Throgmorton Trust Regulatory News (THRG)

BlackRock Throgmorton Trust Plc - Half-year Report

PR Newswire

London, July 18

BLACKROCK THROGMORTON TRUST PLC(Legal Entity Identifier: 5493003B7ETS1JEDPF59)Information disclosed in accordance with Article 5 Transparency Directive and DTR 4.2Half Yearly Financial Report for period ended 31 May 2019

PERFORMANCE RECORD

1 The change in net assets reflects market movements and dividend payments during the period.2 With effect from 22 March 2018 the Numis Smaller Companies plus AIM (excluding Investment Companies) Index replaced the Numis Smaller Companies excluding AIM (excluding Investment Companies) Index as the Company's benchmark. From 1 December 2013 to 21 March 2018, the Company’s benchmark was the Numis Smaller Companies excluding AIM (excluding Investment Companies) Index. Prior to 1 December 2013 the Company’s benchmark was the Numis Smaller Companies plus AIM (excluding Investment Companies) Index. The performance of the benchmark indices during these periods has been blended to reflect these changes.3 This is the difference between the share price and the NAV per share.4 This measures the Company’s NAV total return and share price, which assumes dividends paid by the Company have been reinvested.

Further information in relation to the calculations above can be found in the Glossary contained within the Half Yearly Financial Report.

CHAIRMAN’S STATEMENT FOR THE SIX MONTHS TO 31 MAY 2019

PERIOD HIGHLIGHTS

Outperformed the benchmark index by 7.5%

Ordinary share price up 18.2%

Discount narrowed from 12.0% (as at 30 November 2018) to 7.4%

Interim dividend declared of 2.50p per share (2018: 2.50p).

PERFORMANCEI am pleased to report that during the six months to 31 May 2019, the Company has once again generated strong investment performance for its shareholders, both in relative and absolute terms. The Company’s Net Asset Value (NAV) return for the period was +12.2%, compared with a return of +4.7% from the Company’s benchmark, the Numis Smaller Companies plus AIM (excluding Investment Companies) Index, an outperformance of 7.5%. The Company’s share price rose by an impressive +18.2% which saw the discount to NAV narrow to 7.4% at the period end (all figures in sterling terms with dividends reinvested).

Further information on portfolio activity, the factors that contributed to performance during the period and the outlook for the second half of the financial year are set out in the Investment Manager’s Report.

PERFORMANCE RECORD TO 31 MAY 2019 (WITH DIVIDENDS REINVESTED)

Since the period end and up to the close of business on 19 July 2019, the NAV has risen by 1.3%, and the benchmark index has fallen by 0.7%. (All figures in sterling terms with dividends reinvested).

REVENUE RETURN AND DIVIDENDSThe revenue return per share for the period amounted to 4.57 pence per share, compared to 7.13 pence per share earned during the comparative period last year. This represents a decrease of 35.9% and results from decreases in the level of both the ordinary and special dividends received during the period. The Board is pleased to declare an interim dividend of 2.50p per share (2018: 2.50p per share) payable on 28 August 2019 to shareholders on the register on 2 August 2019 (the ex-dividend date is 1 August 2019).

SHARE PRICE DISCOUNTDuring the six months to 31 May 2019, the Company’s share price discount to NAV ranged between 12.0% and 2.9%, ending the period at 7.4% (30 November 2018: 17.0%, 4.8% and 12.0% respectively). As at 19 July 2019 the discount stood at 6.1%. The constituents of the UK Smaller Companies sector have historically traded at a significant discount to NAV and the Company’s average discount to NAV since 1 July 2008 (the date BlackRock became Manager of the Company) has been 16%. It was pleasing to see that the Company’s discount has narrowed during the period and currently trades below the sector average. The Board will continue to monitor closely the discount to NAV at which the Company’s shares trade.

OUTLOOKA number of macroeconomic and political risks which could negatively impact performance remain, not least a further deterioration in the economic outlook. Various latent geopolitical risks also exist, including the outcome of the Brexit process, political instability in the UK and a further escalation of US/China trade tensions. The sustained uncertainty around the Brexit outcome also continues to negatively impact economic activity and depress market sentiment and UK GDP growth is expected to remain relatively low during the second half of the year. However, as a result of this uncertainty, valuations in the UK are now low compared with other developed markets such as the Eurozone and the US. Therefore, your portfolio manager believes that value can be selectively found in this market. The dovish stance adopted by European and US central banks more recently has decreased the likelihood of interest rate rises in the near term and has been supportive of equity markets in the short term.

