Half-yearly Report
BlackRock Smaller Companies Trust plc
PERFORMANCE RECORD
FINANCIAL HIGHLIGHTS
| Six months ended 31 August 2015 |
Six months ended 31 August 2014 |
Year ended 28 February 2015 |
|
| Performance | |||
| Net asset value per share (1,2) |
1,039.98p |
924.15p |
954.34p |
| Movement in net asset value per share (1,2) |
+9.0% |
-6.2% |
-3.2% |
| Net asset value per share (capital only) (1) |
1,026.41p |
914.71p |
942.91p |
| Movement in net asset value per share (capital only) (1) |
+8.9% |
-6.2% |
-3.3% |
| Movement in Numis Smaller Companies plus AIM (excluding Investment Companies) Index (2) | +2.4% |
-7.5% |
-8.5% |
| Share price | 925.50p | 800.50p | 812.00p |
| Movement in share price | +14.0% | -11.8% | -10.6% |
| Discount (3) | 10.1% | 12.7% | 14.2% |
| -------- | -------- | -------- | |
| Revenue return per share | 13.57p | 9.44p | 16.93p |
| Interim dividend per share | 7.00p | 5.50p | 5.50p |
| Final dividend per share | 9.00p | ||
| Change in interim dividend | +27.3% | +19.6% | +19.6% |
| Change in total dividends | +20.8% | ||
| -------- | -------- | -------- | |
| Ongoing charges ratio (4) | 0.7% | 0.7% | 0.7% |
| Ongoing charges ratio (including performance fees) |
1.0% |
1.0% |
1.0% |
| Gearing as a % of net assets | 5.6% | 7.8% | 8.6% |
| ===== | ===== | ===== |
(1) Based on NAV with debenture at par value.
(2) Excludes income reinvested.
(3) Based on NAV with debt at fair value (see note 4 for details).
(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.
Sources: BlackRock and Datastream.
CHAIRMAN'S STATEMENT
for the six months to 31 August 2015
Performance
During the six months ended 31 August 2015 the Company’s net asset value (NAV) increased by 9.0%1 to 1039.98p per share, outperforming its benchmark (the Numis Smaller Companies plus AIM (excluding Investment Companies) Index) by 6.6%1. The Company’s share price increased by 14.0%1 to 925.50p per share over the same period.
The six months to 31 August 2015 were punctuated by periods of market volatility from April when equity markets were un-nerved by fears of a possible Greek exit from the Eurozone and later in the period by concerns over a slowdown in economic growth in China and other emerging markets and possible interest rate increases in the US and UK.
UK small and midcap equities have performed well over the period under review despite the challenging macroeconomic background and changing investor sentiment towards the sector during periods of high volatility.
The FTSE 100 Index fell by 10.1%1 over the period, the FTSE 250 Index (excluding Investment Companies) fell by 0.5%1 and the FTSE AIM Index by 2.8%1. The Company’s benchmark (the Numis Smaller Companies plus AIM (excluding Investment Companies) Index) rose by 2.4%1.
Performance to 31 August 2015 |
3 years |
5 years |
10 years |
| Net asset value per share | 75.5 | 139.8 | 246.1 |
| Benchmark* | 36.8 | 56.9 | 45.4 |
| Net asset value per share (with income reinvested) | 82.7 | 156.9 | 294.3 |
| Benchmark* (with income reinvested) | 47.8 | 77.5 | 86.3 |
| Share price (with income reinvested) | 94.9 | 187.1 | 339.2 |
| * Benchmark – Numis Smaller Companies plus AIM (excluding Investment Companies) Index from September 2007; FTSE Small Cap Index (excluding Investment Companies) prior to that date. 1 All performance figures are in sterling terms without income reinvested. |
|||
EARNINGS AND DIVIDENDS
The Company’s revenue return per share for the six months ended 31 August 2015 amounted to 13.57p per share compared with 9.44p for the corresponding period in the previous year, an increase of 44%. After adjusting for the impact of special dividends received, which amounted to 2.1 pence per share (2014: 0.8 pence per share), regular dividend income from portfolio companies increased by 28% over the same period.
The Board is pleased to declare an interim dividend of 7.00p per share (2014: 5.50p per share) representing an increase of 27% over the previous interim dividend. The interim dividend will be paid on 30 November 2015 to shareholders on the Company’s register on 6 November 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. In addition to the Company’s £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 with Bank of New York.
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 period under review, gearing contributed to performance by approximately 0.4%. At the period end, the Company’s gearing was 5.6% of net assets.
DISCOUNT
During the period, the Company’s shares traded at an average discount to NAV (with debt at fair value) of 12.1% and this stood at 10.1% at 31 August 2015. The Company’s shares traded at a discount of 11.8% as at close of business on 22 October 2015.
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 Board is encouraging the Investment Manager to devote considerable effort to broadening the awareness of the Company’s attractions, particularly to wealth managers and to the wider retail shareholder market.
OUTLOOK
With the uncertainty surrounding the outcome of the UK General Election now removed, investors now have a clearer idea of the likely domestic political and economic policy landscape over the next couple of years. For the first time in many years the UK working population is also now experiencing real earnings growth, which should support domestic consumption.
