BLACKROCK SUSTAINABLE AMERICAN INCOME TRUST PLC
BLACKROCK NORTH AMERICAN INCOME TRUST PLC
INVESTMENT OBJECTIVE
The Company's objective is to provide an attractive and growing level of income
return with capital appreciation over the long term, predominantly through
investment in a diversified portfolio of primarily large-cap U.S. equities.
PERFORMANCE RECORD
FINANCIAL HIGHLIGHTS
Attributable to ordinary shareholders 30 April 31 October Change
2016 2015 %
Assets
Net assets (£'000) 1 90,463 98,046 -7.7
Net asset value per ordinary share 130.07p 122.50p +6.2
- With income reinvested +8.0
Ordinary share price (mid-market) 123.25p 113.00p +9.1
- With income reinvested +11.1
For the For the
six months ended six months ended Change
30 April 2016 30 April 2015 %
Revenue
Net profit after taxation (£'000) 1,914 2,066 -7.4
Earnings per ordinary share 2.55p 2.27p +12.3
1. The change in net assets reflects market movements and share buybacks during
the period.
CHAIRMAN'S STATEMENT for the six months to 30 April 2016
PERFORMANCE OVERVIEW
It has been an encouraging start to the year, with your Company producing an
8.0% net asset return per share ('NAV') compared with a return of 7.5% in the
Russell 1000 Value Index. The Company's share price return was 11.1% over the
same period (all figures in sterling terms with income reinvested). Recent
market volatility has underlined the attractiveness of quality dividend growth
companies, which our Portfolio Managers favour for the long term.
The end of 2015 was relatively muted for U.S. stocks, but the start of the new
year was far from benign as concerns over global growth put investors in a risk
averse mood. Renewed volatility from China, a strong U.S. dollar, the impact of
the severe oil price declines, and persisting global growth concerns combined
to hit markets hard before rebounding by mid-March. Fears of a global
recession, which had led to the initial turbulence, have now waned as the U.S.
economy has begun stabilising. Unemployment is at its lowest rate for years,
consumer spending has increased due in part to lower commodity prices and there
has been a pause in the U.S. dollar's rise.
Further information on investment performance is given in the Investment
Manager's Report. Since the period end to 27 June 2016, the Company's NAV
return was 8.2% and the share price return was 3.2% (both in sterling terms
with income reinvested).
EARNINGS AND DIVIDENDS
The Company's revenue return per share for the six months ended 30 April 2016
amounted to 2.55p compared with 2.27p per share for the six months to 30 April
2015. The first quarterly dividend of 1.10p per share was paid on 4 April 2016.
A second quarterly dividend of 1.20p per share will be paid on 1 July 2016 to
shareholders on the register on 20 May 2016. This represents an increase of
9.5% on the payments over the compatible period in 2015.
DISCOUNT/SHARE REPURCHASES
The discount of the Company's share price to the underlying NAV per share
finished the period under review at 5.2% on a cum income basis. The Company
traded on an average discount (cum income) of 8.4%, ranging between a discount
of 3.7% to 12.7%. The closed-end North America fund peer group had a weighted
average discount of 4.6% at 30 April 2016. At the close of business on 27 June
2016, the Company's shares were trading at a discount of 9.6%.
During the period under review, the Company continued to buy back shares and
repurchased 10,490,000 ordinary shares at an average price of 114.99p and at an
average discount to NAV of 8.3%. These shares are held in treasury. No shares
have been repurchased since the period end and up to and including the date of
this report. The Board will continue to monitor the Company's discount to NAV
and use its buy back authority when appropriate, with the objective of ensuring
that the Company's shares do not trade at a significant discount to their
underlying NAV.
CONTINUATION VOTE
I am pleased to report that shareholders who voted at the Annual General
Meeting held on 18 February 2016 opted for the Company to continue in being as
an investment trust. As set out in the Annual Report, there will be another
opportunity to vote on the continuation of the Company in 2019.
OUTLOOK
The start of the year has proved to be volatile, with investors unsettled by
slowing economic activity and concerns about the continued effectiveness of
unconventional central bank policies. The outcome of the U.K.'s recent
referendum on membership of the European Union has added to market uncertainty
globally. Its impact on the economic and political prospects for Europe as a
whole remains to be seen. In the U.S., the forthcoming presidential election
also adds another element of unpredictability to markets.
For the time being, worries of an impending U.S. recession appear to have
abated. Although there has been a reduction in jobs growth recently, U.S.
employment overall remains strong. Manufacturing weakness, which is
concentrated mostly in sectors exposed to energy and exports, is also showing
signs of bottoming out as the key headwinds of falling oil prices and faltering
emerging market economies begin to subside.
Whilst we appear to be in the midst of a long and muted economic recovery,
strong stock selection - and in particular continuing to employ fundamental
research to identify high quality companies - will remain the key focus for our
Portfolio Managers. In this environment, we believe that the Portfolio
Managers' investment approach of focusing on companies which have both sound
balance sheets and show the prospect of growing dividends will reap rewards in
the medium term.
Simon Miller
29 June 2016
INTERIM MANAGEMENT REPORT AND RESPONSIBILITY STATEMENT
The Chairman's Statement and the Investment Manager's Report give details of
the important events which have occurred during the period and their impact on
the financial statements.
PRINCIPAL RISKS AND UNCERTAINTIES
The principal risks faced by the Company can be divided into various areas as
follows:
- Performance;
- Income/dividend;
- Regulatory;
- Operational;
- Market;
- Financial; and
- Gearing.
The Board reported on the principal risks and uncertainties faced by the
Company in the Annual Report and Financial Statements for the year ended 31
October 2015. A detailed explanation can be found in the Strategic Report on
pages 7 and 8 and in note 14 on pages 51 to 59 of the Annual Report and
Financial Statements which are available on the website maintained by BlackRock
at blackrock.co.uk/brna.
In the Board's opinion, an additional uncertainty to those outlined in the
Annual Report and Financial Statements now exists. In a referendum held on 23
June 2016, the United Kingdom resolved to leave the European Union ('EU'). The
referendum result may affect the Company's risk profile through introducing
potentially significant new uncertainties and instability in financial markets
as the United Kingdom negotiates its exit from the EU. These uncertainties
could have a material effect on the Company's business, financial condition and
operations. The process of a major country leaving the EU has no precedent, so
we expect an ongoing period of market uncertainty as implications are digested.
In the view of the Board, there have not been any other changes to the
fundamental nature of these risks since the previous report and these principal
risks and uncertainties are equally applicable to the remaining six months of
the financial year as they were to the six months under review.
GOING CONCERN
The Directors, having considered the nature and liquidity of the portfolio, the
Company's investment objective and the Company's projected income and
expenditure, are satisfied that the Company has adequate resources to continue
in operational existence for the foreseeable future and is financially sound.
For this reason, they continue to adopt the going concern basis in preparing
the financial statements. The Company has a portfolio of investments which are
considered to be readily realisable and is able to meet all of its liabilities
from its assets and income generated from these assets. Ongoing charges
(excluding interest costs and taxation) for the year ended 31 October 2015 were
1.24% of net assets.
