Final Results

27 April 2015 BlackRock Smaller Companies Trust plc Annual results announcement for the Year ended 28 February 2015 Performance record Financial Highlights Year ended Year ended Change 28 February 2015 28 February 2014 % Performance Net asset value per share 954.34p 985.47p -3.2 Net asset value per share (debenture at par value, capital only) 942.91p 975.48p -3.3 Net asset value per share (debenture at fair value) 946.91p 978.01p -3.2 Numis Smaller Companies plus AIM (ex Investment Companies) Index 4,575.78 5,003.30 -8.5 Share price 812.00p 908.00p -10.6 -------- -------- ----- Revenue return per share 16.93p 14.59p +16.0 Interim dividend per share 5.50p 4.60p +19.6 Proposed final dividend per share 9.00p 7.40p +21.6 Total dividends paid and payable in respect of the year ended 14.50p 12.00p +20.8 -------- -------- ----- Total assets less current liabilities (£'000) 496,828 511,720 -2.9 Equity shareholders' funds (£'000) 456,936 471,843 -3.2 -------- -------- ----- Ongoing charges ratio (1) 0.7% 0.7% Ongoing charges ratio (including performance fees) 1.0% 1.0% Dividend yield 1.8% 1.3% Gearing 8.6% 8.2% ====== ====== (1). Ongoing charges ratio calculated as a percentage of average shareholders' funds and using expenses, excluding finance costs, performance fees and taxation in accordance with AIC guidelines. Source: BlackRock. CHAIRMANS'S STATEMENT Over the last ten years your Company's share price has increased from 229.00p to 812.00p (up by 255%) and its Net Asset Value has consistently outperformed its benchmark. Your Company has increased its dividends in each of the last twelve years from 4.42p to 14.50p (up by 228%). PERFORMANCE During the year to 28 February 2015, the Company's net asset value (NAV) decreased by 3.2% to 954.34p per share, compared with its benchmark, the Numis Smaller Companies plus AIM (excluding Investment Companies) Index, which fell by 8.5%. Your Company's share price fell by 10.6% to 812.00p per share. The early part of the financial year was a period of sustained profit taking in UK smaller companies. Throughout the financial year markets have had to contend with a large number of concerns, whether economic, financial or geopolitical, which on the whole, despite some volatility, they have weathered well. Small capitalisation stocks underperformed mid and large capitalisation stocks; the FTSE AIM All Share Index fell by 20.0% compared with the FTSE 250 Index which rose by 3.3% and the FTSE 100 Index which rose by 2.0% (all percentages in sterling terms without income reinvested). Although the Company's exposure to AIM holdings had an impact on absolute performance, on a relative basis the NAV outperformed the benchmark by a significant margin. This relative outperformance was driven both by good stock selection and favourable sector allocation. Overweight positions in the housebuilding, health care and chemicals sectors contributed positively, as did the portfolio's underweight position in oil producers. Details of the various contributors to performance can be found in the Investment Manager's Report. Since the financial year end and up to 23 April 2015, the Company's NAV has increased by 4.0%, against an increase in the benchmark of 2.2%, and the share price has risen by 2.2%. Over the longer term the Company's performance has substantially exceeded its benchmark, as shown in the table below. % change % change % change % change Performance to 28 February 2015 1 Year 3 Years 5 Years 10 Years Net asset value per share -3.2 54.0 150.7 235.6 Benchmark -8.5 27.7 58.8 48.6 Net asset value per share (with income reinvested) -1.8 61.0 169.0 287.9 Benchmark (with income reinvested) -6.2 37.8 79.3 89.9 Share price (with income reinvested) -9.2 69.7 199.9 320.9 EARNINGS AND DIVIDENDS The Company's revenue return per share for the year ended 28 February 2015 increased by 16%, to 16.93p compared with 14.59p for the previous year. Regular dividends from portfolio companies rose by 15%. In October 2014 the Board declared an interim dividend of 5.50p per share (2013: 4.60p per share). The Directors are pleased to recommend the payment of a final dividend of 9.00p per share (2014: 7.40p per share), making a total for the year of 14.50p, an increase of almost 21% over the total dividend of 12.00p paid in the previous year. The compound annual increase in dividends paid over the past three years has been 20% per annum. This increase in total dividends this year means that your Company has now increased its dividends every year for each of the last twelve years. At the beginning of March the Association of Investment Companies published a list of 'dividend heroes: the next generation' - investment companies which have increased their dividends each year for at least 10 years - and I was pleased to see that our Company was one of the companies commended in this respect. The Board is very conscious of the importance of income and yield to many investors, especially given the recent reform to pension rules. While the objective of the Company remains long term capital growth, it is clear that investing in smaller companies can also result in substantial income growth over the long term. Subject to shareholder approval, the final dividend will be paid on 25 June 2015 to shareholders on the register on 22 May 2015; the ex-dividend date is 21 May 2015. GEARING The Company has in place a range of borrowing options in order to maximise flexibility and to reduce dependency on short term borrowings. As well as the Company's existing £15 million debenture, the Company has a £35 million three year revolving loan facility with Scotia Bank (Ireland) Limited and an uncommitted overdraft facility of £15 million. 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. Gearing levels and sources of funding are reviewed regularly and the Board continues to believe that moderate gearing is in the long term interests of shareholders; for the year under review, gearing detracted by approximately 0.3% from performance. At the year end, the Company's gearing was 8.6% of net assets. DISCOUNT The share price stood at a discount to net asset value which averaged 11.4% over the year under review; the discount ranged from 5.8% to 16.0% and ended the year at 14.2% (all measured against NAV with debt at fair value). The Company's discount has since widened to 15.8% as at 23 April 2015. ANNUAL GENERAL MEETING The AGM of the Company will be held at the offices of BlackRock at 12 Throgmorton Avenue, London EC2N 2DL on 18 June 2015 at 11.30 a.m. Mike Prentis, the Portfolio Manager, will be making a presentation to shareholders on the Company's performance and the outlook for equity markets. The Directors and representatives of the Manager look forward to meeting shareholders informally after the meeting and I hope that as many shareholders as possible will choose to attend. OUTLOOK Internationally there are a number of potentially disruptive factors at play, including the stronger US dollar and the prospect of interest rate rises, increased tension in the Middle East and Ukraine and concern about financial and political developments in the European Union. Against that background, the US economy is recovering and in Continental Europe the European Central Bank is taking measures to stimulate the economy. Many emerging markets have suffered as a result of lower oil and metals prices and the rising dollar. Your Portfolio Manager favours exposure to businesses benefiting from stronger global growth. In the UK the impending General Election brings considerable uncertainty, which could well affect the equity market. A result which would lead to a referendum on the UK's membership of the European Union could also create instability. Your Portfolio Manager believes that favourable economic factors should support consumer stocks but is wary of exposure to government and corporate spending given the possibility of an indecisive election result. Our portfolio is well diversified and consists largely of companies that are well managed, trading successfully, are soundly financed and cash generative and are sensibly valued. Your Board is confident that this approach will continue to lead to rewarding results in the medium term. Nicholas Fry Chairman 27 April 2015 STRATEGIC REPORT The Directors present the Strategic Report of the Company for the year ended 28 February 2015. 