Abroad, the slowdown in China’s economy and resulting decline in demand for commodities has had a knock-on impact on many of the emerging markets, and has also had a powerful disinflationary effect, allowing central banks to sustain low interest rates for much longer than previously expected.
In the context of equity valuations generally, and following strong relative performance, UK smaller companies are no longer conspicuously cheap compared to their larger counterparts. However, we are encouraged by the current trading in the majority of our portfolio companies and continue to focus on enterprises which show good earnings growth, positive cash flow and balance sheet strength.
Nicholas Fry
Chairman
26 October 2015
INVESTMENT MANAGER'S REPORT
for the six months ended 31 August 2015
MARET REVIEW AND OVERALL INVESTMENT PERFORMANCE
This has been a reasonable six months for UK small and midcap equities, against a very mixed macroeconomic background. At the start of the period we saw continued nervousness over events in Greece, and by the end of August attention had moved to China and its slowing GDP growth.
Over the six months to 31 August 2015 the Company’s NAV per share rose by 9.0% to 1039.98p and the benchmark rose by 2.4%, both significantly outperforming the FTSE100 Index, which fell by 10.1% (all in sterling terms without income reinvested). The Company’s revenue return per share for the six months ended 31 August 2015 of 13.57p per share represented an increase of 44% compared with 9.44p for the corresponding six period in the previous year. This significant growth in revenue was driven by an increase in underlying regular portfolio dividends, which were up by 28%, and also by special dividends of 2.1 pence per share (compared with special dividends of 0.8 pence per share for the same period in 2014).
PERFORMANCE REVIEW
Outperformance was mainly due to good stockpicking, although sector allocation and gearing also contributed positively. The largest positive contributors to stock selection during the period were our holdings in CVS Group, Betfair Group, Fevertree Drinks and Topps Tiles.
CVS Group, the UK’s leading provider of integrated veterinary services, has continued to see strong trading with total revenues up by 17.0%, like-for-like revenues up by 6.8% and earnings per share up by 30% in its year ended 30 June 2015. It also continues to consolidate market share, acquiring 29 surgeries during the period. Betfair Group announced a good trading update, with revenue for the period to 31 July 2015 up by 15% despite strong comparatives. In addition the company announced a merger with Paddy Power, which was well received by markets.
Shares in Fevertree Drinks continued to be in demand as the company delivered on high growth expectations; interim revenues for the six months to 30 June 2015 were up by 62% and EBITDA was up by 68% with all areas performing strongly. Fevertree Drinks’ share price rose by 105% during the period. Topps Tiles announced interim results for the six months to 28 March 2015 showing like-for-like revenue growth of 5.3% and earnings per share growth of 14%. Trading remains good and management were in confident mood when we met with them.
The largest detractor from relative outperformance during the period was Northbridge Industrial Services. The company is being impacted by the decline in the oil price which in turn is affecting their loadbank rental operations in Singapore and Dubai, and their oil tools business in Australia. Forecasts have been substantially reduced.
Sector allocation benefited most from our overweight position in housebuilders and from our underweight position in oil and gas producers.
ACTIVITY
During the period the Company benefited from several bids for our portfolio holdings, including Quintain Estates, HellermannTyton, Anite and Alent. Given the volatile market conditions we sold our holdings in these companies.
The main additions to the portfolio were in SSP Group, JD Sports, Eurocell and Shawbrook. SSP Group is a leading operator of food and beverage outlets in travel outlets worldwide. The holding was via a placing during which SSP’s private equity backers sold their remaining stake. SSP Group is a significant international business which reported interim revenue of £859 million; most recently like-for-like revenue growth for the six months to 31 March 2015 was 3.2%. JD Sports is a leading retailer and distributor of branded sportswear and fashionwear. The group now has over 800 stores across six countries. Growth has been strong and the company recently announced that it expects current year profits of approximately £110 million, about 10% ahead of prior expectations. Eurocell and Shawbrook were both added via IPOs. Eurocell is a leading vertically integrated manufacturer and merchant of PVC profiles for doors, windows and roofline products in the UK. Shawbrook is a niche banking business which is growing well. We were impressed by the management team in both companies.
PORTFOLIO POSITIONING
We feel most positive about the growth prospects for the UK and US economies. Within the UK our focus is on the UK consumer who has benefitted from improving employment levels, growing wages, lower energy costs, higher house prices and rising confidence. Our exposure has been to housing related stocks including the housebuilder Redrow, construction materials companies such as Marshalls, and housing improvement companies like Topps Tiles and Headlam Group. We remain positive about this theme and the companies we hold.
Exposure to the US economy is through companies including 4imprint Group and Hill & Smith, although various other holdings also provide good US exposure. We expect economic growth in continental Europe to gradually increase, although in the current market and political climate signs of this happening are patchy. Holdings such as Hansteen, Lavendon and Acal all give good exposure to continental Europe and are attractively valued.
We remain cautious about developing markets and companies exposed to these economies, and where we do have exposure, it is to more consumer orientated companies, such as Hutchison China Meditech.
We have remained well diversified with a clear emphasis on companies that are trading well, seeing good share price momentum, are attractively valued and are 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.
