (4.45)p
======== ======== ======== ======== ======== ========
The total column of this statement represents the profit or loss of the
Company.
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 and no operations were
acquired or discontinued during the year. All income is attributable to the
equity holders of the Company.
The net profit for the year disclosed above represents the Company's total
comprehensive income.
Statement of changes in equity for the year ended 30 September 2016
Capital
Called up redemption Capital Revenue
share capital reserve reserves reserve Total
Note £'000 £'000 £'000 £'000 £'000
For the year ended 30 September
2016
At 30 September 2015 72,778 15,563 249,811 36,680 374,832
Total comprehensive income:
(Loss)/profit for the year - - (16,999) 20,602 3,603
Transactions with owners,
recorded directly to equity:
Ordinary shares purchased into - - (9,003) - (9,003)
treasury
Ordinary shares issued from - - 270 - 270
treasury
Tender offer costs - - (8) - (8)
Dividends paid (a) 7 - - - (18,173) (18,173)
-------- -------- -------- -------- --------
At 30 September 2016 72,778 15,563 224,071 39,109 351,521
-------- -------- -------- -------- --------
For the year ended 30 September
2015
At 30 September 2014 72,778 15,563 302,990 35,534 426,865
Total comprehensive income:
(Loss)/profit for the year - - (32,873) 20,163 (12,710)
Transactions with owners,
recorded directly to equity:
Ordinary shares purchased into - - (20,256) - (20,256)
treasury
Tender offer costs - - (50) - (50)
Dividends paid (b) 7 - - - (19,017) (19,017)
-------- -------- -------- -------- --------
At 30 September 2015 72,778 15,563 249,811 36,680 374,832
======== ======== ======== ======== ========
(a) Third quarterly interim dividend of 1.67p per share for the year ended 30
September 2015, paid on 9 October 2015. Final dividend of 1.70p per share for
the year ended 30 September 2015, paid on 29 January 2016. First quarterly
interim dividend of 1.635p per share for the year ended 30 September 2016, paid
on 8 April 2016. Second quarterly interim dividend of 1.635p per share for the
year ended 30 September 2016, paid on 22 July 2016.
(b) Third quarterly interim dividend of 1.53p per share for the year ended 30
September 2014, paid on 10 October 2014. Final dividend of 1.895p per share for
the year ended 30 September 2014, paid on 30 January 2015. First quarterly
interim dividend of 1.50p per share for the year ended 30 September 2015, paid
on 10 April 2015. Second quarterly interim dividend of 1.67p per share for the
year ended 30 September 2015, paid on 10 July 2015.
Balance sheet as at 30 September 2016
30 September 30 September
2016 2015
Notes £'000 £'000
Fixed assets
Investments held at fair value through profit or loss 420,128 411,230
-------- --------
Current assets
Debtors 6,347 4,128
Derivative financial instruments 2,652 3,792
Collateral pledged with brokers 11,497 17,524
Cash & cash equivalents 2,203 14,678
-------- --------
22,699 40,122
-------- --------
Creditors - amounts falling due within one year
Bank overdraft (18,084) -
Collateral received from brokers (770) (884)
Derivative financial instruments (9,758) (12,157)
Other creditors (3,088) (3,900)
-------- --------
(31,700) (16,941)
-------- --------
Net current (liabilities)/assets (9,001) 23,181
-------- --------
Total assets less current liabilities 411,127 434,411
Creditors - amounts falling due after more than one year (59,606) (59,579)
-------- --------
Net assets 351,521 374,832
-------- --------
Capital and reserves
Called up share capital 9 72,778 72,778
Capital redemption reserve 15,563 15,563
Capital reserves 224,071 249,811
Revenue reserve 39,109 36,680
-------- --------
Total shareholders' funds 8 351,521 374,832
-------- --------
Net asset value per ordinary share (bonds at par value) 8 131.64p 136.58p
======== ========
Net asset value per ordinary share (bonds at market 8 123.62p 131.00p
value)
======== ========
Statement of cash flows for the year ended 30 September 2016
Year Year
ended ended
30 September 30 September
2016 2015
Notes £'000 £'000
Operating activities
Net profit/(loss) before taxation 3,676 (12,744)
Interest expense 3,838 4,026
(Gains)/losses on investments held at fair value through (11,623) 33,380
profit or loss
Net losses/(gains) on foreign exchange (1,860) (4,320)
Sales of investments held at fair value through profit 408,256 602,681
or loss
Purchase of investments held at fair value through (408,381) (550,639)
profit or loss
(Increase)/decrease in debtors (434) 387
Increase in other creditors 814 585
Movement in forward currency contracts (1,802) 2,138
Tax on investment income (62) -
Net movement in collateral balances 5,913 (16,640)
-------- --------
Net cash (expended)/generated from operating activities (1,665) 58,854
-------- --------
Financing activities
Shares purchased to be held in treasury (9,003) (20,256)
Tender offer costs paid (8) (50)
Proceeds from share issue 270 -
Interest paid (3,840) (3,987)
Repayment of loan - (19,962)
Dividends paid 7 (18,173) (19,017)
-------- --------
Net cash used in financing activities (30,754) (63,272)
-------- --------
Decrease in cash and cash equivalents (32,419) (4,418)
-------- --------
Cash and cash equivalents at the start of the year 14,678 14,790
Effect of foreign exchange rate changes 1,860 4,306
-------- --------
Cash and cash equivalents at the end of the year (15,881) 14,678
-------- --------
Comprised of:
Bank overdraft (18,084) -
Cash at bank 2,203 14,678
-------- --------
(15,881) 14,678
======== ========
Dividends and interest received in the year amounted to £10,429,000 and £
3,012,000 (2015: £9,497,000 and £1,755,000) respectively.
