BLACKROCK SMALLER COMPANIES TRUST PLC
(Legal Entity Identifier: 549300MS535KC2WH4082)
Information disclosed in accordance with Article 5 Transparency
Directive and DTR 4.1
Annual Report and Financial Statements 29
February 2024
PERFORMANCE RECORD
|
As at
29 February 2024
|
As at
28 February 2023
|
|
|
|
|
|
Net asset value per ordinary share (debt at par value)
(pence)1
|
1,450.15
|
1,553.41
|
|
Net asset value per ordinary share (debt at fair value)
(pence)1
|
1,502.25
|
1,601.42
|
|
Ordinary share price (mid-market) (pence)1
|
1,326.00
|
1,380.00
|
|
Deutsche Numis Smaller Companies plus AIM (excluding Investment
Companies) Index2
|
15,173.40
|
16,108.12
|
|
|
---------------
|
---------------
|
|
Assets
|
|
|
|
Total assets less current liabilities (£’000)
|
755,721
|
828,033
|
|
Equity shareholders’ funds (£’000)3
|
686,206
|
758,529
|
|
Ongoing charges ratio4,5
|
0.8%
|
0.7%
|
|
Dividend yield4
|
3.2%
|
2.9%
|
|
Gearing4
|
11.5%
|
6.3%
|
|
|
=========
|
=========
|
|
|
For the
year ended
29 February 2024
|
For the
year ended
28 February 2023
|
|
Performance (with dividends reinvested)
|
|
|
|
Net asset value per ordinary share (debt at par
value)2,4
|
-4.0%
|
-15.4%
|
|
Net asset value per ordinary share (debt at fair
value)2,4
|
-3.6%
|
-13.0%
|
|
Ordinary share price (mid-market)2,4
|
-0.8%
|
-15.9%
|
|
Deutsche Numis Smaller Companies plus AIM (excluding Investment
Companies) Index2,4
|
-5.8%
|
-7.5%
|
|
|
=========
|
=========
|
|
|
For the
year ended
29 February 2024
|
For the
year ended
28 February 2023
|
Change
%
|
Revenue and dividends
|
|
|
|
Revenue return per ordinary share
|
40.70p
|
40.92p
|
-0.5
|
Interim dividend per ordinary share
|
15.00p
|
14.50p
|
+3.4
|
Final dividend per ordinary share
|
27.00p
|
25.50p
|
+5.9
|
|
---------------
|
---------------
|
---------------
|
Total dividends payable and paid
|
42.00p
|
40.00p
|
+5.0
|
|
=========
|
=========
|
=========
|
1 Without
dividends reinvested.
2 Total
return basis with dividends reinvested.
3 The
change in equity shareholders’ funds represents the portfolio
movements, shares repurchased into treasury and dividends paid
during the year.
4 Alternative
Performance Measure, see Glossary
contained within the Annual Report and Financial
Statements.
Full details setting out how calculations with dividends reinvested
are performed are set out in the Glossary contained within the
Annual Report and Financial Statements.
5 Ongoing
charges ratio calculated as a percentage of average daily net
assets and using the management fee and all other operating
expenses, excluding finance costs, direct transaction costs,
custody transaction charges, VAT recovered, taxation, prior year
expenses written back and certain non-recurring items in accordance
with AIC guidelines.
CHAIRMAN’S STATEMENT
MARKET OVERVIEW
In my Half-Yearly statement in October, I described how the first
six months of our financial year had been characterised by powerful
geo-political and macroeconomic drivers. As the year progressed,
rising tensions in the Middle East
led to increasing concern around the inflationary impact of
disruption to major shipping routes in the Red Sea and an
escalation into a wider conflict in the region. Market concerns in
the second half of the year continued to focus on persistent
inflation and high interest rates, with the Bank of England (BoE) implementing a 25-basis point
rise in the base interest rate in August, raising interest rates to
5.25%, the highest level since 2008. The BoE continued its policy
of monetary tightening throughout most of the year with the
Monetary Policy Committee (MPC) voting to hold the base rate at
5.25% in September 2023 (ending a run
of fourteen consecutive rate increases since December 2021). The high interest rate
environment continues to weigh on the valuations of the type of
long-duration, higher growth shares favoured in our portfolio. As a
result, UK small and mid-caps have continued to underperform large
caps in what amounts to the longest cycle of underperformance in
recent history (including that seen in the Global Financial Crisis
of 2008, COVID-19, Brexit, the Tech sell-off or Black Monday). The
fourth quarter of 2023 saw markets reflect the expectation of rate
cuts in 2024 in response to easing inflation data, but as we
entered 2024, a shift in market sentiment has seen a volatile start
to the year in equity markets.
Despite this challenging backdrop, it is comforting to note that
many of our portfolio holdings continue to deliver against their
objectives. Your Board also notes that the UK equity market
continues to look cheap on a range of valuation metrics. One should
also be mindful that historically, periods of heightened volatility
have been followed by strong returns for the strategy and presented
excellent investment opportunities.
PERFORMANCE
In the year under review, the Company’s net asset value (NAV) per
share outperformed the benchmark index (the Deutsche Numis Smaller
Companies plus AIM (excluding Investment Companies) Index) by 2.2%,
falling by 3.6%1,2,3,
in comparison to the decline in the benchmark of
5.8%1,3.
Over the same period your Company’s share price on a total return
basis with dividends reinvested was broadly flat, falling
marginally by 0.8%1,3
compared with the FTSE AIM All-Share Index which fell by
-2.3%1,
the FTSE 250 Index which fell by -1.3%1
and the FTSE 100 Index which rose by 0.8%1.
The wide disparity between index returns reflected changing
investor sentiment about large versus smaller cap companies during
a period of great market uncertainty over future
prospects.
More detail on the significant contributors to and detractors from
performance during the year are given in the Investment Manager’s
Report below.
The Company’s longer-term performance is set out in the Annual
Report and Financial Statements. More information is also given in
the chart contained within the Annual Report and Financial
Statements which illustrates how long-term investors have had an
opportunity to build up an attractive annual income from an
investment in the Company. Even if the initial dividend yield at
the point of purchase has been unremarkable, the strong underlying
growth in dividends over the years has resulted in a competitive
yield on cost when compared with equity income funds in general. To
illustrate this investment and income success, the chart contained
within the Annual Report and Financial Statements shows that £1,000
invested in the Company on 28 February
2006 would have increased in value by
421.5%1
in NAV terms to 29 February 2024,
whereas £1,000 invested in the UK open-ended income sector median
would have increased by just 150.7%1.
The chart also demonstrates that while the yield on the Company’s
shares was much lower at the beginning of the period, over time the
Company’s dividend has grown at a much faster rate than open-ended
UK income fund competitors.
Performance to 29 February 2024
|
1 Year
change
%
|
3 Years
change
%
|
5 Years
change
%
|
10 Years
change
%
|
15 Years
change
%
|
|
|
|
|
|
|
NAV per share1,2,3
|
-3.6
|
-9.6
|
19.7
|
97.1
|
763.1
|
Benchmark1,3
|
-5.8
|
-11.6
|
11.9
|
33.7
|
327.8
|
Share price1,3
|
-0.8
|
-15.8
|
12.5
|
6.1
|
912.7
|
1
Percentages in Sterling terms with dividends reinvested.
2
NAV with debt at fair value.
3
Alternative Performance Measure, see Glossary contained within the
Annual Report and Financial Statements.
RETURNS AND DIVIDENDS
Your Company’s total revenues per year are a reflection of the
dividends we receive from portfolio companies. Total revenue return
for the year was 40.70 pence per
share (2023: 40.92 pence per share).
The Board continues its policy to ensure the sustainability of
dividends and their future growth through investment in companies
with strong balance sheets, solid management and sustainable
business growth models. We remain mindful of the importance of
yield to shareholders. The Board is also cognisant of the benefits
of the Company’s investment trust structure which enables it to
retain up to 15% of total revenue each year to build up reserves
which may be carried forward and used to pay dividends during
leaner times. The Company has substantial distributable reserves
(£619.7 million as at 29 February
2024, including revenue reserves of £18.6 million). Taking
note of your Company’s current reserves, the Board has decided to
declare a final dividend of 27.00
pence per share. Combined with the interim dividend of
15.00 pence per share, this
represents total dividends declared of 42.00
pence per share for the year to 29
February 2024, an increase of 5 % over total dividends
declared for the year to 28 February
2023. The dividend will be paid on 27
June 2024 to shareholders on the Company’s register as at
24 May 2024. The Board has also taken
this decision recognising that many portfolio companies are
demonstrating strong earnings forecasts, allowing us to take a more
optimistic view of future prospects. Your Company has now increased
its annual dividend every year since 2003.
The annualised increase in dividends paid since this date equates
to 10.9% and your Company has received the AIC accolade of
‘Dividend Hero’ for its’ consistent growth in dividends for a
period in excess of 20 years.
GEARING AND SOURCES OF FINANCES
The Company has traditionally maintained a range of borrowings and
facilities to provide balance between longer-term and short-term
maturities and between fixed and floating rates of interest. Over
the past few years the Board has taken steps to lock in borrowing
at what we considered to be very attractive interest rates, and the
Company currently has in place a range of longer-term fixed rate
funding consisting of £25 million 2.74% senior unsecured fixed rate
private placement notes maturing in 2037, £20 million 2.41% senior
unsecured notes maturing in 2044 and £25 million 2.47% senior
unsecured notes maturing in 2046. The logic of the Board’s decision
to capture these lower interest rates for funding has been borne
out by economic developments over the past few years; by way of
illustration, interest on an equivalent level of £70 million of
funding through a bank overdraft would attract interest at SONIA
plus 1% (currently c. 6.25%), amounting to interest of c. £4.4
million, compared to the current cost of debt of just £1.9 million
per annum. The Company also has in place variable rate funding
consisting of a £60 million uncommitted overdraft facility with The
Bank of New York Mellon (International) Limited.
It is the Board’s intention that net gearing will not exceed 15% of
the net assets of the Company at the time of the drawdown of the
relevant borrowings. Under normal operating conditions it is
envisaged that gearing will be within a range of 0%-15% of net
assets. At the year end, the Company’s net gearing was
11.5%1
of net assets (2023: 6.3%).
MANAGEMENT OF SHARE RATING
The Board monitors the Company’s share rating closely, and
recognises the importance to shareholders that the price of the
Company’s shares do not trade at either a significant premium or
discount to the underlying NAV. Therefore, where deemed to be in
shareholders’ long-term interests, it may exercise its powers to
issue shares or buy back shares with the objective of ensuring that
an excessive premium or discount does not arise. As market
volatility persisted through the year, discounts across the
closed-end funds sector remained wide and the Company’s shares
traded at a discount to NAV ranging from 7.8% to 15.1% over the
period. As the discount widened, the Board took action to address
this, buying back 1.5 million shares during the year under review
for a total cost of £20.0 million. All shares were bought back at a
discount to NAV, delivering an uplift to the NAV per share of 0.3%
for continuing shareholders for the year under review. The Board
believes that the action it has taken has helped to minimise
discount volatility, with the Company’s shares trading at an
average discount to NAV (with debt at fair value) over the full
year of 12.4%, compared to an average discount of 13.9% for the
year to 28 February 2023. To put this
in context, the average discount for companies in the AIC UK
Smaller Companies sector for the same period was 11.9%.
Since the year end, and up to the date of this report, the Company
has bought back 220,000 shares for costs of £2,946,000 (at an
average discount to NAV of 13.0%). The Company’s discount currently
stands at 11.1% compared to a sector average of 11.7%.
BOARD COMPOSITION, IMPLEMENTATION OF POLICY ON TENURE AND
DIVERSITY
In previous Chairman’s Statements, I have noted that the Board has
adopted a policy of limiting directors’ tenure to nine years (or
twelve years in the case of the Chairman in certain circumstances).
The Board remains focused on high standards of governance and is
cognisant that the Parker Review in respect of board diversity and
the recent changes to the FCA’s Listing Rules set new diversity
targets and associated disclosure requirements for UK companies
listed on the premium and standard segment of the London Stock
Exchange. Your Board recognises the benefits of diversity at Board
level and believes that Directors should have a mix of different
skills, experience, backgrounds, ethnicity, gender and other
characteristics.
The Board appointed an external agency to undertake a search and
selection process in 2023 with the aim of further enhancing Board
diversity. A broad range of factors were taken into account in
setting the appointment brief and during the search and selection
process. These were underpinned by our conviction that all Board
appointments must be made on merit, in the context of the skills,
experience, independence and knowledge which the Board as a whole
requires to be effective.
As a result of the search, the Board announced the appointment of
Ms Dunke Afe as a non-executive Director with effect from
1 January 2024. Ms Afe is an
accomplished global marketing executive with extensive experience
in raising brand and product awareness, as a marketing expert the
Board expects this to be helpful for the Company in the future. She
has previously worked with top blue chip multinationals including
Unilever, Kimberly-Clark and Estee
Lauder companies. She is also a non-executive Director of CT
UK Capital and Income Investment Trust plc. We look forward to
benefitting from her outstanding marketing knowledge and insights
as we navigate an increasingly competitive environment for investor
attention. Further information on Board composition can be found in
the Corporate Governance Statement contained within the Annual
Report and Financial Statements.
ANNUAL GENERAL MEETING
The Company’s Annual General Meeting (AGM) will be held in person
at the offices of BlackRock at 12 Throgmorton Avenue, London EC2N 2DL on Thursday 20 June 2024 at 11.30
a.m. Details of the business of the meeting are set out in
the Notice of Annual General Meeting contained within the Annual
Report and Financial Statements. Shareholders are also invited to
join Directors for a hot buffet lunch after the formal business of
the meeting has concluded. Prior to the formal business of the
meeting, our Investment Manager will make a presentation to
shareholders. This will be followed by a question and answer
session. Shareholders who are unable to attend the meeting in
person but who wish to view the portfolio manager’s presentation
can do so via a live webinar this year. Details on how to register,
together with access details, will be available shortly on the
Company’s website at: www.blackrock.com/uk/brsc or by contacting
the Company Secretary at cosec@blackrock.com. It is not possible to
speak or vote via this medium and it is solely intended to provide
shareholders with the ability to watch the portfolio manager’s
presentation. Additionally, if you are unable to attend you can
exercise your right to vote by proxy or appoint a proxy to attend
in your place. Details of how to do this are included on the AGM
Proxy Card provided to shareholders with the Annual Report. If you
hold your shares through a platform or a nominee company, you will
need to contact them directly and ask them to appoint you as a
proxy in respect of your shares in order to attend, speak and vote
at the AGM. Further information on the business of this year's AGM
can be found in the Notice of the AGM contained within the Annual
Report and Financial Statements.
OUTLOOK
Since the financial year end, the Company’s NAV (as at 8 May 2024) has increased by
8.0%1,2,
against an increase in the benchmark of 7.8%1,
and the share price has risen by 8.7%1.
These results should be seen in the context of continued and
significant market volatility, which persists in an ongoing high
interest rate environment, fuelled by heightened geo-political
risk, with the ongoing conflict in Ukraine and tensions escalating in the
Middle East. Looking forward,
there are also several significant elections in 2024, notably in
the UK, US and Europe, with a
range of outcomes, all of which could impact market volatility and
sentiment.
Against this turbulent backdrop, the Company’s portfolio is
weighted towards companies with well capitalised balance sheets and
entrepreneurial management teams that are able to rapidly adapt
their businesses to the shifting market dynamics. As such we
believe your Company is well-positioned and prepared to take
advantage of the investment opportunities that lie ahead despite
the uncertain market conditions. If shareholders would like to
contact me, please write to BlackRock Smaller Companies Trust plc,
Exchange Place One, 1 Semple Street, Edinburgh EH3 8BL marked for the attention of
the Chairman.
RONALD
GOULD
Chairman
13 May 2024
1 Percentages
in Sterling terms with dividends reinvested.
2 NAV
with debt at fair value.
3 Alternative
Performance Measure, see Glossary contained within the Annual
Report and Financial Statements.
INVESTMENT MANAGER’S REPORT
MARKET REVIEW
As ever when I sit and write these annual reviews, the first point
of reference is always my previous manager report; what did I write
this time last year, what was my outlook for the coming twelve
months, how far off the mark was I, and what unexpected events were
thrown at us? Last year’s review highlighted the almost
schizophrenic behaviour of the markets, flitting between rising and
falling bond yields, inflation expectations, commodity and asset
prices, whilst the outlook suggested inflation expectations would
moderate, we would avoid a hard landing, and the low valuation of
the UK market would see an increase in corporate activity. I fear
this year’s review will not veer too much from this narrative. Many
of the drivers of uncertainty and volatility remain; will major
economies avoid a hard landing, what is the impact of geo-political
conflict, will inflation fall enough to gift central banks the
freedom to reduce interest rates? Underlying these macro factors is
the one unescapable truth, the valuation of UK small and medium
sized companies remains incredibly attractive. Overlay valuations
below their historic range with corporate balance sheets as well
capitalised as I can remember in my career, and you could have a
very attractive opportunity to create long-term value.
