TIDMBERI
BLACKROCK ENERGY AND RESOURCES INCOME TRUST PLC
(LEI: 54930040ALEAVPMMDC31)
Annual Results announcement for the year ended 30 November 2022
PERFORMANCE RECORD
As at As at
30 30 Change
November November %
2022 2021
Net assets (£'000)1 194,708 120,828 61.1
Net asset value per ordinary share (pence) 144.92 103.97 39.4
Ordinary share price (mid-market) (pence) 135.00 96.70 39.6
Discount to net asset value2 6.8% 7.0%
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Performance (with dividends reinvested)
Net asset value per share2 44.5% 34.4%
Ordinary share price2 44.8% 41.7%
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For the For the
year year
ended ended Change
30 30 %
November November
2022 2021
Revenue
Net profit on ordinary activities after taxation (£'000) 6,394 5,704 12.1
Revenue earnings per ordinary share (pence)3 4.99 4.96 0.6
Dividends (pence)
1st interim 1.10 1.00 10.0
2nd interim 1.10 1.00 10.0
3rd interim 1.10 1.00 10.0
4th interim 1.10 1.10 0.0
Total dividends paid and payable 4.40 4.10 7.3
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1 The change in net assets reflects portfolio movements, the issue of
shares and dividends paid during the year.
2 Alternative Performance Measures, see Glossary contained in the Annual
Report for the year ended 30 November 2022.
3 Further details are given in the Glossary contained in the Annual Report
for the year ended 30 November 2022.
Chairman's statement
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 10.7%
in the UK in November 2022. In response, the Bank of England raised interest
rates to 3.50% by December 2022 with further increases on the horizon which are
likely to impact consumer confidence in the UK.
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 68.7% over the year compared to an increase in the MSCI ACWI Metals and
Mining Index of 14.8% - both in Sterling 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 had increased Traditional Energy exposure through 2021 and into 2022
to stand at 31.0% at the end of the year, and moved to lower weighting in the
Energy Transition sector (21.9% at 30 November 2022).
Performance
I am pleased to report that your Company has delivered another year of
exceptional performance, with the Net Asset Value per share up by an impressive
44.5% and the share price by 44.8%. When combined with the strong prior year
performance to 30 November 2021, your Company's share price has increased by
105.1% over the last two financial years (all percentages in Sterling terms
with dividends reinvested). The Company's objectives are to achieve both an
annual dividend target and, over the long term, capital growth. Consequently,
the Board does not formally benchmark performance against mining and energy
sector indices as meeting a specific dividend target is not within the scope of
these indices. However, to set the performance above in the context of the
market backdrop, the MSCI All-Country World Index ("ACWI") was up 18.6% over
the year ended 30 November 2021 and the same index was down 3.5% over the year
ended 30 November 2022 (all percentages in Sterling terms with dividends
reinvested).
As noted above, the Board does not formally benchmark the Company's performance
against Mining and Energy sector indices; 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.
Cumulative performance as at 30 November
2022
1 Year 2 Years 3 Years 5 Years Since
change change change change inception2
Performance to 30 November 2022 % % % % %
Net Asset Value (with dividends reinvested) 44.5 94.2 121.2 139.3 253.8
1
Share price (with dividends reinvested)1 44.8 105.1 138.0 132.8 229.6
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1 Alternative Performance Measures. Further details of the calculation of
performance with dividends reinvested are given in the Glossary contained in
the Annual Report for the year ended 30 November 2022.
2 The Company was launched on 13 December 2005.
Revenue return and dividends
The Company's revenue return per share for the year to 30 November 2022 was
4.99 pence per share, a 0.6% increase compared to the prior year earnings per
share of 4.96 pence. 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 3.3% based on the share price of 135.00 pence per
share as at 30 November 2022, and 3.0% based on the share price at the close of
business on 30 January 2023. The dividend target should not be interpreted as a
profit forecast. The Board has decided to maintain the annual dividend target
of at least 4.40 pence per share for the year to 30 November 2023. As a result
the Board announced in December 2022 that it would pay a fourth quarterly
dividend for the year to 30 November 2022 of 1.10 pence per share (making total
dividend payment for the year of 4.40 pence per share).
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 and they
will only undertake option transactions to the extent that the overall
contribution is expected to be beneficial to total return.
Gearing
The Company operates a flexible gearing policy which depends on prevailing
market conditions. The Company increased the overdraft facility to £35.0
million during the year and it is expected that gearing will not exceed 20% of
the Group's net assets. The maximum gearing used during the period was 12.3%,
and the level of gearing at 30 November 2022 was 6.0%. Average gearing over the
year to 30 November 2022 was 6.1%. For calculations, see the Glossary contained
in the Annual Report for the year ended 30 November 2022.
Management of share rating
The Directors recognise the importance to shareholders that the Company's share
price should not trade at a significant premium or discount to NAV per share,
and therefore, in normal market conditions, may use the Company's share
buyback, sale of shares from treasury and share issue powers to seek to address
any imbalance in supply and demand for the Company's shares in the market.
The Company's shares traded at an average discount of 2.9% over the year. The
shares started the year trading at a discount of 7.0%; this widened out to 9.2%
in December 2021 but moved to trade consistently at a premium in January 2022,
at which time (and with a premium established), the Company commenced selling
its treasury shares and subsequently issuing new shares into market demand.
During the year, the Company issued/sold 18,137,837 ordinary shares (of which
2,747,643 ordinary shares were sold from treasury) for net proceeds of £
22,785,000. Since the year end and up to 30 January 2023, the Company issued
550,000 ordinary shares for net proceeds of £802,000. All shares were issued/
sold at premiums to the prevailing NAV per share and were accretive to net
assets. 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 noted above, the Board sought shareholder
approval for additional authority (approved by shareholders at a General
Meeting on 26 May 2022) to allot and/or sell from treasury a further 12,844,039
ordinary shares on a non-pre-emptive basis over and above the 10% authority
sought at the 2022 AGM. 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.
Subsequent to this, it was pleasing to note that in 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. Although
macro events weighed on markets and the Company in the second half of the year,
at the time of writing, the Company's shares are trading at a premium again,
with 550,000 shares having been issued over the last month. The Board notes
that although the Company has in previous years sought authority from
shareholders at the AGM to issue up to 10% of share capital with pre-emption
rights disapplied, to the extent demand for the Company's shares remains
strong, there is a possibility that this will be insufficient to last until the
AGM in 2024 and the Company will need to convene additional special General
Meetings in order to request further authority. To minimise the cost to
shareholders and to ensure the Company is positioned to issue into market
demand on a timely basis, the Board is seeking additional shareholder authority
at the forthcoming Annual General meeting to issue and allot new shares for an
additional 10% over and above the 10% authority that is usually sought. These
issuance and allotment authorities are structured as four separate resolutions;
two seek to renew the Board's power to sell shares from Treasury and/or to
issue new shares, and to do so on a non pre-emptive basis up to 10% of the
Company's issued share capital, with two equivalent resolutions for an
additional 10%. It should be noted that any shares issued will be a premium to
the NAV per share. The Board believes these resolutions are in shareholders'
best interests and encourages shareholders to support them. There can be no
certainty that issuance will continue at the same level; however by seeking
this additional 10% authority concurrently with the usual 10% authority, your
Board is seeking to ensure that the Company is position to allot new shares
into market demand at minimal cost to shareholders. Such issuance will also
increase the capital base over which the Company's fixed costs are spread,
reducing the Company's ongoing charges ratio and further minimising costs for
shareholders.
The Board is also mindful that there was significant volatility in markets over
the second half of 2022, with markets correcting in late June 2022 as fears
over the potential recessionary impact of central banks' reaction to inflation
pressures took hold; this created challenges for many investment companies with
the average discount for the sector widened significantly. Your Board has
monitored the market throughout this volatile period and, in conjunction with
the Company's broker, has given consideration to the possibility of buying back
shares on a daily basis to the extent the Company's shares were trading at a
discount, although no shares were bought back during the period under review.
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). This authority expires on the
earlier of (i) the first anniversary of the date of the prospectus and (ii) the
2024 AGM. The Board took this step to ensure that the Company would not be as
constrained in its ability to issue new shares to meet demand by the Prospectus
Regulation. However, due to the turn in markets the Company ultimately did not
utilise any of this authority during the year nor, therefore, did it need to
publish a prospectus.
The Board does not currently anticipate exhausting the capacity under the
aggregate 20% issuance authorities being sought at the AGM based on current
issuance levels, but the Board keeps the situation under close review and take
the necessary steps to ensure that a prospectus can be published on a timely
basis if required such that the Company can continue to issue shares into
market demand.
Board Composition
The Board supports the increasing focus on independence, tenure and succession
planning set out in the updated Financial Reporting Council's review of the UK
Corporate Governance Code. With this in mind, the Board commenced a search in
2021 to identify a new Director to join the Board, assisted by a third-party
recruitment firm, Odgers Berndtson. Following a detailed evaluation of each of
the candidates, the Board selected Carole Ferguson who was subsequently
appointed with effect from 22 December 2021. Mrs Ferguson was elected as a
Director at the Annual General Meeting held on 15 March 2022.
Further information on all of the Directors can be found in their biographies
contained in the Annual Report for the year ended 30 November 2022. Information
on the recruitment and selection process undertaken and details of the Board's
policy on director tenure and succession planning can be found in the
Directors' Report contained in the Annual Report for the year ended 30 November
2022.
As previously advised in last year's Annual Report, my predecessor, Ed Warner
stood down from the Board at the AGM on 15 March 2022. Ed joined the Board in
July 2013 and had acted as the Chair since March 2015. The Board wishes to
thank Mr 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 continue
to build the Company with confidence. We wish Ed the best for the future.
Annual general meeting arrangements
The AGM will be held in person at 12:00 noon on Monday, 13 March 2023 at the
offices of BlackRock at 12 Throgmorton Avenue, London EC2N 2DL. Refreshments
and a sandwich lunch will be provided.
At present UK Government restrictions on public gatherings are no longer in
force in connection with COVID-19 and we therefore intend to hold the AGM in
the normal way with physical attendance by shareholders. However, although
unlikely, shareholders should be aware that it is possible that such
restrictions could be reimposed if required prior to the date of the AGM and
therefore we recommend that as well as physical attendance, shareholders also
cast their votes by proxy to ensue that their votes are counted in the event
that they are unable to attend.
Shareholders who intend to attend the AGM should ensure that they have read and
understood the venue requirements for entry to the AGM. These requirements,
along with further information on the business of this year's AGM, can be found
in the Directors Report contained in the Annual Report for the year ended 30
November 2022.
The Board very much looks forward to meeting shareholders and answering any
question you may have on the day. We hope you can attend this year's AGM; light
refreshments will be made available to shareholders who have attended the AGM.
Market outlook and portfolio positioning
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 a
weakening economic outlook, the company's portfolio remains weighted towards
well-capitalised companies in the mining and traditional energy sector with
scope to reinvest in growth opportunities in the energy transition sector which
has derated over the last year.
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 it is
effectively 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.
I look forward to seeing shareholders at the forthcoming Annual General
Meeting.
Adrian Brown
1 February 2023
Investment Manager's report
Market overview
The phrase "paradigm shift" is often over-used but it seems entirely
appropriate when reflecting on the investment landscape in 2022. For much of
the prior decade, markets have been characterised by low inflation, very low
interest rates and relatively abundant, cheap energy with the many benefits
this enabled. The last year has seen a major shift in these three factors with
profound impacts on major financial asset classes and individual securities, as
well on society more broadly. We now look set to enter a phase of the market
cycle where inflation will be more of a factor, energy availability will be a
critical question facing countries/industries and also capital will come with a
higher cost.
This is going to require investors to find lessons further back in history than
just the last ten years and have portfolios that are able, and willing, to
adapt to changing circumstances. We would assert that the evolution of this
Company's strategy almost 3 years ago puts it in such a position to take
advantage of the investment opportunities that invariably come with times of
rapid change.
The geopolitical events of early 2022 accelerated and magnified trends already
present in parts of the energy market where underinvestment had left little
spare capacity and even less resilience to any external shock or supply
disruption.
One of the consequences of the most recent energy crisis has been to raise the
question of energy security in many countries. The short-term responses vary
between countries, but one of the clear longer-term consequences is a hardened
resolve to transition to a greater share of renewable energy and to accelerate
the energy transition. Legislation such as the Inflation Reduction Act in the
USA is a demonstration of how willing governments are to ensure the correct
incentives are in place to incentivise private capital to be deployed on a
large scale across multiple industries that need to transition to lower carbon
footprints. Some of the growth stocks in the equity market, that are exposed to
the energy transition, have come under short-term selling pressure with rising
interest rates supressing the market's appetite for growth stocks. However, the
regulatory backdrop and the economics of transition technologies likely
underpins longer-term earnings growth here, so for the Company, it is likely a
matter of when, rather than if, we increase the exposure to these energy
transition companies.
2022 on 2021
30 November 30 November Average Price %
Commodity 2022 2021 % change Change1
Base Metals (US$/tonne)
Aluminium 2,448 2,635 -7.1 13.1
Copper 8,227 9,516 -13.5 -2.5
Lead 2,182 2,318 -5.9 -0.7
Nickel 26,892 20,005 34.4 40.0
Tin 23,045 39,905 -42.3 6.4
Zinc 3,050 3,289 -7.3 19.0
---------------- ---------------- ---------------- ----------------
Precious Metals (US$/ounce)
Gold 1,751.9 1,780.1 -1.6 -0.2
Silver 21.7 22.8 -5.0 -14.3
Platinum 1,025.0 944.0 8.6 -12.8
Palladium 1,908.0 1,767.0 8.0 -13.8
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Energy
Oil (WTI) (US$/barrel) 80.5 66.2 21.6 43.3
Oil (Brent) (US$/barrel) 85.6 70.6 20.8 46.1
Natural Gas (US$/Metric Million British Thermal 7.0 4.6 54.9 65.7
Unit)
---------------- ---------------- ---------------- ----------------
Bulk Commodities (US$/tonne)
Iron ore 103.0 100.0 3.0 -26.0
Coking coal 265.0 317.5 -16.5 62.0
Thermal coal 398.5 152.0 162.2 161.9
---------------- ---------------- ---------------- ----------------
Equity Indices
MSCI ACWI2 Metals and Mining Index (US$) 369.8 357.7 3.4 n/a
MSCI ACWI2 Metals and Mining Index (£) 516.6 449.9 14.8 n/a
MSCI3 World Energy Index (US$) 255.5 168.3 51.8 n/a
MSCI3 World Energy Index (£) 356.9 211.6 68.7 n/a
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Source: Datastream.
1 Average of 01/12/20-30/11/21 to 01/12/21-30/11/22
2 Morgan Stanley Capital International All Country Weighted Index
3 Morgan Stanley Capital International
Portfolio activity & investment performance
In contrast to the challenges faced by broader equity markets and the deluge of
negative headlines through the year, the Company delivered another excellent
year of returns, with shareholders experiencing a share price total return of
44.8% and NAV total return of 44.5% (all percentages are in British Pound
Sterling with dividends reinvested).
In the second half of the year, oil markets steadily sold off from over US$110
per barrel at the end of May to US$80 per barrel by the Company's year-end.
However traditional energy equities held up remarkably well, with a wide
performance differential versus the underlying commodity as shown in Figure 1
contained in the Annual Report for the year ended 30 November 2022.
Given this dislocation, we reduced the percentage of the Company's assets
invested in traditional energy companies in the latter part of the year and
also rotated some of the holdings within the traditional energy holdings to
reduce the oil price sensitivity (commodity beta) of the portfolio.
Also in terms of reducing positions in the second half of the year, we pared
back some of our lithium mining exposure. As discussed in the Mining section
later in this report, lithium prices had a terrific year and the lithium
producing equities performed extremely well. With two of the three main
Electric Vehicles (EV) subsidies in China set to finish at the end of 2022 and
a gloomy outlook for US discretionary spending, we took profits but retained
some modest positions.
On the other side of these sales, we added to holdings in some of our energy
transition and other mining companies. Given the underperformance of growth
companies versus value companies over the last year, a number of energy
transition companies that we see as long-term winners had become meaningfully
cheaper in terms of earnings multiples towards the end of the period. Whether
we have timed the exact bottom here remains to be seen but we are confident
that on a longer-term view, the recent entry points will prove to be
attractive. Regarding mining, again it is tough to pick a precise turning point
in China given the key driver there is government policy regarding COVID-19
restrictions. However, there was a clear pivot during the fourth quarter of
2022, which gave us the confidence to add to a number of mining positions where
the underlying commodities will likely benefit from better real estate and
infrastructure activity in China in 2023.
