Half-yearly Report
BLACKROCK SMALLER COMPANIES TRUST plc
Half yearly financial announcement of results in respect of the six months
ended 31 August 2014
Performance Record
Financial Highlights
Six months Six months
ended ended Year ended
31 August 31 August 28 February
2014 2013 2014
Performance
Net asset value per share (1) 924.15p 805.30p 985.47p
Movement in net asset value per share (1) -6.2% +11.8% +36.8%
Net asset value per share (capital only) (1) 914.71p 796.23p 975.48p
Movement in net asset value per share
(capital only) (1) -6.2% +11.8% +36.9%
Movement in Numis Smaller Companies plus
AIM (excluding Investment Companies)
Index (2) -7.5% +6.7% +24.2%
Share price 800.50p 738.00p 908.00p
Movement in share price -11.8% +17.8% +44.9%
Discount (3) 12.7% 7.7% 7.2%
Revenue return per share 9.44p 9.07p 14.59p
Interim dividend per share 5.50p 4.60p 4.60p
Final dividend per share 7.40p
Change in interim dividend +19.6% +31.4% +31.4%
Change in total dividends +20.0%
Ongoing charges ratio (4) 0.7% 0.6% 0.7%
Ongoing charges ratio (including
performance fees) 1.0% 1.0% 1.0%
Gearing as a % of net assets 7.8% 10.4% 8.2%
(1) Debenture at par value.
(2) Excludes income reinvested.
(3) Discount based on NAV with debt at fair value.
(4) 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.
Chairman's statement
for the six months to 31 August 2014
PERFORMANCE
During the six months ended 31 August 2014 the Company's NAV fell by 6.2%^ to
924.15p per share; nevertheless, it slightly outperformed its benchmark (the
Numis Smaller Companies plus AIM (excluding Investment Companies) Index) which
fell by 7.5%^ over the same period. The Company's share price fell by 11.8%^ to
800.50p per share at the period end.
During the six months under review, progress in equity markets was constrained
by a number of factors, including geopolitical concerns over the heightened
unrest in Gaza, unrest in Ukraine and the implementation of sanctions by the US
and the EU targeting Russian individuals and companies. The FTSE 100 Index was
broadly flat, up by just 0.1%^ over the period, the FTSE 250 Index (excluding
Investment Companies) fell by 6.0%^ and the FTSE AIM Index by 12.6%^.
From March onwards small and mid-capitalisation companies in the UK experienced
sustained profit taking. Good quality small companies suffered as badly as any
and thus much of the period was a difficult time for investing in such companies.
In the UK, the economy continued to make progress with broadly-based growth,
although some investors question whether the recovery is sufficiently strong to
withstand an increase in interest rates. News flow from the portfolio remained
generally good and earnings growth was satisfactory.
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 2014 3 5 10
years years years
% % %
Net asset value per share 67.6 175.4 325.5
Benchmark* 40.0 72.2 77.9
Net asset value per share (with income 74.9 195.2 392.4
reinvested)
Benchmark* (with income reinvested) 50.6 93.9 126.6
Share price (with income reinvested) 76.5 219.5 442.7
* Benchmark - Numis Smaller Companies plus AIM (excluding Investment Companies)
Index from 1 September 2007; FTSE Small Cap Index excluding Investment Companies
prior to that date.
EARNINGS AND DIVIDENDS
The Company's revenue return per share for the six months ended 31 August 2014
amounted to 9.44p per share compared with 9.07p for the corresponding period in
the previous year. Regular dividends from portfolio companies increased by
14.6% in comparison with the same period last year, although special dividends
decreased; total dividend income increased by 6.4%.
The Board is pleased to declare an interim dividend of 5.50p per share (2013:
4.60p per share) representing an increase of 19.6% over the previous interim
dividend. The interim dividend will be paid on 3 December 2014 to shareholders
on the Company's register on 7 November 2014.
GEARING
During the period the Board negotiated an increase in its three year
multi-currency revolving loan facility with Scotia Bank (Ireland) Limited from
£25 million to £35 million, at a reduced interest rate, in order to be less
dependent on short term borrowings and to enable the Company to benefit from
opportunities in 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. 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 7.8% of net assets. Under normal operating conditions
it is envisaged that gearing will be within a range of 0%-15% of net assets.
