BlackRock Commodities Income Investment Trust plc
Annual Results Announcement for the year ended 30 November 2015
Performance record
Financial Highlights
|
As at
30 November 2015 |
As at
30 November 2014 |
Change
% |
| Assets |
|
|
|
| Net assets (£’000)* |
69,430 |
96,696 |
-28.2 |
| Net asset value per ordinary share |
60.08p |
91.95p |
-34.7 |
| – with income reinvested |
|
|
-29.4 |
|
-------- |
-------- |
-------- |
| Ordinary share price (mid-market) |
59.75p |
99.00p |
-39.6 |
| – with income reinvested |
|
|
-34.8 |
|
|
|
|
|
Year
ended
30
November
2015 |
Year
ended
30
November
2014 |
Change
% |
| Revenue |
|
|
|
| Net revenue after taxation (£’000) |
6,940 |
6,225 |
11.5 |
| Revenue return per ordinary share |
6.32p |
6.20p |
1.9 |
|
-------- |
-------- |
-------- |
| Interim dividends |
|
|
|
| 1st interim |
1.5000p |
1.4875p |
+0.8 |
| 2nd interim |
1.5000p |
1.4875p |
+0.8 |
| 3rd interim |
1.5000p |
1.4875p |
+0.8 |
| 4th interim |
1.5000p |
1.5375p |
-2.4 |
|
-------- |
-------- |
-------- |
| Total dividends paid and payable |
6.0000p |
6.0000p |
– |
|
|
|
|
| * The change in net assets reflects market movements and the issue of 10,410,000 ordinary shares in the year. |
|
|
|
|
CHAIRMAN’S STATEMENT
OVERVIEW
This was a challenging year for commodities as weak Chinese demand, production oversupply and US Dollar strength impacted prices across the board. Producers of oil, gas and base metals – notably iron ore – saw their share prices hit new lows as the wheels came off the commodity supercyle. A number of companies have announced dividend cuts or, in extremis, the suspension of dividends alongside ambitious plans to reduce debt by selling assets and reducing their workforce. Against such a backdrop, I am pleased to report that the Company has maintained its dividend for 2015, as I know how important income is for many of our shareholders.
During the year, the Company’s net asset value per share (NAV) has been disappointing, returning -29.4%. The share price returned -34.8%. Over the same period, the Euromoney Global Mining Index and MSCI World Energy Index returned -38.9% and -12.1% respectively. Since the launch of the Company in December 2005 the NAV has returned +0.5% and the share price -2.1% (all percentages calculated in sterling terms with income reinvested).
Since the year end and up to the close of business on 1 February 2016, the Company’s NAV has returned -15.1% and the share price has returned -12.1%.
REVENUE RETURN AND DIVIDENDS
The Company’s revenue return per share for the year amounted to 6.32p (2014: 6.20p). It remains the Company’s intention to pay four quarterly dividends. Details of the dividends paid for the 2014 and 2015 financial years are set out in note 8 to the Financial Statements.
Our objective this year was to pay dividends which in total amounted to at least 6.00p (2014: 6.00p) and I am pleased to report that in this difficult period for commodity markets we achieved this target.
The Board announced on 17 December 2015 that it has set a target of an unchanged total dividend of 6.00p per share for the current financial year in light of current conditions in the commodity markets, volatility levels in the derivative markets and dividend prospects for the Company’s underlying investments. This target will be reviewed should there be any material change in these factors. Option writing can limit the potential for capital appreciation and the volatile conditions which have supported this strategy may not continue in the long term. The Board may therefore decide to limit their use, but remains committed to maintaining and growing the Company’s dividend over time. The Board would consider using revenue reserves, or making distributions out of capital profits or the special reserve, to bolster the dividend in the current financial year if income from the portfolio is insufficient.
The target should not be interpreted as a profit forecast. The target represents a yield of 10.0% based on the share price as at the close of business on 30 November 2015.
TENDER OFFERS
The Directors of the Company have discretion to make semi-annual tender offers at the prevailing NAV, less 2%, for up to 20% of the issued share capital in August and February of each year.
The Board announced on 12 June 2015 that it had decided not to proceed with a tender offer in August 2015 and on 17 December 2015 that the tender offer in February 2016 would not be implemented. During the year ended 30 November 2015, the Company’s shares traded at an average premium to NAV of 1.9% compared to a discount of 2.0% to NAV, the price at which any tender offer would be made.
Resolutions for the renewal of the Company’s semi-annual tender authorities will be put to shareholders at the forthcoming Annual General Meeting (AGM).
SHARE CAPITAL
The Company is committed to the regular issue of ordinary shares at a premium to NAV as a way of ensuring that any premium to NAV is maintained within a sensible range, to provide ongoing market liquidity and to do so in a manner that is accretive to shareholders. In June 2015, in response to investor demand, and to enable the Company to continue to issue further ordinary shares, the Company published a prospectus in respect of a Placing Programme of up to 50 million ordinary shares.
During the financial year ended 30 November 2015, the Company issued 10,410,000 ordinary shares at an average price of 79.70p per share for a total consideration of £8,086,000, before the deduction of issue costs. The ordinary shares were issued at an average premium of 2.84% to the cum income NAV at the close of business on the business day prior to each issue and at a premium to the estimated cum income NAV at the time of each transaction. It should be noted that the issue of new ordinary shares during the year has provided a gross capital uplift of £215,000, including income of £81,000.
Since 30 November 2015, and up to the close of business on 1 February 2016, a further 250,000 ordinary shares have been issued for consideration of £135,000, before the deduction of issue costs. The ordinary shares were issued at an average premium of 2.0% to the cum income NAV at the close of business on the previous business day and at a premium to the estimated cum income NAV at the time of the transaction.
At the forthcoming AGM the Company will be seeking the authority to allot new ordinary shares or sell from treasury ordinary shares representing up to 10% of the Company’s issued ordinary share capital.
GEARING
The Company operates a flexible gearing policy which depends on prevailing market conditions. The maximum gearing used during the year was 4.7% and at 30 November 2015 net cash was 0.6%. Gearing has been calculated in accordance with AIC guidelines and on a net basis.
MANAGEMENT FEE
In December 2015 the Board announced that the Company and the Manager had agreed a reduction to the fees payable to the Manager under the Investment Management Agreement. Effective 1 December 2015, the existing management fee of 1.10% of gross assets per annum was replaced with a management fee of 0.95% of the Company’s gross assets per annum reducing to 0.90% per annum for gross assets in excess of £250 million.
ANNUAL GENERAL MEETING
The Company’s AGM will be held on Monday, 14 March 2016 at 10.30 a.m. at the offices of BlackRock, 12 Throgmorton Avenue, London EC2N 2DL. Details of the business of the meeting are set out in the Notice of Meeting on pages 70 to 73 of the Annual Report. The portfolio managers will make a presentation to shareholders on the Company’s progress and the outlook for the year.
OUTLOOK
Over the past 12 months the sector has significantly reduced capital expenditure, cut costs, reduced its work force and is now beginning to lower production. Despite this, commodity prices continue to be driven down by China fears, oversupply and US Dollar strength. 2016 is shaping up to be another tough year for the natural resources sector. Whether we have experienced the worst remains to be seen but one has to believe that the industry is now better positioned for any recovery. In this context dividends, however, remain under pressure as revenues fall and the cost of debt servicing rises.
Ed Warner
Chairman
2 February 2016
STRATEGIC REPORT
The Directors present the Strategic Report of the Company for the year ended 30 November 2015. 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 during the year under review.
BUSINESS AND MANAGEMENT OF THE COMPANY
BlackRock Commodities Income Investment 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. The Company’s wholly owned subsidiary is BlackRock Commodities Securities Income Company Limited. Its principal activities are option writing and investment dealing.
Investment trusts, like unit trusts and 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. 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.
Other service providers include the Depositary, BNY Mellon Trust & Depositary (UK) Limited, the fund accountant, Bank of New York Mellon (International) Limited, and the Registrar, Computershare Investor Services PLC (Computershare). Details of the contractual terms with these service providers are set out in the Directors’ Report.
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 and is its governing body. There is a clear division of responsibility between the Board and the Manager. Matters for the Board include setting the Company’s strategy, including its investment objective and policy, setting limits on gearing, 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.
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 Company and its subsidiary (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 Company 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 the Company’s gross assets at the time of drawdown of the relevant borrowings.
The Group’s financial statements are maintained in sterling. Although many investments are denominated and quoted in currencies other than 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.
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 6.32p per share (2014: 6.20p).
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.
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
The performance of the portfolio together with the performance of the Company’s net asset value and share price are reviewed at each Board meeting.
Information on the Company’s performance is given in the performance record, the Chairman’s Statement and Investment Managers’ Report.
Premium/discount to NAV
At each meeting the Board monitors the level of the Company’s premium or discount to NAV and considers strategies for managing any premium or discount.
In the year to 30 November 2015, the Company’s share price to NAV traded in the range of a premium of 8.6% to a discount of 5.3% on a cum income basis. The Company issued a total of 10,410,000 shares during the year and further details are given in the Chairman’s Statement. No shares were bought back during the year.
Ongoing charges
The ongoing charges represent the Company’s management fee and all other recurring operating and investment management expenses, excluding finance costs, expressed as a percentage of average net assets.
The Board reviews the ongoing charges and monitors the expenses incurred by the Company at each meeting.
Dividend target
The level of income is considered at each meeting and the Board receives detailed income forecasts.
|
Year ended
30 November 2015 |
Year ended
30 November 2014 |
| Net asset value movement(1) |
-29.4% |
-8.1% |
| Share price movement(2) |
-34.8% |
-4.5% |
| (Discount)/premium to net asset value (at year end) |
(0.5%) |
7.7% |
| Revenue return per share |
6.32p |
6.20p |
| Ongoing charges(3) |
1.4% |
1.5% |
|
|
|
1. Calculated in accordance with AIC guidelines.
2. Calculated on a mid to mid basis with income reinvested.
3. Ongoing charges represent the management fee and all other recurring operating and investment management
expenses excluding finance costs expressed as a percentage of average net assets. |
The Board also monitors performance relative to a peer group of commodities and natural resources focused open and closed-end 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. Further details are provided in the Investment Manager’s Report.
