Final Results
23 April 2010
BLACKROCK SMALLER COMPANIES TRUST plc
Annual results announcement for the year
ended 28 February 2010
MANAGEMENT REPORT
Chairman's Statement
Review of the year to 28 February 2010
I am pleased to report that in stark contrast with the previous two financial
year ends, markets have been substantially more favourable to the Company.
Following arguably the worst financial crisis since the 1930s and a period of
extreme instability, the equity market rally which began in March 2009
continued throughout the financial year and smaller capitalisation stocks
reacted positively.
During the year ended 28 February 2010, the net asset value ("NAV") grew by
67.4% and the share price increased by 66.0%. In contrast, the Hoare Govett
Smaller Companies plus AIM (excluding Investment Companies) Index increased by
63.2%. All percentages have been calculated in sterling terms and on a capital
only basis. Since the year end, the Company's NAV has increased by 15.2% and
the share price has risen by 19.9% (both on a capital only basis).
The recovery in markets has not been without the occasional setback. With the
fragility of the UK economy and the uncertainty surrounding the outcome of the
May general election, coupled with concerns over the budget deficits of some
other EU member states, some volatility is probably inevitable.
In the first half of the year, higher risk stocks rebounded strongly; many of
these had only been included in our benchmark from January 2009 and we held
very few of them. However, in the second half, our higher quality growth stocks
performed strongly and enabled us to recover the relative underperformance of
the first half.
It is pleasing to report that the Company has enjoyed its seventh consecutive
year of outperformance against its benchmark and is currently also a top
quartile performer in its peer group over one, three and five years.
Earnings and dividends
The Company's revenue return per share for the year amounted to 7.41p compared
with 7.21p for the previous year. Given the difficult economic conditions for
income over the past year, this is a very pleasing result.
The Directors are recommending the payment of a final dividend of 3.60p per
share (2009: 3.10p). This, together with the interim dividend of 2.00p per
share (2009: 1.95p), represents an increase of 10.9% over the dividend paid
last year. They have also declared a special dividend of 0.50p per share (2009:
0.70p), to reflect the repayment of VAT together with interest, which makes
a total for the year of 6.10p (2009: 5.75p). The dividends will be payable on
22 June 2010 to shareholders on the register on 14 May 2010; the ex dividend
date is 12 May 2010.
In future, shareholders may request that their dividends be used to purchase
further shares in the Company. To achieve this, the Board has introduced a
dividend reinvestment scheme ("DRIP") through the Company's Registrar,
Computershare Investor Services PLC.
Gearing
The Company is geared via a £15 million debenture stock and a bank overdraft
facility of £10 million which it uses from time to time for investment purposes
and to cover short term timing differences. Gearing levels are reviewed
regularly by the Board which continues to believe that moderate gearing is in
the long term interests of shareholders. At the year end, the Company's net
borrowing was £21.1 million, 11.6% of shareholders' funds. The use of gearing
throughout the year has had a positive impact on performance.
Discount
The Company's current discount to NAV is 18.2%, which is broadly in line with
the sector, and the Board remains sensitive to the level of discount. In the
year to 28 February 2010, the discount ranged from 13.3% to 24.7%.
Share buy backs
The Company bought back and placed in treasury a total of 615,000 shares at an
average price of 260.33p per share and an average discount to net asset value
of 20.4%. The Board will be seeking renewal of its authority to buy back shares
at the forthcoming Annual General Meeting. The primary purpose of any buy back
would be to enhance the net asset value for continuing shareholders.
Alternative Investment Fund Managers ("AIFM") Directive
The European Commission's AIFM Directive is a controversial measure aimed at
regulating alternative investment funds which, in its current form, will
adversely affect investment trusts, including the Company. The Association of
Investment Companies ("AIC") recognises the far reaching implications of the
draft AIFM Directive and is continuing to engage positively with the European
Union ("EU") to seek the development of rules which would allow the business
model of the listed investment company sector to continue (albeit with
additional regulatory obligations). BlackRock has also made representations to
the EU to seek a final form of the AIFM Directive which will regulate companies
such as this one in a more proportionate, fair and effective way. The Board
actively supports the AIC's representations and will keep shareholders informed
of any major developments concerning the AIFM Directive.
Annual General Meeting
The Annual General Meeting of the Company will be held at BlackRock's offices
at 33 King William Street, London EC4R 9AS on Tuesday, 15 June 2010 at 10.30
a.m. The Directors and the Investment Manager look forward to meeting
shareholders informally after the meeting.
