Half-yearly Report
BLACKROCK SMALLER COMPANIES TRUST plc
Half yearly financial announcement of results in respect of the six months
ended 31 August 2013
Performance Record
Financial Highlights
Six months Six months Year
ended ended ended
31 August 31 August 28 February
2013 2012 2013
Performance
Net asset value per share* 805.30p 592.35p 720.42p
Movement in net asset value per share +11.8% -4.4% +16.2%
Net asset value per share (capital only)* 796.23p 586.05p 712.39p
Movement in net asset value per share
(capital only) +11.8% -4.2% +16.4%
Movement in Numis Smaller Companies plus
AIM (excluding Investment Companies)
Index +6.7% -4.4% +12.3%
Share price 738.00p 498.00p 626.50p
Movement in share price +17.8% -1.0% +24.6%
Discount 8.4% 15.9% 13.0%
------- ------- -------
Revenue return per share 9.07p 6.30p 11.53p
Dividend per share 4.60p 3.50p 10.00p
Change in dividend +31.4% +44.6% +19.0%
------- ------- -------
Ongoing charges ratio** 0.6% 0.7% 0.6%
Ongoing charges ratio (including
performance fees) 1.0% 0.9% 1.0%
Gearing as a % of net assets 10.4% 9.4% 9.2%
* Debenture at par value.
** 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.
Sources: BlackRock and Datastream.
Chairman's Statement
Performance
I am pleased to report strong results for your Company for the six months ended
31 August 2013. During the period the net asset value ("NAV") increased by 11.8% to
805.30p and the share price rose by 17.8% to 738.00p. By comparison, the Company's
benchmark, the Numis Smaller Companies plus AIM (excluding Investment Companies)
Index increased by 6.7%*.
The outperformance over the Company's benchmark was driven by stock selection,
assisted by gearing and to a lesser extent by positive sector allocation. Details
of the various contributors to performance can be found in the Investment Manager's
Report.
During the six months under review, the volatility experienced by global
equities has stabilised somewhat and UK economic data was more positive. Economic
momentum was building in the US, and some stabilisation was seen in Europe; sentiment
in Asia and the Emerging markets was in general weaker although there was a better
economic performance in Japan. There were bouts of nervousness about when the US
would taper its quantitative easing programme and what would follow that.
Small and midcap stocks have performed relatively well with the FTSE 250 Index
returning 6.7% compared with an increase of only 0.8% for the FTSE 100 Index. The
FTSE AIM Index improved on the poor performance at the last year end, ending the
period up by 1.6%.
Since the period end, the Company's NAV has increased by 8.0%, against a benchmark
increase of 6.8%, and the share price has risen by 10.2%*.
* All percentages in sterling terms without dividends re-invested.
Over the longer term the Company's performance has substantially exceeded the
Company's benchmark, as shown in the table below.
Performance to 31 August 2013 3 5 10
years years years
Net asset value per share +85.7% +104.0% +290.2%
Benchmark# +43.9% +46.3% +67.6%
Net asset value per share (with income
reinvested) +93.6% +120.2% +354.7%
Benchmark# (with income reinvested) +54.5% +66.1% +113.9%
Share price (with income reinvested) +121.9% +156.4% +422.6%
# Benchmark - Numis Smaller Companies plus AIM (excluding Investment Companies)
Index from 1 September 2007; FTSE SmallCap Index excluding Investment Companies
prior to that date.
Earnings and dividends
The Company’s revenue return per share for the six months to 31 August 2013
amounted to 9.07p compared with 6.30p for the corresponding period in
the previous year. Regular dividends from portfolio companies increased by
approximately 24% in comparison with the same period last year, and the
remainder of the increase resulted from a substantial increase in special
dividends.
The Board is pleased to declare an interim dividend of 4.60p per share (2012:
3.50p per share) representing an increase of 31.4% over the previous interim
dividend. The dividend will be paid on 29 November 2013 to shareholders on the
Company’s register on 1 November 2013.
Gearing
During the period the Board negotiated an increase in the three year
multi-currency revolving loan facility with Scotia Bank (Ireland) Limited to
£25 million in order to be less dependent on short term borrowings and to
enable the Company to benefit from the perceived improvement in prospects
for the smaller companies sector. This facility is in addition to the Company's
existing £15 million debenture and an uncommitted bank overdraft facility of
£20 million.
It is the Board's intention that gearing will not exceed 15% of the net assets
of the Company at the time of drawdown of the relevant borrowings. That figure
of 15% includes the Company's debenture, which currently represents 3.9% 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. At the period end, the Company's gearing was 10.4% of net assets.
Discount
The Board recognises that it is in the long term interests of shareholders that
the discount to NAV at which the shares trade should be minimised as far as
possible and seeks to narrow this margin. During the period, the discount narrowed
significantly and at 31 August 2013 stood at 8.4%; it has continued to narrow
since then.