DISCOUNT
During the period, the Company's shares traded at an average discount to the NAV
(with debt at fair value) of 10.5%, and this stood at 12.7% at 31 August 2014. The
sell-off in the smaller companies sector and reduced market liquidity led to
discounts widening across the sector during the period. Since the period end the
Company's discount has narrowed to 10.4% as at the date of this report.
The Board recognises 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, and 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
your Investment Manager is devoting considerable effort to broadening the
awareness of the Company's attractions particularly to wealth managers and
to the wider retail shareholder market.
ALTERNATIVE INVESTMENT FUND MANAGERS' DIRECTIVE
The Alternative Investment Fund Managers' Directive issued by the European
Commission (the "Directive") seeks to reduce systemic risk by regulating
alternative investment fund managers ("AIFMs"). AIFMs are responsible for
managing investment products that fall within the category of Alternative
Investment Funds ("AIFs") and investment trusts are included in this. BlackRock
Fund Managers Limited ("BFM") was authorised as an Alternative Investment Fund
Manager ("AIFM") by the Financial Conduct Authority ("FCA") on 1 May 2014 and
was appointed by the Board as the Company's AIFM under a new Investment
Management Agreement on 2 July 2014. The management fee remains unchanged.
Under the new agreement the Board continues to be independent from the AIFM.
The new agreement provides the appropriate balance between the Board's control
over the Company, its investment policies and compliance with regulatory
obligations. BFM has (with the Company's consent) delegated certain portfolio
and risk management services, and other ancillary services, to BlackRock
Investment Management (UK) Limited ("BIM (UK)").
The Board has also appointed BNY Mellon Trust & Depositary (UK) Limited (the
"Depositary") to act as the Company's Depositary (as required by the AIFMD) on
the terms and conditions of a depositary agreement between the Company, BFM and
the Depositary.
OUTLOOK
Since the end of the half year world stockmarkets have fallen. There are
significant uncertainties facing investors at present, which are set out
in the Investment Manager's report. Nevertheless, the news flow from, and
earnings prospects of, our portfolio companies remain generally good. In
consequence, and reflecting some share price declines, valuations are looking
more attractive.
Your Board believes that on a medium term basis a well chosen portfolio of
dynamic small and mid-capitalisation growth companies should perform well
and continue to provide attractive capital and dividend growth.
Nicholas Fry
Chairman
24 October 2014
^All performance figures are in sterling terms without income reinvested.
Investment manager's report
for the six months ended 31 August 2014
MARKET REVIEW AND INVESTMENT PERFORMANCE
From early March we began to see sustained profit taking in UK small and
mid-cap companies as investors began to reflect on the extent of their
outperformance of larger companies in recent years. A combination of mid-cap
selling by large cap equity funds managers, deleveraging by hedge funds and
outflows from smaller companies unit trusts led to a fall in share prices in
our universe. This made the period a difficult one for investing in fundamentally
good quality small and mid-cap companies.
The macroeconomic data, especially in the UK, has generally been good. In the
UK this has led investors to worry about the timing of interest rate rises. In
Continental Europe, GDP growth has disappointed, but the ECB appears determined
to provide any support needed.
Over the six month period the Company's NAV per share fell by 6.2%^ to 924.15p;
the benchmark fell by 7.5%^, whilst the FTSE 100 Index rose by 0.1%^. Disappointingly
our share price fell rather more as the discount widened.
PERFORMANCE REVIEW
The weakness in share price performances in our universe was in part due to
worries about interest rate rises in the UK and the impact on more UK
domestically focused companies; this affected the share prices of
housebuilders, despite strong operational statements from most, and retailers.
However, capital goods and software companies also underperformed as they saw
earnings downgrades driven by the strength of sterling and its impact on their
overseas earnings. These factors helped to drive the fall in NAV per share
during the period.
Looking at relative performance, the Company had a reasonable period.
Outperformance was driven by good stock selection, with sector allocation also
being positive. Gearing was maintained in the 7%-10% range throughout the
period, and this detracted from relative performance by about 0.6%.