PRINCIPAL RISKS
The Company is exposed to a variety of risks and uncertainties. The Board has in place a robust process to identify, understand 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, the likelihood and potential impact of each risk and the controls established for mitigation. A residual risk rating is calculated for each risk.
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. The Audit and Management Engagement Committee periodically receives presentations from BlackRock’s Internal Audit and Risk & Quantitative Analysis teams. The Audit and Management Engagement Committee also reviews Service Organisation Control (SOC 1) reports from the Company’s service providers where produced.
The Company’s principal risks may be categorised under the following headings:
- performance;
- income/dividend;
- gearing;
- regulatory;
- operational;
- market; and
- financial.
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 |
| Performance |
|
The returns achieved are reliant primarily upon the performance of the portfolio.
The Board is responsible for:
- deciding the investment strategy to fulfil the Company's objective; and
- for monitoring the performance of the Investment Manager and the implementation of the investment strategy.
An inappropriate investment strategy may lead to:
- poor relative performance;
- a loss of capital; and
- dissatisfied shareholders. |
To manage this risk the Board:
- regularly reviews the Company's investment mandate and long term strategy;
- has set investment restrictions and guidelines which the Investment Manager monitors and regularly reports on;
- receives from the Investment Manager a regular explanation of stock selection decisions, portfolio exposure, gearing and any changes in gearing and the rationale for the composition of the investment portfolio;
- monitors the maintenance of an adequate spread of investments in order to minimise the risks associated with factors specific to particular sectors, based on the diversification requirements inherent in the investment policy. |
| Income/dividend |
|
The ability to pay dividends, and future dividend growth, is dependent on a number of factors including the level of dividends earned from the portfolio and income generated from the option writing strategy. Income returns from the portfolio are dependent, among other things, upon the Company successfully pursuing its investment policy.
Any change in the tax treatment of dividends or interest received by the Company including as a result of withholding taxes or exchange controls imposed by jurisdictions in which the Company invests may reduce the level of dividends received by shareholders. |
The Board monitors this risk through the receipt of detailed income forecasts and considers the level of income at each meeting. |
| Gearing |
|
The Company’s investment strategy may involve the use of gearing, including borrowings.
Gearing may be generated through borrowing money or increasing levels of market exposure through the use of derivatives. The Company currently has an uncommitted overdraft facility with Bank of New York Mellon (International) Limited.
The use of gearing exposes the Company to the risk associated with borrowing.
Gearing provides an opportunity for greater returns where the return on the Company’s underlying assets exceeds the cost of borrowing. It is likely to have the opposite effect where the return on the underlying assets is below the cost of borrowings. Consequently, the use of borrowings by the Company may increase the volatility of the NAV. |
The Company’s Articles of Association limit borrowings to an aggregate amount equal to 40% of the value of the gross assets of the Group. However, to further manage this risk the Board do not anticipate borrowings will exceed 20% of the Company’s gross assets at the time of drawdown.
The use of derivatives, including options and futures has been limited to a maximum of 30% of the Group’s assets.
The Investment Manager will only use gearing when confident that market conditions and opportunities exist to enhance investment returns. |
| Regulatory |
|
The Company has been accepted by HM Revenue & Customs as an investment trust, subject to continuing to meet the relevant eligibility conditions and operates as an investment trust in accordance with Chapter 4 of Part 24 of the Corporation Tax Act 2010. As such, the Company is exempt from capital gains tax on the profits realised from the sale of its investments.
Any breach of the relevant eligibility conditions could lead to the Company losing investment trust status and being subject to corporation tax on capital gains realised within the Company’s portfolio. In such event the investment returns of the Company may be adversely affected.
Any serious breach could result in the Company and/or the Directors being fined or the subject of criminal proceedings or the suspension of the Company’s shares which would in turn lead to a breach of the Corporation Tax Act 2010.
The Company is required to comply with the provisions of the Companies Act 2006, the Alternative Investment Fund Managers Directive and the UK Listing Rules and Disclosure Rules. |
The Investment Manager monitors investment movements and the amount of proposed dividends, if any, to ensure that the provisions of Chapter 4 of Part 24 of the Corporation Tax Act 2010 are not breached. The results are reported to the Board at each meeting.
Compliance with the accounting rules affecting investment trusts is also carefully and regularly monitored.
The Company Secretary and the Company’s professional advisers provide regular reports to the Board in respect of compliance with all applicable rules and regulation. |
| Operational |
|
The Company relies on the services provided by third parties. Accordingly, it is dependent on the control systems of the Manager, BNY Mellon Trust & Depositary (UK) Limited (the Depositary) and the Bank of New York Mellon (International) Limited (the fund accountant), who maintain the Company’s assets, settlement and accounting records.
Failure by any service provider to carry out its obligations to the Company could have a material adverse effect on the Company’s performance. Disruption to the accounting, payment systems or custody records could prevent the accurate reporting and monitoring of the Company’s financial position.
The security of the Company’s assets, dealing procedures, accounting records and adherence to regulatory and legal requirements depend on the effective operation of the systems of the third party service providers. |
Due diligence is undertaken before contracts are entered into with third party service providers. Thereafter, the performance of the provider is subject to regular review and reported to the Board.
Most third party service providers produce Service Organisation Control (SOC 1) reports to provide assurance regarding the effective operation of internal controls as reported on by their reporting accountants. These reports are provided to the Audit and Management Engagement Committee.
The Company’s financial assets are subject 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. |
| Market |
|
Market risk arises from volatility in the prices of the Company’s investments. The price of shares of companies in the mining and energy sectors can be volatile and this may be reflected in the NAV and market price of the Company’s shares.
The Company invests in the mining and energy sectors in many countries globally and will also be subject to country-specific risk. A lack of growth in world or country-specific industrial production may adversely affect metal and energy prices.
There is the potential for the Company to suffer loss through holding investments in the face of negative market movements. |
The Board considers the diversification of the portfolio, asset allocation, stock selection, and levels of gearing on a regular basis and has set investment restrictions and guidelines which are monitored and reported on by the Investment Manager.
The Board monitors the implementation and results of the investment process with the Investment Manager. |
| Financial |
|
The Company’s investment activities expose it to a variety of financial risks that include interest rate and currency risk.
The Company invests in both sterling and non-sterling denominated securities. Consequently, the value of investments in the portfolio made in non-sterling currencies will be affected by currency movements. |
Details of these risks are disclosed in note 17 to the financial statements, together with a summary of the policies for managing these risks. |
As required by the UK Corporate Governance Code (2014 Code), the Board has undertaken a robust assessment of the principal risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity. Those principal risks have been described above together with an explanation of how they are managed and mitigated. The Board will continue to assess these risks on an ongoing basis.
VIABILITY STATEMENT
In accordance with provision C.2.2 of the 2014 UK Corporate Governance Code, the Directors have assessed the prospects of the Company for a period of three years. The Board considers three years to be an appropriate time horizon, being the period generally used to assess potential investments.
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 limited gearing and no concerns around facilities, headroom or covenants; and
- the business model should remain attractive for longer than three years, unless there is significant economic or regulatory change.
The Directors have also reviewed:
- the Company’s principal risks and uncertainties, as previously set out;
- the potential impact of the continuation of the fall in commodity equity markets on the value of the Company’s investment portfolio and underlying dividend income;
- 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 financial metrics in its assessment, including:
- the level of ongoing charges, both current and historic;
- the level at which the shares trade relative to NAV;
- the level of income generated;
- future income forecasts; and
- the liquidity of the portfolio (as at 30 November 2015, 99% of the portfolio was capable of being liquidated in less than 20 days).
The Board has concluded that the Company would be able to meet its ongoing operating costs as they fall due as a consequence of:
- a liquid portfolio; and
- expenses which comprise a small percentage of net assets.
Based on the results of their analysis, the Directors have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment.
FUTURE PROSPECTS
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 of its Directors are non-executive, therefore, there are no disclosures to be made in respect of employees.
As an investment trust, the Company has no direct social or community responsibilities. However, the Company believes that it is in shareholders’ interests to consider environmental, social and governance factors and human rights issues when selecting and retaining investments. Details of the Company’s policy on socially responsible investment are set out on page 32 of the Annual Report and Financial Statements.
GLOBAL GREENHOUSE GAS EMISSIONS FOR THE PERIOD 1 DECEMBER 2014 TO 30 NOVEMBER 2015
The Company has no greenhouse gas emissions to report from its operations, nor does it have responsibility for any other emissions producing sources under the Companies Act 2006 (Strategic Report and Directors’ Reports) Regulations 2013.
DIRECTORS, GENDER REPRESENTATION AND EMPLOYEES
The Directors of the Company on 30 November 2015, are set out in the Governance Structure and Directors’ biographies on page 19 of the Annual Report and Financial Statements.
The Board consists of three male Directors and one female Director.
The Company does not have any employees.
By order of the Board
BlackRock Investment Management (UK) Limited
Company Secretary
2 February 2016
Related party transactions
BlackRock Fund Managers Limited (BFM) was appointed as the Company’s AIFM with effect from 2 July 2014. BIM (UK) continues to act as the Company’s Investment Manager under a delegation agreement with BFM. Further details of the investment management contract are disclosed in the Directors’ Report on pages 20 and 21 of the Annual Report and Financial Statements.