Alternative Investment Fund Managers' Directive
The Alternative Investment Fund Managers' Directive ("the Directive") is a
European directive which seeks to reduce potential systemic risk by regulating
alternative investment fund managers ("AIFMs"). AIFMs are responsible for
investment products that fall within the category of Alternative Investment Funds
("AIFs") and investment trusts are included in this. The Directive was implemented
on 22 July 2013 although the Financial Conduct Authority ("FCA") permits a
transitional period of one year after that, during which UK AIFMs must seek
authorisation. The Board has taken, and will continue to take, independent
advice on the consequences for the Company of the implementation of the
Directive. It has decided in principle that BlackRock Fund Managers Limited
will be appointed as its AIFM before the end of the transitional period on
22 July 2014.
Outlook
Since the end of the period under review, particularly in October, the principal
focus of markets has been on the political deadlock in the US over the budget and
the debt ceiling. At times this resulted in weakness in markets and increased
volatility, although there has been a significant recovery with the announcement
of a temporary solution. Nonetheless, the government shut down in the US has caused
damage to the economy and it is expected that fiscal decisions will follow which
will affect US growth adversely. In the longer run, there is some concern that the
present episode will increase the perceived political risk of investment in the
world's largest economy. Thus a durable resolution to the present negotiations is
much to be desired.
Markets will continue to be preoccupied with the progress in the US and in the UK
towards the normalisation of interest rates, which could lead to periods of
uncertainty and volatility, although provided rates rise in response to improved
economic performance, this should in general be good for equities.
Against an improving economic background in the UK and much of the developed world,
we believe that the majority of companies in which we invest will continue to expand,
as they have good managements, robust balance sheets and in many cases significant
exposure to growing economies overseas. Within the UK the portfolio is invested in
companies with exposure to the strengthening UK housing market, improving UK consumer
confidence and the strength of the London economy, as well as leading edge
technologies. Confidence in the smaller companies sector has improved significantly.
We expect attractive returns for shareholders over the medium term.
Nicholas Fry
Chairman
24 October 2013
Investment Manager's Report
Six months ended 31 August 2013
Market review and overall investment performance
During the first six months of the current financial year stock markets have
generally moved steadily ahead. Economic data from the UK has been rather better
than expected and GDP growth looks to be accelerating. In the US, data from the
private sector has also been supportive and economic momentum looks to be building
slowly. The economies in Continental Europe seem to be stabilising. Data from Asia
and Emerging Markets has been mixed and overall sentiment seems weaker, but not
materially so, and there have been some pleasant surprises, for example, a much
better economic performance from Japan. The main setback that we saw in the period
related to the likely earlier than expected reduction in quantitative easing in
the US and ultimately the expectation of increases in interest rates in due course.
Over the six months ended 31 August 2013 the Company's NAV per share rose by 11.8%
to 805.30p; the benchmark rose by 6.7%, whilst the FTSE 100 Index rose by only 0.8%,
all without dividends reinvested.
Performance review
Outperformance was mainly driven by stock selection, assisted by gearing and to a
lesser extent, by positive sector allocation.
The strongest individual stock performance in the period came from Xaar, whose
share price rose by 142%. Xaar announced very strong trading updates and results,
reflecting huge success with the sales of its Platform 3 inkjet heads. These are
mainly being sold to enable the decoration of ceramic tiles; Xaar has taken
significant market share. The company remains well positioned and is looking at
other vertical markets for its printheads. Other contributors to performance came
from predominantly UK consumer related holdings including Howden Joinery Group,
LSL Property Services, Cineworld Group, Workspace Group and Restaurant Group. These
companies are all benefiting from a stronger than previously expected pick-up in
UK consumer spending, partly driven by a recovery in house prices and housing
activity, which is giving rise to the 'feel good' effect.
Companies that are generally more internationally focused contributed less well
although Blinkx and Ashtead Group performed better as did fund management company,
Polar Capital Holdings. Blinkx, the leading supplier of internet video search
capability and content, announced full year results with revenues and earnings
well ahead of expectations. Ashtead Group, the second largest provider of plant
for hire in the US, has also continued to trade well, benefiting from the
strengthening housebuilding market. With its modern fleet, the company is well
placed to gain further market share. Polar Capital Holdings has grown funds under
management on the back of strong fund performance and successful new launches.
The largest detractors from relative outperformance were some of the most internationally
exposed companies, Oxford Instruments and AZ Electronic Materials. Oxford Instruments
announced full year results in line with expectations but also indicated that the new
year had started slowly. The company sells instruments into research labs and some of
these have been affected by recent US Government spending cuts. We continue to see
Oxford Instruments as a core holding with strong management, products and finances and
believe that it will become a bigger company in the medium term. AZ Electronic Materials
also announced that it had a weaker start to the year and that it expected this to
continue into the second quarter; earnings were downgraded as a result and we have
sold our holding.