Looking at stock selection, the most significant positive contributors to
relative performance were our holdings in Hyder Consulting, Telit
Communications and Hutchison China Meditech. Hyder Consulting received bids
from Arcadis and Nippon Koei before finally agreeing to a higher bid from
Arcadis. The shares rose strongly, achieving a record high and a recovery to
prices above those reached prior to the profit warning in February 2014. Telit
Communications announced a half year trading update to 30 June 2014 indicating
sales growth of 27% and confidence that full year 2014 results will meet
expectations. Telit provides cellular and short range communication modules
designed into a wide range of products, giving the company good revenue
visibility. Hutchison China Meditech develops, manufactures and markets a range
of prescription and over-the-counter botanical based pharmaceutical products.
The company's revenues, all of which arise in China, 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 that
they are seeing are very encouraging.
On the negative side, the largest detractors from relative performance were
Xaar and Blinkx. Xaar was one of the best performing holdings last year, but
this year has struggled partly due to the scale and speed of its success last
year which was impossible to replicate, but also partly because competitors are
catching up and launching printheads that are also good and attractively
priced. We have reduced our position recognising the greater risks in the near
term. Blinkx, the provider of web based video clips, indicated that revenue
growth had slowed and forecasts were cut accordingly. We decided to sell our
holding in the company.
Sector allocation benefited from our lack of holdings in the life insurance
sector. In particular, those companies providing annuities suffered following
the budget announcement that individuals would no longer be required to convert
their pension funds into annuities.
ACTIVITY
We have been active during the period, taking profit mainly in a number of
larger mid-cap companies which in our view had become too highly rated. Our
general approach has been to slowly recycle from these into smaller companies.
We used the proceeds to gain greater exposure to companies benefiting from the
expected gradual improvement in the economies of Continental Europe. This
includes companies such as Bodycote, Lavendon, Berendsen, SIG and Acal, some of
which were new holdings and some additions to existing holdings. We purchased a
holding in HellermannTyton, a global supplier of cable fasteners mainly to the
automotive market. We see the company doing well on the back of increasing car
production, especially in Europe. HellermannTyton's products are designed in
for model lives so revenues are relatively predictable and the shares are
attractively valued.
We also added holdings in Skyepharma and Restore. Skyepharma is a drug delivery
company whose best-selling product is flutiform, a treatment for asthma, which
has now been launched in 23 countries; in-market sales are growing strongly.
Restore manages and stores all aspects of business information in paper and
digital form, ranging from hour-to-hour retrieval through to end-of-life,
confidential disposal. Recurring revenues are a high proportion of the
company's total revenues, and both revenues and profits have grown strongly
over the last four years.
We have been highly selective in a more active IPO market; however, we did
participate in several IPOs including Cambian, a leading provider of services
to help heavily disabled people; Boohoo, the online fashion clothing retailer;
and FDM Group, an international professional services provider specialising
in the recruitment, training and deployment of its own permanent IT Consultants.
PORTFOLIO POSITIONING
Our strong preference is to own shares in companies which dominate their
markets through some clearly differentiated offering, which could include
technology, brand or service networks. We like companies with recurring or
predictable revenues, records of growing profits, strong cash generation, all
at a sensible valuation. Our approach is very stock specific, although it is
possible to see certain themes within the portfolio. We have reduced our exposure
to the UK housing market, through sales of holdings in Bellway and Countrywide,
but we continue to be positive about holdings such as St Modwen Properties,
Grainger and Quintain Estates, each of which remains attractively valued.
OUTLOOK
Since the end of the financial half year world stockmarkets have weakened
further. There are a number of reasons for this including weaker economic data
from Germany, concerns that the ECB may not be able to provide sufficient
monetary stimulus to revive the weak Continental European economy, concerns
about the ability to contain and eradicate ebola, conflict in the Middle East
and Ukraine and unrest in Hong Kong, and worries that Chinese GDP growth in
slowing. In the UK we have a general election next May with possible
implications for decision making ahead and after it. Disagreements with the
European Commission and a possible referendum on membership of the European
Union add further uncertainty.
On the positive side the US economy looks to be strengthening, the UK economy
is in reasonable shape albeit vulnerable to the weakness in Continental Europe,
lower oil prices should be good for global growth, Chinese GDP growth still
looks to be strong, and Central Banks around the world seem determined to
provide the necessary monetary conditions and work together. The fall in long
bond yields also makes equities look good value relative to bonds.
Turning to our portfolio, newsflow remains generally good with strong results
from more domestically focussed holdings such as Lookers, Restaurant Group and
Bovis Homes. We expect these and other companies to continue to trade well. The
more internationally exposed holdings have suffered from the strength of
Sterling during 2014, but the weakening of Sterling against the US Dollar in
recent months should provide some relief.