New Articles of Association
At the forthcoming Annual General Meeting, the Directors will be proposing that
the Company should adopt new Articles of Association in substitution for the
existing Articles in order to reflect the final changes in UK company law which
have been brought into force by the Companies Act 2006 and the regulations
implementing the EU Shareholder Rights Directive in the UK which came into
force on 3 August 2009.
Outlook
Whilst the UK and Continental Europe continue to be affected by differing
concerns, it is pleasing to see that global growth generally is improving,
driven largely by the Asia Pacific region, emerging markets and to a lesser
extent the US. Accordingly, it is important to capture growth opportunities in
international regions and we continue to focus on companies with a high level
of international revenues. We currently estimate that about 50% of the
portfolio sales are into Western Europe, including the UK, 20% into North
America and 30% into Asia Pacific and the rest of the world. It has been and
remains a clear strategy to increase the proportion of sales outside Western
Europe and particularly to increase exposure to the Asia Pacific region.
It is difficult to forecast prospects for the coming financial year. After a
strong recovery in equity markets from the dramatic collapse in 2008,
investment returns in the short term are likely to be at a significantly lower
rate.
Small and mid cap companies have outperformed larger companies over the year
with our benchmark increasing by 63.2% compared with a rise in the FTSE 100
of 39.8%. Our portfolio is comprised of smaller companies which should fare well
over the years ahead provided the global economy continues to recover, which is
our expectation.
Principal risks
The key risks faced by the Company are set out below. The Board regularly
reviews and agrees policies for managing each risk, as summarised below.
Performance risk - The Board is responsible for deciding the investment
strategy to fulfil the Company's objectives and monitoring the performance of
the Investment Manager. An inappropriate strategy may lead to underperformance
against the benchmark index. To manage this risk the Investment Manager
provides an explanation of significant stock selection decisions and the
rationale for the composition of the investment portfolio. The Board monitors
and mandates an adequate spread of investments, in order to minimise the risks
associated with factors specific to particular sectors and based on the
diversification requirements inherent in the Company's investment policy. The
Board also receives reports showing an analysis of the Company's performance
against the benchmark.
Income/dividend risk - The amount of dividends and future dividend growth will
depend on the Company's underlying portfolio. Any change in the tax treatment
of the dividends or interest received by the Company may reduce the level of
dividends received by shareholders. The Board monitors this risk through the
receipt of detailed income forecasts and considers the level of income at each
meeting.
Regulatory risk - The Company operates as an investment trust in accordance
with section 842 of the ICTA 1988. As such, the Company is exempt from capital
gains tax on the profits realised from the sale of its investments. The
Investment Manager monitors investment movements, the level and type of
forecast income and expenditure and the amount of proposed dividends to ensure
that the provisions of section 842 are not breached and the results are
reported to the Board. The affects of the AIFM Directive are as yet uncertain
but may impact the Company.
Operational risk - In common with most other investment trust companies, the
Company has no employees. The Company therefore relies upon the services
provided by third parties and is dependent on the control systems of the
Investment Manager and the Company's other service providers. The security, for
example, of the Company's assets, dealing procedures, accounting records and
maintenance of regulatory and legal requirements, depend on the effective
operation of these systems. These are regularly tested and monitored and an
internal control report, which includes an assessment of risks together with
procedures to mitigate such risks, is prepared by the Investment Manager and
reviewed by the Audit Committee twice a year. The custodian and the Investment
Manager also produce annual internal control reports which are reviewed by
their respective auditors and give assurance regarding the effective operation
of controls and are also reviewed by the Audit Committee.
Financial risks - The Company's investment activities expose it to a variety of
financial risks that include market price risk, currency risk, interest rate
risk, liquidity risk and credit risk.
Related party transactions
The Investment Manager is regarded as a related party and details of the
investment management and performance fees payable are set out in note 3.
Statement of Directors' Responsibilities
The Directors confirm to the best of their knowledge that:
- 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 annual report 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 the Company faces.
For and on behalf of the Board of Directors
Richard Brewster
Chairman
23 April 2010
Investment Manager's Report
Market review and overall investment performance
Following the sharp falls in share prices seen in the autumn of 2008, markets
bottomed out in March 2009, shortly after the start of our financial year. As
confidence began to rebuild, there was a marked recovery in those stocks which
had fallen most in 2008, often highly geared, poorer quality stocks the
survival of which had been in doubt in many cases. A significant number of
these stocks had joined our benchmark in January 2009 and they helped it to
recover sharply; it was up by 18.9% in April 2009 alone. This was a difficult
period for the Company, as we did not own these lower quality stocks. Our
portfolio underperformed for much of the first half of the financial year, but
in the second half the mood swung back towards better quality stocks and the
portfolio began to outperform once again. Encouragingly, the year ended with an
increase in the net asset value ("NAV") on a capital only basis of 67.4%, which
compared to an increase in the benchmark, the Hoare Govett Smaller Companies
plus AIM (excluding Investment Companies) Index, of 63.2%.