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. PRINCIPAL ACTIVITY The Company 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. OBJECTIVE The Company's prime objective is to achieve long term capital growth for shareholders through investment mainly in smaller UK quoted companies. No material change will be made to this objective without shareholder approval. STRATEGY, BUSINESS MODEL AND INVESTMENT POLICY To achieve its investment objective the Company invests predominantly in UK Smaller Companies which are listed on the London Stock Exchange or on the Alternative Investment Market (AIM). The Board's current intention is that the value of AIM listed stocks as a percentage of the Company's portfolio should not exceed 40%. The Manager's approach in determining the optimal exposure to AIM investments, subject to the parameters set by the Board, is to focus on the merits of the underlying company and to seek value rather than to focus on the exchange on which the holding is listed, and consequently the level of exposure to AIM investments will vary from time to time. The Company may also invest in securities which are listed overseas but have a secondary UK quotation. Although investments are primarily in companies listed on recognised stock exchanges, the Investment Manager may also invest in unquoted securities with the prior approval of the Board. 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. 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. Other service providers include the Depositary, BNY Mellon Trust & Depositary (UK) Limited, the Administrator, Bank of New York Mellon (International) Limited, and the Registrar, Computershare Investor Services PLC (Computershare). Details of the contractual terms with third party service providers are set out in the Directors' Report, in the Annual Report and Financial Statements. Investment policy The Manager has adopted a consistent investment process, focusing on good quality growth companies that are trading well; 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 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 5% of the share capital of any company in which it has an investment. 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 the prior approval of the Board and derivative instruments, such as options and futures contracts, have not been used during the year. Performance is measured against an appropriate benchmark, the Numis Smaller Companies plus AIM (excluding Investment Companies) Index. GEARING POLICY The Manager believes that gearing can add value over the long term. The Company currently has £15 million of debenture stock in issue, a £35 million multi-currency revolving loan facility with Scotia Bank (Ireland) Limited and a bank overdraft facility of £15 million with Bank of New York Mellon (International) Limited (BNYM). The benefits of gearing are discussed and the effective level agreed with the Board regularly. It is intended that gearing will not exceed 15% of the net assets of the Company at the time of the drawdown of the relevant borrowings and at the balance sheet date gearing stood at 8.6% of net assets. Under normal operating circumstances, it is envisaged that gearing will fall in a range between 0%-15% of net assets. PORTFOLIO ANALYSIS A detailed analysis of the portfolio has been provided on pages 14 to 16 of the Annual Report and Financial Statements. PERFORMANCE Details of the Company's performance including the dividend are set out in the Chairman's Statement. The Chairman's Statement and the Investment Manager's Report 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. The total net loss for the year, after taxation, was £8,731,000 (2014: profit of £132,223,000) of which the revenue return amounted to £8,105,000 (2014: profit of £6,987,000), and the capital loss amounted to £16,836,000 (2014: profit of £125,236,000). The Company's revenue return amounted to 16.93p per share (2014: 14.59p). The Directors recommend the payment of a final dividend of 9.00p per share as set out in the Chairman's Statement. 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. 2015 2014 Net asset value per share (debenture at par) 954.34p 985.47p Net asset value per share (debenture at fair value) 946.91p 978.01p Net asset value per share (debenture at par value, capital only) 942.91p 975.48p Share price 812.00p 908.00p NAV total return performance -1.8% 38.7% Discount to NAV with debenture at fair value 14.2% 7.2% Revenue return per share 16.93p 14.59p Ongoing charges (1) 0.7% 0.7% ------ ------ Ongoing charges (including performance fees) 1.0% 1.0% ====== ====== (1). Calculated as a percentage of average shareholders' funds and using expenses, excluding finance costs, performance fees and taxation in accordance with AIC guidelines. Sources: BlackRock and Datastream. Additionally, the Board regularly reviews a number of 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. The Directors recognise that it is in the long term interests of shareholders that shares do not trade at a significant discount to their prevailing net asset value. During the year the shares traded between a discount of 5.8% and a discount of 16.0%, ending the year at 14.2% (based on NAV with debt at fair value). The Board believes that the best way of addressing the discount 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's outstanding attractions particularly to wealth managers and to the wider retail shareholder market. Over the last four years, the number of shares held by retail shareholders has increased from 20% to nearly 50%. 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. Past performance is not necessarily a guide to future performance and the value of your investment in the Company and the income from it can fluctuate as the value of the underlying investments fluctuate. Market risk - Market risk arises from volatility in the prices of the Company's investments. It represents the potential loss the Company might suffer through holding investments in the face of negative market movements. 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. 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 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. The Investment Manager monitors the amount of retained income to ensure that the provisions of Chapter 4 of Part 24 of the Corporation Tax Act 2010 are not breached and the results are reported to the Board at each meeting. Following authorisation under the Alternative Investment Fund Managers' Directive (AIFMD), the Company and its appointed Alternative Investment Fund Manager (AIFM or Manager) are subject to the risks that the requirements of this Directive are not correctly complied with. The Board and Investment Manager also monitor changes in government policy and legislation which may have an impact on 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 the Manager, the Investment Manager, BNYM Mellon Trust & Depositary (UK) Limited (the Depositary) and the Bank of New York Mellon (International) Limited, who maintain the Company's accounting records. The security of the Company's assets, dealing procedures, accounting records and maintenance of regulatory and legal requirements, depends on the effective operation of these systems. These have been regularly tested and monitored throughout the year as evidenced through their Service Organisation Control (SOC 1) reports and are reported on by their service auditors which gives assurance regarding the effective operation of controls. In addition, the Depositary reports to the Company's Audit Committee on a semi-annual basis on the results of periodic site visits to the Company's custodian and fund administrator, where controls are reviewed and tested. The Board also considers business continuity arrangements for the Company's key service providers. 