Given the combination of generally satisfactory earnings growth from our
portfolio and some share price declines, valuations are looking more
attractive. We do expect good earnings growth from our portfolio and yet
ratings do not appear aggressive nor are they at a material premium to larger
companies. We remain confident that our holdings are well placed to cope with
the many risks they face. We are also convinced that on a medium term basis a
well-chosen portfolio of dynamic, small and midcap growth companies will
perform well.
Mike Prentis
BlackRock Investment Management (UK) Limited (1)
24 October 2014
^All percentages in sterling terms without income reinvested.
(1). BlackRock Fund Managers Limited ("BFM") was appointed as the Alternative
Investment Fund Manager on 2 July 2014. BFM has (with the Company's consent)
delegated certain portfolio and risk management services, and other ancillary
services, to BIM (UK).
Investment exposure
Investment Size as at 31 August 2014
Number of % of
investments portfolio
£0m to £1m 33 3.27
£1m to £2m 55 16.74
£2m to £3m 31 15.78
£3m to £4m 24 17.61
£4m to £5m 12 10.92
£5m to £6m 17 19.24
£6m to £7m 6 8.07
£7m to £8m 2 3.21
£8m to £9m 3 5.15
£9m to £10m 0 0
Source: BlackRock
Market Capitalisation of our Portfolio Companies as at 31 August 2014
% of portfolio
£0m to £100m 10.51
£100m to £400m 38.50
£400m to £1bn 35.16
£1bn+ 15.83
Source: BlackRock
Twenty largest investments
as at 31 August 2014
%
Market of
value total
Company £'000 portfolio Business activity
Workspace Group 8,350 1.7 Supply of flexible workspace to
businesses in London
Optimal Payments 8,244 1.7 Provision of online payments solutions
Senior Engineering 8,071 1.7 Manufacture and supply of components
for the aerospace and automotive sector
Polar Capital 7,915 1.7 Investment management
Holdings
Avon Rubber 7,447 1.6 Production of safety masks and dairy
related products
Bodycote 6,911 1.4 Provider of thermal processing services
Headlam Group 6,654 1.4 Distribution of carpets and other floor
coverings
Elementis 6,570 1.4 Manufacture of additives that enhances
the feel, flow and finish of everyday
products
Telit 6,240 1.3 Design and sale of cellular
Communications communications products
Lookers 6,152 1.3 Suppliers of cars and after market
parts and services
Dunelm Group 6,052 1.3 Supply of home furnishings
St. Modwen 5,918 1.2 Property investment and development
Properties
Clarkson 5,873 1.2 Shipbroking and related activities
Savills 5,786 1.2 Provision of property services
Tyman 5,730 1.2 Manufacture and supply of window and
door components
Restaurant Group 5,693 1.2 Operation of branded restaurants
Keller 5,552 1.2 Provider of foundation and ground
engineering solutions
Hutchison China 5,499 1.2 Development and supply of traditional
Meditech Chinese medicines to the Chinese market
Victrex 5,391 1.1 Manufacture and supply of PEEK
thermoplastic products
Dechra 5,288 1.1 Development and supply of
Pharmaceuticals pharmaceutical and other products
focused on the veterinary market
------- -----
Twenty largest
investments 129,336 27.1
------- -----
Remaining
investments 347,878 72.9
------- -----
Total 477,214 100.0
======= =====
Details of the full portfolio are available on the Companys website at
blackrock.co.uk/brsc.
Distribution of investments
as at 31 August 2014
Analysis of Portfolio Value by Sector
%
Aerospace & Defence 3.7
Beverages 0.3
Chemicals 3.3
Construction & materials 5.0
Electronic & electrical equipment 2.7
Financial Services 7.8
Fixed Line Telecommunications 2.1
Food & Drug retailers 0.4
Food Producers 0.2
General Retailers 6.3
Health Care Equipment & Services 3.4
Household Goods & Home Construction 4.7
Industrial Engineering 2.7
Industrial Metals & Mining 0.1
Industrial Transportation 3.9
Media 5.7
Mining 5.2
Oil & Gas Producers 3.5
Personal Goods 1.1
Pharmaceuticals & Biotechnology 3.9
Real Estate Investment & Services 5.1
Real Estate Investment Trusts 2.9
Software & Computer Services 7.9
Support Services 11.5
Technology Hardware & Equipment 2.0
Travel & Leisure 4.6
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; and
Financial.