Portfolio performance
Our outperformance compared to the benchmark index was primarily driven by
being geared during the year. Stock selection and sector allocation were
affected by the sharp bounce in higher risk stocks in March and April; we had
little investment in these types of stocks. As the year progressed we saw a
return to more fundamental analysis and our higher quality holdings began to
perform better.
Amongst the major sectors in which we invest we saw very strong returns in
mining, technology hardware and software stocks; we have been and remain
overweight in these sectors. The value of our holdings in Eastern Platinum,
Aveva Group, Alterian and Kewill all more than doubled. Eastern Platinum's
Crocodile River platinum mine is a relatively low cost and shallow mine in
South Africa. After the strong recovery in platinum group metal prices it is
making a reasonable profit. Eastern Platinum's assets are long life; the
company is well placed to benefit from recovering automotive demand and has
gained from the strong increase in demand for platinum jewellery. Aveva,
Alterian and Kewill are all software companies and operate globally; they have
leading market positions and are well placed over the medium term.
Within other sectors we saw very good share price performances from ITE Group,
Senior, City of London Investment Group and Hutchison China Meditech. With the
exception of Senior, the link between these companies is emerging markets
strength. ITE organises exhibitions in Russia and the former Soviet Union, City
of London manage funds invested in emerging markets, and Hutchison China
Meditech's main activity is the development and sale of traditional Chinese
medicines in China. All of these companies have performed well over the year
and have good long term potential. Senior shares had been rather oversold on
fears about its end markets, aerospace and automotive, but it is well run,
results have exceeded expectations and it has good medium term revenue
visibility; this has led to a recovery in the share price.
The sectors which generated the lowest returns for the Company were support
services, financial services and health care equipment & services. A number of
the holdings disappointed, including Mouchel and London Capital; we sold the
holding in the former and the holding in the latter was reduced to 0.5% of the
portfolio. A number of core holdings performed poorly in share price terms,
notably Dechra Pharmaceuticals, although it has increased earnings through the
recession, and wealth managers Rathbone Brothers, Rensburg Sheppards and Brewin
Dolphin. We prefer the wealth managers to other asset managers because they
have high levels of retention of funds under management and do not rely on a
few key individuals to the same extent as other asset managers. They have
strong balance sheets and reliable and attractive dividend yields. Since the
financial year end, Rensburg Sheppards has been bid for by Investec, already a
47% shareholder. Within the health care sector holdings, Consort Medical and
CareTech had dull share price performances; they were seen as defensive but
have not been totally immune from budgetary pressures; we still see attractions
in these holdings.
Activity
In the early part of the financial year we continued to add higher quality,
more cyclical holdings such as Cookson, a beneficiary of growing steel
consumption in China, and Robert Walters, a recruitment business with a strong
brand and good coverage across Asia. We also added a few UK consumer companies
which looked set to continue to outperform, notably Halfords and Cineworld.
As the year progressed we reduced or sold our holdings in companies heavily
exposed to the UK government, including Babcock International, Connaught and
Synergy Healthcare. We benefited from a bid for Emerald Energy by Sinochem and
deployed part of the proceeds into Gulfsands, Emerald Energy's partner in the
successful Khurbet East oilfield in Syria. Gulfsands has itself attracted a bid
approach from an Indian oil company since the financial year end.
We continued to look out for world leading technology companies and added
Spirent, a leader in telecoms testing systems, and CSR, which supplies
Bluetooth semiconductor chips.
Portfolio positioning
The portfolio is built around our core holdings of good quality growth
companies; ones which we know well, run by management we regard highly, which
are truly differentiated and have the ability to maintain organic growth and
margins, generate cash and which have strong balance sheets. We particularly
like companies with high levels of overseas earnings, especially from the Asia
Pacific region; for example the holdings in Rotork and Hutchison China Meditech.
Not only do these companies benefit from the strength of these rapidly growing
economies, they also benefit from the weakness of sterling. We also like
companies with good revenue visibility or predictability, for instance Abcam
and ITE Group. A key part of our strategy is to invest in companies with high
levels of intellectual property or strong brands, examples include Fidessa and
Mothercare; these are protected by strong, sustainable barriers to entry and
have real pricing power. We prefer companies which have their own products,
rather than service companies; these tend to be able to scale more quickly and
usually have higher gross margins.