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. Further details are disclosed in note 18 of the Annual Report and Financial Statements, together with a summary of the policies for managing these risks. 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. SOCIAL, COMMUNITY AND HUMAN RIGHTS ISSUES As an investment trust, the Company has no direct social or community responsibilities. 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 Company's policy on socially responsible investment are set out on page 30 of the Annual Report and Financial Statements. DIRECTORS AND EMPLOYEES The Directors of the Company on 28 February 2015, all of whom held office throughout the year, are set out on page 18 of the Annual Report and Financial Statements. The Board consists of three men and two women. The Company does not have any employees. The information set out on pages 4 to 16 of the Annual Report and Financial Statements including the Chairman's Statement and the Investment Manager's Report, forms part of the Strategic Report. The Strategic Report was approved by the Board at its meeting on 27 April 2015. By order of the Board BlackRock Investment Management (UK) Limited Company Secretary 27 April 2015 RELATED PARTY TRANSACTIONS BlackRock Investment Management (UK) Limited (BIM (UK)) provided management and administration services to the Company under a contract which was terminated with effect from 2 July 2014. BlackRock Fund Managers Limited (BFM) was appointed as the Company's AIFM with effect from 2 July 2014. BIM (UK) continues to act as the Company's Investment Manager under a delegation agreement with BFM. Further details of the investment management contract are disclosed in the Directors' Report on pages 18 and 19 of the Annual Report and Financial Statements. The investment management fee due to BIM (UK) and BFM for the year ended 28 February 2015 amounted to £2,481,000 (2014: £2,300,000). A performance fee accrued for the year ended 28 February 2015 amounted to £1,259,000 (2014: £1,111,000). At the year end, £1,218,000 was outstanding in respect of the management fee (2014: £644,000) and £1,259,000 (2014: £1,111,000) in respect of the performance fee. The management fee and any performance fee were until 2 July 2014 payable to BIM (UK) and thereafter to BFM. In addition to the above services, with effect from 1 November 2013, BlackRock has provided the Company with marketing services. The total fees paid or payable for these services for the year ended 28 February 2015 amounted to £186,000 including VAT (2014: £50,000) of which £236,000 (2014: £50,000) was outstanding at year end. The Board consists of five non-executive Directors, all of whom are considered to be independent by the Board. None of the Directors has a service contract with the Company. For the year ended 28 February 2015, the Chairman received an annual fee of £36,000, the Chairman of the Audit Committee received an annual fee of £27,000 and each other Director received an annual fee of £24,000. With effect from 1 March 2015, the remuneration of the Chairman receives an annual fee of £37,500, the Chairman of the Audit Committee receives an annual fee of £28,000, and the other Directors receive an annual fee of £25,000. All members of the Board hold ordinary shares in the Company. Nicholas Fry holds 40,000 ordinary shares, Gillian Nott holds 11,500 ordinary shares, Caroline Burton holds 4,500 ordinary shares, Robbie Robertson holds 80,062 ordinary shares and Michael Peacock holds 1,000 ordinary shares. STATEMENT OF DIRECTORS' RESPONSIBILITIES 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 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 and Transparency Rules. The Directors have delegated responsibility to the Investment Manager for the maintenance and integrity of the Company's corporate and financial information included on the Investment Manager'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 on page 18 of the Annual Report and Financial Statements confirm 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 2012 UK Corporate Governance Code also requires Directors to ensure that the Annual Report and Financial Statements are fair, balanced and understandable. In order to reach a conclusion on this matter, the Board has requested that the Audit Committee advise on whether it considers that the Annual Report and Financial Statements fulfils these requirements. The process by which the Committee has reached these conclusions is set out in the Audit Committee's report on pages 32 to 34 of the Annual Report and Financial Statements. As a result, the Board has concluded that the Annual Report and Financial Statements for the year ended 28 February 2015, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's performance, business model and strategy. FOR AND ON BEHALF OF THE BOARD OF DIRECTORS NICHOLAS FRY Chairman 27 April 2015 INVESTMENT MANAGER'S REPORT Your Company continues to outperform its benchmark and we have seen good results from portfolio companies which we anticipate will translate through to share prices MARKET REVIEW AND OVERALL INVESTMENT PERFORMANCE This has been a difficult year for UK small and midcap equities. From the start of the financial year we saw sustained profit taking in our universe. There has been a lot for markets to worry about ranging from the likely timing of interest rate rises in the UK and US, the weakness of continental European economies, problems in Ukraine, Middle East and Hong Kong, slowing growth in China and finally a collapse in the oil price. This is not a helpful background for smallcap equities which traditionally underperform in periods of uncertainty. Over the year the Company's NAV per share fell by 3.2% to 954.34p; the benchmark fell by 8.5%, whilst the FTSE 100 Index rose by 2.0%, all without dividends reinvested. Disappointingly, our share price fell rather more as the discount widened. PERFORMANCE REVIEW We did have some excellent performers during the year, notably Workspace Group, Hyder Consulting, Hutchison China Meditech, CVS Group and Avon Rubber, with share price increases ranging from 20% to 66%. Workspace Group has experienced strong demand for its flexible office space most of which is located on the periphery of central London. Occupancy and rents have continued to improve and the yield at which the portfolio is valued has fallen, increasing the capital value of the properties. We still see scope for further improvement on all fronts. Hyder Consulting was acquired by Arcadis following a competitive bid process. Hutchison China Meditech develops, manufactures and markets a range of prescription and over-the-counter botanical based pharmaceutical products. Revenues and profits continue to grow well. It also has a drug research and development business which is mainly focused on developing therapies in oncology. Some of the clinical results are very encouraging and the potential remains significant. CVS Group own and operate veterinary surgeries around the UK. It is a well and entrepreneurially run business which has improved systems, buying and customer care as its scale has grown. Avon Rubber had strong results with a 30% increase in earnings per share. It continues to win new contracts both in its protection and defence business and also its milk business. Still a relatively small business in market capitalisation terms it is very international, a