Income
This year was a strong year for the Company's income. The strength of commodity
prices, in particular energy commodities, combined with the financial
discipline of the companies, resulted in a plethora of ordinary dividend
increases and special dividends. The decision to be overweight in traditional
energy companies for most of the period also helped boost the dividend income
received, as this overweight was funded by an underweight to energy transition
companies, which typically pay meagre dividends.
The income received by the Company was also helped during the year by a weaker
British Pound Sterling. The average US Dollar - British Pound Sterling exchange
rate for 2022 was $1.24, compared to $1.38 for 2021. With most of the Company's
portfolio companies paying dividends in US Dollars, this was a helpful tailwind
for income.
As discussed elsewhere in this report, the balance sheets of the mining
companies and traditional energy companies remain in great shape. However,
given the recent pullback in oil prices and the incremental increases in
capital expenditure guidance from mining companies for 2023, the probability of
further dividend increases next year is quite low.
As in 2021, option activity was relatively modest in 2022 when compared to the
late 2010s for the Company. The market volatility presented a number of
attractive put writing opportunities during the year that we took advantage of.
These trades were typically quite well-timed with only a minority of the
options maturing in the money and being exercised against us.
Mining
If you had known at the start of 2022 that China, the world's largest consumer
of mined commodities, would remain in various states of lockdown through almost
the entire year then it is highly likely you would have forecast a tough year
for the mining sector. Whilst the sector did only deliver a modest positive
return, it was still better than broader markets with the MSCI Metals and
Mining Index total return of +10.0% compared to the S&P 500 Index total return
of -9.2% and the FTSE 100 Index total return of -3.4% (all in US$, total return
for the year ended 30 November 2022). Encouragingly, the Company's mining
holdings performed very well during the year too - so what drove the strong
performance despite much of China's real estate sector being weak throughout
the year?
There were two key factors - supply challenges persisted across a number of
commodities and demand for those commodities related to the energy transition
surprised even the most optimistic of forecasts.
Looking more closely at the first driver - the supply challenges. We noted
these in the interim report, specifically in relation to copper supply falling
short of expectations from large producers such as Chile. These disappointments
were not just isolated to Chile - as the chart in Figure 2 contained in the
Annual Report for the year ended 30 November 2022 shows, copper companies with
operations across the world downgraded production guidance relative to their
aspirations at the start of the year.
We are not seeing this reverse - those companies that have guided for 2023 have
so far tended to bring down numbers again compared to previous guidance as
shown in the chart in Figure 3 contained in the Annual Report for the year
ended 30 November 2022. This is likely to lead to a deficit of supply relative
to demand again in 2023, which will tighten global inventories and be
supportive of copper prices.
Looking out beyond 2023 does not offer much relief on the supply side for
copper. The lack of significant discoveries in the last decade, the challenges
to permit new mines and the discipline of companies have all combined to result
in a ripple, rather than a wave, of new supply. This can be seen in the chart
in Figure 4 contained in the Annual Report for the year ended 30 November 2022
- it is worth noting that the copper market has grown a few percent a year
over the last 20 years so as a proportion of supply/demand, the chart would be
even more extreme.
Given the scarcity of good quality copper assets, we saw M&A in this space
again during the second half of the year. BHP made an approach for
Australian-focused copper miner OZ Minerals that was initially rebuffed but a
higher offer, conditional on due diligence, was later accepted by their board.
The Company was a holder of OZ Minerals having also generated income via put
option selling after the first bid was deemed insufficient. With this scarcity
of copper assets likely to get more acute over the next decade, the Company
also took positions in two earlier stage copper companies, that have
exploration and development potential, and crucially have proven management
teams/boards, something often lacking at the smaller end of the market.
The second positive tailwind for the mining sector was the continued growth in
demand for mined commodities from energy transition related applications.
Battery related metals, in particular lithium, enjoyed huge price increases
during the year as demand from electric car manufacturers drove prices to
all-time highs (as shown in the chart in Figure 5 contained in the Annual
Report for the year ended 30 November 2022). The price at the end of the year
is well above the incentive price to encourage the development of new supply.
However with all of the challenges of permitting new mines, financing them and
then constructing them, we would expect the lithium price to remain well above
the top end of the cost curve for years to come.
Energy Transition
Macro events once again played an important role in shaping price performance
across the energy transition universe. On the one hand, persistently
higher-than-expected inflation shown in the chart in Figure 6, contained in the
Annual Report for the year ended 30 November 2022, has continued to cause
margin headwinds for many of the renewables and autos manufacturers. On the
other hand, the unprecedented rise in interest rates across the curve has
placed downward pressure on valuation multiples for longer-duration growth
stocks, many of which reside in the energy transition space.
Energy policy has also played a hand in 2022. The Biden Administration
announced the Inflation Reduction Act (IRA) during the summer. The IRA will
direct nearly $400 billion in federal funding towards clean energy and,
according to a McKinsey1 article, "represents the third piece of legislation
passed since late 2021 that seeks to improve US economic competitiveness,
innovation and industrial productivity". Several tax credit modifications have
been included in the IRA including production credits for nuclear ($15/
megawatthours) and subsidies for hydrogen ($3/kilogram). Interestingly, many of
the IRA incentives contain criteria which proactively reward investments which
encourage extraction, processing and manufacturing in the United States. This
provided a significant positive tailwind to stocks with exposure to solar, wind
and hydrogen with the S&P Global Clean Energy Index jumping almost 20%
following the initial announcement as shown in the chart in Figure 7 contained
in the Annual Report for the year ended 30 November 2022.
Russia's invasion of the Ukraine in February upended global energy and power
markets. Prices for natural gas in the UK hit record highs in recent weeks as
shown in the chart in Figure 8 contained in the Annual Report for the year
ended 30 November 2022 as Europe struggles to fully replace Russian gas
imports. Europe faces a tough few years ahead as it weans itself off Russian
natural gas imports. Natural gas prices impact both power prices and industrial
feedstock costs, and Europe's 'energy burden' has increased far in excess of
the United States; as shown in the chart in Figure 9 contained in the Annual
Report for the year ended 30 November 2022, leaving the latter in a much
stronger position both in terms of the energy transition and of industrial
competitiveness. In order to combat soaring energy costs, European policy
makers enacted several measures aimed at capping prices and providing subsidies
to consumers ahead of peak demand in winter. Whilst gas demand has retrenched
by almost 25% in recent months (relative to the prior five-year average),
markets remain at the mercy of weather. We expect gas and power market
tightness to keep prices high right the way through next winter.
Traditional Energy
Through November 2022, the traditional energy sector posted another strong
positive total shareholder return, up +45.0% as shown in the chart in Figure 10
contained in the Annual Report for the year ended 30 November 2022, following
+38.0% in the prior fiscal year. The MSCI All-Country World Index (ACWI) was
down - 11.0% and up +20.0% over the same periods. With a strong tailwind from
rising commodity prices, a continued focus on cost savings and material stock
buybacks, the traditional energy sector posted some of the strongest positive
cash flow per share revisions in its history, explaining a large proportion of
its positive absolute performance, as shown in the chart in Figure 11 contained
in the Annual Report for the year ended 30 November 2022.
As we outlined last year, a key pillar of our investment case for traditional
energy was that of discipline. Following more than a decade of poor returns on
and of capital, the energy sector was finally on a path to moderate spending,
reduce leverage and return excess free cash flow to long-suffering investors.
Management teams are increasingly incentivised to focus on per share metrics
rather than topline growth. The result has been increasing cash flow and, in
turn, improved stock price performance.
One other notable change in company strategy in the last 2 years has been the
amount of capital now being allocated towards lower carbon business
opportunities. The pace of investment into these areas should not be
overlooked, as more oil and gas companies start to lean into the energy
transition, seeking to meet customers' needs to reduce their own carbon
footprints. Capital investment into energy projects is also rising as shown in
the chart in Figure 12 contained in the Annual Report for the year ended 30
November 2022, albeit not at the same pace as activity levels, as the North
American energy industry faces its own inflation challenges. The US-focused
upstream Exploration and Production sector as shown in the chart in Figure 13
contained in the Annual Report for the year ended 30 November 2022, are facing
double digit service cost inflation which, in the absence of sharply higher
commodity prices, is likely to see free cash flows under pressure in 2023.
From a regional perspective, the divergence in performance between European
Energy companies and North American peers was stark. By way of example,
ExxonMobil was up by +82% compared with Shell (up by +33% over the period).
Part of this reflects the fact that the European Energy companies in aggregate
cut dividends markedly during COVID-19, whilst large-cap North American peers
did not suffer the same ignominy. Yield seeking investors were rightly
chastened by this as European Energy companies had represented a bastion of
income for a long time. We continue to believe that there is a material swathe
of European investors that remain reluctant to own traditional energy companies
based on their carbon footprint. Notwithstanding the challenges in negotiating
these regulations, we continue to believe that many of these traditional energy
companies can be a part of the solution rather than the sole root of the
problem. Put simply, these companies can help investors navigate through the
energy transition by providing secure, affordable energy today as well as
profitably decarbonising for tomorrow.
Arguably the most important macro event in global energy markets was Russia's
invasion of Ukraine at the end of February. Europe's reliance on Russian energy
(and food) imports was laid bare sending natural gas and power prices to record
levels. In stark contrast to natural gas and power prices, crude oil peaked in
the summer of 2022, before retrenching back to pre-invasion levels. This partly
reflects the fact that oil is more fungible and has largely found new markets
as Europe instigated its 'ban' on Russian imports effective 5 December 2022.
Substituting natural gas is far more challenging albeit not impossible. New
sources are already making their way in from US Liquified Natural Gas as well
as fresh investment stimulating higher imports from North Africa. But, all of
this will take time, requiring demand to recalibrate lower in the next 1-2
years to help balance the market. Whilst governments have already pushed
through price caps across gas and power markets and industrial users have
ratcheted back consumption, residential consumers continue to respond to cold
weather leaving higher prices the route to rebalancing markets as shown in the
charts in Figure 8 and Figure 9 contained in the Annual Report for the year
ended 30 November 2022.
Outlook
The year 2022 was marked by a flurry of unexpected events from the invasion of
Ukraine to the replumbing of global energy markets, or the Federal Reserve's
pivot from quantitative easing to quantitative tightening. We continue to
believe that inflation will be persistently higher than recent years as the
world looks to replumb supply chains across multiple industries. All of this is
set against a backdrop of continued geopolitical fragmentation. Yet, rapidly
rising interest rates and the subsequent hit to equity values are gradually
opening up some attractive opportunities across our investment universe, even
as economic recession looms large across the globe.
Traditional commodities are in an unusual spot in the cycle. China is finally
exiting COVID-19 induced lock downs. We doubt it will be a smooth restart
across the Chinese economy but the underlying pull on demand for traditional
commodities will cast a strong positive tailwind for oil prices as shown in
Figure 14 contained in the Annual Report for the year ended 30 November 2022,
with incremental oil demand in the coming months in the order of 0.5-1.0
million barrels per day as shown in Figure 15 contained in the Annual Report
for the year ended 30 November 2022. This should be contrasted against recent
downgrades to US shale oil production of almost 1.0 million barrels per day.
Industrial mined commodities are also likely to be well supported as the
Chinese economy regains its pre-COVID-19 levels and renewables demand for
copper, nickel, lithium and aluminium continues apace. This comes at a time
when investment in supply across the traditional commodities space remains at
historic lows. Recent commentary from the US Administration stated an ambition
to replenish the US Strategic Petroleum Reserve at oil prices between US$67-71
per barrel.
Policy will continue to be a strong driver of equity performance next year.
Yet, the need to balance energy security with decarbonisation is set to drive
diverging policy agendas in different regions. Indeed, we believe that in many
instances policy ambitions around decarbonisation continue to run ahead of
demand-side behaviour. This consumer inertia is causing severe bottlenecks
across supply chains and a repricing of both traditional energy and electricity
base load prices.
In Europe, for instance, energy security concerns have galvanised policy makers
to strive for ever more ambitious renewables targets. Spurred by the invasion
of the Ukraine, the 27 countries within the European Union will play a key role
in driving an increase in global renewables capacity of almost 2,400GW through
2027 according to the IEA's latest renewables report1. This represents an 85%
acceleration from the previous five years, and almost 30% higher than what was
forecast in last year's report. Whilst this ambitious growth outlook bodes well
for many of our companies, we are acutely aware that permitting remains a key
impediment to expediting this growth.
TOM HOLL AND MARK HUME
BlackRock Investment Management (UK) Limited
1 February 2023
1 Source: IEA, Renewables 2022, IEA Paris
http://www.iea.org/reports/renewables-2022,
License: CC BY 4.0.
Distribution of investments as at 30 November 2022
ASSET ALLOCATION - GEOGRAPHY
Global 56.8%
United States of America 19.2%
Canada 10.3%
Brazil 4.4%
Germany 3.7%
Australia 3.0%
Latin America1 1.7%
France 0.5%
Ireland 0.4%
1. Latin America represents Argentina.
ASSET ALLOCATION - COMMODITY
Mining 47.1%
Traditional Energy 31.0%
Energy Transition 21.9%
s
Energy Transition (21.9%)
Energy Efficiency 6.4%
Electrification 6.3%
Renewables 4.9%
Transport 4.3%
Traditional Energy (31.0%)
Exploration & Production 16.2%
Integrated 10.5%
Oil Services 2.1%
Refining & Marketing 1.2%
Distribution 1.0%
Mining (47.1%)
Diversified 22.2%
Copper 8.9%
Industrial Minerals 6.0%
Aluminium 3.6%
Steel 2.4%
Gold 1.1%
Diamonds 0.9%
Uranium 0.8%
Iron 0.6%
Nickel 0.6%
Source: BlackRock.
Ten largest investments
1 + Glencore (2021: 2nd)
Diversified mining group
Market value: £15,024,000
Share of investments: 7.3% (2021: 5.8%)
One of the world's largest globally diversified natural resource 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: £9,000,000
Share of investments: 4.4%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 + BHP (2021: 4th)
Diversified mining group
Market value: £8,667,000
Share of investments: 4.2% (2021: 3.8%)
The world's largest diversified mining group by market capitalisation. The
group is an important global player in a number of commodities including iron
ore, copper, thermal and metallurgical coal, manganese, nickel, silver and
diamonds. BHP also has significant interests in oil, gas and liquefied natural
gas.
4 + Teck Resources (2021: 30th)
Diversified mining group
Market value: £7,516,000
Share of investments: 3.6% (2021: 1.4%)
A diversified mining group headquartered in Canada. Teck Resources is engaged
in mining and mineral development with operations and projects in Canada, the
US, Chile and Peru. The group has exposure to copper, zinc, steelmaking coal
and energy.
5 + First Quantum Minerals (2021: 6th)
Copper producer
Market value: £7,128,000
Share of investments: 3.5%2 (2021: 2.5%)
A Canadian-based mining and metals company whose principal activities include
mineral exploration, development and mining. Its main product is copper.
6 + Shell (2021: n/a)
Integrated oil group
Market value: £6,698,000
Share of investments: 3.2% (2021: n/a)
A British publicly traded multinational oil and gas group headquartered in
London. Shell is one of the world's largest independent energy companies,
operating in more than 70 countries. Shell explores and produces energy
products - fuels, oil, natural gas, lubricants, LPG, chemicals; including 100%
renewable electricity by Shell Energy.
7 + BP (2021: n/a)
Integrated oil group
Market value: £6,025,000
Share of investments: 2.9% (2021: n/a)
A British multinational oil and gas company headquartered in London. BP is one
of the oil and gas "supermajors" and one of the world's largest companies
measured by revenues and profits. It is a vertically integrated company
operating in all areas of the oil and gas industry, including exploration and
extraction, refining, distribution and marketing, power generation, and
trading; including low carbon businesses.
8 - ConocoPhillips (2021: 7th)
Exploration & Production
Market value: £5,570,000
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) companies based on production and proved reserves. It has
operations in 15 countries and are committed to the efficient and effective
exploration and production of oil and natural gas.
9 + NextEra Energy (2021: 53rd)
Electrification
Market value: £5,173,000
Share of investments: 2.5% (2021: 0.8%)
NextEra Energy is America's premier clean energy leader and the world's largest
producer of wind and solar energy. The company has a dominant market share in a
structurally growing renewables market.