In addition, your portfolio manager’s ability to identify and short companies which are under structural pressure, with high levels of debt and weak balance sheets, or those struggling with rising costs and price pressure from disruptive competitors, is a key differentiator within our sector. Overall, your Board believes the Company is well positioned to continue to meet its objectives of providing shareholders with long-term capital growth and an attractive total return.

CHRISTOPHER SAMUELChairman23 July 2019

INVESTMENT MANAGER’S REPORT FOR THE SIX MONTHS ENDED 31 MAY 2019

MARKET REVIEW AND OVERALL INVESTMENT PERFORMANCESharp declines in equity markets in the fourth quarter of 2018 have been erased by a strong rally through the start of 2019. Markets shrugged off a host of weak economic data, corporate earnings downgrades and political confusion in the UK. Meanwhile trade tensions continue to pose a risk to global growth and have been a catalyst for short term spikes in market volatility. The Federal Reserve tone became notably more dovish, which drove bond yields back to levels last seen at the beginning of 2018; the European Central Bank’s stance also remained accommodative and Chinese policy was eased on both fiscal and monetary fronts. Brexit has continued to dominate the UK political landscape, culminating in Prime Minister Theresa May announcing her resignation, but the market reaction was relatively muted given the ‘Brexit tax’ that the UK market is already discounting.

PERFORMANCE REVIEWWe feel performance year to date has rewarded our decision not to panic in the fourth quarter of 2018. Encouragingly, the Company’s performance versus the benchmark has strengthened through the calendar year as stock markets have weakened, helped by us running with a lower gross and net market exposure than usual, and a strong period for delivering positive stock and industry specific outcomes. The result is that during the first six months of the Company’s financial year, we have delivered a positive return in both absolute and relative terms, with the NAV rising by 12.2% in sterling terms with dividends reinvested, significantly outperforming our benchmark by over 7.5% after fees.

Returns have been driven predominantly by the long book, supplemented by a number of stock specific wins from short positions. This is a positive result in our opinion against a market that is up almost five percent.

The largest positive contributor to performance came from our holding in JD Sports Fashion, which contributed 110bps during the period. JD Sports is a position that we brought back into the portfolio in December 2018, taking advantage of the market volatility to buy into a company that we’ve owned historically, and know well, at a valuation we have rarely seen. JD Sports’ differentiated consumer proposition and multi-channel approach to retailing has enabled it to continue to deliver strong like-for-like sales growth, beating expectations and raising guidance, all without sacrificing their gross margin. The Company owns very few retailers given the myriad of challenges facing bricks and mortar retailing.

4imprint Group, a long-term core holding which we have highlighted many times in the past, has once again delivered another period of strong performance, most recently after reporting strong full year results with upgrades to forward guidance. 4imprint is a UK listed but US focused direct marketing business of promotional goods. It is the market leader in the US by some distance but has less than 4% market share, despite compounding its revenues organically in the mid teens for over 10 years, reflecting not only the size of the market, but just how fragmented the competition is.

Software engineering group Aveva has made a positive start to the year, helped by strong sales execution. This is a company undergoing a sales transition to subscription based sales, which we think improves its quality of earnings, whilst driving operational improvements to lift margins. Following its merger with Schneider Electric, recurring revenues increased as a proportion of the overall business and the company remains on track to meet its medium term targets.

Other notable contributors during the period include Dechra Pharmaceuticals, Xero and IntegraFin, all of which contributed more than 50bps to performance and which all operate in very different industries, but the common theme being their dominant and differentiated positions, which have enabled each to continue to generate strong growth.

While short positions in aggregate were not a meaningful contributor to performance we continue to generate stock specific alpha on the short side. The largest short contributor has been a UK contractor, which despite having completed an emergency fund raise in December, has followed up with a series of negative updates, including a material profit warning in June, after the period covered in this report. We had been increasing this short position during the year as we felt that the company had issues with its balance sheet and cash generating abilities, far beyond what the market was pricing in, and this proved to be a profitable decision.

Given the strong outperformance achieved so far this year, it is unsurprising to see that material detractors have been limited. The largest stock specific detractor was online retailer of musical instruments, Gear4music. This is a company that had previously demonstrated very strong and profitable sales growth. However, early in the period the company provided an update showing that further impressive sales growth had come at the expense of gross margin, with Gear4music reacting to irrational competitor pricing in an attempt to protect market share. This was particularly disappointing as we had discussed the gross margin at length with the management team, and this we felt completely compromised our investment thesis and we therefore sold the holding. Other detractors included short positions in a reseller of IT software and a UK retailer. Against the rising market it is unsurprising that some shorts are buoyed by a general rising tide, however in both cases we have to acknowledge that these companies have delivered better results than we expected. We remain short the IT business as we find it hard to understand how a reseller can justify the current multiple, however we have closed our short in the furniture business.