RELATED PARTY DISCLOSURE AND TRANSACTIONS WITH THE AIFM AND INVESTMENT MANAGER
BlackRock Fund Managers Limited ('BFM') was appointed as the Company's AIFM
with effect from 2 July 2014. BFM has (with the Company's consent) delegated
certain portfolio and risk management services, and other ancillary services,
to BlackRock Investment Management (UK) Limited ('BIM (UK)'). Both BFM and BIM
(UK) are regarded as related parties under the Listing Rules. Details of the
management and marketing fees payable are set out in note 4 and note 10. The
related party transactions with the Directors are set out in note 11.
DIRECTORS' RESPONSIBILITY STATEMENT
The Disclosure and Transparency Rules ('DTR') of the UK Listing Authority
require the Directors to confirm their responsibilities in relation to the
preparation and publication of the Interim Management Report and Financial
Statements.
The Directors confirm to the best of their knowledge that:
- the condensed set of financial statements contained within the half yearly
financial report has been prepared in accordance with applicable International
Accounting Standard 34 'Interim Financial Reporting'; and
- the Interim Management Report, together with the Chairman's Statement and
Investment Manager's Report, include a fair review of the information required
by 4.2.7R and 4.2.8R of the FCA's Disclosure and Transparency Rules.
This half yearly financial report has not been audited or reviewed by the
Company's auditors.
The half yearly financial report was approved by the Board on 21 June 2016 and
the above responsibility statement was signed on its behalf by the Chairman.
Simon Miller
For and on behalf of the Board
29 June 2016
INVESTMENT MANAGER'S REPORT
MARKET OVERVIEW
The final two months of 2015 served as a transition point for equity markets,
as well as U.S. Federal Reserve ('the Fed') monetary policy. Performance was
relatively muted during the period as better than expected U.S. payrolls and
economic data was offset by fears of slowing Chinese growth, the impact of
lower crude oil prices, and uncertainty related to the Paris terror attacks.
Notably, the Fed raised U.S. interest rates for the first time since 2006, and
cited potential future rate hikes as being gradual and data dependent.
The first four months of 2016 also proved to be eventful. Headlines during the
period were dominated by slowing global growth fears and geopolitical events,
which were offset by dovish Fed comments and worldwide central bank easing.
Volatility spiked higher during the first six weeks of the calendar year and
the S&P 500 Index experienced a 10.3% fall before rebounding sharply higher
through the end of the reporting period. For the six month period ended 30
April 2016, U.S. large cap stocks, as represented by the S&P 500 Index,
advanced by 0.4% (in U.S. dollar terms).
PORTFOLIO OVERVIEW
Over the six months to 30 April 2016, the Company's NAV return was 8.0% and the
share price return was 11.1% (both figures in sterling terms with income
reinvested). The largest contributor to relative performance during the period
was stock selection in the consumer discretionary sector. Notably, our
positions in non-benchmark holdings McDonald's and Dollar General proved to be
beneficial as each company reported stronger than expected sales and earnings
growth. Stock selection in health care also contributed to relative returns for
the period - specifically, not owning benchmark holding Allergan, which came
under pressure after the U.S. federal government scuttled its merger with
Pfizer. Not owning benchmark holding Kinder Morgan, a pipeline company, and an
overweight to exploration & production operators Hess and Pioneer Natural
Resources, also proved to be beneficial for our holdings within the energy
sector. Lastly, our overweight position to the aerospace & defence industry
boosted relative returns for the period.
The largest detractor from relative performance was stock selection and
allocation decisions in financials. First, our overweight position in the
banking sector hurt relative returns, with notable detractors including
portfolio holdings Citigroup and Wells Fargo. Second, stock selection in the
insurance industry detracted from relative returns as our overweights to life
insurers MetLife and Prudential Financial were negatively impacted by further
declines in long term interest rates. American International Group, a property
and casualty insurer, also underperformed after announcing weaker than expected
quarterly earnings. Stock selection in the metals & mining industry also
negatively impacted relative performance. In particular, not owning gold
producers Freeport-McMoRan and Newmont Mining detracted from performance, as
each company benefited from a sharp rally in gold bullion prices during the
period. Lastly, stock selection in the consumer staples sector modestly hurt
relative returns, as benchmark-only holding, Walmart Stores, rallied during the
period.
The Company's option overwrite component enhanced the portfolio's income during
the period. However, writing covered call options in a rising equity
environment detracted modestly from absolute performance.
Below is an overview of our allocations (in GBP) at the end of the period.
Health Care: 2.7% overweight (14.5% of portfolio)
The Company's overweight in health care is concentrated in the pharmaceuticals
and managed care industries. In pharmaceuticals, valuations are more expensive
than in previous years, but we believe that the industry remains attractively
priced relative to other defensive, higher-yielding sectors. Underlying
fundamentals are also strong, with companies offering robust drug pipelines,
improved research and development efficiency, strong free cash flow generation
and lower patent expirations going forward. In the managed care industry,
notable portfolio holdings include Anthem (1.4% of portfolio), Aetna (1.4% of
portfolio) and UnitedHealth Group (1.2% of portfolio). These companies exhibit
many of the quality and stability characteristics that we like, along with
solid earnings and dividend growth prospects.
Consumer Discretionary: 2.3% overweight (7.4% of portfolio)
The balance sheet for U.S. consumers continues to improve, aided by a
recovering domestic housing market, solid jobs growth, lower gas prices and the
beginning of wage growth. Although this is undoubtedly a positive for the
economy and consumer-related spending, the Company's overweight in the consumer
discretionary sector is premised on stock-specific factors. Our largest
position in this sector is Home Depot (2.2% of portfolio).
Industrials: 1.9% overweight (12.3% of portfolio)
The Company's overweight to industrials is concentrated in the aerospace &
defence industry. We are particularly bullish on defence stocks given their
solid balance sheets, strong free cash flows and the potential for an upward
inflection in defence spending. We also maintain exposure to industrial
conglomerates such as General Electric (3.3% of portfolio) and Honeywell (1.5%
of portfolio) given their diverse revenue streams, stable growth profiles and
healthy dividend yields.
Consumer Staples: 0.6% overweight (7.8% of portfolio)
The Company has traditionally maintained an overweight in consumer staples due
to the sector's recurring purchase theme, solid-brand leadership, stable
earnings and dividend growth potential. We are now only modestly overweight due
to concerns about high valuations and potential disruptions from online
competition/changing consumer preferences. Within the sector we have a
preference for tobacco stocks as they are immune to most of the aforementioned
pressures and are beneficiaries of the improved macroeconomic backdrop for
low-end consumers.
Materials: 0.4% overweight (3.4% of portfolio)
Our exposure to the materials sector is primarily based in the chemical
industry. In particular, we believe that longer term secular trends in global
population growth will benefit well positioned companies in the agricultural
chemical industry. In addition, we see opportunity in higher margin specialty
chemicals. M&A is likely to be a positive catalyst for the industry and,
ultimately, we believe companies with scale, focus and high-quality assets will
be able to deliver stronger earnings and dividend growth.
Telecommunication Services: 0.5% underweight (2.3% of portfolio)
We are underweight to telecoms and our allocation remains concentrated in
diversified telecommunication bellwether Verizon Communications (1.6% of
portfolio). Wireless operations continue to drive revenue in the sector, and
the proliferation of data-heavy smartphones should help certain companies in
the sector strengthen margins. Service bundling has led to stickier consumers,
better earnings visibility and less customer churn, all of which are positives.
Overall, this sector should offer relatively high yields and opportunity for
steady, longer term growth.
