TIDMBERI
BLACKROCK ENERGY AND RESOURCES INCOME TRUST PLC (LEI:54930040ALEAVPMMDC31)
HALF YEARLY FINANCIAL REPORT FOR THE SIX MONTHSED 31 MAY 2022
PERFORMANCE RECORD
As at As at
31 May 30 November
2022 2021
Net assets (£'000)1 179,542 120,828
Net asset value per ordinary share (pence) 138.60 103.97
Ordinary share price (mid-market) (pence) 142.00 96.70
Premium/(discount) to net asset value2 2.5% (7.0%)
--------------- ---------------
Performance (with dividends reinvested)
Net asset value per share2 35.9% 34.4%
Ordinary share price2 49.7% 41.7%
========= =========
For the For the
six months six months
ended ended
31 May 31 May Change
2022 2021 %
Revenue
Net profit on ordinary activities after taxation (£'000) 2,965 2,356 +25.8
Revenue earnings per ordinary share (pence)3 2.42 2.07 +16.9
--------------- --------------- ---------------
Interim dividends (pence)
1st interim 1.10 1.00 +10.0
2nd interim4 1.10 1.00 +10.0
Total dividends paid/payable 2.20 2.00 +10.0
========= ========= =========
1 The change in net assets reflects market movements, the issue and reissue
of shares and dividends paid during the period.
2 Alternative Performance Measures, see Glossary included within the Half
Yearly Financial Report (which can be found on the Company's website at
www.blackrock.com/uk/beri).
3 Further details are given in the Glossary included within the Half Yearly
Financial Report (which can be found on the Company's website at
www.blackrock.com/uk/beri).
4 Paid on 15 July 2022.
CHAIRMAN'S STATEMENT
Firstly, as this is my first report to you since taking over as Chairman in
March this year, I would like to say how excited I am to be taking on the role
at a time of such opportunity for your Company - both from the short-term
supply pressures, but also, more importantly, from the longer, secular
opportunity presented by the energy transition. My fellow Board members and I
believe that the Company is well-positioned to take advantage of this for
shareholders, and, at the same time, to support the transition to a more
sustainable energy economy. I would also like to take this opportunity to thank
my predecessor, Ed Warner, for his many years of excellent service, and for
leaving the Company with the solid base and clear direction, from which we can
all now look forward with confidence. We wish him well.
MARKET OVERVIEW
As the Company's financial year began on 1 December 2021, markets were buoyant
with many major indices achieving either all-time highs or pre-COVID-19 levels.
However, supply constraints coupled with increasing demand as post-COVID-19
economic activity restarted, caused inflation to rise sharply. An already
challenging market environment was exacerbated by Russia's invasion of Ukraine
and the resulting humanitarian crisis. The energy supply shock that resulted
drove energy prices ever higher, pushing inflation to a 40 year high of 9.4% in
the UK in June 2022.
Against this backdrop, the Traditional Energy sector had the strongest start to
the year in both relative and absolute terms (the MSCI World Energy Index was
up by 51.6% over the period compared to an increase in the MSCI ACWI Metals and
Mining Index of 12.7% - both in US Dollar terms with dividends reinvested). In
contrast the Energy Transition portion of the portfolio performed less well as
margins were impacted by cost inflation and a "growth" to "value" rotation
drove a sell-off in share prices in high growth sectors. Your Company's
portfolio was well-positioned to weather these trends, as the portfolio
managers increased Traditional Energy exposure through 2021 and into 2022 to
stand at 41.0% at the end of the period, and moved to lower weighting in the
Energy Transition sector (21.1% at 31 May 2022).
PERFORMANCE
During the six months ended 31 May 2022, the Company's net asset value (NAV)
per share rose by 35.9% and its share price rose by 49.7% (both percentages in
Sterling terms with dividends reinvested). Although the Company does not have a
formal benchmark, to set this in the context of the market backdrop, the EMIX
Global Mining (ex Gold) Index rose by 5.1% and the MSCI World Energy Index rose
by 59.1% over the same period (both percentages in Sterling terms with
dividends reinvested). The Company had 21.1% of its portfolio invested in
stocks with exposure to the Energy Transition sector and the decarbonisation of
the energy supply chain as at 31 May 2022. There is no reference index that
currently reflects the composition of the investment universe for this sector,
but for illustrative purposes, the S&P Global Clean Energy Index decreased by
10.5% and the Wilderhill Clean Energy Index decreased by 34.2% over the same
period (both in Sterling terms with dividends reinvested).
The Board does not formally benchmark the Company's performance against Mining
and Energy sector indices because meeting a specific dividend target is not
within the scope of these indices and also because no index appropriately
reflects the Company's blended exposure to the Energy (including the Energy
Transition) and Mining sectors. For internal monitoring purposes, however, the
Board compares the performance of the portfolio against a bespoke internal
Mining and Energy composite index.
The neutral sector weightings of this bespoke index are 40% Mining, 30%
Traditional Energy and 30% Energy Transition.
Further information on investment performance is given in the Investment
Managers' Report.
REVENUE RETURN AND DIVIDS
The Company's revenue return per share for the six-month period was 2.42 pence
per share, an increase of 16.9% over the same period last year (the revenue
return for the six months to 31 May 2021 was 2.07 pence per share). The Board's
current target is to declare quarterly dividends of at least 1.10 pence per
share in the year to 30 November 2022, making a total of at least 4.40 pence
per share for the year as a whole. This target represents a yield of 3.1% based
on the share price of 142.00 pence per share as at 31 May 2022, and 3.8% based
on the share price at the close of business on 2 August 2022.
The first quarterly interim dividend of 1.10 pence per share was paid on 21
April 2022 and the second quarterly interim dividend of 1.10 pence per share
was paid on 15 July 2022 (three quarterly interim dividends each of 1.00 pence
per share and one quarterly dividend of 1.10 pence per share were paid in the
twelve months ended 30 November 2021).
The Company may also write options to generate revenue return, although the
portfolio managers' focus is on investing the portfolio to generate an optimal
level of total return without striving to meet an annual income target.
Consequently, they will only enter into option transactions with the intention
that the overall contribution is beneficial to total return.
GEARING
The Company operates a flexible gearing policy which depends on prevailing
market conditions. It is not intended that gearing will exceed 20% of the gross
assets of the Company. The maximum gearing used during the period was 12.3%,
and the level of gearing at 31 May 2022 was 8.5%. For calculations, see the
Glossary included within the Half Yearly Financial Report (which can be found
on the Company's website at www.blackrock.com/uk/beri).
MANAGEMENT OF SHARE RATING
The Directors recognise the importance to investors that the Company's share
price should not trade at a significant premium or discount to NAV, and
therefore, in normal market conditions, may use the Company's share buyback,
sale of shares from treasury and share issuance powers to ensure that the share
price is broadly in line with the underlying NAV.
The Company's shares started the period under review trading at a discount of
7.0%; this widened to 9.2% in December but subsequently the shares moved to
trade fairly consistently at a premium from January 2022 to the end of the
period under review. To manage the premium, the Company sold all of its
treasury shares and issued new shares into market demand in 2022. Over the
period under review, the Company issued/sold 13,322,034 shares (2,747,643 from
treasury) for net proceeds of £16,357,000. At the Company's annual general
meeting held on 15 March 2022, the Company was granted authority to allot up to
11,859,336 shares and/or sell the same amount of shares held in treasury on a
non-pre-emptive basis (being equivalent to 10 per cent of share capital in
issue at that time). However, given the ongoing volume of demand, the Board
decided in April to seek additional authority to allot and/or sell from
treasury a further 12,844,039 ordinary shares on a non-pre-emptive basis. This
action was taken to ensure that the Company could continue to be able to allot
new shares to meet market demand and thereby help to manage the premium to NAV
at which the shares were trading. The additional authority was approved by
shareholders at a General Meeting of the Company held on 26 May 2022. I am
pleased to note that, subsequent to the period end, on 17 June 2022 the Company
was promoted from the FTSE Fledgling Index into the FTSE Small Cap Index (and
also therefore the FTSE All Share Index) which generated additional demand,
with a further 4.8 million shares being issued in June 2022 for net proceeds of
£6.4 million. Unfortunately markets corrected again in late June as fears over
the potential recessionary impact of central banks' reaction to inflation
pressures took hold; this volatility created challenges for many investment
companies with the average discount for the sector widening significantly. With
the Company's shares moving back to trading at a discount in the latter part of
June, the Board has monitored the market throughout and, in conjunction with
the Company's broker, has given consideration to the possibility of buying back
shares on a daily basis. As at 2 August 2022 the Company's shares are trading
at a discount of 5.1%.
PLACING PROGRAMME
As well as seeking authority to issue an additional 12,844,039 shares as
described above, the Board also sought authority at the general meeting on 26
May 2022 to allot on a non-pre-emptive basis up to 65 million ordinary shares
pursuant to a Placing Programme (which would only proceed with the publication
of a prospectus, if appropriate, in due course). The Board took this step to
ensure that the Company was not constrained in its ability to issue new shares
to meet demand. Under normal circumstances, a company is required to publish a
prospectus in order for its securities to be admitted to a regulated market;
however, the Prospectus Regulation Rules provide an exemption from this
requirement if less than 20% of a company's share capital is issued over a
rolling twelve month period. The Company currently has 134,356,194 shares in
issue and can therefore issue 26,871,238 shares over a rolling twelve month
period before a new prospectus is required. As at 2 August 2022, the Company
has remaining the capacity to issue 11,481,044 shares under this exemption.
Depending on the level of market demand for the Company's shares over the
coming months, it is possible that issuance may exceed the 20% limit before the
end of the year. In this event, the Board would anticipate needing to publish a
prospectus to support continued share issuance.
In taking these steps to ensure that the Company can continue to issue shares
into market demand, the Board notes that all share issues have been and will
continue to be made at premiums to the prevailing NAV per share, such that all
such transactions are accretive to the NAV and NAV per share so that existing
shareholders are protected from any value/economic dilution.
MARKET OUTLOOK & PORTFOLIO POSITIONING
As market concerns over the rising risks of recession saw a pullback in
commodity prices in recent weeks, the Company's NAV per share has fallen by
11.1% since the end of the period under review (up until the close of business
on 2 August 2022). The share price fell by 17.6% over the same time frame (all
calculations with dividends reinvested).