The investment management fee due for the year ended 30 November 2015 amounted to £881,000 (2014: £1,255,000). At the year end, £547,000 was outstanding in respect of the management fee (2014: £490,000). The management fee was until 2 July 2014 payable to BIM (UK) and thereafter to BFM.
In addition to the above services, BlackRock has provided the Company with marketing services. The total fees paid or payable for these services for the year ended 30 November 2015 amounted to £21,500 excluding VAT (2014: £31,800). Marketing fees of £25,400 (2014: £34,400) were outstanding at 30 November 2015.
With effect from 1 December 2014, the Board consisted of four non-executive Directors, all of whom, with the exception of Mr Ruck Keene who is an employee of the Manager, are considered to be independent of the Manager by the Board. None of the Directors has a service contract with the Company. For the year ended 30 November 2015, the Chairman received an annual fee of £33,000, the Chairman of the Audit and Management Engagement Committee received an annual fee of £27,000 and each of the other Directors received an annual fee of £22,000 with the exception of Mr Ruck Keene who waived his fee. At 30 November 2015, £nil (2014: £nil) was outstanding in respect of Directors’ fees.
As at 30 November 2015 and 2014, the Directors’ interests in the Company’s Ordinary Shares were as follows:
|
2015 |
2014 |
|
Ordinary
shares |
Ordinary
shares |
| Ed Warner |
32,000 |
20,000 |
| Carol Bell |
33,500 |
– |
| Michael Merton |
17,000 |
17,000 |
| Jonathan Ruck Keene |
14,000 |
14,000 |
| Alan Hodson(1) |
n/a |
150,000 |
| 1. Retired as a Director and Chairman on 17 March 2015. |
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 financial statements under IFRS as adopted by the European Union.
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 of the profit or loss of the Group for that period.
In preparing these Group financial statements, the Directors are required to:
- present fairly the financial position, financial performance and cash flows of the Group;
- 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;
- state whether the financial statements have been prepared in accordance with IFRS as adopted by the European Union, subject to any material departures disclosed and explained in the financial statements;
- provide additional disclosures when compliance with the specific requirements in IFRS as adopted by the European Union is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the Group’s financial position and financial performance; and
- prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group’s transactions and disclose with reasonable accuracy at any time the financial position of the Group and enable them to ensure that the financial statements comply with the Companies Act 2006.
They are also responsible for safeguarding the assets of the Group and for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors are also responsible for preparing the Strategic Report, the Directors’ Report, the Directors’ Remuneration Report, the Corporate Governance Statement and the Report of the Audit and Management Engagement Committee in accordance with the Companies Act 2006 and applicable regulations, including the requirements of the Listing Rules and the Disclosure and Transparency Rules. The Directors have delegated responsibility to the 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.
Each of the Directors, whose names are listed on page 19 of the Annual Report and Financial Statements, confirm to the best of their knowledge that:
-
the financial statements, which have been prepared in accordance with IFRS as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and net return of the Group; and
-
the annual report and financial statements include a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that it faces.
The 2014 UK Corporate Governance Code also requires Directors to ensure that the annual report and financial statements are fair, balanced and understandable. 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 on pages 33 to 35 of the Annual Report and Financial Statements. As a result, the Board has concluded that the annual report and financial statements for the year ended 30 November 2015, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group’s position, performance, business model and strategy.
For and on behalf of the Board
Ed Warner
Chairman
2 February 2016
INVESTMENT MANAGER’S REPORT
It was an extremely challenging year for the Natural Resources sector. Energy and mining share prices came under significant pressure with many companies trading below the levels seen during the Global Financial Crisis. The sector was battered by multiple headwinds, including weaker global economic growth, concerns over the strength of the Chinese economy, resilient supply (despite lower prices) and a strong US Dollar. Commodities were savaged, the Brent oil price fell by 38% and key industrial commodities copper and iron ore plunged by 29% and 40% respectively. This resulted in the lowest level for Bloomberg’s Commodity Index since the late 1990s.
Despite better than expected demand, the oil market remained in modest oversupply during the year. Increased production from OPEC, combined with an agreement reached with Iran to lift sanctions enabling the country to re-enter the market in January 2016, has seen global oil supply remain strong despite lower prices. However, as we reached the end of 2015 some positive signs started to emerge, with US oil production beginning to decline, a direct impact of the 65% reduction in the rig count since the 2014 peak. In addition, industry capex fell by approximately 20% during the year and is set to reduce further in 2016. It now appears that we are past the point of maximum oversupply in the oil market. In our view, the current oil price relative to the industry’s cost of production is unsustainable and too low to incentivise the investment that will be required over the medium term.
Lower demand, particularly from China, was the key driver of industrial commodity price weakness during the year. Base metals and bulk commodities saw significantly weaker demand than anticipated and, as the market downgraded expectations, most commodities were oversupplied by the year end. With a number of high cost mines losing money at current commodity prices, pressure is building for further production cuts. In order for markets to rebalance, supply needs to be reduced. The availability of cheap capital and low interest rates have meant that the industry has been slow to respond. As we approached the end of the year, supply cuts began to build. We expect these to accelerate as we enter 2016 ultimately providing a supportive environment for commodity prices.
During the year ended 30 November 2015 the Company’s net asset value (NAV) declined by 29.4%, with the share price falling by 34.8%. Over the same period the Euromoney Global Mining and MSCI World Energy indices declined by 38.9% and 12.1% respectively. (All data are in sterling with dividends reinvested.) In light of the commodity price volatility, the decision was made to reduce gearing: the maximum net gearing over the period was 4.7%; at the end of November the portfolio had a 0.6% net cash position.
The table below shows the annual performance of key commodity prices during the year.
| Commodity |
30 November 2014 |
30 November 2015 |
% change |
| Base Metals (US$/tonne) |
|
|
|
| Aluminium |
2,030 |
1,446 |
-28.8 |
| Copper |
6,412 |
4,586 |
-28.5 |
| Lead |
2,024 |
1,647 |
-18.6 |
| Nickel |
16,223 |
8,900 |
-45.1 |
| Tin |
20,276 |
14,900 |
-26.5 |
| Zinc |
2,213 |
1,563 |
-29.4 |
| Precious Metals (US$/oz) |
|
|
|
| Gold |
1,182 |
1,065 |
-9.9 |
| Silver |
15.5 |
14.1 |
-9.2 |
| Platinum |
1,205 |
831 |
-31.0 |
| Palladium |
809 |
544 |
-32.7 |
|
-------- |
-------- |
-------- |
| Energy |
|
|
|
| Oil (WTI) (US$/Bbl) |
65.9 |
41.7 |
-36.8 |
| Oil (Brent) (US$/Bbl) |
71.7 |
44.6 |
-37.8 |
| Natural Gas (US$/MMBTU) |
4.2 |
2.2 |
-46.9 |
| Uranium (US$/lb) |
40.0 |
36.1 |
-9.7 |
|
-------- |
-------- |
-------- |
| Bulk Commodities (US$/tonne) |
|
|
|
| Iron ore |
71.1 |
43.0 |
-39.6 |
| Coking coal |
112.0 |
75.4 |
-32.7 |
| Thermal coal |
63.4 |
53.6 |
-15.5 |
| Potash (US$/st) |
370 |
290 |
-21.6 |
|
-------- |
-------- |
-------- |
| Equity Indices |
|
|
|
| Euromoney Global Mining Index (US$) |
342.9 |
193.6 |
-43.6 |
| Euromoney Global Mining Index (£) |
219.0 |
128.7 |
-41.2 |
| MSCI World Energy Index (US$) |
240.7 |
197.5 |
-17.9 |
| MSCI World Energy Index (£) |
153.7 |
131.4 |
-14.5 |
|
-------- |
-------- |
-------- |
| Source: Bloomberg. |
|
|
|
Income
During the year the Company generated £8,568,000 in gross income. This enabled a fourth interim dividend payment of 1.50p per share to be paid, bringing the total dividend for 2015 to 6.00p per share, in line with the previous year.
In the half yearly financial report we discussed how a number of the mid cap companies, as well as those with higher amounts of debt, had been forced to reassess their dividends, with a number choosing to cut payments. As commodity markets continued to weaken throughout the year, the cashflow generation and balance sheets of resource companies have come under further pressure. There is therefore a risk as we go into 2016 that more companies will decide to reduce or even cancel dividends, which would lead us to be cautious on owning such names in an income-orientated portfolio. Historically, a dividend cut is something management teams have tried desperately to avoid as the market reaction was typically negative. However, in the current environment, with a focus on balance sheet preservation, the latest wave of dividend cuts in the North American energy sector has seen share prices rally as cash conservation has increased in importance.
The environment for option writing remained very favourable throughout the second half of the year. One of the key determinants of the amount of premium received for writing options is the implied volatility of the underlying shares. With the uncertainty in the natural resources sector this volatility was high in both absolute terms and relative to broader equity markets. Given our cautious stance on the market, option writing activity was heavily biased towards call writing with over 70% of options sold being calls. The limited amount of put option writing was concentrated in gold companies as we looked to add selectively to exposure based on an improving outlook for gold relative to other commodities.
The portfolio averaged a significantly lower level of gearing in 2015 compared to 2014, which meant that even without any changes by the companies to their dividends, dividends received by the Company would have been lower given the lower number of shares held in the portfolio. This, combined with the attractive environment for option writing meant that for 2015, approximately 50% of the portfolio’s income came from option writing compared to between 30% and 40% in previous years.
Energy
Oil prices and energy equities started the second half of the year on a downward trend as oil supply proved to be more resilient than expected despite lower prices. The lack of a significant supply side response to date is the key near term market dynamic. Despite economic growth disappointments, oil demand continued to surge, with the IEA revising demand estimates for 2015 higher, twice in the last six months. The oversupply is being driven by OPEC's strategy of full production to reclaim market share, the lack of cutbacks in US supply for most of 2015 and ongoing cost reductions in the industry. In addition, concerns around Iran meaningfully increasing production following the removal of sanctions continued to weigh on the oil price. Levels of oil in storage are also high relative to history, which puts further downward pressure on prices in the short term.
