Final Results
14 April 2011
BLACKROCK SMALLER COMPANIES TRUST plc
Final results announcement for the year
ended 28 February 2011
Consistent strong outperformance
Performance to 28 February 2011 1 year 3 years 5 years
(calculated on capital only basis)
Net asset value per share 63.1% 52.1% 71.9%
Ordinary share price 84.5% 59.4% 73.7%
Hoare Govett Smaller 28.8% 8.7% 2.1%
Companies plus AIM (ex
Investment Companies) Index
Sources: BlackRock and DataStream.
- The net asset value per share at 28 February 2011 was 620.73p (2010:
380.68p).
- The net asset value increase of 63.1% exceeds its benchmark the Hoare
Govett Smaller Companies plus AIM (excluding Investment Companies) Index by
34.3% and the FTSE 100 Index by 51.2%.
- Increased earnings of 8.55p per share (2010: 7.41p), an increase of 15.4%.
- The Directors recommend the payment of a final dividend of 4.80p per share
making total dividends for the year of 7.00p (2010: 6.10p including a special
dividend of 0.50p), an increase of 14.8% on last year, payable on 21 June 2011 to
shareholders on the register on 13 May 2011.
- Strong performance ensures that the Company maintains upper quartile
ranking in its sector over one year, three year, five year and ten year
periods to 28 February 2011.
MANAGEMENT REPORT
Chairman's Statement
Performance
Your Company's performance has been exceptional not only over the last year but
for the two successive years following the financial crisis in 2008/2009. An
increase in the net asset value per share ("NAV") of 63.1% in 2010/2011,
together with an increase of 67.4% in 2009/2010, means that the NAV at the year
end was 620.73p compared to 227.40p when I wrote to you two years' ago. The
share price has risen 84.5% in the year (87.7% with income reinvested)
resulting in a significant narrowing of the discount from 22.8% to 12.7% at the
year end.
Consistent long term outperformance has been achieved by the Company over 1, 3,
5 and 10 year periods. Our portfolio manager, Mike Prentis, is to be
congratulated and it is particularly pleasing that this is being recognised by
professional third parties and he has recently been named Fund Manager of the
year in the PLC Awards 2010 which focuses on the small and medium quoted company
sector. It is always satisfying to see the Manager's investment policy proving so
effective, but shareholders should also be reassured that this superior
performance has been achieved without undue risk. Your Company's investments are
spread widely over different sectors and no one shareholding currently represents
more than 2.1% of the entire portfolio. Please read the Investment Manager's Report
to see the detail of this successful investment policy, which includes reference to
the considerable exposure that the portfolio has to growth in overseas markets.
These strong returns also reflect the beginning of a cyclical economic recovery
and, as has historically been the case at the start of such recoveries, smaller
company share prices have shown the way. In contrast, the FTSE 100 Index rose
by a very modest 11.9% during our financial year.
Since the year end, the Company's NAV has decreased by 0.9% and the
share price by 1.4% (both on a capital only basis).
Earnings and dividends
The Company's revenue return per share for the year to 28 February 2011
amounted to 8.55p compared with 7.41p for the previous year. The outlook for
dividends is beginning to pick up and we have seen many of our portfolio
companies increase their distributions.
The Directors are recommending the payment of a final dividend of 4.80p per share
(2010: 3.60p) bringing the total for the year to 7.00p per share (2010: 6.10p
including a special dividend of 0.50p) which represents an increase of 14.8% over
the dividend paid last year. The dividend will be paid on 21 June 2011 to
shareholders on the register on 13 May 2011; the ex dividend date is 11 May
2011.
It is satisfying to report that a consistently positive dividend record has
been established over the last fifteen years, with the dividend increasing from
3.80p to 7.00p per share. This period covers two economic downturns when income
was under severe pressure, yet despite this the dividend has either been
maintained or increased. In the absence of exceptional economic or financial
circumstances, the Board intends to continue this progressive dividend policy,
supported by continued investment in cash generative companies.
Gearing
The Company is geared via a £15 million debenture stock and a bank overdraft
facility of £15 million which it uses from time to time for investment purposes
and to cover short term timing differences. 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 year end, the
Company's net borrowing was £28.8 million, 9.7% of shareholders' funds.