Gearing
We started the financial year with gearing at about 12% and largely maintained
this level as markets recovered. As mentioned above, this was the key factor
behind our outperformance during the financial year.
With economic recovery slowly building, we believe it is right to retain our
gearing at or close to current levels.
Outlook
Global GDP growth is gradually recovering, driven by the Asia Pacific region,
some other emerging markets such as Brazil and also more recently by the US. By
contrast, recovery in the UK and Continental Europe looks anaemic. The UK faces
considerable financial challenges; these challenges have been well trailed to
markets, including the uncertainty over the outcome of the general election.
We are fortunate in that our universe of stocks is wide and we can find well
run, market leading engineering, software and other industrial companies which
generate a major part of their revenues and profits in US Dollars and related
currencies in the Asia Pacific region and in the Americas. We do not have much
exposure to the UK consumer and UK government, both of which will face spending
pressures for some time.
Over the last eighteen months most of the companies in which we invested have
implemented efficiency savings and reduced their cost bases; they have also
typically gained market share at the expense of weaker competitors. These
companies are well placed to grow earnings attractively as the recovery gains
momentum. There are already signs of this happening; analysts have adjusted
their earnings forecasts for our holdings to realistic levels from which we are
now beginning to see upgrades.
Whilst we have seen a strong recovery in the Company's NAV during the last
financial year there is still scope for increases over the next few years as
the economic recovery gathers pace. We believe that a carefully chosen
portfolio of small and mid cap companies has the potential to continue to
outperform larger companies.
Mike Prentis
BlackRock Investment Management (UK) Limited
23 April 2010
Fifty Largest Investments
Company Market % of
value total Prospective
£'000 portfolio PE ratio* Business activity
Fidessa group 5,571 2.7 19.7 Development and
marketing of financial
trading and
connectivity software
Aveva Group 4,550 2.2 20.4 Development and
marketing of
engineering computer
software
Abcam 4,162 2.0 24.1 Production and
distribution of
research
grade anti-bodies and
associated products
Domino Printing 3,717 1.8 13.7 Manufacture of inkjet
Sciences and laser commercial
printers
Eastern 3,528 1.7 75.2 Exploration,
Platinum development and
production of platinum
group metals
Rotork 3,526 1.7 17.6 Engineering,
manufacturing and
design of valve
actuators
Spirax-Sarco 3,486 1.7 17.1 Design and manufacture
Engineering of steam management
systems
Brewin Dolphin 3,398 1.7 10.9 Fund management and
Holdings stockbroking
Victrex 3,326 1.6 18.0 Manufacture and supply
of PEEK thermoplastic
products
City of London 3,225 1.6 9.9 Management of
Investment investment funds
Group primarily invested in
emerging markets
ITE Group 3,187 1.6 13.4 Organisation of trade
exhibitions in Russia
and other FSU countries
Rensburg 2,961 1.5 12.4 Private client fund
Sheppards management
Rathbone 2,644 1.3 15.0 Private client fund
Brothers management
BATM Advanced 2,642 1.3 6.1 Development and
Communications production of data and
telecommunications
products
Hargreaves 2,541 1.3 8.4 Mining, importing,
Services processing and supply
of coal and related
products
Keller Group 2,520 1.2 10.0 Provision of ground
engineering solutions
Gulfsands 2,511 1.2 8.9 Exploration and
Petroleum production of oil in
Syria and Iraq
Alternative 2,361 1.2 10.1 Provision of mobile and
Networks fixed line telecom
solutions to business
users
Pace 2,359 1.2 8.3 Design and sale of
digital set top boxes
Hutchison China 2,350 1.2 - Development and supply
Meditech of traditional Chinese
medicines to the
Chinese market
Intec Telecom 2,314 1.1 13.6 Supply of telecoms
Systems billing software and
related services