Although this paints a rather gloomy picture, there are some signs that are indicative of a more positive market in the future. Data released in October showed that US production had finally started to decline and that output in August was approximately 330,000 barrels per day lower than the March 2015 peak. Given the collapse in drilling activity in the last 12 months we would expect this decline in US production to accelerate in 2016. However this alone is not enough to bring about a strong recovery in the energy market; shale production is very flexible and can be restarted quickly should the oil price rebound, with some companies slashing the time from commencing drilling to first production down to nine days. What is needed to tighten the oil market in the next 12 to 18 months is either a change in attitude from OPEC (unlikely in our view) or a decline in production from non-OPEC, non-US sources.
In our view, current oil prices are ultimately unsustainable and too low to support the investment that will be required over the medium term. The world currently uses around ninety-three million barrels of oil per day and, whilst the market is oversupplied today, the relatively fast decline rate of oil wells necessitates a need for constant reinvestment to maintain aggregate output. With the recent collapse in the oil price, companies have abandoned capital spending programmes to the tune of $130 billion so far, with more set to come as they go through their 2016 budgeting process. This decline in capital expenditure should manifest itself in lower production from conventional oilfields as we head to the end of 2016. The two main threats to this thesis are (1) Iran managing to increase production to higher levels than expected, pushing out this rebalancing of the market and (2) cost deflation in the industry and improved efficiencies result in little change to production despite the falling dollar amount spent. While the latter point of declining capital intensity has been observed in the mining sector, the sheer volume of cuts should, in our view, still cause a decrease in non-OPEC production.
Mining
It was also an extremely difficult and volatile period for the mining sector. Concerns over the potential weakening of the Chinese economy, demand weakness, increasing supply and industry wide cost deflation put significant pressure on commodity prices. Mined commodities were down across the board with copper, nickel and iron ore falling by 29%, 45% and 40% respectively. At the end of the period the price of many mined commodities traded below the cost of production for higher cost producers, which saw a significant proportion of overall mined production in loss-making territory.
We have previously highlighted the impact of falling oil prices and weaker commodity currencies (such as the Australian and Canadian dollar) on costs resulting in a meaningful compression and flattening of cost curves. This trend continued during 2015, with many companies seeing costs down by between 30% and 50% since the peak thereby dampening, to an extent, the impact of falling commodity prices on margins. In addition, we continue to see the industry lower capital expenditure as a result of cost deflation, re-scoping of projects and cancellations. Today we see very few companies committing fresh capital on growth projects as current commodity price levels are insufficient to meet return thresholds. This bodes well for the longer term and limits the industry’s ability to respond to the next upturn in demand which will therefore ultimately see prices go higher.
Since the peak of the mining cycle in 2011, the industry has responded to lower commodity prices through cost cutting, capital expenditure reductions, asset sales and restructuring. We are now at the point where companies need to curtail loss–making production to reduce commodity surplus balances in the market. In previous cycles this process has been swift with high cost production cut quickly. This cycle has however been different. The rapid reduction in costs, combined with low interest rates and for many companies ample balance sheet liquidity, has not forced the industry to make the tough decisions to shutdown loss making assets. As we enter 2016, the industry will be forced to respond and we would expect to see an acceleration in production cuts which should be supportive for commodity prices.
Commodity Spot Prices Compared to the Marginal Cost of Production
|
% |
| Copper |
+6 |
| Zinc |
-5 |
| Thermal Coal |
-12 |
| Coking Coal |
-27 |
| Aluminium |
-28 |
| Iron Ore |
-32 |
| Platinum |
-38 |
| Nickel |
-51 |
Sources: Morgan Stanley and Datastream.
Given the weakness and volatility in commodity prices during the period, the portfolio remained focused on high quality, low cost and high dividend yielding companies. During the year, the Company increased its exposure to diversified miners BHP Billiton and Rio Tinto, who continued during 2015 to pay out an attractive and high level of dividends, whilst reducing exposure to those companies where we felt it was inevitable that dividends would be cut including Freeport, Vale, Antofagasta and Teck Resources.
Portfolio & Positioning
During the year we maintained a portfolio that was relatively balanced between the mining and energy sectors as both faced headwinds from falling underlying commodity prices, regular earnings downgrades and negative investor sentiment. Dividend cuts were seen across both sectors too, with no income-based rationale for favouring one sector over the other.
We also managed the Company with a very low level of gearing in 2015, when compared to 2014, given the volatility and downward trajectory of share prices. We maintain the flexibility to use gearing to enhance income and capital returns but do not see a near term catalyst to change our cautious stance.
From a stock specific perspective, as we went through the year and the market continued to deteriorate, we increasingly focused on the resilience of balance sheets. This resulted in us exiting positions such as Vedanta and reducing our holding in Glencore during the third quarter. We were also disciplined in selling those companies that had performed strongly and where, despite a robust dividend outlook, the relative valuation appeared challenging – one example of this was trimming the Norilsk position at the end of September. Relative valuation was also the key driver behind the increase in the Royal Dutch Shell position during the second half of the year.
During the second half of the year we also added modestly to the portfolio’s gold exposure. Although the common view is that a Fed rate rise will be negative for gold, investor positioning is already bearish and the rate rise very well flagged so it should not be a major event. Also, the gold companies have turned the corner operationally in the last twelve months with falls in operating costs and greater success in achieving production and financial metrics.
We ended the period with just under 3% of the NAV in one agriculture stock, Potash Corp. During the year we held positions in two more agriculture names but sold them based on relative valuation and their low dividend payments relative to opportunities elsewhere.
Outlook
2016 is shaping up to be another tough year for the natural resources sector. While oil demand remains healthy, demand for industrial commodities is likely to remain subdued with global industrial production expected to grow at a historically low level during 2016. Commodity markets remain oversupplied and prices for certain commodities will need to remain at current levels, or move lower, to cause loss-making production to be shutdown. In light of this, dividends will remain under pressure for the sector and we would expect to see companies further reduce capital spending and operating costs to maintain their balance sheets.
Despite the very disappointing performance of the sector, it is not all doom and gloom. In oil, with Iran back in the market it now appears that we are past the point of maximum oversupply and the market has potential to tighten later in 2016. In our view, the current oil price is unsustainable and too low to incentivise the investment that will be required over the medium term. For industrial commodities, while the supply side has been slower to respond we expect production cuts to increase with a number of miners loss making at current commodity prices. In the case of copper and zinc where above ground inventories are lower than is the case for aluminium and nickel, we would expect these prices to respond quicker.
Olivia Markham and Tom Holl
BlackRock Investment Management (UK) Limited
2 February 2016
DISTRIBUTION OF INVESTMENTS as at 30 November 2015
ASSET ALLOCATION – GEOGRAPHY
| Global |
42.4% |
| USA |
24.2% |
| Canada |
13.8% |
| Europe |
8.9% |
| Latin America |
3.0% |
| South Africa |
2.9% |
| Australia |
1.6% |
| Africa |
1.2% |
| Asia |
1.0% |
| China |
1.0% |
Source: BlackRock.
ASSET ALLOCATION – COMMODITY
| Energy |
60.6% |
| Mining |
39.4% |
|
|
| Mining |
|
| Diversified Mining |
15.0% |
| Copper |
9.3% |
| Gold |
4.2% |
| Fertilizers |
3.8% |
| Nickel |
2.8% |
| Silver |
2.6% |
| Diamonds |
1.7% |
|
|
| Energy |
|
| Integrated Oil |
37.1% |
| Exploration and Production |
15.9% |
| Distribution |
4.7% |
| Oil Services |
1.9% |
| Coal |
1.0% |
Source: BlackRock.
TEN LARGEST INVESTMENTS AS AT 30 NOVEMBER 2015
ExxonMobil: 6.3% (2014: 6.0%) is the world’s largest publicly traded international oil and gas company and the largest refiner and marketer of petroleum products.
First Quantum Minerals: 5.6% (2014:1.3%) is an established and rapidly growing mining company operating seven mines and developing five projects worldwide. The company is a significant copper producer and also produces nickel, gold, zinc and platinum group elements.
BHP Billiton: 5.5% (2014: 4.1%) is the world’s largest diversified natural resources company. The company is a major producer of aluminium, iron ore, copper, thermal and metallurgical coal, manganese, uranium, nickel, silver, titanium minerals and diamonds. The company also has significant interests in oil, gas and liquefied natural gas.
Rio Tinto: 5.4% (2014: 3.0%) is one of the world’s leading mining companies. The company’s primary production is iron ore, but it also produces aluminium, copper, diamonds, gold, industrial minerals and energy products.
Chevron: 5.3% (2014: 6.0%) is one of the world’s leading integrated energy companies engaged in every aspect of the oil, gas and power generation industries. Chevron is one of the world’s ‘supermajor’ oil companies, along with BP, ExxonMobil, Royal Dutch Shell and Total.
Royal Dutch Shell: 5.0% (2014: 3.6%) is one of the world’s leading energy companies. The Anglo-Dutch company is active in every area of the oil and gas industry within exploration and production, refining and marketing, power generation and energy trading. The company also has renewable energy interests in biofuels.
ConocoPhillips: 4.9% (2014: 3.2%) is the world’s largest independent exploration and production company (based on proved reserves and production of liquids and natural gas). It has producing assets in North America, Europe, Asia and Australia in conventional oil and gas and a growing portfolio of North American shale and oil sands businesses.
Enbridge Income Fund Trust: 4.7% (2014: 3.8%) is a Canadian listed company that is focused on energy infrastructure assets in North America. It has a strong commitment to paying cashflow out to shareholders, with a long term target of paying out approximately 80% of cash generated and available for distribution on a monthly basis.