Notes to the financial statements
1. PRINCIPAL ACTIVITY
The principal activity of the Company is that of an investment trust company
within the meaning of section 1158 of the Corporation Tax Act 2010.
2. ACCOUNTING POLICIES
(a) Basis of preparation
This is the first year that the Company has presented its results and financial
position under FRS 102, 'The Financial Reporting Standard applicable in the UK
and Republic of Ireland' (FRS 102), which forms part of revised Generally
Accepted Accounting Practice (New UK GAAP) issued by the Financial Reporting
Council (FRC) in 2013 and which came into effect for accounting periods
beginning on or after 1 January 2015. The last financial statements prepared
under the previous UK GAAP were for the year ended 30 September 2015.
The financial statements have been prepared on a going concern basis in
accordance with FRS 102 and the revised Statement of Recommended Practice -
'Financial Statements of Investment Trust Companies and Venture Capital Trusts'
(SORP) issued by the Association of Investment Companies (AIC) in November
2014.
As a result of the first time adoption of New UK GAAP and the revised SORP,
comparative amounts and presentation formats have been amended where required.
The changes to accounting policies relate to the composition of cash and cash
equivalents and the change in the presentation of cash flows (see below). There
were no adjustments to the Company's Income Statement for the financial year
ended 30 September 2015 and the total equity as at 1 October 2014 and 30
September 2015 between UK GAAP as previously reported and FRS 102 as a result
of changes to accounting policies.
The Company's Statement of Cash Flows reflects the presentation requirements of
FRS 102, which are different to that prepared under previous UK GAAP. In
addition, the Statement of Cash Flows reconciles to cash and cash equivalents,
whereas under previous UK GAAP the Statement of Cash Flows reconciled to cash.
Cash and cash equivalents are defined in FRS 102 as 'cash in hand and demand
deposits, bank overdrafts repayable on demand and short term highly liquid
investments that are readily convertible to known amounts of cash and that are
subject to an insignificant risk of changes in value' whereas cash is defined
in previous UK GAAP as 'cash in hand and deposits repayable on demand with any
qualifying institution, less overdrafts from any qualifying institution
repayable on demand'. The Company's investment in BlackRock's Institutional
Cash Series plc - Sterling Liquidity Fund of £1,248,000 (2015: £57,637,000) is
managed as part of the Company's investment management policy and, accordingly,
this investment along with purchases and sales of this investment has been
classified in the Balance Sheet as an investment and not as a cash equivalent
as defined under FRS 102. As a result of this policy there is no change to the
Statement of Cash Flows.
Expenses which are allocated to capital are available to reduce the Company's
liability to corporation tax. The SORP recommends that the benefit of that tax
relief should be allocated to capital and a corresponding charge made to
revenue. This is known as the 'marginal method' of allocating tax relief
between capital and revenue. The Company does not adopt the marginal method for
two reasons. Firstly, the Company has only one class of share and any
allocation of tax relief between capital and revenue would have no impact on
shareholders' funds. Secondly, the significant unutilised management expenses
and interest carried forward make it unlikely that the Company will be liable
to corporation tax in the foreseeable future. Had this allocation been made,
the charge to revenue and corresponding credit to capital for the year ended 30
September 2015 would have been £2,249,000 (2015: £1,403,000).
The principal accounting policies adopted by the Company are set out below.
Unless specified otherwise, the policies have been applied consistently
throughout the year and are consistent with those applied in the preceding
year. All of the Company's operations are of a continuing nature.