Demand for shares and discounts
Investment in smaller companies is often relatively inaccessible to private
shareholders, who are unlikely to have access to the resources necessary to
research the sector, and thus an investment trust such as your Company provides
a highly effective means of investing in this sector. Your Board and Manager
have a policy to promote the Company more actively to the retail sector and
there are encouraging indications that the value of your Company as an
investment vehicle is increasingly being recognised by the market. This is
reflected in growing interest from private wealth stockbrokers who see your
Company as an excellent way to provide clients with exposure to a dynamic
portfolio of smaller companies. Over recent months there has been an increase
in demand and improved liquidity in the shares and the discount has narrowed;
no shares were bought back by the Company during the year.
Our shares traded at a discount to NAV of between 8.6% and 24.0%. The Company's
discount has narrowed considerably and the estimated current discount is 12.1%,
which is somewhat below the sector average in the Company's peer group of smaller
companies investment trusts. The Board will be seeking renewal of its
authority to buy back shares at the forthcoming Annual General Meeting.
Alternative Investment Fund Managers ("AIFM") Directive
There have been a number of developments surrounding the AIFM Directive, which
effectively introduces a further regulatory framework for investment companies.
The sum total of all these developments has broadly reduced many of the
potentially adverse consequences which threatened the investment company
structure and the legislation adopted by the European Parliament represents a
much better outcome than first envisaged. However, the legislative process is
still ongoing and the Association of Investment Companies will be working with
the UK authorities over the next two years to determine precisely how the rules
will be applied in the UK.
Annual General Meeting
The Annual General Meeting of the Company will be held at BlackRock's offices
at 33 King William Street, London EC4R 9AS on Tuesday, 14 June 2011 at 11.30
a.m. The Investment Manager will be making a presentation to shareholders on
the Company's progress explaining more about the strong performance and outlook
for equity markets. The Directors and the Investment Manager look forward to
meeting shareholders informally after the meeting and I do hope that as many
shareholders as possible choose to attend.
Outlook
The Company's last financial year was an excellent time for UK smaller company
equities. Looking ahead, we believe that upgrades to companies' earnings expectations
and further M&A activity will help to encourage investment in the smaller company
sector. Active stock selection, which has been a core strength of the Investment
Manager, should continue to reward shareholders in the future. The international
political outlook is still uncertain given the events in the Middle East, the
impact of the devastating earthquake in Japan and the unresolved Euro sovereign
debt issue, but we remain cautiously positive about the prospects for our sector.
Richard Brewster
Chairman
14 April 2011
Principal risks
The key risks faced by the Company are set out below. The Board regularly
reviews and agrees policies for managing each risk, as summarised below.
Performance risk - The Board is responsible for deciding the investment
strategy to fulfil the Company's objectives and monitoring the performance of
the Investment Manager. An inappropriate strategy may lead to underperformance
against the benchmark index. To manage this risk the Investment Manager
provides an explanation of significant stock selection decisions and the
rationale for the composition of the investment portfolio. The Board monitors
and mandates an adequate spread of investments, in order to minimise the risks
associated with factors specific to particular sectors and based on the
diversification requirements inherent in the Company's investment policy. The
Board also receives reports showing an analysis of the Company's performance
against the benchmark.
Income/dividend risk - The amount of dividends and future dividend growth will
depend on the Company's underlying portfolio. Any change in the tax treatment
of the dividends or interest received by the Company may reduce the level of
dividends received by shareholders. The Board monitors this risk through the
receipt of detailed income forecasts and considers the level of income at each
meeting.
Regulatory risk - The Company operates as an investment trust in accordance
with Chapter 4 of Part 24 of the Corporation Tax Act 2010. As such, the Company
is exempt from capital gains tax on the profits realised from the sale of its
investments. The Investment Manager monitors investment movements, the level
and type of forecast income and expenditure and the amount of proposed
dividends to ensure that the provisions of Chapter 4 of Part 24 of the
Corporation Tax Act 2010 are not breached and the results are reported to the
Board.