PERFORMANCE REVIEW
For the second half of the financial year the Company’s NAV
outperformed the benchmark by 3.4%, producing a positive return of
4.6% against our benchmark return of 1.2%. This takes the Company’s
NAV return to -3.4% for the financial year, and although it is
disappointing to be reporting another year of negative asset value,
it outperformed our benchmark return of -5.8%.
In my interim report I asked “what’s the catalyst?” to seeing a
change in market sentiment, and an end to the persistent outflows
we have seen in small and mid cap equities. Sadly my conclusion was
I don’t know, that history tells us there will be one, but
typically we only see the catalyst in the rear view mirror. What is
clear to me is the current valuation of the UK market, and in
particular UK small and mid-cap, is attractive. In addition, the
second half of the financial year has given significant cause for
optimism. Unemployment remains low, balance sheets remain strong,
inflation is falling, consumer confidence is improving, Purchasing
Manager’s Index whilst generally still negative are improving and
for the much maligned UK have tipped back into positive territory
ahead of those of most other major European economies. This
backdrop gives confidence that the earnings outlook for our
businesses is broadly supportive for an earnings
recovery.
The largest positive contributor to performance was
4imprint Group.
This is not the first time we have discussed the merits of the
4Imprint Group investment case, it has been a significant
contributor to performance over a number of years, and acts as a
case study to our investment philosophy; find a well invested
market leader in a growth market, that converts profits into cash,
continues to invest in both their product and people to maintain
market leadership and pricing power, whilst increasing the
dividends paid to shareholders.
The second largest contributor was recently listed
Ashtead Technology,
the Aberdeen based equipment
rental business focused on the Oil and Gas industry. Management
have done a commendable job of positioning the group towards growth
markets, whilst deploying the balance sheet towards accretive
mergers and acquisitions (“M&A”).
The third largest contribution has come from our holding in bowling
operator
Ten Entertainment Group,
which received a bid from private equity. This was not the only bid
we were on the receiving end of during the financial year, we also
saw
Ergomed,
City Pub Company,
and
Numis
leave us. Whilst takeover activity is obviously a positive to
overall performance, it is often a
bittersweet moment as we lose businesses we believe could
contribute to the NAV growth of the Company over a number of years,
and have to find suitable replacements.
No year is perfect, there are always companies that weigh on
performance. These loosely split into two camps; the ones where
there has been a change in the earnings outlook, and those where
shares have de-rated for other reasons but the outlook for the
investment case is unchanged.
Watches of Switzerland
sadly sits in the first category, as the shares reacted negatively
to the news that Rolex has purchased luxury watch retailer
Bucherer, raising concerns Rolex will direct allocation to Bucherer
over other retailers. We have to acknowledge the potential impact
this has on the Watches of Switzerland investment case and have reduced
the position to reflect what is now a wider range of potential
outcomes.
CAB Payments
listed on the London market in
July 2023, the first significant
initial public offering (“IPO”) on the London market in some time. We recognised at
the time the revenue model was inherently unpredictable, and likely
to be buffeted by the vagaries of emerging market currencies. What
we had not anticipated was the sudden change in market conditions
in a number of their currency markets, which facilitated a
significant decline in revenue and earnings expectations. Coming so
soon after the IPO this raised serious questions about the controls
within the group, and we exited the position. Finally, we need to
address computer games developer
Team17,
which revealed a profit warning in November. The gaming industry
had a tough year in 2023, with the demand for “triple A” games
disappointing generally, and a number of revenue related
disappointments across the industry. We spent a lot of time looking
at Team17, analysing the best seller lists to gain comfort that
volumes would not disappoint. Sadly, volumes were not the issue,
and revenue forecasts were achieved, however management appear to
temporarily have lost control of the cost base leading to a warning
on profitability. We have reduced the position but have maintained
a small holding in the belief a cost problem can be fixed more
easily when there isn’t a revenue issue.
There is a third category of shares that can weigh on relative
performance; those that are a significant weight in the benchmark
that we choose not to own. 2023 saw an unusually large number of
“fallen angels” enter the top end of our benchmark. Accounting for
25% of the Numis Smaller Companies Index, the 2023 cohort of fallen
angels is the third largest on record. Two of these,
Burford
and
Carnival
performed strongly in the year, rising 80% and 62% respectively.
Typically, the “fallen angels” fail to meet our investment
criteria. In the case of these two examples Burford’s revenue model
is too unpredictable, and Carnival’s market cap was simply too
large for a portfolio focused on small and medium sized
companies.
THE HEALTH OF THE UK MARKET
Given the amount of press coverage it has received in the last
year, it would be amiss of us not to address the health of the UK
stock market. The overwhelming narrative has suggested the market
is in a death spiral, deprived of the vital lifeblood of new issues
and fundraisings, haemorrhaging companies to private equity, and
seeing FTSE100 blue bloods seeking the Elysian Fields of a US
listing. We can’t sit here and pretend none of this is true, but
perhaps some context is also required. The number of UK listed
companies has been falling for decades, this is not some new
phenomenon, what has changed in the last two years is the dearth of
new issues to replace those companies we lose through M&A,
re-listing or sadly insolvency. Capital markets activity has been
light, companies have not sought new funds in any volume, but
perhaps we should look at this from another angle. In 2009/2010
there were huge sums of fresh equity raised, but often this was a
direct result of weak balance sheets going into a severe downturn.
2022/2023 was not the same, this has been strong balance sheets
going into a more shallow decline. London remains an attractive market for new
issues; the rule of law is unchanged, the breadth of capability and
experience is undiminished, what is required is confidence and
indeed the end of the significant outflows from the UK market. The
entrepreneurial spirit is still alive in the UK, owners will still
want to see their businesses listed to provide them with access to
capital, and it remains my view that London will remain an active market for UK
small and medium sized businesses once confidence
returns.
POSITIONING AND OUTLOOK
Any discussion about the outlook for UK small and medium sized
companies essentially revolves around three broad sectors, as
consumer, industrials and financials form the vast bulk of the
investment universe. If we once again circle back to the outlook
discussed this time last year, we felt the risks of a significant
recession were being overplayed, and there were opportunities in
both the consumer and industrial markets. We see little reason to
change our view at this point. As evidenced by the Asda Income
Tracker, available household cashflow is finally starting to grow
after nearly two years of pressure. At the same time food and fuel
inflation is falling, increasing the amount of household cash
available to direct to more discretionary purposes. With interest
rates looking like they have peaked, and mortgage rates starting to
fall, support for the structurally undersupplied housing market
should also return. Our view on industrials also remains positive.
2023 has been a year of inventory unwind, as firms run through the
stock built up to manage the post-COVID-19 supply chain
disruptions. Much of this rightsizing has now happened, suggesting
end market demand should be much more closely correlated to
industrial company revenues. More importantly, going forward we
still see many of the positive structural drivers of near shoring
and supply chain duplication providing a multi-year tailwind for
industrial companies. In summary we retain a broadly pro-cyclical
outlook, with a view that the coming year could well see an
earnings inflexion colliding with attractive valuations, typically
a mix that leads to share price appreciation.
ROLAND
ARNOLD
BLACKROCK INVESTMENT MANAGEMENT (UK)
LIMITED
13 May 2024
TEN LARGEST INVESTMENTS AS AT 29
FEBRUARY 2024
Together, the ten largest investments represent 21.3% of the
Company’s portfolio as at 29 February
2024 (2023: 20.5%).
1 Gamma Communications
Mobile Telecommunications
Portfolio value £20,662,000
Percentage of portfolio 2.7%
A leading provider of Unified Communications as a Service (UCaaS)
into the UK and European business markets, supplying communication
solutions via their extensive network of trusted channel partners
and also directly.
2 4imprint Group
Media
Portfolio value £19,129,000
Percentage of portfolio 2.5%
A UK-listed but US-centric direct marketing business of promotional
goods. Despite a relatively small market share, they are the market
leader in the US by some distance which reflects just how
fragmented the market is.
3 Bloomsbury Publishing
Media
Portfolio value £16,606,000
Percentage of portfolio 2.2%
The company is a leading independent publisher which aims to
inform, educate, entertain and inspire readers of all ages. The
company is focused on investing in high value intellectual
property, with a focus on publishing quality content. The company
has been diversifying the portfolio across consumer and
non-consumer, and geographically has expanded it’s digital offering
through mergers and acquisitions, further increasing the quality of
its revenues and earnings.
4 Hill & Smith
Industrial Engineering
Portfolio value £16,476,000
Percentage of portfolio 2.2%
Hill & Smith is a leading UK-based infrastructure and
construction products company that specializes in the design,
manufacture, and supply of vehicle restraint systems, road safety
barriers, and other infrastructure solutions for the highways and
construction sectors.
5 Chemring Group
Aerospace & Defence
Portfolio value £16,152,000
Percentage of portfolio 2.1%
Chemring Group PLC is a UK-based technology solutions company that
operates in the aerospace and defence industry. The company has two
main business segments: Sensors & Information, and
Countermeasures.
6 Workspace Group
Real Estate Investment Trusts
Portfolio value £15,931,000
Percentage of portfolio 2.1%
Workspace Group is a leading UK-based REIT that owns and manages a
portfolio of flexible, sustainable commercial properties, primarily
catering to SMEs in the Greater
London area through its comprehensive workspace solutions
and services.
7 Breedon
Construction & Materials
Portfolio value £15,293,000
Percentage of portfolio 2.0%
A leading construction materials group in Great Britain and Ireland producing cement, aggregates, asphalt,
ready-mixed concrete, specialist concrete and clay
products.
8 YouGov
Media
Portfolio value £14,568,000
Percentage of portfolio 1.9%
An international provider of specialist data analytics and
marketing information. The company was recently named one of the
world’s top 25 research companies.
9 Tatton Asset Management
Financial Services
Portfolio value £14,114,000
Percentage of portfolio 1.8%
Tatton Asset Management is a leading UK financial services company
that provides a range of investment management, compliance, and
support services to independent financial advisers, with a focus on
discretionary fund management and portfolio solutions.
10 CVS Group
General Retailers
Portfolio value £13,786,000
Percentage of portfolio 1.8%
CVS Group is one of the largest integrated veterinary services
providers in the UK encompassing four main business areas;
veterinary practices, diagnostic laboratories, pet crematoria and
e-commerce division.
FIFTY LARGEST INVESTMENTS AS AT 29
FEBRUARY 2024
Company
|
Business activity
|
Market
value
£’000
|
% of
total
portfolio
|
|
|
|
|
Gamma Communications
|
Provider of communication services to UK businesses
|
20,662
|
2.7
|
4imprint Group
|
Promotional merchandise in the US
|
19,129
|
2.5
|
Bloomsbury Publishing
|
Publisher of fiction and non-fiction
|
16,606
|
2.2
|
Hill & Smith
|
Production of infrastructure products and supply of galvanizing
services
|
16,476
|
2.2
|
Chemring Group
|
Advanced technology products and services for the aerospace,
defence and security markets
|
16,152
|
2.1
|
Workspace Group
|
Supply of flexible workspace to businesses in London
|
15,931
|
2.1
|
Breedon
|
UK construction materials
|
15,293
|
2.0
|
YouGov
|
International online research data and analysis group
|
14,568
|
1.9
|
Tatton Asset Management
|
Provider of discretionary fund management services to financial
advisors
|
14,114
|
1.8
|
CVS Group
|
Operator of veterinary surgeries
|
13,786
|
1.8
|
IntegraFin
|
Investment platform for financial advisers
|
13,191
|
1.7
|
SigmaRoc
|
UK and European construction materials
|
12,195
|
1.6
|
XPS Pensions
|
Leading independent pensions consultancy and administration
firm
|
12,118
|
1.6
|
Baltic Classifieds Group
|
Operator of online classified businesses in the Baltics
|
11,908
|
1.6
|
Oxford Instruments
|
Designer and manufacturer of tools and systems for industry and
scientific research
|
11,649
|
1.5
|
Boku
|
Digital payments company
|
10,689
|
1.4
|
Renew
|
Engineering services group supporting UK infrastructure
|
10,276
|
1.3
|
Robert Walters
|
Recruitment services
|
10,177
|
1.3
|
Johnson Service Group
|
Provider of textile services
|
9,967
|
1.3
|
Next Fifteen Communications
|
Digital communication products and services
|
9,956
|
1.3
|
TT Electronics
|
Global manufacturer of electronic components
|
9,837
|
1.3
|
GlobalData
|
Data analytics and consulting company
|
9,820
|
1.3
|
Grafton
|
Builders merchants in the UK, Ireland and Netherlands
|
9,567
|
1.3
|
Moneysupermarket.com
|
Price comparison website specialising in financial
services
|
9,547
|
1.3
|
MJ Gleeson
|
UK-based low-cost house builder and strategic land
promoter
|
9,479
|
1.2
|
Indivior
|
Leading pharmaceutical company specializing in developing and
commercializing treatments for opioid and substance use
disorders
|
9,375
|
1.2
|
Vesuvius
|
Provider of metal flow engineering services and solutions to the
steel and foundry industries
|
9,373
|
1.2
|
Morgan Sindall
|
Office fit-out, construction and urban regeneration
services
|
9,208
|
1.2
|
Clarkson
|
Provision of shipping services
|
8,900
|
1.2
|
Serica Energy
|
Gas and oil exploration and production company
|
8,887
|
1.2
|
Atalaya Mining
|
Copper miner
|
8,705
|
1.1
|
Sabre Insurance
|
Insurance company that specializes in providing car insurance
products
|
8,701
|
1.1
|
Wilmington
|
Global provider of data, information, education and training
services in the global Governance, Risk and Compliance (GRC)
markets
|
8,613
|
1.1
|
Auction Technology Group
|
Operator of marketplaces for curated online auctions
|
8,210
|
1.1
|
City Pub Group
|
UK-based pub company that owns and operates a collection of pubs
across southern England and Wales
|
8,120
|
1.1
|
Hunting
|
Manufacturer of components, technology systems and precision parts
for the energy industry
|
7,963
|
1.0
|
Central Asia Metals
|
Mining operations in Kazakhstan and Macedonia
|
7,616
|
1.0
|
Sirius Real Estate
|
Owner and operator of business parks, offices and industrial
complexes in Germany
|
7,531
|
1.0
|
Lok’n Store Group
|
Self-storage provider
|
7,505
|
1.0
|
Kitwave Group
|
Wholesale distribution company that specializes in supplying a wide
range of food, drink, and tobacco products
|
7,351
|
1.0
|
Fuller Smith & Turner – A Shares
|
Ownership of and management of pubs in the London area and South
East England
|
7,341
|
1.0
|
Porvair
|
UK-based specialist filtration, laboratory, and environmental
technology group
|
7,292
|
1.0
|
QinetiQ Group
|
British multi-national defence technology company
|
7,243
|
0.9
|
MacFarlane Group
|
Packaging company that designs, manufactures, and distributes
protective packaging products and labels
|
7,231
|
0.9
|
Bodycote
|
Provision of thermal processing services
|
7,211
|
0.9
|
Great Portland Estates
|
British property development and investment company
|
7,132
|
0.9
|
Alfa Financial Software
|
Provider of software for customers working in the asset finance
industry
|
7,120
|
0.9
|
TP ICAP
|
Inter-dealer broker and over the counter market data
provider
|
7,026
|
0.9
|
Young & Co’s Brewery – A Shares
|
UK-based pub and hotel operator
|
6,979
|
0.9
|
Luceco
|
Designer, supplier, and manufacturer of high-quality and efficient
LED lighting products, as well as electrical wiring
accessories
|
6,922
|
0.9
|
|
|
---------------
|
---------------
|
50 largest investments
|
|
520,648
|
68.0
|
|
|
---------------
|
---------------
|
Remaining investments
|
|
244,530
|
32.0
|
|
|
---------------
|
---------------
|
Total
|
|
765,178
|
100.0
|
|
|
=========
|
=========
|
Details of the full portfolio are available on the Company’s
website at www.blackrock.com/uk/brsc.