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 2014. A detailed explanation can be found in the Strategic Report on
pages 16 and 17, and in note 18 on pages 52 to 56 of the Annual Report and
Financial Statements which is available on the website maintained by BlackRock,
at blackrock.co.uk/brsc.
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 objectives 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 0.7%
of net assets. Ongoing charges with performance fees included were 1.0% of net
assets for the year ended 28 February 2014, 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 AIFM and Investment Manager
BlackRock Fund Managers Limited ("BFM") was appointed as the Company's AIFM
with effect from 2 July 2014. BFM has (with the Company's consent) delegated
certain portfolio and risk management services, and other ancillary services,
to BIM (UK). Both BFM and BIM (UK) are regarded as related parties under the
Listing Rules. Details of the management and performance fees payable are set
out in note 3 and note 10. The related party transactions with the Directors
are set out in note 11.
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 Disclosure and Transparency Rules.
This half yearly report has been reviewed by the Company's auditor and their
report is set out later in the announcement.
The half yearly financial report was approved by the Board on 24 October 2014
and the above responsibility statement was signed on its behalf by the
Chairman.
Nicholas Fry
For and on behalf of the Board
24 October 2014
Income statement
for the six months ended 31 August 2014
Revenue £'000 Capital £'000 Total £'000
Six Six Six Six Six Six
months months Year months months Year months months Year
ended ended ended ended ended ended ended ended ended
31.08.14 31.08.13 28.02.14 31.08.14 31.08.13 28.02.14 31.08.14 31.08.13 28.02.14
Notes (unaudited) (unaudited) (audited) (unaudited) (unaudited) (audited) (unaudited) (unaudited) (audited)
(Losses)/
gains on
investments
held at
fair value
through
profit or
loss 2 - - - (27,624) 41,801 129,276 (27,624) 41,801 129,276
Exchange
(losses)/
gains - - - (2) 1 1 (2) 1 1
Income from
investments
held at
fair value
through
profit or
loss 2 5,333 5,012 8,460 127 - - 5,460 5,012 8,460
Other
income 2 21 - - - - - 21 - -
Investment
management
and
performance
fees 3 (316) (264) (574) (2,189) (1,792) (2,837) (2,505) (2,056) (3,411)
Other
operating
expenses (290) (193) (492) (17) - - (307) (193) (492)
Net return/
(loss)
before
finance
costs and
taxation 4,748 4,555 7,394 (29,705) 40,010 126,440 (24,957) 44,565 133,834
Finance
costs (211) (201) (402) (633) (601) (1,204) (844) (802) (1,606)
----- ----- ----- ------ ------ ------- ------ ------ -------
Net return/
(loss) on
ordinary
activities
before
taxation 4,537 4,354 6,992 (30,338) 39,409 125,236 (25,801) 43,763 132,228
Taxation on
ordinary
activities (16) (9) (5) - - - (16) (9) (5)
----- ----- ----- ------ ------ ------- ------ ------ -------
Net return/
(loss) on
ordinary
activities
after
taxation 4,521 4,345 6,987 (30,338) 39,409 125,236 (25,817) 43,754 132,223
----- ----- ----- ------ ------ ------- ------ ------ -------
Return/
(loss) per
ordinary
share 4 9.44p 9.07p 14.59p (63.36p) 82.31p 261.56p (53.92p) 91.38p 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 and the Reconciliation of Movements in Shareholders' Funds.
All items in the above statement derive from continuing operations. All income
is attributable to the equity holders of BlackRock Smaller Companies Trust plc.