With the impact of the COVID-19 pandemic receding, the longer-term implications
for the global economy are beginning to play out, compounded by increased
geopolitical tensions. Commodity prices remain elevated, partly due to the war
in Ukraine and the continued sanctions on Russia, while labour markets remain
tight, underpinning higher inflation trends in the US and Europe. This has put
increasing pressure on central banks to raise interest rates, increasing the
risks to economic growth. However, either way, it is likely that inflation
remains entrenched above central bank targets for some time to come.
Against this volatile and uncertain market backdrop, the flexibility of the
Company's investment mandate, with the ability to shift exposure between
Traditional Energy, Energy Transition and Mining sectors, means that it is
uniquely positioned to serve investors well. Despite the current uncertainty,
the longer-term drive by governments across the globe to decarbonise the energy
supply chain and create a greener energy infrastructure is here to stay and has
been given increased focus by the events in Ukraine. Over the long term,
capital investment in the relevant infrastructure and technological advances
will create compelling investment opportunities both in the Energy Transition
sector and for the companies that service the associated supply chains. The
Board is confident that the Company remains well-placed to benefit from these
key investment trends.
ADRIAN BROWN
Chairman
4 August 2022
INVESTMENT MANAGERS' REPORT
MARKET OVERVIEW
The first half of 2022 has been an extraordinary six months for commodity
markets, commodity producers and for the future of global energy. Broader
equity markets have had to come to terms with the pivot to a rising interest
rate environment, and the resulting rotation in equity markets away from growth
stocks towards value has been a significant driver of positive returns for the
Company's portfolio. The Traditional Energy sector has had the strongest start
seen to a year since the MSCI World Energy Index was launched in 1996, in both
absolute terms and relative to other sectors in the market. The Company's
portfolio has been well positioned to capture this, having increased
Traditional Energy exposure through 2021 as we saw an increasingly attractive
outlook for oil and gas markets and a sector full of companies that are focused
on shareholder returns. Later in the report we will detail where we have seen
the best returns and how we see the energy market evolving from here, as well
as the implications for the shape and speed of the energy transition.
The last six months have also seen the resurgence of inflation. We have
commented in previous reports and presentations that we believed inflation
would be higher and more persistent than markets were anticipating. The
underinvestment in many primary industries has resulted in raw materials and
energy supply struggling to keep pace with demand and left markets vulnerable
to any disruptions to supply. Europe has been at the epicentre of this recently
- a summer in 2021 with little wind across Europe led to gas inventories being
meaningfully lower than usual going into the winter. The resulting gas price
spikes and electricity price spikes have sent shockwaves through industrial and
residential consumers and have been a key driver of inflation in Europe.
Although inflation may ease from the very high rates we are currently
experiencing, we think we have entered a 'higher for longer' inflation regime
and that carefully considered investments in the energy and materials space can
be additive to investment portfolios.
It would also be remiss not to mention the impact the war in Ukraine has had on
energy and commodity markets. The chart on page 9 of the Half Yearly Financial
Report shows how important the three countries at the centre of the war are to
the global commodity supply mix. There are some commodities - in particular
fertilisers such as potash - where the supply-demand dynamic globally has been
altered in a significant way. Much of the production of potash from Belarus and
Russia has been shut down, driving prices higher and threatening availability
of product in some countries. However, for other commodities, including oil,
the conflict and the sanctions imposed on Russia have not changed the overall
supply situation but have meaningfully shifted the patterns of global trade in
these commodities. The longer-term impacts of the war and the policy response
to it are probably only going to become clear later this year. Key to this will
be the European (and - to a lesser extent - US) decisions on Russian gas, where
there could very well be a trade-off decision needed by politicians in terms of
energy cost in Europe versus impact on Russia/Russian interests.
What has become increasingly obvious over the last six months is the need for
greater energy security in Europe in terms of reliability of energy supply, and
at a price point that does not negatively impact consumers and industry in the
way recent energy costs have done.
2022 on
2021
Average
Price %
Change
31 May 30 (Average
Commodity 2022 November % of 30/11/
2021 change 20-
31/05/21
to
30/11/
21-
31/05/22)
Base Metals (US$/tonne)
Aluminium 2,758 2,635 4.7 42.1
Copper 9,446 9,516 -0.7 12.4
Lead 2,174 2,318 -6.2 12.9
Nickel 28,344 20,005 41.7 59.9
Tin 34,935 39,905 -12.5 60.1
Zinc 3,939 3,289 19.8 35.0
======== ========= ======== =========
= =
Precious Metals (US$/ounce)
Gold 1,845.1 1,780.1 3.7 3.1
Silver 21.8 22.8 -4.4 -10.0
Platinum 963.0 944.0 2.0 -13.9
Palladium 2,032.0 1,767.0 15.0 -13.5
======== ========= ======== =========
= =
Energy
Oil (West Texas Intermediate) (US$/barrel) 114.7 66.2 73.3 63.5
Oil (Brent) (US$/barrel) 125.5 70.6 77.8 62.5
Natural Gas (US$/Metric Million British Thermal 8.5 4.6 84.8 74.2
Unit)
======== ========= ======== =========
= =
Bulk Commodities (US$/tonne)
Iron ore 138.5 100.0 38.5 -22.1
Coking coal 434.0 317.5 36.7 236.6
Thermal coal 427.0 152.0 180.9 209.6
======== ========= ======== =========
= =
Equity Indices
MSCI ACWI1 Metals & Mining Index (US$) 403.0 357.7 12.7 n/a
MSCI ACWI1 Metals & Mining Index (£) 321.9 270.4 19.0 n/a
MSCI2 World Energy Index (US$) 448.0 295.6 51.6 n/a
MSCI2 World Energy Index (£) 591.4 371.8 59.1 n/a
======== ========= ======== =========
= =
Source: Datastream, May 2022.
1 Morgan Stanley Capital International All Country Weighted Index.
2 Morgan Stanley Capital International.
PORTFOLIO ACTIVITY AND INVESTMENT PERFORMANCE
The first half of 2022 was very strong from a performance perspective with the
Company's NAV per share increasing 35.9% (in Sterling terms with dividends
reinvested) from 103.97 pence per share to 138.60 pence per share. During the
period, the Company's shares often traded at a premium to its NAV, which
enabled the issuance of 10,574,391 million new shares and 2,747,643 treasury
shares.
The key driver of the portfolio's strong performance over the six months was
the holdings in Traditional Energy companies, where some of the best
performance came from our holdings in Canadian natural gas companies (for
example Cenovus Energy and Tourmaline Oil) as well as the US Exploration &
Production holdings. The other main contributor to performance was the stock
selection in the Mining sector. Glencore performed well relative to other
mining stocks as its trading business outperformed expectations and the company
continued to focus on shareholder returns via buybacks. The portfolio's holding
in a major lithium company - Sociedad Química y Minera - also added to
performance as the lithium price strength drove significant earnings upgrades
for the company. There were some holdings that performed less well during the
period, notably the Energy Transition focused industrial companies (for example
Schneider Electric) and wind turbine manufacturers such as Vestas Wind.
Although the outlook for their end markets remains robust and may well improve
with the focus on energy cost and security, in the short term these companies
have struggled with cost inflation. This is something new for many parts of the
Energy Transition sector and we think the market is still underestimating the
inflation impact on margins, hence we are holding a lower weight in Energy
Transition companies compared to Traditional Energy at this point.
The shape of the portfolio from a Mining, Traditional Energy and Energy
Transition standpoint remained fairly consistent during the first half of the
year. As the portfolio positioning chart on page 11 of the Half Yearly
Financial Report shows, we continued to have greater exposure to Traditional
Energy than Energy Transition. As articulated above, whilst we continue to be
excited about the growth of renewable generation and many industries related to
the Energy Transition, there are margin headwinds in the current inflationary
environment that we think are not fully factored into share prices/valuations.
On the Mining side, we scaled back our positions in comparison to much of 2021
given the challenging demand situation in China, which is described in greater
detail in the Mining section below.
Within the sectors, we made changes during the six months as we reacted to what
were often rapidly changing market conditions. One of the most notable of these
changes was to increase our refining exposure on the Traditional Energy side as
refining margins increased to historically high levels. With strong product
demand and very little investment in new refining capacity, we think the
outlook for this sub-sector is stronger than is currently reflected in current
market valuations.
INCOME
The income outlook continues in the theme of the last few reports - despite the
persistent strong commodity price environment, companies in the Traditional
Energy sector and Mining sector have once again prioritised returns to
shareholders with numerous dividend increases and share buybacks announced
across the portfolio's holdings. Given the remuneration incentives in place for
most management teams, we would expect to see this behaviour continue unless
there is a significant negative shock to earnings/cashflow.
Option income was modest during the first half of the year with option premium
accounting for a small percentage of overall income. Following the end of the
first half, volatility increased and with the correction in markets a broader
opportunity set for selling put options emerged, so some attractive income was
generated.
Following last years' strong performance by the Traditional Energy sector (+18%
versus MSCI ACWI World Index in calendar year 2021), the Traditional Energy
sector posted its strongest start to any year since the indices started trading
in 1996 (+47% versus MSCI ACWI World Index through 31 May 2022, see the chart
on page 12 of the Half Yearly Financial Report (which can be found on the
Company's website at www.blackrock.com/uk/beri)).
PORTFOLIO POSITIONING
Whilst record high commodity prices certainly contributed to the
outperformance, a notable shift in US Federal Reserve (Fed) policy towards
quantitative tightening saw a significant shift from growth to value stocks as
real interest rates turned firmly positive for the first time since early 2019
(see the chart on page 13 of the Half Yearly Financial Report (which can be
found on the Company's website at www.blackrock.com/uk/beri)). The Company saw
strong performance from its holdings in natural gas-exposed and refining
companies during the period - two themes which look likely to persist in the
months ahead.
In last year's Annual Report, we outlined a number of key themes that we
expected to shape 2022. On the one hand, a steadily improving global economy
would drive demand recovery in traditional resources sectors. With an overlay
of continued capital discipline, supply would struggle to respond to rising
demand, driving commodity prices higher in order to rebalance markets.
Moreover, logistical tightness would press even harder on inflation leaving
many of the Energy Transition sectors facing margin and growth pressure.
The most important event in the period was Russia's late-February invasion of
Ukraine. Since Russia exports a considerable amount of oil, gas and oil
products, metals and food to Europe and North Africa the threat of curtailment
of any or all of these key resources has undoubtedly catalysed higher prices in
the first half of the year. The response of many countries to the invasion was
swift and primarily directed at choking back the flow of remittances to Russia
in an effort to combat its efforts in Ukraine. The resultant rise in commodity
prices has been sharp and broad with US retail gasoline prices surpassing the
highs seen during the 2008-09 global financial crisis (see the chart on page 13
of the Half Yearly Financial Report) causing a cost-of-living crisis not seen
since the 1980s, when we last had a major commodity-driven economic slowdown.