reflection on its ability to provide products and services that its customers really need. Several stocks detracted from performance, notably Xaar, Blinkx and Boohoo. Xaar, one of our best performers in the previous year, struggled to replicate past performance and saw competitors catching up. We reduced our position. Blinkx, also a strong performer in the previous financial year, indicated revenue growth had slowed from the high levels previously achieved; we sold our holding. Boohoo indicated that sales for the 4 months to December 2014 were up by 25%, a good performance but was below market expectations. Sector allocation was also favourable. The Company benefited from being underweight in oil producers and services and in insurance companies providing annuity products and overweight in house builders, health care equipment, and chemicals. However, our underweight sector positions in food producers and travel & leisure companies detracted from performance. ACTIVITY We continued to be fairly active within the portfolio but more so at the smaller end. We have sold some holdings where we believe growth prospects are not strong enough to justify the valuation. We have also added some new holdings which mainly fall into three areas: predictable growth companies, companies likely to benefit from eventual recovery in continental europe and new listings via IPOs. Predictable growth companies include Berendsen, Hellermann Tyton and Restore. Restore manages and stores information in paper and digital form for businesses, enabling quick retrieval and ultimately confidential disposal. Recurring revenues are high and profits have grown strongly in recent years. Lavendon, Bodycote and Acal are examples of stocks bought to benefit from a European recovery. These stocks were purchased during the first half when recovery looked more imminent. Amongst the IPOs we invested in FDM and most recently Fever-Tree Drinks. Fever-Tree develops and sells high quality soft drinks including tonic water. Sales have grown strongly and are becoming more international. PORTFOLIO POSITIONING In the UK the impending election brings uncertainty, but UK consumer stocks should continue to do well due to rising employment, better job security, some signs of wage growth and lower energy costs. Our exposure in this area includes house builders, such as Bovis Homes Group and Redrow, housing related companies such as Topps Tiles, Marshalls and Headlam Group, and other consumer stocks such as Ted Baker, CVS Group, Young & Co's Brewery, Fullers, Smith & Tuner and Cineworld. We also have exposure to non-prime London through Workspace Group, Telford Homes and Quintain Estates & Development. We remain wary of Government spending related stocks. Corporate spending could be impacted by the likely unclear election result and possible weak future government, and this could hold back some investment plans. The US economy looks to be in recovery. Our portfolio exposure includes 4imprint Group, Tyman and Gemfields. The US government is still delaying on federally funded infrastructure. Turning to continental Europe, the European Central Bank is now taking action to stimulate the continental european economy. Growth is picking up in Spain and Ireland and now coming through in Germany. Our exposure is through various recovery stocks such as Northgate, Lavendon, SIG and Bodycote. Growth in China is slowing, although still strong, but emphasis on infrastructure spending has been much reduced. Many other emerging markets have been impacted by the fall in the oil and metals prices and by currency movements. Their strengths of a younger, well-educated workforces and low government debt levels remain major assets for the future. India, a rejuvenated giant, is benefiting from lower energy costs given much of its oil is imported. Our exposure to emerging markets is through consumer related stocks such as Hutchison China Meditech, International Personal Finance and Petra Diamonds. More generally, we hold stocks exposed to stronger global growth such as Victrex, Elementis, Savills and Robert Walters. We like businesses with highly predictable revenues such as Rathbones, Senior Engineering Group, Restore, Diploma and Dechra Pharmaceuticals. We also like new technology and practices, with holdings in Advanced Medical Solutions, Avon Rubber, Skyepharma and Consort Medical. We have remained well diversified with a clear emphasis on companies that are trading well, seeing good share price momentum, are reasonably valued and generally small relative to our benchmark. Our aim is to own a portfolio of companies which can grow into much larger businesses ideally without having to return to shareholders for more capital. INVESTMENT SIZE AS AT 28 FEBRUARY 2015 Number of investments % of Investment £0m to £1m 39 4.8 £1m to £2m 42 12.1 £2m to £3m 40 19.7 £3m to £4m 15 10.3 £4m to £5m 13 11.5 £5m to £6m 10 10.8 £6m to £7m 5 6.6 £7m to £8m 8 12.1 £8m to £9m 6 10.2 £9m to £10m 1 1.9 Source: BlackRock. MARKET CAPITALISATION OF OUR PORTFOLIO COMPANIES AS AT 28 FEBRUARY 2015 % of portfolio £0m to £100m 8.0 £100m to £400m 40.5 £400m to £1bn 26.6 £1bn+ 24.9 Source: BlackRock. OUTLOOK Global growth forecasts look mixed with the US and UK faring relatively well, but with continental Europe showing some signs of improvement, and lower growth expected in China. The recent fall in the oil price should be a bonus for global growth. Tensions remain around the world in particular in Ukraine and parts of the Middle East. In the UK we have a general election in May with all the inherent uncertainties expected before and after the vote. Our portfolio is well diversified and largely comprised of well run, profitable, cash generative and soundly financed companies which are usually outperforming their competition. We have seen good results from many in recent weeks and we expect this to continue. Valuations are more reasonable than this time last year as earnings have grown and share prices have, on average, slipped slightly. Mike Prentis BlackRock Investment Management (UK) Limited 27 April 2015 SUMMARY OF THE TEN LARGEST INVESTMENTS AS AT 28 FEBRUARY 2015 Set out below is a brief description by the Investment Manager of the Company's ten largest investments. Workspace Group: 1.9% (2014: 1.8%) is a provider of premises tailored to the needs of new and growing businesses across London. It owns more than 100 properties in London providing 5.2 million square feet of space which is home to some 4,000 businesses employing more than 30,000 people. Workspace provides the right properties to attract and retain customers giving them the flexibility to adjust the space they need to help them grow. Occupancy levels have continued to increase as have rents per square foot. Workspace has also supplemented core operational income and capital values by redeveloping certain property assets. This has enabled the company's net asset value to grow steadily and we expect this to continue as London thrives and creates more jobs. Bodycote: 1.8% (2014: 0.7%) is a leading provider of thermal processing services worldwide. Thermal processing encompasses a variety of techniques and specialist engineering processes which improve the properties of metals and alloys and extend the life of components. These are a vital part of many manufacturing processes. Through its global network of more than 180 facilities, and the experience and knowledge of its people, Bodycote is well placed to offer a high quality, reliable and cost effective specialist service to manufacturers. It supplies most sectors including aerospace and automotive, and is well placed to benefit from increasing global economic growth. Senior Engineering Group: 1.8% (2014: 1.7%) is an international manufacturing group providing engineered products for demanding operating environments. The group's strategy is to focus on sectors