Looking at sector allocation, the most significant positive impact came from the
housebuilders, where we have held an overweight position for some time. Newsflow
remains good; we still like the sector and are happy to remain overweight. In the
more internationally exposed sectors we benefited by being underweight in the
technology hardware sectors, however our overweight position in electronics
companies was unhelpful.
Activity
During the period our strategy has been to increase exposure to the improving US
economy. We participated in a placing in Tyman, a company which manufactures door
fittings and window seals. The company is benefi ting from an increase in
housebuilding activity in the US, and in due course will benefit from a pick-up
in home improvements and repairs. Tyman announced the purchase of Truth from Melrose,
and with this, 60% of its sales are now concentrated in North America.
We took profits in some non-core holdings exposed to emerging markets due to
concerns about their short term growth potential. We also added to our UK property
exposure where we saw good value after the pullback during the early summer. We
bought a holding in Quintain Estates and have re-introduced Shaftesbury to the
portfolio. Both companies give us further exposure to the London property market.
We also added a holding in Grainger, which is exposed to rising UK house prices
and Speedy Hire, which we expect to benefit from increasing UK housebuilding and,
eventually construction activity.
With economic newsflow improving in the UK we have continued to seek additional
exposure to the UK consumer sector, adding a holding in Mitchells & Butlers, the
pub/restaurant operator. We have also added small holdings in a few technology
companies where we see growth potential, including Betfair.
Portfolio positioning and gearing
We have sought to maintain good exposure to strong themes, notably: the
strengthening US and UK housing markets; improving UK consumer confidence; the
strength of the London economy; increasing flows into equities; leading
technologies; and the increasing use of advanced, often online payments.
We remain underweight in the usual areas: support services, especially
suppliers to government; and food producers.
The portfolio remains well diversified with just over 150 holdings, the largest
of which is about 2.3% of the portfolio. All our larger holdings are well
established, generally midcap companies. Positions in very small companies are
taken where we believe the upside is potentially very attractive, but position
sizing is small, recognising the greater risk of disappointment.
We have retained our gearing position and during the period it remained in the
range of 9-11% of net assets.
Outlook
The economy continues to improve in the UK and seems to be stabilising in Europe.
In the US, data generally looks better, although the political difficulties of
agreeing a budget and a higher debt ceiling do not inspire confidence. Asian GDP
growth has been less predictable recently and the data is not always reliable.
Our feeling is that exposure to developed economies looks safer over the short term.
Interest rates may rise over the next few years, but this will be in reaction
to stronger economic growth and so arguably should not be bad for equities.
We think that well run small and midcap companies should continue to outperform
their larger peers and see further share price appreciation.
Mike Prentis
BlackRock Investment Management (UK) Limited
24 October 2013
Investment Exposure
Investment Size as at 31 August 2013
Number of Investments % of Portfolio
Less than £1m 28.0 3.2
£1m to £2m 46.0 16.1
£2m to £3m 29.0 16.6
£3m to £4m 21.0 16.6
£4m to £5m 12.0 12.4
£5m to £6m 10.0 12.8
£6m to £7m 6.0 9.0
£7m to £8m 4.0 7.0
£8m to £9m 2.0 4.0
£9m to £10m 1.0 2.3
Source: BlackRock.
Market Capitalisation of our portfolio companies as at 31 August 2013
% of Portfolio
Less than £100m 10.0
£100m to £400m 31.7
£400m to £1bn 32.1
More than £1bn 26.2
Source: BlackRock.
Twenty Largest Holdings
as at 31 August 2013
Market %
value of
Company £'000 investments Business activity
Bellway 9,849 2.3 Housebuilding
Howden Joinery Group 8,964 2.1 Design and manufacture of kitchens
sold to local builders
Workspace Group 8,368 1.9 Supply of flexible workspace to
businesses in London
Senior 7,968 1.9 Manufacture and supply of
components for the aerospace and
automotive sector
Dunelm Group 7,591 1.8 Supply of home furnishings
Booker Group 7,398 1.7 Wholesale of grocery products
ITE Group 7,298 1.7 Organisation of trade exhibitions
in Russia and other former Soviet
Union countries
Restaurant Group 6,850 1.6 Operation of branded restaurants
Ashtead Group 6,699 1.6 Hire of plant, predominantly in
the US
LSL Property Services 6,524 1.5 Provision of residential property
services
Polar Capital Holdings 6,307 1.5 Investment management
Xaar 6,273 1.5 Design and manufacture of
industrial printheads used in
inkjet printers
Oxford Instruments 6,218 1.4 Design and manufacture of tools
and systems to analyse and
manipulate matter at the atomic
level
Blinkx 5,977 1.4 Supply of video technology and an
online catalogue to enable video
clips to be viewed
Victrex 5,936 1.4 Manufacture and supply of PEEK
thermoplastic products
Cineworld Group 5,769 1.3 Operation of cinemas in the UK
Clarkson 5,543 1.3 Shipbroking and related activities
Optimal Payments 5,512 1.3 Provision of online payments
solutions
Hyder Consulting 5,381 1.2 Provision of engineering design
services
Headlam Group 5,339 1.2 Distribution of carpets and other
floor coverings
------- -----
Total of 20 largest
investments 135,764 31.6
------- -----
Remaining investments 293,577 68.4
------- -----
Total 429,341 100.0
======= =====
Details of the full portfolio at 31 August 2013 are available at
http://www.blackrock.co.uk/individual/literature/fund-update/brsct-portfolio-disclosure-mar-2013.pdf.