The longer-term implications of record high energy prices have placed
security-of-supply at the top of policy makers' agendas. Europe in particular
has put in place a bold plan to permanently wean itself off Russian energy
imports - something it expects to achieve before the end of the decade. Whilst
crude oil and oil products are readily fungible in a global market (and we have
seen Russian seaborne crudes reroute from Europe to Asia in particular),
natural gas is much harder to replace. It is here that Europe will struggle to
meet its ambitions to replace some 150 billion cubic metres (bcm) of annual
Russian gas imports. New gas supply will need to be sourced from an already
tight global gas market and policy makers may find that new sources present new
geopolitical risks. Added to this, Germany has no harbour as yet capable of
receiving liquefied natural gas.
ENERGY TRANSITION
High and volatile energy prices have made their presence felt globally. Record
oil and natural gas prices have fed into regional power and carbon markets
driving up energy bills for the end-consumer. Combined with rising interest
rates, record high energy bills are squeezing the consumer and policy makers
have reacted with planned, and in some cases implemented, short-term price caps
in many jurisdictions. Energy providers, particularly utility companies, have
subsequently underperformed in part due to market concerns over windfall taxes
(see the chart on page 14 of the Half Yearly Financial Report (which can be
found on the Company's website at www.blackrock.com/uk/beri)). Elsewhere,
persistent supply-chain bottlenecks (materials and skilled labour) are
hampering the build out of renewables capacity across the globe - with the S&P
Global Clean Energy Index sharply underperforming the MSCI ACWI Energy Index
through since the start of this year (see the chart on page 14 of the Half
Yearly Financial Report (which can be found on the Company's website at
www.blackrock.com/uk/beri)). Solar stocks in the United States were also
negatively impacted by the announcement of an anti-dumping case in March which
is seeking to prevent 'cheap' solar panel imports from overseas suppliers.
During the period, the Company reduced its exposure to European utilities and
solar stocks as high-power prices attracted windfall taxes (real and planned)
and logistics inflation hampered margins for the latter group.
During 2020, Europe relied on Russia for more than one quarter of its oil, 40%
of its natural gas and almost half of its thermal coal imports. Not surprising
then that, following the invasion of Ukraine, policy makers have announced
sweeping changes to wean the bloc off Russian energy imports by 2027. European
Commission (EC) President Ursula von der Leyen announced the REPowerEU plan in
mid-May. The plan will rely on four broad areas: energy efficiency, energy
diversification, acceleration of renewables and smart grid investments. The
plan seeks to double solar capacity by 2025 (from prior planned levels) as well
as doubling the rate of deployment of heat pumps - both positive long-term
tailwinds for renewables. The EC also proposed bold new plans to target 20mnt
of renewable hydrogen, almost four times the amount initially envisaged under
the Fit For 55 plan.
Whilst the outlook for renewables investments has undoubtedly improved under
this new plan, the outlook for traditional energy sources has been boosted too.
In order to replace existing Russian gas supplies (circa 155bcm in 2021) Europe
will need to source liquefied natural gas (LNG) imports from regions such as
North America and the Middle East. With limited growth expected in the near
term from new LNG projects, this should serve to keep global gas markets
tighter for longer.
MINING
The first half of the year saw great dispersion in the returns across various
mined commodities and, as a result, high dispersion in the returns of mining
company shares. The mined commodities with the closest links to the energy
market - thermal coal and aluminium (given the high percentage of operating
costs that are electricity) - were the standout performers. Aluminium did give
back some of the gains towards the end of the period as the market grew nervous
of potential Chinese supply recovery. However the average price for the
six-month period was still very impressive versus the same period in 2021.
Thermal coal prices increased by almost two hundred percent, as power producers
globally scrambled for raw materials on the back of gas shortages. Whilst we
would not expect these truly exceptional prices to be maintained for any length
of time, the lack of capital investment into coal mining has left the industry
unable to bring on any supply even in extreme situations - this lack of price
elasticity of supply can result in sharp, short term, price rises such as those
we are seeing currently. This may occur in other commodities going forward
where under investment in maintaining or growing supply has also been
occurring. We do not own dedicated thermal coal companies in the portfolio;
however, the Company's largest holding - Glencore - is a major producer of
mined commodities including thermal coal and so has benefited to some degree
from the price levels and volatility. The company has outlined a responsible
plan to run down its coal reserves - allowing its customers to transition away
from coal in a controlled manner and allowing them to operate the assets to the
highest safety and environmental standards.
The mined commodities have suffered supply issues through the last six months
as a result of short-term factors - Russia/Ukraine - and longer ones - lack of
investment in maintenance/growth capital. On the former, the impacts on prices
have been less significant than perhaps expected, as either sanctions have not
been applied to metals such as palladium, or trade flows have adapted quickly
to divert material to countries with fewer or no sanctions on Russia. The
longer-term issue of underinvestment in new supply and, in some cases,
insufficient investment in maintenance capital, has started to show itself in a
selection of data releases. For example, Chile's copper production year to date
is down around 8% versus 2021 - this was blamed on COVID-19 disruptions in the
initial months, but even after that wave passed, the production weakness has
remained. Why has this type of production disruption not resulted in even
stronger pricing? Whilst the market's - and our - excitement about future
metals demand growth being driven by decarbonisation spend remains, we have to
remember that China still accounts today for around half of all metals demand.
The problems in China's real estate sector, that we discussed in the 2021
Annual Report, continue to be an obstacle to the recovery in private sector
activity in the country. However, an equally large factor is the country's
zero-COVID-19 policy that has meant it has been almost impossible for commodity
intensive economic activity to restart in earnest. We had been expecting
infrastructure spend - driven by government stimulus - to accelerate in the
first half of 2022 but this now looks unlikely to occur until the latter part
of the year at best. This dynamic has been the key driver in us tempering the
near-term enthusiasm for mining companies in the portfolio - hence ending the
period with the lowest percentage of the portfolio invested in the sector for
over three years.
There are some bright spots near-term in the Mining space - lithium, for
example, continues to experience a significant imbalance of supply versus
demand, which has resulted in very strong upward price moves in the last twelve
months. Even though there is investment into new lithium mines and processing
facilities, there is a high probability that the supply delivered to the market
in the next 3-5 years will be insufficient to meet the needs of a rapidly
growing electric vehicle (EV) market and energy storage sector. We therefore
believe prices will remain stubbornly high and material availability could be
the major constraining factor on the pace of change in these sectors. Such is
the level of concern from lithium consumers on this that, subsequent to the end
of the half year, Stellantis (the listed parent company of Jeep, Fiat and other
car brands) took an equity stake in a lithium mine developer. This is the first
investment of this nature by an auto company/consumer of lithium with the aim
of securing raw material supply - we do not think it will be the last.
Finally, for Mining, a word on precious metals. Although short-term inflation
has been exceptionally high and central banks have been well behind the curve
in terms of responding to this with higher nominal interest rates, the
longer-term picture has seen 10-year real rates go from negative 100bps to
around positive 50bps in the last six months. Gold has had a strong inverse
correlation to US ten-year real rates so given the increase in real rates, a
move down in gold would have been expected. However - as with many correlations
in markets in the last six months - that relationship has broken down and
despite higher real rates and a stronger US Dollar, gold has been remarkably
resilient.
We would expect it to remain so given the unpredictable geopolitical landscape
as well as a market environment where equities and bonds have at times been
positively correlated (so people will seek out alternative portfolio
diversifiers, such as gold). However gold miners are not immune from cost
inflation so in the portfolio we have chosen to take our modest gold exposure,
through a combination of Newmont Corporation (the world's largest and arguably
highest quality gold miner) and Wheaton Precious Metals (a royalty/streaming
company that is not exposed to cost inflation as it receives a percentage of
revenue, not profits, from each asset in which it has an interest).
MARKET OUTLOOK AND PORTFOLIO POSITIONING
Inflation pressures have caught central banks off-guard, and we continue to
believe that the duration of inflationary pressures is being underestimated by
the market. The causes of these stresses are rooted in years of
under-investment in both Traditional Energy and broader mined commodities. As
the world shifts away from a 'just-in-time' to 'just-in-case' logistics chain,
it seems unlikely that we will see a retrenchment to the low inflationary
environment we have been rather accustomed to over the last couple of decades.
The recent and severe market correction this year has opened up some compelling
valuation opportunities across all three pillars of the Company's investment
universe: Mining, Traditional Energy and Energy Transition. The flexibility to
tilt across these pillars should serve shareholders well as we expect continued
volatility in the months ahead as markets digest a new interest rate regime.
From a demand perspective, upside risks remain in traditional commodities as
China is still emerging from a recent spate of lockdowns and international
travel begins to resume - likely boosting global jet fuel demand. Consumption
of bulk materials should also be supported as the Chinese economy reopens and
infrastructure spending resumes. The government also recently announced new
stimulus measures to boost electric vehicle sales.
From a supply standpoint, physical markets remain tight across traditional
commodities. In particular, global diesel and gasoline markets remain
incredibly tight as almost 2 million barrels per day of refining capacity was
closed in the last two years (global product demand is a little under 100
million barrels per day). Copper supply is also facing constraints as key
producers such as Peru (local community protests) and Chile (access to water
challenges) face headwinds at a time when copper inventories remain at seasonal
lows (see the chart on page 17 of the Half Yearly Financial Report (which can
be found on the Company's website at www.blackrock.com/uk/beri)).
As a parting thought, it would be remiss not to mention the recent pullback in
commodity prices and the share prices of commodity producers from the highs
seen during the first half of the year. Whilst some of the falls might be
attributed to the rising risk of recession, especially in Europe, the
structural factors that underpin our positive outlook across the energy
transition space and parts of the mining and traditional energy space remain
firmly in place. Balance sheets of companies in the portfolio remain as strong
as they have been in almost 25 years and we have seen some companies look to
take advantage of these market conditions to buy back shares at what they see
as attractive price levels. The supply challenges across the market have
continued to be seen in the half year results of companies both in and outside
of the portfolio, which hardens our conviction that commodity markets have
upside risk to prices as supply will struggle to meet demand, with any
recessionary impact only delaying that dynamic, not removing it.