10 + Canadian Natural Resources (2021: 12th)
Exploration & Production
Market value: £5,147,000
Share of investments: 2.5% (2021: 2.1%)
A senior Canadian oil and natural gas company. The company has a diversified
portfolio of assets in North America, the UK North Sea and Offshore Africa.
1 1.1% relates to interest in Vale shareholder debentures.
2 1.5% 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 36.8% of total investments (ten
largest investments as at 30 November 2021: 36.4%).
Investments as at 30 November 2022
Main Market
geographic value % of
exposure £'000 investments
Mining
Diversified
Glencore Global 15,024 7.3
Vale Brazil 6,735 } 4.4
Vale Debentures* Brazil 2,265
BHP Global 8,667 4.2
Teck Resources Global 7,516 3.6
Anglo American Global 2,839 1.4
Trident Global 1,907 0.9
Rio Tinto Global 822 0.4
---------------- ----------------
45,775 22.2
========== ==========
Copper
First Quantum Minerals Global 4,153 } 3.5
First Quantum Minerals 6.875% 15/10/27 Global 1,674
First Quantum Minerals 6.875% 01/03/26 Global 919
First Quantum Minerals 7.5% 01/04/25 Global 382
Freeport-McMoRan United 5,024 2.4
States
Filo Mining Latin 3,579 1.7
America
OZ Minerals Australia 2,005 1.0
Develop Global Australia 516 0.3
---------------- ----------------
18,252 8.9
========== ==========
Industrial Minerals
Albemarle Global 3,758 1.8
CF Industries United 3,542 1.7
States
Nutrien United 2,377 } 1.1
States
Nutrien Put Option 20/01/23 United (55)
States
Bunge Global 1,650 0.8
Lynas Corporation Australia 1,285 0.6
---------------- ----------------
12,557 6.0
========== ==========
Aluminium
Norsk Hydro Global 4,509 2.2
Alcoa Corp Global 2,818 1.4
---------------- ----------------
7,327 3.6
========== ==========
Steel
ArcelorMittal Global 1,857 } 1.3
ArcelorMittal 5.5% 18/05/23 Global 856
Steel Dynamics United 2,253 1.1
States
---------------- ----------------
4,966 2.4
========== ==========
Gold
Wheaton Precious Metals Global 2,373 1.1
---------------- ----------------
2,373 1.1
========== ==========
Diamonds
Mountain Province Diamonds 8% 15/12/22 Canada 1,798 0.9
---------------- ----------------
1,798 0.9
========== ==========
Uranium
Cameco Canada 1,636 0.8
---------------- ----------------
1,636 0.8
========== ==========
Iron
Labrador Iron Ore Canada 1,242 0.6
---------------- ----------------
1,242 0.6
========== ==========
Nickel
Nickel Mines Australia 1,169 0.6
---------------- ----------------
1,169 0.6
========== ==========
Total Mining 97,095 47.1
========== ==========
Traditional Energy
Exploration & Production
ConocoPhillips Global 5,570 2.7
Canadian Natural Resources Canada 5,147 2.5
Hess Global 4,229 2.0
Tourmaline Oil Canada 3,645 1.8
Arc Resources Canada 3,256 1.6
EOG Resources United 3,076 1.5
States
Ovintiv United 2,570 1.2
States
Orron Energy Global 2,455 1.2
Diamondback Energy United 1,634 0.8
States
Santos Australia 978 0.5
Kosmos Energy United 745 0.4
States
---------------- ----------------
33,305 16.2
========== ==========
Integrated
Shell Global 6,698 3.2
BP Global 6,025 2.9
Cenovus Energy Canada 4,315 2.1
TotalEnergies Global 2,802 1.4
Chevron Global 1,753 0.9
Gazprom** Russian - -
Federation
---------------- ----------------
21,593 10.5
========== ==========
Oil Services
Tenaris Global 2,301 1.1
Patterson-UTI Energy United 2,088 1.0
States
---------------- ----------------
4,389 2.1
========== ==========
Refining & Marketing
Valero Energy United 2,476 1.2
States
---------------- ----------------
2,476 1.2
========== ==========
Distribution
Cheniere Energy United 2,157 1.0
States
---------------- ----------------
2,157 1.0
========== ==========
Total Traditional Energy 63,920 31.0
========== ==========
Energy Transition
Energy Efficiency
Ingersoll-Rand United 2,988 1.5
States
Schneider Electric Global 2,950 1.4
Analog Devices Global 2,682 1.3
Trane Technologies United 1,729 0.8
States
Texas Instruments Global 1,058 0.5
Soitec France 1,017 0.5
Kingspan Group Ireland 923 0.4
---------------- ----------------
13,347 6.4
========== ==========
Electrification
NextEra Energy United 5,173 2.5
States
EDP Renováveis Global 3,935 1.9
RWE Germany 3,817 1.9
---------------- ----------------
12,925 6.3
========== ==========
Renewables
Vestas Wind Global 4,060 2.0
First Solar Global 3,996 1.9
Sunnova Energy International United 2,065 1.0
States
---------------- ----------------
10,121 4.9
========== ==========
Transport
Samsung SDI Global 5,099 2.5
Infineon Technologies Germany 3,832 1.8
---------------- ----------------
8,931 4.3
========== ==========
Total Energy Transition 45,324 21.9
========== ==========
Total Portfolio 206,339 100.0
========== ==========
Comprising:
Equity and debt investments 206,394 100.0
Derivative financial instruments - written options (55) -
---------------- ----------------
206,339 100.0
========== ==========
* 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).
** The investment in Gazprom has been valued at a nominal value of £0.01 as
secondary listings of the depositary receipts on Russian companies have been
suspended from trading.
All investments are ordinary shares unless otherwise stated. The total number
of holdings (including options) at 30 November 2022 was 68 (2021: 68). There
was one open option as at 30 November 2022 (2021: none).
The equity and fixed income investment total of £206,394,000 (2021: £
127,784,000) above before the deduction of the negative option valuation of £
55,000 (2021: £nil) represents the Group's total investments held at fair value
as reflected in the Consolidated and Parent Company Statements 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 £14,345,000
(2021: £12,927,000) and cash and cash equivalents of £6,214,000 (2021: £
6,552,000) that are also disclosed in the Consolidated and Parent Company
Statements of Financial Position. Details of the AIC methodology for
calculating gearing are given in the Glossary contained in the Annual Report
for the year ended 30 November 2022.
As at 30 November 2022, the Company did not hold any equity interests
comprising more than 3% of any company's share capital.
Strategic report
The Directors present the Strategic Report of the Company for the year ended 30
November 2022. The aim of the Strategic Report is to provide shareholders with
the information required to enable them to assess how the Directors have
performed in their duty to promote the success of the Company for the
collective benefit of shareholders.
The Chairman's Statement together with the Investment Manager's Report and the
Section 172 Statement setting out how the Directors promote the success of the
Company form part of the Strategic Report. The Strategic Report was approved by
the Board at its meeting on 1 February 2023.
Business and management of the company
BlackRock Energy and Resources Income Trust plc (the Company) is an investment
trust company that has a premium listing on the London Stock Exchange. Its
principal activity is portfolio investment and option writing. The Company's
wholly owned subsidiary is BlackRock Energy and Resources Securities Income
Company Limited (together 'the Group'). Its principal activity is investment
dealing.
Investment trusts, like unit trusts and open-ended investment companies
(OEICs), are pooled investment vehicles which allow exposure to a diversified
range of assets through a single investment thus spreading, although not
eliminating, investment risk. In accordance with the Alternative Investment
Fund Managers' Directive (AIFMD) the Company is an Alternative Investment Fund
(AIF). BlackRock Fund Managers Limited (the Manager) is the Company's
Alternative Investment Fund Manager (AIFM). The management of the investment
portfolio and the administration of the Company have been contractually
delegated to the Manager. The Manager, operating under guidelines determined by
the Board, has direct responsibility for decisions relating to the running of
the Company and is accountable to the Board for the investment, financial and
operating performance of the Company.
The Company delegates fund accounting services to the Manager, which in turn
subdelegates these services to the Fund Accountant, The Bank of New York Mellon
(International) Limited. The Company sub-delegates registration services to the
Registrar, Computershare Investor Services PLC. Other service providers include
the Depositary, also performed by The Bank of New York Mellon (International)
Limited. Details of the contractual terms with these service providers are set
out in the Directors' Report contained in the Annual Report for the year ended
30 November 2022.
Business model
The Company invests in accordance with the investment objective. The Board is
collectively responsible to shareholders for the long-term success of the
Company. There is a clear division of responsibility between the Board and the
Manager. Matters reserved for the Board include setting the Company's strategy,
including its investment objective and policy, setting limits on gearing,
capital structure, governance, and appointing and monitoring of the performance
of service providers, including the Manager. As the Company's business model
follows that of an externally managed investment trust, it does not have any
employees and outsources its activities to third party service providers
including the Manager who is the principal service provider.
Investment objective
The Company's objectives are to achieve an annual dividend target and, over the
long term, capital growth by investing primarily in securities of companies
operating in the mining and energy sectors.
Investment policy and strategy
The Company seeks to achieve its objectives through a focused portfolio,
consisting of approximately thirty to one hundred and fifty securities.
Although the Company has the flexibility to invest within this range, at 30
November 2022 the portfolio consisted of 68 investments (including one open
option contract), and the detailed portfolio listing is provided above.
There are no restrictions on investment in terms of geography or sub-sector
and, in addition to equities, other types of securities, such as convertible
bonds and debt issued primarily by mining or energy companies, may be acquired.
Although most securities will be quoted, listed or traded on an investment
exchange, up to 10% of the gross assets of the Group, at the time of
investment, may be invested in unquoted securities. Investment in securities
may be either direct or through other funds, including other funds managed by
BlackRock or its associates, with up to 15% of the portfolio being invested in
other listed investment companies, including listed investment trusts. Up to
10% of the gross assets of the Group, at the time of investment, may be
invested in physical assets, such as gold and in securities of companies that
operate in the commodities sector other than the mining and energy sectors.
No more than 15% of the gross assets of the Group will be invested in any one
company as at the date any such investment is made and the portfolio will not
own more than 15% of the issued shares of any one company, other than the
Company's subsidiary. The Group may deal in derivatives, including options and
futures, up to a maximum of 30% of the Group's assets for the purposes of
efficient portfolio management and to enhance portfolio returns. In addition,
the Group is also permitted to enter into stock lending arrangements up to a
maximum of 33.3% of the total asset value of the portfolio.
The Group may, from time to time, use borrowings to gear its investment policy
or in order to fund the market purchase of its own ordinary shares. This
gearing typically is in the form of an overdraft or short-term facility, which
can be repaid at any time. Under the Company's Articles of Association, the
Board is obliged to restrict the borrowings of the Company to an aggregate
amount equal to 40% of the value of the gross assets of the Group. However,
borrowings are not anticipated to exceed 20% of gross assets at the time of
drawdown of the relevant borrowings.
The Group's financial statements are maintained in British Pound Sterling.
Although many investments are denominated and quoted in currencies other than
British Pound Sterling, the Company does not intend to employ a hedging policy
against fluctuations in exchange rates but may do so in the future if
circumstances warrant implementing such a policy.
No material change will be made to the investment policy without shareholder
approval.
Environmental, social and governance (ESG) impact
The Board's ESG approach is set out in the Annual Report for the year ended 30
November 2022. The direct impact of the Company's activities is minimal as it
has no employees, premises, physical assets or operations either as a producer
or a provider of goods or services. Neither does it have customers. Its
indirect impact occurs through the investments that it makes, and this is
managed through BlackRock's approach to ESG integration.
Performance
Details of the Company's performance for the year are given in the Chairman's
Statement. The Investment Manager's Report includes a review of the main
developments during the year, together with information on investment activity
within the Company's portfolio.
Results and dividends
The Company's revenue earnings for the year amounted to 4.99p per share (2021:
4.96p). Details of dividends paid and declared in respect of the year, together
with the Company's dividend policy, are set out in the Chairman's Statement.
Future prospects
The Board's main focus is the achievement of an annual dividend target and,
over the long term, capital growth. The future of the Company is dependent upon
the success of the investment strategy. The outlook for the Company is
discussed in both the Chairman's Statement and in the Investment Manager's
Report.
Employees, social, community and human rights issues
The Company has no employees, and all the Directors are non-executive,
therefore, there are no disclosures to be made in respect of employees. The
Company believes that it is in shareholders' interests to consider
environmental, social and governance factors and human rights issues when
selecting and retaining investments. Details of the Company's policy on
socially responsible investment are set out in the Annual Report for the year
ended 30 November 2022.
Modern slavery act
As an investment vehicle the Company does not provide goods or services in the
normal course of business and does not have customers. Accordingly, the
Directors consider that the Company is not required to make any slavery or
human trafficking statement under the Modern Slavery Act 2015. The Board
considers the Company's supply chain, dealing predominantly with professional
advisers and service providers in the financial services industry, to be low
risk in relation to this matter.
Directors and gender representation
The Directors of the Company are set out in the Governance structure and
Directors' biographies contained in the Annual Report for the year ended 30
November 2022. All the Directors held office throughout the year with the
exception of Mrs Carole Ferguson (who was appointed to the Board on 22 December
2021). The Board consists of two male Directors and two female Directors.
Key performance indicators
A number of performance indicators (KPIs) are used to monitor and assess the
Company's success in achieving its objectives and to measure its progress and
performance. The principal KPIs are described below:
PERFORMANCE
At each meeting the Board reviews the performance of the portfolio as well as
the net asset value and share price for the Company and compares this to the
performance of other companies in the peer group. The Company does not have a
benchmark; however, the Board also reviews performance in the context of the
blended performance of the EMIX Global Mining (ex Gold) Index, MSCI World
Energy Index and the S&P Global Clean Energy Index and a 40:30:30 composite of
the three indices effective from 1 June 2020. The Board also monitors
performance relative to a peer group of commodities and natural resources
focused funds and also regularly reviews the Company's performance attribution
analysis to understand how performance was achieved. This provides an
understanding of how components such as sector exposure, stock selection and
asset allocation impacted performance. Information on the Company's performance
is given in the performance record and the Chairman's Statement and Investment
Manager's Report.
SHARE RATING
The Board monitors the level of the Company's premium or discount to NAV on an
ongoing basis and considers strategies for managing any premium or discount. In
the year to 30 November 2022, the Company's share price to NAV traded in the
range of a discount of 12.1% to a premium of 9.2% on a cum income basis. The
average discount for the year was 2.9%. A total of 15,390,194 new shares were
issued and a total of 2,747,643 shares were issued from treasury during the
year and further details are given in the Chairman's Statement. No shares were
bought back during the year. Details of shares issued or bought back since the
year end date are given in note 14 contained in the Annual Report for the year
ended 30 November 2022.
Further details setting out how the discount or premium at which the Company's
shares trade is calculated are included in the Glossary contained in the Annual
Report for the year ended 30 November 2022.
ONGOING CHARGES
The ongoing charges represent the Company's management fee and all other
recurring operating expenses, excluding finance costs, direct transaction
costs, custody transaction charges, VAT recovered, taxation, prior year
expenses written back and certain non-recurring items, expressed as a
percentage of average daily net assets. The ongoing charges are based on actual
costs incurred in the year as being the best estimate of future costs. The
Company's Manager has also agreed to cap ongoing charges by rebating a portion
of the management fee to the extent that the Company's ongoing charges exceed
1.25% of average net assets. The Board reviews the ongoing charges and monitors
the expenses incurred by the Company on an ongoing basis. A definition setting
out in detail how the ongoing charges ratio is calculated is included in the
Glossary contained in the Annual Report for the year ended 30 November 2022.
The Company's ongoing charges was 1.13% for the year ended 30 November 2022
(there was no management fee rebate due for the year).
DIVID TARGET AND INCOME GENERATION
The level of income is considered at each meeting and the Board receives
detailed income forecasts. The Board also monitors the risks and returns from
option writing, and regularly reviews the Company's levels of distributable
reserves.
The table below sets out the key KPIs for the Company. These KPIs fall within
the definition of 'Alternative Performance Measures' (APMs) under guidance
issued by the European Securities and Markets Authority (ESMA) and additional
information explaining how these are calculated is set out in the Glossary
contained in the Annual Report for the year ended 30 November 2022.
Year Year
Key Performance ended ended
Indicators 30 30
November November
2022 2021
Net asset value total return1,2 44.5% 34.4%
Share price total return1,2 44.8% 41.7%
Discount to net asset value (at year end)2,3 6.8% 7.0%
Revenue return per share 4.99p 4.96p
Dividends per share 4.40p 4.10p
Ongoing charges2, 4 1.13% 1.21%
========= =========
1 This measures the Company's NAV and share price total returns, which
assumes dividends paid by the Company have been reinvested.