ACTIVITYThe total number of positions (long and short) in the portfolio has increased over the period to 142 as at 31 May 2019, which simply reflects the strength of the investment universe and an increased amount of new opportunities we continue to discover on both the long and the short side.

As previously mentioned, we purchased the holding in JD Sports at the beginning of this financial year (December 2018). The investment case for owning the business, as set out earlier, and the timing of the trade was driven by the opportunity presented by the market during the spike in volatility during 2018, where, as discussed, a number of companies were severely sold off regardless of the underlying growth prospects for the business. JD Sports is a clear example of our dynamic process in action, where our average purchase price of the shares during the period was £3.70, compared to a market price at the end of May of more than £6.

The Initial Public Offering (“IPO”) market continues to present us with exciting opportunities. Watches of Switzerland, the luxury watch retailer, which conducted an IPO in May of this year, is another great example of this approach where we purchased a holding following an extensive due diligence process.

We also purchased a new holding in Serco, the provider of public services to governments globally. The management team has cleaned up the accounting and fixed the balance sheet, and now recent contract wins are leading to a business that is growing and generating cash. The recent deal predominantly providing support to the US Navy significantly enhances Serco’s US footprint and increases the group’s ability to be more competitive when tendering for new contracts in the region.

Sales during the period have included Accesso Technology, Restore and Boku. Both Accesso and Restore have been long held positions for the Company, but all three fall into the camp of a change in investment thesis from the one we have originally outlined, and as such our discipline is to sell out as we have done.

“We have deliberately reduced some of our growth cyclicals, notably Industrials, reflecting rising headwinds in certain industrial global supply chains.”

Having reduced the portfolio’s gross and net exposure at the tail end of last year we have been gradually adding back to this on both the long and short books. The levels remain below historical average levels at 101% net and 127% gross.

Portfolio PositioningOne of the key messages that we believe it is very important for investors in the Company to appreciate is that our philosophy is based around bottom up stock selection. As a result portfolio positioning is a product (an output) of our stock selection rather than a deliberate decision to take a predetermined sector exposure versus the benchmark. As a reminder, stock positioning will be driven by our focus on only two types of company. First would be what we define as quality differentials, which are essentially differentiated long-term growth investments. These we would characterise as companies that have strong management teams, with a protected market position, a unique and compelling product offering with an attractive route to market, maybe benefitting from structural growth, and that are well financed with clean accounting. The second type of company are those that are leading industry change, the ‘disruptors’ and alternatively on the short side it would be the victims of industry change, the ‘disrupted’.

Relative to our benchmark, our largest overweights are Media, General Retailers and Pharmaceuticals & Biotechnology. Our largest holding in the Media sector is our long term holding in YouGov. This is a company that many people will remember as a traditional market research business, however in reality YouGov has transformed into a data analytics business which now works with some of the world’s largest brands. The company’s suite of data products and services makes YouGov a core partner for their clients with all aspects of marketing workflow in a fast-changing world for consumers.

Within General Retailers our exposure is through companies that are doing something different and not those that are having their profit pools decimated by the backdrop of falling footfall on the high street. For example, as mentioned earlier in this report, JD Sports which has solidified itself as the key route to market for many leading sportswear brands, or WH Smith which is transforming its business to drive growth in its travel business and away from its traditional high street newsagent store formats, and therefore opening up a large international accessible market. Within Healthcare our largest position is Dechra Pharmaceuticals, the veterinary product manufacturer which is also very internationally exposed, has strong products and operates against a positive industry backdrop.

Our exposure to Resources is extremely limited. We do not own any Oil & Gas businesses and our exposure to mining is very limited, because these companies generally fail to meet our investment criteria.

We have also increased our long exposure to disruptive software companies benefitting from the structural trend in corporates investing in “digitisation” to either drive efficiency or yield improvements.

“The long book remains exposed to specific investment cases, often where companies have harnessed the power and convenience of technology in a capital light model that disrupts mature profit pools.”

The short book continues to target the same areas that we see as over-earning or under structural or cyclical pressure. Many of our short positions are within Consumer Services, either facing structural headwinds (digital disruption, low cost or specialised formats) or cyclical (weakening consumer demand, rising cost pressures).

As discussed in previous reports, we are of the view that the market needs to fundamentally reappraise the true value of over-indebted structurally challenged business models, particularly those that are paying dividends they cannot afford. We think there are many of these companies masquerading as “cheap shares” because their “price to adjusted earnings ratio” looks low, and for too long other market participants have championed some of these shares as “value” investments, which we think does a tremendous injustice to the many respected and wealth-creating value managers. There have been signs in recent weeks that our view is now garnering support, no doubt catalysed by the implosion of several high-profile companies which fit the description(s) we have outlined above. We have been short some of these companies and continue to target financially leveraged businesses that are over-distributing (at the expense of investing in their business to generate real long term wealth for their owners).