TOM HOLL AND MARK HUME
BlackRock Investment Management (UK) Limited
4 August 2022
DISTRIBUTION OF INVESTMENTS AS AT 31 MAY 2022
ASSET ALLOCATION - GEOGRAPHY
Global 50.5%
United States 18.8%
Canada 12.7%
Brazil 5.5%
Germany 4.2%
Australia 3.9%
Spain 1.6%
Chile 1.0%
Ireland 0.7%
France 0.6%
India 0.5%
Source: BlackRock
ASSET ALLOCATION - COMMODITY
Traditional Energy 41.0%
Mining 37.9%
Energy Transition 21.1%
Traditional Energy 41.0%
Exploration & Production 17.2%
Integrated 14.0%
Refining & Marketing 4.1%
Oil Services 3.7%
Distribution 2.0%
Mining 37.9%
Diversified 18.9%
Industrial Minerals 6.9%
Copper 3.1%
Steel 2.8%
Aluminium 1.9%
Gold 1.9%
Nickel 0.9%
Diamonds 0.9%
Iron 0.6%
Energy Transition 21.1%
Electrification 7.0%
Energy Efficiency 6.3%
Transport 4.7%
Renewables 3.1%
Source: BlackRock
TEN LARGEST INVESTMENTS
1 + GLENCORE (2021: 2nd)
Diversified mining group
Market value: £12,983,000
Share of investments: 6.7% (2021: 5.8%)
One of the world's largest globally diversified natural resources groups. The
group's operations include approximately 150 mining and metallurgical sites and
oil production assets. Glencore's mined commodity exposure includes copper,
cobalt, nickel, zinc, lead, ferroalloys, aluminium, iron ore, gold and silver.
2 - VALE (2021: 1st)
Diversified mining group
Market value: £10,739,000
Share of investments: 5.5%1 (2021: 5.9%)
One of the largest mining groups in the world with operations in 30 countries.
Vale is the world's largest producer of iron ore and iron ore pellets, and the
world's largest producer of nickel. The group also produces manganese ore,
ferroalloys, metallurgical and thermal coal, copper, platinum group metals,
gold, silver, cobalt, potash, phosphates and other fertiliser nutrients.
3 + SHELL (2021: n/a)
Integrated oil group
Market value: £6,132,000
Share of investments: 3.1% (2021: n/a)
A British publicly traded multinational oil and gas group headquartered in
London, United Kingdom. Shell is a public limited company with a primary
listing on the London Stock Exchange and secondary listings on Euronext
Amsterdam and the New York Stock Exchange.
4 + CONOCOPHILLIPS (2021: 7th)
Exploration & Production
Market value: £5,232,000
Share of investments: 2.7% (2021: 2.7%)
An American multinational corporation engaged in hydrocarbon exploration.
ConocoPhillips is one of the world's largest independent Exploration &
Production (E&P) groups based on production and proved reserves. It has
operations in 15 countries and is committed to the efficient and effective
exploration and production of oil and natural gas.
5 + SUNCOR ENERGY (2021: 18th)
Integrated oil group
Market value: £5,161,000
Share of investments: 2.6% (2021: 1.8%)
A Canadian integrated energy group based in Calgary, Alberta. It specialises in
production of synthetic crude from oil sands.
6 + CENOVUS ENERGY (2021: 17th)
Integrated oil group
Market value: £4,953,000
Share of investments: 2.5% (2021: 1.8%)
An integrated oil and natural gas group headquartered in Calgary, Alberta.
Cenovus Energy was formed in 2009 when Encana Corporation split into two
distinct companies, with Cenovus Energy becoming focused on oil sands assets.
7 - FIRST QUANTUM MINERALS (2021: 6th)
Copper producer
Market value: £4,828,000
Share of investments: 2.5%2 (2021: 3.5%)
An established growing copper mining group operating seven mines including the
ramp-up of their newest mine, Cobre Panama, which declared commercial
production in September 2019. The group is a significant copper producer and
also produces nickel, gold and zinc.
8 + TOTALENERGIES (2021: 9th)
Integrated oil group
Market value: £4,768,000
Share of investments: 2.4% (2021: 2.2%)
A French multinational integrated oil and gas group, which is one of the seven
supermajor oil groups. The group has rebranded from Total to TotalEnergies, as
it looks to be a world-class player in the energy transition sector.
9 + SAMSUNG SDI (2021: 21st)
Transport
Market value: £4,767,000
Share of investments: 2.4% (2021: 1.7%)
A specialty chemicals group operating across two main divisions: Energy and
Electronic Materials. Energy Solutions manufactures small-sized Lithium-ion
batteries for portable electronics (laptop, tablets, mobiles), tools and
electric bikes/scooters. It also develops larger batteries for automotive
electric vehicles applications and energy storage systems.
10 + RWE (2021: 13th)
Electrification
Market value: £4,749,000
Share of investments: 2.4% (2021: 2.0%)
Germany's leading clean energy utility, which is pivoting to be more renewables
focused.
1 1.5% relates to fixed interest holdings in Vale.
2 0.8% relates to fixed interest holdings in First Quantum Minerals.
All percentages reflect the value of the holding as a percentage of total
investments. For this purpose, where more than one class of securities is held,
these have been aggregated. The percentages in brackets represent the value of
the holding as at 30 November 2021.
Together, the ten largest investments represent 32.8% of total investments (ten
largest investments as at 30 November 2021: 36.4%).
INVESTMENTS AS AT 31 MAY 2022
Main Market
geographic value % of
exposure £'000 investments
Traditional Energy
Exploration & Production
ConocoPhillips Global 5,232 2.7
Ovintiv United 4,038 2.1
States
Tourmaline Oil Canada 3,827 2.0
Hess Global 3,456 1.8
EOG Resources United 3,293 1.7
States
Canadian Natural Resources Canada 3,220 1.7
Pioneer Natural Resources United 3,178 1.6
States
Arc Resources Canada 2,794 1.4
Santos Australia 2,113 1.1
Kosmos Energy United 1,489 0.8
States
Woodside Energy Group Australia 526 0.3
--------------- ---------------
33,166 17.2
========= =========
Integrated
Shell Global 6,132 3.1
Suncor Energy Canada 5,161 2.6
Cenovus Energy Canada 4,953 2.5
TotalEnergies Global 4,768 2.4
Repsol YPF Spain 3,178 1.6
Equinor Global 1,722 0.9
Chevron Global 1,717 0.9
Gazprom ADR* Russian - -
Federation
--------------- ---------------
27,631 14.0
========= =========
Refining & Marketing
Phillips 66 Global 3,371 1.7
Valero Energy United 2,462 1.3
States
Marathon Petroleum United 2,111 1.1
States
--------------- ---------------
7,944 4.1
========= =========
Oil Services
Halliburton Global 2,538 1.3
Patterson-UTI Energy United 2,319 1.2
States
Tenaris Global 2,298 1.2
--------------- ---------------
7,155 3.7
========= =========
Distribution
Cheniere Energy United 2,042 1.0
States
TC Energy Corporation Canada 2,007 1.0
--------------- ---------------
4,049 2.0
========= =========
Total Traditional Energy 79,945 41.0
========= =========
Mining
Diversified
Glencore Global 12,983 6.7
Vale Brazil 7,747 } 5.5
Vale Debentures** Brazil 2,992
BHP Global 4,365 2.2
Teck Resources Global 3,462 1.8
Anglo American Global 3,248 1.7
Trident Global 1,184 0.6
Rio Tinto Global 846 0.4
--------------- ---------------
36,827 18.9
========= =========
Industrial Minerals
Nutrien United 2,718 1.4
States
CF Industries United 2,330 1.2
States
Sociedad Química y Minera Chile 2,001 1.0
Albemarle Global 1,956 } 1.0
Albemarle Put Option 17/06/22 $22 Global (18)
Bunge Global 1,759 0.9
Lynas Corporation Australia 1,482 0.8
Trane Technologies United 1,264 0.6
States
--------------- ---------------
13,492 6.9
========= =========
Copper
First Quantum Minerals Global 3,357 } 2.5
First Quantum Minerals 6.875% 01/03/26 Global 910
First Quantum Minerals 7.5% 01/04/25 Global 370
First Quantum Minerals 7.25% 01/04/23 Global 191
Freeport-McMoRan United 702 0.4
States
Develop Global Australia 415 0.2
--------------- ---------------
5,945 3.1
========= =========
Steel
ArcelorMittal Global 2,675 } 1.9
ArcelorMittal 5.5% 18/05/23 Global 972
Steel Dynamics United 1,749 0.9
States
--------------- ---------------
5,396 2.8
========= =========
Aluminium
Norsk Hydro Global 2,537 1.3
Alcoa Corp Global 1,249 0.6
--------------- ---------------
3,786 1.9
========= =========
Gold
Wheaton Precious Metals Global 1,365 0.7
Newcrest Mining Australia 1,232 0.6
Newmont Corporation Global 1,149 0.6
--------------- ---------------
3,746 1.9
========= =========
Nickel
Nickel Mines Australia 1,759 0.9
--------------- ---------------
1,759 0.9
========= =========
Diamonds
Mountain Province Diamonds 8% 15/12/22 Canada 1,690 0.9
--------------- ---------------
1,690 0.9
========= =========
Iron
Labrador Iron Ore Canada 1,194 0.6
--------------- ---------------
1,194 0.6
========= =========
Total Mining 73,835 37.9
========= =========
Energy Transition
Electrification
RWE Germany 4,749 2.4
EDP Renováveis Global 4,013 2.1
Enel Global 2,708 1.4
NextEra Energy United 2,064 1.1
States
--------------- ---------------
13,534 7.0
========= =========
Energy Efficiency
Schneider Electric Global 2,693 1.4
Analog Devices Global 2,482 1.3
Ingersoll-Rand United 2,467 1.3
States
Kingspan Group Ireland 1,304 0.7
Soitec France 1,112 0.6
Texas Instruments Global 978 0.5
Renew Energy Global India 941 0.5
--------------- ---------------
11,977 6.3
========= =========
Transport
Samsung SDI Global 4,767 2.4
Infineon Technologies Germany 3,441 1.8
General Motors United 1,079 0.5
States
--------------- ---------------
9,287 4.7
========= =========
Renewables
Vestas Wind Global 3,569 1.8
First Solar Global 1,401 0.7
Sunnova Energy International United 1,116 0.6
States
Scatec ASA Global 73 -
--------------- ---------------
6,159 3.1
========= =========
Total Energy Transition 40,957 21.1
========= =========
Total Portfolio 194,737 100.0
========= =========
Comprising:
Equity and debt investments 194,755 100.0
Derivative financial instruments - written options (18) -
--------------- ---------------
194,737 100.0
========= =========
* The investment in Gazprom ADR has been valued at a nominal value of $0.01
as the Depositary Receipts of Russian companies have been suspended from
trading.