PORTFOLIO HOLDINGS IN EXCESS OF 3% OF ISSUED SHARE
CAPITAL
At 29 February 2024, the Company did
not hold any equity investments comprising more than 3% of any
company’s share capital other than as disclosed in the table
below:
Company
|
% of issued share capital held
|
|
|
City Pub Group
|
5.6
|
The Pebble Group
|
5.0
|
Tatton Asset Management
|
4.3
|
Distribution Finance Capital Holdings
|
4.2
|
TT Electronics
|
4.1
|
Oxford Metrics
|
3.7
|
Bloomsbury Publishing
|
3.7
|
MacFarlane Group
|
3.7
|
Mercia Asset Management
|
3.4
|
Kitwave Group
|
3.4
|
Fuller Smith and Turner - A Shares
|
3.4
|
Robert Walters
|
3.3
|
Luceco
|
3.1
|
MJ Gleeson
|
3.1
|
Sylvania Platinum
|
3.1
|
DISTRIBUTION OF INVESTMENTS AS AT 29
FEBRUARY 2024
Sector
|
% of portfolio
|
Oil & Gas Producers
|
1.2
|
Oil Equipment, Services & Distribution
|
0.9
|
Oil-Field Services
|
1.0
|
|
---------------
|
Energy
|
3.1
|
|
---------------
|
Chemicals
|
0.9
|
Mining
|
3.1
|
|
---------------
|
Basic Materials
|
4.0
|
|
---------------
|
Aerospace & Defence
|
3.6
|
Construction & Materials
|
7.9
|
Electronic & Electrical Equipment
|
5.4
|
General Industrials
|
2.9
|
Industrial Engineering
|
4.5
|
Industrial Support Services
|
9.9
|
Industrial Transportation
|
1.2
|
|
---------------
|
Industrials
|
35.4
|
|
---------------
|
Automobiles & Parts
|
0.7
|
General Retailers
|
2.9
|
Leisure Goods
|
0.7
|
Media
|
11.5
|
Personal Care, Drug & Grocery Stores
|
0.2
|
Personal Goods
|
1.6
|
Specialty Retailers
|
1.1
|
Travel & Leisure
|
2.9
|
|
---------------
|
Consumer Discretionary
|
21.6
|
|
---------------
|
Pharmaceuticals & Biotechnology
|
2.0
|
|
---------------
|
Health Care
|
2.0
|
|
---------------
|
Beverages
|
1.2
|
Food & Drug Retailers
|
0.9
|
Household Goods & Home Construction
|
2.1
|
|
---------------
|
Consumer Staples
|
4.2
|
|
---------------
|
Mobile Telecommunications
|
2.7
|
Telecommunications Service Providers
|
0.5
|
|
---------------
|
Telecommunications
|
3.2
|
|
---------------
|
Banks
|
1.0
|
Finance & Credit Services
|
0.4
|
Financial Services
|
9.4
|
Investment Banking & Brokerage Services
|
0.2
|
Non-life Insurance
|
1.1
|
|
---------------
|
Financials
|
12.1
|
|
---------------
|
Real Estate Investment & Services
|
2.0
|
Real Estate Investment Trusts
|
4.2
|
|
---------------
|
Real Estate
|
6.2
|
|
---------------
|
Software & Computer Services
|
7.8
|
Technology Hardware & Equipment
|
0.4
|
|
---------------
|
Technology
|
8.2
|
|
---------------
|
Total
|
100.0
|
|
=========
|
PORTFOLIO ANALYSIS AS AT 29 FEBRUARY
2024
Analysis of portfolio value by sector
|
Company
|
Benchmark
(Deutsche Numis Smaller Companies plus AIM (ex investment
Companies) Index)
|
Energy
|
3.1
|
5.1
|
Basic Materials
|
4.0
|
7.5
|
Industrials
|
35.4
|
22.8
|
Consumer Discretionary
|
21.6
|
18.4
|
Health Care
|
2.0
|
5.4
|
Consumer Staples
|
4.2
|
4.9
|
Telecommunications
|
3.2
|
2.8
|
Financials
|
12.1
|
16.0
|
Real Estate
|
6.2
|
5.7
|
Technology
|
8.2
|
9.7
|
Utilities
|
0.0
|
0.8
|
Other
|
0.0
|
0.9
|
Sources: BlackRock and Datastream.
Investment size as at 29 February
2024
|
Number of investments
|
Market
value of investments as % of portfolio
|
£1m to £2m
|
5
|
1.0
|
£2m to £3m
|
3
|
1.0
|
£3m to £4m
|
12
|
5.5
|
£4m to £5m
|
14
|
7.9
|
£5m to £6m
|
15
|
10.6
|
£6m to £7m
|
9
|
7.7
|
£7m to £8m
|
13
|
12.5
|
£8m to £9m
|
7
|
7.9
|
£9m to £10m
|
10
|
12.6
|
£10m to £11m
|
3
|
4.1
|
£11m to £12m
|
2
|
3.1
|
£12m to £13m
|
2
|
3.2
|
£13m to £14m
|
2
|
3.5
|
£14m to £15m
|
2
|
3.7
|
£15m to £16m
|
2
|
4.1
|
£16m to £17m
|
3
|
6.4
|
£17m to £18m
|
1
|
2.5
|
£18m to £19m
|
1
|
2.7
|
Source: BlackRock.
Market capitalisation of our portfolio companies as at
29 February 2024
Market capitalisation
|
% of portfolio
|
£0m to £200m
|
6.4
|
£200m to £600m
|
37.5
|
£600m to £1.5bn
|
48.3
|
£1.5bn+
|
7.8
|
Source: BlackRock.
STRATEGIC REPORT
The Directors present the Strategic Report of the Company for the
year ended 29 February 2024. The aim
of the Strategic Report is to provide shareholders with the
information to assess how the Directors have performed their duty
to promote the success of the Company for the collective benefit of
shareholders.
The Chairman’s Statement together with the Investment Manager’s
Report and the Directors’ Statement setting out how they promote
the success of the Company contained within the Annual Report and
Financial Statements form part of the Strategic Report. The
Strategic Report was approved by the Board at its meeting on
13 May 2024.
PRINCIPAL ACTIVITIES
The Company is a public company limited by shares and carries on
business as an investment trust and its principal activity is
portfolio investment. 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.
INVESTMENT OBJECTIVE
The Company’s prime objective is to seek to achieve long-term
capital growth for shareholders through investment mainly in
smaller UK quoted companies.
No material change will be made to the Company’s investment
objective without shareholder approval.
To achieve its investment objective the Company invests
predominantly in UK smaller companies with securities admitted to
trading on the Main Market of the London Stock Exchange or on the
AIM. The Company may also invest in securities which are listed
overseas but have a secondary UK quotation. Although investments
are primarily in companies with securities admitted to trading on
recognised stock exchanges or on the AIM, the Investment Manager
may also invest in less liquid unquoted securities with the prior
approval of the Board. The Manager has adopted a consistent
investment process, focusing on good quality growth companies;
stock selection is the primary focus, but consideration is also
given to sector weightings and underlying themes. Whilst there are
no set limits on individual sector exposures against the Company’s
benchmark, a schedule of sector weightings is presented at each
Board meeting for review. In applying the investment objective, the
Investment Manager expects the Company to be substantially fully
invested and to borrow as and when appropriate. The Company seeks
to achieve an appropriate spread of investment risk by investing in
a number of holdings across a range of sectors. The Company may not
hold more than 7% of the share capital of any company in which it
has an investment. No single portfolio holding (excluding holdings
in cash fund investments held for cash management purposes) will,
on the date such holding is acquired by the Company, exceed 5% of
the Company’s net asset value. Notwithstanding the foregoing, the
general aim is that no single portfolio holding (excluding cash
fund investments held for cash management purposes) will, on the
date such holding is acquired by the Company, exceed 3% of the
Company’s net asset value. In addition, while the Company may hold
shares in other listed investment companies (including investment
trusts), the Board has agreed that the Company will not invest more
than 15% of its total assets in other UK listed investment
companies. The Investment Manager will not deal in derivatives
without prior approval of the Board.
BENCHMARK
Performance is measured against an appropriate benchmark, the
Deutsche Numis Smaller Companies plus AIM (excluding Investment
Companies) Index.
GEARING POLICY
It is intended that net gearing will not exceed 15% of the net
assets of the Company at the time of the drawdown of the relevant
borrowings. Under normal operating conditions it is envisaged that
gearing will be within a range of 0%-15% of net assets.
BUSINESS MODEL
The Company’s business model follows that of an externally managed
investment trust. Therefore, the Company does not have any
employees and outsources its activities to third-party service
providers including the Manager, who is the principal service
provider. The management of the investment portfolio and the
administration of the Company have been contractually delegated to
the Manager who in turn (with the permission of the Company) has
delegated certain investment management and other ancillary
services to the Investment Manager. The Manager, operating under
guidelines determined by the Board, has direct responsibility for
the decisions relating to the day-to-day running of the Company and
is accountable to the Board for the investment, financial and
operating performance of the Company. The Company delegates fund
accounting services to BlackRock Investment Management (UK) Limited
(BIM (UK)), which in turn
sub-delegates these services to The Bank of New York Mellon
(International) Limited (BNYM).
Other service providers include the Depositary (also BNYM) and the
Registrar, Computershare Investor Services PLC. The Depositary has
sub-delegated the provision of custody services to the Asset
Servicing division of BNYM. Details of the contractual terms with
the Manager and the Depositary and more details of the
sub-delegation arrangements in place governing custody services are
set out in the Directors’ Report.
INVESTMENT PHILOSOPHY
The Investment Manager seeks to identify companies which it
believes have superior long-term growth prospects and the
management in place to take advantage of these prospects. This is
done through internal investment research, company visits and the
careful monitoring of market newsflow and external broker analysis.
Initially, if the Investment Manager is sufficiently impressed with
a company’s prospects, it will look to take a small position,
usually 0.25% to 0.50% of the Company’s net assets, in a new
holding. These holdings will be closely monitored, and members of
the portfolio management team will meet with management on a
regular basis. If these companies continue to prosper and make the
most of opportunities, the Investment Manager will gradually add to
the portfolio holding. Where initial expectations are
disappointing, the holding will be sold. The anticipation is that
each holding will develop into a core holding over time; one that
meets the Investment Manager’s criteria for high quality growth
companies.
Valuation is a key consideration; it is important not to overpay
for new holdings. However, investment fundamentals are also
important, and the Investment Manager may be prepared to pay what
seems like a high price if it believes that long-term growth
prospects are very strong. Generally, a company will be held within
the portfolio if it meets the criteria for core holdings; in
respect of recent investments, the Investment Manager will consider
whether they have the potential to meet these criteria. Holdings
will be sold if there are concerns that the investment case has
changed in a negative way. Holdings will be reduced where the
position size becomes too large and raises concerns about risk and
diversification. The general aim is for portfolio holdings not to
exceed 3% of the Company’s net assets (excluding cash fund
investments held for cash management purposes). As the investments
within the portfolio become larger over time, the Portfolio Manager
will continue to assess growth prospects in comparison to smaller
businesses operating within similar markets. New holdings must have
a market cap beneath £2 billion, however holdings that move above
that level will be maintained providing the investment adheres to
the original thesis and remains the most attractive opportunity
that can be found amongst a comparable peer group. In accordance
with the guidelines, the Portfolio Manager will sell any stock that
enters the FTSE 100 Index within thirty days of entry.
The Investment Manager believes that consistent outperformance can
be achieved by employing a combination of bottom-up and top-down
analysis, based upon strong fundamental research.
In building a robust portfolio the Investment Manager will also
consider the macro-economic background, working with strategists,
economists and other teams internally and externally to understand
the broad environment. It also works closely with BlackRock’s risk
team to assess the risks in the structure of the portfolio. Any
necessary adjustments will be made to the portfolio to ensure that
it is structured in an appropriate way from a macro and risk point
of view.
PORTFOLIO ANALYSIS
A detailed analysis of the portfolio has been provided within the
Annual Report and Financial Statements.
PERFORMANCE
Details of the Company’s performance including the dividend are set
out in the Chairman’s Statement above. The Chairman’s Statement and
the Investment Manager’s Report above form part of this Strategic
Report and include a review of the main developments during the
year, together with information on investment activity within the
Company’s portfolio.
RESULTS AND DIVIDENDS
The results for the Company are set out in the Income Statement in
the Financial Statements. The total net loss for the year, after
taxation, was £32,701,000 (2023: loss of £140,726,000) of which the
revenue return amounted to a profit of £19,691,000 (2023: profit of
£19,980,000) and the capital loss amounted to £52,392,000 (2023:
loss of £160,706,000).
The Company’s revenue return amounted to 40.70p per share (2023:
40.92p). The Directors have declared a final dividend of 27.00p per
share as set out in the Chairman’s Statement.
FUTURE PROSPECTS
The Board’s main focus is to achieve long-term capital growth. The
future performance of the Company is dependent upon the success of
the investment strategy and, to a large extent, on the performance
of financial markets. The outlook for the Company in the next
twelve months is discussed in the Chairman’s Statement and the
Investment Manager’s Report above.
SOCIAL, COMMUNITY AND HUMAN RIGHTS
ISSUES
As an investment trust, the Company has no direct social or
community responsibilities or impact on the environment, and the
Company has not adopted an ESG investment strategy or exclusionary
screens. However, the Directors believe that it is in shareholders’
interests to consider human rights issues, environmental, social
and governance matters when selecting and retaining investments.
Details of the Board’s approach to ESG and socially responsible
investment is set out within the Annual Report and Financial
Statements. Details of the Manager’s approach to ESG integration
are set out within the Annual Report and Financial
Statements.
MODERN SLAVERY ACT
As an investment vehicle the Company does not provide goods or
services in the normal course of business and does not have
customers. Accordingly, the Directors consider that the Company is
not required to make any slavery or human trafficking statement
under the Modern Slavery Act 2015. In any event, the Board
considers the Company’s supply chain, dealing predominantly with
professional advisers and service providers in the financial
services industry, to be low risk in relation to this
matter.
DIRECTORS, GENDER REPRESENTATION AND
EMPLOYEES
The Directors of the Company on 29 February
2024 are set out in the Directors’ biographies contained
within the Annual Report and Financial Statements. With effect from
1 March 2024, the Board consists of
three male Directors and three female Directors. The Company does
not have any executive employees.
KEY PERFORMANCE INDICATORS
At each Board meeting, the Directors consider a number of
performance measures to assess the Company’s success in achieving
its objectives. The key performance indicators (KPIs) used to
measure the progress and performance of the Company over time, and
which are comparable to those reported by other investment trusts
are set out below. As indicated in footnote 2 to the table, some of
these KPIs fall within the definition of ‘Alternative Performance
Measures’ (APMs) under guidance issued by the European Securities
and Markets Authority (ESMA) and additional information explaining
how these are calculated is set out in the Glossary contained
within the Annual Report and Financial Statements.
Key Performance Indicators
|
Year ended
29 February 2024
|
Year ended
28 February 2023
|
|
|
|
NAV per share (debt at par value)1,2
|
-4.0%
|
-15.4%
|
NAV per share (debt at fair value)1,2
|
-3.6%
|
-13.0%
|
Share price total return1,2
|
-0.8%
|
-15.9%
|
Benchmark return1
|
-5.8%
|
-7.5%
|
Average discount to NAV with debt at fair value2
|
12.4%
|
13.9%
|
Revenue return per share
|
40.70p
|
40.92p
|
Ongoing charges ratio2,3
|
0.8%
|
0.7%
|
Retail ownership
|
66.5%
|
66.9%
|
1 Total
return basis with dividends reinvested.
2 Alternative
Performance Measure, see Glossary contained within the Annual
Report and Financial Statements.
3 Calculated
as a percentage of average daily net assets and using the
management fee and all other operating expenses, excluding finance
costs, direct transaction costs, custody transaction charges, VAT
recovered, taxation, prior year expenses written back and certain
non-recurring items in accordance with AIC guidelines.
Sources: BlackRock and Datastream.
Additionally, the Board regularly reviews many indices and ratios
to understand the impact on the Company’s relative performance of
the various components such as asset allocation and stock
selection. The Board also reviews the performance and ongoing
charges of the Company against a peer group of UK smaller companies
trusts and open-ended funds.
PRINCIPALS RISKS
The Company is exposed to a variety of risks and uncertainties. As
required by the UK Code, the Board has in place a robust ongoing
process to identify, assess and monitor the principal risks and
emerging risks facing the Company, including those that would
threaten its business model, future performance, solvency or
liquidity. A core element of this process is the Company’s risk
register which identifies the risks facing the Company and assesses
the likelihood and potential impact of each risk and the quality of
the controls operating to mitigate it. A residual risk rating is
then calculated for each risk based on the outcome of the
assessment.