Operational risk - In common with most other investment trust companies, the
Company has no employees. The Company therefore relies upon the services
provided by third parties and is dependent on the control systems of the
Investment Manager and the Company's other service providers. The security, for
example, of the Company's assets, dealing procedures, accounting records and
maintenance of regulatory and legal requirements, depend on the effective
operation of these systems. These are regularly tested and monitored and an
internal control report, which includes an assessment of risks together with
procedures to mitigate such risks, is prepared by the Investment Manager and
reviewed by the Audit Committee twice a year. The custodian (The Bank of New
York Mellon (International) Ltd ("BNYM"), a subsidiary of The Bank of New York
Mellon) and the Investment Manager also produce annual internal control reports
which are reviewed by their respective auditors and give assurance regarding
the effective operation of controls and are also reviewed by the Audit
Committee.
Market risk - Market risk arises from volatility in the prices of the Company's
investments. It represents the potential loss the Company might suffer through
holding investments in the face of negative market movements. The Board
considers asset allocation, stock selection and levels of gearing on a regular
basis and has set investment restrictions and guidelines which are monitored
and reported on by the Investment Manager. The Board monitors the
implementation and results of the investment process with the Investment
Manager.
Financial risks - The Company's investment activities expose it to a variety of
financial risks that include market price risk, currency risk, interest rate
risk, liquidity risk and credit risk.
Related party transactions
The Investment Manager is regarded as a related party and details of the
investment management and performance fees payable are set out in note 4.
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 £30,000, the Chairman
of the Audit Committee & Senior Independent Director receives an annual fee of
£23,000 and each other Director receives an annual fee of £20,000.
All five members of the Board hold ordinary shares in the Company. Richard
Brewster holds 90,000 ordinary shares, John Davies holds 17,954 ordinary
shares, Nick Fry holds 40,000 ordinary shares, Gill Nott holds 11,500 ordinary
shares and Robbie Robertson holds 63,542 ordinary shares at the date of this
announcement.
Statement of Directors' Responsibilities
The Directors confirm to the best of their knowledge that:
- the financial statements, prepared in accordance with applicable accounting
standards, give a true and fair view of the assets, liabilities, financial
position and profit or loss of the Company; and
- the annual report includes a fair review of the development and performance
of the business and the position of the Company, together with a description of
the principal risks and uncertainties that the Company faces.
For and on behalf of the Board of Directors
Richard Brewster
Chairman
14 April 2011
Investment Manager's Report
Market review and overall investment performance
Markets were favourable for most of the financial year, driven by expectations
of a gradual improvement in global GDP growth. Most recently the instability in
North Africa and the Middle East has driven up the oil price and it remains to
be seen how this will evolve. Our current assumption is that tensions do not
spread significantly and that the oil price peaks at close to current levels
and then gradually subsides. However, any significant and sustained further
increase in the oil price could clearly have a negative impact on global growth.
Global growth continues to be relatively patchy. Emerging markets are generally
continuing to grow well, although we are seeing monetary tightening to attempt
to choke off inflationary pressures. In developed markets, interest rates
remain at artificially low levels, growth remains weak and yet inflation is
high, caused mainly by higher commodity prices and increased taxes rather than
excess demand. The US economy seems to be showing clearer signs of recovery
than Western Europe, although the export led German economy is performing well.
Our success during the financial year has been achieved by investing in high
quality growth companies exposed to the faster growing economies of the world,
especially Asia Pacific and the Americas.
The Company's NAV rose by 63.1% over the financial year, well ahead of the
benchmark index which increased by 28.8%. (Both percentages have been
calculated in sterling terms and on a capital only basis.) In income reinvested
terms the NAV rose by 65.3% and the share price by 87.7%. As a comparison with
larger companies, the FTSE 100 Index increased by 11.9% over the financial year.
Clearly this was an excellent year and one which suited our investment approach.
Good quality growth companies performed well and were rewarded by good share price
performances; these were the companies we owned, and still do. Equally, and unlike
the March/April 2009 turn in markets, low quality companies traded poorly and their
shares prices also underperformed; we aim not to own these sorts of companies.
Portfolio performance
From a stock point of view, many stocks contributed to our relative
outperformance. This reflects our strategy of having a well diversified portfolio,
not having individually large holdings and trying to manage our risk effectively.
Only four holdings contributed negatively by more than 0.5% to relative outperformance
and the largest negative contributor cost the Company 0.8% in relative contribution.