2 Alternative Performance Measures, see Glossary contained in the Annual
Report for the year ended 30 November 2022.
3 This is the difference between the share price and the cum-income NAV per
share.
4 Ongoing charges represent the management fee and all other recurring
operating expenses excluding finance costs, direct transaction costs, custody
transaction charges, VAT recovered, taxation, prior year expenses written back
and certain non-recurring items, expressed as a percentage of average daily net
assets.
Principal risks
The Company is exposed to a variety of risks and uncertainties. The Board has
in place a robust process to identify, assess and monitor the principal risks
of the Company. A core element of this process is the Company's risk register
which identifies the risks facing the Company and assesses the likelihood and
potential impact of each risk and the controls established for mitigation. A
residual risk rating is then calculated for each risk.
The risk register is regularly reviewed, and the risks reassessed. The risk
environment in which the Company operates is also monitored and regularly
appraised. New risks are also added to the register as they are identified
which ensures that the document continues to be an effective risk management
tool.
The risk register, its method of preparation and the operation of key controls
in the Manager's and third-party service providers' systems of internal control
are reviewed on a regular basis by the Audit and Management Engagement
Committee. In order to gain a more comprehensive understanding of the Manager's
and other third-party service providers' risk management processes, and how
these apply to the Company's business, BlackRock's internal audit department
provides an annual presentation to the Audit and Management Engagement
Committee Chairman setting out the results of testing performed in relation to
BlackRock's internal control processes. The Audit and Management Engagement
Committee also periodically receives presentations from BlackRock's Risk &
Quantitative Analysis teams, and reviews Service Organisation Control (SOC 1)
reports from BlackRock and other key service providers. The Custodian is
appointed by the Company's Depositary and does not have a direct contractual
relationship with the Company.
The Board has undertaken a robust assessment of both the principal and emerging
risks facing the Company, including those that would threaten its business
model, future performance, solvency or liquidity. The COVID-19 pandemic has
given rise to unprecedented challenges for businesses across the globe.
Additionally, the risk that unforeseen or unprecedented events including (but
not limited to) heightened geo-political tensions such as the war in Ukraine,
high inflation and the current cost of living crisis has had a significant
impact on global markets. The Board has taken into consideration the risks
posed to the Company by these events and incorporated them into the Company's
risk register. The risks identified by the Board have been described in the
table that follows, together with an explanation of how they are managed and
mitigated. Emerging risks are considered by the Board as they come into view
and are incorporated into the existing review of the Company's risk register.
Additionally, the Manager considers emerging risks in numerous forums and the
Risk and Quantitative Analysis team produces an annual risk survey. Any
material risks of relevance to the Company identified through the annual risk
survey will be communicated to the Board. The Board will continue to assess
these risks on an ongoing basis. In relation to the UK Code, the Board is
confident that the procedures that the Company has put in place are sufficient
to ensure that the necessary monitoring of risks and controls has been carried
out throughout the reporting period.
The principal risks and uncertainties faced by the Company during the financial
year, together with the potential effects, controls and mitigating factors are
set out in the following table.
Principal risk Mitigation/control
Investment performance
The returns achieved are reliant primarily upon the performance of To manage this risk the Board:
the portfolio. · regularly reviews the Company's
The Board is responsible for: investment mandate and long-term strategy;
· setting the investment strategy to fulfil the Company's · has set investment restrictions
objective; and and guidelines which the Investment Manager
· monitoring the performance of the Investment Manager and monitors and regularly reports on;
the implementation of the investment strategy. · receives from the Investment
An inappropriate investment strategy may lead to: Manager a regular explanation of stock
· poor performance; selection decisions, portfolio exposure,
· a reduction or permanent loss of capital; and gearing and any changes in gearing and the
· dissatisfied shareholders and reputational damage. rationale for the composition of the
The Board is also cognisant of the long-term risk to performance investment portfolio; and
from inadequate attention to ESG issues, and in particular the · monitors the maintenance of an
impact of climate change. More detail in respect of these risks adequate spread of investments in order to
can be found in the AIFMD Fund Disclosures document available on minimise the risks associated with factors
the Company's website at www.blackrock.com/uk/individual/ specific to particular sectors, based on
literature/policies/ the diversification requirements inherent
itc-disclosure-blackrock-energy-and-resources-income-trust-plc.pdf in the investment policy.
ESG analysis is integrated in the Manager's
investment process. This is monitored by
the Board.
Income/dividend
The ability to pay dividends, and future dividend growth, is The Board monitors this risk through the
dependent on a number of factors including the level of dividends receipt of detailed income forecasts and
earned from the portfolio and income generated from the option considers the level of income at each
writing strategy. Income returns from the portfolio are dependent, meeting.
among other things, upon the Company successfully pursuing its The Company has the ability to make
investment policy. dividend distributions out of special
Any change in the tax treatment of dividends or interest received reserves and capital reserves as well as
by the Company including as a result of withholding taxes or revenue reserves to support any dividend
exchange controls imposed by jurisdictions in which the Company target. These reserves totalled £125.1
invests may reduce the level of dividends received by million at 30 November 2022.
shareholders. In setting the dividend target each year,
the Board is mindful of the balance of
shareholder returns between income and
capital.
Gearing
The Company's investment strategy may involve the use of gearing, The Company's Articles of Association limit
including borrowings. borrowings to an aggregate amount equal to
Gearing may be generated through borrowing money or increasing 40% of the value of the gross assets of the
levels of market exposure through the use of derivatives. The Company. However, to further manage this
Company currently has an overdraft facility with The Bank of New risk the Board does not anticipate
York Mellon (International) Limited. The use of gearing exposes borrowings will exceed 20% of gross assets
the Company to the risk associated with borrowing. at the time of drawdown.
Gearing provides an opportunity for greater returns where the The use of derivatives, including options
return on the Company's underlying assets exceeds the cost of and futures has been limited to a maximum
borrowing. It is likely to have the opposite effect where the of 30% of the Group's assets.
return on the underlying assets is below the cost of borrowings. The Investment Manager will only use
Consequently, the use of borrowings by the Company may increase gearing when confident that market
the volatility of the NAV. conditions and opportunities exist to
enhance investment returns.
The Investment Manager reports to the Board
on a regular basis the levels of gearing in
place as compared to limits set by the
Board under the investment policy and by
the Manager as Alternative Investment Fund
Manager (AIFM) under the Alternative
Investment Fund Managers' Directive, as
retained and onshored in the UK (AIFMD).
The Board monitors gearing levels and will
raise any queries or concerns in respect of
changes in the gearing level with the
Investment Manager.
Legal and regulatory compliance
The Company has been approved by HM Revenue & Customs as an The Investment Manager monitors investment
investment trust, subject to continuing to meet the relevant movements and the amount of proposed
eligibility conditions and operates as an investment trust in dividends, if any, to ensure that the
accordance with Chapter 4 of Part 24 of the Corporation Tax Act provisions of Chapter 4 of Part 24 of the
2010. As such, the Company is exempt from capital gains tax on the Corporation Tax Act 2010 are not breached.
profits realised from the sale of its investments. Any breach of The results are reported to the Board at
the relevant eligibility conditions could lead to the Company each meeting.
losing investment trust status and being subject to corporation Compliance with the accounting rules
tax on capital gains realised within the Company's portfolio. affecting investment trusts is carefully
Any serious breach could result in the Company and/or the and regularly monitored.
Directors being fined or the subject of criminal proceedings or The Company Secretary and the Company's
the suspension of the Company's shares which would in turn lead to professional advisers provide regular
a breach of the Corporation Tax Act 2010. reports to the Board for their review in
Amongst other relevant laws and regulations, the Company is respect of compliance with all applicable
required to comply with the provisions of the Companies Act 2006, rules and regulations.
the Alternative Investment Fund Managers' Directive, the Market Following authorisation under the AIFMD,
Abuse Regulation, the UK Listing Rules, international sanctions the Company and its appointed AIFM are
and the FCA's Disclosure Guidance and Transparency Rules. subject to the risks that the requirements
of this Directive are not correctly
complied with.
The Board and the AIFM also monitor changes
in government policy and legislation which
may have an impact on the Company.
The Market Abuse Regulation came into force
on 3 July 2016. The Board has taken steps
to ensure that individual Directors (and
their Persons Closely Associated) are aware
of their obligations under the regulation
and has updated internal processes, where
necessary, to ensure the risk of
non-compliance is effectively mitigated.
Operational
The Company relies on the services provided by third parties. Due diligence is undertaken before
Accordingly, it is dependent on the control systems of the Manager contracts are entered into with third party
and The Bank of New York Mellon (International) Limited (who act service providers. Thereafter, the
as both Depositary, Custodian and Fund Accountant and who maintain performance of the provider is subject to
the Company's assets, settlement and accounting records). The regular review and reported to the Board.
Company's share register is maintained by the Registrar, The Fund Accountant's and the Manager's
Computershare Investor Services PLC. The security of the Company's internal control processes are regularly
assets, dealing procedures, accounting records and adherence to tested and monitored throughout the year
regulatory and legal requirements depend on the effective and are evidenced through their SOC 1
operation of the systems of the third-party service providers. reports, which are subject to review by an
Failure by any service provider to carry out its obligations to Independent Service Assurance Auditor. The
the Company could have a material adverse effect on the Company's SOC 1 reports provide assurance in respect
performance. Disruption to the accounting, payment systems or of the effective operation of internal
custody records could prevent the accurate reporting and controls. These reports are provided to the
monitoring of the Company's financial position. Audit and Management Engagement Committee.
Inadequate succession arrangements, particularly of the Manager, The Company's financial assets are subject
could disrupt the level of service provided. to a strict liability regime and in the
event of a loss of assets, the Depositary
must return assets of an identical type or
the corresponding amount, unless able to
demonstrate the loss was a result of an
event beyond its reasonable control.
The Board reviews the overall performance
of the Manager, Investment Manager and all
other third-party service providers on a
regular basis.
The Board also considers the business
continuity arrangements of the Company's
key service providers on an ongoing basis
and reviews these as part of its review of
the Company's risk register.
The Board considers the Manager's
succession plans in so far as they affect
the services provided to the Company.
Market
Market risk arises from volatility in the prices of the Company's The Board considers the diversification of
investments. The price of shares of companies in the mining, the portfolio, asset allocation, stock
traditional energy and energy transition sectors can be volatile selection, and levels of gearing on a
and this may be reflected in the NAV and market price of the regular basis and has set investment
Company's shares. restrictions and guidelines which are
The Company invests in the mining, traditional energy and energy monitored and reported on by the Investment
transition sectors in many countries globally and will also be Manager. The Board monitors the
subject to country-specific risk. A lack of growth in world or implementation and results of the
country-specific industrial production may adversely affect metal investment process with the Investment
and energy prices. Manager.
Companies operating within the sectors in which the Company Under the Company's investment policy, the
invests may be impacted by new legislation governing climate Investment Manager has the ability to
change and environmental issues, which may have a negative impact invest in energy transition stocks and is
on their valuation and share price. Market risk includes the mindful of the impact of any shift in
potential impact of events which are outside the Company's energy consumption towards less carbon
control, including (but not limited to) heightened geo-political intensive energy supply. This is taken into
tensions and military conflict, a global pandemic and high account by the Investment Manager in
inflation. building a well diversified portfolio.
There is the potential for the Company to suffer loss through The Board also recognises the benefits of a
holding investments in the face of negative market movements. closed-end fund structure in extremely
volatile markets such as those experienced
with the COVID-19 pandemic, and more
recently the Russia-Ukraine conflict.
Unlike open-ended counterparts, closed-end
funds are not obliged to sell-down
portfolio holdings at low valuations to
meet liquidity requirements for
redemptions. During times of elevated
volatility, restrictions and impacts on
securities and markets following the
Russian invasion of the Ukraine and market
stress, the ability of a closed-end fund
structure to remain invested for the long
term enables the Portfolio Managers to
adhere to disciplined fundamental analysis
from a bottom-up perspective and be ready
to respond to dislocations in the market as
opportunities present themselves.
Financial
The Company's investment activities expose it to a variety of Details of these risks are disclosed in
financial risks that include interest rate risk and foreign note 16 to the Financial Statements
currency risk. contained in the Annual Report for the year
The Company invests in both British Pound Sterling and non-British ended 30 November 2022, together with a
Pound Sterling denominated securities. Consequently, the value of summary of the policies for managing these
investments in the portfolio made in non-British Pound Sterling risks.
currencies will be affected by currency movements.
Viability statement
In accordance with provision 31 of the 2018 UK Corporate Governance Code, the
Directors have assessed the prospects of the Company over a longer period than
the twelve months referred to by the 'Going Concern' guidelines. The Board is
cognisant of the uncertainty surrounding the potential duration of the
Russia-Ukraine conflict, its impact on the global economy and the prospects for
many of the Company's portfolio holdings. Notwithstanding this crisis, and
given the factors stated below, the Board expects the Company to continue for
the foreseeable future and has therefore conducted this review for a period of
five years. This is generally the investment holding period investors consider
while investing in the sector. The Board conducted this review for the period
up to the AGM in 2028.
In its assessment of the viability of the Company the Directors have noted
that:
· the Company predominantly invests in highly liquid, large listed
companies so its assets are readily realisable;
· the Company has gearing facilities in place and no concerns around
facilities, headroom or covenants;
· the Company's forecasts for revenues, expenses and liabilities are
relatively stable, it has largely fixed overheads which comprise a small
percentage of net assets and ongoing charges are capped at 1.25% of average net
asset value; and
· the business model should remain attractive for longer than five years
unless there is significant economic or regulatory change.
The Directors have also reviewed:
· the impact of a significant fall in global commodity equity markets on
the value of the Company's investment portfolio;
· the ability of portfolio companies to pay dividends, and the Company's
portfolio yield and ability to meet its dividend target over the longer term;
· the ongoing relevance of the Company's investment objective, business
model and investment policy in the current environment; and
· the level of demand for the Company's shares.
The Board has also considered a number of other factors in its assessment,
including:
· portfolio liquidity;
· setting the investment strategy to fulfill the Company's objective;
and monitoring the performance of the Investment Manager and the implementation
of the investment strategy. The Board regularly reviews the Company's
investment mandate and long-term strategy; it has set investment restrictions
and guidelines which the Investment Manager monitors and regularly reports to
the Board;
· the Company's revenue and expense forecasts. The Board is confident
that the Company's business model remains viable and that there are sufficient
resources to meet all liabilities as they fall due for the period under review;
· the Company's borrowing facility and the fact that the Company
continues to meet its financial covenants in respect of this facility;
· the long-term risk to performance from inadequate attention to ESG
issues, and in particular the impact of climate change. ESG analysis is
integrated in the Manager's investment process. This is monitored by the Board;
· the principal risks and uncertainties as set out above and the fact
that the Company has appropriate controls and processes in place to manage
these and to maintain its operating model;
· the operational resilience of the Company and its key service
providers and their ability to continue to provide a good level of service for
the foreseeable future;
· the effectiveness of business continuity plans in place for the
Company and key service providers; and
· the level of income generated by the Company and future income
forecasts.
Based on the results of their analysis, the Directors have concluded that there
is a reasonable expectation that the Company will be able to continue in
operation and meet its liabilities as they fall due over the period of their
assessment.
Section 172 Statement: promoting the success of BlackRock Energy and Resources
Income Trust plc
The Companies (Miscellaneous Reporting) Regulations 2018 require Directors to
explain in detail how they have discharged their duties under Section 172(1) of
the Companies Act 2006 in promoting the success of their companies for the
benefit of members as a whole. This enhanced disclosure covers how the Board
has engaged with and understands the views of stakeholders and how
stakeholders' needs have been taken into account, the outcome of this
engagement and the impact that it has had on the Board's decisions.
As the Company is an externally managed investment company and does not have
any employees or customers, the Board considers the main stakeholders in the
Company to be the shareholders, key service providers (being the Manager and
Investment Manager, the Custodian, Depositary, Registrar and Broker) and
investee companies. The reasons for this determination, and the Board's
overarching approach to engagement, are set out in the table below.