** The investment in the Vale debenture is illiquid and has been valued using
secondary market pricing information provided by the Brazilian Financial and
Capital Markets Association (ANBIMA).
All investments are ordinary shares unless otherwise stated. The total number
of holdings (including options) at 31 May 2022 was 77 (30 November 2021: 68).
There was one open option as at 31 May 2022 (30 November 2021: none).
The equity and fixed income investment total of £194,755,000 (30 November 2021:
£127,784,000) above before the deduction of the negative option valuations of £
18,000 (30 November 2021: £nil) represents the Group's total investments held
at fair value as reflected in the Consolidated Statement of Financial Position.
The table above excludes cash and gearing; the level of the Group's gearing may
be determined with reference to the bank overdraft of £21,362,000 and cash and
cash equivalents of £6,567,000 that are also disclosed in the Consolidated
Statement of Financial Position. Details of the AIC methodology for calculating
gearing are given in the Glossary included within the Half Yearly Financial
Report (which can be found on the Company's website at www.blackrock.com/uk/
beri).
As at 31 May 2022, the Company did not hold any equity interests comprising
more than 3% of any company's share capital.
INTERIM MANAGEMENT REPORT AND RESPONSIBILITY STATEMENT
The Chairman's Statement and the Investment Managers' Report give details of
the important events which have occurred during the period and their impact on
the financial statements.
PRINCIPAL RISKS AND UNCERTAINTIES
The principal risks faced by the Company can be divided into various areas as
follows:
* Investment performance;
* Income/dividend;
* Gearing;
* Legal and regulatory compliance;
* Operational;
* Political;
* Market; and
* Financial.
The Board reported on the principal risks and uncertainties faced by the
Company in the Annual Report and Financial Statements for the year ended 30
November 2021. A detailed explanation can be found in the Strategic Report on
pages 36 to 40 and in note 16 on pages 108 to 118 of the Annual Report and
Financial Statements which are available on the Company's website at
www.blackrock.com/uk/beri.
The ongoing COVID-19 pandemic has had a profound impact on all aspects of
society in recent years. The impact of this significant event on the Company's
financial risk exposure is disclosed in note 11 of the financial statements.
The Directors have assessed the impact of market conditions arising from the
COVID-19 outbreak on the Company's ability to meet its investment objective.
Based on the latest available information, the Company continues to be managed
in line with its investment objective, with no disruption to its operations.
Certain financial markets have fallen towards the end of the financial period
due primarily to geopolitical tensions arising from Russia's invasion of
Ukraine and the impact of the subsequent range of sanctions, regulations and
other measures which impaired normal trading in Russian securities. The Board
and the Investment Manager continue to monitor investment performance in line
with the Company's investment objectives, and the operations of the Company and
the publication of net asset values are continuing.
In the view of the Board, there have not been any changes to the fundamental
nature of the principal risks and uncertainties since the previous report and
these are equally applicable to the remaining six months of the financial year
as they were to the six months under review.
GOING CONCERN
The Board is mindful of the continuing uncertainty surrounding the potential
duration of the COVID-19 pandemic and its impact on the global economy, the
Company's assets and the level of revenue derived from the portfolio. The
Directors, having considered the nature and liquidity of the portfolio, the
Company's investment objective, the Company's projected income and expenditure
and the Company's substantial distributable reserves, are satisfied that the
Company has adequate resources to continue in operational existence for the
foreseeable future and is financially sound. The Board believes that the
Company and its key third party service providers have in place appropriate
business continuity plans and will be able to continue to maintain service
levels through the COVID-19 pandemic.
The Company has a portfolio of investments which are considered to be readily
realisable and is able to meet all of its liabilities from its assets and
income generated from these assets. Borrowings under the overdraft facility
shall be lower of £35.0 million or 20% of the Company's net assets (calculated
at the time of draw down) and this covenant was complied with during the
period. Ongoing charges (excluding finance costs, direct transaction costs,
custody transaction charges, VAT recovered, taxation and certain non-recurring
charges) have been capped by the Manager at 1.25% of average daily net assets
with effect from 17 March 2020 and were 1.21% of net assets for the year ended
30 November 2021. Based on the above, the Board is satisfied that it is
appropriate to continue to adopt the going concern basis in preparing the
financial statements.
RELATED PARTY DISCLOSURE AND TRANSACTIONS WITH THE INVESTMENT MANAGER
BlackRock Fund Managers Limited (BFM) is the Company's Alternative Investment
Fund Manager (AIFM) and has, with the Company's consent, delegated certain
portfolio and risk management services, and other ancillary services, to
BlackRock Investment Management (UK) Limited (BIM (UK)). Both BFM and BIM (UK)
are regarded as related parties under the Listing Rules. Details of the
management fee payable are set out in note 4 and note 13 of the financial
statements. The related party transactions with the Directors are set out in
note 12 of the financial statements.
DIRECTORS' RESPONSIBILITY STATEMENT
The Disclosure Guidance and Transparency Rules (DTR) of the UK Listing
Authority require the Directors to confirm their responsibilities in relation
to the preparation and publication of the Interim Management Report and
Financial Statements.
The Directors confirm to the best of their knowledge that:
* the condensed set of financial statements contained within the Half Yearly
Financial Report has been prepared in accordance with International
Accounting Standard 34 Interim Financial Reporting; and
* the Interim Management Report together with the Chairman's Statement and
Investment Managers' Report include a fair review of the information
required by 4.2.7R and 4.2.8R of the FCA's Disclosure Guidance and
Transparency Rules.
This Half Yearly Financial Report has not been audited or reviewed by the
Company's Auditor.
The Half Yearly Financial Report was approved by the Board on 4 August 2022 and
the above responsibility statement was signed on its behalf by the Chairman.
ADRIAN BROWN
For and on behalf of the Board
4 August 2022
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE SIX MONTHSED 31 MAY
2022
Six months ended Six months ended Year ended
31 May 2022 31 May 2021 30 November 2021
(unaudited) (unaudited) (audited)
Revenue Capital Total Revenue Capital Total Revenue Capital Total
Notes £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Income from investments 3 3,267 - 3,267 2,515 - 2,515 6,061 - 6,061
held at fair value through
profit or loss
Other income 3 398 - 398 342 - 342 742 - 742
--------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- ---------------
Total income 3,665 - 3,665 2,857 - 2,857 6,803 - 6,803
========= ========= ========= ========= ========= ========= ========= ========= =========
Net profit on investments - 42,548 42,548 - 22,617 22,617 - 25,954 25,954
and options held at fair
value through profit or
loss
Net profit/(loss) on - 9 9 - (5) (5) - (1) (1)
foreign exchange
--------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- ---------------
Total 3,665 42,557 46,222 2,857 22,612 25,469 6,803 25,953 32,756
========= ========= ========= ========= ========= ========= ========= ========= =========
Expenses
Investment management fee 4 (159) (475) (634) (110) (333) (443) (234) (706) (940)
Other operating expenses 5 (235) (5) (240) (213) (4) (217) (419) (7) (426)
--------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- ---------------
Total operating expenses (394) (480) (874) (323) (337) (660) (653) (713) (1,366)
========= ========= ========= ========= ========= ========= ========= ========= =========
Net profit on ordinary 3,271 42,077 45,348 2,534 22,275 24,809 6,150 25,240 31,390
activities before finance
costs and taxation
Finance costs (expense)/ 6 (20) (59) (79) 3 9 12 (5) (15) (20)
refund
--------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- ---------------
Net profit on ordinary 3,251 42,018 45,269 2,537 22,284 24,821 6,145 25,225 31,370
activities before taxation
Taxation (expense)/credit (286) 60 (226) (181) - (181) (441) 24 (417)
--------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- ---------------
Net profit on ordinary 8 2,965 42,078 45,043 2,356 22,284 24,640 5,704 25,249 30,953
activities after taxation
========= ========= ========= ========= ========= ========= ========= ========= =========
Earnings per ordinary 8 2.42 34.35 36.77 2.07 19.60 21.67 4.96 21.96 26.92
share (pence)
========= ========= ========= ========= ========= ========= ========= ========= =========
The total column of this statement represents the Group's Statement of
Comprehensive Income, prepared in accordance with UK-adopted International
Accounting Standards (IASs). The supplementary revenue and capital accounts are
both prepared under guidance published by the Association of Investment
Companies (AIC). All items in the above statement derive from continuing
operations. No operations were acquired or discontinued during the period. All
income is attributable to the equity holders of the Group.
The Group does not have any other comprehensive income. The net profit for the
period disclosed above represents the Group's total comprehensive income.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE SIX MONTHSED 31 MAY
2022
Called Share
up share premium Special Capital Revenue
capital account reserve reserves reserve Total
Notes £'000 £'000 £'000 £'000 £'000 £'000
For the six months ended
31 May 2022 (unaudited)
At 30 November 2021 1,190 47,727 68,852 (2,548) 5,607 120,828
Total comprehensive
income:
Net profit for the period - - - 42,078 2,965 45,043
Transactions with owners,
recorded directly to
equity:
Ordinary share issues 9 105 13,171 - - - 13,276
Ordinary shares reissued 9 - 1,023 2,091 - - 3,114
from treasury
Share issue costs - (59) (6) - - (65)
Dividends paid1 7 - - - - (2,654) (2,654)
--------------- --------------- --------------- --------------- --------------- ---------------
At 31 May 2022 1,295 61,862 70,937 39,530 5,918 179,542
========= ========= ========= ========= ========= =========
For the six months ended
31 May 2021 (unaudited)
At 30 November 2020 1,190 46,977 66,775 (27,797) 4,497 91,642
Total comprehensive
income:
Net profit for the period - - - 22,284 2,356 24,640
Transactions with owners,
recorded directly to
equity:
Ordinary shares reissued - 749 2,131 - - 2,880
from treasury
Share issue costs - - (6) - - (6)
Dividends paid2 7 - - - - (2,269) (2,269)
--------------- --------------- --------------- --------------- --------------- ---------------
At 31 May 2021 1,190 47,726 68,900 (5,513) 4,584 116,887
========= ========= ========= ========= ========= =========
For the year ended 30
November 2021 (audited)
At 30 November 2020 1,190 46,977 66,775 (27,797) 4,497 91,642
Total comprehensive
income:
Net profit for the year - - - 25,249 5,704 30,953
Transactions with owners,
recorded directly to
equity:
Ordinary shares reissued - 750 2,131 - - 2,881
from treasury
Share issue costs - - (6) - - (6)
Ordinary shares purchased - - (48) - - (48)
into treasury
Dividends paid3 7 - - - - (4,594) (4,594)
--------------- --------------- --------------- --------------- --------------- ---------------
At 30 November 2021 1,190 47,727 68,852 (2,548) 5,607 120,828
========= ========= ========= ========= ========= =========
1 4th interim dividend of 1.10p per share for the year ended 30 November
2021, declared on 9 December 2021 and paid on 14 January 2022 and 1st interim
dividend of 1.10p per share for the year ended 30 November 2022, declared on 15
March 2022 and paid on 21 April 2022.