where it is positioned to benefit from both global market growth and increasingly stringent emissions control legislation. Senior operates through two Divisions: Aerospace, which serves both the commercial aerospace and defence markets and Flexonics, which serve automotive and other industrial markets. The company is particularly closely aligned to the growth of the commercial aerospace sector and especially to wide bodied aircraft production. Senior's designed in products and high order book give it excellent revenue visibility. Growth in earnings in recent years has been good and the shares remain modestly rated. Tyman: 1.7% (2014: 0.9%) is a leading international supplier of building products to the door and window industry. It manufactures a range of seals, extruded products, hardware and specialities. These products help improve the performance and enhance the security and protection of windows and doors. Approximately 60% of Tyman's sales are within North America where it is benefiting from a pickup in housebuilding in the US and a gradual increase in spending on housing repairs, trends we expect to continue. Lookers: 1.7% (2014: 1.0%) is one of the leading motor retailer and aftermarket groups in the UK. It trades as Lookers in England and Wales, as Taggarts and the Lomond Group in Scotland, and as Charles Hurst in Northern Ireland and parts of the Republic of Ireland. Lookers has more than 120 franchised dealerships and represents more than 30 of the world's car manufacturers; it also has very active and profitable used and after sales businesses. Lookers additionally operates a parts distribution business which supplies the independent automotive aftermarket, a segment focused on the large number of UK vehicles that are more than 4 years old. Lookers continues to show strong earnings growth helped by the wish of continental European car manufacturers to sell more cars in the UK. St Modwen Properties: 1.6% (2014: 1.1%) is the UK's leading land regeneration specialist. St Modwen Properties aims to acquire assets at low value and then maximise their potential by steadily adding value through remediation and planning. Their expertise in brownfield land remediation and other aspects of regeneration makes them an attractive partner to both landowners and public bodies. Current schemes includes the New Covent Garden market on the South Bank in London, and the £1 billion regeneration of Longbridge in the West Midlands. St Modwen Properties has an excellent record of increasing net assets per share, a record we expect to continue. Rathbone Brothers: 1.6% (2014: 1.0%) is one of the UK's leading providers of investment management services for private clients, charities and professional advisers. Rathbone Brothers manages funds in excess of £27 billion, and yet has only a relatively small share of its target market. We believe its approach and highly regarded brand will enable it to continue to grow funds under management and earnings over the medium to long term. Avon Rubber: 1.6% (2014: 1.4%) is an engineering company which is focused on two core markets, protection & defence and dairy. The protection & defence business is the global leader in advanced Chemical, Biological, Radiological and Nuclear respiratory protection solutions for use by the military, national security and emergency services. The company's principle products are a range of respiratory masks and replacement filters. There is scope to grow considerably in its core US market as well as overseas. The dairy business manufactures and supplies dairy liners and tubing both to OEM manufacturers of milking parlour systems and directly to farms under its market leading Milkrite brand. Growth has been strong in both divisions and looks well set. 4imprint Group: 1.6% (2014: 0.7%) is a leading supplier of promotional products operating almost wholly in the US market. It sells an extensive range of products to individuals in businesses and organisations of all sizes, typically customised with the customers' brand or logo. Its growth continues to be very strong, underpinned by a range of data-driven traditional and online marketing. In 2014 4imprint grew revenues organically by 25% and earnings per share up by 32%. It continues to have excellent growth prospects not least because of the strength of the US economy but also its low market share, of less than 5%, in a highly fragmented market. Headlam Group: 1.5% (2014: 1.4%) is the UK's leading distributor of a wide range of products sourced from floorcovering suppliers across the world. These are sold to a customer base which mainly comprises independent floorcovering retailers and contractors. Headlam Group is well invested and should continue to grow earnings as market conditions improve. All percentages reflect the value of the holding as a percentage of total investments. For this purpose, where more than one class of securities is held, these have been aggregated. The percentages in brackets represent the value of the holding as at 28 February 2014. Together, the ten largest investments represent 16.8% of total investments (ten largest investments as at 28 February 2014: 16.4%). FIFTY LARGEST INVESTMENTS Market value Company £'000 % of total portfolio Business activity Workspace Group 9,267 1.9 Supply of flexible workspace to businesses in London Bodycote 8,732 1.8 Provider of thermal processing services Senior Engineering 8,719 1.8 Manufacture and supply of Group components for the aerospace and automotive sector Tyman 8,399 1.7 Manufacture and supply of window and door components Lookers 8,301 1.7 Supply of cars and after market parts and services St. Modwen 8,114 1.6 Property investment and Properties development Rathbone Brothers 8,000 1.6 Private client fund management Avon Rubber 7,963 1.6 Production of safety masks and dairy related products 4imprint Group 7,878 1.6 Supply of promotional merchandise in the US Headlam Group 7,432 1.5 Distribution of carpets and other floor coverings Polar Capital 7,411 1.5 Investment management Holdings Savills 7,357 1.5 Provision of property services CVS Group 7,350 1.5 Operation of veterinary surgeries Ted Baker 7,218 1.5 Design and sale of fashion clothing Bovis Homes Group 7,135 1.4 Housebuilding Northgate 6,606 1.4 Van rental Dechra 6,397 1.4 Development and supply of Pharmaceuticals pharmaceutical and other products focused on the veterinary market Hutchison China 6,239 1.3 Development and supply of Meditech traditional Chinese medicines to the Chinese market Elementis 6,220 1.3 Manufacture of additives that enhance the feel, flow and finish of everyday products Cineworld 6,070 1.2 Operation of cinemas Victrex 5,945 1.2 Manufacture and supply of PEEK thermoplastic products Topps Tiles 5,896 1.1 Sourcing and retail of ceramic tiles Grainger 5,765 1.1 Ownership and rental of residential property Advanced Medical 5,642 1.1 Development and provision of Solutions leading edge technology in global wound care and wound closure markets Brewin Dolphin 5,371 1.1 Private client fund management Consort Medical 5,308 1.1 Manufacture of drug delivery devices Galliford Try 5,275 1.1 Housebuilding and construction Quintain Estates & 5,265 1.0 Property investment and Development development Lavendon 5,158 1.0 Rental of powered aerial work platforms Walker Greenbank 5,093 1.0 Design, manufacture and distribution of wallcoverings and furnishing fabrics Dunelm Group 4,989 1.0 Supply of home furnishings Redrow 4,924 1.0 Housebuilding Restore 4,850 0.9 Management of business information in both paper and digital form Marshalls 4,727 0.9 Manufacture and sale of concrete and stone paving and related products Kier 4,624 0.9 Construction, property development and the provision of maintenance services Skyepharma 4,610 0.9 Design and manufacture of drug delivery systems James Fisher & Sons 4,431 0.9 Provision of marine services