Information Technology: 1.0% underweight (9.8% of portfolio)
Although the Company remains underweight in information technology, we are
increasingly positive on the sector, with a preference for large-cap, mature
companies. Valuations remain attractive and companies such as Oracle (1.6% of
portfolio), Qualcomm (1.2% of portfolio), Microsoft (2.0% of portfolio) and
Intel (2.3% of portfolio) offer a compelling mix of healthy balance sheets,
strong free cash flow generation and growing dividend streams.
Utilities: 0.8% underweight (6.0% of portfolio)
Our exposure to utilities is dominated primarily by regulated names, given
their durable dividend profiles and resilience in slow growth environments.
From a fundamental standpoint, we believe that the sector is increasingly
bifurcated in terms of the differences between strong and weak companies. As
such, we are focused on owning firms with clear plans for future growth that
are trading at attractive valuations. We also prefer to invest in firms that
are not entirely dependent on demand and are in a unique position to focus on
strategic capital expenditures. We believe that these factors will be
increasingly important given slowing demand and declining electricity usage
rates across the industry.
Energy: 2.7% underweight (11.0% of portfolio)
Although still underweight to the sector, we have increased our energy
allocation in recent months. Persistent weakness in crude oil prices and a
volatile trading range have created opportunities to invest in quality
operators that we believe are trading at a discount. Fundamentally, we believe
that crude oil prices are in the midst of a natural bottoming process as supply
and demand moves towards a tenuous equilibrium, and continue to favour
oil-weighted companies over those levered to natural gas. At the industry level
we look for companies with experienced management teams and strong balance
sheets that are operating on the lower-end of the production cost curve.
Companies with the ability to grow production throughout the operating cycle
are also attractive from an investment perspective.
Financials: 3.0% underweight (25.5% of portfolio)
While underweight relative to the benchmark index, financials is the Company's
largest sector allocation on an absolute basis and we maintain a high level of
conviction in the sector. We are particularly bullish on U.S. banks and capital
market stocks. Our bullishness is predicated on our belief that these banks are
safer and sounder investments today than before the financial crisis. These
banks have improving balance sheets, low credit losses, high capital levels and
attractive valuations. In addition, the headwinds from litigation and
regulation are diminishing. As such, we believe that the banks are well
positioned for future dividend growth.
Positioning and Outlook
Importantly, the U.S. economy remains on a firm footing. Steady job growth in
recent years has restored the labour force closer to full employment, incomes
are rising (slowly), housing demand appears to be healthy and even
manufacturing has recently shown signs of life. For these reasons we believe
that the odds of a recession are low and that the U.S. economy is poised to
continue its slow growth trajectory as the year unfolds. Nevertheless,
divergent central bank policies and global macroeconomic influences remain a
key construct of this business cycle, and we remain mindful of the potential
for more volatility given current equity market valuations.
We have positioned the Company to benefit from the maturing U.S. business cycle
and the slow growth environment we see unfolding over time. Our largest
exposures remain in the financials, health care and industrials sectors. In
recent months we have increased our exposure to financials by initiating new
positions in Invesco and The Allstate Corporation. Within the sector we have
also increased our exposure to existing holdings, Bank of America and Morgan
Stanley. We also continued to add opportunistically to our energy allocation
through initiating new positions in Hess and Pioneer Natural Resources.
Conversely, we reduced our exposure to the industrials and utilities sectors
during the period. Notable sales from the portfolio included Tyco International
and ITC Holdings.
More fundamentally, we believe that stocks with sound balance sheets that are
growing their dividends are well positioned for today's environment and that
this component of the U.S. equity market is cheap, on a relative basis,
compared to its historic average.
Bob Shearer and Tony DeSpirito
BlackRock Investment Management LLC
29 June 2016
TEN LARGEST INVESTMENTS 30 April 2016
JPMorgan Chase: 3.8% (2015: 4.1%) is a U.S. based diversified financial
company. JPMorgan's capital base remains one of the strongest in the industry
and it provides a measure of safety and financial flexibility. Overall, we
believe JPMorgan offers investors the potential for future earnings power
through broadening customer relationships, increasing loan growth and efficient
management of costs.
Wells Fargo: 3.5% (2015: 3.9%) is a U.S. diversified bank with a strong west
coast franchise and growing national footprint. Wells boasts a strong and
stable management team, led by CEO John Stumpf, who has been with the firm for
over 30 years. Wells Fargo is an industry leader in cross-selling financial
products and services, which has built deep customer relationships and added to
the bank's pricing and earnings power. Finally, the bank has a strong focus on
capital return with above average dividends and buybacks versus peers.
General Electric: 3.3% (2015: 3.0%) is a diversified industrials conglomerate
with operations in technology infrastructure, energy infrastructure, home and
business services and capital services. GE's strong management team, depth and
breadth of products, and ability to secure pricing, continue to make it a
desirable long term holding.
Pfizer: 3.1% (2015: 2.9%) is a diversified pharmaceutical firm with a history
of generating returns in excess of its cost of capital, which has translated to
strong free cash flow generation and an attractive and consistent dividend
yield over time. We are positive on the company's prospects for future growth
given their pipeline of early Phase I and II drugs with blockbuster potential.
Additionally, we believe Pfizer's 2015 acquisition of Hospira will strengthen
their global established pharma ('GEP') business, and position the company for
share gains in biosimilars, a growth segment of the pharma market.
Bank of America: 2.4% (2015: 1.5%) is one of the largest financial institutions
in the U.S. and the world, with lending operations in the consumer,
small-business, and corporate markets in addition to asset management and
investment banking divisions. Bank of America's advantages range from its
massive deposit and consumer lending franchise to the 'thundering herd' of
Merrill Lynch's brokers and wealth managers.
Exxon Mobil: 2.4% (2015: 2.6%) is an integrated oil and gas company based out
of the United States. The firm is among a select group of U.S. companies with a
credit rating of AA+ or higher. Exxon's geographic footprint and diversified
operations continue to make it an industry leader, with the scale and
experience to weather volatility in commodity prices. Management remains
committed to generating shareholder returns, paying almost US$40 billion in
dividends and repurchasing approximately US$130 billion worth of stock over the
last five years.
Intel Corporation: 2.3% (2015: 2.4%) is a designer and manufacturer of digital
technology platforms. Intel is a dominant player in the computer microprocessor
market and we are particularly bullish on the firm's growth potential in its
data centre business segment.
Home Depot: 2.2% (2015: 2.4%) is the world's largest home improvement retailer
with over 2,200 warehouse-format stores. Home Depot has shown an ability to
drive top-line growth and we remain encouraged by the company's focus on the
in-store shopping experience and emphasis on controlling costs. Overall, we are
positive on the stock given the company's strong execution, insulation from
online competition, and the favourable macroeconomic backdrop for home
improvement spending.
Citigroup: 2.1% (2015: 3.2%) is a U.S. based money centre bank with a global
footprint. We believe Citigroup is attractively valued on both a
price-to-earnings and book value basis. The firm has demonstrated an ability to
achieve its efficiency targets and cut costs, which we believe will ultimately
contribute to stronger earnings power and increasing capital return to
shareholders.
Occidental Petroleum: 2.1% (2015: 1.7%) is a U.S. based oil and gas exploration
& production company. The firm has three primary business segments including
Oil & Gas (O&G), Chemical and Midstream, and Marketing (M&M). Notably,
Occidental has a low cost advantage relative to peers given its strong shale
acreage within the U.S. Permian basin.