OUTLOOKEquity markets globally have made a strong start to the year, in many cases shrugging off the ongoing geopolitical uncertainty, softening global economic data and increasing trade tensions. However, while the signs have been encouraging, we continue to recognise that at this point in the cycle, the market can be febrile and there is always potential for sudden spikes in volatility and large swings in sentiment. We will therefore continue to manage the net and gross exposure accordingly, happy to add risk as opportunities present themselves.

Despite these risks, we continue to believe that the cycle has room to run. While this has been a long cycle, there are few signs that we would expect to see at the beginning of a bear market or sustained period of GDP weakness. Low inflation and accommodative monetary policy provides support for equity markets, and importantly we continue to believe that there is sufficient growth for differentiated companies to prosper. To that end, we continue to highlight the importance of stock specifics in the current environment, and the greater dispersion in winners and losers that this market regime and political backdrop can generate.

Escalating trade tensions clearly present a risk to global growth and potentially to stock markets, but we feel well positioned to deliver a good investment outcome whatever happens next. Any global cyclical exposure in the long book has been moderated (despite many structural trends that benefit our long positions here regardless) and our long book is comprised of many advantaged business models with robust finances. The pace of industry change is not slowing and multi-year secular trends, like the need for corporates to invest in digital transformation, show no signs of slowing and benefit many of our holdings. On the flip side, we remain short financial leverage, and continue to identify lots of opportunities to short commoditised businesses with weakening demand, as well as structurally flawed businesses models, which we believe will be the first and real victims of any global slowdown.

DAN WHITESTONEBlackRock Investment Management (UK) Limited23 July 2019

PORTFOLIO HOLDINGS AS AT 31 MAY 2019

1YouGov*MediaMarket value £13,158,000Share of net assets 3.1%Provision of survey data and specialist data analytics

2AvevaSoftware & Computer ServicesMarket value £12,981,000Share of net assets 3.1%Engineering and industrial software business

3JD Sports FashionGeneral RetailersMarket value £12,799,000Share of net assets 3.0%Leading trainer and sports fashion retailer in the UK

4Dechra PharmaceuticalsPharmaceuticals & BiotechnologyMarket value £12,776,000Share of net assets 3.0%Development and supply of pharmaceutical and other products focused on the veterinary market

54imprint GroupMediaMarket value £12,342,000Share of net assets 2.9%Supply of promotional merchandise in the US

6SSPTravel & LeisureMarket value £12,092,000Share of net assets 2.9%Operator of food and beverage concessions in travel locations

7IntegraFinFinancial ServicesMarket value £11,836,000Share of net assets 2.8%UK savings platform for financial advisors

8Watches of SwitzerlandPersonal GoodsMarket value £11,404,000Share of net assets 2.7%Retailer of luxury watches

9SercoSupport ServicesMarket value £9,862,000Share of net assets 2.3%Provision of public services across health, transport, immigration, defence, justice and citizen services

10BodycoteIndustrial EngineeringMarket value £9,754,000Share of net assets 2.3%Provision of thermal processing services

* Traded on the Alternative Investment Market (AIM) of the London Stock Exchange.

* Traded on the Alternative Investment Market (AIM) of the London Stock Exchange.

† Traded on NEX exchange.

Percentages shown are the share of net assets.

At 31 May 2019, the Company did not hold any equity interest representing more than 3% of any company’s share capital.

The above investments may comprise exposures to long equity and long derivative positions.

FAIR VALUE AND GROSS MARKET EXPOSURE OF INVESTMENTS AS AT 31 MAY 2019

1 Fair value is determined as follows:

– Listed and AIM quoted investments are valued at bid prices where available, otherwise at published price quotations.

– The sum of the fair values of the long and short derivative positions is determined based on the difference between the purchase/sale price and value of the underlying shares in the contract (in effect the unrealised gains/(losses) on the exposed positions). The cost of purchasing the securities held through long derivative positions directly in the market would have amounted to £59,501,000 at the time of purchase, and subsequent market falls in prices have resulted in unrealised losses on the long derivative positions of £308,000, resulting in the value of the total market exposure to the underlying securities decreasing to £59,193,000 as at 31 May 2019. The notional price of selling the securities to which exposure was gained via the short derivative positions would have been £57,874,000 at the time of entering into the contract, and subsequent price falls have resulted in unrealised gains on the short derivative positions of £2,348,000 and the value of the market exposure of these investments decreasing to £55,526,000 at 31 May 2019. If the short derivative positions had been closed on 31 May 2019 this would have resulted in a gain of £2,348,000 for the Company.