Stakeholders
Shareholders Manager and Other key service Investee companies
Investment Manager providers
Continued shareholder The Board's main In order for the Portfolio holdings
support and working relationship Company to function are ultimately
engagement are is with the Manager, as an investment shareholders' assets,
critical to the who is responsible trust with a listing and the Board
continued existence for the Company's on the premium recognises the
of the Company and portfolio management segment of the importance of good
the successful (including asset official list of the stewardship and
delivery of its allocation, stock and Financial Conduct communication with
long-term strategy. sector selection) and Authority (FCA) and investee companies in
The Board is focused risk management, as trade on the London meeting the Company's
on fostering good well as ancillary Stock Exchange's investment objective
working relationships functions such as (LSE) main market for and strategy. The
with shareholders and administration, listed securities, Board monitors the
on understanding the secretarial, the Board relies on a Manager's stewardship
views of shareholders accounting and diverse range of arrangements and
in order to marketing services. advisors for support receives regular
incorporate them into The Manager has in meeting relevant feedback from the
the Board's strategy sub-delegated obligations and Manager in respect of
and objectives in portfolio management safeguarding the meetings with the
delivering long-term to the Investment Company's assets. For management of
growth and income. Manager. Successful this reason, the portfolio companies.
management of Board considers the
shareholders' assets Company's Custodian,
by the Investment Depositary, Registrar
Manager is critical and Broker to be
for the Company to stakeholders. The
successfully deliver Board maintains
its investment regular contact with
strategy and meet its its key external
objective. The service providers and
Company is also receives regular
reliant on the reporting from them
Manager as AIFM to through the Board and
provide support in committee meetings,
meeting relevant as well as outside of
regulatory the regular meeting
obligations under the cycle.
AIFMD and other
relevant legislation.
A summary of the key areas of engagement undertaken by the Board with its key
stakeholders in the year under review and how Directors have acted upon this to
promote the long-term success of the Company are set out in the table below.
Area of Issue Engagement Impact
Engagement
Investment The Board is committed to The Board believes that The portfolio activities
Mandate and promoting the role and responsible investment and undertaken by the
Objective success of the Company in sustainability are Investment Manager can be
delivering on its integral to the found in the Investment
investment mandate to longer-term delivery of Manager's Report on above.
shareholders over the long growth in capital and The Board does not
term. However, the Board income and has worked very formally benchmark the
recognises that the closely with the Manager Company's performance
sectors in which the throughout the year to against mining and energy
Company invests are regularly review the sector indices because
undergoing structural Company's performance, meeting a specific
changes, with a shift in investment strategy and dividend target is not
the energy sector away underlying policies to within the scope of these
from carbon-based energy ensure that the Company's indices and also because
supplies towards investment objective no index appropriately
alternative and renewable continues to be met in an reflects the Company's
energy sources. The effective, responsible way blended exposure to the
extractive industries in that is transparent to Energy (including the
which the companies in the current and future energy transition) and
Company's investment investors. mining sectors. For
universe operate are In addition to six internal monitoring
facing ethical and scheduled Board meetings a purposes, however, the
sustainability issues that year, the Board holds a Board compares the
cannot be ignored by asset Strategy Day which is performance of the
managers and investment dedicated to an in depth portfolio against a
companies alike. More than review of the Company's bespoke internal mining
ever, consideration of strategy in conjunction and energy composite
material ESG information with key advisors index.
and sustainability risks including the Company's Details regarding the
is an important element of broker, public relations Company's Key Performance
the investment process. and marketing teams and Indicators can be found in
The Board also has members of BlackRock's this Strategic Report.
responsibility to portfolio management and
shareholders to ensure risk analytics teams.
that the Company's The Manager's approach to
portfolio of assets is the consideration of ESG
invested in line with the factors in respect of the
stated investment Company's portfolio, as
objective and in a way well as its engagement
that ensures an with investee companies to
appropriate balance encourage the adoption of
between spread of risk and sustainable business
portfolio returns. practices which support
long-term value creation,
are kept under review by
the Board.
The Manager reports to the
Board in respect of its
consideration of ESG
factors and how these are
integrated into the
investment process; a
summary of BlackRock's
approach to ESG
integration is set out in
the Annual Report for the
year ended 30 November
2022.
Management The Board recognises the The Board monitors the The Company's average
of Share importance to shareholders Company's discount on an discount for the year to
Rating that the market price of ongoing basis and meets 30 November 2022 was 2.9%
the Company's shares with the Manager and the (year to 30 November 2021:
should not trade at either Company's Broker on a 5.6%) and as at 30 January
a significant discount or regular basis to discuss 2023 the premium stood at
premium to the NAV. One of methods to manage the 3.6%. This compares to an
the Board's long-term discount. A range of average discount for the
strategic aspirations is discount control AIC Commodities and
that the Company's shares mechanisms have been Natural resources sector
should trade consistently considered and the of 11.3% at 30 November
at a price close to the benefits and disadvantages 2022 and 12.2% at 31
NAV per share. of these have been December 2022.
discussed at length. All share issues and
The Board is also prepared re-issues from treasury
to issue shares into the undertaken in the year
market to meet demand as were made at a premium to
required and avoid shares NAV, and resulted in an
moving to trade at an overall accretion to the
excessive premium. The NAV per share of 0.39p per
Company's shares moved to share.
trade at a sustained The share issuance
premium in the first half transactions in the year
of 2022, and the Company under review results in an
sold all of its treasury increase of £22.6 million
shares and issued new in the Company's assets
shares into market demand under management and this
to manage this following contributed to a decrease
consultation with the in the Company's operating
manager and the broker. charges ratio, as a large
Where necessary, the Board proportion of the
sought shareholder Company's operating costs
approval to both buy-backs are fixed and they are now
and issuance. Resolutions being spread over a larger
were proposed, and passed, capital base.
at the Annual General The Company contributed
Meeting on 15 March 2022 during the year to a
and a General Meeting on focused investment trust
26 May 2022. sales and marketing
The Board notes that all initiative operated by BIM
share issues have been and (UK) on behalf of the
will continue to be made investment trusts under
at premiums to the its management. For the
prevailing NAV per share, year ended 30 November
such that all such 2022, the Group's
transactions are accretive contribution to the
to the NAV and NAV per consortium element of the
share so that existing initiative, which enables
shareholders are protected the trusts to achieve
from any value/economic efficiencies by combining
dilution. certain sales and
In addition, the Board has marketing activities,
worked closely with the represented 0.025% per
Manager to develop the annum of its net assets (£
Company's marketing 122.3million) as at 31
strategy, with the aim of December 2021, and this
ensuring effective contribution was matched
communication with by BIM (UK). This
existing shareholders and marketing activity was one
to attract new factor contributing to
shareholders to the increased demand for the
Company in order to Company's shares, enabling
improve liquidity in the it to grow in size and
Company's shares and to resulting in a lower
sustain the share rating operating charges ratio
of the Company and greater liquidity.
Combined with the strong
NAV performance seen over
the course of the year,
this was also a factor in
the Company being promoted
from the FTSE Fledgling
Index into the FTSE Small
Cap Index (and also
therefore the FTSE All
Share Index) in June 2022
which generated additional
demand for the Company's
shares.
Dividend A key element of the The Board reviews income Since the year-end, the
target Company's investment forecasts and option Board has announced that
objective is to achieve an writing activity in the annual dividend target
annual dividend target. conjunction with the will be remain at 4.40
The Board is cognisant Manager to determine the pence per share for the
that portfolio investments most effective approach year to 30 November 2023.
with a high yield may have for meeting the dividend
lower capital growth, and target whilst generating
that seeking to ensure the optimal level of total
that any dividend target return for shareholders.
is covered by current year The Board aims to meet the
dividend revenue may annual target dividend
result in a lower total primarily from a mix of
return. Conversely, a move dividend income from the
to invest a higher portfolio and revenue
proportion of the reserves, although this
portfolio in higher growth will be supported by the
investments (including distribution of the
certain energy transition Company's other
stocks) may result in a substantial distributable
lower yielding portfolio. reserves (£121.3 million
at 30 November 2022) if
required.
Service The Board acknowledges the The Manager reports to the All performance
levels of importance of ensuring Board on the Company's evaluations were performed
third party that the Company's performance on a regular on a timely basis and the
providers principal suppliers are basis. The Board carries Board concluded that all
providing a suitable level out a robust annual key third-party service
of service: this includes evaluation of the providers, including the
the Manager in respect of Manager's performance, its Manager were operating
investment performance and commitment and available effectively and providing
delivering on the resources. a good level of service.
Company's investment The Board performs an
mandate; the Custodian and annual review of the
Depositary in respect of service levels of all
their duties towards third-party service
safeguarding the Company's providers and concludes on
assets; the Registrar in their suitability to
its maintenance of the continue in their role.
Company's share register The Board receives regular
and dealing with investor updates from the AIFM,
queries and the Company's Depositary, Registrar and
Broker in respect of the Broker on an ongoing
provision of advice and basis.
acting as a market maker
for the Company's shares.
Board The Board is committed to The Board reviews The Board appointed Mrs
composition ensuring that its own succession planning on an Carole Ferguson as a
composition brings an ongoing basis. A new Director of the Company
appropriate balance of Director, Carole Ferguson, with effect from
knowledge, experience and was appointed in the year 22 December 2021. Mrs
skills, and that it is under review as part of a Ferguson's biography is
compliant with best recruitment drive that was set in the Annual Report
corporate governance initiated in 2021. As part for the year ended 30
practice under the UK of this process, the November 2022. Details of
Code, including guidance Nomination Committee each Director's
on tenure and the agreed the selection contribution to the
composition of the Board's criteria and the method of success and promotion of
committees. selection, recruitment and the Company are set out in
appointment. Board the Directors' Report
diversity, including contained in the Annual
gender, was taken into Report for the year ended
account when establishing 30 November 2022.
the criteria. The services All Directors currently
of an external search serving on the Board have
consultant, Odgers tenure below the nine
Berndtson, was used to years maximum limit
identify potential recommended under the UK
candidates. Code.
The Board remain focused The Board's composition
on best Corporate currently meets all
Governance Practice, and targets recommended under
in particular the the Parker Review and
recommendation under the enshrined in recent
UK Code that Directors' changes to the FCA's
tenure is limited to nine Listing Rules (which set
years. While the Board new diversity targets and
does not have a formal associated disclosure
limit on tenure, Mr Warner requirements for UK
retired as Chairman and a companies listed on the
Director of the Company in London Stock Exchange).
March 2022, noting that
his tenure would exceed
nine years with effect
from July 2022.
Environmental, Social And Governance Approach
The Board's approach
Environmental, social and governance (ESG) issues can present both
opportunities and risks to long-term investment performance. The Company's
investment universe comprises sectors that are undergoing significant
structural change and are likely to be highly impacted by increasing regulation
as a result of climate change and other social and governance factors. Your
Board is committed to ensuring that we have appointed a manager that integrates
ESG considerations into its investment process and has the skill and vision to
navigate the structural transition that the Company's investment universe is
undergoing.
The Board believes multi-year engagement with management is, in most cases, the
most constructive way of building our understanding of a company's approach to
addressing material business risks and opportunities. Engagement can lead to
stronger relationships with companies and more constructive outcomes for
shareholders and businesses alike.
This is particularly true for the Company's Manager given the extent of
BlackRock's shareholder engagement (BlackRock held 3,693 engagements with
companies based in 55 markets for the year to 30 June 2022, and voted on more
than 173,000 management and shareholder proposals at 18,100 meetings1). The
Board believes that BlackRock is well-placed as Manager to fulfil these
requirements due to the integration of ESG into its investment processes, its
constructive approach in its investment stewardship activities and its position
in the industry as one of the largest suppliers of sustainable investment
products in the global market.
More information on BlackRock's global approach to ESG integration, as well as
activity specific to the BlackRock Energy and Resources Income Trust plc
portfolio is set out below. BlackRock has defined ESG integration as the
practice of incorporating material ESG information and consideration of
sustainability risks into investment decisions in order to enhance
risk-adjusted returns. ESG integration does not change the Company's investment
objective or constrain the Investment Manager's investable universe, and does
not mean that an ESG or impact focused investment strategy or any exclusionary
screens have been or will be adopted by the Company (apart from the exclusion
of companies that generate more than 25% of their revenues from thermal coal
production in active and advisory portfolios). Similarly, ESG integration does
not determine the extent to which the Company may be impacted by sustainability
risks.
More information on sustainability risks may be found in the AIFMD Fund
Disclosures document of the Company available on the Company's website at
www.blackrock.com/uk/individual/literature/policies/
itc-disclosure-blackrock-energy-and-resources-income-trust-plc.pdf
The Company does not meet the criteria for Article 8 or 9 products under the EU
Sustainable Finance Disclosure Regulation ("SFDR") and the investments
underlying this financial product do not take into account the EU criteria for
environmentally sustainable economic activities.
1 Source: BlackRock 2022 Voting Spotlight report and BlackRock Investment
Stewardship website www.blackrock.com/corporate/about-us/investment-stewardship
#engagement-and-voting-history
BlackRock Investment Stewardship Engagement with portfolio companies in the
year ended 30 November 2022
Given the Board's belief in the importance of engagement and communication with
portfolio companies, they receive regular updates from the Manager in respect
of activity undertaken for the year under review. The Board notes that over the
year to 30 November 2022, 94 total company engagements were held with the
management teams of 40 portfolio companies representing 66% of the portfolio by
value at 30 November 2022. To put this into context, there were 61 companies in
the BlackRock Energy and Resources Income Trust plc portfolio at 30 November
2022. Additional information is set out in the table and charts contained in
the Annual Report for the year ended 30 November 2022 as well as the key
engagement themes for the meetings held in respect of the Company's portfolio
holdings.
BlackRock Energy
and Resources
Income Trust plc
-
year ended 30
November 2022
Number of engagements held 94
Number of companies met 40
% of equity investments covered 66%
Shareholder meetings voted at 67
Number of proposals voted on 897
Number of votes against management 22
% of total votes represented by votes against management 2.23%
=========
The importance and challenges of considering ESG when engaging with investee
companies in the Natural Resources Sector and BlackRock's global approach to
ESG integration
Environmental Social Corporate Governance
As well as the longer-term BlackRock's Global As with all companies, good
contribution to carbon Principles underscore the corporate governance is
emissions and the impact on belief that companies are especially critical for
the environment, the best placed to deliver value natural resources companies.
activities undertaken by many for long-term shareholders In our experience, the sound
companies in the portfolio like BlackRock's clients governance, in terms of both
such as digging mines or when they also consider the process and practice, is
drilling for oil will interests of their other key critical to the success of a
inevitably have an impact on stakeholders, which company, the protection of
local surroundings. It is generally will include shareholders' interests, and
important how companies workers, business partners long-term shareholder value
manage this process and (such as suppliers and creation.
ensure that an appropriate distributors), clients and Governance issues, including
risk oversight framework is consumers, government, and the management of material
in place, with consideration the communities in which sustainability issues that
given to all stakeholders. they operate. have a significant impact
The value wiped off the In BlackRock's experience, for natural resource
market capitalisation of companies that build strong companies, all require
companies like BP, after the relationships with their effective leadership and
Macondo oil spill, and Vale, stakeholders are more likely oversight from a company's
after the Brumadinho dam to meet their own strategic board.
collapse, highlights the key objectives, while poor BlackRock believes that
role that ESG has on share relationships may create companies with experienced,
price performance. adverse impacts that expose engaged and diverse
BlackRock's approach to a company to legal, directors, who are effective
climate risk and regulatory, operational, and in actively advising and
opportunities and the global reputational risks and overseeing management as a
energy transition is based on jeopardize their ability to board, are well-positioned
our role as a fiduciary to deliver sustainable, to deliver long-term value
our clients. As the world long-term financial creation.
works toward a transition to performance.
a low-carbon economy,
BlackRock are interested in
hearing from companies about
their strategies and plans
for responding to the
challenges and capturing the
opportunities that this
transition creates. When
companies consider
climate-related risks, it is
likely that they will also
assess their impact and
dependence on natural
capital.
Blackrock's approach to ESG integration
BlackRock believes that sustainability risk - and climate risk in particular -
now equates to investment risk, and this will drive a profound reassessment of
risk and asset values as investors seek to react to the impact of climate
policy changes. This in turn (in BlackRock's view) is likely to drive a
significant reallocation of capital away from traditional carbon intensive
industries over the next decade. BlackRock believes that carbon-intensive
companies will play an integral role in unlocking the full potential of the
energy transition, and to do this, they must be prepared to adapt, innovate and
pivot their strategies towards a low carbon economy.
As part of BlackRock's structured investment process, ESG risks and
opportunities (including sustainability/climate risk) are considered within the
portfolio management team's fundamental analysis of companies and industries.