The Company's financial statements are presented in sterling, which is the
currency of the primary economic environment in which the Company operates. All
values are rounded to the nearest thousand pounds (£'000) except where
otherwise stated.
(b) Presentation of Income Statement
In order to better reflect the activities of an investment trust company and in
accordance with guidance issued by the AIC, supplementary information which
analyses the Income Statement between items of a revenue and a capital nature
has been presented alongside the Income Statement.
(c) Segmental reporting
The Directors are of the opinion that the Company is engaged in a single
segment of business being investment business.
(d) Income
Dividends receivable on equity shares are treated as revenue for the year on an
ex-dividend basis. Fixed returns on non equity securities are recognised on a
time apportionment basis. Interest income is accounted for on an accruals
basis.
Special dividends are recognised on an ex-dividend basis and are treated as
capital or revenue items depending on the facts or circumstances of each
dividend.
Dividends are accounted for in accordance with Section 29 of FRS 102 on the
basis of income actually receivable, without adjustment for tax credits
attaching to the dividend. Dividends from overseas companies continue to be
shown gross of withholding tax.
Where the Company has elected to receive its dividends in the form of
additional shares rather than in cash, the cash equivalent of the dividend
foregone is recognised in the revenue column of the Income Statement. Any
excess in the value of the shares over the amount of the cash dividend is
recognised in capital reserves.
Options may be written over securities held in the portfolio for generating or
protecting capital returns, or for generating or maintaining revenue returns.
Where the purpose of the option is the generation of income, the premium is
treated as a revenue item. Where the purpose of the option is the maintenance
of capital, the premium is treated as a capital item. The value of the option
is subsequently marked to market to reflect the fair value of the option based
on traded prices.
Option premium income is recognised as revenue evenly over the life of the
option contract and included in the revenue column of the Income Statement
unless the option has been written for the maintenance and enhancement of the
Company's investment portfolio and represents an incidental part of a larger
capital transaction, in which case any premia arising are allocated to the
capital column of the Income Statement. Where the premium is taken to revenue,
an appropriate amount is shown as capital return such that the total return
reflects the overall change in the fair value of the option. When an option is
closed out or exercised the gain or loss is accounted for as capital and any
unamortised premium is also retained in capital.
Credit Default Swaps (CDS) may be held in the portfolio for generating or
protecting capital returns, or for generating or maintaining revenue returns.
Where the purpose of the CDS is the generation of income (i.e. sell
protection), the premium received is treated as a revenue item. Where the
purpose of the CDS is the maintenance of capital (buy protection), the premium
paid is treated as a capital item. The value of the CDS is subsequently
modelled to reflect the fair value of the CDS option based on available
financial sources.
CDS premium income is recognised as revenue evenly over the life of the CDS
contract and included in the revenue column of the Income Statement unless the
CDS has been written for the maintenance and enhancement of the Company's
investment portfolio, in which case any premia arising are allocated to the
capital column of the Income Statement. When a CDS is closed out the gain or
loss is accounted for as capital.
Collateralized Loan Obligations (CLO) may be held in the portfolio for
generating or maintaining revenue returns. The income stream is treated as a
revenue item and is recognised evenly over the life of the instrument and is
included in the revenue column of the Income Statement. The value of the CLO is
subsequently marked to market to reflect the fair value of the CLO based on
traded prices.
Total Return Swaps (TRS) may be held in the portfolio for generating or
protecting capital returns, or potentially for generating or maintaining
revenue returns. Where the purpose of the TRS is the generation of income, the
premium received is treated as a revenue item. Where the purpose of the TRS is
the maintenance of capital, the premium paid is treated as a capital item. The
value of the TRS is subsequently marked to market to reflect the fair value of
the TRS based on traded prices.
The Company also invests in Equity Index Futures and Forward Currency Contracts
but no income component can be derived in these instruments and, as such, they
are marked to market to reflect their fair value with the gains and losses
taken to the capital column of the Income Statement as per policy (h).
Deposit interest receivable is accounted for on an accruals basis. Underwriting
commission is recognised when the issue underwritten closes.
(e) Expenses
All expenses are accounted for on an accruals basis. Expenses have been treated
as revenue except as follows:
* expenses which are incidental to the acquisition or disposal of an
investment are treated as capital. Details of transaction costs on the
purchases and sales of investments are disclosed in note 11, on page 61 of
the Annual Report and Financial Statements;
* the investment management fee has been allocated 65% to the capital column
and 35% to the revenue column of the Income Statement in line with the
Board's expected long term split of returns, in the form of capital gains
and income respectively, from the investment portfolio.