2 Market exposure in the case of equity investments is the same as fair value. In the case of long and short derivative positions it is the market value of the underlying shares to which the portfolio is exposed via the contract.

3 % based on the total market exposure.

4 The market exposure column for cash at bank has been adjusted to assume the Company traded direct holdings rather than exposure being gained through long and short derivative positions.

DISTRIBUTION OF INVESTMENTS AS AT 31 MAY 2019

The above percentages are calculated on the net portfolio as at 31 May 2019. The net portfolio is calculated as long equity and derivative positions, less short derivative positions as at 31 May 2019.

ANALYSIS OF THE PORTFOLIO BY MAIN INDEX MEMBERSHIP

Source: BlackRock.

1 Long exposure plus short exposure in aggregate excluding investment in BlackRock’s Institutional Cash Series plc – Sterling Liquidity Fund.

2 Long exposure less short exposure excluding investment in BlackRock’s Institutional Cash Series plc – Sterling Liquidity Fund.

MARKET CAPITALISATION AS AT 31 MAY 2019

Source: BlackRock.

POSITION SIZE AS AT 31 MAY 2019

Source: BlackRock.

* The above investments may comprise exposures to long equity and long derivative positions.

INTERIM MANAGEMENT REPORT AND RESPONSIBILITY STATEMENT

The Chairman’s Statement and the Investment Manager’s report give details of the important events which have occurred during the period and their impact on the financial statements.

PRINCIPAL RISKS AND UNCERTAINTIESThe principal risks faced by the Company can be divided into various areas as follows:

Performance;

Market;

Income/dividend;

Financial;

Operational; and

Regulatory.

The Board reported on the principal risks and uncertainties faced by the Company in the Annual Report and Financial Statements for the year ended 30 November 2018. A detailed explanation can be found in the Strategic Report on pages 21 and 22 and in note 16 on pages 82 to 94 of the Annual Report and Financial Statements which are available on the website maintained by BlackRock at blackrock.co.uk/thrg.

In the view of the Board, there have been no changes to the fundamental nature of the principal risks and uncertainties since the previous report and these are equally applicable to the remaining six months of the financial year as they were to the six months under review.

RELATED PARTY DISCLOSURE AND TRANSACTIONS WITH THE INVESTMENT MANAGERBlackRock Fund Managers Limited (BFM) was appointed as the Company’s Alternative Investment Fund Manager (“AIFM”) with effect from 2 July 2014. BFM has (with the Company’s consent) delegated certain portfolio and risk management services, and other ancillary services, to BlackRock Investment Management (UK) Limited (BIM (UK)). Both BFM and BIM (UK) are regarded as related parties under the Listing Rules. Details of the fees payable are set out in note 4 and note 10 of the financial statements.

The related party transactions with the Directors are set out in note 11 of the financial statements.

GOING CONCERNThe Directors are satisfied that the Company has adequate resources to continue in operational existence for the foreseeable future (being a period of at least twelve months from the date that this half-yearly financial report is approved) and is financially sound. For this reason, they continue to adopt the going concern basis in preparing the financial statements. The Company has a portfolio of investments which is considered to be readily realisable and is able to meet all of its liabilities from its assets and the income generated from these assets. Ongoing charges (excluding transaction costs, performance fee and finance costs) for the year ended 30 November 2018 were approximately 0.57% of net assets.

DIRECTORS’ RESPONSIBILITY STATEMENTThe Disclosure Guidance and Transparency Rules (DTR) of the UK Listing Authority require the Directors to confirm their responsibilities in relation to the preparation and publication of the Interim Management Report and Financial Statements.

The Directors confirm to the best of their knowledge that:

the condensed set of financial statements contained within the half yearly financial report has been prepared in accordance with International Accounting Standard 34 ‘Interim Financial Reporting’; and

the Interim Management Report, together with the Chairman’s Statement and Investment Manager’s report, include a fair review of the information required by 4.2.7R and 4.2.8R of the FCA’s Disclosure Guidance and Transparency Rules.

The half yearly financial report has not been audited or reviewed by the Company’s Auditor.

The half yearly financial report was approved by the Board on 23 July 2019 and the above responsibility statement was signed on its behalf by the Chairman.