ESG factors have been a key consideration of the BlackRock Natural Resources
Team's investment process since inception and the Company's portfolio managers
work closely with BIS to assess the governance quality of companies and
understand any potential issues, risks or opportunities.
As part of their approach to ESG integration, the portfolio managers use ESG
information when conducting research and due diligence on new investments and
again when monitoring investments in the portfolio. In particular, portfolio
managers now have access to 1,200 key ESG performance indicators in Aladdin
(BlackRock's proprietary trading system) from third-party data providers.
BlackRock's internal sustainability research framework scoring is also
available alongside third-party ESG scores in core portfolio management tools.
BlackRock's analyst's sector expertise and local market knowledge allows it to
engage with companies through direct interaction with management teams and
conducting site visits. In conjunction with the portfolio management team,
BlackRock Investment Stewardship's (BIS) meets with boards of companies
frequently to evaluate how they are strategically managing their longer-term
issues, including those surrounding ESG and the potential impact these may have
on company financials. BIS's and the portfolio management team's understanding
of ESG issues is further supported by BlackRock's Sustainable and Transition
Solutions (STS). STS look to advance ESG research and integration, active
engagement and the development of sustainable investment solutions across the
firm.
Investment Stewardship
Consistent with BlackRock's fiduciary duty as an asset manager, BIS seeks to
support investee companies in their efforts to deliver long-term durable
financial performance on behalf of our clients. These clients include public
and private pension plans, governments, insurance companies, endowments,
universities, charities and, ultimately, individual investors, among others.
BIS serves as an important link between BlackRock's clients and the companies
they invest in. Clients depend on BlackRock to help them meet their investment
goals; the business and governance decisions that companies make will have a
direct impact on BlackRock's clients' long-term investment outcomes and
financial well-being.
Global Principles
BlackRock's approach to corporate governance and stewardship is comprised in
BIS' Global Principles and market-specific voting guidelines. BIS' policies set
out the core elements of corporate governance that guide its investment
stewardship activities globally and within each regional market, including when
voting at shareholder meetings for those clients who have authorized BIS to
vote on their behalf. Each year, BIS reviews its policies and updates them as
necessary to reflect changes in market standards and regulations, insights
gained over the year through third-party and its own research, and feedback
from clients and companies. BIS' Global Principles are available on its website
at www.blackrock.com/corporate/literature/fact-sheet/
blk-responsible-investment-engprinciples-global.pdf.
Market-specific proxy voting guidelines
BIS' voting guidelines are intended to help clients and companies understand
its thinking on key governance matters. They are the benchmark against which it
assesses a company's approach to corporate governance and the items on the
agenda to be voted on at shareholder meeting. BIS applies its guidelines
pragmatically, taking into account a company's unique circumstances where
relevant. BlackRock informs voting decisions through research and engages as
necessary. BIS reviews its voting guidelines annually and updates them as
necessary to reflect changes in market standards, evolving governance practice
and insights gained from engagement over the prior year.
BIS' market-specific voting guidelines are available on its website at
www.blackrock.com/corporate/about-us/investment-stewardship#
stewardship-policies.
BlackRock is committed to transparency in terms of disclosure on its
stewardship activities on behalf of clients. BIS publishes its stewardship
policies - such as the Global Principles, engagement priorities, and voting
guidelines - to help BlackRock's clients understand its work to advance their
interests as long-term investors in public companies. Additionally, BIS
publishes both annual and quarterly reports detailing its stewardship
activities, as well as vote bulletins that describe its rationale for certain
votes at high profile shareholder meetings. More detail in respect of BIS
reporting can be found at www.blackrock.com/corporate/about-us/
investment-stewardship.
BlackRock's reporting and disclosures
In terms of its own reporting, BlackRock believes that the SASB provides a
clear set of standards for reporting sustainability information across a wide
range of issues, from labour practices to data privacy to business ethics.
For evaluating and reporting climate-related risks, as well as the related
governance issues that are essential to managing them, the TCFD provides a
valuable framework.
BlackRock recognises that reporting to these standards requires significant
time, analysis, and effort. BlackRock's 2021 TCFD report can be found at
www.blackrock. com/corporate/literature/
continuous-disclosure-and-importantinformation/tcfd-report-2021-blkinc.pdf.
The Investment Manager has access to a range of data sources, including
principal adverse indicator ("PAI") data, when making decisions on the
selection of investments. However, whilst BlackRock considers ESG risks for all
portfolios and these risks may coincide with environmental or social themes
associated with the PAIs, unless stated otherwise in the AIFMD Fund Disclosure
Document, the Company does not commit to considering PAIs in driving the
selection of its investments.
The above forms part of the Strategic Report.
By order of the Board
GRAHAM VENABLES
FOR AND ON BEHALF OF
BLACKROCK INVESTMENT MANAGEMENT (UK) LIMITED
Company Secretary
1 February 2023
Statement of Directors' responsibilities in respect of the Annual Report and
Financial Statements
The Directors are responsible for preparing the Annual Report and the Financial
Statements in accordance with applicable United Kingdom law and regulations.
Company law requires the Directors to prepare financial statements for each
financial year. Under that law, the Directors have elected to prepare the Group
and Parent Company financial statements in accordance with UK-adopted
International Accounting Standards (IFRSs). Under company law the Directors
must not approve the financial statements unless they are satisfied that they
give a true and fair view of the state of affairs of the Group and the Company
and of the profit or loss of the Group and the Company for that period.
In preparing these financial statements, the Directors are required to:
· select suitable accounting policies in accordance with IAS 8
Accounting Policies, Changes in Accounting Estimates and Errors and then apply
them consistently;
· present information, including accounting policies, in a manner that
provides relevant, reliable, comparable and understandable information;
· make judgements and estimates that are reasonable and prudent;
· in respect of the Group financial statements, state whether UK-adopted
International Accounting Standards have been followed, subject to any material
departures disclosed and explained in the financial statements;
· provide additional disclosures when compliance with the specific
requirements in IFRSs is insufficient to enable users to understand the impact
of particular transactions, other events and conditions on the Group and
Company financial position and financial performance;
· in respect of the Parent Company financial statements, state whether
UK-adopted International Accounting Standards, have been followed, subject to
any material departures disclosed and explained in the financial statements;
and
· prepare the financial statements on the going concern basis unless it
is inappropriate to presume that the Group and/or the Company will continue in
business.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Group's and the Company's transactions and
disclose with reasonable accuracy at any time the financial position of the
Group and the Company and enable them to ensure that the Group and Company
financial statements comply with the Companies Act 2006.
They are also responsible for safeguarding the assets of the Group and Parent
Company and hence for taking reasonable steps for the prevention and detection
of fraud and other irregularities.
Under applicable law and regulations, the Directors are also responsible for
preparing a Strategic Report, Directors' Report, Directors' Remuneration
Report, Corporate Governance Statement and the Report of the Audit and
Management Engagement Committee that comply with that law and those
regulations. The Directors have delegated responsibility to the Manager for the
maintenance and integrity of the Group's corporate and financial information
included on the BlackRock website. Legislation in the United Kingdom governing
the preparation and dissemination of financial statements may differ from
legislation in other jurisdictions.
The Directors confirm, to the best of their knowledge:
· that the consolidated financial statements prepared in accordance with
UK-adopted International Accounting Standards, give a true and fair view of the
assets, liabilities, financial position and profit of the Parent Company and
undertakings included in the consolidation taken as a whole;
· that the annual report, including the strategic report, includes a
fair review of the development and performance of the business and the position
of the Company and undertakings included in the consolidation taken as a whole,
together with a description of the principal risks and uncertainties that they
face; and
· that they consider the annual report, taken as a whole, is fair,
balanced and understandable and provides the information necessary for
shareholders to assess the company's position, performance, business model and
strategy.
In order to reach a conclusion on this matter, the Board has requested that the
Audit and Management Engagement Committee advise on whether it considers that
the Annual Report and Financial Statements fulfils these requirements. The
process by which the Committee has reached these conclusions is set out in the
Audit and Management Engagement Committee's Report. As a result, the Board has
concluded that the Annual Report for the year ended 30 November 2022, taken as
a whole, is fair, balanced and understandable and provides the information
necessary for shareholders to assess the Group's and the Company's position,
performance, business model and strategy.
FOR AND ON BEHALF OF THE BOARD
ADRIAN BROWN
Chairman
1 February 2023
Consolidated statement of comprehensive income for the year ended 30 November
2022
2022 2021
Notes
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Income from investments 3 6,969 - 6,969 6,061 - 6,061
held at fair value through
profit or loss
Other income 3 1,343 - 1,343 742 - 742
--------------- --------------- --------------- --------------- --------------- ---------------
Total revenue 8,312 - 8,312 6,803 - 6,803
========= ========= ========= ========= ========= =========
Net profit on investments - 51,394 51,394 - 25,954 25,954
and options held at fair
value through profit or
loss
Net profit/(loss) on - 4 4 - (1) (1)
foreign exchange
--------------- --------------- --------------- --------------- --------------- ---------------
Total 8,312 51,398 59,710 6,803 25,953 32,756
========= ========= ========= ========= ========= =========
Expenses
Investment management fee 4 (339) (1,019) (1,358) (234) (706) (940)
Other operating expenses 5 (886) (11) (897) (419) (7) (426)
--------------- --------------- --------------- --------------- --------------- ---------------
Total operating expenses (1,225) (1,030) (2,255) (653) (713) (1,366)
========= ========= ========= ========= ========= =========
Net profit on ordinary 7,087 50,368 57,455 6,150 25,240 31,390
activities before finance
costs and taxation
Finance costs 6 (49) (147) (196) (5) (15) (20)
--------------- --------------- --------------- --------------- --------------- ---------------
Net profit on ordinary 7,038 50,221 57,259 6,145 25,225 31,370
activities before taxation
Taxation (expense)/credit (644) 162 (482) (441) 24 (417)
--------------- --------------- --------------- --------------- --------------- ---------------
Net profit on ordinary 6,394 50,383 56,777 5,704 25,249 30,953
activities after taxation
========= ========= ========= ========= ========= =========
Earnings per ordinary 8 4.99 39.28 44.27 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 year. All
income is attributable to the equity holders of the Group.
The Group does not have any other comprehensive income (2021: £nil). The net
profit for the year disclosed above represents the Group's total comprehensive
income.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEARED 30 NOVEMBER 2022
Called Share
up share premium Special Capital Revenue
Group capital account reserve reserves reserve Total
For the year ended 30 Notes £'000 £'000 £'000 £'000 £'000 £'000
November 2022
At 30 November 2021 1,190 47,727 68,852 (2,548) 5,607 120,828
Total comprehensive
income:
Net profit for the year - - - 50,383 6,394 56,777
Transactions with owners,
recorded directly to
equity:
Ordinary share issues 9, 10 154 19,563 - - - 19,717
Share issue costs 9, 10 - (110) - - - (110)
Ordinary shares reissued 10 - 1,023 2,091 - - 3,114
from treasury
Share reissue costs - - (6) (32) - (38)
Dividends paid1 7 - - - - (5,580) (5,580)
--------------- --------------- --------------- --------------- --------------- ---------------
At 30 November 2022 1,344 68,203 70,937 47,803 6,421 194,708
========= ========= ========= ========= ========= =========
For the year ended 30
November 2021
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 paid² 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 8 December 2021 and paid on 14 January 2022; 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; 2nd interim dividend of 1.10p per share
for the year ended 30 November 2022, declared on 7 June 2022 and paid on 15
July 2022 and 3rd interim dividend of 1.10p per share for the year ended 30
November 2022, declared on 12 September 2022 and paid on 20 October 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; 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.
PARENT COMPANY STATEMENT OF CHANGES IN EQUITY
Called Share
up share premium Special Capital Revenue
capital account reserve reserves reserve Total
Company Notes £'000 £'000 £'000 £'000 £'000 £'000
For the year ended 30
November 2022
At 30 November 2021 1,190 47,727 68,852 436 2,623 120,828
Total comprehensive
income:
Net profit for the year - - - 50,033 6,744 56,777
Transactions with owners,
recorded directly to
equity:
Ordinary share issues 9, 10 154 19,563 - - - 19,717
Share issue costs 10 - (110) - - - (110)
Ordinary shares reissued 9, 10 - 1,023 2,091 - - 3,114
from treasury
Share reissue costs 10 - - (6) (32) - (38)
Dividends paid¹ 7 - - - - (5,580) (5,580)
--------------- --------------- --------------- --------------- --------------- ---------------
At 30 November 2022 1,344 68,203 70,937 50,437 3,787 194,708
========= ========= ========= ========= ========= =========
For the year ended 30
November 2021
At 30 November 2020 1,190 46,977 66,775 (24,822) 1,522 91,642
Total comprehensive
income:
Net profit for the year - - - 25,258 5,695 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 paid² 7 - - - - (4,594) (4,594)
--------------- --------------- --------------- --------------- --------------- ---------------
At 30 November 2021 1,190 47,727 68,852 436 2,623 120,828
========= ========= ========= ========= ========= =========
1 4th interim dividend of 1.10p per share for the year ended 30 November
2021, declared on 8 December 2021 and paid on 14 January 2022; 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; 2nd interim dividend of 1.10p per share
for the year ended 30 November 2022, declared on 7 June 2022 and paid on 15
July 2022 and 3rd interim dividend of 1.10p per share for the year ended 30
November 2022, declared on 12 September 2022 and paid on 20 October 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; 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 15
contained in the Annual Report for the year ended 30 November 2022.
CONSOLIDATED AND PARENT COMPANY STATEMENTS OF FINANCIAL POSITION AS AT 30
NOVEMBER 2022
30 November 2022 30 November 2021
Notes
Group Company Group Company
£'000 £'000 £'000 £'000
Non current assets
Investments held at fair value through 206,394 209,849 127,784 131,588
profit or loss
--------------- --------------- --------------- ---------------
Current assets
Other receivables 1,980 4,721 4,878 7,619
Current tax asset 103 103 57 57
Cash collateral held with brokers 285 285 - -
Cash and cash equivalents 6,214 18 6,552 7
--------------- --------------- --------------- ---------------
Total current assets 8,582 5,127 11,487 7,683
--------------- --------------- --------------- ---------------
Total assets 214,976 214,976 139,271 139,271
========= ========= ========= =========
Current liabilities
Other payables (5,868) (5,868) (5,516) (5,516)
Derivative financial liabilities held at (55) (55) - -
fair value through profit or loss
Bank overdraft (14,345) (14,345) (12,927) (12,927)
--------------- --------------- --------------- ---------------
Total current liabilities (20,268) (20,268) (18,443) (18,443)
========= ========= ========= =========
Net assets 194,708 194,708 120,828 120,828
========= ========= ========= =========
Equity attributable to equity holders
Called up share capital 9 1,344 1,344 1,190 1,190
Share premium account 10 68,203 68,203 47,727 47,727
Special reserve 10 70,937 70,937 68,852 68,852
Capital reserves
At 1 December 10 (2,548) 436 (27,797) (24,822)
Net profit for the year 50,383 50,033 25,249 25,258
Transactions with owners recorded directly (32) (32) - -
to equity
At 30 November 47,803 50,437 (2,548) 436
========= ========= ========= =========
Revenue reserve
At 1 December 10 5,607 2,623 4,497 1,522
Net profit for the year 6,394 6,744 5,704 5,695
Dividends paid (5,580) (5,580) (4,594) (4,594)
At 30 November 6,421 3,787 5,607 2,623
--------------- --------------- --------------- ---------------
Total equity 194,708 194,708 120,828 120,828
========= ========= ========= =========
Net asset value per ordinary share (pence) 8 144.92 144.92 103.97 103.97
========= ========= ========= =========
CONSOLIDATED AND PARENT COMPANY CASH FLOW STATEMENTS FOR THE YEARED 30
NOVEMBER 2022
30 November 2022 30 November 2021
Group Company Group Company
£'000 £'000 £'000 £'000
Operating activities
Net profit on ordinary activities before taxation 57,259 57,259 31,370 31,370
Add back finance costs 196 196 20 20
Net profit on investments and options held at fair (51,394) (51,045) (25,954) (25,963)
value through profit or loss (including transaction
costs)
Net (profit)/loss on foreign exchange (4) - 1 (31)
Sales of investments held at fair value through 126,788 126,788 82,907 82,907
profit or loss
Purchases of investments held at fair value through (153,949) (153,949) (87,168) (87,168)
profit or loss
Increase in other receivables (18) (18) (128) (350)
Increase in other payables 230 230 231 231
Decrease/(increase) in amounts due from brokers 2,916 2,916 (4,412) (4,412)
Increase in amounts due to brokers 40 40 4,798 4,798
Net movement in cash collateral held with brokers (285) (285) 163 -
--------------- --------------- --------------- ---------------
Net cash (outflow)/inflow from operating activities (18,221) (17,868) 1,828 1,402
before taxation
========= ========= ========= =========
Taxation paid - - (221) -
Taxation on investment income included within gross (528) (528) (457) (457)
income
--------------- --------------- --------------- ---------------
Net cash (outflow)/inflow from operating activities (18,749) (18,396) 1,150 945
========= ========= ========= =========
Financing activities
Interest paid (196) (196) (20) (20)
Receipts from share issues 19,717 19,717 2,881 2,881
Share issue costs paid (60) (60) (6) (6)
Payments for share purchases - - (48) (48)
Proceeds from shares reissued from treasury 3,108 3,108 - -
Dividends paid (5,580) (5,580) (4,594) (4,594)
--------------- --------------- --------------- ---------------
Net cash inflow/(outflow) from financing activities 16,989 16,989 (1,787) (1,787)
========= ========= ========= =========
Decrease in cash and cash equivalents (1,760) (1,407) (637) (842)
Effect of foreign exchange rate changes 4 - (1) 31
--------------- --------------- --------------- ---------------
Change in cash and cash equivalents (1,756) (1,407) (638) (811)
========= ========= ========= =========
Cash and cash equivalents at start of year (6,375) (12,920) (5,737) (12,109)
--------------- --------------- --------------- ---------------
Cash and cash equivalents at end of year (8,131) (14,327) (6,375) (12,920)
========= ========= ========= =========
Comprised of:
Cash at bank 6,214 18 6,552 7
Bank overdraft (14,345) (14,345) (12,927) (12,927)
--------------- --------------- --------------- ---------------
(8,131) (14,327) (6,375) (12,920)
========= ========= ========= =========
Notes to the financial statements for the year ended 30 November 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 Company
was incorporated on 4 November 2005 and this is the seventeenth Annual Report.