Distribution of Investments
as at 31 August 2013
Analysis of portfolio by sector
Portfolio
Oil & Gas Producers 3.5
Chemicals 3.3
Industrial Metals & Mining 0.6
Mining 2.4
Construction & Materials 2.6
Aerospace & Defence 3.4
Electronic & Electrical Equipment 4.4
Industrial Engineering 1.2
Industrial Transportation 2.6
Support Services 8.4
Beverages 0.4
Food Producers 0.6
Household Goods & Home Construction 6.0
Leisure Goods 0.5
Personal Goods 1.6
Health Care Service & Equipment 2.6
Pharmaceuticals & Biotechnology 4.3
Food & Drug Retailers 1.7
General Retailers 6.8
Media 5.7
Travel & Leisure 8.1
Fixed-Line Telecommunication Services 1.3
Gas, Water & Multiutilities 0.4
Real Estate Investment & Services 5.9
Real Estate Investment Trusts 3.4
Financial Services 10.7
Software & Computer Services 6.6
Technology Hardware & Equipment 1.0
Source: BlackRock.
Interim Management Report and Responsibility Statement
The Chairman's Statement and the Investment Manager's Report give details of
the important events which have occurred during the period and their impact on
the financial statements.
Principal risks and uncertainties
The principal risks faced by the Company can be divided into various areas as
follows:
- Performance;
- Income/dividend;
- Regulatory;
- Operational;
- Market;
- Financial; and
- Third party service providers.
The Board reported on the principal risks and uncertainties faced by the
Company in the Annual Report and Financial Statements for the year ended
28 February 2013 which is available on the website maintained by the Investment
Manager, BlackRock Investment Management (UK) Limited, at www.blackrock.co.uk/
brsc. A detailed explanation can be found in the Directors' Report on pages 18
and 19, and in note 19 to the financial statements on pages 51 to 55 of the
Annual Report and Accounts.
In the view of the Board, there have not been any changes to the fundamental
nature of these risks since the previous report and these principal risks and
uncertainties are equally applicable to the remaining six months of the
financial year as they were to the six months under review.
Going concern
The Directors, having considered the nature and liquidity of the portfolio,
the Company's investment objective and the Company's projected income and
expenditure, are satisfied that the Company has adequate resources to continue
in operational existence for the foreseeable future and is financially sound.
For this reason, they continue to adopt the going concern basis in preparing the
financial statements. The Company is able to meet all of its liabilities from
its assets and income generated from these assets and the ongoing charges
(excluding performance fees, finance costs and taxation) are approximately 0.6%
of net assets. Ongoing charges with performance fees included were 1.0% of net
assets for the year ended 28 February 2013, and as the performance fee is capped
at 0.25% of total assets less current liabilities, ongoing charges calculated
on this basis are not likely to significantly exceed this going forward.
Related party disclosure and transactions with the Investment Manager
The Investment Manager is regarded as a related party under the Listing Rules
and details of the management fees payable are set out in note 3 and note 10.
The related party transactions with the Directors are set out in note 10.
Directors' responsibility statement
The Disclosure and Transparency Rules ("DTR") of the UK Listing Authority
require the Directors to confirm their responsibilities in relation to the
preparation and publication of the Interim Management Report and Financial
Statements.
The Directors confirm to the best of their knowledge that:
- the condensed set of financial statements contained within the half yearly
financial report has been prepared in accordance with applicable UK Accounting
Standards and the Accounting Standards Board's Statement 'Half Yearly Financial
Reports'; and
- the interim management report, together with the Chairman's Statement and
Investment Manager's Report, include a fair review of the information required
by 4.2.7R and 4.2.8R of the FCA's DTR.
This half yearly report has been reviewed by the Company's auditor and their
report is attached to this announcement.
The half yearly financial report was approved by the Board on 24 October 2013
and the above responsibility statement was signed on its behalf by the
Chairman.