Our most successful area of investment was in electronics. Companies such as
Domino Printing Sciences, Gooch & Housego, Oxford Instruments and Renishaw were
all amongst our top contributors, with share price increases of between 98% and
192%. These are all great companies with highly experienced management teams,
great product ranges of unique, market leading products built up through
sustained research and development, maintained during the recession. They have
products which are sold globally; generally the UK is not a particularly
important market. The companies have high gross margins, are strongly cash
generative and have sound balance sheets. They are outstanding examples of
British industry. We are trying to find more companies like these in which to
invest.
We also did well in the pharmaceuticals sector with Hutchison China Meditech
and Abcam our strongest performers. These too have very strong growth drivers.
The former is exposed to the greater focus on health care spending by the
Chinese Government on its population and the latter to the use of antibodies in
research programmes globally.
We had some strong performers in the resources sector. Within oils, the biggest
successes were Encore Oil, which had successive significant oil discoveries in
the North Sea and yet was trading at a distressed valuation prior to the first
discovery, Cove Energy which is partnering with Anadarko offshore East Africa
and has had four significant commercial gas discoveries, and Bahamas Petroleum
which has secured promising acreage between the Bahamas and Cuba and initial
seismic data suggests the area could be highly prospective. The share prices of
all of these companies more than doubled.
Our holding in Western Coal was also very successful. Western Coal appointed an
excellent, experienced CEO, increased production, benefited from high coal
prices and was ultimately bid for.
Within the technology sector our biggest successes were IQE and Blinkx; the
share prices of both companies more than doubled. IQE, a leading global
manufacturer of advanced compound semiconductor wafers, is particularly exposed
to the widespread adoption of smartphones and Blinkx to the desire of people to
download and view video clips.
Activity
We have continued to see significant bid activity during the year, with
holdings in BlueBay Asset Management and Western Coal both attracting bids in
the second half of the year; this followed on from several bids in the first
half.
We have generally continued to see better value at the smaller end of our
investment universe and so we have sold holdings with larger market
capitalisations to bring in better value, less well researched companies at the
smaller end. Where we have made changes in the portfolio it has generally been
to increase further our exposure to internationally exposed companies with
interesting products; examples include speciality chemicals company Elementis,
and Mulberry, the manufacturer and retailer of luxury leather bags.
Portfolio positioning
Our portfolio positioning has not changed materially. The portfolio is built
around good quality growth companies, companies which we know well, run by
management we regard highly, which are truly differentiated and have the
ability to maintain organic growth and margins, generate cash and which have
strong balance sheets; these are our core holdings. Clearly, we particularly
like companies with high levels of overseas earnings, especially from Asia
Pacific and examples of holdings include Spirax-Sarco Engineering and Renishaw.
We also like companies with good revenue visibility or predictability, for
instance Abcam and ITE Group. A key part of our strategy is to invest in
companies with high levels of intellectual property or strong brands, including
Fidessa and Aveva. These are protected by strong, sustainable barriers to entry
and have real pricing power. We generally prefer companies which have their own
products, rather than service companies, as these tend to be able to scale more
quickly.
We are always looking to find interesting new companies which have the
potential to become core holdings in the future. Inevitably new holdings start
off as small holdings in our portfolio until our confidence grows, or until
they concern or disappoint us, in which case we usually sell.
Investment size as at 28 February 2011
Number of % of
£m Investments Portfolio
£0m to £1m 67 11.6
£1m to £2m 77 34.5
£2m to £3m 29 21.3
£3m to £4m 12 12.7
£4m to £5m 8 11.1
£5m to £6m 4 6.7
£6m to £7m 1 2.1
Source: BlackRock.
Market capitalisation as at 28 February 2011
% of
Portfolio
£0m to £100m 15.7
£100m to £400m 40.6
£400m to £1bn 28.9
£1bn+ 14.8
Source: BlackRock.
Gearing
We have maintained gearing over the last financial year and it has generally
been between 10% and 12% of NAV. We believe that macro economic conditions
suggest gradual, uneven recovery in the global economy, but we can find enough
good companies that can do well in this environment. On this basis it feels
appropriate to maintain gearing at current levels.
Outlook
The full economic impact of the tragic events in Japan remains unclear. We are
also concerned by the instability in North Africa and the Middle East and the
hike in oil prices. At present our view is that the increase in oil prices is
unlikely to prove long lived, in which case the threat to the global economy
should not be too significant. Data from the US seems to be gradually improving
and although growth in parts of Asia is slowing we do not expect a significant
slowdown. Our stance is therefore watchful but still cautiously positive.