All percentages reflect the value of the holding as a percentage of total
investments as of 30 April 2016. Percentages in brackets represent the value of
the holding as at 31 October 2015. Together the ten largest investments
represent 27.2% of the Company's portfolio (31 October 2015: 27.7%).
PORTFOLIO ANALYSIS 30 April 2016
Australia Canada China France Netherlands South Korea United Kingdom United States Total
Sectors % % % % % % % % %
Consumer Discretionary - - - - - - - 7.4 7.4
-------- -------- -------- -------- -------- -------- -------- -------- --------
Consumer Staples - - - _ 0.2 - 0.8 6.8 7.8
-------- -------- -------- -------- -------- -------- -------- -------- --------
Energy - - - 1.6 - - - 9.4 11.0
-------- -------- -------- -------- -------- -------- -------- -------- --------
Financials - - - - - - - 25.5 25.5
-------- -------- -------- -------- -------- -------- -------- -------- --------
Health Care - - - - - - 0.8 13.7 14.5
-------- -------- -------- -------- -------- -------- -------- -------- --------
Industrials - - - - - - - 12.3 12.3
-------- -------- -------- -------- -------- -------- -------- -------- --------
Information Technology - - 0.4 - - 1.0 - 8.4 9.8
-------- -------- -------- -------- -------- -------- -------- -------- --------
Materials - - - - - - - 3.4 3.4
-------- -------- -------- -------- -------- -------- -------- -------- --------
Telecommunication - 0.3 - - - 0.4 - 1.6 2.3
Services
-------- -------- -------- -------- -------- -------- -------- -------- --------
Utilities - - - - - - - 6.0 6.0
-------- -------- -------- -------- -------- -------- -------- -------- --------
% Portfolio 30.04.16 - 0.3 0.4 1.6 0.2 1.4 1.6 94.5 100.0
-------- -------- -------- -------- -------- -------- -------- -------- --------
% Portfolio 31.10.15 0.3 0.3 0.3 1.5 0.2 1.6 1.3 94.5 100.0
-------- -------- -------- -------- -------- -------- -------- -------- --------
INVESTMENTS as at 30 April 2016
Market value % of total
Company Country Sector Securities £'000 portfolio
JPMorgan Chase United Financials Ordinary shares 3,416 3.8
States
Wells Fargo United Financials Ordinary shares 3,122 3.5
States
Options (6)
General Electric United Industrials Ordinary shares 2,929 3.3
States
Options (3)
Pfizer United Health Care Ordinary shares 2,802 3.1
States
Options (12)
Bank of America United Financials Ordinary shares 2,130 2.4
States
Exxon Mobil United Energy Ordinary shares 2,133 2.4
States Options (18)
Intel United Information Ordinary shares 2,088 2.3
Corporation States Technology Options (1)
Home Depot United Consumer Ordinary shares 1,968 2.2
States Discretionary Options (10)
Citigroup United Financials Ordinary shares 1,903 2.1
States
Occidental United Energy Ordinary shares 1,870 2.1
Petroleum States
Options (21)
Merck United Health Care Ordinary shares 1,846 2.1
States
Options (12)
Microsoft United Information Ordinary shares 1,819 2.0
States Technology Options (2)
Dollar General United Consumer Ordinary shares 1,808 2.0
States Discretionary Options (5)
Johnson & United Health Care Ordinary shares 1,673 1.9
Johnson States
Options (12)
SunTrust Banks United Financials Ordinary shares 1,670 1.9
States
Options (22)
Procter & Gamble United Consumer Staples Ordinary shares 1,640 1.8
States
Options -
US Bancorp United Financials Ordinary shares 1,584 1.8
States
Options (6)
Total France Energy Ordinary shares 1,472 1.6
Options (27)
Raytheon United Industrials Ordinary shares 1,463 1.6
States
Options (5)
Oracle United Information Ordinary shares 1,461 1.6
States Technology Options (4)
Comcast United Consumer Ordinary shares 1,399 1.6
States Discretionary Options (4)
Verizon United Telecommunication Ordinary shares 1,385 1.6
Communications States Services Options (6)
Northrop Grumman United Industrials Ordinary shares 1,384 1.5
States Options (6)
Honeywell United Industrials Ordinary shares 1,354 1.5
International States Options (6)
Du Pont United Materials Ordinary shares 1,293 1.4
States
Anthem United Health Care Ordinary shares 1,288 1.4
States Options (6)
American United Financials Ordinary shares 1,259 1.4
International States
Group
Chevron United Energy Ordinary shares 1,235 1.4
States
Options (12)
Prudential United Financials Ordinary shares 1,233 1.4
Financial States
Options (12)
Aetna United Health Care Ordinary shares 1,232 1.4
States
Kroger United Consumer Staples Ordinary shares 1,208 1.4
States
Options (4)
NextEra Energy United Utilities Ordinary shares 1,187 1.3
States Options (3)
Lockheed Martin United Industrials Ordinary shares 1,187 1.3
States
Options (10)
Coca-Cola United Consumer Staples Ordinary shares 1,184 1.3
States
Options -
Dow Chemical United Materials Ordinary shares 1,139 1.3
States
Metlife United Financials Ordinary shares 1,117 1.3
States
Options (4)
UnitedHealth United Health Care Ordinary shares 1,100 1.2
Group States
Options (7)
Morgan Stanley United Financials Ordinary shares 1,073 1.2
States
Quest United Health Care Ordinary shares 1,045 1.2
Diagnostics States
Options (12)
Qualcomm United Information Ordinary shares 1,037 1.2
States Technology Options (1)
Dominion United Utilities Ordinary shares 957 1.1
Resources States Options (1)
Samsung South Korea Information Ordinary shares 928 1.0
Electronics Technology
United Parcel United Industrials Ordinary shares 913 1.0
Service States
Options (2)
Travelers United Financials Ordinary shares 859 1.0
Companies States
Options -
Motorola United Information Ordinary shares 854 1.0
Solutions States Technology Options (3)
Goldman Sachs United Financials Ordinary shares 849 1.0
States
CME United Financials Ordinary shares 839 0.9
States Options (2)
Pioneer Natural United Energy Ordinary shares 825 0.9
Resources States Options (19)
AstraZeneca United Health Care Ordinary shares 751 0.8
Kingdom Options (1)
McDonald's United Consumer Ordinary shares 721 0.8
States Discretionary Options (4)
Gap United Consumer Ordinary shares 717 0.8
States Discretionary Options -
Diaego United Consumer Staples Ordinary shares 685 0.8
Kingdom Options (2)
Marathon United Energy Ordinary shares 650 0.7
Petroleum States Options (2)
Hess United Energy Ordinary shares 610 0.7
States Options (8)
Becton Dickinson United Health Care Ordinary shares 607 0.7
States
Options (5)
Public Service United Utilities Ordinary shares 591 0.7
Enterprise States Options (2)
CMS Energy United Utilities Ordinary shares 583 0.7
States
Options (1)
Reynolds United Consumer Staples Ordinary shares 567 0.6
American States
Options (2)
Invesco United Financials Ordinary shares 561 0.6
States
Union Pacific United Industrials Ordinary shares 551 0.6
States
Options (9)
Altria Group United Consumer Staples Ordinary shares 546 0.6
States
Options (8)
American Water United Utilities Ordinary shares 532 0.6
Works States Options (8)
Association
Exelon United Utilities Ordinary shares 515 0.6
States
Options (2)
WEC Energy United Utilities Ordinary shares 507 0.6
States
Nielson United Industrials Ordinary shares 503 0.6
States
Options (2)
Mondelez United Consumer Staples Ordinary shares 498 0.6
International States Options (6)
Philip Morris United Consumer Staples Ordinary shares 496 0.5
International States Options (2)