Nicholas Fry
For and on behalf of the Board
24 October 2013
Income Statement
for the six months ended 31 August 2013
Revenue £'000 Capital £'000 Total £'000
Six months Six months Year Six months Six months Year Six months Six months Year
ended ended ended ended ended ended ended ended ended
Notes 31.08.13 31.08.12 28.02.13 31.08.13 31.08.12 28.02.13 31.08.13 31.08.12 28.02.13
(unaudited) (unaudited) (audited) (unaudited) (unaudited) (audited) (unaudited) (unaudited) (audited)
Gains/
(losses) on
investments
held at
fair value
through
profit or
loss 2 - - - 41,801 (11,608) 50,439 41,801 (11,608) 50,439
Exchange
gains/
(losses) - - - 1 - (1) 1 - (1)
Income from
investments
held at
fair value
through
profit or
loss 2 5,012 3,587 6,697 - - - 5,012 3,587 6,697
Other
income 2 - 8 8 - - - - 8 8
Investment
management
and
performance
fees 3 (264) (191) (418) (1,792) (1,103) (2,114) (2,056) (1,294) (2,532)
Other
operating
expenses (193) (204) (397) - - - (193) (204) (397)
----- ----- ----- ------ ------ ------ ------ ------ ------
Net return/
(loss)
before
finance
costs and
taxation 4,555 3,200 5,890 40,010 (12,711) 48,324 44,565 (9,511) 54,214
Finance
costs (201) (185) (368) (601) (558) (1,104) (802) (743) (1,472)
----- ----- ----- ------ ------ ------ ------ ------ ------
Return/
(loss) on
ordinary
activities
before
taxation 4,354 3,015 5,522 39,409 (13,269) 47,220 43,763 (10,254) 52,742
Taxation on
ordinary
activities (9) - (2) - - - (9) - (2)
----- ----- ----- ------ ------ ------ ------ ------ ------
Return/
(loss) on
ordinary
activities
after
taxation 4,345 3,015 5,520 39,409 (13,269) 47,220 43,754 (10,254) 52,740
===== ===== ===== ====== ====== ====== ====== ====== =======
Return/
(loss) per
ordinary
share 4 9.07p 6.30p 11.53p 82.31p (27.72p) 98.62p 91.38p (21.42p) 110.15p
===== ===== ====== ===== ====== ====== ====== ======= =======
The total column of this statement represents the return or loss of the
Company. The supplementary revenue and capital columns are both prepared under
guidance published by the Association of Investment Companies (AIC). The
Company has 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.
Reconciliation of Movements in Shareholders' Funds
for the six months ended 31 August 2013
Called
up Share Capital
share premium redemption Capital Revenue
capital account reserve reserves reserve Total
£'000 £'000 £'000 £'000 £'000 £'000
For the six months ended
31 August 2013 (unaudited)
At 28 February 2013 12,498 38,952 1,982 280,990 10,512 344,934
Net return for the period - - - 39,409 4,345 43,754
Dividends paid (a) - - - - (3,112) (3,112)
------ ------ ----- ------- ------ -------
At 31 August 2013 12,498 38,952 1,982 320,399 11,745 385,576
====== ====== ===== ======= ====== =======
For the six months ended
31 August 2012 (unaudited)
At 29 February 2012 12,498 38,952 1,982 233,770 9,531 296,733
Net (loss)/return for the
period - - - (13,269) 3,015 (10,254)
Dividends paid (b) - - - - (2,863) (2,863)
------ ------ ----- ------- ------ -------
At 31 August 2012 12,498 38,952 1,982 220,501 9,683 283,616
====== ====== ===== ======= ====== =======
For the year ended 28 February
2013 (audited)
At 29 February 2012 12,498 38,952 1,982 233,770 9,531 296,733
Net return for the year - - - 47,220 5,520 52,740
Dividends paid (c) - - - - (4,539) (4,539)
------ ------ ----- ------- ------ -------
At 28 February 2013 12,498 38,952 1,982 280,990 10,512 344,934
====== ====== ===== ======= ====== =======
(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.
(b) Final dividend of 5.98p per share for the year ended 29 February 2012,
declared on 26 April 2012 and paid on 4 July 2012.
(c) Final dividend of 5.98p per share for the year ended 29 February 2012,
declared on 26 April 2012 and paid on 4 July 2012 and interim dividend of 3.50p
per share for the six months ended 31 August 2012, declared on 26 October 2012
and paid on 7 December 2012.