Restaurant Group 4,418 0.9 Operation of branded restaurants Gemfields 4,269 0.9 Supply of responsibly sourced coloured gemstones Gooch & Housego 4,269 0.8 Design and manufacture of precision optical components, subsystems and instruments used to transmit and measure light International 4,211 0.8 Provision of credit to Personal Finance individuals Petra Diamonds 4,184 0.8 Diamond mining Young & Co's 2,049 } 0.8 Ownership of pubs in the Brewery - Non-voting } London area - A shares 1,981 } UTV Media 3,981 0.8 Television and radio broadcasting Diploma 3,750 0.8 Supply of specialised technical products and services Vertu Motors 3,750 0.8 Retail of new and used cars and provision of aftermarket services Fuller Smith & 3,733 0.8 Ownership of pubs in the Turner - A shares London area SIG 3,715 0.7 Supply of insulation, roofing and interior fit out materials City of London 3,661 0.7 Fund management Investment Group Big Yellow 3,348 0.7 Provision of self-storage and related services 50 largest 290,000 58.4 investments Remaining 206,332 41.6 investments ------- ----- Total 496,332 100.0 ====== ===== A complete listing of all of the Company's portfolio holdings as at 28 February 2015 is given on the Company's website at the following link: http://www.blackrock.com/uk/individuals/ literature/fund-update/brsct-portfolio-disclosure.pdf. At 28 February 2015, the Company did not hold any equity interests comprising more than 3% of any company's share capital other than as disclosed in the table below: Company % owned Walker Greenbank plc 4.4 Air Partner Plc 4.3 Richland Resources Ltd 4.2 Brainjuicer Group plc 4.2 Lifeline Scientific Inc. 4.1 City of London Investment Group Plc 4.0 Hayward Tyler Group Plc 3.5 Avon Rubber Plc 3.4 Northbridge Industrial Services Plc 3.3 4imprint Group Plc 3.1 Kalibrate Technologies Plc 3.0 COMPARATIVES FOR TEN LARGEST INVESTMENTS 2015 2015 2014 2014 Market value % of total Market value % of total Company £'000 portfolio £'000 portfolio Workspace Group 9,267 1.9 9,110 1.8 Bodycote 8,732 1.8 3,684 0.7 Senior Engineering Group 8,719 1.8 8,596 1.7 Tyman 8,399 1.7 4,643 0.9 Lookers 8,301 1.7 5,242 1.0 St. Modwen Properties 8,114 1.6 5,597 1.1 Rathbone Brothers 8,000 1.6 4,929 1.0 Avon Rubber 7,963 1.6 7,204 1.4 4imprint Group 7,878 1.6 3,757 0.7 Headlam Group 7,432 1.5 7,178 1.4 ------ ----- ------ ----- 82,805 16.8 59,940 11.7 ====== ===== ====== ===== DISTRIBUTION OF INVESTMENTS Sector % of portfolio Oil & Gas Producers 3.5 ---- Oil & Gas 3.5 ---- Mining 4.0 Chemicals 4.5 ---- Basic Materials 8.5 ---- Industrial Transportation 2.4 Electronic & Electrical Equipment 2.8 Industrial Engineering 3.6 Construction & Materials 3.7 Aerospace & Defence 3.9 Support Services 10.3 ---- Industrials 26.7 ---- Leisure Goods 0.1 Beverages 0.5 Personal Goods 1.5 Household Goods & Home Construction 7.2 ---- Consumer Goods 9.3 ---- Health Care Equipment & Services 2.9 Pharmaceuticals & Biotechnology 4.3 ---- Health Care 7.2 ---- Travel & Leisure 4.9 Media 6.1 General Retailers 7.2 ---- Consumer Services 18.2 ---- Fixed Line Telecommunications 0.8 ---- Telecommunications 0.8 ---- Equity Investment Instruments 0.3 Nonlife Insurance 0.5 Banks 0.7 Real Estate Investment Trusts 3.2 Real Estate Investment & Services 5.3 Financial Services 8.1 ---- Financials 18.1 ---- Technology Hardware & Equipment 0.6 Software & Computer Services 7.1 ---- Technology 7.7 ---- ANALYSIS OF PORTFOLIO VALUE BY SECTOR % of portfolio Oil & Gas 3.5 Basic Materials 8.5 Industrials 26.7 Consumer Goods 9.3 Health Care 7.2 Consumer Services 18.2 Telecommunications 0.8 Financials 18.1 Technology 7.7 Source: BlackRock. INCOME STATEMENT FOR THE YEAR ENDED 28 FEBRUARY 2015 Revenue Revenue Capital Capital Total Total 2015 2014 2015 2014 2015 2014 Notes £'000 £'000 £'000 £'000 £'000 £'000 (Losses)/gains on investments held at fair value through profit or loss - - (12,578) 129,276 (12,578) 129,276 Exchange gains - - - 1 - 1 Income from investments held at fair value through profit or loss 3 9,741 8,460 127 - 9,868 8,460 Other income 3 24 - - - 24 - Investment management and performance fees 4 (620) (574) (3,120) (2,837) (3,740) (3,411) Other operating expenses 5(a) (611) (492) (26) - (637) (492) ----- ----- ------ ------- ----- ------- Net return before finance costs and taxation 8,534 7,394 (15,597) 126,440 (7,063) 133,834 Finance costs (413) (402) (1,239) (1,204) (1,652) (1,606) ----- ----- ------ ------- ----- ------- Net return on ordinary activities before taxation 8,121 6,992 (16,836) 125,236 (8,715) 132,228 Taxation on ordinary activities (16) (5) - - (16) (5) ----- ----- ------ ------- ----- ------- Net return on ordinary activities after taxation 7 8,105 6,987 (16,836) 125,236 (8,731) 132,223 ====== ====== ====== ======= ====== ======= Return per ordinary share 7 16.93p 14.59p (35.17p) 261.56p (18.24p) 276.15p ====== ====== ====== ======= ====== ======= The total column of this statement represents the Profit and Loss Account of the Company. The supplementary revenue and capital columns are both prepared under guidance published by the Association of Investment Companies (AIC). The Company had no recognised gains or losses other than those disclosed in the Income Statement. All items in the above statement derive from continuing operations. All income is attributable to the equity holders of BlackRock Smaller Companies Trust plc. There is no material difference between the loss (2014: profit) on ordinary activities before taxation and the loss (2014: profit) for the financial year stated above and their historical cost equivalents. RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS FOR THE YEAR ENDED 28 FEBRUARY 2015 Called-up 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 2014 At 28 February 2013 12,498 38,952 1,982 280,990 10,512 344,934 Return for the year - - - 125,236 6,987 132,223 Dividends paid (see (a) below) 6 - - - - (5,314) (5,314) ------ ------ ----- ------- ------ ------- At 28 February 2014 12,498 38,952 1,982 406,226 12,185 471,843 ------ ------ ----- ------- ------ ------- For the year ended 28 February 2015 At 28 February 2014 12,498 38,952 1,982 406,226 12,185 471,843 Return for the year - - - (16,836) 8,105 (8,731) Dividends paid (see (b) below) 6 - - - - (6,176) (6,176) ------ ------ ----- ------- ------ ------- At 28 February 2015 12,498 38,952 1,982 389,390 14,114 456,936 ====== ====== ===== ======= ====== ======= (a) Final dividend of 6.50p per share for the year ended 28 February 2013, declared on 26 April 2013 and paid on 3 July 2013 and interim dividend of 4.60p per share for the six months ended 31 August 2013, declared on 24 October 2013 and paid on 29 November 2013. (b) Final dividend of 7.40p per share for the year ended 28 February 2014, declared on 25 April 2014 and paid on 17 June 2014 and interim dividend of 5.50p per share for the six months ended 31 August 2014, declared on 24 October 2014 and paid on 3 December 2014. BALANCE SHEET AS AT 28 FEBRUARY 2015 2015 2014 Notes £'000 £'000 Fixed assets Investments held at fair value through profit or loss 496,332 510,627 ------- ------- Current assets Debtors 2,607 2,169 Cash 2,414 4,187 ------- ------- 5,021 6,356 ------- ------- Creditors - amounts falling due within one year (4,525) (5,263) ------- ------- Net current assets 496 1,093 ------- ------- Total assets less current liabilities 496,828 511,720 Creditors - amounts falling due after more than one year (39,892) (39,877) ------- ------- Net assets 456,936 471,843 ======= ======= Capital and reserves Called up share capital 8 12,498 12,498 Share premium account 38,952 38,952 Capital redemption reserve 1,982 1,982 Capital reserves 389,390 406,226 Revenue reserve 14,114 12,185 ------- ------- Total shareholders' funds 456,936 471,843 ======= ======= Net asset value per ordinary share (debenture at par value) 9 954.34p 985.47p ======= ======= Net asset value per ordinary share (debenture at fair value) 9 946.91p 978.01p ======= ======= CASH FLOW STATEMENT FOR THE YEAR ENDED 28 FEBRUARY 2015 2015 2014 Notes £'000 £'000 Net cash inflow from operating activities 5(b) 5,802 5,004 ------- ------- Servicing of finance (1,639) (1,597) ------- ------- Taxation Income tax received 6 - Overseas withholding tax paid (10) (1) ------- ------- Total taxation (4) (1) ------- ------- Capital expenditure and financial investment Purchase of investments (203,832) (182,342) Proceeds from sale of investments 204,076 180,173 ------- ------- Net cash inflow/(outflow) from capital expenditure and financial investment 244 (2,169) ------- ------- Financing activities Equity dividends paid 6 (6,176) (5,314) Inflow from drawdown of revolving loan - 10,000 ------- ------- Net cash (outflow)/inflow from financing (6,176) 4,686 ------- ------- (Decrease)/increase in cash in the year (1,773) 5,923 ======= ======= NOTES TO THE FINANCIAL STATEMENTS 1. Principal activity The principal activity of the Company is that of an investment trust company within the meaning of section 1158 of the Corporation Tax Act 2010. 