The risk register, its method of preparation and the operation of
key controls in BlackRock’s and third-party service providers’
systems of internal control are reviewed on a regular basis by the
Audit Committee. In order to gain a more comprehensive
understanding of BlackRock’s and other third-party service
providers’ risk management processes and how these apply to the
Company’s business, BlackRock’s internal audit department provides
an annual presentation to the Audit Committee Chairman setting out
the results of testing performed in relation to BlackRock’s
internal control processes. The Audit Committee also periodically
receives presentations from BlackRock’s Risk and Quantitative
Analysis team and reviews Service Organisation Control (SOC 1)
reports from the Company’s service providers. The current risk
register categorises the Company’s main areas of risk as
follows:
-
Investment
performance risk;
-
Market
risk;
-
Income/dividend
risk;
-
Legal
& compliance risk;
-
Operational
risk;
-
Financial
risk; and
-
Marketing
risk.
The Board has undertaken a robust assessment of both the principal
and emerging risks facing the Company, including those that would
threaten its business model, future performance, solvency or
liquidity. The risk that unforeseen or unprecedented events
including (but not limited to) heightened geo-political tensions
such as the war in Ukraine, high
inflation and the current cost of living crisis has had a
significant impact on global markets. The risks identified by the
Board have been described in the table that follows, together with
an explanation of how they are managed and mitigated. Emerging
risks are considered by the Board as they come into view and are
incorporated into the existing review of the Company’s risk
register. They were also considered as part of the annual
evaluation process.
Additionally, the Manager considers emerging risks in numerous
forums and the Risk and Quantitative Analysis team produces an
annual risk survey. Any material risks of relevance to the Company
identified through the annual risk survey will be communicated to
the Board.
The Board will continue to assess these risks on an ongoing basis.
In relation to the UK Code, the Board is confident that the
procedures that the Company has put in place are sufficient to
ensure that the necessary monitoring of risks and controls has been
carried out throughout the reporting period.
INVESTMENT PERFORMANCE
Principal risk
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
-
monitoring
the performance of the Investment Manager and the implementation of
the investment strategy.
An
inappropriate investment strategy may lead to:
-
poor
performance compared to the Benchmark Index and the Company’s peer
group;
-
a
loss of capital; and
-
dissatisfied
shareholders.
The Board is also cognisant of the long-term risk to performance
from inadequate attention to ESG issues, and in particular the
impact of climate change. More detail in respect of these risks can
be found in the AIFMD Fund Disclosures document available on the
Company’s website at
www.blackrock.com/uk/individual/literature/policies/itc-disclosure-blackrock-smaller-companies-trust-plc.pdf.
Mitigation/Control
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; and
-
receives
reports showing the Company’s performance against the
benchmark.
ESG analysis is integrated into the Manager’s investment process,
as set out within the Annual Report and Financial Statements. This
is monitored by the Board.
MARKET RISK
Principal risk
Market risk arises from volatility in the prices of the Company’s
investments influenced by currency, interest rate or other price
movements. It represents the potential loss the Company might
suffer through holding market positions in financial instruments in
the face of market movements.
Market risk includes the potential impact of events which are
outside the Company’s control, including (but not limited to)
heightened geo-political tensions and military conflict, a global
pandemic and high inflation or stagflation (in particular through
increased commodity price volatility driving inflation and
impacting trade).
The impact of climate change and new legislation governing climate
change and environmental issues have the potential to adversely
impact markets and the valuation of companies within the
portfolio.
There is the potential for the Company to suffer loss through
holding investments in the face of negative market
movements.
Mitigation/Control
The Board considers 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.
The Board also recognises the benefits of a closed-end fund
structure in extremely volatile markets such as those experienced
during the Russia-Ukraine and Middle
East conflicts. Unlike open-ended counterparts, closed-end
funds are not obliged to sell down portfolio holdings at low
valuations to meet liquidity requirements for redemptions. During
times of elevated volatility and market stress, the ability of a
closed-end fund structure to remain invested for the long term
enables the portfolio manager to adhere to disciplined fundamental
analysis from a bottom-up perspective and be ready to respond to
dislocations in the market as opportunities present
themselves.
The Manager takes into account climate risk within the investment
process along with other ESG considerations as set out within the
Annual Report and Financial Statements.
INCOME/DIVIDEND RISK
Principal risk
The amount of dividends and future dividend growth will depend on
the performance of the Company’s underlying portfolio and may be
impacted by events which are outside the Company’s control, such as
the Russia-Ukraine and Middle
East conflicts. In addition, any change in the tax treatment
of the dividends or interest received by the Company may reduce the
level of dividends received by shareholders.
Mitigation/Control
The Board monitors this risk through the receipt of detailed income
forecasts and considers the level of income at each Board
meeting.
The Company has substantial revenue reserves which can be utilised
and also has the ability to make distributions by way of dividends
from capital reserves if required.
LEGAL & COMPLIANCE RISK
Principal risk
The Company has been approved 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.
Amongst other relevant laws and regulations, the Company is
required to comply with the provisions of the Companies Act 2006,
the Alternative Investment Fund Managers’ Directive, the UK Listing
Rules and Disclosure Guidance and Transparency Rules, the Sanctions
and Anti-Money Laundering Act 2018 and the Market Abuse
Regulation.
Mitigation/Control
The Investment Manager monitors investment movements and the amount
of proposed dividends 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 regulations.
The Company’s Investment Manager, BlackRock, at all times complies
with sanctions administered by the UK Office of Financial Sanctions
Implementation, the United States Treasury’s Office of Foreign
Assets Control, the United Nations, European Union member states
and any other applicable regimes. The Company does not invest in
companies domiciled in Russia.
OPERATIONAL RISK
Principal risk
In common with most other investment trust companies, the Company
has no employees. The Company therefore relies on the services
provided by third parties. Accordingly, it is dependent on the
control systems of the Manager, the Depositary and the Fund
Accountant who maintain the Company’s assets, dealing procedures
and accounting records.
The security of the Company’s assets, dealing procedures,
accounting records and adherence to regulatory and legal
requirements and the prevention of fraud depend on the effective
operation of the systems of these other third-party service
providers. There is a risk that a major disaster, such as floods,
fire, a global pandemic, or terrorist activity, renders the
Company’s service providers unable to conduct business at normal
operating capacity and effectiveness.
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.
Inadequate succession planning arrangements, particularly of the
Manager, could disrupt the level of service provided.
Mitigation/Control
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.
The Board reviews on a regular basis an assessment of the fraud
risks that the Company could potentially be exposed to, and also a
summary of the controls put in place by the Manager, the
Depositary, the Custodian, the Fund Accountant and the Registrar
designed specifically to mitigate these risks.
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
Committee.
The Company’s financial instruments held in custody are subject to
a strict liability regime and in the event of a loss of such
financial instruments held in custody, 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 and
compliance with the Investment Management Agreement on a regular
basis.
The Board also considers the business continuity arrangements of
the Company’s key service providers on an ongoing basis and reviews
these as part of their review of the Company’s risk register. The
Board considers the Manager’s succession plans in so far as they
affect the services provided to the Company.
FINANCIAL RISK
Principal risk
The Company’s investment activities expose it to a variety of
financial risks that include interest rate, credit and liquidity
risk.
Mitigation/Control
Details of these risks are disclosed in note 17 to the financial
statements, together with a summary of the policies for managing
these risks.
MARKETING RISK
Principal risk
Marketing efforts are inadequate, do not comply with relevant
regulatory requirements, and fail to communicate adequately with
shareholders or reach out to potential new shareholders resulting
in reduced demand for the Company’s shares and a widening
discount.
Mitigation/Control
The Board focuses significant time on communications with
shareholders and reviewing marketing strategy and initiatives. All
investment trust marketing documents are subject to appropriate
review and authorisation.
VIABILITY STATEMENT
In accordance with provision 31 of the 2018 UK Corporate Governance
Code, the Directors have assessed the prospects of the Company over
a longer period than the 12 months referred to by the ‘Going
Concern’ guidelines.
The Board is cognisant of the uncertainty surrounding the potential
duration of the conflicts in Russia-Ukraine and the Middle East, its impact on the global economy
and the prospects for some of the Company’s portfolio holdings.
Notwithstanding these crises, and given the factors stated below,
the Board expects the Company to continue for the foreseeable
future and has therefore conducted this review for the period up to
the AGM in 2029 being a five-year period from the date that this
Annual Report will be approved by shareholders. This assessment
term has been chosen as it represents a medium-term performance
period over which investors in the smaller companies’ sector
generally refer to when making investment decisions.
In
making this assessment the Board has considered the following
factors:
-
The
Company’s principal risks as set out within the Annual Report and
Financial Statements;
-
The
risk that the challenging geo-political backdrop, rising inflation
and a sustained high interest rate environment will impact on the
ability of portfolio companies to pay dividends, and consequently
impact the Company’s portfolio yield and ability to pay
dividends;
-
The
ongoing relevance of the Company’s investment objective in the
current environment; and
-
The
level of demand for the Company’s ordinary
shares.
The
Board has also considered a number of financial metrics and other
factors, including:
-
The
Board has reviewed portfolio liquidity as at 29 February 2024;
-
The
Board has reviewed the Company’s revenue and expense forecasts in
light of the current economic back drop both in the UK and globally
and the anticipated impact on dividend income and market
valuations. The Board is confident that the Company’s business
model remains viable and that the Company has sufficient resources
to meet all liabilities as they fall due for the period under
review;
-
The
Board has reviewed the Company’s borrowing and debt facilities and
considers that the Company continues to meet its financial
covenants in respect of these facilities and has a wide margin
before any relevant thresholds are reached;
-
The
Board keeps the Company’s principal risks and uncertainties as set
out above under review, and is confident that the Company has
appropriate controls and processes in place to manage these and to
maintain its operating model, even given the global economic
challenges posed by the impact of climate change on portfolio
companies and the current climate of heightened geo-political risk
(notably the invasion of Ukraine
and the conflict in the Middle
East);
-
The
operational resilience of the Company and its key service providers
(the Manager, Depositary, Custodian, Fund Administrator, Registrar
and Broker) and their ability to continue to provide a good level
of service for the foreseeable future;
-
The
level of current and historic ongoing charges incurred by the
Company;
-
The
discount to NAV;
-
The
level of income generated by the Company; and
-
Future
income forecasts.
The
Company is an investment company with a relatively liquid
portfolio. As at 29 February 2024,
the Company held no illiquid unquoted investments and 63.3% of the
Company’s portfolio investments were readily realisable and listed
on the London Stock Exchange. The remaining 36.7% that were listed
on the Alternative Investment Market are also considered to be
readily realisable. The Company has largely fixed overheads which
comprise a very small percentage of net assets. Therefore, the
Board has concluded that the Company would comfortably be able to
meet its ongoing operating costs as they fall
due.
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.
SECTION 172 STATEMENT: PROMOTING THE SUCCESS OF THE
COMPANY
The Companies (Miscellaneous Reporting) Regulations 2018 require
directors to explain in greater detail how they have discharged
their duties under Section 172(1) of the Companies Act 2006 in
promoting the success of their companies for the benefit of members
as a whole. This enhanced disclosure is required under the
Companies Act 2006 and the AIC Code of Corporate Governance and
covers how the Board has engaged with and understands the views of
stakeholders and how stakeholders’ needs have been taken into
account, the outcome of this engagement and the impact that it has
had on the Board’s decisions.
As the Company is an externally managed investment company and does
not have any employees or customers, the Board considers the main
stakeholders in the Company to be the shareholders, key service
providers (being the Manager and Investment Manager, the Custodian,
Depositary, Registrar and Broker) and investee companies. The
reasons for this determination, and the Board’s overarching
approach to engagement, are set out in the table below.
STAKEHOLDERS
Shareholders
Continued shareholder support and engagement are critical to the
continued existence of the Company and the successful delivery of
its long-term strategy. The Board is focused on fostering good
working relationships with shareholders and on understanding the
views of shareholders in order to incorporate them into the Board’s
strategy and objectives in delivering long-term growth and
income.
Manager and Investment Manager
The Board’s main working relationship is with the Manager, who is
responsible for the Company’s portfolio management (including asset
allocation, stock and sector selection) and risk management, as
well as ancillary functions such as administration, secretarial,
accounting and marketing services. The Manager has sub-delegated
portfolio management to the Investment Manager. Successful
management of shareholders’ assets by the Investment Manager is
critical for the Company to successfully deliver its investment
strategy and meet its objective. The Company is also reliant on the
Manager as AIFM to provide support in meeting relevant regulatory
obligations under the AIFMD and other relevant
legislation.
Other key service providers
In order for the Company to function as an investment trust with a
listing on the premium segment of the official list of the FCA and
trade on the London Stock Exchange’s (LSE) main market for listed
securities, the Board relies on a diverse range of advisors for
support in meeting relevant obligations and safeguarding the
Company’s assets. For this reason, the Board considers the
Company’s Custodian, Depositary, Registrar and Broker to be
stakeholders. The Board maintains regular contact with its key
external service providers and receives regular reporting from them
through the Board and committee meetings, as well as outside of the
regular meeting cycle.
Investee companies
Portfolio holdings are ultimately shareholders’ assets, and the
Board recognises the importance of good stewardship and
communication with investee companies in meeting the Company’s
investment objective and strategy. The Board monitors the Manager’s
stewardship activities and receives regular feedback from the
Manager in respect of meetings with the management of portfolio
companies.
MANAGEMENT OF SHARE RATING
Issue
The Board recognises that it is in the long-term interests of
shareholders that shares do not trade at a significant discount or
premium to their prevailing net asset value. Therefore, where
deemed to be in shareholders’ long-term interests, it may exercise
its powers to issue shares or buy back shares with the objective of
ensuring that an excessive premium or discount does not
arise.
Engagement
The Board monitors the Company’s share rating on an ongoing basis
and receives regular updates from the Company’s Broker and Manager
regarding the level of discount and the drivers behind this. The
Manager provides regular performance updates and detailed
performance attribution.
The Board believes that the best way of maintaining the share
rating at an optimal level over the long term is to create demand
for the shares in the secondary market. To this end the Investment
Manager is devoting considerable effort to broadening the awareness
of the Company, particularly to wealth managers and to the wider
retail shareholder market.
The Company contributes to a focused investment trust sales and
marketing initiative operated by BlackRock on behalf of the
investment trusts under its management. The Company’s contribution
to the consortium element of the initiative, which enables the
trusts to achieve efficiencies by combining certain sales and
marketing activities was a fixed amount of £67,000 and this
contribution is matched by the Investment Manager for the year
ended 31 December 2023. The purpose
of the programme overall is to ensure effective communication with
existing shareholders and to attract new shareholders to the
Company to improve liquidity in the Company’s shares and to sustain
the stock market rating of the Company.
During the year ended 29 February
2024, the Company has repurchased 1,510,000 ordinary shares
into treasury at a total cost of £19,989,000 and at an average
discount of 12.6%.
Since the year end and as at the date of this report, the Company
has repurchased 220,000 shares for costs of £2,946,000 at an
average discount of 13.0%.
Impact
Over the last five years, the Company’s discount has widened
steadily, from an average discount of 7.9% for the year to
28 February 2019 to 12.4% for the
year ended 29 February 2024. As at
8 May 2024 the Company’s shares were
trading at a discount of 11.1% to the cum income NAV (with debt at
fair value). This compares to an average discount for the Company’s
sector of 11.7% (based on the Association of Investment Companies
sector average for the UK Smaller Companies peer group).
Over the last twelve years, the number of shares held by retail
shareholders has increased from 34.1% (as at 29 February 2012) to 66.5% at 29 February 2024.
INVESTMENT MANDATE AND OBJECTIVE
Issue
The Board has the responsibility to shareholders to ensure that the
Company’s portfolio of assets is invested in line with the stated
investment objective and in a way that ensures an appropriate
balance between spread of risk and portfolio returns.
Engagement
The Board works closely with the Investment Manager throughout the
year in further developing our investment strategy and underlying
policies, not simply for the purpose of achieving the Company’s
investment objective but in the interests of shareholders and
future investors.
Impact
The portfolio activities undertaken by the Investment Manager can
be found in the Investment Manager’s Report above.
Details regarding the Company’s NAV and share price performance can
be found in the Chairman’s Statement and in the Strategic Report
above.
RESPONSIBLE INVESTING
Issue
More than ever, good governance and consideration of sustainable
investment is a key factor in making investment decisions. Climate
change is becoming a defining factor in companies’ long-term
prospects across the investment spectrum, with significant and
lasting implications for economic growth and prosperity.
Engagement
The Board believes that responsible investment and sustainability
are important to the longer-term delivery of the Company’s success.