2. ACCOUNTING POLICIES
The principal accounting policies adopted by the Group and Company are set out
below.
(a) Basis of preparation
On 31 December 2020, International Financial Reporting Standards as adopted by
the European Union at that date was brought into UK law and became UK-adopted
International Accounting Standards (IASs), with future changes being subject to
endorsement by the UK Endorsement Board. The Group and Company transitioned to
IASs in its financial statements with effect from 1 December 2021. There was no
impact or changes in accounting policies from the transition.
The Group and Company financial statements have been prepared under the
historic cost convention modified by the revaluation of certain financial
assets and financial liabilities held at fair value through profit or loss and
in accordance with IASs. All of the Group's operations are of a continuing
nature.
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 July 2022, is compatible with
IASs, the financial statements have been prepared in accordance with guidance
set out in the SORP.
Substantially, all of the assets of the Group consist of securities that are
readily realisable and, accordingly, the Directors are satisfied that the Group
has adequate resources to continue in operational existence for the foreseeable
future for the period to 30 November 2024, being a period of at least twelve
months from the date of approval of the financial statements and therefore
consider the going concern assumption to be appropriate. The Directors have
reviewed compliance with the covenants associated with the bank overdraft
facility, income and expense projections and the liquidity of the investment
portfolio in making their assessment.
The Directors have considered the impact of climate change on the value of the
investments included in the Financial Statements and have concluded that:
· there was no further impact of climate change to be considered as the
investments are valued based on market pricing as required by IFRS 13; and
· the risk is adequately captured in the assumptions and inputs used in
measurement of Level 3 assets, if any, as noted in note 16 of the Financial
Statements contained in the Annual Report for the year ended 30 November 2022.
None of the Company's other assets and liabilities were considered to be
potentially impacted by climate change.
The Group's financial statements are presented in British Pound Sterling, which
is the functional currency of the Group and the currency of the primary
economic environment in which the Group operates. All values are rounded to the
nearest thousand pounds (£'000) except when otherwise indicated.
Relevant 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 International Accounting Standards
Board (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.
None of the standards that have been issued but are not yet effective are
expected to have a material impact on the Group.
(b) Basis of consolidation
The Group's financial statements are made up to 30 November each year and
consolidate the financial statements of the Company and its wholly owned
subsidiary, which is registered and operates in England and Wales, BlackRock
Energy and Resources Securities Income Company Limited (together 'the Group').
Subsidiaries are consolidated from the date of their acquisition, being the
date on which the Company obtains control, and continue to be consolidated
until the date that such control ceases. The financial statements of
subsidiaries used in the preparation of the consolidated financial statements
are based on consistent accounting policies. All intra-group balances and
transactions, including unrealised profits arising therefrom, are eliminated.
The subsidiary is not considered to be an investment entity.
(c) Presentation of the Consolidated Statement of Comprehensive Income
In order to better reflect the activities of an investment trust company and in
accordance with guidance issued by the AIC, supplementary information which
analyses the Consolidated Statement of Comprehensive Income between items of a
revenue and a capital nature has been presented alongside the Consolidated
Statement of Comprehensive Income.
(d) Segmental reporting
The Directors are of the opinion that the Group is engaged in a single segment
of business being investment business.
(e) Income
Dividends receivable on equity shares are recognised as revenue for the year on
an ex-dividend basis. Where no ex-dividend date is available, dividends
receivable on or before the year end are treated as revenue for the year.
Provision is made for any dividends not expected to be received. Special
dividends, if any, are treated as a capital or a revenue receipt depending on
the facts or circumstances of each particular case. The return on a debt
security is recognised on a time apportionment basis so as to reflect the
effective yield on the debt security.
Options may be purchased or written over securities held in the portfolio for
generating or protecting capital returns, or for generating or maintaining
revenue returns. Where the purpose of the option is the generation of income,
the premium is treated as a revenue item. Where the purpose of the option is
the maintenance of capital, the premium is treated as a capital item.
Option premium income is recognised as revenue evenly over the life of the
option contract and included in the revenue account of the Consolidated
Statement of Comprehensive Income unless the option has been written for the
maintenance and enhancement of the Group's investment portfolio and represents
an incidental part of a larger capital transaction, in which case any premia
arising are allocated to the capital account of the Consolidated Statement of
Comprehensive Income.
Deposit interest receivable is accounted for on an accruals basis.
Where the Group has elected to receive its dividends in the form of additional
shares rather than in cash, the cash equivalent of the dividend is recognised
as revenue. Any excess in the value of the shares received over the amount of
the cash dividend is recognised in capital.
(f) Expenses
All expenses, including finance costs, are accounted for on an accruals basis.
Expenses have been charged wholly to the revenue account of the Consolidated
Statement of Comprehensive Income, except as follows:
· expenses which are incidental to the acquisition or sale of an
investment are charged to the capital account of the Consolidated Statement of
Comprehensive Income. Details of transaction costs on the purchases and sales
of investments are disclosed within note 10 to the financial statements
contained in the Annual Report for the year ended 30 November 2022;
· expenses are treated as capital where a connection with the
maintenance or enhancement of the value of the investments can be demonstrated;
and
· the investment management fee and finance costs have been allocated
75% to the capital account and 25% to the revenue account of the Consolidated
Statement of Comprehensive Income in line with the Board's expectations of the
long term split of returns, in the form of capital gains and income,
respectively, from the investment portfolio. The investment management fee
rebate accrued as a result of the application of the cap on ongoing charges of
1.25% per annum of average daily net assets is offset against management fees
and is allocated between revenue and capital in the ratio of total ongoing
charges allocated between revenue and capital during the year.
Finance costs incurred by the Subsidiary are charged 100% to revenue.
(g) Taxation
The Group accounts do not reflect any adjustment for group relief between the
Company and the Subsidiary.
The tax expense represents the sum of the tax currently payable and deferred
tax. The tax currently payable is based on the taxable profit for the year.
Taxable profit differs from net profit as reported in the Consolidated
Statement of Comprehensive Income because it excludes items of income or
expenses that are taxable or deductible in other years and it further excludes
items that are never taxable or deductible. The Group's liability for current
tax is calculated using tax rates that were applicable at the balance sheet
date.
Where expenses are allocated between capital and revenue accounts, any tax
relief in respect of expenses is allocated between capital and revenue returns
on the marginal basis using the Company's effective rate of corporation tax for
the accounting period.
Deferred taxation is recognised in respect of all temporary differences that
have originated but not reversed at the financial reporting date, where
transactions or events that result in an obligation to pay more taxation in the
future or right to pay less tax in the future have occurred at the financial
reporting date. This is subject to deferred taxation assets only being
recognised if it is considered more likely than not that there will be suitable
profits from which the future reversal of the temporary differences can be
deducted. Deferred taxation assets and liabilities are measured at the rates
applicable to the legal jurisdictions in which they arise.
(h) Investments held at fair value through profit or loss
In accordance with IFRS 9, the Group classifies its investments at initial
recognition as held at fair value through profit or loss and are managed and
evaluated on a fair value basis in accordance with its investment strategy and
business model.
All investments are measured initially and subsequently at fair value through
profit or loss. Purchases of investments are recognised on a trade date basis.
Sales of investments are recognised at the trade date of the disposal.
The fair value of the financial investments is based on their quoted bid price
at the financial reporting date, without deduction for the estimated selling
costs. This policy applies to all current and non-current asset investments
held by the Group.
The fair value of the investment in the subsidiary is calculated based on the
net asset value of the underlying balances within the subsidiary.
Changes in the value of investments held at fair value through profit or loss
and gains and losses on disposal are recognised in the Consolidated Statement
of Comprehensive Income as 'Net profit/(loss) on investments and options held
at fair value through profit of loss'. Also included within the heading are
transaction costs in relation to the purchase or sale of investments.
For all financial instruments not traded in an active market, the fair value is
determined by using various valuation techniques. Valuation techniques include
market approach (i.e., using recent arm's length market transactions adjusted
as necessary and reference to the current market value of another instrument
that is substantially the same) and the income approach (i.e., discounted cash
flow analysis and option pricing models making use of available and supportable
market data as possible). See note 2(p) below.
(i) Options
Options are held at fair value through profit or loss based on the bid/offer
prices of the options written to which the Group is exposed. The value of the
option is subsequently marked-to-market to reflect the fair value through
profit or loss of the option based on traded prices. Where the premium is taken
to revenue, an appropriate amount is shown as capital return such that the
total return reflects the overall change in the fair value of the option. When
an option is exercised, the gain or loss is accounted for as a capital gain or
loss. Any cost on closing out an option is transferred to revenue along with
any remaining unamortised premium.
(j) Other receivables and other payables
Other receivables and other payables do not carry any interest and are
short-term in nature and are accordingly stated on an amortised cost basis.
(k) Dividends payable
Under IASs, final dividends should not be accrued in the financial statements
unless they have been approved by shareholders before the financial reporting
date. Interim dividends should not be recognised in the financial statements
unless they have been paid.
Dividends payable to equity shareholders are recognised in the Consolidated
Statement of Changes in Equity.
(l) Foreign currency translation
Transactions involving foreign currencies are converted at the rate ruling at
the date of the transaction. Foreign currency monetary assets and liabilities
and non-monetary assets held at fair value are translated into British Pound
Sterling at the rate ruling on the financial reporting date. Foreign exchange
differences arising on translation are recognised in the Consolidated Statement
of Comprehensive Income as a revenue or capital item depending on the income or
expense to which they relate. For investment transactions and investments held
at the year end, denominated in a foreign currency, the resulting gains or
losses are included in the net profit/(loss) on investments and options held at
fair value through profit or loss in the Consolidated Statement of
Comprehensive Income.
(m) Cash and cash equivalents
Cash comprises cash in hand, bank overdrafts and on demand deposits. Cash
equivalents are short term, highly liquid investments that are readily
convertible to known amounts of cash and that are subject to an insignificant
risk of changes in value.
(n) Bank borrowings
Bank overdrafts are recorded as the proceeds received. Finance charges are
accounted for on an accruals basis in the Consolidated Statement of
Comprehensive Income using the effective interest rate method and are added to
the carrying amount of the instruments to the extent that they are not settled
in the period in which they arise.
(o) Share repurchases and share reissues
Shares repurchased and subsequently cancelled - share capital is reduced by the
nominal value of the shares repurchased, and the capital redemption reserve is
correspondingly increased in accordance with Section 733 of the Companies Act
2006. The full cost of the repurchase is charged to the special reserve.
Shares repurchased and held in treasury - the full cost of the repurchase is
charged to the special reserve.
Where treasury shares are subsequently reissued:
· amounts received to the extent of the repurchase price are credited to
the special reserve and capital reserves based on a weighted average basis of
amounts utilised from these reserves on repurchases; and
· any surplus received in excess of the repurchase price is taken to the
share premium account.
Where new shares are issued, amounts received to the extent of any surplus
received in excess of the par value are taken to the share premium account.
Share issue costs are charged to the share premium account. Costs on share
reissues are charged to the special reserve and capital reserves.
(p) Critical accounting estimates and judgements
The Group makes estimates and assumptions concerning the future. The resulting
accounting estimates and assumptions will, by definition, seldom equal the
related actual results. Estimates and judgements are regularly evaluated and
are based on historical experience and other factors, including expectations of
future events that are believed to be reasonable under the circumstances. The
Directors do not believe that any accounting judgements or estimates have a
significant risk of causing a material adjustment to the carrying amount of
assets and liabilities within the next financial year.
3. INCOME
2022 2021
£'000 £'000
Investment income:
UK dividends 613 1,204
UK special dividends 67 205
Overseas dividends 4,604 3,745
Overseas special dividends 1,060 282
Fixed income 625 625
--------------- ---------------
Total investment income 6,969 6,061
========= =========
Other income:
Option premium income 1,342 742
Bank interest 1 -
--------------- ---------------
1,343 742
========= =========
Total income 8,312 6,803
========= =========
During the year, the Group received option premium income in cash totalling £
1,342,000 (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 £1,342,000 (2021: £
742,000) were amortised to revenue.
At 30 November 2022, there was one open position (2021: nil) with an associated
liability of £55,000 (2021: £nil).
Dividends and interest received in cash during the year amounted to £5,609,000
and £437,000 (2021: £4,951,000 and £411,000).
No special dividends have been recognised in capital during the year (2021: £
nil).
4. INVESTMENT MANAGEMENT FEE
2022 2021
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Investment management fee 339 1,019 1,358 234 706 940
--------------- --------------- --------------- --------------- --------------- ---------------
Total 339 1,019 1,358 234 706 940
========= ========= ========= ========= ========= =========
The investment management fee is levied at 0.80% of gross assets per annum.
Gross assets for the purposes of calculating the management fee equate to the
value of the portfolio's gross assets held on the relevant date as valued on
the basis of applicable accounting policies, less the value of any investments
in in-house funds.
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.
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 year ended 30 November 2022 amounted to £nil (2021: £nil). The rebate, if
any, is offset against management fees and is allocated between revenue and
capital in the ratio of total ongoing charges allocated between revenue and
capital during the year.
5. OTHER OPERATING EXPENSES
2022 2021
£'000 £'000
Allocated to revenue:
Custody fee 8 5
Auditors' remuneration - audit services1 46 45
Registrar's fee 31 30
Directors' emoluments² 139 131
Broker fees 25 25
Depositary fees 15 10
Marketing fees 45 34
Printing and postage fees 42 33
Legal and professional fees 20 18
Directors search fees 18 21
Bank charges 12 7
Stock exchange listings fees3 53 8
Other administrative costs 52 52
Provision for doubtful debts4 380 -
--------------- ---------------
886 419
========= =========
Allocated to capital:
Custody transaction charges5 11 7
897 426
========= =========
The Company's ongoing charges6, calculated as a percentage of average
daily net assets and using the management fee and all other operating 1.13% 1.21%
expenses excluding finance costs, direct transaction costs, custody
transaction charges, VAT recovered, taxation, prior year expenses
written back and certain non-recurring items were:
========= =========
1 No non-audit services are provided by the Company's auditors (2021:
none).
2 Further information on Directors' emoluments can be found in the
Directors' Remuneration Report contained in the Annual Report for the year
ended 30 November 2022. The Company has no employees.
3 For the year ended 30 November 2022, this included one-off block
listing fees of £49,000.
4 Provision for doubtful debts relate to dividend income from Gazprom
ADR which has has not been received due to measures imposed by the Russian
authorities in response to the sanctions that have been imposed on Russia as a
result of the invasion of Ukraine.