2. Accounting policies (a) Basis of preparation The Company's financial statements have been prepared on the historical cost basis of accounting, except for investments which are managed and evaluated on a fair value basis in accordance with the provisions of the Companies Act 2006, United Kingdom Generally Accepted Accounting Practice (UK GAAP) and with the Statement of Recommended Practice (SORP) for investment trusts and venture capital trusts issued by the Association of Investment Companies (AIC), revised in January 2009. The principal accounting policies adopted by the Company are set out below. 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. In 2012, 2013 and 2014 the Financial Reporting Council (FRC) revised financial reporting standards in the United Kingdom and Republic of Ireland. The revisions fundamentally reformed financial reporting, replacing the extant standards with a number of new Financial Reporting Standards. The only new standard relevant to the Company is FRS 102. FRS 102 is effective for accounting periods beginning on or after 1 January 2015 with early adoption permitted. The Company does not plan to early adopt FRS 102. The Manager is currently evaluating the new standard to determine the impact it will have on the Company's financial statements, and the standard will be adopted for the financial year ended 28 February 2016. 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. (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) Investments designated as 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 FRS 26 - 'Financial Instruments: Recognition and Measurement' and are managed and evaluated on a fair value basis in accordance with its investment strategy. All investments are designated upon initial recognition as held at fair value through profit or loss. Purchases of investments are recognised on a trade date basis. Sales are recognised at the trade date of the disposal and the proceeds are measured at fair value, which is 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. In order to improve the disclosure of how companies measure the fair value of their financial investments, the disclosure requirements in FRS 29 have been extended to include a fair value hierarchy. The fair value hierarchy consists of the following three levels: Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities Level 2 - inputs other than quoted prices included within level 1 that are observable for the asset or liability Level 3 - inputs for the asset or liability that are not based on observable market data This policy applies to non current asset investments held by the Company. (d) Segmental reporting The Directors are of the opinion that the Company is engaged in a single segment of business being investment business. (e) 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. Provision is made for any dividends not expected to be received. Fixed returns on non equity securities are recognised on a time apportionment basis. Interest income is accounted for on an accruals basis. Special dividends are treated as a capital receipt or revenue receipt depending on the facts or circumstances of each particular case. Dividends are accounted for in accordance with FRS 16 'Current Taxation' 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. Where the Company has elected to receive its dividends in the form of additional shares rather than in cash, the amount of the cash dividend foregone is recognised in the capital column of the Income Statement. (f) Expenses All expenses are accounted for on an accruals basis. Expenses have been treated as revenue except as follows: - expenses including finance costs which are incidental to the acquisition or disposal of investments are included within the cost of the investments. Details of transaction costs on the purchases and sales of investments are disclosed in note 10 of the Annual Report and Financial Statements; - the investment management fee has been allocated 75% to the capital column and 25% to the revenue column 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; and - performance fees have been allocated 100% to the capital column of the Income Statement, as performance has been predominantly generated through capital returns of the investment portfolio. (g) Long term borrowings and finance costs Long term borrowings are carried in the Balance Sheet at amortised cost, representing the cumulative amount of net proceeds on issue plus accrued finance costs. Finance costs are accounted for on an accruals basis. Finance costs are allocated, insofar as they relate to the financing of the Company's investments, 75% to the capital column and 25% to the revenue column 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. (h) Taxation Deferred taxation is recognised in respect of all temporary 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 temporary differences can be deducted. Where expenses are allocated between capital and revenue any tax relief in respect of the expenses is allocated between capital and revenue returns on the marginal basis using the Company's effective rate of corporation taxation for the accounting period. (i) Debtors Debtors include sales for future settlement, other debtors, pre-payments and accrued income in the ordinary course of business. If collection is expected in one year or less (or in the normal operating cycle of the business if longer), they are classified as current assets. If not, they are presented as non-current assets. Debtors are recognised initially at fair value and, where applicable, subsequently measured at amortised cost using the effective interest rate method. (j) Creditors Creditors include purchases for future settlements, interest payable, share buyback costs and accruals in the ordinary course of business. Creditors are classified as current liabilities 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 non-current liabilities. Creditors are recognised initially at fair value and, where applicable, subsequently measured at amortised cost using the effective interest rate method. (k) Dividends payable Under FRS 21 dividends proposed after the balance sheet date 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 Reconciliation of Movements in Shareholders' Funds when they have been approved by shareholders in the case of a final dividend, or paid in the case of an interim dividend, and have become a liability of the Company. (l) Cash and cash equivalents Cash comprises cash in hand and demand deposits. Cash equivalents are short term, highly liquid investments, that are readily convertible to known amounts of cash and that are subject to an insignificant risk of changes in value. 