(f) Borrowings and finance costs
Borrowings are measured initially at the fair value of proceeds received less
transaction costs and subsequently at amortised cost using the effective
interest rate. Finance costs are accounted for on an accruals basis. Finance
costs are allocated, insofar as they relate to the financing of the Company's
investments, 65% to the capital column and 35% to the revenue column of the
Income Statement, in line with the Board's expected long term split of returns,
in the form of capital gains and income respectively, from the investment
portfolio.
(g) Taxation
The tax expense represents the sum of the tax currently payable and deferred
tax. Any tax payable is based on the taxable profit for the year. Taxable
profit differs from net profit as reported in the Income Statement because it
excludes items of income or expenses that are taxable or deductible in other
years and it further excludes items that are never taxable or deductible. The
Company's liability for current tax is calculated using tax rates that were
applicable at the balance sheet date.
Deferred taxation is recognised in respect of all temporary differences at the
financial reporting date, where transactions or events that result in an
obligation to pay more taxation in the future or right to less taxation in the
future have occurred at the balance sheet date. Deferred tax is measured on a
non-discounted basis, at the average tax rates that are expected to apply in
the periods in which the timing differences are expected to reverse based on
tax rates and laws that have been enacted or substantively enacted by the
balance sheet date. This is subject to deferred taxation assets only being
recognised if it is considered more likely than not that there will be suitable
profits from which the future reversal of the temporary differences can be
deducted.
(h) Investments designated as held at fair value through profit or loss
The Company's investments are classified as held at fair value through profit
or loss in accordance with Section 11 and 12 of FRS102 and are managed and
evaluated on a fair value basis in accordance with its investment strategy.
All investments are designated upon initial recognition as held at fair value
through profit or loss. Purchases of investments are recognised on a trade date
basis. Sales are recognised at the trade date of the disposal and the proceeds
are measured at fair value, which is regarded as the proceeds of the sale less
any transaction costs.
The fair value of the financial investments is based on their quoted bid price
at the balance sheet date on the exchange on which the investment is quoted,
without deduction for the estimated future selling costs. Unquoted investments
are valued by the Directors at fair value using International Private Equity
and Venture Capital Valuation Guidelines. This policy applies to all current
and non current asset investments of the Company.
Changes in the value of investments held at fair value through profit or loss
and gains and losses on disposal are recognised in the Income Statement as
'Gains on investments held at fair value through profit or loss'. Also included
within this heading are transaction costs in relation to the purchase or sale
of investments.
Amendments to FRS 102 - Fair value hierarchy disclosures amends paragraphs
34.22 and 34.42 of FRS 102, revising the disclosure requirements for financial
instruments held at fair value and aligning the disclosures with those required
by EU?adopted IFRS. The Company has chosen to early adopt these amendments to
FRS 102: however, there were no changes to the classification within the fair
value hierarchy. There are no accounting policy or disclosure changes as a
result of this adoption.
The fair value hierarchy consists of the following three levels:
Level 1 - Quoted market price for identical instruments in active markets
Level 2 - Valuation techniques using observable inputs
Level 3 - Valuation techniques using significant unobservable inputs
(i) Valuation of derivative financial instruments
Derivatives are initially accounted and measured at fair value on the date the
derivative contract is entered into and subsequently measured at fair value.
The gain or loss on re-measurement is taken to the Income Statement. The
sources of the return under the derivative contract (e.g. notional dividends,
financing costs, interest returns and capital charges) are allocated to the
revenue and capital columns of the Income Statement in alignment with the
nature of the underlying source of income and in accordance with the guidance
given in the AIC SORP.
(j) Dividends payable
Under Section 32 of FRS 102, final dividends should not be accrued in the
financial statements unless they have been approved by shareholders before the
balance sheet date.
Dividends payable to equity shareholders are recognised in the Statement of
Changes in Equity when they have been approved by shareholders and have become
a liability of the Company. Interim dividends are only recognised in the
financial statements in the period in which they are paid.
(k) Foreign currency translation
In accordance with Section 30 of FRS 102, the Company is required to nominate a
functional currency, being the currency in which the Company predominantly
operates. The functional and reporting currency is sterling, reflecting the
primary economic environment in which the Company operates. Transactions in
foreign currencies are translated into sterling at the rates of exchange ruling
on the date of the transaction. Foreign currency monetary assets and
liabilities are translated into sterling at the rates of exchange ruling at the
Balance Sheet date. Profits and losses of a capital nature are recognised in
the capital column of the Income Statement and taken to the capital reserve.
Profits and losses of an income nature are recognised in the revenue column of
the Income Statement and taken to the revenue reserve.
(l) Shares repurchased and held in treasury
The full cost of shares repurchased and held in treasury is charged to capital
reserves. Where treasury shares are subsequently reissued, any surplus is taken
to the share premium account.