Western Coal 2,266 1.1 19.8 Production of coking
and thermal coal in
North America and
United Kingdom
Shaftesbury 2,215 1.1 35.1 Ownership and
management of retail
and leisure property in
London's West End
Cookson Group 2,127 1.1 11.0 Supply of materials to
the global steel and
other industries
Aurelian Oil & 2,092 1.0 - Exploration and
Gas development of oil and
gas in Eastern Europe
Alterian 2,032 1.0 12.7 Development and sale of
software to improve
customer communication
and marketing
Hardy 1,949 1.0 5.4 Provision of insurance
Underwriting and re-insurance
Bermuda
Dechra 1,913 0.9 16.0 Development,
Pharmaceuticals manufacture and supply
of veterinary products
JKX Oil & Gas 1,898 0.9 5.3 Production of oil and
gas in the Ukraine and
other Eastern European
countries
Spirent 1,832 0.9 16.8 Design and supply of
Communications telecoms testing
systems
CareTech 1,830 0.9 12.6 Provision of long term
Holdings care for individuals
with learning
difficulties
Derwent London 1,775 0.9 24.9 Ownership and
management of office
property in London's
West End
Valiant 1,748 0.9 10.6 Exploration and
Petroleum production of oil and
gas in the North Sea
region
SDL 1,678 0.8 14.8 Supply of multilingual
translation software
and translation
services
Mothercare 1,644 0.8 19.4 Supply of baby and
children's products
Next Fifteen 1,589 0.8 7.7 Provision of public and
Communications press communications
Senior 1,584 0.8 10.1 Manufacture and supply
of components for the
aerospace and
automotive sectors
Ferrexpo 1,579 0.8 11.7 Production of iron ore
in the Ukraine
Serica Energy 1,558 0.8 22.3 Exploration,
development and
production of oil and
gas
Renishaw 1,531 0.8 28.9 Design and manufacture
of instruments used for
calibration purposes
International 1,529 0.8 - Mining and supply of
FerroMetals ferrochrome
WSP Group 1,524 0.7 7.1 Provision of
engineering design,
planning and project
management consultancy
services
Great Portland 1,496 0.7 27.6 Ownership and
Estates management of office
property in London's
West End
Avocet Mining 1,490 0.7 6.8 Gold exploration and
production
BSS Group 1,464 0.7 10.1 Distribution of
heating, plumbing,
process control and
pipeline equipment
Songbird 1,430 0.7 7.9 Ownership and
Estates development of real
estate at Canary Wharf
Development 1,409 0.7 - Property development,
Securities investment and
management
Kewill Systems 1,408 0.7 10.2 Provision of computer
software and services
Petra Diamonds 1,397 0.7 12.4 Exploration and
production of diamonds
IQE 1,371 0.7 32.5 Manufacture and supply
of compound
semiconductor wafers
50 Largest
Investments 116,237 57.2
Remaining
Investments 87,118 42.8
TOTAL 203,355 100.0
*Prospective PE ratio derived using March 2010 analyst estimates.
Disclosure of the Company's smaller holdings would be unlikely to add
materially to the shareholder's understanding of the Company's portfolio
structure and priority investment themes, hence only the fifty largest
investments have been disclosed.
Comparatives for Ten Largest Investments
2009 2009
£'000 % of total
Company Market Value portfolio
Fidessa group 3,353 2.7
Aveva Group 2,114 1.7
Abcam 2,033 1.6
Domino Printing Sciences 1,972 1.6
Eastern Platinum 619 0.5
Rotork 2,216 1.8
Spirax-Sarco Engineering 1,836 1.5
Brewin Dolphin Holdings 2,856 2.3
Victrex 2,655 2.1
City of London Investment Group 1,524 1.2
Distribution of Investmentsas at 28 February 2010
Sector % of total
portfolio
Oil & Gas Producers 7.8
Oil Equipment, Services
& Distribution 0.6
-----
Oil & Gas 8.4
-----
Mining 10.1
Chemicals 1.8
Industrial Metals 1.1
-----
Basic Materials 13.0
-----
Industrial Engineering 7.2
Support Services 6.7
Electronic & Electrical
Equipment 5.8
Construction & Materials 1.7
Aerospace & Defence 1.5
General Industrials 1.0
Industrial
Transportation 0.7
-----
Industrials 24.6
-----
Beverages 2.0
Household Goods & Home
Construction 1.8
-----
Consumer Goods 3.8
-----
Health Care Equipment &
Services 2.6
Pharmaceuticals &
Biotechnology 2.5
-----
Health Care 5.1
-----
Media 3.5
General Retailers 3.3