3. Income 2015 2014 £'000 £'000 Investment Income: UK listed dividends 8,005 7,115 UK listed dividends - special 1,085 936 Property income dividends 153 145 Overseas listed dividends 498 264 ----- ----- 9,741 8,460 ----- ----- Other income: Deposit interest 4 - Underwriting commission 20 - ----- ----- 24 - ----- ----- Total 9,765 8,460 ===== ===== Special dividends of £127,000 have been recognised in capital (2014: nil). 4. Investment management and performance fees 2015 2015 2015 2014 2014 2014 Revenue Capital Total Revenue Capital Total £'000 £'000 £'000 £'000 £'000 £'000 Investment management fee 620 1,861 2,481 574 1,726 2,300 Performance fee - 1,259 1,259 - 1,111 1,111 ---- ----- ---- ---- ----- ----- Total 620 3,120 3,740 574 2,837 3,411 ==== ===== ==== ==== ===== ===== 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 average rate of 10% of the annualised excess performance over the benchmark 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. 8.0% outperformance was generated against the Company's benchmark for the performance period ended 28 February 2015 (2014: 8.4%). The fee was restricted by the 0.25% cap and £1,259,000 has been accrued for the year ended 28 February 2015 (2014: £1,111,000). Performance fees have been wholly allocated to capital reserves as the performance has been predominately generated through capital returns of the investment portfolio. 5. Operating activities 2015 2014 £'000 £'000 (a) Other operating expenses (1): Auditor's remuneration: - audit services 21 19 - non audit services (2) 6 6 Registrar's fee 31 28 Marketing fees 186 119 Depositary fees 40 - Directors' remuneration (excluding expenses) 131 122 Other administrative costs 196 198 ----- ----- 611 492 Transaction charges - capital 26 - ----- ----- 637 492 ===== ===== The Company's ongoing charges - calculated as a percentage of average shareholders' funds and using operating expenses, excluding performance fees, finance costs and taxation were: 0.7% 0.7% ----- ----- The Company's ongoing charges - calculated as a percentage of average shareholders' funds and using operating expenses, including performance fees, and excluding finance costs and taxation were: 1.0% 1.0% ===== ===== (1) Expenses charged to capital arise from custodian transaction charges. (2) Non audit services relate to the review of the half yearly financial statements and debenture certificate. 2015 2014 £'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 (7,063) 133,834 Losses/(gains) on investments held at fair value through profit and loss 12,578 (129,276) Exchange losses of a capital nature - (1) Increase in accrued income (132) (40) Increase in creditors 419 487 ----- ----- Net cash inflow from operating activities 5,802 5,004 ===== ===== 6. Dividends Dividends paid on equity 2015 2014 shares: Record date Payment date £'000 £'000 2013 final of 6.50p 31 May 2013 3 July 2013 - 3,112 2014 interim of 4.60p 1 November 2013 29 November 2013 - 2,202 2014 final of 7.40p 16 May 2014 17 June 2014 3,543 - 2015 interim of 5.50p 7 November 2014 3 December 2014 2,633 - ----- ----- 6,176 5,314 ===== ===== The Directors have proposed a final dividend of 9.00p per share in respect of the year ended 28 February 2015. The proposed dividend will be paid, subject to shareholders' approval on 25 June 2015 to shareholders on the Company's register on 22 May 2015. The final dividend has not been included as a liability in these financial statements as proposed 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 1158 of the Corporation Tax Act 2010 and section 833 of the Companies Act 2006, and the amounts proposed meet the relevant requirements as set out in this legislation. 2015 2014 £'000 £'000 Dividends paid or proposed on equity shares: Interim paid 5.50p (2014: 4.60p) 2,633 2,202 Final proposed of 9.00p per share (2014: 7.40p) 4,309 3,543 ----- ----- 6,942 5,745 ===== ===== * Based upon 47,879,792 ordinary shares (excluding treasury shares) in issue on 27 April 2015. 7. (Loss)/Return per ordinary share Revenue and capital earnings per share are shown below and have been calculated using the following: 2015 2014 Net revenue return attributable to ordinary shareholders (£'000) 8,105 6,987 Net capital (loss)/return attributable to ordinary shareholders (£'000) (16,836) 125,236 ------- ------- Total (loss)/return (£'000) (8,731) 132,223 ======= ======= Total shareholders' funds (£'000) 456,936 471,843 ======= ======= The weighted average number of ordinary shares in issue during each year, on which the return per ordinary share was calculated, was: 47,879,792 47,879,792 ---------- ---------- The actual number of ordinary shares in issue at the end of the year, on which the net asset value was calculated, was: 47,879,792 47,879,792 ========== ========== 2015 2015 2015 2014 2014 2014 Revenue Capital Total Revenue Capital Total p p p p p p Return per share Calculated on weighted average number of ordinary shares 16.93 (35.17) (18.24) 14.59 261.56 276.15 Calculated on actual number of ordinary shares 16.93 (35.17) (18.24) 14.59 261.56 276.15 Net asset value per share (debenture at par value) - - 954.34 - - 985.47 ------ ------ ------ ------ ------ ------ Net asset value per share (debenture at fair value) - - 946.91 - - 978.01 ====== ====== ====== ====== ====== ====== 8. Called-up share capital Ordinary Treasury Total Nominal shares in shares shares value issue number number number £'000 Allotted, called up and fully paid share capital comprised: Ordinary shares of 25p each At 1 March 2014 47,879,792 2,113,731 49,993,523 12,498 ---------- --------- ---------- ------ At 28 February 2015 47,879,792 2,113,731 49,993,523 12,498 ========== ========= ========== ====== During the year no ordinary shares were purchased for cancellation or placed in treasury (2014: nil). 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. 9. Net asset value per ordinary share 2015 2014 Net assets attributable to ordinary shareholders (£'000) 456,936 471,843 The actual number of ordinary shares in issue at the end of each year on which the net asset value per ordinary share was calculated, was: 47,879,792 47,879,792 Net asset value per ordinary share (with debenture at par value) 954.34p 985.47p Net asset value per ordinary share (with debenture at par value, capital only) 942.91p 975.48p Net asset value per ordinary share (with debenture at fair value)* 946.91p 978.01p Ordinary share price 812.00p 908.00p * The fair value of the 7.75% debenture stock using the last available quoted offer price from the London Stock Exchange as at 28 February 2015 was 123.00p per debenture, a total of £18,450,000. (At 28 February 2014: 123.00p, a total of £18,450,000.) 10. Contingent liabilities There were no contingent liabilities at 28 February 2015 (2014: nil). 11. 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 2014, which have been filed with the Registrar of Companies. The report of the auditor for the years ended 28 February 2014 and 28 February 2015 contain no qualification or statement under section 498(2) or (3) of the Companies Act 2006. The 2015 Annual Report and Financial Statements will be filed with the Registrar of Companies after the Annual General Meeting. 12. 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. 13. Annual General Meeting The Annual General Meeting of the Company will be held at 12 Throgmorton Avenue, London EC2N 2DL on 18 June 2015 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.co.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: Simon White, Managing Director, Investment Companies, BlackRock Investment Management (UK) Limited Tel: 020 7743 5284 Mike Prentis, BlackRock Investment Management (UK) Limited Tel: 020 7743 2312 Emma Phillips, Media & Communications, BlackRock Investment Management (UK) Limited Tel: 020 7743 2922 27 April 2015 12 Throgmorton Avenue London EC2N 2DL
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