Schlumberger United Energy Ordinary shares 454 0.5
States
Options (3)
Weyerhaeuser United Financials Ordinary shares 437 0.5
States
Options (1)
Allstate United Financials Ordinary shares 434 0.5
States
Options (1)
International United Materials Ordinary shares 410 0.4
Paper States
Options (3)
3M United Industrials Ordinary shares 399 0.4
States
Options -
Lenovo China Information Ordinary shares 386 0.4
Technology Options (2)
SK Telecom South Korea Telecommunication Ordinary shares 384 0.4
Services Options -
Spectra Energy United Utilities Ordinary shares 384 0.4
States Options (3)
ConocoPhillips United Energy Ordinary shares 352 0.4
States Options (5)
Bristol-Myers United Health Care Ordinary shares 338 0.4
Squibb States Options (5)
BCE Canada Telecommunication Ordinary shares 302 0.3
services Options (2)
Marathon Oil United Energy Ordinary shares 302 0.3
States Options (1)
Nvidia United Information Ordinary shares 292 0.3
States Technology Options (1)
Praxair United Materials Ordinary shares 283 0.3
States Options (3)
Rockwell United Industrials Ordinary shares 269 0.3
Automation States Options (1)
AbbVie United Health Care Ordinary shares 254 0.3
States
American Express United Financials Ordinary shares 231 0.2
States Options -
Unilever Netherlands Consumer Staples Ordinary shares 203 0.2
Options (1)
United United Industrials Ordinary shares 175 0.2
Technologies States Options (1)
---------- --------
Portfolio 89,257 100.0
====== =====
The negative valuation of £383,000 in respect of options held represents the
notional cost of repurchasing the contracts at market prices as at 30 April
2016 (30 April 2015: £194,000).
STATEMENT OF COMPREHENSIVE INCOME
for the six months ended 30 April 2016
Revenue £ Revenue £ Revenue £ Capital £ Capital £ Capital £ Total Total Total £
'000 '000 '000 '000 '000 '000 £'000 £'000 '000
Six Six Six Six Six Six
months months Year months months Year months months Year
ended ended ended ended ended ended ended ended ended
30.04.16 30.04.15 31.10.15 30.04.16 30.04.15 31.10.15 30.04.16 30.04.15 31.10.15
Notes (unaudited) (unaudited) (audited) (unaudited) (unaudited) (audited) (unaudited) (unaudited) (audited)
Income from investments 3 1,399 1,505 2,814 - - - 1,399 1,505 2,814
held at fair
value through profit or
loss
Other income 3 1,164 1,300 2,425 - - - 1,164 1,300 2,425
---------- ---------- --------- ---------- ---------- ---------- --------- --------- ----------
2,563 2,805 5,239 - - - 2,563 2,805 5,239
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
4,567 5,021 2,572
Profits on investments - - - 4,567 5,021 2,572
held at fair value
through profit or loss
Losses on foreign - - - (10) (353) (175) (10) (353) (175)
exchange
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total revenue 2,563 2,805 5,239 4,557 4,668 2,397 7,120 7,473 7,636
--------- --------- -------- -------- -------- -------- --------- --------- ---------
Expenses
Investment management 4 (88) (132) (244) (264) (397) (733) (352) (529) (977)
fees
Operating expenses 5 (175) (191) (329) (17) (26) (25) (192) (217) (354)
-------- -------- -------- -------- -------- -------- -------- -------- ---------
Total operating expenses (263) (323) (573) (281) (423) (758) (544) (746) (1,331)
-------- -------- -------- -------- -------- -------- -------- -------- ---------
Net profit on ordinary 2,300 2,482 4,666 4,276 4,245 1,639 6,576 6,727 6,305
activities before
finance costs and
taxation
Finance costs - - - - - (1) - - (1)
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net profit on ordinary 2,300 2,482 4,666 4,276 4,245 1,638 6,576 6,727 6,304
activities
before taxation
Taxation (386) (416) (783) 53 81 150 (333) (335) (633)
-------- -------- -------- -------- -------- -------- -------- -------- --------
Profit for the period 1,914 2,066 3,883 4,329 4,326 1,788 6,243 6,392 5,671
-------- -------- -------- -------- -------- -------- -------- -------- --------
Earnings per ordinary 7 2.55p 2.27p 4.54p 5.75p 4.76p 2.10p 8.30p 7.03p 6.64p
share
-------- -------- -------- -------- -------- -------- -------- -------- --------
The total column of this statement represents the Company's Statement of
Comprehensive Income, prepared in accordance with International Financial
Reporting Standards ('IFRS') as adopted by the European Union ('EU'). The
supplementary revenue and capital columns are both prepared under guidance
published by the Association of Investment Companies ('AIC'). All items in the
above statement derive from continuing operations. No operations were acquired
or disposed of during the period.
The Company does not have any other recognised gains or losses. The net profit
for the period disclosed above represents the Company's total comprehensive
income.
STATEMENT OF CHANGES IN EQUITY for the six months ended 30 April 2016
Called-up Share Capital
share premium redemption Special Capital Revenue
capital account reserve reserve reserves reserve Total
Note £'000 £'000 £'000 £'000 £'000 £'000 £'000
For the six months
ended
30 April 2016
(unaudited)
At 31 October 2015 1,004 36,774 1,460 37,956 19,190 1,662 98,046
Total comprehensive
income:
Net profit for the - - - - 4,329 1,914 6,243
period
Transaction with
owners, recorded
directly to equity:
Ordinary shares - - - (12,147) - - (12,147)
purchased into treasury
Dividends paid (a) 6 - - - - - (1,679) (1,679)
-------- ---------- -------- ---------- ---------- --------- ---------
At 30 April 2016 1,004 36,774 1,460 25,809 23,519 1,897 90,463
-------- ---------- -------- ---------- ---------- --------- ---------
For the six months
ended
30 April 2015
(unaudited)
At 31 October 2014 1,004 36,774 1,460 63,213 17,402 1,346 121,199
Total comprehensive
income:
Net profit for the - - - - 4,326 2,066 6,392
period
Transaction with
owners, recorded
directly to equity:
Ordinary shares - - - (24,737) - - (24,737)
purchased into treasury
pursuant to a tender
offer
Tender offer costs - - - (216) - - (216)
Dividends paid (b) 6 - - - - - (1,807) (1,807)
-------- ---------- -------- ---------- ---------- -------- -----------
At 30 April 2015 1,004 36,774 1,460 38,260 21,728 1,605 100,831
-------- ---------- -------- ---------- ---------- -------- -----------
For the year ended
31 October 2015
(audited)
At 31 October 2014 1,004 36,774 1,460 63,213 17,402 1,346 121,199
Total comprehensive
income:
Net profit for the year - - - - 1,788 3,883 5,671
Transaction with
owners, recorded
directly to equity:
Ordinary shares - - - (24,737) - - (24,737)
purchased into treasury
pursuant to a tender
offer
Tender offer costs - - - (233) - - (233)
Ordinary shares - - - (287) - - (287)
purchased into treasury
Dividends paid (c) 6 - - - - - (3,567) (3,567)
-------- --------- -------- --------- ---------- --------- ----------
At 31 October 2015 1,004 36,774 1,460 37,956 19,190 1,662 98,046
-------- --------- -------- --------- ---------- --------- ----------
(a) 4th interim dividend of 1.10p per share for the year ended 31 October
2015, declared on 4 November 2015 and paid on 5 January 2016 and 1st interim
dividend of 1.10p per share for the year ending 31 October 2016, declared on 18
February 2016 and paid on 4 April 2016.