Statoil: 4.4% (2014: 2.4%) is a fully integrated Norwegian multinational oil and gas company. The company was formed by the 2007 merger of Statoil with the oil & gas division of Norsk Hydro. The Government of Norway is the largest shareholder with 67% of the shares.
BP: 4.1% (2014: 1.1%) also referred to by its former name British Petroleum, is one of the world’s leading international oil and gas companies. The Company explores for and produces oil and natural gas, refines, markets and supplies petroleum products. It also generates solar energy and manufactures chemicals.
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 2014. Together, the ten largest investments represent 51.2% of total investments (ten largest investments as at 30 November 2014: 41.4%).
INVESTMENTS AS AT 30 NOVEMBER 2015
|
Main
geographic
exposure |
Market
value |
%
of
investments |
|
|
£’000 |
% |
| Integrated Oil |
|
|
|
| Exxon Mobil |
Global |
4,347 |
6.3 |
| Chevron |
Global |
3,677 |
5.3 |
| Royal Dutch Shell |
Global |
3,469 |
5.0 |
| ConocoPhillips |
USA |
3,411 |
4.9 |
| Statoil |
Europe |
3,001 |
4.4 |
| BP |
Global |
2,812 |
4.1 |
| Eni |
Europe |
2,115 |
3.1 |
| Total |
Global |
1,448 |
2.1 |
| Occidental Petroleum |
USA |
1,301 |
1.9 |
|
-------- |
-------- |
-------- |
|
|
25,581 |
37.1 |
|
|
|
|
| Exploration & Production |
|
|
|
| Anadarko Petroleum |
USA |
1,811 |
2.6 |
| Anadarko Petroleum Call Option 18/12/15 |
USA |
(22) |
– |
| Laredo Petroleum |
USA |
1,795 |
2.6 |
| Laredo Petroleum Call Option 18/12/15 |
USA |
(21) |
– |
| Devon Energy |
USA |
1,436 |
2.1 |
| Cimarex Energy |
USA |
988 |
1.4 |
| Encana |
Canada |
941 |
1.4 |
| Crescent Point Energy |
Canada |
817 |
1.2 |
| Pioneer Natural Resources |
USA |
769 |
1.1 |
| Cabot Oil & Gas |
USA |
613 |
0.9 |
| Marathon Oil |
Global |
582 |
0.8 |
| Noble Energy |
USA |
528 |
0.8 |
| Peyto Explorations & Development |
Canada |
364 |
0.5 |
| Southwestern Energy |
USA |
359 |
0.5 |
|
-------- |
-------- |
-------- |
|
|
10,960 |
15.9 |
|
|
|
|
| Diversified Mining |
|
|
|
| BHP Billiton |
Global |
3,783 |
5.5 |
| BHP Billiton Call Option 18/12/15 |
Global |
(14) |
– |
| Rio Tinto |
Global |
3,754 |
5.4 |
| Anglo American |
Global |
1,021 |
1.5 |
| Anglo American Call Option 15/01/16 |
Global |
(69) |
(0.1) |
| Lundin Mining |
Europe |
974 |
1.4 |
| Glencore |
Global |
897 |
1.3 |
| Johnson Matthey Put Option 15/01/16 |
Global |
(12) |
– |
|
-------- |
-------- |
-------- |
|
|
10,334 |
15.0 |
|
|
|
|
| Copper |
|
|
|
| First Quantum Minerals 7.25% 15/05/22 |
Global |
2,748 |
4.0 |
| First Quantum Minerals |
Global |
1,207 |
1.7 |
| First Quantum Minerals Call Option 15/01/16 |
Global |
(83) |
(0.1) |
| Freeport-McMoRan Copper & Gold |
Asia |
706 |
1.0 |
| Freeport-McMoRan Copper & Gold Call Option 18/12/15 |
Asia |
(33) |
– |
| Hudbay Minerals 9.5% 1/10/20 |
Canada |
706 |
1.0 |
| Avanco Resources |
Latin America |
516 |
0.8 |
| Southern Copper |
Latin America |
513 |
0.7 |
| Southern Peru Copper |
Latin America |
167 |
0.2 |
|
-------- |
-------- |
-------- |
|
|
6,447 |
9.3 |
|
|
|
|
| Distribution |
|
|
|
| Enbridge Income Fund Trust |
Canada |
3,247 |
4.7 |
|
-------- |
-------- |
-------- |
|
|
3,247 |
4.7 |
|
|
|
|
| Gold |
|
|
|
| Gold Fields |
South Africa |
840 |
1.2 |
| Nevsun Resources |
Africa |
805 |
1.2 |
| Osisko Gold Royalties |
Canada |
706 |
1.0 |
| Detour Gold |
Canada |
408 |
0.6 |
| Eldorado Gold |
Canada |
366 |
0.6 |
| Anglogold Ashanti Put Option 18/12/15 |
Global |
(259) |
(0.4) |
|
-------- |
-------- |
-------- |
|
|
2,866 |
4.2 |
|
|
|
|
| Fertilizers |
|
|
|
| Potash Corporation of Saskatchewan |
Canada |
1,975 |
2.8 |
| Potash Corporation of Saskatchewan Call Option 18/12/15 |
Canada |
(14) |
– |
| Iluka Resources |
Australia |
691 |
1.0 |
|
-------- |
-------- |
-------- |
|
|
2,652 |
3.8 |
|
|
|
|
| Nickel |
|
|
|
| MMC Norilsk Nickel |
USA |
1,492 |
2.2 |
| MMC Norilsk Nickel Call Option 18/12/15 |
USA |
(7) |
– |
| Western Areas |
Australia |
521 |
0.7 |
| Western Areas Put Option 8/12/15 2.4816 |
Australia |
(80) |
(0.1) |
|
-------- |
-------- |
-------- |
|
|
1,926 |
2.8 |
|
|
|
|
| Silver |
|
|
|
| Tahoe Resources |
USA |
908 |
1.3 |
| Fresnillo |
Latin America |
899 |
1.3 |
|
-------- |
-------- |
-------- |
|
|
1,807 |
2.6 |
|
|
|
|
| Oil Services |
|
|
|
| Schlumberger |
USA |
1,307 |
1.9 |
|
-------- |
-------- |
-------- |
|
|
1,307 |
1.9 |
|
|
|
|
| Diamonds |
|
|
|
| Petra Diamonds 8.25% 31/05/20 |
South Africa |
976 |
1.4 |
| Petra Diamonds |
South Africa |
182 |
0.3 |
|
-------- |
-------- |
-------- |
|
|
1,158 |
1.7 |
|
|
|
|
| Coal |
|
|
|
| China Shenhua Energy |
China |
711 |
1.0 |
| China Shenhua Energy Call Option 30/12/15 |
China |
(9) |
– |
|
-------- |
-------- |
-------- |
|
|
702 |
1.0 |
|
|
|
|
| Total Investments |
|
68,987 |
100.0 |
|
|
====== |
==== |
All investments are ordinary shares unless otherwise stated.
The total number of holdings (including options) at 30 November 2015 was 62 (30 November 2014: 64).
The total number of open options as at 30 November 2015 was 12 (30 November 2014: 11).
The negative valuations of £623,000 in respect of options held represent the notional cost of repurchasing the contracts at market prices as at 30 November 2015.
As at 30 November 2015, the Company did not hold any equity interests comprising more than 3% of any company’s share capital.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 NOVEMBER 2015
|
Notes |
Revenue
2015 |
Revenue
2014 |
Capital
2015 |
Capital
2014 |
Total
2015 |
Total
2014 |
|
|
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
| Losses on investments held at fair value through profit or loss |
|
– |
– |
(34,867) |
(13,859) |
(34,867) |
(13,859) |
| Income from investments held at fair value through profit or loss |
3 |
4,027 |
4,519 |
– |
– |
4,027 |
4,519 |
| Other income |
3 |
4,541 |
3,122 |
– |
– |
4,541 |
3,122 |
|
|
-------- |
-------- |
-------- |
-------- |
-------- |
-------- |
| Total income |
|
8,568 |
7,641 |
(34,867) |
(13,859) |
(26,299) |
(6,218) |
|
|
-------- |
-------- |
-------- |
-------- |
-------- |
-------- |
| Expenses |
|
|
|
|
|
|
|
| Investment management fees |
4 |
(220) |
(314) |
(661) |
(941) |
(881) |
(1,255) |
| Other operating expenses |
5 |
(333) |
(313) |
(3) |
(6) |
(336) |
(319) |
|
|
-------- |
-------- |
-------- |
-------- |
-------- |
-------- |
| Total operating expenses |
|
(553) |
(627) |
(664) |
(947) |
(1,217) |
(1,574) |
|
|
-------- |
-------- |
-------- |
-------- |
-------- |
-------- |
| Profit/(loss) on ordinary activities before finance costs and taxation |
|
8,015 |
7,014 |
(35,531) |
(14,806) |
(27,516) |
(7,792) |
|
|
-------- |
-------- |
-------- |
-------- |
-------- |
-------- |
| Finance costs |
6 |
(24) |
(44) |
(33) |
(100) |
(57) |
(144) |
|
|
-------- |
-------- |
-------- |
-------- |
-------- |
-------- |
| Profit/(loss) before taxation |
|
7,991 |
6,970 |
(35,564) |
(14,906) |
(27,573) |
(7,936) |
|
|
-------- |
-------- |
-------- |
-------- |
-------- |
-------- |
| Taxation |
|
(1,051) |
(745) |
– |
– |
(1,051) |
(745) |
|
|
-------- |
-------- |
-------- |
-------- |
-------- |
-------- |
| Net profit/(loss) on ordinary activities after taxation |
|
6,940 |
6,225 |
(35,564) |
(14,906) |
(28,624) |
(8,681) |
|
|
-------- |
-------- |
-------- |
-------- |
-------- |
-------- |
| Earnings/(loss) per ordinary share |
8 |
6.32p |
6.20p |
(32.37p) |
(14.85p) |
(26.05p) |
(8.65p) |
|
|
====== |
====== |
====== |
====== |
====== |
====== |
The total column of this statement represents the Group’s Statement of Comprehensive Income, prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union.