Reconciliation of movements in shareholders' funds
for the six months ended 31 August 2014
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
2014 (unaudited)
At 28 February 2014 12,498 38,952 1,982 406,226 12,185 471,843
Net (loss)/return
for the period - - - (30,338) 4,521 (25,817)
Dividends paid (a) - - - - (3,543) (3,543)
------ ------ ----- ------- ------ -------
At 31 August 2014 12,498 38,952 1,982 375,888 13,163 442,483
====== ====== ===== ======= ====== =======
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 (b) - - - - (3,112) (3,112)
------ ------ ----- ------- ------ -------
At 31 August 2013 12,498 38,952 1,982 320,399 11,745 385,576
====== ====== ===== ======= ====== =======
For the year ended
28 February 2014
(audited)
At 28 February 2013 12,498 38,952 1,982 280,990 10,512 344,934
Net return for the
year - - - 125,236 6,987 132,223
Dividends paid (c) - - - - (5,314) (5,314)
------ ------ ----- ------- ------ -------
At 28 February 2014 12,498 38,952 1,982 406,226 12,185 471,843
====== ====== ===== ======= ====== =======
(a) 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.
(b) 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.
(c) 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.
Balance sheet
as at 31 August 2014
31 August 31 August 28 February
2014 2013 2014
£'000 £'000 £'000
Notes (unaudited) (unaudited) (audited)
Fixed assets
Investments held at fair value
through profit or loss 477,214 429,341 510,627
------- ------- -------
Current assets
Debtors 886 559 2,169
Cash 7,343 - 4,187
------- ------- -------
8,229 559 6,356
------- ------- -------
Creditors - amounts falling due
within one year
Bank overdraft - (2,396) -
Other creditors (3,075) (4,058) (5,263)
------- ------- -------
(3,075) (6,454) (5,263)
------- ------- -------
Net current assets/(liabilities) 5,154 (5,895) 1,093
======= ======= =======
Total assets less current 482,368 423,446 511,720
liabilities
Creditors - amounts falling due 6 (39,885) (37,870) (39,877)
after more than one year
------- ------- -------
Net assets 442,483 385,576 471,843
======= ======= =======
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 375,888 320,399 406,226
Revenue reserve 13,163 11,745 12,185
Total equity shareholders' funds 4 442,483 385,576 471,843
======= ======= =======
Net asset value per ordinary
share (debenture at par value) 4 924.15p 805.30p 985.47p
======= ======= =======
Net asset value per ordinary
share (debenture at fair value) 4 916.71p 799.39p 978.01p
======= ======= =======
Cash flow statement
for the six months ended 31 August 2014
Six months Six months
ended ended Year ended
31 August 31 August 28 February
2014 2013 2014
£'000 £'000 £'000
Notes (unaudited) (unaudited) (audited)
Net cash inflow from operating 9 2,014 3,482 5,004
activities
Servicing of finance (828) (776) (1,597)
Taxation
Overseas withholding tax paid (4) (5) (1)
------- ------ -------
Total taxation (4) (5) (1)
------- ------ -------
Capital expenditure and financial
investment
Purchase of investments (99,891) (68,989) (182,342)
Proceeds from sale of investments 105,411 60,740 180,173
------- ------ -------
Net cash inflow/(outflow) from
capital expenditure and financial
investment 5,520 (8,249) (2,169)
------- ------ -------
Net cash inflow/(outflow) before
financing 6,701 (5,548) (1,237)
------- ------ -------
Financing
Equity dividends paid (3,543) (3,112) (5,314)
Inflow from drawdown of revolving
loan facility - 8,000 10,000
Net cash (outflow)/inflow from
financing (3,543) 4,888 4,686
------- ------ -------
Increase/(decrease) in cash in
the period 8 3,158 (660) 5,923
======= ====== =======
Notes to the financial statements
for the six months ended 31 August 2014
1. Principal activity and basis of preparation
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.
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 2014.
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 Statement of Investment Companies" ("SORP")
revised in January 2009.
2. Income
Six months Six months
ended ended Year ended
31 August 31 August 28 February
2014 2013 2014
£'000 £'000 £'000
(unaudited) (unaudited) (audited)
Investment income:
UK listed dividends 4,592 4,089 7,115
UK listed special dividends 374 683 936
Property income dividends 49 18 145
Overseas dividends 318 222 264
----- ----- -----
5,333 5,012 8,460
----- ----- -----
Other income:
Bank interest 1 - -
Underwriting commission 20 - -
----- ----- -----
21 - -
----- ----- -----
Total 5,354 5,012 8,460
===== ===== =====
(Losses)/gains on investments held at fair value through profit or loss
Six months Six months
ended ended Year ended
31 August 31 August 28 Feburary
2014 2013 2014
£'000 £'000 £'000
(unaudited) (unaudited) (audited)
Realised gains on sales 35,870 1,700 41,859
Movement in investment holding gains (63,494) 40,101 87,417
------ ------ -------
Total (27,624) 41,801 129,276
====== ====== =======
Special dividends of £127,000 have been recognised in the capital column of the
income statement (six months ended 31 August 2013 and year ended 28 February
2014: nil).