Gearing has been in the range 5% to 10% of net assets during the period, finishing at the lower end of this range as we sold holdings which had attracted bids in the market prior to the period end.
OUTLOOK
The economic growth slowdown in China, and the steps taken by the Chinese authorities to stimulate their economy, have unsettled global stockmarkets. Markets also remain worried by the likelihood that interest rates could rise in the US and UK, and by the volatility in the oil price. At the company level we have seen generally good results from our portfolio, and outlooks which suggest that this is likely to continue. We believe that it is safest to stick with our predominant exposure to developed markets demand, especially from the consumer sector.
Mike Prentis
BlackRock Investment Management (UK) Limited
26 October 2015
INVESTMENT EXPOSURE
INVESTMENT SIZE AS AT 31 AUGUST 2015
| Number of investments | Market value of investment as % of portfolio | |
| £0m to £1m | 29 | 3.3 |
| £1m to £2m | 53 | 14.6 |
| £2m to £3m | 33 | 15.4 |
| £3m to £4m | 20 | 13.4 |
| £4m to £5m | 12 | 10.7 |
| £5m to £6m | 11 | 11.4 |
| £6m to £7m | 8 | 9.9 |
| £7m to £8m | 4 | 5.8 |
| £8m to £9m | 5 | 8.1 |
| £9m to £10m | 2 | 3.5 |
| £10m to £11m | 2 | 3.9 |
Source: BlackRock.
MARKET CAPITALISATION OF OUR PORTFOLIO COMPANIES AS AT 31 AUGUST 2015
| % Market capitalisation of investment of portfolio | |
| £0m to £100m | 6.7 |
| £100m to £400m | 41.0 |
| £400m to £1bn | 27.3 |
| £1bn+ | 25.0 |
Source: BlackRock.
TWENTY LARGEST INVESTMENTS
as at 31 August 2015
Company |
Market value £’000 |
% of total portfolio |
Business activity |
| CVS Group | 10,588 | 2.0 | Operation of veterinary surgeries |
| 4imprint Group | 10,059 | 1.9 | Supply of promotional merchandise in the US |
| Savills | 9,227 | 1.8 | Provision of property services |
| Lookers | 8,996 | 1.7 | Supply of cars and after market parts and services |
| Topps Tiles | 8,972 | 1.7 | Sourcing and retail of ceramic tiles |
| Workspace Group | 8,799 | 1.7 | Supply of flexible workspace to businesses in London |
| Rathbone Brothers | 8,292 | 1.6 | Private client fund management |
| Ted Baker | 8,174 | 1.6 | Design and sale of fashion clothing |
| Headlam Group | 7,999 | 1.5 | Distribution of carpets and other floor coverings |
| Polar Capital Holdings | 7,921 | 1.5 | Investment management |
| Hutchison China Meditech | 7,912 | 1.5 | Development and supply of traditional Chinese medicines to the Chinese market |
| Avon Rubber | 7,481 | 1.4 | Production of safety masks and dairy related products |
| Marshalls | 7,188 | 1.4 | Manufacture and sale of concrete and stone paving and related products |
| Northgate | 6,919 | 1.3 | Van rental |
| Cineworld | 6,757 | 1.3 | Operation of cinemas |
| Redrow | 6,657 | 1.3 | Housebuilding |
| Tyman | 6,533 | 1.2 | Manufacture and supply of window and door components |
| Dechra Pharmaceuticals |
6,520 | 1.2 | Development and supply of pharmaceutical and other products focused on the veterinary market |
| Hill & Smith | 6,493 | 1.2 | Production of infrastructure products and supply of galvanizing services |
| Grainger | 6,306 | 1.2 | Ownership and rental of residential property |
| --------- | -------- | ||
| Twenty largest investments | 157,793 | 30.0 | |
| ---------- | -------- | ||
| Remaining investments | 368,031 | 70.0 | |
| ---------- | -------- | ||
| Total | 525,824 | 100.0 | |
| ====== | ==== |
Details of the full portfolio are available on the Company’s website at blackrock.co.uk/brsc
DISTRIBUTION OF INVESTMENTS
as at 31 August 2015
ANALYSIS OF PORTFOLIO VALUE BY SECTOR
| % of portfolio | |
| Aerospace & Defence | 3.3 |
| Banks | 1.6 |
| Beverages | 1.0 |
| Chemicals | 3.2 |
| Construction & Materials | 5.2 |
| Electronic & Electrical Equipment | 2.6 |
| Equity Investment Instruments | 0.2 |
| Financial Services | 7.3 |
| Fixed Line Telecommunications | 0.6 |
| General Industrials | 0.2 |
| General Retailers | 9.7 |
| Health Care Equipment & Services | 3.2 |
| Household Goods & Home Construction | 6.7 |
| Industrial Engineering | 3.5 |
| Industrial Transportation | 1.6 |
| Leisure Goods | 0.2 |
| Media | 5.7 |
| Mining | 3.3 |
| Nonlife Insurance | 0.6 |
| Oil & Gas Producers | 2.5 |
| Personal Goods | 1.6 |
| Pharmaceuticals & Biotechnology | 5.1 |
| Real Estate Investment & Services | 4.7 |
| Real Estate Investment Trusts | 3.9 |
| Software & Computer Services | 6.8 |
| Support Services | 9.8 |
| Technology Hardware & Equipment | 0.6 |
| Travel & Leisure | 5.3 |
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;
- Market;
- Income/dividend;
- Regulatory;
- Operational; 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 2015. A detailed explanation can be found in the Strategic Report on pages 8 and 9, and in note 18 on pages 51 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 2015, 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 BlackRock Investment Management (UK) Limited (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 on page 21 and note 9 on page 26. 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 Financial Reporting Council’s Standard, FRS 104 ‘Interim Financial Reporting’; 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 this announcement.