(b) Final dividend of 1.0p per share for the year ended 31 October 2014,
declared on 6 November 2014 and paid on 5 January 2015 and 1st interim dividend
of 1.0p per share for the year ended 31 October 2015, declared on 12 February
2015 and paid on 7 April 2015.
(c) 4th interim dividend of 1.0p per share for the year ended 31 October
2014, declared on 6 November 2014 and paid on 5 January 2015; 1st interim
dividend of 1.0p per share for the year ended 31 October 2015, declared on 12
February 2015 and paid on 7 April 2015; 2nd interim dividend of 1.10p per share
for the year ended 31 October 2015, declared on 6 May 2015 and paid on 1 July
2015; and 3rd interim dividend of 1.10p per share for the year ended 31 October
2015, declared on 5 August 2015 and paid on 7 October 2015.
The transaction costs incurred on the acquisition and disposal of investments
are included within the capital reserves and amounted to £46,000 for the six
months ended 30 April 2016 (six months ended 30 April 2015: £10,000; year ended
31 October 2015: £47,000).
STATEMENT OF FINANCIAL POSITION as at 30 April 2016
30 April 30 April 31 October
2016 2015 2015
£'000 £'000 £'000
Notes (unaudited) (unaudited) (audited)
Non current assets
Investments held at fair 89,640 101,120 95,936
value through profit or
loss
------------ -------------- -----------
Current assets
Other receivables 1,893 225 2,755
Cash held on margin 234 - -
deposit with brokers
Cash and cash 340 1,583 2,003
equivalents
------------ -------------- -----------
2,467 1,808 4,758
------------ -------------- -----------
Total assets 92,107 102,928 100,694
Current liabilities
Derivative financial (383) (194) (618)
instruments held at fair
value through profit or
loss
Other payables (1,261) (1,903) (2,030)
-------------- -------------- --------
(1,644) (2,097) (2,648)
-------------- -------------- --------
Net current assets/ 823 (289) 2,110
(liabilities)
-------------- -------------- --------
Net assets 90,463 100,831 98,046
======== ======== ========
Equity attributable to
equity holders
Called-up share capital 8 1,004 1,004 1,004
Share premium account 36,774 36,774 36,774
Capital redemption 1,460 1,460 1,460
reserve
Special reserve 25,809 38,260 37,956
Capital reserves 23,519 21,728 19,190
Revenue reserve 1,897 1,605 1,662
-------------- -------------- --------------
Total equity 90,463 100,831 98,046
shareholders' funds
======== ======== ========
Net asset value per 7 130.07p 125.59p 122.50p
ordinary share
======== ======== ========
CASH FLOW STATEMENT for the six months ended 30 April 2016
Six months ended Six months ended Year ended
30 April 2016 30 April 2015 31 October 2015
£'000 £'000 £'000
(unaudited) (unaudited) (audited)
Net cash inflow before financing 12,212 28,016 30,303
activities
-------------- -------------- --------------
Financing activities
Interest paid - - (1)
Ordinary shares purchased into - (24,737) (24,737)
treasury pursuant to tender offer
Ordinary shares purchased into (12,147) - (287)
treasury
Tender offer costs paid - (216) (216)
Share issue costs paid (39) (243) (240)
Dividends paid (1,679) (1,807) (3,567)
-------------- -------------- --------------
Net cash outflow from financing (13,865) (27,003) (29,048)
activities
-------------- -------------- --------------
Effect of foreign exchange rate (10) (353) (175)
changes
-------------- --------------- --------------
(Decrease)/increase in cash and cash (1,663) 660 1,080
equivalents
-------------- -------------- --------------
Cash and cash equivalents at start of 2,003 923 923
period
Cash and cash equivalents at end of 340 1,583 2,003
period
Comprised of: -------------- -------------- --------------
Cash and cash equivalents 340 1,583 2,003
-------------- -------------- --------------
340 1,583 2,003
======== ======== ========
RECONCILIATION OF NET PROFIT BEFORE FINANCE COSTS AND TAXATION TO NET CASH FLOW
FROM OPERATING ACTIVITIES for the six months ended 30 April 2016
Six months ended Six months ended Year ended
30 April 2016 30 April 2015 31 October 2015
£'000 £'000 £'000
(unaudited) (unaudited) (audited)
Operating activities
Profit before taxation* 6,576 6,727 6,304
Add back interest paid - - 1
Profits on investments held at fair value (4,567) (5,021) (2,572)
through profit or loss
Net losses on foreign exchange 10 353 175
Sales of investments held at fair value 45,651 71,282 101,048
through profit or loss
Purchases of investments held at fair (34,685) (45,968) (72,575)
value through profit or loss
Decrease/(increase) in other receivables 20 (127) (16)
(Decrease)/increase in other payables (236) 307 (3)
Increase in amounts due from brokers - (16) (2,523)
Net movement in cash held on margin (234) - -
deposit with brokers
Increase in amounts due to brokers - 812 1,090
Taxation on investment income included (323) (333) (626)
within gross income
-------------- -------------- --------------
Net cash inflow from operating activities 12,212 28,016 30,303
-------------- -------------- --------------
*Includes dividends and interest received during the period of £1,200,000 and £
1,000 (six months ended 30 April 2015: £1,300,000 and £1,000; year ended 31
October 2015: £2,407,000 and £2,000) respectively.
NOTES TO THE FINANCIAL STATEMENTS for the six months ended 30 April 2016
1. PRINCIPAL ACTIVITY
The principal activity of the Company is that of an investment trust company
within the meaning of section 1158 of the Corporation Tax Act 2010.
2. BASIS OF PRESENTATION
The half yearly financial statements have been prepared using the same
accounting policies as set out in the Company's Annual Report and Financial
Statements for the year ended 31 October 2015 (which were prepared in
accordance with International Financial Reporting Standards ('IFRS') as adopted
by the European Union ('EU') and as applied in accordance with the provisions
of the Companies Act 2006) and in accordance with International Accounting
Standard 34, 'Interim Financial Reporting'. Insofar as the Statement of
Recommended Practice ('SORP') for investment trust companies ('AIC'), revised
in November 2014 is compatible with IFRS, the financial statements have been
prepared in accordance with guidance set out in the SORP.