Travel & Leisure 1.3
Food & Drug Retailers 0.6
-----
Consumer Services 8.7
-----
Fixed-Line
Telecommunications 1.2
-----
Telecommunications 1.2
-----
Electricity 1.1
-----
Utilities 1.1
-----
Financial Services 9.1
Real Estate Holding &
Development 2.5
Industrial & Office Real
Estate Investment Trusts 1.9
Nonlife Insurance 1.9
Retail Real Estate
Investment Trusts 1.1
Real Estate Services 1.0
Equity Investment Trusts 0.6
Speciality Real Estate
Investment Trusts 0.3
-----
Financials 18.4
-----
Software & Computer
Services 10.7
Technology Hardware &
Equipment 5.0
-----
Technology 15.7
-----
Total 100.0
-----
INCOME STATEMENT
for the year ended 28 February 2010
Revenue Revenue Capital Capital Total Total
2010 2009 2010 2009 2010 2009
Notes £'000 £'000 £'000 £'000 £'000 £'000
Gains/(losses) on
investments held at
fair value through
profit or loss - - 74,267 (89,186) 74,267 (89,186)
Income from
investments 2 4,208 4,320 - - 4,208 4,320
Other income 2 66 20 - - 66 20
Investment
management and
performance fees 3 (239) (233) (1,121) (1,125) (1,360) (1,358)
Write back of prior
years' VAT 3 176 - 526 - 702 -
Other operating
expenses 4 (316) (273) - - (316) (273)
----- ----- ------ ------- ------- -------
Net return before
finance costs and
taxation 3,895 3,834 73,672 (90,311) 77,567 (86,477)
Finance costs (308) (329) (920) (940) (1,228) (1,269)
----- ----- ------ ------- ------- -------
Return on ordinary
activities before
taxation 3,587 3,505 72,752 (91,251) 76,339 (87,746)
----- ----- ------ ------- ------- -------
Taxation on
ordinary activities (15) (6) - - (15) (6)
----- ----- ------ ------- ------- -------
Return on ordinary
activities after
taxation 3,572 3,499 72,752 (91,251) 76,324 (87,752)
===== ===== ====== ====== ====== =======
Return per ordinary
share 6 7.41p 7.21p 150.92p (188.12p) 158.33p (180.91p)
===== ===== ====== ====== ====== =======
The total column of this statement represents the Income Statement of the
Company. The supplementary revenue and capital columns are both prepared under
guidance published by the Association of Investment Companies. The Company had
no recognised gains or losses other than those disclosed in the Income
Statement and the Reconciliation of Movements in Shareholders' Funds. All items
in the above statement derive from continuing operations. No operations were
acquired or discontinued during the year.
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
for the year ended 28 February 2010
Share Capital
Share premium redemption Capital Revenue
capital account reserve reserves reserve Total
Note £'000 £'000 £'000 £'000 £'000 £'000
For the year ended
28 February 2009
At 29 February
2008 12,498 38,952 1,982 141,840 5,780 201,052
Return for the
year - - - (91,251) 3,499 (87,752)
Shares purchased
and held in
treasury - - - (23) - (23)
Dividends paid
(see (a) below) 5 - - - - (3,012) (3,012)
------ ------ ----- ------ ----- -------
At 28 February
2009 12,498 38,952 1,982 50,566 6,267 110,265
------ ------ ----- ------ ----- -------
For the year ended
28 February 2010
At 28 February
2009 12,498 38,952 1,982 50,566 6,267 110,265
Return for the
year - - - 72,752 3,572 76,324
Shares purchased
and held in
treasury - - - (1,527) - (1,527)
Dividends paid
(see (b) below) 5 - - - - (2,795) (2,795)
------ ------ ----- ------ ----- -------
At 28 February
2010 12,498 38,952 1,982 121,791 7,044 182,267
====== ====== ===== ======= ===== =======
a. Final dividend of 3.01p per share and special dividend of 1.25p per share
for the year ended 29 February 2008, declared on 28 April 2008 and paid on
11 June 2008 and interim dividend of 1.95p per share for the six months
ended 31 August 2008, declared on 8 October 2008 and paid on 3 November
2008.
b. Final dividend of 3.10p per share and a special dividend of 0.70p per share
for the year ended 28 February 2009, declared on 22 April 2009 and paid on
24 June 2009 and interim dividend of 2.00p per share for the six months
ended 31 August 2009, declared on 7 October 2009 and paid on 2 November
2009.