The half yearly financial report was approved by the Board on 26 October 2015 and the above responsibility statement was signed on its behalf by the Chairman.
Nicholas Fry
For and on behalf of the Board
26 October 2015
INCOME STATEMENT
for the six months ended 31 August 2015
| Notes | Revenue £’000 Six months ended 31.08.15 (unaudited) |
Revenue £’000 Six months ended 31.08.14 (unaudited) |
Revenue £’000 Year ended 28.02.15 (audited) |
Capital £’000 Six months ended 31.08.15 (unaudited) |
Capital £’000 Six months ended 31.08.14 (unaudited) |
Capital £’000 Year ended 28.02.15 (audited) |
Total £’000 Six months ended 31.08.15 (unaudited) |
Total £’000 Six months ended 31.08.14 (unaudited) |
Total £’000 Year ended 28.02.15 (audited) |
|
| Gains/(losses) on investments held at fair value through profit or loss | – |
– |
– |
41,765 |
(27,624) |
(12,578) |
41,765 |
(27,624) |
(12,578) |
|
| Exchange losses | – |
– |
– |
(2) |
(2) |
– |
(2) |
(2) |
– |
|
| Income from investments held at fair value through profit or loss | 7,350 |
5,333 |
9,741 |
– |
127 |
127 |
7,350 |
5,460 |
9,868 |
|
| Other income | 22 |
21 |
24 |
– |
– |
– |
22 |
21 |
24 |
|
| Investment management and performance fees | (345) |
(316) |
(620) |
(2,321) |
(2,189) |
(3,120) |
(2,666) |
(2,505) |
(3,740) |
|
| Other operating expenses | (313) |
(290) |
(611) |
(11) |
(17) |
(26) |
(324) |
(307) |
(637) |
|
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | ||
| Net profit/(loss) before finance costs and taxation | 6,714 |
4,748 |
8,534 |
39,431 |
(29,705) |
(15,597) |
46,145 |
(24,957) |
(7,063) |
|
| Finance costs | (205) |
(211) |
(413) |
(613) |
(633) |
(1,239) |
(818) |
(844) |
(1,652) |
|
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | ||
| Net profit/(loss) on ordinary activities before taxation | 6,509 |
4,537 |
8,121 |
38,818 |
(30,338) |
(16,836) |
45,327 |
(25,801) |
(8,715) |
|
| Taxation on ordinary activities | (12) |
(16) |
(16) |
– |
– |
– |
(12) |
(16) |
(16) |
|
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | ||
| Net profit/(loss) on ordinary activities after taxation | 6,497 |
4,521 |
8,105 |
38,818 |
(30,338) |
(16,836) |
45,315 |
(25,817) |
(8,731) |
|
| -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | -------- | ||
| Earnings/(loss) per ordinary share | 13.57p |
9.44p |
16.93p |
81.07p |
(63.36p) |
(35.17p) |
94.64p |
(53.92p) |
(18.24p) |
|
| ======== | ======== | ======== | ======== | ======== | ======== | ======== | ======== | ======== |
The total column of this statement represents the Company’s Profit and Loss Account. The supplementary revenue and capital columns are both prepared under guidance published by the Association of Investment Companies (AIC). All items in the above statement derive from continuing operations and no operations were acquired or discontinued during the period. All income is attributable to the equity holders of BlackRock Smaller Companies Trust plc.
The Company does not have any other recognised gains or losses. The net profit/(loss) for the period disclosed above represents the Company’s total comprehensive income.
There is no material difference between the profit/(loss) on ordinary activities before taxation and the profit/(loss) for the financial periods stated above and their historical equivalents.