Balance Sheet
as at 31 August 2013
31 August 31 August 28 February
2013 2012 2013
£'000 £'000 £'000
Notes (unaudited) (unaudited) (audited)
Fixed assets
Investments held at fair value
through profit or loss 429,341 312,499 379,655
------- ------- -------
Current assets
Debtors 559 525 184
Creditors - amounts falling due
within one year
Bank overdraft (2,396) (1,043) (1,736)
Other creditors (4,058) (3,009) (3,306)
------- ------- -------
(6,454) (4,052) (5,042)
------- ------- -------
Net current liabilities (5,895) (3,527) (4,858)
======= ======= =======
Total assets less current
liabilities 423,446 308,972 374,797
Creditors - amounts falling due
after more than one year 6 (37,870) (25,356) (29,863)
------- ------- -------
Net assets 385,576 283,616 344,934
======= ======= =======
Capital and reserves
Called up share capital 7 12,498 12,498 12,498
Share premium account 38,952 38,952 38,952
Capital redemption reserve 1,982 1,982 1,982
Capital reserves 320,399 220,501 280,990
Revenue reserve 11,745 9,683 10,512
------- ------- -------
Total equity shareholders' funds 4 385,576 283,616 344,934
======= ======= =======
Net asset value per ordinary
share (debenture at par value) 4 805.30p 592.35p 720.42p
======= ======= =======
Net asset value per ordinary
share (debenture at fair value) 4 799.39p 588.16p 715.37p
======= ======= =======
Cash Flow Statement
for the six months ended 31 August 2013
Six months Six months Year
ended ended ended
31 August 31 August 28 February
2013 2012 2013
£'000 £'000 £'000
Notes (unaudited) (unaudited) (audited)
Net cash inflow from operating
activities 9 3,482 2,095 4,097
Servicing of finance (776) (722) (1,431)
Taxation
Tax received - 20 20
Overseas withholding tax (paid)/
refunded (5) - 5
------ ------ -------
(5) 20 25
------ ------ -------
Capital expenditure and financial
investment
Purchases of investments (68,989) (59,291) (137,299)
Proceeds from sales of
investments 60,740 57,152 130,345
------ ------ -------
Net cash outflow from capital
expenditure and financial
investment (8,249) (2,139) (6,954)
Financing activities
Equity dividends paid (3,112) (2,863) (4,539)
Inflow from drawdown of revolving
loan facility 8,000 10,500 15,000
------ ------ -------
Net cash inflow from financing 4,888 7,637 10,461
------ ------ -------
(Decrease)/increase in cash in
the period 8 (660) 6,891 6,198
====== ====== =======
Notes to the Financial Statements
1. Principal activity and basis of preparation
The Company conducts its business so as to qualify as an investment trust
company within the meaning of section 1158 of the Corporation Tax Act 2010.
The half yearly financial statements have been prepared using the same
accounting policies set out in the Company's financial statements for the year
ended 28 February 2013.
The taxation charge has been calculated by applying an estimate of the annual
effective tax rate to any profit for the period.
The Company's financial statements have been prepared in accordance with United
Kingdom Generally Accepted Accounting Practice (UK GAAP) and the Statement of
Recommended Practice "Financial Statements of Investment Trust Companies"
(SORP) revised in January 2009.
2. Income
Six months Six months Year
ended ended ended
31 August 31 August 28 February
2013 2012 2013
£'000 £'000 £'000
(unaudited) (unaudited) (audited)
Investment income:
UK listed dividends 4,772 3,406 6,355
Property income dividends 18 54 133
Overseas listed dividends 222 127 209
----- ----- -----
5,012 3,587 6,697
----- ----- -----
Other income:
Underwriting commission - 8 8
----- ----- -----
- 8 8
----- ----- -----
Total 5,012 3,595 6,705
===== ===== =====
Gains/(losses) on investments held at fair value through profit or loss
Six months Six months Year
ended ended ended
31 August 31 August 28 February
2013 2012 2013
£'000 £'000 £'000
(unaudited) (unaudited) (audited)
Realised gains on sales 1,700 14,127 22,844
Movement in investment holding gains 40,101 (25,735) 27,595
------ ------ ------
41,801 (11,608) 50,439
====== ====== ======
3. Investment management and performance fees
Six months Six months Six months Six months Six months Six months Year Year Year
ended ended ended ended ended ended ended ended ended
31 August 31 August 31 August 31 August 31 August 31 August 28 February 28 February 28 February
2013 2013 2013 2012 2012 2012 2013 2013 2013
Revenue Capital Total Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
(unaudited) (unaudited) (unaudited)(unaudited) (unaudited)(unaudited) (audited) (audited) (audited)
Investment
Management
fee 264 792 1,056 191 575 766 418 1,254 1,672
Performance
fee - 1,000 1,000 - 528 528 - 860 860
--- ----- ----- --- ----- ----- --- ----- -----
264 1,792 2,056 191 1,103 1,294 418 2,114 2,532
=== ===== ===== === ===== ===== === ===== =====
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 0.5% thereafter. A performance fee is payable at the rate of 10% of
the annualised outperformance over the benchmark, the Numis Smaller Companies
plus AIM (excluding Investment Companies) Index, 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 £1,000,000 has been accrued for the
six month period ended 31 August 2013 (six months ended 31 August 2012: £528,000
and year ended 28 February 2013: £860,000). This is based on outperformance of
3.9% against the benchmark resulting from an NAV return of 13.4% against the
benchmark return of 9.5%. These percentage returns are the annualised
performance from 29 February 2012 to 28 February 2014 using actual performance
for the period 29 February 2012 to 31 August 2013 and assuming the performance
is in line with the benchmark for the six months ended 28 February 2014.