The Board works closely with the Investment Manager to regularly
review the Company’s performance, investment strategy and
underlying policies to ensure that the Company’s investment
objective continues to be met in an effective and responsible way
in the interests of shareholders and future investors.
The Investment Manager’s approach to the consideration of
Environmental, Social and Governance (ESG) factors in respect of
the Company’s portfolio, as well as the Investment Manager’s
engagement with investee companies, are kept under review by the
Board. The Investment Manager reports to the Board in respect of
how consideration of material ESG risks and opportunities is
integrated into the investment process; a summary of BlackRock’s
approach to ESG integration is set out within the Annual Report and
Financial Statements. The Investment Manager’s engagement and
voting policy is detailed in the Annual Report and Financial
Statements and on the BlackRock website.
Impact
The Board and the Investment Manager believe there is a positive
correlation between ESG practices and investment performance.
Details of the Company’s performance in the year are given in the
Chairman’s Statement above and the Performance Record contained
within the Annual Report and Financial Statements.
The Company does not meet the criteria for Article 8 or 9 products
under the EU Sustainable Finance Disclosure Regulation (SFDR) and
the investments underlying this financial product do not take into
account the EU criteria for environmentally sustainable economic
activities. The Investment Manager has access to a range of data
sources, including principal adverse indicator (“PAI”) data, when
making decisions on the selection of investments. However, whilst
BlackRock considers ESG risks for all portfolios and these risks
may coincide with environmental or social themes associated with
the PAIs, unless stated otherwise in the AIFMD Disclosure Document,
the Company does not commit to considering PAIs in driving the
selection of its investments.
GEARING AND SOURCES OF FINANCE
Issue
The Board believes that it is important for the Company to have an
appropriate range of borrowings and facilities in place to provide
a balance between longer-term and short-term maturities and between
fixed and floating rates of interest.
Engagement
Gearing levels and sources of funding are reviewed regularly by the
Board with a view to ensuring that the Company has a suitable mix
of financing at competitive market rates.
As at 29 February 2024, the Company
had the following borrowing facilities in place: long-term fixed
rate funding in the form of a £25 million senior unsecured fixed
rate private placement notes issued in May
2017 at a coupon of 2.74% with a 20 year maturity, £20
million senior unsecured fixed rate private placement notes issued
in December 2019 at a coupon of 2.41%
with a 25 year maturity and £25 million senior unsecured fixed rate
private placement notes issued in September
2021 at a coupon of 2.47% with a 25 year maturity.
Shorter-term variable rate funding consisted of an uncommitted
overdraft facility of £60 million with The Bank of New York Mellon
(International) Limited (BNYM) with interest charged at SONIA plus
100 basis points (bps).
It is the Board’s intention that gearing will not exceed 15% of the
net assets of the Company at the time of the drawdown of the
relevant borrowings. Under normal operating conditions it is
envisaged that gearing will be within a range of 0%-15% of net
assets.
Impact
The Board has been proactive over the last few years in putting in
place structural fixed gearing with the issue of £70 million of
private placement notes issued between May
2017 and September 2021 to
lock in fixed rate, long dated, Sterling denominated financing at a
highly competitive pricing level. The Board also has in place a
bank overdraft with BNYM at a competitive interest rate (SONIA plus
100 bps) and a lower non-utilisation fee (4 bps).
For the year to 29 February 2024, it
is estimated that gearing contributed 0.3% to the NAV per share
performance.
At the year end, the Company’s gearing was 11.5% of net
assets.
SERVICE LEVELS OF THIRD-PARTY PROVIDERS
Issue
The Board acknowledges the importance of ensuring that the
Company’s principal suppliers are providing a suitable level of
service: including the Manager in respect of investment performance
and delivering on the Company’s investment mandate; the Custodian
and Depositary in respect of their duties towards safeguarding the
Company’s assets; the Registrar in its maintenance of the Company’s
share register and dealing with investor queries and the Company’s
Broker in respect of the provision of advice and acting as a market
maker for the Company’s shares.
Engagement
The Manager reports to the Board on the Company’s performance on a
regular basis. The Board carries out a robust annual evaluation of
the Manager’s performance, their commitment and available
resources.
The Board performs an annual review of the service levels of all
third-party service providers and concludes on their suitability to
continue in their role.
The Board receives regular updates from the AIFM, Depositary,
Registrar and Broker on an ongoing basis.
The Board works closely with the Manager to gain comfort that
relevant business continuity plans are in place and are operating
effectively for all of the Company’s service providers.
Impact
All performance evaluations were performed on a timely basis and
the Board concluded that all third-party service providers,
including the Manager were operating effectively and providing a
good level of service.
The Board has received updates in respect of business continuity
planning from the Company’s Manager, Custodian, Depositary, Fund
Administrator, Broker, Registrar and printers, and is confident
that the arrangements in place are appropriate.
BOARD COMPOSITION
Issue
The Board is committed to ensuring that its own composition brings
an appropriate balance of knowledge, experience and skills, and
that it is compliant with best corporate governance practice under
the UK Code, including guidance on tenure and the composition of
the Board’s committees.
Engagement
The Board engaged an external firm (Stogdale St James) to carry out
an independent external evaluation of the Board for the prior year.
As part of this process the Board also asked Stogdale St James to
compile a skills matrix to enable the Board to identify areas of
focus in future succession planning to ensure a diverse Board. The
Board used this skills matrix as the cornerstone for undertaking
the search and selection process in 2023 with the aim of further
enhancing Board diversity. Sapphire Partners, an external
recruitment agency, was engaged to conduct this exercise and a
broad range of factors were taken into account in setting the
appointment brief and during the search and selection process. This
was underpinned by the underlying premise that all Board
appointments must be made on merit, in the context of the skills,
experience, independence and knowledge which the Board as a whole
requires to be effective.
The results of the external evaluation were satisfactory and it was
concluded that the Board, its Committees and the Chairman were all
performing in an effective manner. More details are given within
the Annual Report and Financial Statements.
All Directors stand for re-election/election by shareholders
annually.
Shareholders may attend the AGM and raise any queries in respect of
Board composition or individual Directors in person or may contact
the Company Secretary or the Chairman using the details provided
within the Annual Report and Financial Statements with any
issues.
The Board has implemented a policy of limiting directors’ tenure to
nine years. Subject to the constraints of effective succession
planning, it is the Board’s aim that no Director will serve on the
Board for more than nine years (or twelve years in the case of the
Chairman). The longer time limit for the Chairman’s tenure is to
allow for continuity of leadership in circumstances where a
Chairman is appointed from the ranks of existing Board members
after having already served on the Board for a period of
time.
Impact
As at 13 May 2024, the Board had a
50:50 male to female gender ratio, in accordance with relevant
regulation and best practice, and will continue to consider other
diversity characteristics, such as age, ethnicity, gender,
disability, educational or professional background when appraising
Board composition.
The Parker Review in respect of board diversity and the recent
changes to the FCA’s Listing Rules set new diversity targets and
associated disclosure requirements for UK companies listed on the
premium and standard segment of the London Stock Exchange. Listing
Rule 9.8.6R (9) requires listed companies to include a statement in
their annual reports and accounts in respect of certain targets on
board diversity, or if those new targets have not been met to
disclose the reasons for this. This new requirement applies to
accounting periods commencing on or after 1
April 2022 and therefore the Company has reported against
these diversity targets for the current year ending 29 February 2024.
Further information on the composition and diversity of the Board
can be found in the Corporate Governance Statement contained within
the Annual Report and Financial Statements.
At the start of the year under review, no Board Director had tenure
in excess of nine years.
Details of each Director’s contribution to the success and
promotion of the Company are set out in the Directors’ Report
within the Annual Report and Financial Statements and details of
Directors’ biographies can be found within the Annual Report and
Financial Statements.
The Directors are not aware of any issues that have been raised
directly by shareholders in respect of Board composition in the
year under review. Details for the proxy voting results in favour
and against individual Directors’ re-election at the 2023 AGM are
given on the Company’s website at
www.blackrock.com/uk/brsc.
On 5 May 2023, the Directors
established a combined Nomination and Remuneration Committee to
perform these duties on an ongoing basis. This combined Committee
will meet annually in February/March each year, or more frequently
as required on an ad hoc basis.
SHAREHOLDERS
Issue
Continued shareholder support and engagement are critical to the
continued existence of the Company and the successful delivery of
its long-term strategy.
Engagement
The Board is committed to maintaining open channels of
communication and to engage with shareholders and welcomes and
encourages attendance and participation from shareholders at its
Annual General Meetings. If shareholders wish to raise issues or
concerns with the Board outside of the AGM, they are welcome to do
so at any time. The Chairman is available to meet directly with
shareholders periodically to understand their views on governance
and the Company’s performance where they wish to do so. He may be
contacted via the Company Secretary whose details are given within
the Annual Report and Financial Statements.
The Annual Report and Half Yearly Financial Report are available on
the Company’s website and are also circulated to shareholders
either in printed copy or via electronic communications. In
addition, regular updates on performance, monthly factsheets, the
daily NAV and other information are also published on the website
at www.blackrock.com/uk/brsc.
The Board also works closely with the Manager to develop the
Company’s marketing strategy, with the aim of ensuring effective
communication with shareholders in respect of the investment
mandate and objective. Unlike trading companies, one-to-one
shareholder meetings usually take the form of a meeting with the
portfolio manager as opposed to members of the Board. As well as
attending regular investor meetings the portfolio managers hold
regular discussions with wealth management desks and offices to
build on the case for, and understanding of, long-term investment
opportunities in the UK smaller companies’ sector.
The Manager also coordinates public relations activity, including
meetings between the portfolio managers and shareholders and
potential investors to set out their vision for the portfolio
strategy and outlook for the region and in the year under review,
the Company held a number of webcasts and virtual conferences as
well as meeting with investors by videoconference.
The Manager releases monthly portfolio updates to the market to
ensure that investors are kept up to date in respect of performance
and other portfolio developments and maintains a website on behalf
of the Company that contains relevant information in respect of the
Company’s investment mandate and objective.
Impact
The Board values any feedback and questions from shareholders ahead
of and during Annual General Meetings in order to gain an
understanding of their views and will take action when and as
appropriate. Feedback and questions will also help the Company
evolve its reporting, aiming to make reports more transparent and
understandable.
Feedback from all substantive meetings between the Investment
Manager and shareholders will be shared with the Board. The
Directors will also receive updates from the Company’s broker on
any feedback from shareholders, as well as share trading activity,
share price performance and an update from the Investment
Manager.
The portfolio management team attended a number of professional
investor meetings (mainly by videoconference) and held discussions
with many different wealth management desks and offices in respect
of the Company during the year under review.
The portfolio manager also presented at virtual events hosted by
Boring Money, Investor Meet, Kepler and Citywire. In addition, the
portfolio manager met with a number of investors throughout the
year.
Investors gave positive feedback in respect of the portfolio
manager, the good long-term track record, clear investment strategy
and low fee. Some investors commented that they liked the fact that
(in common with many closed-ended funds across the sector) the
Company’s discount had widened, making the shares excellent
value.
Investors expressed concerns over the outlook for UK consumers and
the potential for economic data to deteriorate.
ENVIRONMENTAL, SOCIAL AND GOVERANCE ISSUES AND
APPROACH
The Board’s approach
Environmental, social and governance (ESG) issues can present both
opportunities and risks to long-term investment performance. Whilst
the Company does not exclude investment in stocks purely on ESG
criteria, material ESG analytics are integrated into the investment
process when weighing up the risk and reward benefits of investment
decisions and the Board believes that communication and engagement
with portfolio companies is important and can lead to better
outcomes for shareholders and the environment than merely excluding
investment in certain areas.
More information on BlackRock’s global approach to ESG integration,
as well as activity specific to the BlackRock Smaller Companies
Trust plc portfolio, is set out below. BlackRock has defined ESG
integration as the practice of incorporating financially material
E, S and/or G data and information and consideration of
sustainability risks into investment decisions with the objective
of enhancing risk-adjusted returns. ESG integration does not change
the Company’s investment objective. More information on
sustainability risks may be found in the AIFMD Fund Disclosures
document of the Company available on the Company’s website
at
www.blackrock.com/uk/individual/literature/policies/itc-disclosure-blackrock-smaller-companies-trust-plc.pdf.
BlackRock’s approach to ESG integration
BlackRock incorporates into its firmwide processes relevant,
financially material information, including financially material
data and information related to ESG. BlackRock’s investment view is
that doing so can provide better risk-adjusted returns for its
clients over the long term.
BlackRock’s clients have a wide range of perspectives on a variety
of issues and investment themes, including sustainable and
low-carbon transition investing. Given the wide range of unique and
varied investment objectives sought by our clients, BlackRock’s
investment teams have a range of approaches to considering
financially material E, S, and/or G factors. As with other
investment risks and opportunities, the financial materiality of E,
S and/or G considerations may vary by issuer, sector, product,
mandate, and time horizon. Depending on the investment approach,
this financially material E, S and/or G data or information may
help inform due diligence, portfolio or index construction, and/or
monitoring processes of our portfolios, as well as our approach to
risk management.
BlackRock’s ESG integration framework is built upon our history as
a firm founded on the principle of thorough and thoughtful risk
management. Aladdin, our core risk management and investment
technology platform, allows investors to leverage financially
material E, S and/or G data or information as well as the combined
experience of our investment teams to effectively identify
investment opportunities and investment risks. Our heritage in risk
management combined with the strength of the Aladdin platform
enables BlackRock’s approach to ESG integration.
We structure our approach around three main pillars: investment
processes, material insights and transparency and we support them
by equipping our employees with investment relevant E, S and/or G
data, tools, and education.
More information in respect of BlackRock’s approach to ESG
integration can be found at
https://www.blackrock.com/corporate/literature/publication/blk-esg-investment-statement-web.pdf.
BlackRock Smaller Companies Trust plc – BlackRock
Investment Stewardship engagement with portfolio companies for the
year ended 29 February
2024
The BlackRock portfolio management team has excellent access to
company management teams and undertakes about 700 company meetings
each year to identify high quality, cash generative businesses with
strong management teams that are able to generate growth in a more
challenging economic environment. In addition, BlackRock also has a
separate Investment Stewardship (BIS) team that is committed to
promoting sound corporate governance through engagement with
investee companies, development of proxy voting policies that
support best governance practices and wider engagement with the
stewardship ecosystem . For the year to 29
February 2024, BIS held 48 company engagements on a range of
governance issues with the management teams of 36 companies in the
BlackRock Smaller Companies Trust portfolio, representing 34% of
the portfolio holdings at 29 February
2024. Additional information is set out in the table below
and the charts on page 46 as well as the key engagement themes for
the meetings held in respect of the Company’s portfolio
holdings.
|
Year ended
29 February 2024
|
Number of engagements held1
|
48
|
Number of companies met1
|
36
|
% of equity investments covered2
|
34
|
Shareholder meetings voted at3
|
128
|
Number of proposals voted on3
|
1,771
|
Number of votes against management3
|
49
|
% of total votes represented by votes against
management3
|
2.8
|
1
Source: BlackRock as at 29 February
2024.
2
Source: BlackRock. As a percentage of total portfolio holdings at
29 February 2024.
3
Source: BlackRock, Institutional Shareholder Services as at
29 February 2024.
Engagement Topics1
Climate
Risk Management
|
2
|
Biodiversity
|
1
|
Remuneration
|
26
|
Board
Composition and Effectiveness
|
20
|
Board
Gender Diversity
|
9
|
Corporate
Strategy
|
7
|
Governance
Structure
|
6
|
Business
Oversight/Risk Management
|
2
|
Executive
Management
|
1
|
Sustainability
Reporting
|
1
|
Human
Capital Management
|
3
|
Diversity
and Inclusion
|
2
|
Business
Ethics and Integrity
|
1
|
Other
company impacts on people/human rights
|
1
|
Engagement Themes1
Environmental |
3 |
Governance |
47 |
Social
|
4
|
1
The number of meetings held in respect of the Company’s portfolio
holdings; at which a particular topic is discussed. Most engagement
conversations cover multiple topics. More detail about BIS’
engagement priorities can be found here:
www.blackrock.com/corporate/literature/publication/blk-stewardship-priorities-final.pdf.
Investment Stewardship
Consistent with BlackRock’s fiduciary duty as an asset manager, BIS
seeks to support investee companies in their efforts to deliver
long-term financial value on behalf of our clients. These clients
include public and private pension plans, governments, insurance
companies, endowments, universities, charities and, ultimately,
individual investors, among others. BIS serves as a link between
BlackRock’s clients and the companies they invest in. Clients
depend on BlackRock to help them meet their investment goals; the
business and governance decisions that companies make may have a
direct impact on BlackRock’s clients’ long-term investment outcomes
and financial wellbeing.