STATEMENT OF CHANGES IN EQUITY
for the six months ended 31 August 2015
| Called up share capital £’000 |
Share premium account £’000 |
Capital redemption reserve £’000 |
Capital reserves £’000 |
Revenue reserve £’000 |
Total £’000 |
|
| For the six months ended 31 August 2015 (unaudited) | ||||||
| At 28 February 2015 | 12,498 | 38,952 | 1,982 | 389,390 | 14,114 | 456,936 |
| Total comprehensive income: | ||||||
| Profit for the period | – | – | – | 38,818 | 6,497 | 45,315 |
| Transactions with owners, recorded directly to equity: | ||||||
| Dividend paid(a) | – | – | – | – | (4,309) | (4,309) |
| -------- | -------- | -------- | -------- | -------- | -------- | |
| At 31 August 2015 | 12,498 | 38,952 | 1,982 | 428,208 | 16,302 | 497,942 |
| -------- | -------- | -------- | -------- | -------- | -------- | |
| 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 |
| Total comprehensive income: | ||||||
| (Loss)/profit for the period | – | – | – | (30,338) | 4,521 | (25,817) |
| Transactions with owners, recorded directly to equity: | ||||||
| Dividend paid(b) | – | – | – | – | (3,543) | (3,543) |
| -------- | -------- | -------- | -------- | -------- | -------- | |
| At 31 August 2014 | 12,498 | 38,952 | 1,982 | 375,888 | 13,163 | 442,483 |
| -------- | -------- | -------- | -------- | -------- | -------- | |
| For the year ended 28 February 2015 (audited) | ||||||
| At 28 February 2014 | 12,498 | 38,952 | 1,982 | 406,226 | 12,185 | 471,843 |
| Total comprehensive income: | ||||||
| (Loss)/profit for the year | – | – | – | (16,836) | 8,105 | (8,731) |
| Transactions with owners, recorded directly to equity: | ||||||
| Dividends paid(c) | – | – | – | – | (6,176) | (6,176) |
| -------- | -------- | -------- | -------- | -------- | -------- | |
| At 28 February 2015 | 12,498 | 38,952 | 1,982 | 389,390 | 14,114 | 456,936 |
| ====== | ====== | ====== | ====== | ====== | ====== |
(a) Final dividend of 9.00p per share for the year ended 28 February 2015, declared on 27 April 2015 and paid on 25 June 2015.
(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.
(c) 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 31 August 2015
Notes |
31 August 2015 £’000 (unaudited) |
31 August 2014 £’000 (unaudited) |
28 February 2015 £’000 (audited) |
|
| Fixed assets | ||||
| Investments held at fair value through profit or loss | 525,824 |
477,214 |
496,332 |
|
| -------- | -------- | -------- | ||
| Current assets | ||||
| Other receivables | 629 | 886 | 2,607 | |
| Cash and cash equivalents | 16,410 | 7,343 | 2,414 | |
| -------- | -------- | -------- | ||
| 17,039 | 8,229 | 5,021 | ||
| -------- | -------- | -------- | ||
| Current liabilities – amounts falling due within one year | (5,022) |
(3,075) |
(4,525) |
|
| Net current assets | 12,017 | 5,154 | 496 | |
| -------- | -------- | -------- | ||
| Total assets less current liabilities | 537,841 | 482,368 | 496,828 | |
| Creditors – amounts falling due after more than one year | (39,899) |
(39,885) |
(39,892) |
|
| -------- | -------- | -------- | ||
| Net assets | 497,942 | 442,483 | 456,936 | |
| ======== | ======== | ======== | ||
| 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 | 428,208 | 375,888 | 389,390 | |
| Revenue reserve | 16,302 | 13,163 | 14,114 | |
| -------- | -------- | -------- | ||
| Total shareholders’ funds | 4 | 497,942 | 442,483 | 456,936 |
| -------- | -------- | -------- | ||
| Net asset value per ordinary share (debenture at par value) | 1,039.98p |
924.15p |
954.34p |
|
| ======== | ======== | ======== | ||
| Net asset value per ordinary share (debenture at fair value) | 1,029.43p |
916.71p |
946.91p |
|
| ======== | ======== | ======== |
CASH FLOW STATEMENT
for the six months ended 31 August 2015
| Six months ended 31 August 2015 £’000 (unaudited) |
Six months ended 31 August 2014 £’000 (unaudited) |
Year ended 28 February 2015 £’000 (audited) |
|
| Operating activities | |||
| Net profit/(loss) before taxation | 45,327 | (25,801) | (8,715) |
| Add back interest paid | 818 | 844 | 1,652 |
| (Gains)/losses on investments held at fair value | (41,765) | 27,624 | 12,578 |
| Net movement on foreign exchange | 2 | 2 | – |
| Sales of investments held at fair value through profit or loss | 104,458 |
105,411 |
204,076 |
| Purchases of investments held at fair value through profit or loss | (89,652) |
(99,891) |
(203,832) |
| Increase in other receivables | (328) | (429) | (132) |
| Increase/(decrease) in other payables | 271 | (226) | 419 |
| -------- | -------- | -------- | |
| Net cash inflow from operating activities before interest and taxation | 19,131 |
7,534 |
6,046 |
| -------- | -------- | -------- | |
| Interest paid | (812) | (829) | (1,639) |
| -------- | -------- | -------- | |
| Taxation on investment income included within gross income | (12) |
(4) |
(4) |
| -------- | -------- | -------- | |
| Net cash inflow from operating activities | 18,307 | 6,701 | 4,403 |
| ======== | ======== | ======== | |
| Financing activities | |||
| Dividends paid | (4,309) | (3,543) | (6,176) |
| -------- | -------- | -------- | |
| Net cash outflow from financing activities | (4,309) | (3,543) | (6,176) |
| -------- | -------- | -------- | |
| Increase/(decrease) in cash and cash equivalents | 13,998 | 3,158 | (1,773) |
| -------- | -------- | -------- | |
| Cash and cash equivalents at start of period | 2,414 | 4,187 | 4,187 |
| Effect of foreign exchange rate changes | (2) | (2) | – |
| -------- | -------- | -------- | |
| Cash and cash equivalents at end of period | 16,410 | 7,343 | 2,414 |
| -------- | -------- | -------- | |
| Comprised of: | |||
| Cash and cash equivalents | 16,410 | 7,343 | 2,414 |
| -------- | -------- | -------- |
NOTES TO THE FINANCIAL STATEMENTS
for the six months ended 31 August 2015
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 sub-sections 1158-1165 of the Corporation Tax Act 2010.