4. Returns and net asset value per ordinary share
Revenue and capital returns per share are shown below and have been calculated
using the following:
Six months Six months Year
ended ended ended
31 August 31 August 28 February
2013 2012 2013
(unaudited) (unaudited) (audited)
Net revenue return attributable to
ordinary shareholders (£'000) 4,345 3,015 5,520
Net capital return/(loss) attributable to
ordinary shareholders (£'000) 39,409 (13,269) 47,220
------- ------- -------
Total return/(loss) (£'000) 43,754 (10,254) 52,740
======= ======= =======
Equity shareholders' funds (£'000) 385,576 283,616 344,934
---------- ---------- ----------
The actual and weighted number of
ordinary shares in issue at the end of
each period, on which the return and net
asset value per ordinary share was
calculated was: 47,879,792 47,879,792 47,879,792
---------- ---------- ----------
Revenue return per ordinary share 9.07p 6.30p 11.53p
Capital return/(loss) per ordinary share 82.31p (27.72p) 98.62p
------- ------- -------
Total return/(loss) per ordinary share 91.38p (21.42p) 110.15p
======= ======= =======
Net asset value per ordinary share (debt
at par value) 805.30p 592.35p 720.42p
======= ======= =======
Net asset value per ordinary share (debt
at fair value) 799.39p 588.16p 715.37p
======= ======= =======
5. Dividend
The Board has declared an interim dividend of 4.60p per share (2012: 3.50p per
share), payable on 29 November 2013 to shareholders on the register as at
1 November 2013; the ex dividend date is 30 October 2013. The total cost of this
dividend, based on 47,879,792 shares in issue at 24 October 2013, is £2,202,470
(2012: £1,675,792).
6. Creditors - amounts falling due after more than one year
Six months Six months Year
ended ended ended
31 August 31 August 28 February
2013 2012 2013
£'000 £'000 £'000
(unaudited) (unaudited) (audited)
Revolving loan facility 23,000 10,500 15,000
7.75% debenture stock 2022 14,870 14,856 14,863
------- ------- -------
37,870 25,356 29,863
------- ------- -------
The fair value of the 7.75% debenture stock using the quoted market price at
31 August 2013 was 118.00p per debenture, a total of £17,700,000.
The £15 million debenture stock was issued on 8 July 1997. Interest on the
stock is payable in equal half yearly instalments on 31 July and 31 January in
each year. The stock is secured by a first floating charge over the whole of
the assets of the Company and is redeemable at par on 31 July 2022.
The three year £25 million multi-currency revolving loan facility with Scotia
Bank (Ireland) Limited was issued on 29 May 2013 at the period end, £23 million
of the facility had been utilised. Interest on this loan is payable at the rate
of 1.88038%.
7. Called up share capital
Ordinary Treasury Nominal
shares shares Total value
(number) (number) shares £'000
Allotted, issued and fully paid
share capital comprised:
Ordinary shares of 25p each
---------- --------- ---------- -------
At 28 February 2013 and 31 August
2013 47,879,792 2,113,731 49,993,523 12,498
========== ========= ========== ======
8. Movement in net debt
Six months Six months Year
ended ended ended
31 August 31 August 28 February
2013 2012 2013
£'000 £'000 £'000
(unaudited) (unaudited) (audited)
Reconciliation of net cash flow to
movement in net debt
(Decrease)/increase in cash in the period (660) 6,891 6,198
Drawdown of revolving loan facility (8,000) (10,500) (15,000)
Exchange movement 1 - (1)
Amortised debenture stock issue expenses (7) (7) (14)
------ ------ ------
Movement in net debt in the period (8,666) (3,616) (8,817)
Opening net debt (31,600) (22,783) (22,783)
------ ------ ------
Closing net debt (40,266) (26,399) (31,600)
====== ====== ======
9. Reconciliation of Net Return before Finance Costs and Taxation to Net Cash
Flow from Operating Activities
Six months Six months Year
ended ended ended
31 August 31 August 28 February
2013 2012 2013
£'000 £'000 £'000
(unaudited) (unaudited) (audited)
Net return/(loss) before finance costs
and taxation 44,565 (9,511) 54,214
(Less)/add: capital (gains)/losses before
finance costs and taxation (40,010) 12,711 (48,324)
------- ------ --------
Net revenue return before finance costs
and taxation 4,555 3,200 5,890
Investment management and performance
fees charged to capital (1,792) (1,103) (2,114)
Increase in accrued income (240) (196) (12)
Increase in creditors 959 194 333
------- ------ -------
Net cash inflow from operating activities 3,482 2,095 4,097
====== ===== ======
10. Related party disclosure
BlackRock Investment Management (UK) Limited ("BlackRock") provides management
and administration services to the Company under a contract which is terminable
on six months' notice. Details of the fees receivable by BlackRock in relation
to these services are set out in note 3.