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 discontinued during the year. All income is attributable to the equity holders of BlackRock Commodities Income Investment Trust plc. There were no minority interests.
The total net loss of the Company and the Group for the year was £28,624,000 (2014: loss of £8,681,000).
The Group does not have any other recognised gains or losses. The net profit/(loss) disclosed above represents the Group’s total comprehensive income/(loss).
STATEMENTS OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 NOVEMBER 2015
| Group |
Notes |
Ordinary
share
capital |
Share
premium
account |
Special
reserve |
Capital
reserves |
Revenue
reserve |
Total |
|
|
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
| For the year ended 30 November 2015 |
|
|
|
|
|
|
|
| At 30 November 2014 |
|
1,052 |
37,003 |
71,223 |
(15,981) |
3,399 |
96,696 |
| Total comprehensive income: |
|
|
|
|
|
|
|
| Net (loss)/profit for the year |
|
– |
– |
– |
(35,564) |
6,940 |
(28,624) |
| Transaction with owners, recorded directly to equity: |
|
– |
– |
– |
– |
– |
– |
| Shares issued |
9 & 10 |
104 |
7,982 |
– |
– |
– |
8,086 |
| Share issue costs and fees |
10 |
– |
(148) |
– |
– |
– |
(148) |
| Dividends paid |
7 |
– |
– |
– |
– |
(6,580) |
(6,580) |
|
|
-------- |
-------- |
-------- |
-------- |
-------- |
-------- |
| At 30 November 2015 |
|
1,156 |
44,837 |
71,223 |
(51,545) |
3,759 |
69,430 |
|
|
===== |
===== |
===== |
===== |
===== |
===== |
| For the year ended 30 November 2014 |
|
|
|
|
|
|
|
| At 30 November 2013 |
|
963 |
27,584 |
71,223 |
(1,075) |
3,135 |
101,830 |
| Total comprehensive income: |
|
|
|
|
|
|
|
| Net (loss)/profit for the year |
|
– |
– |
– |
(14,906) |
6,225 |
(8,681) |
| Transaction with owners, recorded directly to equity: |
|
– |
– |
– |
– |
– |
– |
| Shares issued |
9 & 10 |
89 |
9,437 |
– |
– |
– |
9,526 |
| Share issue costs |
10 |
– |
(18) |
– |
– |
– |
(18) |
| Dividends paid |
7 |
– |
– |
– |
– |
(5,961) |
(5,961) |
|
|
-------- |
-------- |
-------- |
-------- |
-------- |
-------- |
| At 30 November 2014 |
|
1,052 |
37,003 |
71,223 |
(15,981) |
3,399 |
96,696 |
|
|
===== |
===== |
===== |
===== |
===== |
===== |
| Company |
Notes |
Ordinary
share
capital |
Share
premium
account |
Special
reserve |
Capital
reserves |
Revenue
reserve |
Total |
|
|
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
| For the year ended 30 November 2015 |
|
|
|
|
|
|
|
| At 30 November 2014 |
|
1,052 |
37,003 |
71,223 |
(14,675) |
2,093 |
96,696 |
| Total comprehensive income: |
|
|
|
|
|
|
|
| Net (loss)/profit for the year |
|
– |
– |
– |
(35,326) |
6,702 |
(28,624) |
| Transaction with owners, recorded directly to equity: |
|
– |
– |
– |
– |
– |
– |
| Shares issued |
9 & 10 |
104 |
7,982 |
– |
– |
– |
8,086 |
| Share issue costs and fees |
10 |
– |
(148) |
– |
– |
– |
(148) |
| Dividends paid |
7 |
– |
– |
– |
– |
(6,580) |
(6,580) |
|
|
-------- |
-------- |
-------- |
-------- |
-------- |
-------- |
| At 30 November 2015 |
|
1,156
---------- |
44,837
----------
|
71,223
---------- |
(50,001)
---------- |
2,215
---------- |
69,430
---------- |
| For the year ended 30 November 2014 |
|
|
|
|
|
|
|
| At 30 November 2013 |
|
963 |
27,584 |
71,223 |
326 |
1,734 |
101,830 |
| Total comprehensive income: |
|
|
|
|
|
|
|
| Net (loss)/profit for the year |
|
– |
– |
– |
(15,001) |
6,320 |
(8,681) |
| Transaction with owners, recorded directly to equity: |
|
– |
– |
– |
– |
– |
– |
| Shares issued |
9 & 10 |
89 |
9,437 |
– |
– |
– |
9,526 |
| Share issue costs |
10 |
– |
(18) |
– |
– |
– |
(18) |
|
|
|
|
|
|
|
|
| Dividends paid |
7 |
– |
– |
– |
– |
(5,961) |
(5,961) |
|
|
===== |
===== |
===== |
===== |
===== |
===== |
| At 30 November 2014 |
|
1,052 |
37,003 |
71,223 |
(14,675) |
2,093 |
96,696 |
|
|
===== |
===== |
===== |
===== |
===== |
===== |
STATEMENTS OF FINANCIAL POSITION AS AT 30 NOVEMBER 2015
|
Notes |
2015
Group |
2015
Company |
2014
Group |
2014
Company |
|
|
£’000 |
£’000 |
£’000 |
£’000 |
| Non current assets |
|
|
|
|
|
| Investments designated as held at fair value through profit or loss |
|
69,610 |
71,154 |
99,054 |
100,360 |
|
|
-------- |
-------- |
-------- |
-------- |
| Current assets |
|
|
|
|
|
| Other receivables |
|
455 |
455 |
1,127 |
1,127 |
| Collateral pledged with brokers |
|
1,312 |
– |
1,804 |
– |
| Cash and cash equivalents |
|
2,935 |
– |
776 |
776 |
|
|
-------- |
-------- |
-------- |
-------- |
|
|
4,702 |
455 |
3,707 |
1,903 |
|
|
-------- |
-------- |
-------- |
-------- |
|
|
74,312 |
71,609 |
102,761 |
102,263 |
|
|
===== |
===== |
===== |
===== |
| Current liabilities |
|
|
|
|
|
| Other payables |
|
(1,170) |
(754) |
(1,908) |
(1,530) |
| Derivative financial liabilities held at fair value through profit or loss |
|
(623) |
(623) |
(481) |
(481) |
| Bank overdraft |
|
(3,089) |
(802) |
(3,676) |
(3,556) |
|
|
-------- |
-------- |
-------- |
-------- |
|
|
(4,882) |
(2,179) |
(6,065) |
(5,567) |
|
|
-------- |
-------- |
-------- |
-------- |
|
|
(180) |
(1,724) |
(2,358) |
(3,664) |
|
|
-------- |
-------- |
-------- |
-------- |
| Net assets |
|
69,430 |
69,430 |
96,696 |
96,696 |
|
|
===== |
===== |
===== |
===== |
| Equity attributable to equity holders |
|
|
|
|
|
| Ordinary share capital |
9 |
1,156 |
1,156 |
1,052 |
1,052 |
| Share premium account |
10 |
44,837 |
44,837 |
37,003 |
37,003 |
| Special reserve |
11 |
71,223 |
71,223 |
71,223 |
71,223 |
| Capital reserves |
11 |
(51,545) |
(50,001) |
(15,981) |
(14,675) |
| Revenue reserve |
11 |
3,759 |
2,215 |
3,399 |
2,093 |
|
|
-------- |
-------- |
-------- |
-------- |
| Total equity |
|
69,430 |
69,430 |
96,696 |
96,696 |
|
|
===== |
===== |
===== |
===== |
| Net asset value per ordinary share |
8 |
60.08p |
60.08p |
91.95p |
91.95p |
|
|
===== |
===== |
===== |
===== |
CASH FLOW STATEMENTS FOR THE YEAR ENDED 30 NOVEMBER 2015
|
2015
Group |
2015
Company |
2014
Group |
2014
Company |
|
£’000 |
£’000 |
£’000 |
£’000 |
| Operating activities |
|
|
|
|
| Loss before taxation |
(27,573) |
(28,312) |
(7,936) |
(8,314) |
| Add back interest paid |
57 |
44 |
153 |
142 |
| Losses on investments held at fair value through profit or loss including transaction costs |
34,867 |
34,629 |
13,859 |
13,954 |
| (Increase)/decrease in other receivables |
(69) |
(69) |
16 |
16 |
| (Decrease)/increase in other payables |
(3) |
(3) |
9 |
9 |
| Decrease in amounts due from brokers |
741 |
741 |
2,497 |
2,497 |
| Decrease in amounts due to brokers |
(806) |
(806) |
– |
– |
| Movement in collateral pledged in respect of derivatives |
492 |
– |
(320) |
– |
| Movements in investments held at fair value through profit or loss |
(5,287) |
(5,287) |
(4,974) |
(4,974) |
|
-------- |
-------- |
-------- |
-------- |
| Net cash inflow from operating activities before interest and taxation |
2,419 |
937 |
3,304 |
3,330 |
|
-------- |
-------- |
-------- |
-------- |
| Interest paid |
(57) |
(44) |
(153) |
(142) |
| Taxation paid |
(701) |
– |
(164) |
– |
| Taxation on investment income included within gross income |
(312) |
(312) |
(380) |
(380) |
|
-------- |
-------- |
-------- |
-------- |
| Net cash inflow from operating activities |
1,349 |
581 |
2,607 |
2,808 |
|
-------- |
-------- |
-------- |
-------- |
| Financing activities |
|
|
|
|
| Share issue costs and fees paid |
(116) |
(116) |
(18) |
(18) |
| Proceeds from shares issued |
8,086 |
8,086 |
10,610 |
10,610 |
| Equity dividends paid |
(6,580) |
(6,580) |
(5,961) |
(5,961) |
|
-------- |
-------- |
-------- |
-------- |
| Net cash inflow from financing activities |
1,390 |
1,390 |
4,631 |
4,631 |
|
-------- |
-------- |
-------- |
-------- |
| Increase in cash and cash equivalents |
2,739 |
1,971 |
7,238 |
7,439 |
|
-------- |
-------- |
-------- |
-------- |
| Cash and cash equivalents at start of the year |
(2,900) |
(2,780) |
(10,103) |
(10,184) |
| Effect of foreign exchange rate changes |
7 |
7 |
(35) |
(35) |
|
-------- |
-------- |
-------- |
-------- |
| Cash and cash equivalents at end of year |
(154) |
(802) |
(2,900) |
(2,780) |
|
-------- |
-------- |
-------- |
-------- |
| Comprised of: |
|
|
|
|
| Cash and cash equivalents |
2,935 |
– |
776 |
776 |
| Bank overdraft |
(3,089) |
(802) |
(3,676) |
(3,556) |
|
-------- |
-------- |
-------- |
-------- |
|
(154) |
(802) |
(2,900) |
(2,780) |
|
===== |
===== |
===== |
===== |
NOTES TO THE FINANCIAL STATEMENTS
1. PRINCIPAL ACTIVITY
The principal activity of the Company is that of an investment trust company within the meaning of section 1158 of the Corporation Tax Act 2010. The Company was incorporated on 4 November 2005 and this is the tenth annual report.