3. INCOME
Six months ended Six months ended Year ended
30 April 2016 30 April 2015 31 October 2015
£'000 £'000 £'000
(unaudited) (unaudited) (audited)
Investment income:
Overseas listed dividends 1,365 1,494 2,788
UK listed dividends 34 11 26
-------------- -------------- --------------
1,399 1,505 2,814
Other income:
Deposit interest on cash balances - 1 2
Option premium income 1,164 1,299 2,423
-------------- -------------- --------------
1,164 1,300 2,425
-------------- -------------- --------------
Total income 2,563 2,805 5,239
======== ======== ========
During the period, the Company received option premiums totalling £1,288,000
(period ended 30 April 2015: £1,436,000; year ended 31 October 2015: £
2,348,000) for writing covered call options for the purposes of revenue
generation. Option premiums of £1,164,000 (period ended 30 April 2015: £
1,299,000; year ended 31 October 2015: £2,423,000) were amortised to income.
All derivative transactions were based on constituent stocks in the Russell
1000 Value Index. At 30 April 2016, there were 158 open positions with an
associated liability of £383,000 (30 April 2015: 123 open positions with an
associated liability of £194,000; 31 October 2015: 151 open positions with an
associated liability of £618,000).
4. INVESTMENT MANAGEMENT FEE
Six months ended Six months ended Six months ended Six months ended Six months ended Six months ended
30 April 2016 30 April 2016 30 April 2016 30 April 2015 30 April 2015 30 April 2015 Year ended Year ended Year ended
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) 31 October 2015 31 October 2015 31 October 2015
(audited) (audited) (audited)
Revenue Capital Total Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Investment 88 264 352 132 397 529 244 733 977
management fee
-------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
Total 88 264 352 132 397 529 244 733 977
======== ======== ======== ======== ======== ======== ======== ======== ========
Until 31 October 2015, the Company had a management agreement with BlackRock
Fund Managers Limited (BFM) under which BFM was entitled to an investment
management fee, payable in arrears, calculated at the rate of 0.25 per cent per
quarter of the Company's average market capitalisation. Average market
capitalisation was calculated as the aggregate of the closing mid-market share
price, multiplied by the number of shares in issue on each business day during
the quarter, divided by the number of business days in the quarter.
With effect from 1 November 2015, the investment management fee is payable
quarterly in arrears, calculated at the rate of 0.75 per cent per annum (0.1875
per cent per quarter) of net assets.
5. Operating expenses
Six months ended Six months ended Year ended
30 April 2016 30 April 2015 31 October 2015
£'000 £'000 £'000
(unaudited) (unaudited) (audited)
Allocated to revenue:
Custody fee 2 3 4
Auditors' remuneration - audit 14 13 27
services
Registrar's fee 13 9 26
Directors' emoluments 53 49 101
Broker fees 20 20 40
Depositary fees 5 7 12
Marketing fees 23 42 28
Other administration costs 45 48 91
-------------- -------------- ---------------
175 191 329
Allocated to capital:
-------------- -------------- --------------
Transaction charges - capital 17 26 25
-------------- -------------- --------------
192 217 354
======== ======== ========
6. DIVIDENDS
The Directors have declared a second quarterly interim dividend of 1.20p per
share. The dividend will be paid on 1 July 2016 to shareholders on the
Company's register on 20 May 2016. This dividend has not been accrued in the
financial statements for the six months ended 30 April 2016 as, under IFRS,
interim dividends are not recognised until paid. Dividends are debited directly
to reserves.
Dividends on equity shares during the period were:
Six months ended
30 April 2016
£'000
(unaudited)
Dividends on equity shares:
Fourth interim dividend of 1.10p per ordinary share paid on 5 January 877
2016*
First interim dividend of 1.10p per ordinary share paid on 4 April 802
2016**
--------------
1,679
Second interim dividend of 1.20p per ordinary share payable on 1 July 835
2016***
--------------
2,514
========
* Based on 79,739,044 ordinary shares.
** Based on 72,899,044 ordinary shares.
*** Based on 69,549,044 ordinary shares.
7. EARNINGS AND NET ASSET VALUE PER ORDINARY SHARE
Net revenue and capital returns per share and net asset value per share are
shown below and have been calculated using the following:
Six months ended Six months ended Year ended
30 April 2016 30 April 2015 31 October 2015
(unaudited) (unaudited) (audited)
Net revenue profit attributable to 1,914 2,066 3,883
ordinary shareholders (£'000)
Net capital profit attributable to 4,329 4,326 1,788
ordinary shareholders (£'000)
--------------- --------------- ----------------
Total profit attributable to ordinary 6,243 6,392 5,671
shareholders (£'000)
--------------- --------------- ----------------
Total equity attributable to equity 90,463 100,831 98,046
holders (£'000)
--------------- --------------- ----------------
The weighted average number of ordinary 75,203,163 90,935,105 85,447,775
shares in issue during the period on
which the return per ordinary share was
calculated was:
--------------- --------------- ----------------
The actual number of ordinary shares in 69,549,044 80,289,044 80,039,044
issue at the end of the period on which
the net asset value was calculated was:
--------------- --------------- ----------------
Revenue earnings per share 2.55p 2.27p 4.54p
Capital earnings per share 5.75p 4.76p 2.10p
-------------- -------------- ---------------
Total earnings per share 8.30p 7.03p 6.64p
-------------- -------------- ---------------
Net asset value per share 130.07p 125.59p 122.50p
-------------- -------------- ---------------
Share price 123.25p 117.50p 113.00p
-------------- -------------- ---------------
Basic and diluted earnings per share and net asset value per share are the same
as the Company does not have any dilutive securities outstanding.
8. SHARE CAPITAL
Ordinary Treasury Total Nominal
shares in issue shares shares value
(number) (number) (number) £'000
Allotted, called up and fully paid share
capital comprised:
Ordinary shares of 1 pence each:
At 1 November 2015 80,039,044 20,322,261 100,361,305 1,004
Purchase of ordinary shares in the period (10,490,000) 10,490,000 - -
---------------- --------------- ------------------ --------------
At 30 April 2016 69,549,044 30,812,261 100,361,305 1,004
========= ========= ========== ========
During the period to 30 April 2016, 10,490,000 ordinary shares were purchased
(period ended 30 April 2015: 20,072,261; year ended 31 October 2015:
20,322,261) and held in treasury at a total cost of £12,147,000 including
expenses (six months ended 30 April 2015: £24,953,000; year ended 31 October
2015: £25,257,00
No ordinary shares were cancelled during the period (six months ended 30 April
2015 and year ended 31 October 2015: nil). Since the period end and up to the
date of this report, no further ordinary shares have been repurchased.
9. VALUATION OF FINANCIAL INSTRUMENTS
Financial assets and financial liabilities are either carried in the Statement
of Financial Position at their fair value (investment and derivatives) or at an
amount which is a reasonable approximation of fair value (other receivables and
payables, cash held on margin deposits with brokers and cash and cash
equivalents). IFRS 13 requires the Company to classify fair value measurements
using a fair value hierarchy that reflects the significance of inputs used in
making the measurements. The valuation techniques used by the Company are
explained in the accounting policies note 14 as set out in the Company's Annual
Report and Financial Statements for the year ended 31 October 2015.
Categorisation within the hierarchy has been determined on the basis of the
lowest level input that is significant to the fair value measurement of the
relevant asset as follows.
The fair value hierarchy has the following levels:
Level 1 - Quoted market price in an active market for an identical instrument.
These include exchange traded derivative option contracts. A financial
instrument is regarded as quoted in an active market if quoted prices are
readily and regularly available from an exchange, dealer, broker, industry
group, pricing service, or regulatory agency, and those prices represent actual
and regularly occurring market transactions on an arm's length basis.