(m) Debtors
Debtors include sales for future settlement, other debtors and pre-payments and
accrued income in the ordinary course of business. If collection is expected in
one year or less (or in the normal operating cycle of the business if longer),
they are classified as current assets. If not, they are presented as
non-current assets. Debtors are recognised initially at fair value and, where
applicable, subsequently measured at amortised cost using the effective
interest rate method.
(n) Creditors
Creditors include purchases for future settlements, interest payable, share
buyback costs and accruals in the ordinary course of business. Creditors are
classified as creditors - amounts due within one year if payment is due within
one year or less. If not, they are presented as creditors - amounts falling due
after more than one year. Creditors are recognised initially at fair value and,
where applicable, subsequently measured at amortised cost using the effective
interest rate method.
(o) Cash and cash equivalents
Cash comprises cash in hand and demand deposits. Cash equivalents includes bank
overdrafts repayable on demand and short term, highly liquid investments, that
are readily convertible to known amounts of cash and that are subject to an
insignificant risk of changes in value.
3. INCOME
2016 2015
£'000 £'000
Investment Income:
UK listed dividends 6,461 10,619
Overseas listed dividends 3,911 3,522
Fixed interest income 2,871 2,566
Derivative income 9,955 6,317
-------- --------
23,198 23,024
-------- --------
Other income:
-------- --------
Deposit interest 25 77
Underwriting commission 42 19
======== ========
67 96
======== ========
Total 23,265 23,120
======== ========
Special dividends of £642,000 have been recognised in capital and deducted from
investment cost (2015: £364,000).
4. INVESTMENT MANAGEMENT FEES
2016 2015
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Investment management fee - F - - - 287 523 810
&C
Investment management fee - 486 902 1,388 337 636 973
BlackRock
-------- -------- -------- -------- -------- --------
Total 486 902 1,388 624 1,159 1,783
======== ======== ======== ======== ======== ========
The investment management fee is levied at a rate of 0.4% per annum of the
Company's total assets less current liabilities (excluding loans) and is
allocated 65% to the capital column and 35% to the revenue column of the income
statement.
BlackRock waived the management fees payable to the Company up to the level of
transition and restructuring costs, which were estimated to be in the region of
£762,000 for the year ended 30 September 2015. The fees in the above table that
are shown as accrued to BlackRock have been credited to a payables account on
the Company's balance sheet, offsetting amounts debited to the same account in
respect of transition costs. As at 30 September 2016, £28,000 of transition
costs were still outstanding. Adjustments to the waived total costs of £762,000
will be made as and when these accruals are cleared.
The Company has incurred legal and advisory costs in relation to the review of
the Company's investment objective and policy (as announced on 1 August 2016),
which included consideration of a number of factors including the performance
of the investment portfolio, the optimal structure of the Company, the cost of
the Company's debt, the cost of paying the dividend and its discount management
policy. These costs amounted to approximately £193,750 (excluding VAT).
BlackRock has agreed to contribute to these costs to the sum of £83,000 by way
of a fee waiver which has been applied to the management fees invoiced for the
year to 30 September 2016 in the same way as set out above. In addition, the
Company's broker (Cenkos Securities) have agreed to waive the corporate broking
fee of £17,500 for the six months to 30 September 2016 (excluding VAT).
The Company also receives a rebate on the management fees levied on its
underlying investments in other BlackRock managed funds in the normal course of
business to ensure that no double counting occurs. These are recognised on an
accruals basis and are treated as reduction in management fee expense and
allocated between revenue and capital in accordance with the Company's policy
for allocation of management fees. Additional information is given in note 18
in the Annual Report and Financial Statements.
5. OPERATING EXPENSES
2016 2015
£'000 £'000
Taken to revenue:
Custody fee 26 12
Auditor's remuneration:
- statutory audit 44 34
- taxation compliance services 6 1
- other audit services:
Review of Bond compliance certificate 1 1
Review of transition - 5
Review of interim report 7 7
Depositary fees 50 47
Registrar's fees 82 98
Marketing fees 94 107
Directors' emoluments 182 232
Other administrative costs 266 413
-------- --------
758 957
-------- --------
Taken to capital:
Transaction costs 32 24
Other costs 177 -
-------- --------
967 981
-------- --------
The Company's ongoing charges - calculated as a percentage of 0.62% 0.68%
average shareholders' funds and including management fees, operating
expenses, finance costs and taxation were:
-------- --------
6. FINANCE COSTS
2016 2015
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Debt repayable within 5 years
- Revolving advance facility - - - 80 148 228
- Overdraft interest 21 31 52 8 14 22
Debt repayable in more than 5
years
- 6.25% Bonds 2031 1,325 2,461 3,786 1,322 2,454 3,776
-------- -------- -------- -------- -------- --------
1,346 2,492 3,838 1,410 2,616 4,026
======== ======== ======== ======== ======== ========
Finance costs have been allocated in the ratio 35% to revenue and 65% to
capital.