CHRISTOPHER SAMUELFor and on behalf of the Board23 July 2019

STATEMENT OF COMPREHENSIVE INCOME FOR THE SIX MONTHS ENDED 31 MAY 2019

The total column of this statement represents the Company’s Statement of Comprehensive Income, prepared in accordance with International Financial Reporting Standards (IFRS), as adopted by the European Union (EU). The supplementary revenue and capital columns are both prepared under guidance published by the Association of Investment Companies (AIC). All items in the above statement derive from continuing operations. No operations were acquired or discontinued during the period. All income is attributable to the equity holders of the Company.

The net profit/(loss) for the period disclosed above represents the Company’s total comprehensive income/(loss). The Company does not have any other comprehensive income.

STATEMENT OF CHANGES IN EQUITY FOR THE SIX MONTHS ENDED 31 MAY 2019

(a) Final dividend of 7.50p per share for the year ended 30 November 2018, declared on 12 February 2019 and paid on 28 March 2019.(b) Final dividend of 7.00p per share for the year ended 30 November 2017, declared on 9 February 2018 and paid on 29 March 2018.(c) Final dividend of 7.00p per share for the year ended 30 November 2017, declared on 9 February 2018 and paid on 29 March 2018 and interim divided of 2.50p per share for the year ended 30 November 2018, declared on 25 July 2018 and paid on 29 August 2018.

Costs related to the acquisition and disposal of investments amounted to £495,000 and £72,000 respectively for the six months ended 31 May 2019 (six months ended 31 May 2018: £453,000 and £98,000; year ended 30 November 2018: £935,000 and £223,000). All transaction costs have been included within capital reserves.

The share premium account and capital redemption reserve are not distributable profits under the Companies Act 2006. The special reserve may be used as distributable profits for all purposes and, in particular, for the repurchase by the Company of its ordinary shares and for payment as dividends. In accordance with the Company’s Articles of Association, net capital reserves may be distributed by way of the repurchase by the Company of its ordinary shares and for payment as dividends.

STATEMENT OF FINANCIAL POSITION AS AT 31 MAY 2019

CASH FLOW STATEMENT FOR THE SIX MONTHS ENDED 31 MAY 2019

* Cash Fund represents funds held on deposit with the BlackRock Institutional Cash Series plc – Sterling Liquidity Fund.

NOTES TO THE CONDENSED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 31 MAY 2019

1. PRINCIPAL ACTIVITYThe principal activity of the Company is that of an investment trust company within the meaning of section 1158 of the Corporation Tax Act 2010.

2. BASIS OF PREPARATIONThe half yearly financial statements have been prepared using the same accounting policies as set out in the Company’s Annual Report and Financial Statements for the year ended 30 November 2018 which were prepared in accordance with International Financial Reporting Standards (‘IFRS’) as adopted by the European Union and applied in accordance with International Accounting Standard 34, ‘Interim Financial Reporting’. Insofar as the Statement of Recommended Practice (‘SORP’) for investment trust companies and venture capital trusts issued by the Association of Investment Companies (‘AIC’), revised in November 2014 and updated in January 2017 and February 2018 is compatible with IFRS, the Financial Statements have been prepared in accordance with the guidance set out in the SORP.

Adoption of new and amended standards and interpretations

IFRS 9 Financial InstrumentsThe classification and measurement requirements of IFRS 9 have been adopted retrospectively as of the date of initial application on 1 December 2018, however, the Company has chosen to take advantage of the option not to restate comparatives. Therefore, the 2018 comparative figures are presented and measured under IAS 39. All financial assets previously held at fair value continue to be measured at fair value and accordingly there has been no impact as a result of the adoption of IFRS 9. All financial assets that were classified as loans and receivables and measured at amortised cost continue to be.

IFRS 15 Revenue from contracts with customersThe Company adopted IFRS 15 as of the date of initial application of 1 December 2018. IFRS 15 replaces IAS 18 Revenue and establishes a model to account for revenue arising from contracts with customers. In addition, guidance on interest and dividend income have been moved from IAS 18 to IFRS 9 without significant changes to the requirements. Therefore, there was no impact of adopting IFRS 15 for the Company.

3. INCOME

Dividends and interest received in cash in the six months ended 31 May 2019 amounted to £3,780,000 and £99,000 (six months ended 31 May 2018: £4,267,000 and £23,000; year ended 30 November 2018: £9,161,000 and £45,000) respectively.

There are no special dividends recognised in capital in the six months ended 31 May 2019 (six months ended 31 May 2018: £nil; year ended 30 November 2018: £nil).

Comparative figuresInterest of £22,000 from the BlackRock Institutional Cash Series plc – Sterling Liquidity Fund (Cash Fund) has been reclassified from “Income from investments held at fair value through profit or loss” to “Other Income” in the Statement of Comprehensive Income for the six months ended 31 May 2018. This reclassification had no impact on the revenue return for the respective periods or the net assets as at 31 May 2018.