BALANCE SHEET
as at 28 February 2010
2010 2009
£'000 £'000
Fixed assets
Investments held at fair value through
profit or loss 203,355 124,429
------- -------
Current assets
Debtors 1,064 1,202
Cash - 1,271
------- -------
1,064 2,473
------- -------
Creditors - amounts falling due within
one year (7,332) (1,831)
------- -------
Net current (liabilities)/assets (6,268) 642
------- -------
Total assets less current liabilities 197,087 125,071
Creditors - amounts falling due after
more than one year (14,820) (14,806)
------- -------
Net assets 182,267 110,265
======= =======
Capital and reserves
Share capital 12,498 12,498
Share premium account 38,952 38,952
Capital redemption reserve 1,982 1,982
Capital reserves 121,791 50,566
Revenue reserve 7,044 6,267
------- -------
Total equity shareholders' funds 182,267 110,265
======= =======
Net asset value per ordinary share
(debenture at par value) 380.68p 227.37p
======= =======
Net asset value per ordinary share
(debenture at fair value) 376.42p 221.57p
======= =======
CASH FLOW STATEMENT
for the year ended 28 February 2010
2010 2009
Note £'000 £'000
Net cash inflow from operating 4(b) 3,927 2,377
activities
----- -----
Servicing of finance (1,214) (1,257)
----- -----
Taxation
Income tax suffered (20) (7)
Overseas withholding tax suffered (19) (6)
----- -----
Total taxation (39) (13)
----- -----
Capital expenditure and financial
investment
Purchase of investments (104,882) (87,032)
Proceeds from sale of investments 99,144 91,102
------- ------
Net cash (outflow)/inflow from capital
expenditure and financial investment (5,738) 4,070
------- ------
Equity dividends paid (2,795) (3,012)
------- ------
Net cash (outflow)/inflow before
financing (5,859) 2,165
------- ------
Financing
Purchase of ordinary shares (1,527) (23)
------- ------
Net cash outflow from financing (1,527) (23)
------- ------
(Decrease)/increase in cash in the year (7,386) 2,142
======= ======
NOTES TO THE ANNUAL RESULTS ANNOUNCEMENT
1. Basis of preparation
The Company's financial statements have been prepared on a going concern basis
and on the historical cost basis of accounting, except for investments which
are managed and evaluated on a fair value basis, in accordance with the
Companies Act 2006, UK Generally Accepted Accounting Practice ("UK GAAP") and
with the Statement of Recommended Practice "Financial Statements of Investment
Trust Companies" ("SORP") revised in January 2009. All of the Company's
operations are of a continuing nature.
The Company's financial statements are presented in sterling, which is the
currency of the primary economic environment in which the Company operates. All
values are rounded to the nearest thousand pounds (£'000) except where
otherwise stated.
2. Income
2010 2009
£'000 £'000
Investment income:
UK listed dividends 3,817 3,815
Overseas listed
dividends 391 505
----- -----
4,208 4,320
----- -----
Other income:
Deposit interest 1 16
Interest on VAT refunds 34 -
Underwriting commission 31 4
----- -----
66 20
----- -----
Total 4,274 4,340
===== =====
Total income comprises:
Dividends 4,208 4,320
Other income 66 20
----- -----
4,274 4,340
===== =====
3. Investment management and performance fees
2010 2009
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Investment
management fees 239 717 956 233 698 931
Performance
fees - 404 404 - 427 427
--- ----- ----- --- ----- -----
239 1,121 1,360 233 1,125 1,358
Write back of
prior years'
VAT (176) (526) (702) - - -
--- ----- ----- --- ----- -----
Total 63 595 658 233 1,125 1,358
=== ===== ===== === ===== =====
The investment management fee is calculated based on 0.65% in respect of the
first £50 million of the Company's total assets less current liabilities,
reducing to 0.50% thereafter. A performance fee is payable at the rate of 10%
of the annualised excess performance in the two previous financial years,
applied to the average of the total assets less current liabilities of the
Company. The fee is payable annually in April and is capped at 0.25% of the
average of the total assets less current liabilities of the Company.
Performance fees have been wholly allocated to capital reserves as the
performance has been predominantly generated through capital returns of the
investment portfolio. A performance fee of £404,000 is accrued for the year
ended 28 February 2010 (2009: £427,000).
4. Operating activities
2010 2009
£'000 £'000
(a) Other operating expenses
Auditors' remuneration:
- audit services 15 14
- non audit services* 6 6
Registrar's fee 24 19
Directors' remuneration 97 94
Other administrative costs 174 140
--- ---
316 273
=== ===
The Company's total expense ratio
("TER"), calculated as a percentage
of average net assets and using
expenses, excluding performance
fees, interest costs and VAT
written back, after relief for
taxation was: 0.9% 0.8%
The Company's total expense ratio
("TER"), calculated as a percentage
of average net assets and using
expenses, including performance
fees and excluding interest costs
and VAT written back, after relief
for taxation was: 1.2% 1.0%
£'000 £'000
(b) Reconciliation of net return
before finance costs and taxation
to net cash flow from operating
activities
Net return before finance costs and
taxation 3,895 3,834
Investment management and
performance fees charged to capital (1,121) (1,125)
VAT refund credited to capital 526 -
Decrease in accrued income 65 102
Decrease in debtors 629 -
Decrease in creditors (67) (434)
----- -----
Net cash inflow from operating
activities 3,927 2,377
===== =====
*Non audit services relate to the review of the half yearly financial
statements.