5 For the year ended 30 November 2022, expenses of £11,000 (2021: £
7,000) were charged to the capital account of the Statement of Comprehensive
Income. These relate to transaction costs charged by the custodian on sale and
purchase trades.
6 Alternative Performance Measure, see Glossary contained in the Annual
Report for the year ended 30 November 2022.
The Company's ongoing charges, as defined on pages 134 and 135 contained in the
Annual Report for the year ended 30 November 2022 (including the investment
management fee), are capped at 1.25% per annum of average daily net assets. 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.
The overall cap on ongoing charges and any applicable rebate is calculated and
accrued on a daily basis and will be adjusted in the investment management fees
charged up to 30 November every year. See note 4 above.
6. FINANCE COSTS
2022 2021
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Interest payable - bank overdraft 49 147 196 5 15 20
--------------- --------------- --------------- --------------- --------------- ---------------
Total 49 147 196 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.
7. DIVIDS
2022 2021
Dividends paid on equity shares Record Payment £'000 £'000
date date
4th interim dividend of 1.10p per share for the year 17 14 1,278 1,135
ended 30 November 2021 (2020: 1.00p) December January
2021 2022
1st interim dividend of 1.10p per share for the year 25 March 21 April 1,376 1,135
ended 30 November 2022 (2021: 1.00p) 2022 2022
2nd interim dividend of 1.10p per share for the year 17 June 15 July 1,448 1,162
ended 30 November 2022 (2021: 1.00p) 2022 2022
3rd interim dividend of 1.10p per share for the year 23 20 1,478 1,162
ended 30 November 2022 (2021: 1.00p) September October
2022 2022
--------------- ---------------
Accounted for in the financial statements 5,580 4,594
========= =========
The total dividends payable in respect of the year ended 30 November 2022 which
form the basis of Section 1158 of the Corporation Tax Act 2010 and Section 833
of the Companies Act 2006, and the amounts declared, meet the relevant
requirements as set out in this legislation.
2022 2021
Dividends paid/payable on equity shares for the year ended 30 November £'000 £'000
2022:
1st interim dividend of 1.10p per share for the year ended 30 November 1,376 1,135
2022 (2021: 1.00p)
2nd interim dividend of 1.10p per share for the year ended 30 November 1,448 1,162
2022 (2021: 1.00p)
3rd interim dividend of 1.10p per share for the year ended 30 November 1,478 1,162
2022 (2021: 1.00p)
4th interim dividend of 1.10p per share for the year ended 30 November 1,478 1,278
2022 (2021: 1.10p)
--------------- ---------------
5,780 4,737
========= =========
8. EARNINGS AND NET ASSET VALUE PER ORDINARY SHARE
Total revenue, capital earnings and net asset value per ordinary share are
shown below and have been calculated using the following:
2022 2021
Net revenue profit attributable to ordinary shareholders (£'000) 6,394 5,704
Net capital profit attributable to ordinary shareholders (£'000) 50,383 25,249
--------------- ---------------
Total profit attributable to ordinary shareholders (£'000) 56,777 30,953
========= =========
Total shareholders' funds (£'000) 194,708 120,828
========= =========
The weighted average number of ordinary shares in issue during the 128,248,137 114,982,762
year on which the earnings per ordinary share was calculated was:
The actual number of ordinary shares in issue at the year end on which 134,356,194 116,218,357
the net asset value per ordinary share was calculated was:
Earnings per share:
Revenue earnings per share (pence) - basic and diluted 4.99 4.96
Capital earnings per share (pence) - basic and diluted 39.28 21.96
--------------- ---------------
Total earnings per share (pence) - basic and diluted 44.27 26.92
========= =========
As at As at
30 30
November November
2022 2021
Net asset value per ordinary share (pence) 144.92 103.97
Ordinary share price (pence) 135.00 96.70
========= =========
There were no securities in issue at the year end that have any dilutive effect
on earnings per share.
9. CALLED UP SHARE CAPITAL
Nominal
Number of Treasury Total value
shares in issue shares shares £'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 15,390,194 - 15,390,194 154
Ordinary shares reissued from treasury 2,747,643 (2,747,643) - -
--------------- --------------- --------------- ---------------
At 30 November 2022 134,356,194 - 134,356,194 1,344
========= ========= ========= =========
During the year ended 30 November 2022, no shares were bought back into
treasury (2021: 51,992 shares for a net consideration after costs of £48,000).
During the year ended 30 November 2022, the Company issued 15,390,194 shares
(2021: none) for a net consideration after costs of £19,677,000 (2021: £nil).
During the year ended 30 November 2022, the Company also reissued 2,747,643
(2021: 2,800,000) shares from treasury for a net consideration after costs of £
3,108,000 (2021: £2,875,000).
Since the year end, and as at 30 January 2023 a further 550,000 ordinary shares
have been issued for a net consideration of £802,000.
10. RESERVES
Capital
reserve
Capital arising on
reserve revaluation
Share arising on of
premium Special investments investments Revenue
account reserve sold held reserve
Group £'000 £'000 £'000 £'000 £'000
At 30 November 2021 47,727 68,852 (26,149) 23,601 5,607
Movement during the year:
Total comprehensive income:
Net profit for the year - - 24,831 25,552 6,394
Transactions with owners recorded
directly to equity:
Ordinary shares issued 19,563 - - - -
Share issue costs (110) - - - -
Ordinary shares reissued from 1,023 2,091 - - -
treasury
Share reissue costs - (6) (32) - -
Dividends paid - - - - (5,580)
At 30 November 2022 68,203 70,937 (1,350) 49,153 6,421
========= ======== ========= ========= ========
= =
Distributable reserves
Capital
reserve
Capital arising on
reserve revaluation
Share arising on of
premium Special investments investments Revenue
Company account reserve sold held reserve
£'000 £'000 £'000 £'000 £'000
At 30 November 2021 47,727 68,852 (26,967) 27,403 2,623
Movement during the year:
Total comprehensive income:
Net profit for the year - - 24,831 25,202 6,744
Transactions with owners recorded
directly to equity:
Ordinary shares issued 19,563 - - - -
Share issue costs (110) - - - -
Ordinary shares reissued from 1,023 2,091 - - -
treasury
Share reissue costs - (6) (32) - -
Dividends paid - - - - (5,580)
At 30 November 2022 68,203 70,937 (2,168) 52,605 3,787
========= ======== ========= ========= ========
= =
Capital
reserve
Capital arising on
reserve revaluation
Share arising on of
premium Special investments investments Revenue
account reserve sold held reserve
Group £'000 £'000 £'000 £'000 £'000
At 30 November 2020 46,977 66,775 (41,446) 13,649 4,497
Movement during the year:
Total comprehensive income:
Net profit for the year - - 15,297 9,952 5,704
Transactions with owners recorded
directly to equity:
Ordinary shares reissued from 750 2,131 - - -
treasury
Share issue costs - (6) - - -
Ordinary shares purchased into - (48) - - -
treasury
Dividends paid - - - - (4,594)
At 30 November 2021 47,727 68,852 (26,149) 23,601 5,607
========= ======== ========= ========= ========
= =
Distributable reserves
Capital
reserve
Capital arising on
reserve revaluation
Share arising on of
premium Special investments investments Revenue
account reserve sold held reserve
Company £'000 £'000 £'000 £'000 £'000
At 30 November 2020 46,977 66,775 (42,264) 17,442 1,522
Movement during the year:
Total comprehensive income:
Net profit for the year - - 15,297 9,961 5,695
Transactions with owners recorded
directly to equity:
Ordinary shares purchased into 750 2,131 - - -
treasury
Share issue costs - (6) - - -
Ordinary shares purchased into - (48) - - -
treasury
Dividends paid - - - - (4,594)
At 30 November 2021 47,727 68,852 (26,967) 27,403 2,623
========= ======== ========= ========= ========
= =
The share premium account and capital redemption reserve are not distributable
reserves 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 reserves 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 gains of £
50,437,000 (2021: capital gain of £436,000) comprise a loss on capital reserve
arising on investments sold of £2,168,000 (2021: loss of £26,967,000), a gain
on capital reserve arising on revaluation of listed investments of £49,150,000
(2021: gain of £23,599,000) and a revaluation gain on the investment in the
subsidiary of £3,455,000 (2021: gain of £3,804,000). The gain on capital
reserve arising on the revaluation of investments of £49,150,000 (2021: £
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
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. The reserves of
the subsidiary company are not distributable until distributed as a dividend to
the Parent Company.
11) VALUATION OF FINANCIAL INSTRUMENTS
Financial assets and financial liabilities are either carried in the
Consolidated and Parent Company Statements 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) to the Financial Statements.
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 and regularly available from an exchange, dealer, broker,
industry group, pricing service or regulatory agency and those prices represent
actual and regularly occurring market transactions on an arm's length basis.
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 than active, or other valuation
techniques where all significant inputs are directly or indirectly observable
from market data.
Valuation techniques used for non-standardised financial instruments such as
options, currency swaps and other over-the-counter derivatives include the use
of comparable recent arm's length transactions, reference to other instruments
that are substantially the same, discounted cash flow analysis, option pricing
models and other valuation techniques commonly used by market participants
making the maximum use of market inputs and relying as little as possible on
entity specific inputs.
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. If a fair value
measurement uses observable inputs that require significant adjustment based on
unobservable inputs, that measurement is a Level 3 measurement.
Assessing the significance of a particular input to the fair value measurement
in its entirety requires judgement, considering factors specific to the asset
or liability. The determination of what constitutes 'observable' inputs
requires significant judgement by the Investment Manager.
The investment in the subsidiary is classified within Level 3 since the
subsidiary is not a listed entity. The fair value of the investment in the
subsidiary is calculated based on the net asset value of the underlying
balances within the subsidiary. Therefore, no sensitivity analysis has been
presented.
Fair values of financial assets and financial liabilities
The table below sets out fair value measurements using the IFRS 13 fair value
hierarchy.
Level 1 Level 2 Level 3 Total
Financial assets at fair value through profit or £'000 £'000 £'000 £'000
loss at 30 November 2022 - Group
Assets:
Equity investments 198,500 - - 198,500
Fixed income investments 5,629 2,265 - 7,894
Liabilities:
Derivative financial instruments - written options (55) - - (55)
--------------- --------------- --------------- ---------------
204,074 2,265 - 206,339
========= ========= ========= =========
Level 1 Level 2 Level 3 Total
Financial assets at fair value through profit or £'000 £'000 £'000 £'000
loss at 30 November 2022 - Company
Assets:
Equity investments 198,500 - 3,455 201,955
Fixed income investments 5,629 2,265 - 7,894
Liabilities:
Derivative financial instruments - written options (55) - - (55)
--------------- --------------- --------------- ---------------
204,074 2,265 3,455 209,794
========= ========= ========= =========
Level 1 Level 2 Level 3 Total
Financial assets at fair value through profit or £'000 £'000 £'000 £'000
loss at 30 November 2021 - Group
Assets:
Equity investments 121,179 - - 121,179
Fixed income investments 3,898 2,707 - 6,605
--------------- --------------- --------------- ---------------
125,077 2,707 - 127,784
========= ========= ========= =========
Level 1 Level 2 Level 3 Total
Financial assets at fair value through profit or £'000 £'000 £'000 £'000
loss at 30 November 2021 - Company
Assets:
Equity investments 121,179 - 3,804 124,983
Fixed income investments 3,898 2,707 - 6,605
--------------- --------------- --------------- ---------------
125,077 2,707 3,804 131,588
========= ========= ========= =========
In addition to the investment in the subsidiary, the Company held one other
Level 3 security as at 30 November 2022 (2021: nil).
A reconciliation of fair value measurement in Level 3 is set out below.
2022 2021
Level 3 Financial assets fair value through profit or loss at 30 £'000 £'000
November - Company
Opening fair value 3,804 3,795
Transfers from Level 1 1 -
Total gains or losses included in profit/(loss) on investments in the
Consolidated Statement of Comprehensive Income:
- assets held at the end of the year (350) 9
--------------- ---------------
Closing balance 3,455 3,804
========= =========
As at 30 November 2022, the investment in Gazprom has been valued at a nominal
value of RUB0.01 due to lack of access to the Moscow Stock Exchange as a result
of sanctions against Russia following the invasion of Ukraine. Following the
suspension of the secondary listings of depositary receipts of Russian
companies, the investment in Gazprom ADRs was transferred from Level 1 to Level
3. Towards the year end, the ADRs in Gazprom were converted into equity shares
of Gazprom. As at the year-end, this investment is considered a Level 3
financial asset.
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 business risks,
including climate change risk, in accordance with the fair value related
requirements of the Company's financial reporting framework.
12. RELATED PARTY DISCLOSURE
Directors' emoluments
At the date of this report, the Board consists of four non-executive Directors,
all of whom are considered to be independent of the Manager by the Board.
Disclosures of the Directors' interests in the ordinary shares of the Company
and fees and expenses payable to the Directors are set out in the Directors'
Remuneration Report contained in the Annual Report for the year ended 30
November 2022. At 30 November 2022, £11,000 (2021: £10,000) was outstanding in
respect of Directors' fees.
Significant holdings
The following investors are:
a. funds managed by the BlackRock Group or are affiliates of BlackRock
Inc. ("Related BlackRock Funds"); or
b. investors (other than those listed in (a) above) who held more than 20%
of the voting shares in issue in the Company and are as a result, considered to
be related parties to the Company ("Significant Investors").
As at 30 November 2022
Total % of shares held by Total % of shares held by Number of Significant
Related BlackRock Funds Significant Investors who are not Investors who are not
affiliates of BlackRock Group or affiliates of BlackRock
BlackRock, Inc. Group or BlackRock, Inc.
1.3 n/a n/a
As at 30 November 2021
Total % of shares held by Total % of shares held by Number of Significant
Related BlackRock Funds Significant Investors who are not Investors who are not
affiliates of BlackRock Group or affiliates of BlackRock
BlackRock, Inc. Group or BlackRock, Inc.
nil n/a n/a
13. TRANSACTIONS WITH THE INVESTMENT MANAGER AND AIFM
BlackRock Fund Managers Limited (BFM) provides management and administrative
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
services, and other ancillary services to BlackRock Investment Management (UK)
Limited (BIM (UK)). Further details of the investment management contract are
disclosed in the Directors' Report contained in the Annual Report for the year
ended 30 November 2022.
The investment management fee due for the year ended 30 November 2022 amounted
to £1,358,000 (2021: £940,000). At the year end, £728,000 was outstanding in
respect of the management fee (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 exceeds the cap of
1.25% per annum of average daily net assets. The amount of rebate accrued to 30
November 2022 amounted to £nil (2021: £nil).
Further details in respect of the management fee and rebate are given in note 4
above.
In addition to the above services, BIM (UK) has provided the Group with
marketing services. The total fees paid or payable for these services for the
year ended 30 November 2022 amounted to £45,000 excluding VAT (2021: £34,000).
Marketing fees of £22,000 excluding VAT (2021: £22,000) were outstanding as at
the year end.
The ultimate holding company of the Manager and the Investment Manager is
BlackRock, Inc., a company incorporated in Delaware USA.
14. CONTINGENT LIABILITIES
There were no contingent liabilities at 30 November 2022 (2021: nil).
15. PUBLICATION OF NON-STATUTORY ACCOUNTS
The financial information contained in this announcement does not constitute
statutory accounts as defined in the Companies Act 2006. The 2022 Annual Report
and Financial Statements will be filed with the Registrar of Companies shortly.
The report of the auditor for the year ended 30 November 2022 contains no
qualification or statement under Section 498(2) or (3) of the Companies Act
2006.
This announcement was approved by the Board of Directors on 1 February 2023.
16. ANNUAL REPORT
Copies of the Annual Report will be sent to members shortly and will be
available from the registered office c/o The Company Secretary, BlackRock
Energy and Resources Income Trust plc, 12 Throgmorton Avenue, London EC2N 2DL.
17. ANNUAL GENERAL MEETING
The Annual General Meeting of the Company will be held at 12 Throgmorton
Avenue, London EC2N 2DL on Monday, 13 March 2023 at 12.00 noon.
ENDS
For further information, please contact:
Sarah Beynsberger, Director, Investment Companies, BlackRock Investment
Management (UK) Limited
Tel: 020 7743 3000
Press enquiries:
Lansons Communications
Email: BlackRockInvestmentTrusts@lansons.com
Tel: 020 7490 8828
1 February 2023
12 Throgmorton Avenue
London EC2N 2DL
END
END
(END) Dow Jones Newswires
February 01, 2023 12:11 ET (17:11 GMT)
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