4. INVESTMENT MANAGEMENT AND PERFORMANCE FEES

With effect from 1 December 2017, the performance fee is 15% of Net Asset Value total return outperformance of the benchmark measured over a two year rolling basis and is applied on the average Gross Assets over two years. Gross Assets are defined as the gross asset value of the long only portfolio plus the gross value of the underlying equities, long and short, to which the Company is exposed through CFDs. There is a cap on total management and performance fees of 1.25% of average gross assets over a two year period which has the effect of capping performance fees at circa 0.9% of average gross assets over two years.

With effect from 22 March 2018, the Company’s benchmark index was changed from the Numis Smaller Companies excluding AIM (excluding Investment Companies) Index to the Numis Smaller Companies plus AIM (excluding Investment Companies) Index. For the purposes of calculation of the performance fee for each period, the outperformance of the Net Asset Value total return has been measured against the performance of the benchmark indices on a blended basis during each period.

Performance fees have been wholly allocated to the capital column of the Statement of Comprehensive Income as the performance has been predominantly generated through capital returns from the investment portfolio. For the six months ended 31 May 2019, a performance fee of £4,754,000 has been accrued (six months ended 31 May 2018: £4,126,000; year ended 30 November 2018: £3,018,000).

The investment management fee is calculated at the rate of 0.35% per annum on month end Gross Assets. The management fee is charged 25% to revenue and 75% to capital.

5. OTHER OPERATING EXPENSES

6. DIVIDENDSThe Board has declared an interim dividend of 2.50p per share payable on 28 August 2019 to shareholders on the register at 2 August 2019 (six months ended 31 May 2018: interim dividend of 2.50p per share paid on 29 August 2018 to shareholders on the register at 3 August 2018). This dividend has not been accrued in the financial statements for the six months ended 31 May 2019 as, under IFRS, interim dividends are not recognised until paid. Dividends are debited directly to reserves.

7. EARNINGS AND NET ASSET VALUE PER ORDINARY SHARETotal revenue and capital returns per share and net asset value per share are shown below and have been calculated using the following:

The Company does not have any dilutive securities.

8. CALLED UP SHARE CAPITAL

There has been no change in the Company’s share capital during the period or as at the date of this report.

9. VALUATION OF FINANCIAL INSTRUMENTSFinancial assets and financial liabilities are either carried in the Statement of Financial Position at their fair value (investments and derivatives) or at an amount which is a reasonable approximation of fair value (due from brokers, dividends and interest receivable, due to brokers, accruals, cash and cash equivalents and bank overdrafts). IFRS 13 requires the Company to classify fair value measurements using a fair value hierarchy that reflects the significance of inputs used in making the measurements. The valuation techniques used by the Company are explained in the accounting policies note 2(g) as set out on page 73 in the Company’s Annual Report and Financial Statements for the year ended 30 November 2018.

Categorisation within the hierarchy has been determined on the basis of the lowest level input that is significant to the fair value measurement of the relevant asset as follows.

The fair value hierarchy has the following levels:

Level 1 – Quoted market price in an active market for an identical instrumentA financial instrument is regarded as quoted in an active market if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm’s length basis. The Company does not adjust the quoted price for these instruments.

Level 2 – Valuation techniques using observable inputsThis category includes instruments valued using quoted prices for similar instruments in markets that are considered less than active; or other valuation techniques where all significant inputs are directly or indirectly observable from market data. Valuation techniques used for non-standardised financial instruments such as options, currency swaps and other over-the-counter derivatives include the use of comparable recent arm’s length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, option pricing models and other valuation techniques commonly used by market participants making the maximum use of market inputs and relying as little as possible on entity specific inputs.

As at the period end the CFDs were valued using the underlying equity bid price and the contract price at the inception of the CFD trade or at the trade reset date. There have been no changes to the valuation technique since the previous year or as at the date of this report.

Level 3 – Valuation techniques using significant unobservable inputsThis category includes all instruments where the valuation technique includes inputs not based on observable data and these inputs could have a significant impact on the instrument’s valuation. This category also includes instruments that are valued based on quoted prices for similar instruments where significant entity determined adjustments or assumptions are required to reflect differences between the instruments and instruments for which there is no active market. The Investment Manager considers observable data to be that market data that is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market.

The level in the fair value hierarchy within which the fair value measurement is categorised in its entirety is determined on the basis of the lowest level input that is significant to the fair value measurement. If a fair value measurement uses observable inputs that require significant adjustment based on unobservable inputs, that measurement is a Level 3 measurement.