Mike Prentis
BlackRock Investment Management (UK) Limited
14 April 2011
Fifty Largest Investments
as at 28 February 2011
Market % of
value total Prospective
Company £'000 portfolio PE ratio* Business activity
Fidessa group 6,778 2.1 21.0 Development and marketing of
financial trading and
connectivity software
Aveva Group 5,745 1.8 27.7 Development and marketing of
engineering computer software
Abcam 5,559 1.7 29.4 Production and distribution of
research grade antibodies and
associated products
Hutchison China 5,515 1.7 - Development and supply of
Meditech traditional Chinese medicines
to the Chinese market
Domino Printing 5,018 1.5 17.2 Manufacture of inkjet and
Sciences laser commercial printers
City of London 4,914 1.5 12.0 Management of investment funds
Investment Group primarily invested in emerging
markets
IQE 4,636 1.4 38.5 Manufacture and supply of
compound semiconductor wafers
Hargreaves 4,631 1.4 9.5 Mining, importing, processing
Services and supply of coal and related
products
Renishaw 4,569 1.4 18.6 Design and manufacture of
instruments used for
calibration purposes
Yule Catto 4,495 1.4 11.1 Manufacture and supply of
polymers
Spirax-Sarco 4,458 1.4 15.4 Design and manufacture of
Engineering steam management systems
ITE Group 4,348 1.3 16.9 Organisation of trade
exhibitions in Russia and
other FSU countries
Oxford Instruments 4,161 1.3 16.2 Design and manufacture of
tools and systems to analyse
and manipulate matter at the
atomic level
Cove Energy 3,910 1.2 - Exploration and development of
oil and gas offshore East
Africa
Bellway 3,888 1.2 19.2 Housebuilding
Avocet Mining 3,806 1.2 11.3 Gold exploration and
production
Gooch & Housego 3,602 1.1 18.3 Design and manufacture of
precision optical components,
subsystems and instruments
used to transmit and measure
light
Victrex 3,519 1.1 17.1 Manufacture and supply of PEEK
thermoplastic products
Rotork 3,447 1.1 19.8 Engineering, manufacturing and
design of valve actuators
Mecom Group 3,392 1.0 5.2 Publishing of newspapers and
operation of information
websites in Continental Europe
Eastern Platinum 3,332 1.0 43.0 Exploration, development and
production of platinum group
metals
Senior 3,317 1.0 12.4 Manufacture and supply of
components for the aerospace
and automotive sectors
Brewin Dolphin 3,241 1.0 12.6 Fund management and
Holdings stockbroking
Alternative 3,093 0.9 10.8 Provision of mobile and fixed
Networks line telecom solutions to
business users
Rathbone Brothers 3,070 0.9 15.2 Private client fund management
Hyder Consulting 2,924 0.9 9.9 Design and engineering
consultancy
Petra Diamonds 2,910 0.9 21.9 Exploration and production of
diamonds
Elementis 2,824 0.9 12.6 Manufacture of additives that
enhance the feel, flow and
finish of everyday products
Keller Group 2,810 0.9 11.2 Provision of ground
engineering solutions
Immunodiagnostic 2,780 0.8 17.9 Development of immunoassays
Systems used in clinical and research
laboratories
Xaar 2,660 0.8 36.4 Design and manufacture of
industrial printheads used in
inkjet printers
Gulfsands Petroleum 2,655 0.8 7.1 Exploration and production of
oil and gas primarily in
Syria
Encore Oil 2,627 0.8 - Exploration and production of
oil and gas primarily on the
UK Continental Shelf
Kofax Group 2,609 0.8 25.9 Development and sale of
software used to capture,
transform and exchange data
Hargreaves Lansdown 2,579 0.8 30.7 Administration of investment
funds
African Aura Mining 2,557 0.8 - Development of iron ore and
gold resources in West Africa
Hamworthy 2,458 0.7 21.6 Design and supply mainly of
gas and liquid handling
systems for the offshore
marine and oil and gas
markets
Aurelian Oil & Gas 2,410 0.7 - Exploration and development
of oil and gas in Eastern
Europe
Blinkx 2,396 0.7 41.0 Supply of video technology
and an online catalogue to
enable video clips to be
viewed
Sandvine 2,370 0.7 31.5 Design and supply of network
policy control solutions to
improve the quality of
experience of the internet
Highland Gold 2,336 0.7 6.6 Development and mining of
Mining gold in Russia and the FSU
Galliford Try 2,273 0.7 13.8 Housebuilding and
construction
Robert Walters 2,262 0.7 19.0 Supply of permanent and
temporary recruitment
services mainly in Europe and
Asia Pacific
Spectris Group 2,260 0.7 13.8 Design and supply of
specialist instrumentation
and controls
Alterian 2,257 0.7 15.0 Development and sale of