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
2014 2014 2014 2013 2013 2013 2014 2014 2014
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (audited) (audited) (audited)
Revenue Capital Total Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Investment
management
fee 316 947 1,263 264 792 1,056 574 1,726 2,300
Performance
fee - 1,242 1,242 - 1,000 1,000 - 1,111 1,111
--- ----- ----- --- ------ ----- --- ----- -----
Total 316 2,189 2,505 264 1,792 2,056 574 2,837 3,411
=== ===== ===== === ==== ===== === ===== =====
BFM was appointed as the Company's AIFM with effect from 2 July 2014, having
been authorised as AIFM on 1 May 2014. BFM has (with the Company's consent)
delegated certain portfolio and risk management services, and other ancillary
services, to BIM UK. Investment management fees were paid to BIM (UK) until
1 July 2014 and thereafter are payable to BFM.
The basic investment management fee has not changed. The fee is calculated
based on 0.65% in respect of the first £50 million of the Company's total
assets less current liabilities, reducing to 0.50% thereafter. A performance
fee is payable at the rate of 10% of the annualised 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 £1,242,000 has been accrued for the
six month period ended 31 August 2014 (six months ended 31 August 2013:
£1,000,000 and year ended 28 February 2014: £1,111,000). This is based on
outperformance of 5.6% against the benchmark resulting from an NAV return of
12.8% against the benchmark return of 7.2%. These percentage returns are the
annualised performance from 28 February 2013 to 28 February 2015 using actual
performance for the period 28 February 2013 to 31 August 2014 and assuming the
performance is in line with the benchmark for the six months ended 28 February
2015.
4. Return 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
ended ended Year ended
31 August 31 August 28 February
2014 2013 2014
(unaudited) (unaudited) (audited)
Net revenue return attributable to
ordinary shareholders (£'000) 4,521 4,345 6,987
Net capital (loss)/return attributable to
ordinary shareholders (£'000) (30,338) 39,409 125,236
------- ------- -------
Total (loss)/return attributable to
ordinary shareholders (£'000) (25,817) 43,754 132,223
======= ======= =======
Total shareholders' funds (£'000) 442,483 385,576 471,843
---------- ---------- ----------
The actual and weighted average 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 9.44p 9.07p 14.59p
Capital (loss)/return per ordinary share (63.36p) 82.31p 261.56p
======= ======= =======
Total (loss)/return per ordinary share (53.92p) 91.38p 276.15p
======= ======= =======
Net asset value per ordinary share (debt
at par value) 924.15p 805.30p 985.47p
======= ======= =======
Net asset value per ordinary share (debt
at fair value) 916.71p 799.39p 978.01p
======= ======= =======
5. Dividend
The Board has declared an interim dividend of 5.50p per share (2013: 4.60p
per share), payable on 3 December 2014 to shareholders on the register as at
7 November 2014; the ex dividend date is 6 November. The total cost of this
dividend, based on 47,879,792 shares in issue at 24 October, is £2,633,000
(2013: £2,202,000).
6. Creditors - amounts falling due after more than one year
Six months Six months
ended ended Year ended
31 August 31 August 28 Feburary
2014 2013 2014
£'000 £'000 £'000
(unaudited) (unaudited) (audited)
Revolving loan facility 25,000 23,000 25,000
7.75% debenture stock 2022 14,885 14,870 14,877
------ ------ ------
Total 39,885 37,870 39,877
------ ------ ------
The fair value of the 7.75% debenture stock using the last available quoted
offer price from the London Stock Exchange as at 31 August 2014 was 123.00p per
debenture, a total of £18,450,000.
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.
During the period the three year multi-currency revolving loan facility with
Scotia Bank (Ireland) Limited was increased to £35 million. At the period end,
£25 million of the facility had been utilised. Under the amended agreement the
termination date of this facility is the third anniversary of the effective
date being June 2014. Interest on this loan is payable at the rate of 1.70963%
(six months ended 31 August 2013: 1.88038%, year ended 28 February 2014:
1.82125%).