This is the first year that the Company has presented its results and financial position under FRS 102, “The Financial Reporting Standard applicable in the UK and Republic of Ireland†(FRS 102), which forms part of revised Generally Accepted Accounting Practice (New UK GAAP) issued by the Financial Reporting Council (FRC) in 2013. The last financial statements prepared under the previous UK GAAP were for the year ended 28 February 2015.
The condensed set of financial statements has been prepared on a going concern basis in accordance with FRS 102 and ‘Interim Financial Reporting’ (FRS 104) issued by the FRC in March 2015 and the revised Statement of Recommended Practice – “Financial Statements of Investment Trust Companies and Venture Capital Trusts†(SORP) issued by the Association of Investment Companies (AIC) in November 2014.
As a result of the first time adoption of New UK GAAP and the revised SORP, comparative amounts and presentation formats have been amended where required. The changes to accounting policies relate to the change in the presentation of cash flows (see below) and fair value hierarchy of financial instruments (see note 8) and there were no adjustments to the Company’s income statement for the financial year ended 28 February 2015 and the total equity as at 1 March 2014 and 28 February 2015 between UK GAAP as previously reported and FRS 102 as a result of changes to accounting policies. There were no adjustments to the Company’s balance sheet at 1 March 2014 or 28 February 2015 on transition to FRS 102.
The Company’s cash flow statement reflects the presentation requirements of FRS 102, which are different to that prepared under FRS 1. In addition the cash flow statement reconciles to cash and cash equivalents whereas under previous UK GAAP the cash flow statement reconciled to cash. Cash and cash equivalents are defined in FRS 102 as “cash on hand and demand deposits and 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†whereas cash is defined in FRS 1 as “cash in hand and deposits repayable on demand with any qualifying institution, less overdrafts from any qualifying institution repayable on demandâ€. The FRS 1 definition is more restrictive. The comparative figures in the Cash Flow Statement have been restated with the increase/(decrease) in cash and cash equivalents remaining unchanged.
The accounting policies applied for the condensed set of financial statements with regard to measurement and classification are as set out in the Company’s Annual Report for the year ended 28 February 2015. This is reflective of the Company’s application of Sections 11 and 12 of FRS 102, in relation to financial instruments, in full. References to prior, individual Financial Reporting Statements (FRS) should now be taken to reference FRS 102.
2. Income
| Six months ended 31 August 2015 £’000 (unaudited) |
Six months ended 31 August 2014 £’000 (unaudited) |
Year ended 28 February 2015 £’000 (audited) |
|
| Investment Income: | |||
| UK listed dividends | 5,666 | 4,592 | 8,005 |
| UK listed special dividends | 1,006 | 374 | 1,085 |
| Property income dividends | 167 | 49 | 153 |
| Overseas listed dividends | 511 | 318 | 498 |
| -------- | -------- | -------- | |
| 7,350 | 5,333 | 9,741 | |
| -------- | -------- | -------- | |
| Other income: | |||
| Deposit interest | 5 | 1 | 4 |
| Underwriting commission | 17 | 20 | 20 |
| -------- | -------- | -------- | |
| 22 | 21 | 24 | |
| -------- | -------- | -------- | |
| Total | 7,372 | 5,354 | 9,765 |
| ===== | ===== | ===== |
Gains/(losses) on investments held at fair value through profit or loss
| Six months ended 31 August 2015 £’000 (unaudited) |
Six months ended 31 August 2014 £’000 (unaudited) |
Year ended 28 February 2015 £’000 (audited) |
|
| Realised gains on sales | 18,812 | 35,870 | 53,146 |
| Movement in investment holding gains | 22,953 | (63,494) | (65,724) |
| -------- | -------- | -------- | |
| Total | 41,765 | (27,624) | (12,578) |
| ===== | ===== | ===== |
There were no special dividends recognised in the capital column of the Income Statement (six months ended 31 August 2014 and year ended 28 February 2015: £127,000).