2 4th interim dividend of 1.00p per share for the year ended 30 November
2020, declared on 8 December 2020 and paid on 15 January 2021 and 1st interim
dividend of 1.00p per share for the year ended 30 November 2021, declared on 16
March 2021 and paid on 22 April 2021.
3 4th interim dividend of 1.00p per share for the year ended 30 November
2020, declared on 8 December 2020 and paid on 15 January 2021; 1st interim
dividend of 1.00p per share for the year ended 30 November 2021, declared on 16
March 2021 and paid on 22 April 2021; 2nd interim dividend of 1.00p per share
for the year ended 30 November 2021, declared on 8 June 2021 and paid on 16
July 2021 and 3rd interim dividend of 1.00p per share for the year ended 30
November 2021, declared on 14 September 2021 and paid on 19 October 2021.
For information on the Company's distributable reserves, please refer to note
10 below.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 MAY 2022
31 May 31 May 30 November
2022 2021 2021
(unaudited) (unaudited) (audited)
Notes £'000 £'000 £'000
Non current assets
Investments held at fair value through profit or 11 194,755 122,972 127,784
loss
Current assets
Other receivables 639 1,053 4,878
Current tax asset 74 47 57
Cash and cash equivalents 6,567 6,859 6,552
--------------- --------------- ---------------
Total current assets 7,280 7,959 11,487
--------------- --------------- ---------------
Total assets 202,035 130,931 139,271
========= ========= =========
Current liabilities
Other payables (1,113) (1,630) (5,516)
Current tax liability - (221) -
Derivative financial liabilities held at fair value 11 (18) - -
through profit or loss
Bank overdraft (21,362) (12,193) (12,927)
--------------- --------------- ---------------
Total current liabilities (22,493) (14,044) (18,443)
--------------- --------------- ---------------
Net assets 179,542 116,887 120,828
========= ========= =========
Equity attributable to equity holders
Called up share capital 9 1,295 1,190 1,190
Share premium account 61,862 47,726 47,727
Special reserve 70,937 68,900 68,852
Capital reserves 39,530 (5,513) (2,548)
Revenue reserve 5,918 4,584 5,607
--------------- --------------- ---------------
Total equity 179,542 116,887 120,828
========= ========= =========
Net asset value per ordinary share (pence) 8 138.60 100.53 103.97
========= ========= =========
CONSOLIDATED CASH FLOW STATEMENT FOR THE SIX MONTHSED 31 MAY 2022
Six months Six months Year
ended ended ended
31 May 31 May 30 November
2022 2021 2021
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Operating activities:
Net profit on ordinary activities before taxation 45,269 24,821 31,370
Add back/(subtract) finance costs expense/(refund) 79 (12) 20
Net profit on investments and options held at fair value (42,548) (22,617) (25,954)
through profit or loss (including transaction costs)
Net (profit)/loss on foreign exchange (9) 5 1
Sales of investments held at fair value through profit or 58,162 40,765 82,907
loss
Purchases of investments held at fair value through profit or (82,567) (43,551) (87,168)
loss
Increase in other receivables (124) (125) (128)
Increase in other payables 363 520 231
Decrease/(increase) in amounts due from brokers 4,363 (590) (4,412)
(Decrease)/increase in amounts due to brokers (4,798) 623 4,798
Net movement in cash collateral held with brokers - 163 163
--------------- --------------- ---------------
Net cash (outflow)/inflow from operating activities before (21,810) 2 1,828
taxation
========= ========= =========
Taxation paid - - (221)
Taxation on investment income included within gross income (243) (211) (457)
--------------- --------------- ---------------
Net cash (outflow)/inflow from operating activities (22,053) (209) 1,150
========= ========= =========
Financing activities
Interest (paid)/received (79) 12 (20)
Receipts from ordinary shares reissued from treasury 3,114 2,880 2,881
Receipts from ordinary shares issued 13,276 - -
Share issue costs paid (33) (6) (6)
Payments for share purchases - - (48)
Dividends paid (2,654) (2,269) (4,594)
--------------- --------------- ---------------
Net cash inflow/(outflow) from financing activities 13,624 617 (1,787)
========= ========= =========
(Decrease)/increase in cash and cash equivalents (8,429) 408 (637)
Effect of foreign exchange rate changes 9 (5) (1)
--------------- --------------- ---------------
Change in cash and cash equivalents (8,420) 403 (638)
Cash and cash equivalents at start of period (6,375) (5,737) (5,737)
--------------- --------------- ---------------
Cash and cash equivalents at end of period (14,795) (5,334) (6,375)
========= ========= =========
Comprised of:
Cash at bank 6,567 6,859 6,552
Bank overdraft (21,362) (12,193) (12,927)
--------------- --------------- ---------------
(14,795) (5,334) (6,375)
========= ========= =========
NOTES TO THE FINANCIAL STATEMENTS FOR THE SIX MONTHSED 31 MAY 2022
1. PRINCIPAL ACTIVITY
The principal activity of the Company is that of an investment trust company
within the meaning of Section 1158 of the Corporation Tax Act 2010.
The principal activity of the subsidiary, BlackRock Energy and Resources
Securities Income Company Limited, is investment dealing and options writing.
2. BASIS OF PREPARATION
The Half Yearly Financial Statements for the six month period ended 31 May 2022
have been prepared in accordance with the Disclosure Guidance and Transparency
Rules sourcebook of the Financial Conduct Authority and with the UK-adopted
International Accounting Standard 34 (IAS 34), Interim Financial Reporting. The
Half Yearly Financial Statements should be read in conjunction with the Group's
Annual Report and Financial Statements for the year ended 30 November 2021,
which have been prepared in accordance with International Financial Reporting
Standards adopted pursuant to Regulation (EC) No. 1606/2002 as it applies in
the European Union.
Insofar as the Statement of Recommended Practice (SORP) for investment trust
companies and venture capital trusts, issued by the Association of Investment
Companies (AIC) in October 2019 and updated in April 2021, is compatible with
UK-adopted IASs, the financial statements have been prepared in accordance with
guidance set out in the SORP.
Adoption of new and amended standards and interpretations:
Amendments to IFRS 9, IAS 39 and IFRS 7 - Interest rate benchmark reform Phase
2 (effective 1 January 2021). The Phase 2 amendments address issues that might
affect financial reporting during the reform of an interest rate benchmark,
including the effects of changes to contractual cash flows or hedging
relationships arising from the replacement of an interest rate benchmark with
an alternative benchmark rate (replacement issues).
The objectives of the Phase 2 amendments are to assist companies in:
* applying IFRS Standards when changes are made to contractual cash flows or
hedging relationships because of the interest rate benchmark reform; and
* providing useful information to users of financial statements.
In Phase 2 of its project, the Board amended requirements in IFRS 9 Financial
Instruments, IAS 39 Financial Instruments: Recognition and Measurement, IFRS 7
Financial Instruments: Disclosures, IFRS 4 Insurance Contracts and IFRS 16
Leases relating to:
* changes in the basis for determining contractual cash flows of financial
assets, financial liabilities and lease liabilities;
* hedge accounting; and
* disclosures.
The Phase 2 amendments apply only to changes required by the interest rate
benchmark reform to financial instruments and hedging relationships.
These amendments have been adopted by the UK. The adoption of these amendments
did not have any significant impact on the Group.
International Accounting Standards that have yet to be adopted:
IFRS 17 - Insurance contracts (effective 1 January 2023). This standard
replaces IFRS 4, which currently permits a wide range of accounting practices
in accounting for insurance contracts. IFRS 17 will fundamentally change the
accounting by all entities that issue insurance contracts and investment
contracts with discretionary participation features. This standard is unlikely
to have any impact on the Group as it has no insurance contracts.
IAS 12 - Deferred tax related to assets and liabilities arising from a single
transaction (effective 1 January 2023). The IASB has amended IAS 12 Income
Taxes, to require companies to recognise deferred tax on particular
transactions that, on initial recognition, give rise to equal amounts of
taxable and deductible temporary differences. According to the amended
guidance, a temporary difference that arises on initial recognition of an asset
or liability is not subject to the initial recognition exemption if that
transaction gave rise to equal amounts of taxable and deductible temporary
differences. These amendments might have a significant impact on the
preparation of financial statements by companies that have substantial balances
of right-of-use assets, lease liabilities, decommissioning, restoration and
similar liabilities. The impact for those affected would be the recognition of
additional deferred tax assets and liabilities.
The amendment of this standard is unlikely to have any significant impact on
the Group.
3. INCOME
Six months Six months Year
ended ended ended
31 May 31 May 30 November
2022 2021 2021
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Investment income:
UK dividends 320 495 1,204
UK special dividends 67 75 205
Overseas dividends 2,204 1,799 3,745
Overseas special dividends 309 10 282
Fixed income 367 136 625
--------------- --------------- ---------------
Total investment income 3,267 2,515 6,061
========= ========= =========
Other income:
Option premium income 398 342 742
--------------- --------------- ---------------
398 342 742
========= ========= =========
Total income 3,665 2,857 6,803
========= ========= =========
During the period, the Group received option premium income in cash totalling £
432,000 (six months ended 31 May 2021: £311,000; year ended 30 November 2021: £
711,000) for writing covered call and put options for the purposes of revenue
generation.
Option premium income is amortised evenly over the life of the option contract
and accordingly, during the period, option premiums of £398,000 (six months
ended 31 May 2021: £342,000; year ended 30 November 2021: £742,000) were
amortised to revenue.