Global principles
The BIS Global Principles, regional voting guidelines and
engagement priorities (collectively, the ‘BIS policies’) set out
the core elements of corporate governance that guide BIS’ efforts
globally and within each regional market, including when engaging
with companies and voting at shareholder meetings when authorised
to do so on behalf of clients. Each year, BIS reviews its policies
and updates them as necessary to reflect changes in market
standards and regulations, insights gained over the year through
third-party and its own research, and feedback from clients and
companies. BIS’ Global Principles are available on its website
at
www.blackrock.com/corporate/literature/fact-sheet/blk-responsible-investment-engprinciples-global.pdf.
Regional voting guidelines
BIS’ voting guidelines are intended to help clients and companies
understand its thinking on key governance matters. They are the
benchmark against which it assesses a company’s approach to
corporate governance and the items on the agenda to be voted on at
a shareholder meeting. BIS applies its guidelines pragmatically,
taking into account a company’s unique circumstances where
relevant. BlackRock informs voting decisions through research and
engages as necessary. BIS reviews its voting guidelines annually
and updates them as necessary to reflect changes in market
standards, evolving governance practice and insights gained from
engagement over the prior year. BIS’ regional voting guidelines are
available on its website at
www.blackrock.com/corporate/about-us/investment-stewardship#stewardship-policies.
BlackRock is committed to transparency in terms of disclosure of
its stewardship activities on behalf of clients. BIS publishes its
stewardship policies – such as the BIS Global Principles, regional
voting guidelines and engagement priorities – to help BlackRock’s
clients understand its work to advance their interests as long-term
investors in public companies. Additionally, BIS publishes both
annual and quarterly reports detailing its stewardship activities,
as well as vote bulletins that describe its rationale for certain
votes at high-profile shareholder meetings. More detail in respect
of BIS reporting can be found at
www.blackrock.com/corporate/insights/investment-stewardship.
BlackRock’s reporting and disclosures
In terms of its own reporting, BlackRock believes that the
Sustainability Accounting Standards Board provides a clear set of
standards for reporting sustainability information across a wide
range of issues, from labour practices to data privacy to business
ethics. For evaluating and reporting climate-related risks, as well
as the related governance issues that are essential to managing
them, the Task Force on Climate-related Financial Disclosures
(TCFD) provides a valuable framework. BlackRock recognises that
reporting to these standards requires significant time, analysis,
and effort. BlackRock’s 2023 TCFD report can be found at
www.blackrock.com/corporate/literature/continuous-disclosure-and-important-information/tcfd-report-2023-blkinc.pdf.
FOR AND ON BEHALF OF THE BOARD
RONALD
GOULD
Chairman
13 May 2024
RELATED PARTY TRANSACTIONS: TRANSACTIONS WITH THE MANAGER
AND AIFM
BlackRock Fund Managers Limited (BFM) provides management and
administration services to the Company under a contract which is
terminable on six months’ notice. 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)). Further
details of the investment management contract are disclosed in the
Directors’ Report contained within the Annual Report and Financial
Statements.
The investment management fee for the year ended 29 February 2024 amounted to £4,437,000 (2023:
£4,784,000) as disclosed in note 4 to the Financial Statements
above. At the year end, £3,319,000 was outstanding in respect of
the management fee (2023: £4,784,000).
In addition to the above services, BIM
(UK) provided the Company with marketing services. The total
fees paid or payable for these services for the year ended
29 February 2024 amounted to £174,000
including VAT (2023: £170,000). Marketing fees of £137,000 (2023:
£137,000) were outstanding at the year end.
During the year, the Manager pays the amounts due to the Directors.
These fees are then reimbursed by the Company for the amounts paid
on its behalf. As at 29 February
2024, an amount of £210,000 (2023: £105,000) was payable to
the Manager in respect of Directors’ fees.
The ultimate holding company of the Manager and the Investment
Manager is BlackRock, Inc., a company incorporated in Delaware, USA.
RELATED PARTY DISCLOSURE: DIRECTORS’
EMOLUMENTS
At the date of this report, the Board consists of six Non-executive
Directors, all of whom are considered to be independent of the
Manager by the Board. Disclosures of the Directors’ interests in
the ordinary shares of the Company and fees and expenses payable to
the Directors are set out in the Directors’ Remuneration Report,
contained within the Annual Report and Financial Statements. At
29 February 2024, an amount of
£17,000 (2023: £14,000) was outstanding in respect of Directors’
fees.
None of the Directors has a service contract with the Company. For
the year ended 29 February 2024, the
Chairman received an annual fee of £46,735, the Audit Committee
Chairman received an annual fee of £35,700, the Senior Independent
Director received an annual fee of £32,550 and each other Director
received an annual fee of £31,500. With effect from 1 March 2024, the Chairman will receive an annual
fee of £50,000, the Audit Committee Chairman will receive an annual
fee of £38,000, the Senior Independent Director will receive an
annual fee of £35,000 and each other Directors will receive an
annual fee of £33,000.
As at 13 May 2024 all members of the
Board held shares in the Company. Ronald
Gould held 3,544 ordinary shares, Mark Little 491 ordinary shares, Susan Platts-Martin held 2,800 ordinary shares,
James Barnes held 2,500 ordinary
shares and Helen Sinclair held 988
ordinary shares. Dunke Afe does not currently hold any shares in
the Company.
STATEMENT OF DIRECTORS’ RESPONSIBILITIES IN RESPECT OF THE
ANNUAL REPORT AND FINANCIAL STATEMENTS
The Directors are responsible for preparing the Annual Report and
Financial Statements in accordance with applicable law and
regulations. Company law requires the Directors to prepare
financial statements for each financial year. Under that law they
have elected to prepare the financial statements in accordance with
applicable law and United Kingdom Accounting Standards (United
Kingdom Generally Accepted Accounting Practice).
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 Company as at the end of each
financial year and of the profit or loss of the Company for that
year.
In preparing those financial statements, the Directors are required
to:
-
present
fairly the financial position, financial performance and cash flows
of the Company;
-
select
suitable accounting policies 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 applicable UK Accounting Standards have been followed,
subject to any material departures disclosed and explained in the
financial statements; and
-
prepare
the financial statements on the going concern basis unless it is
inappropriate to presume that the Company will continue in
business.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company’s
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and that enable them to ensure
that the Financial Statements and the Directors’ Remuneration
Report comply with the Companies Act 2006. They are also
responsible for safeguarding the assets of the Company and hence
for taking reasonable steps for the prevention and detection of
fraud and other irregularities.
The Directors are also responsible for preparing the Strategic
Report, Directors’ Report, the Directors’ Remuneration Report, the
Corporate Governance Statement and the Report of the Audit
Committee in accordance with the Companies Act 2006 and applicable
regulations, including the requirements of the Listing Rules and
the Disclosure Guidance and Transparency Rules. The Directors have
delegated responsibility to the Manager for the maintenance and
integrity of the Company’s corporate and financial information
included on BlackRock’s 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 within the Annual
Report and Financial Statements, confirms that, to the best of
their knowledge:
-
the
Financial Statements, prepared in accordance with applicable
accounting standards, give a true and fair view of the assets,
liabilities, financial position and profit or loss of the Company;
and
-
the
Strategic Report contained in the Annual Report and Financial
Statements includes a fair review of the development and
performance of the business and the position of the Company,
together with a description of the principal risks and
uncertainties that it faces.
The UK 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 Committee advise on whether it
considers that the Annual Report and Financial Statements fulfil
these requirements. The process by which the Committee has reached
these conclusions is set out in the Audit Committee’s report
contained within the Annual Report and Financial Statements. As a
result, the Board has concluded that the Annual Report and
Financial Statements for the year ended 29
February 2024, taken as a whole, are fair, balanced and
understandable and provide the information necessary for
shareholders to assess the Company’s position, performance,
business model and strategy.
FOR AND ON BEHALF OF THE BOARD
RONALD
GOULD
Chairman
13 May 2024
INCOME STATEMENT FOR THE YEAR ENDED 29 FEBRUARY 2024
|
|
2024
|
2023
|
|
Notes
|
Revenue
£’000
|
Capital
£’000
|
Total
£’000
|
Revenue
£’000
|
Capital
£’000
|
Total
£’000
|
|
|
|
|
|
|
|
|
Losses on investments held at fair value through profit or
loss
|
|
–
|
(48,408)
|
(48,408)
|
–
|
(155,358)
|
(155,358)
|
Losses on foreign exchange
|
|
–
|
(9)
|
(9)
|
–
|
(5)
|
(5)
|
Income from investments held at fair value through profit or
loss
|
3
|
21,884
|
782
|
22,666
|
21,468
|
–
|
21,468
|
Other income
|
3
|
379
|
–
|
379
|
1,237
|
–
|
1,237
|
|
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
Total income/(loss)
|
|
22,263
|
(47,635)
|
(25,372)
|
22,705
|
(155,363)
|
(132,658)
|
|
|
=========
|
=========
|
=========
|
=========
|
=========
|
=========
|
Expenses
|
|
|
|
|
|
|
|
Investment management fee
|
4
|
(1,109)
|
(3,328)
|
(4,437)
|
(1,196)
|
(3,588)
|
(4,784)
|
Operating expenses
|
5
|
(869)
|
(21)
|
(890)
|
(832)
|
(22)
|
(854)
|
|
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
Total operating expenses
|
|
(1,978)
|
(3,349)
|
(5,327)
|
(2,028)
|
(3,610)
|
(5,638)
|
|
|
=========
|
=========
|
=========
|
=========
|
=========
|
=========
|
Net profit/(loss) on ordinary activities before finance
costs and taxation
|
|
20,285
|
(50,984)
|
(30,699)
|
20,677
|
(158,973)
|
(138,296)
|
Finance costs
|
|
(471)
|
(1,408)
|
(1,879)
|
(577)
|
(1,733)
|
(2,310)
|
|
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
Net profit/(loss) on ordinary activities before
taxation
|
|
19,814
|
(52,392)
|
(32,578)
|
20,100
|
(160,706)
|
(140,606)
|
Taxation
|
|
(123)
|
–
|
(123)
|
(120)
|
–
|
(120)
|
|
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
Net profit/(loss) on ordinary activities after
taxation
|
|
19,691
|
(52,392)
|
(32,701)
|
19,980
|
(160,706)
|
(140,726)
|
|
|
=========
|
=========
|
=========
|
=========
|
=========
|
=========
|
Earnings/(loss) per ordinary share (pence) – basic and
diluted
|
7
|
40.70
|
(108.29)
|
(67.59)
|
40.92
|
(329.12)
|
(288.20)
|
|
|
=========
|
=========
|
=========
|
=========
|
=========
|
=========
|
The total columns of this statement represent the Company’s profit
and loss account. The supplementary revenue and capital accounts
are both prepared under guidance published by the Association of
Investment Companies (AIC). All items in the above statement derive
from continuing operations. No operations were acquired or
discontinued during the year. All income is attributable to the
equity holders of the Company.
The net profit/(loss) for the year disclosed above represents the
Company’s total comprehensive income/(loss).
STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED
29 FEBRUARY 2024
|
Notes
|
Called
up share
capital
£’000
|
Share
premium
account
£’000
|
Capital
redemption
reserve
£’000
|
Capital
reserves
£’000
|
Revenue
reserve
£’000
|
Total
£’000
|
For the year ended 29 February 2024
|
|
|
|
|
|
|
|
At 28 February 2023
|
|
12,498
|
51,980
|
1,982
|
673,479
|
18,590
|
758,529
|
Total comprehensive (loss)/income:
|
|
|
|
|
|
|
|
Net (loss)/profit for the year
|
|
–
|
–
|
–
|
(52,392)
|
19,691
|
(32,701)
|
Transactions with owners, recorded directly to equity:
|
|
|
|
|
|
|
|
Ordinary shares repurchased into treasury
|
11, 12
|
–
|
–
|
–
|
(19,859)
|
–
|
(19,859)
|
Share buyback costs
|
11, 12
|
–
|
–
|
–
|
(130)
|
–
|
(130)
|
Dividends paid1
|
6
|
–
|
–
|
–
|
–
|
(19,633)
|
(19,633)
|
|
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
At 29 February 2024
|
|
12,498
|
51,980
|
1,982
|
601,098
|
18,648
|
686,206
|
|
|
=========
|
=========
|
=========
|
=========
|
=========
|
=========
|
For the year ended 28 February 2023
|
|
|
|
|
|
|
|
At 28 February 2022
|
|
12,498
|
51,980
|
1,982
|
834,185
|
16,433
|
917,078
|
Total comprehensive (loss)/income:
|
|
|
|
|
|
|
|
Net (loss)/profit for the year
|
|
–
|
–
|
–
|
(160,706)
|
19,980
|
(140,726)
|
Transactions with owners, recorded directly to equity:
|
|
|
|
|
|
|
|
Dividends paid2
|
6
|
–
|
–
|
–
|
–
|
(17,823)
|
(17,823)
|
|
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
At 28 February 2023
|
|
12,498
|
51,980
|
1,982
|
673,479
|
18,590
|
758,529
|
|
|
=========
|
=========
|
=========
|
=========
|
=========
|
=========
|
1 Interim
dividend paid in respect of the year ended 29 February 2024 of 15.00p was declared on
26 October 2023 and paid on
4 December 2023. Final dividend paid
in respect of the year ended 28 February
2023 of 25.50p was declared on 9 May
2023 and paid on 27 June
2023.
2 Interim
dividend paid in respect of the year ended 28 February 2023 of 14.50p was declared on
3 November 2022 and paid on
9 December 2022. Final dividend paid
in respect of the year ended 28 February
2022 of 22.00p was declared on 29
April 2022 and paid on 17 June
2022.
BALANCE SHEET AS AT 29 FEBRUARY
2024
|
Notes
|
2024
£’000
|
2023
£’000
|
Non current assets
|
|
|
|
Investments held at fair value through profit or loss
|
|
765,178
|
806,088
|
Current assets
|
|
|
|
Current tax assets
|
|
210
|
97
|
Debtors
|
8
|
4,667
|
6,858
|
Cash and cash equivalents
|
|
28
|
23,536
|
|
|
---------------
|
---------------
|
Total current assets
|
|
4,905
|
30,491
|
|
|
=========
|
=========
|
Current liabilities
|
|
|
|
Bank overdraft
|
|
(7,899)
|
–
|
Other creditors
|
9
|
(6,463)
|
(8,546)
|
|
|
---------------
|
---------------
|
Net current (liabilities)/assets
|
|
(9,457)
|
21,945
|
|
|
=========
|
=========
|
Total assets less current liabilities
|
|
755,721
|
828,033
|
|
|
=========
|
=========
|
Non current liabilities
|
10
|
(69,515)
|
(69,504)
|
|
|
---------------
|
---------------
|
Net assets
|
|
686,206
|
758,529
|
|
|
=========
|
=========
|
Total equity
|
|
|
|
Called up share capital
|
11
|
12,498
|
12,498
|
Share premium account
|
12
|
51,980
|
51,980
|
Capital redemption reserve
|
12
|
1,982
|
1,982
|
Capital reserves
|
12
|
601,098
|
673,479
|
Revenue reserve
|
12
|
18,648
|
18,590
|
|
|
---------------
|
---------------
|
Total shareholders’ funds
|
7
|
686,206
|
758,529
|
|
|
=========
|
=========
|
Net asset value per ordinary share (debt at par value)
(pence)
|
7
|
1,450.15
|
1,553.41
|
|
|
=========
|
=========
|
Net asset value per ordinary share (debt at fair value)
(pence)
|
7
|
1,502.25
|
1,601.42
|
|
|
=========
|
=========
|
STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 29 FEBRUARY 2024
|
2024
£’000
|
2023
£’000
|
Operating activities
|
|
|
Net loss on ordinary activities before taxation
|
(32,578)
|
(140,606)
|
Add back finance costs
|
1,879
|
2,310
|
Losses on investments held at fair value through profit or
loss
|
48,408
|
155,358
|
Net movement in foreign exchange
|
9
|
5
|
Sale of investments held at fair value through profit or
loss
|
322,366
|
304,837
|
Purchase of investments held at fair value through profit or
loss
|
(327,895)
|
(309,973)
|
Net amount for capital special dividends received
|
(782)
|
–
|
Decrease/(increase) in debtors
|
7
|
(591)
|
(Decrease)/increase in other creditors
|
(1,280)
|
36
|
Taxation on investment income
|
(123)
|
(120)
|
|
---------------
|
---------------
|
Net cash generated from operating
activities
|
10,011
|
11,256
|
|
=========
|
=========
|
Financing activities
|
|
|
Ordinary shares repurchased into treasury
|
(19,792)
|
–
|
Share buyback costs
|
(130)
|
–
|
Repayment of SMBC Bank International plc revolving credit
facility
|
–
|
(25,000)
|
Redemption of 7.75% debenture stock
|
–
|
(15,000)
|
Interest paid
|
(1,854)
|
(2,371)
|
Dividends paid
|
(19,633)
|
(17,823)
|
|
---------------
|
---------------
|
Net cash used in financing activities
|
(41,409)
|
(60,194)
|
|
=========
|
=========
|
Decrease in cash and cash equivalents
|
(31,398)
|
(48,938)
|
Cash and cash equivalents at beginning of year
|
23,536
|
72,479
|
Effect of foreign exchange rate changes
|
(9)
|
(5)
|
|
---------------
|
---------------
|
Cash and cash equivalents at end of
year
|
(7,871)
|
23,536
|
|
=========
|
=========
|
Comprised of:
|
|
|
Cash Fund1
|
28
|
22,742
|
Cash at bank
|
–
|
794
|
Bank overdraft
|
(7,899)
|
–
|
|
---------------
|
---------------
|
|
(7,871)
|
23,536
|
|
=========
|
=========
|
1 Cash
Fund represents funds held on deposit with the BlackRock
Institutional Cash Series plc - Sterling Liquid Environmentally
Aware Fund.