3. Investment management and performance fees
| Six months ended 31 August 2015 (unaudited) Revenue £’000 |
Six months ended 31 August 2015 (unaudited) Capital £’000 |
Six months ended 31 August 2015 (unaudited) Total £’000 |
Six months ended 31 August 2014 (unaudited) Revenue £’000 |
Six months ended 31 August 2014 (unaudited) Capital £’000 |
Six months ended 31 August 2014 (unaudited) Total £’000 |
Year ended 28 February 2015 (audited) Revenue £’000 |
Year ended 28 February 2015 (audited) Capital £’000 |
Year ended 28 February 2015 (audited) Total £’000 |
|
| Investment management fee | 345 |
1,036 |
1,381 |
316 |
947 |
1,263 |
620 |
1,861 |
2,481 |
| Performance fee | – |
1,285 |
1,285 |
– |
1,242 |
1,242 |
– |
1,259 |
1,259 |
| ------ | -------- | -------- | ------- | -------- | -------- | ------ | -------- | -------- | |
| Total | 345 | 2,321 | 2,666 | 316 | 2,189 | 2,505 | 620 | 3,120 | 3,740 |
| === | ===== | ===== | ==== | ===== | ===== | === | ==== | ==== |
The investment management fee is calculated based on 0.65% in respect of the first £50 million of the Company’s total assets less current liabilities, reducing to 0.50% thereafter. A performance fee is payable at the rate of 10% of the annualised excess performance 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 £1,285,000 has been accrued for the six month period ended 31 August 2015 (six months ended 31 August 2014: £1,242,000 and year ended 28 February 2015: £1,259,000). This is based on outperformance of 5.7% against the benchmark resulting from an NAV return of 2.5% against the benchmark return of -3.2%. These percentage returns are the annualised performance from 28 February 2014 to 29 February 2016 using actual performance for the period 28 February 2014 to 31 August 2015 and assuming the performance is in line with the benchmark for the six months ended 29 February 2016.
4. Earnings and net asset value per share
Revenue and capital returns per share are shown below and have been calculated using the following:
| Six months ended 31 August 2015 (unaudited) |
Six months ended 31 August 2014 (unaudited) |
Year ended 28 February 2015 (audited) |
|
| Net revenue profit attributable to ordinary shareholders (£’000) | 6,497 |
4,521 |
8,105 |
| -------- | -------- | -------- | |
| Net capital profit/(loss) attributable to ordinary shareholders (£’000) | 38,818 |
(30,338) |
(16,836) |
| -------- | -------- | -------- | |
| Total profit/(loss) (£’000) | 45,315 | (25,817) | (8,731) |
| -------- | -------- | -------- | |
| Total shareholders’ funds (£’000) | 497,942 | 442,483 | 456,936 |
| -------- | -------- | -------- | |
| 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 earnings per share | 13.57p | 9.44p | 16.93p |
| Capital earnings per share | 81.07p | (63.36p) | (35.17p) |
| ----------- | ----------- | ----------- | |
| Total earnings per share | 94.64p | (53.92p) | (18.24p) |
| ----------- | ----------- | ----------- | |
| Net asset value per share (debt at par value) | 1,039.98p | 924.15p | 954.34p |
| ------------ | ----------- | ----------- | |
| Net asset value per share (debt at fair value) | 1,029.43p | 916.71p | 946.91p |
| ======= | ======= | ======= | |
| Share price (mid-market) | 925.50p | 800.50p | 812.00p |
| ======= | ======= | ======= |
5. Dividend
In accordance with FRS 102 Section 32 “Events After the End of the Reporting Periodâ€, the final dividend payable on ordinary shares is recognised as a liability when approved by shareholders. Interim dividends are recognised only when paid.
The Board has declared an interim dividend of 7.00p per share (2014: 5.50p per share), payable on 30 November 2015 to shareholders on the register as at 6 November 2015; the ex dividend date is 5 November 2015. The total cost of this dividend, based on 47,879,792 shares in issue at 26 October 2015, is £3,352,000 (2014: £2,633,000).
6. Creditors – amounts falling due after more than one year
| Six months ended 31 August 2015 |
Six months ended 31 August 2014 |
Year ended 28 February 2015 |
|
| £’000 (unaudited) |
£’000 (unaudited) |
£’000 (audited) |
|
| Revolving loan facility | 25,000 | 25,000 | 25,000 |
| 7.75% debenture stock 2022 | 14,899 | 14,885 | 14,892 |
| -------- | -------- | -------- | |
| Total | 39,899 | 39,885 | 39,892 |
| ====== | ====== | ===== |
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 2015 was 133.00p per debenture, a total value of £19,950,000.
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 Company has in place a £35 million three year multi-currency revolving loan facility with Scotia Bank (Ireland) Limited. At the period end, £25 million of this facility had been utilised. Under the amended agreement the termination date of this facility is the third anniversary of the effective date being June 2018. Interest on this facility is reset every three months and is currently charged at the rate of 1.53156% (six months ended 31 August 2014: 1.70963%, year ended 28 February 2015: 1.71338%).
7. Called up share capital
Ordinary shares |
Treasury shares |
Total shares in issue |
Nominal value |
|
| (number) | (number) | (number) | £’000 | |
| Allotted, called up and fully paid share capital comprised: | ||||
| Ordinary shares of 25 pence each: | ||||
| At 1 March 2015 | 47,879,792 | 2,113,731 | 49,993,523 | 12,498 |
| -------- | -------- | -------- | -------- | |
| At 31 August 2015 | 47,879,792 | 2,113,731 | 49,993,523 | 12,498 |
| ======== | ======== | ======== | ======== |
8. Valuation of financial instruments
The Company’s investments and derivative financial instruments, as disclosed in the Company’s Balance Sheet, are valued at fair value.