7. DIVIDENDS
2016 2015
Dividends paid on equity Record date Payment date £'000 £'000
shares
- third quarterly dividend of 10 September 2015 9 October 2015 4,583 4,428
1.67p (2014: 1.53p)
- fourth quarterly dividend of 31 December 2015 29 January 2016 4,669 5,465
1.70p (2014: 1.895p)
- first quarterly dividend of 11 March 2016 8 April 2016 4,478 4,326
1.635p (2015: 1.50p)
- second quarterly dividend of 24 June 2016 22 July 2016 4,443 4,817
1.635p (2015: 1.67p)
- unclaimed dividends from - (19)
previous years
18,173 19,017
======== ======== ======= =======
= =
The total dividends payable in respect of the year which form the basis of
determining retained income for the purposes of section 1158 of the Corporation
Tax Act 2010 and section 833 of the Companies Act 2006, and the amounts
proposed meet the relevant requirements as set out in this legislation.
Dividends paid or proposed on equity shares in respect of the 2016 2015
financial year to 30 September 2016: £'000 £'000
First quarterly dividend of 1.635p (2015: 1.50p) 4,478 4,326
Second quarterly dividend of 1.635p (2015: 1.67p) 4,443 4,817
Third quarterly dividend of 1.635p (2015: 1.67p) 4,366 4,583
Fourth quarterly dividend of 1.635p* (2015: 1.70p) 4,366 4,669
-------- --------
17,653 18,395
======== ========
* Based upon 267,037,282 ordinary shares (excluding treasury shares) in issue
on 30 September 2016.
8. EARNINGS AND NET ASSET VALUE PER ORDINARY SHARE
Revenue and capital earnings per share are shown below and have been calculated
using the following:
2016 2015
Net revenue profit attributable to ordinary shareholders (£'000) 20,602 20,163
Net capital loss attributable to ordinary shareholders (£'000) (16,999) (32,873)
-------- --------
Total profit attributable to ordinary shareholders return (£'000) 3,603 (12,710)
-------- --------
Equity shareholders' funds (£'000) 351,521 374,832
-------- --------
The weighted average number of ordinary shares in issue during the 272,290,493 285,283,310
year, on which the earnings per ordinary share was calculated, was:
-------- --------
The actual number of ordinary shares in issue at the year end, on 267,037,282 274,437,282
which the net asset value per ordinary share was calculated, was:
-------- --------
The number of ordinary shares in issue, including treasury shares, 291,112,282 291,112,282
at the year end, was:
-------- --------
2016 2015
Revenue Capital Total Revenue Capital Total
pence pence pence pence pence pence
Earnings per share
Calculated on weighted average 7.56 (6.24) 1.32 7.07 (11.52) (4.45)
number of ordinary shares
Calculated on actual number of 7.72 (6.37) 1.35 7.35 (11.98) (4.63)
ordinary shares at 30
September
Net asset value per share 131.64 136.58
(Bonds at par value)
======= ======= ======= ======= ======= =======
= = = = = =
Net asset value per share 123.62 131.00
(Bonds at market value)*
======= ======= ======= ======= ======= =======
= = = = = =
* The fair value of the 6.25% Bond using the last available quoted offer
price from the London Stock Exchange as at 30 September 2016 was 135.02p per
bond, a total of £81,010,000 (30 September 2015: 124.84p, a total of £
74,904,000).
9. CALLED UP SHARE CAPITAL
Ordinary Treasury Total
shares shares shares
(number) (number) (number) £'000
Allotted, called up and fully paid share capital
comprised:
Ordinary shares of 25p each
-------- -------- -------- --------
At 30 September 2015 274,437,282 16,675,000 291,112,282 72,778
-------- -------- -------- --------
Shares purchased and held in treasury (7,600,000) 7,600,000 - -
Shares issued from treasury 200,000 (200,000) - -
-------- -------- -------- --------
At 30 September 2016 267,037,282 24,075,000 291,112,282 72,778
======== ======== ======== ========
During the year 7,600,000 ordinary shares were purchased and held in treasury
(2015: 14,975,000) for a consideration of £8,934,698 (excluding stamp duty).
200,000 shares were re-issued from treasury (2015: nil) for a consideration of
£271,200. The number of ordinary shares issued at the year end, excluding
treasury shares, was 267,037,282.