Level 2 - Valuation techniques used to price securities based on observable
inputs. This category includes instruments valued using quoted prices for
similar instruments in markets that are considered less than active; or other
valuation techniques where all significant inputs are directly or indirectly
observable from market data.
Valuation techniques used for non-standardised financial instruments such as
options, currency swaps and other over-the-counter derivatives, include the use
of comparable recent arm's length transactions, reference to other instruments
that are substantially the same, discounted cash flow analysis, option pricing
models and other valuation techniques commonly used by market participants
making the maximum use of market inputs and relying as little as possible on
entity specific inputs.
Level 3 - Valuation techniques using significant unobservable inputs. This
category includes all instruments where the valuation technique includes inputs
not based on observable data and the unobservable inputs could have a
significant impact on the instrument's valuation. This category includes
instruments that are valued based on quoted prices for similar instruments
where significant unobservable adjustments or assumptions are required to
reflect differences between the instruments and instruments for which there is
no active market.
For this purpose, the significance of an input is assessed against the fair
value measurement in its entirety. If a fair value measurement uses observable
inputs that require significant adjustment based on unobservable inputs, that
measurement is a level 3 measurement. Assessing the significance of a
particular input to the fair value measurement in its entirety requires
judgement, considering factors specific to the asset or liability.
The determination of what constitutes 'observable' requires significant
judgement by the Investment Manager. The Investment Manager considers
observable data to be that market data that is readily available, regularly
distributed or updated, reliable and verifiable, not proprietary, and provided
by independent sources that are actively involved in the relevant market.
Over-the-counter derivative option contracts have been classified as level 2
investments as their valuation has been based on market observable inputs
represented by the underlying quoted securities to which these contracts expose
the Company.
The table below sets out fair value measurements using the IFRS 13 fair value
hierarchy.
Financial assets/ Level 1 Level 2 Level 3 Total
(liabilities) at fair £'000 £'000 £'000 £'000
value through profit or
loss at 30 April 2016
Assets:
Equity investments 89,640 - - 89,640
Liabilities:
Derivative financial - (383) - (383)
instruments - written
options
---------- ----------- ----------- -----------
89,640 (383) - 89,257
====== ====== ====== ======
Financial assets/ Level 1 Level 2 Level 3 Total
(liabilities) at fair £'000 £'000 £'000 £'000
value through profit or
loss at 30 April 2015
Assets:
Equity investments 101,120 - - 101,120
Liabilities:
Derivative financial (161) (33) - (194)
instruments - written
options
---------- ----------- ----------- -----------
100,959 (33) - 100,926
====== ====== ====== ======
Financial assets/ Level 1 Level 2 Level 3 Total
(liabilities) at fair £'000 £'000 £'000 £'000
value through profit or
loss at 31 October
2015
Assets:
Equity investments 95,936 - - 95,936
Liabilities:
Derivative financial (473) (145) - (618)
instruments - written
options
---------- ----------- ----------- -----------
95,463 (145) - 95,318
====== ====== ====== ======
There were no transfers between levels for financial assets and financial
liabilities during the period recorded at fair value as at 30 April 2016, 30
April 2015 and 31 October 2015. The Company did not hold any level 3 securities
throughout the financial period under review or as at 30 April 2015 and 31
October 2015.
10. TRANSACTIONS WITH THE AIFM AND INVESTMENT MANAGER
BlackRock Fund Managers Limited ('BFM') was appointed as the Company's
Alternative Investment Fund Manager ('AIFM') with effect from 2 July 2014. BFM
provides management and administration services to the Company under a contract
which is terminable on six months' notice in writing. BFM has (with the
Company's consent) delegated certain portfolio and risk management services,
and other ancillary services, to BlackRock Investment Management (UK) Limited
(BIM (UK)).
The investment management fees due to BFM for the six months ended 30 April
2016 were £352,000 (six months ended 30 April 2015: £529,000; year ended 31
October 2015: £977,000). At the period end, an amount of £170,000 (six months
ended 30 April 2015: £529,000; year ended 31 October 2015: £448,000) was
outstanding in respect of the investment management fees.
In addition to the above services, BlackRock has provided the Company with
marketing services. The total fees paid or payable for these services for the
period ended 30 April 2016 amounted to £23,000 excluding VAT (six months ended
30 April 2015: £42,000; year ended 31 October 2015: £28,000). Marketing fees of
£96,000 (six months ended 30 April 2015: £119,000; year ended 31 October 2015:
£105,000) were outstanding as at 30 April 2016.
11. RELATED PARTY DISCLOSURE
The Board consists of four non-executive Directors all of whom are considered
to be independent by the Board. None of the Directors has a service contract
with the Company. The Chairman receives an annual fee of £30,000, the Chairman
of the Audit and Management Engagement Committee receives an annual fee of £
25,000 and the other Directors each receive an annual fee of £21,000. At 30
April 2016, an amount of £8,000 (30 April 2015: £8,080; 31 October 2015: £
8,000) was outstanding in respect of Directors' fees.
At 30 April 2016, interests of the Directors in the ordinary shares of the
Company are as set out below:
Six months ended Six months ended Year ended
30 April 2016 30 April 2015 31 October 2015
(unaudited) (unaudited) (audited)
Simon Miller (Chairman) 38,094 38,094 38,094
Christopher Casey 19,047 19,047 19,047
Andrew Irvine 38,094 38,094 38,094
Alice Ryder 9,047 9,047 9,047
Since the period end and up to the date of this report there have been no
changes in Directors' holdings.
12. CONTINGENT LIABILITIES
There were no contingent liabilities at 30 April 2016 (30 April 2015 and 31
October 2015: nil).
13. PUBLICATION OF NON STATUTORY ACCOUNTS
The financial information contained in this half yearly financial report does
not constitute statutory accounts as defined in section 435 of the Companies
Act 2006. The financial information for the six months ended 30 April 2016 and
30 April 2015 has not been audited.
The information for the year ended 31 October 2015 has been extracted from the
latest published audited financial statements which have been filed with the
Registrar of Companies. The report of the auditors on the financial statements
contained no qualifications or statement under sections 498(2) or 498(3) of the
Companies Act 2006.
14. ANNUAL RESULTS
The Board expects to announce the annual results for the year ended 31 October
2016 in late December 2016.
Copies of the annual results announcement can be obtained from the Secretary on
0207 743 3000. The Annual Report and Financial Statements should be available
by the beginning of January 2017 with the Annual General Meeting being held in
February 2017.
ENDS
The half yearly financial report will also be available on the BlackRock
Investment Management website at http://www.blackrock.co.uk/brna. Neither the
contents of the Investment Manager's website nor the contents of any website
accessible from hyperlinks on the Investment Manager's website (or any other
website) is incorporated into, or forms part of, this announcement.
For further information please contact:
Simon White, Managing Director Investment Trusts - 020 7743 3000
Press enquires:
Lucy Horne , Lansons Communications - 020 7294 3689
E-mail: lucyh@lansons.com
BlackRock Investment Management (UK) Limited
12 Throgmorton Avenue
London
EC2N 2DL
29 June 2016
BLACKROCK NORTH AMERICAN INCOME : Half-year Report
June 29, 2016 at 09:38 pm IST
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