In accordance with FRS 102 the fair value as at the reporting date has been estimated using the following fair value hierarchy:
Level (a) Quoted prices for identical instruments in active markets
A financial instrument is regarded as quoted in an active market if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm’s length basis.
Level (b) Prices of a recent transaction for identical instruments
When quoted prices are unavailable, the price of a recent transaction for an identical asset provides evidence of fair value as long as there has not been a significant change in economic circumstances or a significant lapse of time since the transaction took place.
Level (c) Valuation techniques that use:
(i) Observable market data; or
(ii) Non-observable data
When the market for the asset is not active and recent transactions of an identical asset on their own are not a good estimate, the fair value is estimated by using an alternative valuation technique. Such valuation techniques will, where possible, maximise the use of observable market data inputs as opposed to non-observable entity determined data inputs.
The Investment Manager considers observable data to be that market data that is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market.
The analysis of the valuation basis for the financial instruments based on the hierarchy as at 31 August 2015 is set out below. The level in the fair value hierarchy within which the fair value measurement is categorised in its entirety is determined on the basis of the lowest level input that is significant to the fair value measurement in its entirety.
| Financial assets at fair value through profit or loss at 31 August 2015 | Level (a) |
Level (b) |
Level (c) (i) |
Level (c) (ii) |
Total |
| £’000 (unaudited) |
£’000 (unaudited) |
£’000 (unaudited) |
£’000 (unaudited) |
£’000 (unaudited) |
|
| Assets: | |||||
| Equity investments | 525,824 | – | – | – | 525,824 |
| -------- | -------- | -------- | -------- | -------- | |
| Total | 525,824 | – | – | – | 525,824 |
| ====== | ====== | ====== | ====== | ====== |
| Financial assets at fair value through profit or loss at 31 August 2014 | Level (a) |
Level (b) |
Level (c) (i) |
Level (c) (ii) |
Total |
| £’000 (unaudited) |
£’000 (unaudited) |
£’000 (unaudited) |
£’000 (unaudited) |
£’000 (unaudited) |
|
| Assets: | |||||
| Equity investments | 477,214 | – | – | – | 477,214 |
| -------- | -------- | -------- | -------- | -------- | |
| Total | 477,214 | – | – | – | 477,214 |
| ======== | ======== | ======== | ======== | ======== |
| Financial assets at fair value through profit or loss at 28 February 2015 | Level (a) |
Level (b) |
Level (c) (i) |
Level (c) (ii) |
Total |
| £’000 (audited) |
£’000 (audited) |
£’000 (audited) |
£’000 (audited) |
£’000 (audited) |
|
| Assets: | |||||
| Equity investments | 496,332 | – | – | – | 496,332 |
| -------- | -------- | -------- | -------- | -------- | |
| Total | 496,332 | – | – | – | 496,332 |
| ======== | ======== | ======== | ======== | ======== |
For exchange listed equity investments the quoted price is the bid price.
There were no transfers between levels for financial assets and financial liabilities during the period recorded at fair value as at 31 August 2015, 28 February 2015 and 31 August 2014. The Company did not hold any level (b) or level (c) securities throughout the six month period or as at 31 August 2015 (31 August 2014: nil; 28 February 2015: nil).
9. Transactions with the AIFM and the Investment Manager
The investment management and performance fees due to the Investment Manager for the six months ended 31 August 2015 amounted to £2,666,000 (six months ended 31 August 2014: £2,505,000; year ended 28 February 2015: £3,740,000). At the period end, £2,666,000 was outstanding in respect of investment management and performance fees (31 August 2014: £1,864,000; 28 February 2015: £2,477,000).
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 2015 amounted to £94,000, including VAT (six months ended 31 August 2014: £75,000, year ended 28 February 2015: £186,000) and £330,000 (31 August 2014: £75,000; 28 February 2015: £236,000) was outstanding at 31 August 2015.
10. 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 £37,500, the Chairman of the Audit Committee receives an annual fee of £28,000 and each of the other Directors receives an annual fee of £25,000.
At the period end members of the Board held ordinary shares in the Company as set out below:
| Ordinary shares 31 August 2015 |
|
| Nicholas Fry (Chairman) | 40,000 |
| Caroline Burton | 4,500 |
| 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 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 2015 and 31 August 2014 has not been audited.
The information for the year ended 28 February 2015 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 financial statements contained no qualification or statement under sections 498(2) or (3) of the Companies Act 2006.
12. Contingent assets/liabilities
There were no contingent liabilities or assets at 31 August 2015, 31 August 2014 or 28 February 2015.
13. Annual results
The Board expects to announce the annual results for the year ending 29 February 2016 in late April 2016. 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 2016 with the Annual General Meeting being held in June 2016.
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 2015 which comprises the Income Statement, Statement of Changes in Equity, 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. Our review has been undertaken so that we might state to the Company those matters we are required to state to it in this report and for no other purpose. 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 Financial Reporting Standard 104 Interim Financial Reporting.
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 for the six months ended 31 August 2015 is not prepared, in all material respects, in accordance with Financial Reporting Standard 104 Interim Financial Reporting and the Disclosure and Transparency Rules of the United Kingdom’s Financial Conduct Authority.
Scott-Moncrieff
Chartered Accountants
Edinburgh
26 October 2015
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
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