At 31 May 2022, there was one open position (31 May 2021: none; 30 November
2021: none) with an associated liability of £18,000 (31 May 2021: £nil; 30
November 2021: £nil).
Dividends and interest received in cash during the period amounted to £
2,799,000 and £153,000 (six months ended 31 May 2021: £2,019,000 and £137,000;
year ended 30 November 2021: £4,951,000 and £411,000).
No special dividends have been recognised in capital during the period (six
months ended 31 May 2021: £nil; year ended 30 November 2021: £nil).
4. INVESTMENT MANAGEMENT FEE
Six months ended Six months ended Year ended
31 May 2022 31 May 2021 30 November 2021
(unaudited) (unaudited) (audited)
Revenue Capital Total Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Investment 159 475 634 112 335 447 234 706 940
management fee
Expense rebate - - - (2) (2) (4) - - -
due from Manager
--------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- ---------------
Total 159 475 634 110 333 443 234 706 940
========= ========= ========= ========= ========= ========= ========= ========= =========
The investment management fee is levied at 0.80% of gross assets per annum.
Gross assets are calculated based on net assets before the deduction of the
bank overdraft.
The fee is allocated 25% to the revenue account and 75% to the capital account
of the Consolidated Statement of Comprehensive Income. There is no additional
fee for company secretarial and administration services.
In addition, the Company is entitled to a rebate from the investment management
fee charged by the Manager in the event the Company's ongoing charges exceed
the cap of 1.25% per annum of average daily net assets. The amount of rebate
accrued for the six months ended 31 May 2022 amounted to £nil (six months ended
31 May 2021: £4,000; year ended 30 November 2021: £nil) and has been adjusted
in the investment management fee charged by the Manager. The rebate is offset
against management fees and is allocated between revenue and capital in the
ratio of total ongoing charges (as defined on pages 132 and 133 of the Annual
Report and Financial Statements) allocated between revenue and capital during
the period.
5. OTHER OPERATING EXPENSES
Six months Six months Year
ended ended ended
31 May 31 May 30 November
2022 2021 2021
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Allocated to revenue:
Custody fee 3 3 5
Auditor's remuneration - audit services1 22 22 45
Registrar's fee 15 15 30
Directors' emoluments 72 70 131
Broker fees 13 12 25
Depositary fees 7 5 10
Marketing fees 12 11 34
Printing and postage fees 19 18 33
Legal and professional fees 8 12 18
Directors search fees 9 11 21
Bank charges 4 3 7
Stock exchange listings fees 24 4 8
Other administration costs 27 27 52
--------------- --------------- ---------------
235 213 419
========= ========= =========
Allocated to capital:
Custody transaction charges2 5 4 7
--------------- --------------- ---------------
240 217 426
========= ========= =========
1 No non-audit services are provided by the Company's auditors.
2 For the six month period ended 31 May 2022, expenses of £5,000 (six
months ended 31 May 2021: £4,000; year ended 30 November 2021: £7,000) were
charged to the capital account of the Consolidated Statement of Comprehensive
Income. This relates to transaction costs charged by the custodian on sale and
purchase trades.
The transaction costs incurred on the acquisition of investments amounted to £
92,000 for the six months ended 31 May 2022 (six months ended 31 May 2021: £
24,000; year ended 30 November 2021: £58,000). Costs relating to the disposal
of investments amounted to £14,000 for the six months ended 31 May 2022 (six
months ended 31 May 2021: £15,000; year ended 30 November 2021: £31,000). All
transaction costs have been included within the capital reserves.
6. FINANCE COSTS
Six months ended Six months ended Year ended
31 May 2022 31 May 2021 30 November 2021
(unaudited) (unaudited) (audited)
Revenue Capital Total Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Interest payable - bank 20 59 79 7 21 28 15 45 60
overdraft
Refund of prior period - - - (10) (30) (40) (10) (30) (40)
excess overdraft
interest
--------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- ---------------
Total 20 59 79 (3) (9) (12) 5 15 20
========= ========= ========= ========= ========= ========= ========= ========= =========
Finance costs for the Company are charged 25% to the revenue account and 75% to
the capital account of the Consolidated Statement of Comprehensive Income.
Subsidiary finance costs are charged 100% to the revenue account of the
Consolidated Statement of Comprehensive Income.
At 31 May 2022, 31 May 2021 and 30 November 2021, the Group had an overdraft
facility of the lower of £35.0 million or 20% of the Group's net assets.
7. DIVIDS
The Board's current dividend target is to declare quarterly dividends of 1.10
pence per share in the year to 30 November 2022, making a total of at least
4.40 pence per share for the year as a whole.
A first interim dividend for the period ending 28 February 2022 of £1,376,000
(1.10 pence per share) was paid on 21 April 2022 to shareholders on the
register on 25 March 2022.
The Directors have declared a second interim dividend for the year ended 30
November 2022 of 1.10 pence per share. The total cost of the dividend was £
1,448,000 and was paid on 15 July 2022 to shareholders on the Company's
register on 17 June 2022. This dividend has not been accrued in the financial
statements for the six months ended 31 May 2022, as under IAS, interim
dividends are not recognised until paid. Dividends are debited directly to
reserves.
The third and fourth interim dividends will be declared in September 2022 and
December 2022 respectively.
Dividends on equity shares paid during the period were:
Six months Six months Year
ended ended ended
31 May 31 May 30 November
2022 2021 2021
(unaudited) (unaudited) (audited)
Second interim dividend for the year ended 30 November 2021 - - 1,162
of 1.00p (2020: 1.00p)
Third interim dividend for the year ended 30 November 2021 of - - 1,162
1.00p (2020: 1.00p)
Fourth interim dividend for the year ended 30 November 2021 1,278 1,135 1,135
of 1.10p (2020: 1.00p)
First interim dividend for the year ending 30 November 2022 1,376 1,134 1,135
of 1.10p (2021: 1.00p)
--------------- --------------- ---------------
2,654 2,269 4,594
========= ========= =========
8. CONSOLIDATED EARNINGS AND NET ASSET VALUE PER ORDINARY SHARE
Total revenue return, capital return and net asset value per share are shown
below and have been calculated using the following:
Six months Six months Year
ended ended ended
31 May 31 May 30 November
2022 2021 2021
(unaudited) (unaudited) (audited)
Net revenue profit attributable to ordinary shareholders (£ 2,965 2,356 5,704
'000)
Net capital profit attributable to ordinary shareholders (£ 42,078 22,284 25,249
'000)
--------------- --------------- ---------------
Total profit attributable to ordinary shareholders (£'000) 45,043 24,640 30,953
========= ========= =========
Total shareholders' funds (£'000) 179,542 116,887 120,828
========= ========= =========
The weighted average number of ordinary shares in issue 122,487,667 113,712,381 114,982,762
during each period on which the earnings per ordinary share
was calculated was:
The actual number of ordinary shares in issue at the period 129,540,391 116,270,349 116,218,357
end on which the net asset value per ordinary share was
calculated was:
Earnings per share
Revenue earnings per share (pence) - basic and diluted 2.42 2.07 4.96
Capital earnings per share (pence) - basic and diluted 34.35 19.60 21.96
--------------- --------------- ---------------
Total earnings per share (pence) - basic and diluted 36.77 21.67 26.92
========= ========= =========
There were no dilutive securities at the period end (six months ended 31 May
2021: nil; year ended 30 November 2021: nil).
As at As at As at
31 May 31 May 30
2022 2021 November
(unaudited) (unaudited) 2021
(audited)
Net asset value per ordinary share (pence) 138.60 100.53 103.97
Ordinary share price (pence) 142.00 102.50 96.70
========= ========= =========
9. CALLED UP SHARE CAPITAL
Ordinary Treasury Total Nominal
shares shares shares value
number number number £'000
Allotted, called up and fully paid share capital
comprised:
Ordinary shares of 1 pence each:
At 30 November 2021 116,218,357 2,747,643 118,966,000 1,190
Ordinary shares issued 10,574,391 - 10,574,391 105
Ordinary shares issued from treasury 2,747,643 (2,747,643) - -
------------------- ------------------- ------------------- -------------------
At 31 May 2022 129,540,391 - 129,540,391 1,295
============ ============ ============ ============
During the period, no shares were bought back and transferred to treasury (six
months ended 31 May 2021: none; year ended 30 November 2021: 51,992) for a
total consideration of £nil (six months ended 31 May 2021: £nil; year ended 30
November 2021: £48,000).
During the period, 2,747,643 shares were issued from treasury (six months ended
31 May 2021: 2,800,000; year ended 30 November 2021: 2,800,000) for a net
consideration of £3,108,000 (six months ended 31 May 2021: £2,874,000; year
ended 30 November 2021: £2,875,000).
During the period, the Company issued 10,574,391 new shares (six months ended
31 May 2021: none; year ended 30 November 2021: none) for a net consideration
of £13,249,000 (six months ended 31 May 2021: £nil; year ended 30 November
2021: £nil).
Since 31 May 2022, a further 4,815,803 shares have been issued for net
consideration of £6,427,000.
10. RESERVES
The share premium and capital redemption reserve are not distributable profits
under the Companies Act 2006. In accordance with ICAEW Technical Release 02/
17BL on Guidance on Realised and Distributable Profits under the Companies Act
2006, the special reserve and capital reserves of the Parent Company may be
used as distributable profits for all purposes and, in particular, the
repurchase by the Parent Company of its ordinary shares and for payments as
dividends. In accordance with the Company's Articles of Association, the
special reserve, capital reserves and the revenue reserve may be distributed by
way of dividend. The Parent Company's capital reserve arising on the
revaluation of listed investments of £51,306,000 (31 May 2021: gain of £
28,858,000; year ended 30 November 2021: gain of £23,599,000) is subject to
fair value movements and may not be readily realisable at short notice, as such
it may not be entirely distributable. The reserves of the subsidiary company
are not distributable until distributed as a dividend to the Parent Company.
The investments are subject to financial risks, as such capital reserves
(arising on investments sold) and the revenue reserve may not be entirely
distributable if a loss occurred during the realisation of these investments.
11. VALUATION OF FINANCIAL INSTRUMENTS
Market risk arising from price risk
Price risk is the risk that the fair value or future cash flows of a financial
instrument will fluctuate because of changes in market prices (other than those
arising from interest rate risk or currency risk), whether those changes are
caused by factors specific to the individual financial instrument or its
issuer, or factors affecting similar financial instruments traded in the
market. Local, regional or global events such as war, acts of terrorism, the
spread of infectious illness or other public health issues, recessions, climate
change or other events could have a significant impact on the Group and its
investments.