The fee due to the Investment Manager for the six months ended 31 August 2013
amounted to £2,056,000 (six months ended 31 August 2012: £1,294,000 and year
ended 28 February 2013: £2,532,000). At the period end, £2,533,000 was
outstanding in respect of investment management and performance fees (six
months ended 31 August 2012: £1,702,000 and year ended 28 February 2013:
£1,762,000).
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.
With effect from 1 March 2013, the Chairman receives an annual fee of £32,250,
the Chairman of the Audit Committee receives an annual fee of £24,750 and each
of the other Directors receives an annual fee of £21,500.
At the period end members of the Board held ordinary shares in the Company as
set out below:
Ordinary
shares
Nicholas Fry (Chairman) 40,000
Caroline Burton 3,000
Gillian Nott 11,500
Michael Peacock 1,000
Robert Robertson 80,062
11. Publication of non statutory accounts
The financial information contained in this half yearly financial report does
not constitute statutory accounts as defined in the Companies Act 2006. The
financial information for the six months ended 31 August 2013 and 31 August
2012 has not been audited.
The information for the year ended 28 February 2013 has been extracted from the
latest published audited financial statements which have been filed with the
Registrar of Companies. The report of the auditor on those accounts contained
no qualification or statement under sections 498(2) or 498(3) of the Companies
Act 2006.
12. Contingent liabilities
There were no contingent liabilities at 31 August 2013 (31 August 2012 and 28
February 2013: nil).
13. Annual results
The Board expects to announce the annual results for the year ended 28 February
2014, in late April 2014. Copies of the annual results announcement can be
obtained from the Secretary on 020 7743 3000. The annual report should be
available by the beginning of May 2014 with the Annual General Meeting being
held in June 2014.
Independent Review Report
to BlackRock Smaller Companies Trust plc
Introduction
We have been engaged by the Company to review the condensed set of financial
statements in the half yearly financial report for the six month period ended
31 August 2013 which comprises the Income Statement, Reconciliation of
Movements in Shareholders' Funds, Balance Sheet, Cash Flow Statement, and the
related notes 1 to 13. We have read the other information contained in the half
yearly financial report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in the condensed
set of financial statements.
This report is made solely to the Company in accordance with guidance contained
in International Standard on Review Engagements (UK and Ireland) 2410, "Review
of Interim Financial Information Performed by the Independent Auditor of the
Entity" issued by the Auditing Practices Board. To the fullest extent permitted
by law, we do not accept or assume responsibility to anyone other than the
Company, for our work, for this report, or for the conclusions we have formed.
Directors' responsibilities
The half yearly financial report is the responsibility of, and has been
approved by, the Directors. The Directors are responsible for preparing the
half yearly financial report in accordance with the Listing Rules of the
Financial Conduct Authority.
As disclosed in note 1, the annual financial statements of the Company are
prepared in accordance with United Kingdom Generally Accepted Accounting
Practice. The condensed set of financial statements included in this half
yearly financial report has been prepared in accordance with the Accounting
Standards Board Statement "Half Yearly Financial Reports".
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed
set of financial statements in the half yearly financial report based on our
review.
Scope of review
We conducted our review in accordance with International Standard on Review
Engagements (UK and Ireland) 2410, "Review of Interim Financial Information
Performed by the Independent Auditor of the Entity" issued by the Auditing
Practices Board for use in the United Kingdom. A review of interim financial
information consists of making enquiries, primarily of persons responsible for
financial and accounting matters and applying analytical and other review
procedures. A review is substantially less in scope than an audit performed in
accordance with International Standards on Auditing (UK and Ireland) and
consequently does not enable us to obtain assurance that we would become aware
of all significant matters that might be identified in an audit. Accordingly,
we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half yearly
financial report does not give a true and fair view of the financial position
of the Company as at 31 August 2013, and of its financial performance and its
cash flows for the six month period then ended, in accordance with the
Accounting Standards Board Statement "Half Yearly Financial Reports" and the
Disclosure and Transparency Rules of the United Kingdom's Financial Conduct
Authority.
Scott-Moncrieff
Chartered Accountants
Edinburgh
24 October 2013
ENDS
The Half Yearly Financial Report will also be available on the BlackRock
Investment Management website at:
http://www.blackrock.co.uk/individual/literature/interim-report/blackrock-smaller-companies-trust-plc-interim-report-2013.pdf
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 - 020 7743 5284
Mike Prentis, Fund Manager - 020 7743 2312
Emma Phillips, Media & Communications - 020 7743 2922
BlackRock Investment Management (UK) Limited
12 Throgmorton Avenue
London
EC2N 2DL
24 October 2013
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