The ordinary shares (excluding any shares held in treasury) carry the right to
receive any dividends and have one voting right per ordinary share. There are
no restrictions on the voting rights of the ordinary shares or on the transfer
of ordinary shares.
10. TRANSACTIONS WITH THE INVESTMENT MANAGER AND AIFM
BlackRock Fund Managers Limited (BFM) was appointed as the Company's AIFM with
effect from 27 February 2015. BFM provides management and administrative
services to the Company under a contract which is terminable on six months
notice. BFM has (with the Company's consent) delegated certain portfolio and
risk management services and other ancillary services, to BlackRock Investment
Management (UK) limited (BIM (UK)). Further details of the investment
management contract are disclosed in the Directors' Report on pages 29 and 30
of the Annual Report and Financial Statements.
The management fee for the year was £1,388,000 (2015: £1,783,000 of which £
810,000 was recognised as earned by F&C), as disclosed in note 4 to the
Financial Statements on page 57 of the Annual Report and Financial Statements.
At the year end, an amount of £656,000 was outstanding in respect of these fees
(2015: £227,000).
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
year ended 30 September 2016 amounted to £94,000 including VAT (2015: £107,000)
of which £86,000 was outstanding at year end (2015: £107,000).
The Company also has investments in several funds managed by BlackRock and
details of the amounts invested as at 30 September 2016 are set out in the
table below. As disclosed in note 4 on page 57 of the Annual Report and
Financial Statements, management fees may be levied on some of these
investments. To the extent that any such management fees have been charged in
respect of these holdings, the Company is rebated these management fees on a
regular basis to ensure that no double charging occurs. For the year to 30
September 2016, fees of £289,000 were levied in respect of these funds and were
rebated in full to the Company (2015: £180,000).
Value at
Fund 30 September 30 September
2016 2015
£'000 £'000
iShares Core GBP Corporate Bond Fund 29,264 4,997
iShares Gold Trust 26,658 -
BGF Global Corporate Bond Fund 25,844 23,782
BlackRock Impact World Equity Fund 16,386 22,881
BlackRock Throgmorton Trust 10,456 10,315
BGF Emerging Markets Equity Income Fund 8,785 6,372
MAS Mortgage Holdings 8,721 -
iShares Physical Gold 4,874 -
iShares UK Property 4,354 -
BGF ASEAN Leaders Fund 2,553 1,760
BlackRock's Institutional Cash Series plc - Sterling Liquidity 1,248 57,637
Fund
BGF Asian Dragon Fund - 4,076
-------- --------
Total 139,143 131,820
======== ========
11. RELATED PARTIES DISCLOSURES
Disclosures of the Directors' interests in the ordinary shares of the Company
and fees and expenses payable to the Directors are given in the Directors'
Remuneration Report on pages 33 and 34 of the Annual Report and Financial
Statements.
DIRECTORS' REMUNERATION IMPLEMENTATION REPORT
A single figure for total remuneration of each Director is set out in the table
below for the year ended 30 September 2016:
Year ended Year ended
30 September 2016 30 September 2015
Payments for
additional
Base Taxable Base transition Taxable
Salary Benefits1 Total Salary work Benefits1 Total
£ £ £ £ £ £ £
James Long 41,250 - 41,250 35,188 13,875 713 49,776
(Chairman)2
Ian Russell2 28,250 7,177 35,427 26,083 11,875 8,523 46,481
Jimmy West 26,250 1,380 27,630 25,750 12,875 1,356 39,981
Lynn Ruddick3 24,250 4,532 28,782 30,729 20,250 4,452 55,431
Jim Grover 24,250 - 24,250 23,750 11,875 - 35,625
Julian Sinclair4 24,250 38 24,288 4,620 - - 4,620
-------- -------- -------- -------- -------- -------- --------
Total 168, 500 13,127 181,627 146,120 70,750 15,044 231,914
======== ======== ======== ======== ======== ======== ========
1 Taxable benefits relate to travel and subsistence costs.
2 James Long was Audit Committee Chairman up until 26 February 2015, when he
was appointed Chairman of the Company. Ian Russell took over the role of Audit
Committee Chairman on 27 February 2015.
3 Lynn Ruddick stood down as Chairman of the Company on 26 February 2015.
4 Appointed a non-executive Director on 21 July 2015.
The information in the above table has been audited. The amounts paid by the
Company to the Directors were for services as non-executive Directors.
At 30 September 2016, fees of £Nil (2015: £14,000) were outstanding to
Directors in respect of their annual fees.
DIRECTORS' SHAREHOLDINGS
The interests of the Directors in the ordinary shares of the Company at 30
September 2016 are set out in the table below. None of the Directors has an
interest in any share options in the Company.