software to improve customer
communication and marketing
Premier Farnell 2,220 0.7 14.2 Global distribution of
electronic components mainly
to support design engineers
Howden Joinery 2,139 0.6 10.0 Design and manufacture of
kitchens sold to local
builders
Sierra Rutile 2,129 0.6 - Development and mining of
natural rutile
Fiberweb 2,064 0.6 9.9 Manufacture of non woven
textiles used in industrial,
construction and hygiene
applications
WSP Group 2,062 0.6 9.7 Provision of engineering
design, planning and project
management consultancy
services
50 Largest 168,015 51.2
Investments
Remaining 159,878 48.8
Investments
TOTAL 327,893 100.0
* Prospective PE ratio derived using March 2011 analyst estimates.
Disclosure of the Company's smaller holdings would be unlikely to add
materially to the shareholders understanding of the Company's portfolio
structure and priority investment themes, hence only the fifty largest
investments have been disclosed.
Comparatives for Ten Largest Investments
2010 2010
Market value % of total
Company £'000 portfolio
Fidessa group 5,571 2.7
Aveva Group 4,550 2.2
Abcam 4,162 2.0
Hutchison China 2,350 1.2
Meditech
Domino Printing 3,717 1.8
Sciences
City of London 3,225 1.6
Investment Group
IQE 1,371 0.7
Hargreaves Services 2,541 1.3
Renishaw 1,531 0.8
Yule Catto - -
Distribution of Investments
as at 28 February 2011
Sector % of total
portfolio
Oil & Gas Producers 7.9
Oil Equipment, Services & Distribution 0.5
-----
Oil & Gas 8.4
-----
Mining 8.7
Chemicals 3.5
Industrial Metals & Mining 1.3
-----
Basic Materials 13.5
-----
Support Services 8.7
Electronic & Electrical Equipment 7.9
Industrial Engineering 6.7
Construction & Materials 1.7
Aerospace & Defence 1.1
Industrial Transportation 1.1
General Industrials 0.8
-----
Industrials 28.0
-----
Household Goods & Home Construction 2.1
Beverages 1.7
Food Producers 0.8
-----
Consumer Goods 4.6
-----
Pharmaceuticals & Biotechnology 3.3
Health Care Equipment & Services 2.0
-----
Health Care 5.3
-----
Media 5.8
General Retailers 3.5
Travel & Leisure 3.5
Food & Drug Retailers 0.6
-----
Consumer Services 13.4
-----
Fixed-Line Telecommunications 1.0
Mobile Telecommunications 0.3
-----
Telecommunications 1.3
-----
Electricity 0.4
Gas, Water & Multiutilities 0.2
-----
Utilities 0.6
-----
Financial Services 7.9
Real Estate Investments & Services 1.7
Retail Real Estate Investment Trusts 1.3
-----
Financials 10.9
-----
Software & Computer Services 10.2
Technology Hardware & Equipment 3.1
-----
Technology 13.3
-----
Other 0.7
-----
Total 100.0
-----
Income Statement
for the year ended 28 February 2011
Revenue Revenue Capital Capital Total Total
2011 2010 2011 2010 2011 2010
Notes £'000 £'000 £'000 £'000 £'000 £'000
Gains on investments
held at fair value
through profit or
loss - - 116,488 74,267 116,488 74,267
Income from
investments held at
fair value through
profit or loss 3 4,833 4,208 - - 4,833 4,208
Other income 3 268 66 - - 268 66
Investment
management and
performance fees 4 (334) (239) (1,640) (1,121) (1,974) (1,360)
Write back of prior
years' VAT 4 - 176 - 526 - 702
Other operating
expenses 5 (328) (316) - - (328) (316)
----- ----- ------- ------ ------- ------
Net return before
finance costs and
taxation 4,439 3,895 114,848 73,672 119,287 77,567
Finance costs (330) (308) (992) (920) (1,322) (1,228)
----- ----- ------- ------ ------- ------
Return on ordinary
activities before
taxation 4,109 3,587 113,856 72,752 117,965 76,339
----- ----- ------- ------ ------- ------
Taxation on ordinary
activities (14) (15) - - (14) (15)
----- ----- ------- ------ ------- ------
Return on ordinary
activities after
taxation 4,095 3,572 113,856 72,752 117,951 76,324
======= ======= ======= ======= ======= =======
Return per ordinary
share 7 8.55p 7.41p 237.80p 150.92p 246.35p 158.33p
======= ======= ======= ======= ======= =======
The total column of this statement represents the Income Statement of the
Company. The supplementary revenue and capital columns are both prepared under
guidance published by the Association of Investment Companies. The Company had
no recognised gains or losses other than those disclosed in the Income
Statement and the Reconciliation of Movements in Shareholders' Funds. All items
in the above statement derive from continuing operations. No operations were
acquired or discontinued during the year.