The infectious respiratory illness caused by a novel coronavirus known as
COVID-19 has had a profound impact on all aspects of society over the last two
years. While there is a growing consensus in developed economies that the worst
of the impact is now over, there is an expectation that travel restrictions,
enhanced health screenings at ports of entry and elsewhere, disruption of and
delays in healthcare service preparation and delivery, cancellations, supply
chain disruptions, and lower consumer demand will create ongoing challenges.
While widescale vaccination programmes are now in place in many countries and
are having a positive effect, the impact of COVID-19 continues to adversely
affect the economies of many nations across the entire global economy and this
impact may be greater where vaccination rates are lower, such as in certain
emerging markets. While it is difficult to make timing predictions, it is
expected that the economic effects of COVID- 19 will continue to be felt for a
period after the virus itself has moved from being pandemic to endemic in
nature and this in turn may continue to impact investments held by the Group.
Valuation of financial instruments
Financial assets and financial liabilities are either carried in the
Consolidated Statement of Financial Position at their fair value (investments
and derivatives) or at an amount which is a reasonable approximation of fair
value (due from brokers, dividends and interest receivable, due to brokers,
accruals, cash at bank and bank overdrafts). IFRS 13 requires the Group to
classify fair value measurements using a fair value hierarchy that reflects the
significance of inputs used in making the measurements. The valuation
techniques used by the Group are explained in the accounting policies note 2(h)
as set out on page 97 of the Group's Annual Report and Financial Statements for
the year ended 30 November 2021.
Categorisation within the hierarchy has been determined on the basis of the
lowest level input that is significant to the fair value measurement of the
relevant asset.
The fair value hierarchy has the following levels:
Level 1 - Quoted market price for identical instruments in active markets
A financial instrument is regarded as quoted in an active market if quoted
prices are readily available from an exchange, dealer, broker, industry group,
pricing service or regulatory agency and those prices represent actual and
regularly occurring market transactions on an arm's length basis. The Group
does not adjust the quoted price for these instruments.
Level 2 - Valuation techniques using observable inputs
This category includes instruments valued using quoted prices for similar
instruments in markets that are considered less active, or other valuation
techniques where all significant inputs are directly or indirectly observable
from market data.
Valuation techniques used for non-standardised financial instruments such as
options, currency swaps and other over-the-counter derivatives include the use
of comparable recent arm's length transactions, reference to other instruments
that are substantially the same, discounted cash flow analysis, option pricing
models and other valuation techniques commonly used by market participants
making the maximum use of market inputs and relying as little as possible on
entity specific inputs.
Over-the-counter derivative option contracts have been classified as Level 2
investments as their valuation has been based on market observable inputs
represented by the underlying quoted securities to which these contracts expose
the Group.
Level 3 - Valuation techniques using significant unobservable inputs
This category includes all instruments where the valuation technique includes
inputs not based on market data and these inputs could have a significant
impact on the instrument's valuation.
This category includes instruments that are valued based on quoted prices for
similar instruments where significant entity determined adjustments or
assumptions are required to reflect differences between the instruments and
instruments for which there is no active market. The Investment Manager
considers observable data to be that market data that is readily available,
regularly distributed or updated, reliable and verifiable, not proprietary and
provided by independent sources that are actively involved in the relevant
market.
The level in the fair value hierarchy within which the fair value measurement
is categorised in its entirety is determined on the basis of the lowest level
input that is significant to the fair value measurement.
Assessing the significance of a particular input to the fair value measurement
in its entirety requires judgement, considering factors specific to the asset
or liability. The determination of what constitutes 'observable' inputs
requires significant judgement by the Investment Manager.
Fair values of financial assets and financial liabilities
For exchange listed equity investments the quoted price is the bid price.
Substantially all investments are valued based on unadjusted quoted market
prices. Where such quoted prices are readily available in an active market,
such prices are not required to be assessed or adjusted for any price related
risks, including climate risk, in accordance with the fair value related
requirements of the Company's financial reporting framework.
The table below sets out fair value measurements using the IFRS 13 fair value
hierarchy.
Financial assets/(liabilities) at fair value through Level 1 Level 2 Level 3 Total
profit or loss at 31 May 2022 (unaudited) £'000 £'000 £'000 £'000
Assets:
Equity investments 187,630 - - 187,630
Fixed income investments 4,133 2,992 - 7,125
Liabilities:
Derivative financial instruments - written options - (18) - (18)
--------------- --------------- --------------- ---------------
191,763 2,974 - 194,737
========= ========= ========= =========
Level 1 Level 2 Level 3 Total
Financial assets at fair value through profit or £'000 £'000 £'000 £'000
loss at 31 May 2021 (unaudited)
Assets:
Equity investments 116,251 - - 116,251
Fixed income investments 3,148 3,573 - 6,721
--------------- --------------- --------------- ---------------
119,399 3,573 - 122,972
========= ========= ========= =========
Level 1 Level 2 Level 3 Total
Financial assets at fair value through profit or £'000 £'000 £'000 £'000
loss at 30 November 2021 (audited)
Assets:
Equity investments 121,179 - - 121,179
Fixed income investments 3,898 2,707 - 6,605
--------------- --------------- --------------- ---------------
125,077 2,707 - 127,784
========= ========= ========= =========
There were no transfers between levels for financial assets and financial
liabilities during the period recorded at fair value as at 31 May 2022, 31 May
2021 and 30 November 2021. The Group did not hold any Level 3 securities as at
31 May 2021 and 30 November 2021. As at 31 May 2022, the investment in Gazprom
ADR has been valued at a nominal value of $0.01 as the Depositary Receipts of
Russian companies have been suspended from trading.
12. RELATED PARTY DISCLOSURE
Directors' emoluments
The Board consists of four non-executive Directors, all of whom are considered
to be independent of the Manager by the Board. None of the Directors has a
service contract with the Company. The Chairman receives an annual fee of £
40,000, the Chairman of the Audit and Management Engagement Committee receives
an annual fee of £34,000 and each of the other Directors receives an annual fee
of £29,000.
As at 31 May 2022, an amount of £11,000 (31 May 2021: £10,000; 30 November
2021: £10,000) was outstanding in respect of Directors' fees.
At the period end, interests of the Directors in the ordinary shares of the
Company are as set out below:
31 May 31 May 30
2022 2021 November
2021
Ed Warner1 n/a 94,000 94,000
Adrian Brown (Chairman)2 25,000 14,603 25,000
Carole Ferguson3 - n/a n/a
Dr Carol Bell 44,000 44,000 44,000
Andrew Robson 24,000 14,000 24,000
======== ======== =========
= =
1 Mr Warner retired on 15 March 2022. He held 94,000 shares as at that
date.
2 Mr Brown was appointed Chairman on 15 March 2022.
3 Mrs Ferguson joined the Board with effect from 22 December 2021 and held
no shares as at that date.
Since the period end and up to the date of this report there have been no
changes in Directors' holdings.
13. TRANSACTIONS WITH THE INVESTMENT MANAGER AND AIFM
BlackRock Fund Managers Limited (BFM) provides management and administration
services to the Group under a contract which is terminable on six months'
notice. BFM has (with the Group'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 on pages 53 and 54 of the Directors' Report
in the Company's Annual Report and Financial Statements for the year ended
30 November 2021.
The investment management fee due for the six months ended 31 May 2022 amounted
to £634,000 (six months ended 31 May 2021: £443,000; year ended 30 November
2021: £940,000). At the period end £882,000 was outstanding in respect of these
fees (six months ended 31 May 2021: £672,000; year ended 30 November 2021: £
498,000). The Company is entitled to a rebate from the investment management
fee charged by the Manager in the event the Company's ongoing charges exceed
the cap of 1.25% per annum of average daily net assets. There was no rebate for
the six months ended 31 May 2022 (six months ended 31 May 2021: £4,000; year
ended 30 November 2021: £nil) and has been adjusted in the investment
management fee charged by the Manager. Any final rebate for the full year
ending 30 November 2022 will not crystallise and fall due until the calculation
date of 30 November 2022.
In addition to the above services, BlackRock has provided the Group with
marketing services. The total fees paid or payable for these services for the
period ended 31 May 2022 amounted to £12,000 excluding VAT (six months ended 31
May 2021: £11,000; year ended 30 November 2021: £34,000). Marketing fees of £
34,000 (31 May 2021: £31,000; 30 November 2021: £22,000) were outstanding at 31
May 2022.
The ultimate holding company of the Manager and the Investment Manager is
BlackRock, Inc., a company incorporated in Delaware, USA.
14. CAPITAL COMMITMENTS AND CONTINGENT LIABILITIES
The Group had no capital commitments on investments at the period end (31 May
2021: £1,890,000; 30 November 2021: £nil). There were no contingent liabilities
at 31 May 2022 (31 May 2021: nil; 30 November 2021: nil).
15. PUBLICATION OF NON-STATUTORY ACCOUNTS
The financial information contained in this Half Yearly Financial Report does
not constitute statutory accounts as defined in Section 435 of the Companies
Act 2006. The financial information for the six months ended 31 May 2022 and 31
May 2021 has not been reviewed or audited by the auditor.
The information for the year ended 30 November 2021 has been extracted from the
latest published audited financial statements, which have been filed with the
Registrar of Companies unless otherwise stated. The report of the Auditors on
those accounts contained no qualification or statement under Sections 498(2) or
498(3) of the Companies Act 2006.
16. ANNUAL RESULTS
The Board expects to announce the annual results for the year ending 30
November 2022 in January 2023.
Copies of the annual results announcement can be obtained from the Secretary on
020 7743 3000 or at cosec@blackrock.com. The Annual Report and Financial
Statements should be available at the beginning of February 2023, with the
Annual General Meeting being held in March 2023.
For further information please contact:
Melissa Gallagher, Managing Director Investment Trusts - 020 7743 3000
Tom Holl/Mark Hume, Fund Managers - 020 7743 3000
Press enquires:
Lansons Communications - Tel: 020 7294 3689
E-mail: BlackRockInvestmentTrusts@lansons.com
4 August 2022
BlackRock Investment Management (UK) Limited
12 Throgmorton Avenue
London EC2N 2DL
END
END
(END) Dow Jones Newswires
August 04, 2022 08:11 ET (12:11 GMT)
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