5. Dividends
Dividends paid on Record Payment 2010 2009
equity shares: date date £'000 £'000
2008 final of 3.01p 9 May 2008 11 June 2008 - 1,460
2008 special of 1.25p 9 May 2008 11 June 2008 - 607
2009 interim of 1.95p 17 October 2008 3 November 2008 - 945
2009 final of 3.10p 5 June 2009 24 June 2009 1,494 -
2009 special of 0.70p 5 June 2009 24 June 2009 337 -
2010 interim of 2.00p 16 October 2009 2 November 2009 964 -
----- -----
2,795 3,012
===== =====
The Directors have proposed a final dividend of 3.60p per share and declared a
special dividend of 0.50p per share in respect of the year ended 28 February
2010. The proposed final dividend will be paid, subject to shareholders'
approval, on 22 June 2010 to shareholders on the Company's register on 14 May
2010, together with the special dividend. The final dividends have 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, or in the case of special dividends, recognised when paid to
shareholders.
The total dividends payable in respect of the year which form the basis of
determining retained income for the purposes of section 842 of the Income and
Corporation Taxes Act 1988 and section 833 of the Companies Act 2006, and the
amounts proposed, meet the relevant requirements as set out in this
legislation.
2010 2009
£'000 £'000
Dividends paid, proposed or
declared on equity shares:
Interim paid of 2.00p (2009: 1.95p) 964 945
Final proposed of 3.60p* (2009: 3.10p) 1,724 1,494
Special dividend of 0.50p* (2009: 0.70p) 239 337
----- -----
2,927 2,776
===== =====
*Based upon 47,879,792 ordinary shares (excluding treasury shares) in issue on
22 April 2010.
6. Return per ordinary share
Revenue and capital returns per share are shown below and have been calculated
using the following:
2010 2009
Net revenue return attributable
to ordinary shareholders (£'000) 3,572 3,499
Net capital return attributable
to ordinary shareholders (£'000) 72,752 (91,251)
------- -------
Total return (£'000) 76,324 (87,752)
------- -------
Equity shareholders' funds (£'000) 182,267 110,265
------- -------
The weighted average number of
ordinary shares in issue during
each year, on which the return
per ordinary share was
calculated, was: 48,207,135 48,506,488
The actual number of ordinary
shares in issue at the end of
each year, on which the net asset
value was calculated, was: 47,879,792 48,494,792
2010 2009
Revenue Capital Total Revenue Capital Total
p p p p p p
Return per share
share
Calculated on
weighted
average number
of shares 7.41 150.92 158.33 7.21 (188.12) (180.91)
Calculated on
actual number
of shares 7.46 151.95 159.41 7.22 (188.17) (180.95)
------ ------
Net asset value
per share
(debenture at
par value) 380.68 227.37
------ ------
Net asset value
per share
(debenture at
fair value) 376.42 221.57
====== ======
7. Share Capital
Ordinary Treasury Total Nominal
shares shares shares value
(nominal) (nominal) in issue £'000
Authorised share capital
comprised:
Ordinary shares of 25p
each 80,000,000 - 80,000,000 20,000
---------- --------- ---------- ------
Allotted, issued and fully
paid:
At 1 March 2009 48,494,792 1,498,731 49,993,523 12,498
Shares purchased (615,000) 615,000 - -
---------- --------- ---------- ------
At 28 February 2010 47,879,792 2,113,731 49,993,523 12,498
---------- --------- ---------- ------
8. 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 auditor. The
comparative figures are extracts from the audited financial statements of
BlackRock Smaller Companies Trust plc for the year ended 28 February 2009,
which have been filed with the Registrar of Companies. The report of the
auditor for the years ended 28 February 2009 and 28 February 2010 contain no
qualification or statement under section 498(2) or (3) of the Companies Act
2006. The 2010 annual report will be filed with the Registrar of Companies
after the Annual General Meeting.
9. Annual Report
Copies of the annual report will be sent to members shortly and will be
available from The Company Secretary, BlackRock Smaller Companies Trust plc, 33
King William Street, London EC4R 9AS. This report will also be available on the
BlackRock Investment Manager's website at www.blackrock.co.uk/its.
10. Annual General Meeting
The Annual General Meeting of the Company will be held at 33 King William
Street, London EC4R 9AS on 15 June 2010 at 10:30 a.m.
For further information please contact:
Jonathan Ruck Keene, Managing Director Investment Companies - 020 7743 2178
Mike Prentis, Fund Manager - 020 7743 2312
Emma Phillips, Media & Communications - 020 7743 2922
BlackRock Investment Management (UK) Limited
or
William Clutterbuck
The Maitland Consultancy - 020 7379 5151
23 April 2010
33 King William Street
London EC4R 9AS
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