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED
29 FEBRUARY 2024
1. PRINCIPAL ACTIVITY
The principal activity of the Company is that of an investment
trust company within the meaning of Section 1158 of the Corporation
Tax Act 2010.
2. ACCOUNTING POLICIES
The principal accounting policies adopted by the Company are set
out below.
(a) Basis of preparation
The financial statements have been prepared on a going concern
basis in accordance with The Financial Reporting Standard
applicable in the UK and Republic of
Ireland (FRS 102) and the revised Statement of Recommended
Practice – Financial Statements of Investment Trust Companies and
Venture Capital Trusts (SORP) issued by the Association of
Investment Companies (AIC) in October
2019 and updated in July 2022,
and the provisions of the Companies Act 2006.
Substantially, all of the assets of the Company consist of
securities that are readily realisable and, accordingly, the
Directors are satisfied that the Company has adequate resources to
continue in operational existence for the period to 28 February 2026, being a period of at least 12
months from the date of approval of the financial statements, and
therefore consider the going concern assumption to be appropriate.
The Directors have reviewed compliance with the covenants
associated with the debenture, loan notes and revolving credit
facility, income and expense projections and the liquidity of the
investment portfolio in making their assessment.
The Directors have considered the impact of climate change on the
value of the investments included in the Financial Statements and
have concluded that there was no further impact of climate change
to be considered as the investments are valued based on market
pricing as required by FRS 102.
None of the Company’s other assets and liabilities were considered
to be potentially impacted by climate change.
The principal accounting policies adopted by the Company are set
out below. Unless specified otherwise, the policies have been
applied consistently throughout the year and are consistent with
those applied in the preceding year. All of the Company’s
operations are of a continuing nature.
The Company’s financial statements are presented in Sterling, which
is the functional currency of the Company and the primary economic
environment in which the Company operates. All values are rounded
to the nearest thousand pounds (£’000) except where otherwise
stated.
(b) Presentation of Income Statement
In order to better reflect the activities of an investment trust
company and in accordance with guidance issued by the AIC,
supplementary information which analyses the Income Statement
between items of a revenue and a capital nature has been presented
alongside the Income Statement.
(c) Segmental reporting
The Directors are of the opinion that the Company is engaged in a
single segment of business being investment business.
(d) Income
Dividends receivable on equity shares are treated as revenue for
the year on an ex-dividend basis. Where no ex-dividend date is
available, dividends receivable on or before the year end are
treated as revenue for the year. Provisions are made for dividends
not expected to be received. The return on a debt security is
recognised on a time apportionment basis.
Special dividends are recognised on an ex-dividend basis and are
treated as capital or revenue depending on the facts or
circumstances of each particular dividend.
Dividends are accounted for in accordance with Section 29 of FRS
102 on the basis of income actually receivable, without adjustment
for tax credits attaching to the dividend. Dividends from overseas
companies continue to be shown gross of withholding tax.
Deposit interest receivable is accounted for using the effective
interest rate method in accordance with Section 11 of FRS
102.
Where the Company has elected to receive its dividends in the form
of additional shares rather than in cash, the cash equivalent of
the dividend foregone is recognised in the revenue account of the
Income Statement. Any excess in the value of the shares over the
amount of the cash dividend is recognised in capital
reserves.
(e) Expenses
All expenses, including finance costs, are accounted for on an
accruals basis. Expenses have been charged wholly to the revenue
account of the Income Statement, except as follows:
-
expenses
which are incidental to the acquisition or disposal of an
investment are treated as capital. Details of transaction costs on
the purchases and sales of investments are shown in note 10
contained within the Annual Report and Financial
Statements;
-
expenses
are treated as capital where a connection with the maintenance of
enhancement of the value of the investments can be demonstrated;
and
-
the
investment management fee and finance costs have been allocated 75%
to the capital account and 25% to the revenue account of the Income
Statement in line with the Board’s expected long-term split of
returns, in the form of capital gains and income respectively, from
the investment portfolio.
(f) Taxation
The tax expense represents the sum of the tax currently payable and
deferred tax. The tax currently payable is based on the taxable
profit for the year. Taxable profit differs from net profit as
reported in the Income Statement 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 Company’s liability for current tax is calculated using tax
rates that were applicable at the balance sheet date.
The current tax effect of different items of expenditure is
allocated between capital and revenue on the marginal basis using
the Company’s effective rate of corporation tax for the accounting
period.
Deferred taxation is recognised in respect of all timing
differences at the financial reporting date, where transactions or
events that result in an obligation to pay more taxation in the
future or right to less taxation in the future have occurred at the
balance sheet date. Deferred tax is measured on a non-discounted
basis, at the average tax rates that are expected to apply in the
periods in which the timing differences are expected to reverse
based on tax rates and laws that have been enacted or substantively
enacted by the balance sheet 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 timing differences can be
deducted.
(g) 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 Sections 11 and 12 of FRS
102 and are managed and evaluated on a fair value basis in
accordance with its investment strategy.
All investments are classified upon initial recognition as held at
fair value through profit or loss. Purchases of investments are
recognised on a trade date basis. Sales of assets are recognised at
the trade date of the disposal and the proceeds will be measured at
fair value, which will be regarded as the proceeds of the sale less
any transaction costs.
The fair value of the financial investments is based on their
quoted bid price at the balance sheet date on the exchange on which
the investment is quoted, without deduction for the estimated
future selling costs.
Unquoted investments are valued by the Directors at fair value
using International Private Equity and Venture Capital Valuation
Guidelines. This policy applies to all current and non-current
asset investments of the Company.
Changes in the value of investments held at fair value through
profit or loss and gains and losses on disposal are recognised in
the Income Statement as ‘Gains or losses on investments held at
fair value through profit or loss’. Also included within this
heading are transaction costs in relation to the purchase or sale
of investments.
The fair value hierarchy consists of the following three
levels:
Level 1 – Quoted market price for identical instruments in active
markets.
Level 2 – Valuation techniques using observable inputs.
Level 3 – Valuation techniques using significant unobservable
inputs.
(h) Dividends payable
Under Section 32 of FRS 102, final dividends should not be accrued
in the financial statements unless they have been approved by
shareholders before the balance sheet date. Dividends payable to
equity shareholders are recognised in the Statement of Changes in
Equity when they have been approved by shareholders and have become
a liability of the Company. Interim dividends are recognised in the
financial statements in the period in which they are
paid.
(i) Foreign currency translation
In accordance with Section 30 of FRS 102, the Company is required
to nominate a functional currency, being the currency in which the
Company predominately operates. The functional and reporting
currency is Sterling, reflecting the primary economic environment
in which the Company operates. Transactions in foreign currencies
are translated into Sterling at the rates of exchange ruling on the
date of the transaction. Foreign currency monetary assets and
liabilities are translated into Sterling at the rates of exchange
ruling at the balance sheet date. Profits and losses thereon are
recognised in the capital account of the Income Statement and taken
to the capital reserve.
(j) Share repurchases and re-issues
Shares repurchased and subsequently cancelled – share capital is
reduced by the nominal value of the shares repurchased, and the
capital redemption reserve is correspondingly increased in
accordance with Section 733 of the Companies Act 2006. The full
cost of the repurchase is charged to the capital
reserves.
Shares repurchased and held in treasury – the full cost of the
repurchase is charged to the capital reserves.
Where treasury shares are subsequently re-issued:
-
amounts
received to the extent of the repurchase price are credited to the
capital reserves; and
-
any
surplus received in excess of the repurchase price is taken to the
share premium account.
Where
new shares are issued, the par value is taken to called up share
capital and amounts received to the extent of any surplus received
in excess of the par value are taken to the share premium
account.
Share issue costs are charged to the share premium account. Costs
on share reissues are charged to the capital reserves.
(k) Debtors
Debtors include sales for future settlement, other debtors and
prepayments and accrued income in the ordinary course of business.
If collection is expected in one year or less, they are classified
as current assets. If not, they are presented as non-current
assets.
(l) Creditors
Creditors include purchases for future settlement, interest
payable, share buyback costs and accruals in the ordinary course of
business. Creditors, loans and debentures are classified as
creditors – amounts due within one year if payment is due within
one year or less (or in the normal operating cycle of the business
if longer). If not, they are presented as creditors – amounts
falling due after more than one year.
(m) Cash and cash equivalents
Cash comprises cash in hand and on demand deposits and bank
overdrafts repayable on demand. Cash equivalents include
short-term, highly liquid investments, that are readily convertible
to known amounts of cash and that are subject to an insignificant
risk of changes in value.
(n) Critical accounting estimates and
judgements
The Company makes estimates and assumptions concerning the future.
The resulting accounting estimates and assumptions will, by
definition, seldom equal the related actual results. Estimates and
judgements are regularly evaluated and are based on historical
experience and other factors, including expectations of future
events and that are believed to be reasonable under the
circumstances. The Directors do not believe that any accounting
judgements or estimates have a significant risk of causing material
adjustment to the carrying amount of assets and liabilities within
the next financial year.
3. INCOME
|
2024
£’000
|
2023
£’000
|
Investment income1:
|
|
|
UK dividends
|
16,538
|
15,162
|
UK special dividends
|
1,230
|
389
|
Property income dividends
|
1,058
|
851
|
Overseas dividends
|
3,058
|
4,348
|
Overseas special dividends
|
–
|
718
|
|
---------------
|
---------------
|
Total investment income
|
21,884
|
21,468
|
|
=========
|
=========
|
Other income:
|
|
|
Bank interest
|
8
|
76
|
Interest from Cash Fund
|
371
|
1,161
|
|
---------------
|
---------------
|
|
379
|
1,237
|
|
---------------
|
---------------
|
Total income
|
22,263
|
22,705
|
|
=========
|
=========
|
1 UK
and overseas dividends are disclosed based on the country of
domicile of the underlying portfolio company.
Special dividends of £782,000 have been recognised in capital
during the year (2023: £nil).
Dividends and interest received in cash during the year amounted to
£21,699,000 and £447,000 (2023: £20,835,000 and
£1,174,000).
4. INVESTMENT MANAGEMENT FEE
|
2024
|
2023
|
|
Revenue
£’000
|
Capital
£’000
|
Total
£’000
|
Revenue
£’000
|
Capital
£’000
|
Total
£’000
|
Investment management fee
|
1,109
|
3,328
|
4,437
|
1,196
|
3,588
|
4,784
|
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
Total
|
1,109
|
3,328
|
4,437
|
1,196
|
3,588
|
4,784
|
|
=========
|
=========
|
=========
|
=========
|
=========
|
=========
|
The investment management fee is based on a rate of 0.6% of the
first £750 million of total assets (excluding current year income)
less the current liabilities of the Company (the “Fee Asset
Amount”), reducing to 0.5% above this level. The fee is calculated
at the rate of one quarter of 0.6% of the Fee Asset Amount up to
the initial threshold of £750 million, and one quarter of 0.5% of
the Fee Asset Amount in excess thereof, at the end of each quarter.
The investment management fee is allocated 25% to the revenue
account and 75% to the capital account of the Income
Statement.
5. OTHER OPERATING EXPENSES
|
2024
£’000
|
2023
£’000
|
Allocated to revenue:
|
|
|
Custody fees
|
10
|
9
|
Depositary fees
|
78
|
98
|
Auditor’s remuneration
|
50
|
48
|
Registrar’s fee
|
42
|
45
|
Directors’ emoluments1
|
201
|
188
|
Director search fees
|
35
|
4
|
Marketing fees
|
174
|
170
|
AIC fees
|
22
|
21
|
Bank charges
|
28
|
51
|
Broker fees
|
35
|
40
|
Stock exchange listings
|
34
|
48
|
Printing and postage fees
|
37
|
37
|
Legal fees
|
21
|
–
|
Prior year expenses written back2
|
(1)
|
(7)
|
Other administrative costs
|
103
|
80
|
|
---------------
|
---------------
|
|
869
|
832
|
|
=========
|
=========
|
Allocated to capital:
|
|
|
Custody transaction charges3
|
21
|
22
|
|
---------------
|
---------------
|
|
890
|
854
|
|
=========
|
=========
|
|
2024
|
2023
|
The Company’s ongoing charges4,
calculated as a percentage of average daily net assets and using
the management fee and all other operating expenses, excluding
finance costs, direct transaction costs, custody transaction
charges, VAT recovered, taxation, prior year expenses written back
and certain non-recurring items were:
|
0.8%
|
0.7%
|
|
=========
|
=========
|
1 Further
information on Directors’ emoluments can be found in the Directors’
Remuneration Report contained within the Annual Report and
Financial Statements.
2 Relates
to miscellaneous fees written back during the year ended 29
February 2024 (2023: legal fees).
3 For
the year ended 29 February 2024, expenses of £21,000 (2023:
£22,000) were charged to the capital account of the Income
Statement. These relate to transaction costs charged by the
Custodian on sale and purchase trades.
4 Alternative
Performance Measure, see Glossary contained within the Annual
Report and Financial Statements.
6. DIVIDENDS
Dividends paid on equity shares:
|
Record date
|
Payment date
|
2024
£’000
|
2023
£’000
|
|
|
|
|
|
2022 Final of 22.00p
|
13 May 2022
|
17 June 2022
|
–
|
10,743
|
2023 Interim of 14.50p
|
11 November 2022
|
9 December 2022
|
–
|
7,080
|
2023 Final of 25.50p
|
19 May 2023
|
27 June 2023
|
12,395
|
–
|
2024 Interim of 15.00p
|
3 November 2023
|
4 December 2023
|
7,238
|
–
|
|
|
|
---------------
|
---------------
|
|
|
|
19,633
|
17,823
|
|
|
|
=========
|
=========
|
The Directors have proposed a final dividend of 27.00p per share in
respect of the year ended 29 February 2024. The final dividend will
be paid, subject to shareholders’ approval, on 20 June 2024 to
shareholders on the Company’s register on 24 May 2024. The proposed
final dividend has not been included as a liability in these
financial statements, as final dividends are only recognised in the
financial statements when they have been approved by
shareholders.
The total dividends payable in respect of the year which form the
basis of determining retained income for the purposes of Section
1158 of the Corporation Tax Act 2010 and Section 833 of the
Companies Act 2006, and the amount proposed for the year ended 28
February 2023 meet the relevant requirements as set out in this
legislation.
Dividends paid or proposed on equity shares:
|
2024
£’000
|
2023
£’000
|
|
|
|
Interim dividend paid 15.00p (2023: 14.50p)
|
7,238
|
7,080
|
Final dividend payable of 27.00p per share* (2023:
25.50p)
|
12,717
|
12,395
|
|
---------------
|
---------------
|
|
19,955
|
19,475
|
|
=========
|
=========
|
* Based
upon 47,099,792 ordinary shares (excluding treasury shares) in
issue on 8 May 2024.
All dividends paid or payable are distributed from the Company’s
distributable reserves.