2. ACCOUNTING POLICIES
The principal accounting policies adopted by the Group and Company are set out below.
(a) Basis of preparation
The Group and Parent Company financial statements have been prepared in accordance with IFRS as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006. The Company has taken advantage of the exemption provided under section 408 of the Companies Act 2006 not to publish its individual Statement of Comprehensive Income and related notes. All of the Group’s operations are of a continuing nature.
The Group’s financial statements are presented in Sterling, which is 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 stated.
Insofar as the Statement of Recommended Practice (SORP) for investment trust companies and venture capital trusts, issued by the AIC in January 2009, is compatible with IFRS, the financial statements have been prepared in accordance with guidance set out in the SORP.
The Group has adopted IFRS 10 – Consolidated Financial Statements Investment Entities amendments (effective 1 January 2014) which establishes a single control model that applies to all entities including special purpose entities. The changes introduced by the Investment Entities amendments require management to exercise significant judgement to determine which entities are controlled and therefore are required to be consolidated by a parent. The Directors, having assessed the criteria, believe the parent company meets the criteria to be an investment entity under IFRS 10 and that this accounting treatment reflects the Company’s activities as an investment trust. Therefore any investments in subsidiaries may be carried at fair value through profit and loss in accordance with IAS 39. However, the principal activity of the subsidiary, BlackRock Commodities Securities Income Company Limited (which is controlled by the Company), is investment dealing activities and option writing and therefore this entity is considered to provide investment related services to the Company and is required to be consolidated under the Investment Entities amendment.
A number of new standards, amendments to standards and interpretations are effective for annual periods beginning after 1 December 2014, and have not been applied in preparing these financial statements (major changes and new standards issued detailed below). None of these are expected to have a significant effect on the measurement of the amounts recognised in the financial statements of the Company.
IFRS 9 Financial Instruments (2014) replaces IAS 39 and deals with a package of improvements including principally a revised model for classification and measurement of financial instruments, a forward looking expected loss impairment model and a revised framework for hedge accounting. In terms of classification and measurement the revised standard is principles based depending on the business model and nature of cash flows. Under this approach instruments are measured at either amortised cost or fair value, though the standard retains the fair value option allowing designation of debt instruments at initial recognition to be measured at fair value. The standard is effective from 1 January 2018 with earlier application permitted but has not yet been endorsed by the European Commission. The Company does not plan to early adopt this standard.
IFRS 14 Regulatory Deferral Accounts (effective 1 January 2016) allows first time IFRS adopters to continue to account for ‘regulatory deferral account balances’ in accordance with previous GAAP. The Company has no such accounts and, therefore, the provisions of this standard are not applicable.
IFRS 15 Revenue from Contracts with Customers (effective 1 January 2018) specifies how and when an entity should recognise revenue and enhances the nature of revenue disclosures. Given the nature of the Company’s revenue streams from financial instruments, the provisions of this standard are not expected to be applicable.
Amendments to IFRS 10, IFRS 12 and IAS 28 (amendments to IFRS 12 are effective 1 January 2016, a date is to be determined for IFRS 10 and IFRS 28) are in relation to further applying the consolidation exception for investment entities. Consolidated financial statements are prepared and the provisions of these amendments are applicable. However, these changes have no material impact.
Amendments to IAS 1 (effective 1 January 2016) require changes to the presentation of financial instruments. The amendments are not expected to have a significant effect on the measurement of amounts recognised in the financial statements of the Company.
(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 Commodities Securities Income Company Limited.
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.
(c) Presentation of the Statement of Comprehensive Income
In order to reflect better 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 period 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. Interest income is accounted for on an accruals basis.
Option premium income is recorded in the subsidiary and is recognised as revenue evenly over the life of the option contract. It is included in the revenue column of the Statement of Comprehensive Income unless the option has been written for the maintenance and enhancement of the Company’s investment portfolio and represents an incidental part of a larger capital transaction, in which case any premia arising are allocated to the capital column of the Statement of Comprehensive Income. Written options are marked to market and the gain or loss is taken to capital of the parent company. Where options are exercised the loss is taken to capital of the parent company.
(f) Expenses
All expenses, including finance costs, are accounted for on an accruals basis. Expenses have been charged wholly to the revenue column 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 capital. Details of transaction costs on the purchases and sales of investments are disclosed in note 10 on pages 50 and 51 of the Annual Report and Financial Statements;
- 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 fees and finance costs of borrowing borne by the Company have been allocated 75% to the capital column and 25% to the revenue column 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.
(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 period. Taxable profit differs from net profit as reported in the 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 liabilities for current tax are calculated using tax rates that were applicable at the balance sheet date.
Where expenses are allocated between capital and revenue any tax relief in respect of the expenses is allocated between capital and revenue returns on the marginal basis using the Company’s effective rate of corporation taxation 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 taxation 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
The Company’s investments are classified as held at fair value through profit or loss in accordance with IAS 39 – “Financial Instruments: Recognition and Measurement” and are managed and evaluated on a fair value basis in accordance with its investment strategy.
All investments are designated upon initial recognition as held at fair value through profit or loss. Purchases of investments are recognised on a trade date basis. Sales of investments are recognised at the trade date of the disposal. Proceeds are measured at fair value, which is regarded as the proceeds of sale less any transaction costs.
The fair value of the financial instruments is based on their quoted bid price or as otherwise stated at the financial reporting date, without the deduction for any estimated future selling costs. Unquoted investments are valued by the Directors at fair value using International Private Equity and Venture Capital Association Guidelines. This policy applies to all current and non-current asset investments held by the Group.
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 ‘Gains or losses on investments held at fair value through profit or loss’. Also included within the heading are transaction costs in relation to the purchase or sale of investments.
Under IFRS, the investment in the trading subsidiary is carried at fair value.
(i) Derivatives
Derivatives are classified as ‘held for trading’ and are held at fair value 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 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 closed out or exercised the gain or loss is accounted for as a capital gain or loss.
(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 at their nominal value.
(k) Dividends payable
Under IFRS special and interim dividends are recognised when paid to shareholders. Final dividends, if any, are only recognised after they have been approved by shareholders.
(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 are translated into 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.
(m) Cash and cash equivalents
Cash comprises cash in hand and on demand deposits net of bank overdrafts payable on demand. 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.
In the Cash Flow Statement within the Annual Report and Financial Statements for the year ended 30 November 2015, cash held on margin deposit with brokers and collateral received in respect of written call options are shown as a receivable from and payable to the broker and does not form part of cash and cash equivalents in the Cash Flow Statement. The comparative numbers in the Cash Flow Statement have been updated to reclassify these amounts from cash and cash equivalents to receivables and payables.
(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.
3. INCOME
|
2015
£’000 |
2014
£’000 |
| Investment Income: |
|
|
| Overseas listed dividends |
2,422 |
3,484 |
| Fixed interest |
375 |
212 |
| UK listed dividends |
1,230 |
823 |
|
-------- |
-------- |
|
4,027 |
4,519 |
|
-------- |
-------- |
| Other income: |
|
|
| Deposit interest |
3 |
29 |
| Option premium income |
4,538 |
3,093 |
|
-------- |
-------- |
|
4,541 |
3,122 |
|
-------- |
-------- |
| Total |
8,568 |
7,641 |
|
===== |
===== |
Option premium income is stated after commission expenses incurred on transactions.
During the year, the Group received option premium income totalling £4,538,000 (2014: £3,093,000) for writing put/call options for the purposes of revenue generation which were taken to income. At 30 November 2015, there were 12 (2014: 11) open positions with an associated liability of £623,000 (2014: £481,000).
4. INVESTMENT MANAGEMENT FEES
|
2015 |
|
|
2014 |
|
|
|
Revenue
£’000 |
Capital
£’000 |
Total
£’000 |
Revenue
£’000 |
Capital
£’000 |
Total
£’000 |
| Investment management fee |
220 |
661 |
881 |
314 |
941 |
1,255 |
|
===== |
===== |
===== |
===== |
===== |
===== |
Until 30 November 2015, the investment management fee was levied at a rate of 1.10% of gross assets per annum based on the gross assets on the last day of each quarter and was allocated 25% to the revenue column and 75% to the capital column of the Consolidated Statement of Comprehensive Income.