2016 2015
James Long (Chairman)1 38,914 29,802
Ian Russell2 27,500 27,500
Jimmy West 63,400 63,400
Lynn Ruddick3 - beneficial 165,598 165,482
- non-beneficial 7,041 6,874
Jim Grover 27,500 27,500
Julian Sinclair4 36,200 36,200
======== ========
1 Appointed Chairman with effect from 27 February 2015; previously Audit
Committee Chairman.
2 Appointed Chairman of the Audit Committee with effect from 27 February 2015.
3 Ms Ruddick was Chairman up to 26 February 2015. Her holding includes 63,290
shares held by Ms Ruddick's husband, Mr Dewar.
4 Appointed a non-executive Director on 21 July 2015.
The information in the table above has been audited. The amounts paid by the
Company to the Directors were for services as non-executive Directors.
Subsequent to the year end, Mr Long purchased an additional 562 shares (as part
of a dividend reinvestment plan), bringing his total holding to 39,476 shares.
Ms Ruddick purchased an additional 103 shares (as part of a dividend
reinvestment plan), bringing her total beneficial holding to 165,598 shares and
non-beneficial holding to 7,144 shares.
All of the holdings of the Directors are beneficial unless otherwise disclosed.
No changes to these holdings have been notified up to the date of this report.
No Director had an interest in the Company's 6.25% Bonds 2031 during the year
ended 30 September 2016 or has acquired an interest since the year end.
12. COMMITMENTS AND CONTINGENT LIABILITIES
At 30 September 2016, the Company had commitments of £21,500,000 of which £
18,006,000 remained outstanding (2015: nil). Further details are given below.
There were no contingent liabilities as at 30 September 2016 (2015: Nil).
The Company had a commitment of £4,500,000 in respect of an investment in
Forward Partners 1, of which £3,494,000 was drawn down as at 30 September 2016.
A further £47,000 has subsequently been drawn down since the year end, leaving
a further liability of £959,000 outstanding.
The Company had a commitment of £8,500,000 in respect of an investment in
BlackRock Infrastructure Funds plc - Renewable Income UK Sub Fund, of which £
nil was drawn down as at 30 September 2016. Since the year end, £3,211,000 has
been drawn down, leaving a further liability of £5,289,000 outstanding.
The Company had a commitment of £8,500,000 in respect of an investment in
Cheyne Social Property Impact Holdings LP, of which £nil was drawn down as at
30 September 2016 and to date, leaving a liability of £8,500,000 outstanding.
13. PUBLICATION OF NON STATUTORY ACCOUNTS
The financial information contained in this announcement does not constitute
statutory accounts as defined in the Companies Act 2006. The Annual Report and
Financial Statements for the year ended 30 September 2016 will be filed with
the Registrar of Companies after the Annual General Meeting.
The figures set out above have been reported upon by the auditor, whose report
for the year ended 30 September 2016 contains no qualification or statement
under section 498(2) or (3) of the Companies Act 2006.
The comparative figures are extracts from the audited financial statements of
BlackRock Income Strategies Trust plc for the year ended 30 September 2015,
which have been filed with the Registrar of Companies. The report of the
auditor on those financial statements contained no qualification or statement
under section 498 of the Companies Act 2006.
14. ANNUAL REPORT AND FINANCIAL STATEMENTS
Copies of the Annual Report and Financial Statements will be published shortly
and will be available from the Company Secretary, BlackRock Income Strategies
Trust plc, 12 Throgmorton Avenue, London EC2N 2DL.
15. ANNUAL GENERAL MEETING
The Annual General Meeting of the Company will be held at Drapers' Hall,
Throgmorton Avenue, London EC2N 2DQ on Thursday, 30 March 2017.
ENDS
The Annual Report and Financial Statements will also be available on the
BlackRock website at www.blackrock.co.uk/bist. Neither the contents of the
Manager's website nor the contents of any website accessible from hyperlinks on
the Manager's website (or any other website) is incorporated into, or forms
part of, this announcement.
For further information, please contact:
Mark Johnson, Managing Director, Investment Trusts, BlackRock Investment
Management (UK) Limited
Tel: 020 7743 2300
Adam Ryan, BlackRock Investment Management (UK) Limited
Tel: 020 7743 2761
Press enquiries:
Lucy Horne, Lansons Communications - Tel: 020 7294 3689
E-mail: lucyh@lansons.com
26 January 2017
12 Throgmorton Avenue
London EC2N 2DL
BLACKROCK INCOME STRATEGIES TRUST : Final Results
January 26, 2017 at 04:47 pm
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