7. RETURNS AND NET ASSET VALUE PER
SHARE
Revenue earnings, capital loss and net asset value per share are
shown below and have been calculated using the
following:
|
Year ended
29 February
2024
|
Year ended
28 February
2023
|
|
|
|
Revenue return attributable to ordinary shareholders
(£'000)
|
19,691
|
19,980
|
Capital loss attributable to ordinary shareholders
(£'000)
|
(52,392)
|
(160,706)
|
|
---------------
|
---------------
|
Total loss attributable to ordinary shareholders
(£'000)
|
(32,701)
|
(140,726)
|
|
=========
|
=========
|
Total shareholders’ funds (£’000)
|
686,206
|
758,529
|
|
=========
|
=========
|
The weighted average number of ordinary shares in issue during the
year on which the earnings per ordinary share was calculated
was:
|
48,381,588
|
48,829,792
|
The actual number of ordinary shares in issue at the end of each
year on which the undiluted net asset value was calculated
was:
|
47,319,792
|
48,829,792
|
Earnings per share
|
|
|
Revenue earnings per share (pence) – basic and diluted
|
40.70
|
40.92
|
Capital loss per share (pence) – basic and diluted
|
(108.29)
|
(329.12)
|
|
---------------
|
---------------
|
Total loss per share (pence) - basic and
diluted
|
(67.59)
|
(288.20)
|
|
=========
|
=========
|
|
As at
29 February
2024
|
As at
28 February
2023
|
|
|
|
Net asset value per ordinary share (debt at par value)
(pence)
|
1,450.15
|
1,553.41
|
Net asset value per ordinary share (debt at fair value)
(pence)
|
1,502.25
|
1,601.42
|
Ordinary share price (pence)
|
1,326.00
|
1,380.00
|
|
=========
|
=========
|
8. DEBTORS
|
2024
£’000
|
2023
£’000
|
|
|
|
Sales for future settlement
|
3,577
|
5,648
|
Prepayments and accrued income
|
1,090
|
1,210
|
|
---------------
|
---------------
|
|
4,667
|
6,858
|
|
=========
|
=========
|
9. CREDITORS – AMOUNTS FALLING DUE WITHIN ONE
YEAR
|
2024
£’000
|
2023
£’000
|
|
|
|
Purchases for future settlement
|
1,923
|
2,805
|
Interest payable
|
584
|
571
|
Share buybacks awaiting settlement
|
66
|
–
|
Accruals
|
3,890
|
5,170
|
|
---------------
|
---------------
|
|
6,463
|
8,546
|
|
=========
|
=========
|
10. CREDITORS – AMOUNTS FALLING DUE AFTER MORE THAN ONE
YEAR
|
2024
£’000
|
2023
£’000
|
2.74% loan note 2037
|
25,000
|
25,000
|
Unamortised loan note issue expenses
|
(182)
|
(196)
|
|
---------------
|
---------------
|
|
24,818
|
24,804
|
|
=========
|
=========
|
2.41% loan note 2044
|
20,000
|
20,000
|
Unamortised loan note issue expenses
|
(133)
|
(140)
|
|
---------------
|
---------------
|
|
19,867
|
19,860
|
|
=========
|
=========
|
2.47% loan note 2046
|
25,000
|
25,000
|
Unamortised loan note issue expenses
|
(170)
|
(160)
|
|
---------------
|
---------------
|
|
24,830
|
24,840
|
|
=========
|
=========
|
Total borrowings
|
69,515
|
69,504
|
|
=========
|
=========
|
The fair value of the 2.74% loan note has been determined based on
a comparative yield for UK Gilts for similar duration maturity and
spreads, and as at 29 February 2024 equated to a valuation of
74.55p per note (2023: 75.22p), a total of £18,638,000 (2023:
£18,805,000). The fair value of the 2.41% loan note has been
determined based on a comparative yield for UK Gilts for similar
duration maturity and spreads, and as at 29 February 2024 equated
to a valuation of 60.55p per note (2023: 62.80p), a total of
£12,110,000 (2023: £12,560,000). The fair value of the 2.47% loan
note has been determined based on a comparative yield for UK Gilts
for similar duration maturity and spreads, and as at 29 February
2024 equated to a valuation of 56.44p per note (2023: 58.79p), a
total of £14,110,000 (2023: £14,698,000).
The £15 million debenture stock was issued on 8 July 1997. Interest
on the stock was payable in equal half yearly instalments on 31
July and 31 January in each year. The stock was secured by a first
floating charge over the whole of the assets of the Company and was
redeemed at par on 31 July 2022.
The £25 million loan note was issued on 24 May 2017. Interest on
the note is payable in equal half yearly instalments on 24 May and
24 November in each year. The loan note is unsecured and is
redeemable at par on 24 May 2037.
The £20 million loan note was issued on 3 December 2019. Interest
on the note is payable in equal half yearly instalments on 3
December and 3 June in each year. The loan note is unsecured and is
redeemable at par on 3 December 2044.
The second £25 million loan note was issued on 16 September 2021.
Interest on the note is payable in equal half yearly instalments on
24 May and 16 September each year. The loan note is unsecured and
is redeemable at par on 16 September 2046.
The Company also has available an uncommitted overdraft facility of
£60 million with The Bank of New York Mellon (International)
Limited, of which £7,871,000 had been utilised at 29 February 2024
(2023: £nil).
11. CALLED UP SHARE CAPITAL
|
Ordinary
shares
number
|
Treasury
shares
number
|
Total
shares
number
|
Nominal
value
£’000
|
Allotted, called up and fully paid share capital
comprised:
|
|
|
|
|
Ordinary shares of 25 pence each
|
|
|
|
|
At 28 February 2023
|
48,829,792
|
1,163,731
|
49,993,523
|
12,498
|
Ordinary shares repurchased into treasury
|
(1,510,000)
|
1,510,000
|
–
|
–
|
|
---------------
|
---------------
|
---------------
|
---------------
|
At 29 February 2024
|
47,319,792
|
2,673,731
|
49,993,523
|
12,498
|
|
=========
|
=========
|
=========
|
=========
|
During the year ended 29 February 2024, the Company repurchased
1,510,000 shares into treasury for a total consideration of
£19,989,000 (2023: no shares repurchased).
Since 29 February 2024 and up to the latest practicable date of 8
May 2024, 220,000 ordinary shares have been repurchased into
treasury for a total consideration of £2,946,000.
The ordinary shares (excluding any shares held in treasury) 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 ordinary
shares.
12. RESERVES
|
|
|
Distributable reserves
|
|
Share
premium
account
£’000
|
Capital
redemption
reserve
£’000
|
Capital
reserve
(arising on
investments
sold)
£’000
|
Capital
reserve
(arising on
revaluation
of
investments
held)
£’000
|
Revenue
reserve
£’000
|
At 28 February 2023
|
51,980
|
1,982
|
620,667
|
52,812
|
18,590
|
Movement during the year:
|
|
|
|
|
|
Losses on realisation of investments
|
–
|
–
|
(30,417)
|
–
|
–
|
Change in investment holding gains
|
–
|
–
|
–
|
(17,209)
|
–
|
Losses on foreign currency transactions
|
–
|
–
|
(7)
|
(2)
|
–
|
Finance costs and expenses charged to capital
|
–
|
–
|
(4,757)
|
–
|
–
|
Net profit for the year
|
–
|
–
|
–
|
–
|
19,691
|
Ordinary shares repurchased into treasury
|
–
|
–
|
(19,859)
|
–
|
–
|
Share buyback costs
|
–
|
–
|
(130)
|
–
|
–
|
Dividends paid during the year
|
–
|
–
|
–
|
–
|
(19,633)
|
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
At 29 February 2024
|
51,980
|
1,982
|
565,497
|
35,601
|
18,648
|
|
=========
|
=========
|
=========
|
=========
|
=========
|
|
Share
premium
account
£’000
|
Capital
redemption
reserve
£’000
|
Distributable reserves
|
Capital
reserve
(arising on
investments
sold)
£’000
|
Capital
reserve
(arising on
revaluation
of
investments
held)
£’000
|
Revenue
reserve
£’000
|
At 28 February 2022
|
51,980
|
1,982
|
641,658
|
192,527
|
16,433
|
Movement during the year:
|
|
|
|
|
|
Losses on realisation of investments
|
–
|
–
|
(15,627)
|
–
|
–
|
Change in investment holding gains
|
–
|
–
|
–
|
(139,731)
|
–
|
(Losses)/gains on foreign currency transactions
|
–
|
–
|
(21)
|
16
|
–
|
Finance costs and expenses charged to capital
|
–
|
–
|
(5,343)
|
–
|
–
|
Net profit for the year
|
–
|
–
|
–
|
–
|
19,980
|
Dividends paid during the year
|
–
|
–
|
–
|
–
|
(17,823)
|
|
---------------
|
---------------
|
---------------
|
---------------
|
---------------
|
At 28 February 2023
|
51,980
|
1,982
|
620,667
|
52,812
|
18,590
|
|
=========
|
=========
|
=========
|
=========
|
=========
|
The share premium account and capital redemption reserve are not
distributable reserves under the Companies Act 2006. In accordance
with ICAEW Technical Release 02/17BL on Guidance on Realised and
Distributable Profits under the Companies Act 2006, the capital
reserve may be used as distributable reserves for all purposes and,
in particular, the repurchase by the Company of its ordinary shares
and for payments such as dividends. In accordance with the
Company’s Articles of Association, the capital reserve and the
revenue reserve may be distributed by way of dividend. The gain on
the capital reserve arising on the revaluation of investments of
£35,601,000 (2023: gain of £52,812,000) is subject to fair value
movements and may not be readily realisable at short notice, as
such it may not be entirely distributable. The investments are
subject to financial risks; as such capital reserves (arising on
investments sold) and the revenue reserve may not be entirely
distributable if a loss occurred during the realisation of these
investments.
13. VALUATION OF FINANCIAL INSTRUMENTS
Financial assets and financial liabilities are either carried in
the Balance Sheet at their fair value (investments) or at an amount
which is a reasonable approximation of fair value (due from
brokers, dividends and interest receivable, due to brokers,
accruals, cash at bank and bank overdrafts). Section 34 of FRS 102
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 of the
Financial Statements.
Categorisation within the hierarchy has been determined on the
basis of the lowest level input that is significant to the fair
value measurement of the relevant asset.
The fair value hierarchy has the following levels:
Level 1 – Quoted market price for identical instruments in
active markets
A financial instrument is regarded as quoted in an active market if
quoted prices are readily 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
inputs
This category includes instruments valued using quoted prices for
similar instruments in markets that are considered less active; or
other valuation techniques where significant inputs are directly or
indirectly observable from market data.
Level 3 – Valuation techniques using significant
unobservable inputs
This category includes all instruments where the valuation
technique includes inputs not based on market data and these inputs
could have a significant impact on the instrument’s
valuation.
This category 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 including an assessment of the
relevant risks including but not limited to credit risk, market
risk, liquidity risk, business risk and sustainability risk. The
determination of what constitutes ‘observable’ inputs requires
significant judgement by the Investment Manager, and these risks
are adequately captured in the assumptions and inputs used in
measurement of Level 3 assets or liabilities.
Fair values of financial assets and financial
liabilities
The table below is an analysis of the Company’s financial
instruments measured at fair value at the balance sheet
date.
Financial assets at fair value through profit or loss
at 29 February 2024
|
Level 1
£’000
|
Level 2
£’000
|
Level 3
£’000
|
Total
£’000
|
Equity investments
|
765,178
|
–
|
–
|
765,178
|
|
---------------
|
---------------
|
---------------
|
---------------
|
Total
|
765,178
|
–
|
–
|
765,178
|
|
=========
|
=========
|
=========
|
=========
|
Financial assets at fair value through profit or loss
at 28 February 2023
|
Level 1
£’000
|
Level 2
£’000
|
Level 3
£’000
|
Total
£’000
|
Equity investments
|
806,088
|
–
|
–
|
806,088
|
|
---------------
|
---------------
|
---------------
|
---------------
|
Total
|
806,088
|
–
|
–
|
806,088
|
|
=========
|
=========
|
=========
|
=========
|
There were no transfers between levels for financial assets during
the year recorded at fair value as at 29 February 2024 and 28
February 2023. The Company did not hold any Level 3 securities
throughout the financial year or as at 29 February 2024 (2023:
nil).
For exchange listed equity investments, the quoted price is the bid
price. Substantially all investments are valued based on unadjusted
quoted market prices. Where such quoted prices are readily
available in an active market, such prices are not required to be
assessed or adjusted for any price related risks, including climate
risk, in accordance with the fair value related requirements of the
Company’s Financial Reporting Framework.
14. TRANSACTIONS WITH THE MANAGER AND
AIFM
BlackRock Fund Managers Limited (BFM) provides management and
administration services to the Company under a contract which is
terminable on six months’ notice. 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)). Further details of the investment
management contract are disclosed in the Directors’ Report
contained within the Annual Report and Financial
Statements.
The investment management fee for the year ended 29 February 2024
amounted to £4,437,000 (2023: £4,784,000) as disclosed in note 4 to
the Financial Statements above. At the year end, £3,319,000 was
outstanding in respect of the management fee (2023:
£4,784,000).
In addition to the above services, BIM (UK) provided the Company
with marketing services. The total fees paid or payable for these
services for the year ended 29 February 2024 amounted to £174,000
including VAT (2023: £170,000). Marketing fees of £137,000 (2023:
£137,000) were outstanding at the year end.
During the year, the Manager pays the amounts due to the Directors.
These fees are then reimbursed by the Company for the amounts paid
on its behalf. As at 29 February 2024, an amount of £210,000 (2023:
£105,000) was payable to the Manager in respect of Directors’
fees.
The ultimate holding company of the Manager and the Investment
Manager is BlackRock, Inc., a company incorporated in Delaware,
USA.
15. RELATED PARTIES DISCLOSURES
Directors’ emoluments
At the date of this report, the Board consists of six Non-executive
Directors, all of whom are considered to be independent of the
Manager by the Board. Disclosures of the Directors’ interests in
the ordinary shares of the Company and fees and expenses payable to
the Directors are set out in the Directors’ Remuneration Report. At
29 February 2024, an amount of £17,000 (2023: £14,000) was
outstanding in respect of Directors’ fees.
Significant holdings
The following investors are:
a. funds
managed by the BlackRock Group or are affiliates of BlackRock, Inc.
(Related BlackRock Funds) or
b. investors
(other than those listed in (a) above) who held more than 20% of
the voting shares in issue in the Company and are as a result,
considered to be related parties to the Company (Significant
Investors).
As at 29 February 2024
Total % of shares held by Related
BlackRock Funds
|
Total % of shares held by Significant
Investors who are not affiliates of
BlackRock Group or BlackRock, Inc.
|
Number of Significant Investors who
are not affiliates of BlackRock Group or
BlackRock, Inc.
|
9.7
|
n/a
|
n/a
|
As at 28 February 2023
Total % of shares held by Related
BlackRock Funds
|
Total % of shares held by Significant
Investors who are not affiliates of
BlackRock Group or BlackRock, Inc.
|
Number of Significant Investors who
are not affiliates of BlackRock Group or
BlackRock, Inc.
|
10.6
|
n/a
|
n/a
|
16. CONTINGENT LIABILITIES
There were no contingent liabilities at 29 February 2024 (2023:
none).
17. PUBLICATION OF NON-STATUTORY
ACCOUNTS
The financial information contained in this announcement does not
constitute statutory accounts as defined in Section 435 of the
Companies Act 2006.
The figures set out above have been reported upon by the auditors.
The comparative figures are extracts from the audited financial
statements of BlackRock Smaller Companies Trust plc for the year
ended 28 February 2022, which have been filed with the Registrar of
Companies. The reports of the auditors for the years ended 28
February 2023 and 29 February 2024 contain no qualification or
statement under Section 498(2) or (3) of the Companies Act 2006.
The 2024 Annual Report and Financial Statements will be filed with
the Registrar of Companies after the Annual General
Meeting.
18. ANNUAL REPORT AND FINANCIAL
STATEMENTS
Copies of the Annual Report and Financial Statements will be sent
to members shortly and will be available from The Company
Secretary, BlackRock Smaller Companies Trust plc, 12 Throgmorton
Avenue, London EC2N 2DL.
19. ANNUAL GENERAL MEETING
The Annual General Meeting of the Company will be held at 12
Throgmorton Avenue, London EC2N 2DL on 20 June 2024 at 11:30
a.m.
ENDS
The Annual Report and Financial Statements will also be available
on the BlackRock Investment Management website at
http://www.blackrock.com/uk/brsc. 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:
Sarah
Beynsberger, Director, Closed End Funds, BlackRock Investment
Management (UK) Limited
Tel: 020
7743 3000
Press
Enquiries:
Ed Hooper,
Lansons Communications – Tel: 020 7294 3620
E-mail:
BlackRockInvestmentTrusts@lansons.com or EdH@lansons.com
13 May 2024