7. Called up share capital
Ordinary Treasury shares Nominal
shares shares in issue value
(number) (number) (number) £'000
Allotted, called up and fully
paid share capital comprised:
Ordinary shares of 25 pence
each
---------- --------- ---------- -------
At 28 February 2014 and
31 August 2014 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
2014 2013 2014
£'000 £'000 £'000
(unaudited) (unaudited) (audited)
Reconciliation of net cash flow to
movement in net debt
Increase/(decrease) in cash in the period 3,158 (660) 5,923
Drawdown of revolving loan facility - (8,000) (10,000)
Exchange movement (2) 1 1
Amortised debenture stock issue expenses (8) (7) (14)
-------- -------- --------
Movement in net debt in the period 3,148 (8,666) (4,090)
Opening net debt (35,690) (31,600) (31,600)
-------- -------- --------
Closing net debt (32,542) (40,266) (35,690)
======== ======== ========
9. Reconciliation of Net Return/(Loss) 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
2014 2013 2014
£'000 £'000 £'000
(unaudited) (unaudited) (audited)
Net (loss)/return before finance costs
and taxation (24,957) 44,565 133,834
Add/(less): losses/(gains) on investments
held at fair value through profit and
loss 27,624 (41,801) (129,276)
----- ----- -----
Net revenue return before finance costs
and taxation 2,667 2,764 4,558
Exchange losses/(gains) of a capital
nature 2 (1) (1)
Increase in accrued income (429) (240) (40)
(Decrease)/increase in creditors (226) 959 487
----- ----- -----
Net cash inflow from operating activities 2,014 3,482 5,004
===== ===== =====
10. Transaction with the AIFM and related parties
BIM (UK) provided management and administration services to the Company during
the period under review 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. BFM has (with the Company's
consent) delegated certain portfolio and risk management services, and other
ancillary services, to BIM (UK). Details of the fees payable to BIM (UK) up to
1 July 2014 and to BFM with effect from 2 July 2014 are set out in note 3.
The investment management and performance fees due to the Investment Manager
for the six months ended 31 August 2014 amounted to £2,505,000 (six months
ended 31 August 2013: £2,056,000; year ended 28 February 2014: £3,411,000). At
the period end, £1,864,000 was outstanding in respect of investment management
and performance fees (31 August 2013: 2,533,000; 28 February 2014: £1,755,000).
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 period ended 31 August 2014 amounted to
£75,000, including VAT (six months ended 31 August 2013: £nil; year ended
28 February 2014: £50,000) of which £75,000 (31 August 2013: £nil; 28 February
2014: £50,000) was outstanding at 31 August 2014.
11. Related party disclosure
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. The Chairman receives an annual fee of £36,000, the Chairman
of the Audit Committee receives an annual fee of £27,000 and each of the other
Directors receives an annual fee of £24,000.
At the period end members of the Board held ordinary shares in the Company as
set out below:
Ordinary
shares
31 August
2014
Nicholas Fry (Chairman) 40,000
Caroline Burton 4,500
Gillian Nott 11,500
Michael Peacock 1,000
Robert Robertson 80,062
12. Publication of non statutory accounts
The financial information contained in this half yearly report does not
constitute statutory accounts as defined in section 435 of the Companies Act
2006. The financial information for the six months ended 31 August 2014 and
31 August 2013 has not been audited.
The information for the year ended 28 February 2014 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 (3) of the Companies
Act 2006.
13. Contingent assets/liabilities
There were no contingent liabilities or assets at 31 August 2014, 31 August
2013 or 28 February 2014.
14. Annual results
The Board expects to announce the annual results for the year ending
28 February 2015 in late April 2015. Copies of the annual results announcement can
be obtained from the Secretary on 020 7743 3000 and a copy of the Annual Report
is available from the Company's website at blackrock.co.uk/brsc. The Annual Report
should be available by beginning of May 2015 with the Annual General Meeting being
held in June 2015.
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 2014 which comprises the Income Statement, Reconciliation of
Movements in Shareholders' Funds, Balance Sheet, Cash Flow Statement, and the
related notes. 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 Disclosure and Transparency
Rules of the United Kingdom's 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 2014, 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 2014
ENDS
The Half Yearly Financial Report will also be available on the BlackRock
website at 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 - 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 2014
END
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