In December 2015, the Board announced that the Company and the Manager had agreed a reduction to the fees payable to the Manager under the Investment Management Agreement. Effective 1 December 2015, the existing management fee of 1.10% of gross assets per annum was replaced with a management fee of 0.95% of the Company’s gross assets per annum reducing to 0.90% per annum for gross assets in excess of £250 million.
5. OTHER OPERATING EXPENSES
|
2015
£’000 |
2014
£’000 |
| Custody and depositary fees |
15 |
10 |
| Auditors’ remuneration: |
|
|
| – audit services |
25 |
25 |
| – other services |
– |
6 |
| Directors’ emoluments |
89 |
90 |
| Registrar’s fee |
22 |
29 |
| Marketing fees |
22 |
32 |
| Other administration costs |
160 |
121 |
|
-------- |
-------- |
|
333 |
313 |
|
-------- |
-------- |
| Transaction charges – capital |
3 |
6 |
|
-------- |
-------- |
|
336 |
319 |
|
===== |
===== |
| The Company’s ongoing charges, calculated as a percentage of average net assets and using expenses, excluding any finance costs and excluding taxation, were: |
1.4% |
1.5% |
| The Company’s ongoing charges, calculated as a percentage of average net assets and using expenses, including any finance costs and taxation, were: |
2.7% |
2.4% |
|
===== |
===== |
There were no other fees paid to the Auditor for non-audit services (2014: £6,250, excluding VAT which related to the review of the half yearly financial statements).
Details of the Directors’ emoluments are given in the Directors’ Remuneration Report on page 27 of the Annual Report and Financial Statements.
6. FINANCE COSTS
|
2015 |
|
|
2014 |
|
|
|
Revenue
£’000 |
Capital
£’000 |
Total
£’000 |
Revenue
£’000 |
Capital
£’000 |
Total
£’000 |
| Interest on bank overdrafts |
24 |
33 |
57 |
44 |
100 |
144 |
|
===== |
===== |
===== |
===== |
===== |
===== |
Finance costs for the Company are charged 25% to the revenue column and 75% to the capital column of the Consolidated Statement of Comprehensive Income. Subsidiary finance costs are charged 100% to the revenue column of the Consolidated Statement of Comprehensive Income.
7. DIVIDENDS
The dividends disclosed in the table below have been considered in view of the requirements 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. Amounts recognised as distributions to ordinary shareholders during the year to 30 November 2015 were as follows:
|
2015
£’000 |
2014
£’000 |
| Fourth interim dividend for the year ended 30 November 2014 – 1.5375p (2013: 1.5250p) |
1,617 |
1,468 |
| First interim dividend for the year ended 30 November 2015 – 1.5000p (2014: 1.4875p) |
1,603 |
1,482 |
| Second interim dividend for the year ended 30 November 2015 – 1.5000p (2014: 1.4875p) |
1,641 |
1,502 |
| Third interim dividend for the year ended 30 November 2015 – 1.5000p (2014: 1.4875p) |
1,719 |
1,509 |
|
-------- |
-------- |
|
6,580 |
5,961 |
|
===== |
===== |
For the year ended 30 November 2015, a fourth interim dividend of 1.5000p (2014: 1.5375p) per ordinary share has been declared and was paid on 22 January 2016, to shareholders on the Company’s register on 29 December 2015.
The total dividends payable in respect of the year which form the basis of section 1158 of the Corporation Tax Act 2010 are set out below:
|
2015
£’000 |
2014
£’000 |
| First interim dividend paid on 21 April 2015 of 1.5000p (2014: 1.4875p) |
1,603 |
1,482 |
| Second interim dividend paid on 24 July 2015 of 1.5000p (2014: 1.4875p) |
1,641 |
1,502 |
| Third interim dividend paid on 23 October 2015 of 1.5000p (2014: 1.4875p) |
1,719 |
1,509 |
| Fourth interim dividend payable on 22 January 2016 of 1.5000p (2014: 1.5375p) |
1,734 |
1,617 |
|
-------- |
-------- |
|
6,697 |
6,110 |
|
===== |
===== |
8. Consolidated earnings and net asset value per ordinary share
|
2015 |
2014 |
| Net revenue profit attributable to ordinary shareholders (£’000) |
6,940 |
6,225 |
| Net capital loss attributable to ordinary shareholders (£’000) |
(35,564) |
(14,906) |
|
-------- |
-------- |
| Total loss attributable to ordinary shareholders (£’000) |
(28,624) |
(8,681) |
|
-------- |
-------- |
| Equity shareholders’ funds (£’000) |
69,430 |
96,696 |
|
-------- |
-------- |
| The weighted average number of ordinary shares in issue during the period, on which the return per ordinary share was calculated, was: |
109,870,544 |
100,393,478 |
| The actual number of ordinary shares in issue at the year end, on which the net asset value was calculated, was: |
115,568,000 |
105,158,000 |
| The number of ordinary shares in issue including treasury shares at the year end was: |
115,568,000 |
105,158,000 |
|
-------- |
-------- |
| Revenue return per share |
6.32p |
6.20p |
| Capital loss per share |
(32.37p) |
(14.85p) |
|
-------- |
-------- |
| Total loss per share |
(26.05p) |
(8.65p) |
|
-------- |
-------- |
| Net asset value per share |
60.08p |
91.95p |
| Share price (mid-market) |
59.75p |
99.00p |
|
===== |
===== |
9. SHARE CAPITAL
|
Ordinary
shares
number |
Total
shares
number |
Nominal
value
£’000 |
| Allotted, called up and fully paid share capital comprised: |
|
|
|
| Ordinary shares of 1 pence each |
|
|
|
|
-------- |
-------- |
-------- |
| Shares in issue at 30 November 2014 |
105,158,000 |
105,158,000 |
1,052 |
|
-------- |
-------- |
-------- |
| Shares issued |
10,410,000 |
10,410,000 |
104 |
|
-------- |
-------- |
-------- |
| At 30 November 2015 |
115,568,000 |
115,568,000 |
1,156 |
|
========= |
========= |
===== |
The number of ordinary shares in issue at the year end was 115,568,000 (2014: 105,158,000) of which none were held in treasury (2014: nil).
During the year 10,410,000 (2014: 8,900,000) shares were issued for a total consideration of £8,086,000 (2014: £9,526,000) before deduction of issue costs. Since 30 November 2015 and up to the close of business on 1 February 2016, a further 250,000 shares have been issued for a total consideration of £135,000 before deduction of issue costs.
The ordinary shares carry the right to receive any dividends and have one voting right per ordinary share. There are no restrictions on the voting rights of the ordinary shares or on the transfer of the ordinary shares.
10. SHARE PREMIUM ACCOUNT
|
2015
£’000 |
2014
£’000 |
| At start of the year |
37,003 |
27,584 |
| Premium on shares issued |
7,982 |
9,437 |
| Share issue costs and fees |
(148) |
(18) |
|
-------- |
-------- |
| At 30 November 2015 |
44,837 |
37,003 |
|
====== |
====== |
11. RESERVES
| Group |
Special
reserve
£’000 |
Capital reserve
– arising
on
investments
sold
£’000 |
Capital reserve
– arising on
investments
held
£’000 |
Revenue
reserve
£’000 |
| At 1 December 2014 |
71,223 |
(5,018) |
(10,963) |
3,399 |
| Movement during the year: |
|
|
|
|
| Net (loss)/profit for the year |
– |
(18,822) |
(16,742) |
6,940 |
| Dividends paid |
– |
– |
– |
(6,580) |
|
-------- |
-------- |
-------- |
-------- |
| At 30 November 2015 |
71,223 |
(23,840) |
(27,705) |
3,759 |
|
====== |
====== |
====== |
====== |
| Company |
Special
reserve
£’000 |
Capital reserve
– arising on
investments
sold
£’000 |
Capital reserve
- arising on
investments
held
£’000 |
Revenue
reserve
£’000 |
| At 1 December 2014 |
71,223 |
(5,018) |
(9,657) |
2,093 |
| Movement during the year: |
|
|
|
|
| Net (loss)/profit for the year |
– |
(18,822) |
(16,504) |
6,702 |
| Dividends paid |
– |
– |
– |
(6,580) |
|
-------- |
-------- |
-------- |
-------- |
| At 30 November 2015 |
71,223 |
(23,840) |
(26,161) |
2,215 |
|
====== |
====== |
====== |
====== |
12. RELATED PARTY DISCLOSURE
Disclosures of the Directors’ interests in the ordinary shares of the Company and fees and expenses payable to the Directors are given in the Directors’ Remuneration Report on pages 26 to 28 of the Annual Report and Financial Statements.
13. CONTINGENT LIABILITIES
There were no contingent liabilities at 30 November 2015 (2014: nil).
14. 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 2015 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 2015 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 2 February 2016.
15. 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 Commodities Income Investment Trust plc, 12 Throgmorton Avenue, London EC2N 2DL.
16. ANNUAL GENERAL MEETING
The Annual General Meeting of the Company will be held at 12 Throgmorton Avenue, London EC2N 2DL on Monday, 14 March 2016 at 10.30 am.
ENDS
The Annual Report will also be available on the BlackRock website at blackrock.co.uk/brig. Neither the contents of the Manager’s website nor the contents of any website accessible from hyperlinks on the Manager’s website (or any other website) is incorporated into, or forms part of, this announcement.
For further information, please contact:
Mark Johnson, Managing Director, Investment Companies, BlackRock Investment Management (UK) Limited
Tel: 020 7743 2300
Julia Wennstrom, Media Relations, BlackRock Investment Management (UK) Limited
Tel: 020 7743 4142
2 February 2016
12 Throgmorton Avenue
London EC2N 2DL