Assessing the significance of a particular input to the fair value measurement in its entirety requires judgement, considering factors specific to the asset or liability. The determination of what constitutes ‘observable’ inputs requires significant judgement by the Investment Manager.

Contracts for difference have been classified as Level 2 investments as their valuation has been based on market observable inputs represented by the market prices of the underlying quoted securities to which these contracts expose the Company. Index futures have also been classified as Level 2 investments.

The table below sets out fair value measurements using IFRS 13 fair value hierarchy.

There were no transfers between levels for financial assets and financial liabilities during the period recorded at fair value as at 31 May 2019, 31 May 2018 and 30 November 2018. The Company did not hold any Level 3 securities throughout the financial period under review or as at 31 May 2019, 31 May 2018 or 30 November 2018.

10. TRANSACTIONS WITH THE AIFM AND INVESTMENT MANAGERBlackRock Fund Managers Limited (BFM) is the Company’s Alternative Investment Fund Manager (AIFM). BFM has (with the Company’s consent) delegated certain portfolio and risk management services, and other ancillary services, to BlackRock Investment Management (UK) Limited (BIM (UK)).

The investment management fee due for the six months ended 31 May 2019 amounted to £854,000 (six months ended 31 May 2018: £915,000; year ended 30 November 2018: £1,866,000). In addition a performance fee of £4,754,000 (six months ended 31 May 2018: £4,126,000, year ended 30 November 2018: £3,018,000) was accrued for the six months ended 31 May 2019.

At the period end £854,000 was outstanding in respect of management fees (31 May 2018: £915,000; 30 November 2018: £441,000). Any final performance fee for the full year ending 30 November 2019 will not crystallise and fall due until the calculation date of 30 November 2019.

In addition to the above services, BlackRock has provided the Company with marketing services. The total fees paid or payable for these services to 31 May 2019 amounted to £63,000 excluding VAT (six months ended 31 May 2018: £35,000; year ended 30 November 2018: £79,000). Marketing fees of £145,000 excluding VAT (31 May 2018: £117,000; 30 November 2018: £82,000) were outstanding at 31 May 2019.

The Company has an investment in BlackRock’s Institutional Cash Series plc – Sterling Liquidity Fund of £14,247,000 as at 31 May 2019 (31 May 2018: £9,210,000; 30 November 2018: £33,949,000).

11. RELATED PARTY DISCLOSURE: DIRECTORS’ EMOLUMENTSThe Board consists of four non-executive Directors, all of whom are considered to be independent by the Board. None of the Directors has a service contract with the Company. With effect from 1 December 2018, the remuneration of the Chairman was increased from £36,000 to £38,500, the remuneration of the Chairman of the Audit Committee was increased from £28,000 to £30,000 and for the other Directors the remuneration was increased from £24,000 to £26,000.

As at 31 May 2019, an amount of £10,000 (31 May 2018: £11,000; 30 November 2018: £11,000) was outstanding in respect of Directors’ fees.

At the period end and at 23 July 2019, the interests of the Directors in the ordinary shares of the Company were as follows:

12. CONTINGENT LIABILITIESThere were no contingent liabilities as at 31 May 2019 (31 May 2018 and 30 November 2018: nil).

13. PUBLICATION OF NON STATUTORY ACCOUNTSThe financial information contained in this half yearly financial report does not constitute statutory accounts as defined in section 435 of the Companies Act 2006. The financial information for the six months ended 31 May 2019 has not been audited or reviewed by the Auditor. The financial information for the six months to 31 May 2018 was reviewed by Company's Auditor.

The information for the year ended 30 November 2018 has been extracted from the latest published audited financial statements, which have been filed with the Registrar of Companies. The report of the previous Auditor on those financial statements contained no qualification or statement under sections 498(2) or 498(3) of the Companies Act 2006.

14. ANNUAL RESULTSThe Board expects to announce the annual results for the year ending 30 November 2019 in February 2020. Copies of the results announcement can be obtained from the Secretary on 020 7743 3000 or by email at cosec@blackrock.com. The Annual Report and Financial Statements should be available by the beginning of February 2020, with the Annual General Meeting expected to be held in March 2020.

For further information, please contact:

Simon White, Managing Director, Investment Companies, BlackRock Investment Management (UK) LimitedTel: 020 7743 3000

Press enquiries: Lucy Horne, Lansons Communications – Tel: 020 7294 3689E-mail: lucyh@lansons.com

23 July 2019

12 Throgmorton AvenueLondon EC2N 2DLEND

The Half Yearly Financial Report will also be available on the BlackRock website at http://www.blackrock.co.uk/thrg. 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.