Reconciliation of Movements in Shareholders' Funds
for the year ended 28 February 2011
Share Capital
Share Premium Redemption Capital Revenue
Capital Account Reserve Reserves Reserve Total
Note £'000 £'000 £'000 £'000 £'000 £'000
For the year ended
28 February 2010
At 28 February 2009 12,498 38,952 1,982 50,566 6,267 110,265
Return for the year - - - 72,752 3,572 76,324
Shares purchased
and held in
treasury - - - (1,527) - (1,527)
Dividends paid (see
(a) below) 6 - - - - (2,795) (2,795)
------ ------ ----- ------- ----- -------
At 28 February 2010 12,498 38,952 1,982 121,791 7,044 182,267
------ ------ ----- ------- ----- -------
For the year ended
28 February 2011
At 28 February 2010 12,498 38,952 1,982 121,791 7,044 182,267
Return for the year - - - 113,856 4,095 117,951
Dividends paid (see
(b) below) 6 - - - - (3,016) (3,016)
------ ------ ----- ------- ----- -------
At 28 February 2011 12,498 38,952 1,982 235,647 8,123 297,202
------ ------ ----- ------- ----- -------
(a) Final dividend of 3.10p per share and special dividend of 0.70p per share
for the year ended 28 February 2009, declared on 22 April 2009 and paid on
24 June 2009 and interim dividend of 2.00p per share for the six months ended
31 August 2009, declared on 7 October 2009 and paid on 2 November 2009.
(b) Final dividend of 3.60p per share and special dividend of 0.50p per share
for the year ended 28 February 2010, declared on 22 April 2010 and paid on
22 June 2010 and interim dividend of 2.20p per share for the six months ended
31 August 2010, declared on 13 October 2010 and paid on 26 November 2010.
Balance Sheet
as at 28 February 2011
2011 2010
Notes £'000 £'000
Fixed assets
Investments held at fair value
through profit or loss 327,893 203,355
------- -------
Current assets
Debtors 1,595 1,064
------- -------
1,595 1,064
------- -------
Creditors - amounts falling
due within one year (17,452) (7,332)
------- -------
Net current liabilities (15,857) (6,268)
------- -------
Total assets less current
liabilities 312,036 197,087
Creditors - amounts falling
due after more than one year (14,834) (14,820)
------- -------
Net assets 297,202 182,267
======= =======
Capital and reserves
Share capital 8 12,498 12,498
Share premium account 38,952 38,952
Capital redemption reserve 1,982 1,982
Capital reserves 235,647 121,791
Revenue reserve 8,123 7,044
------- -------
Total equity shareholders'
funds 297,202 182,267
======= =======
Net asset value per ordinary
share (debenture at par value) 7 620.73p 380.68p
======= =======
Net asset value per ordinary
share (debenture at fair
value) 7 616.49p 376.42p
======= =======
Cash Flow Statement
for the year ended 28 February 2011
2011 2010
Note £'000 £'000
Net cash inflow from operating
activities 5(b) 3,430 3,927
------- -------
Servicing of finance (1,310) (1,214)
------- -------
Taxation
Income tax suffered (13) (20)
Overseas withholding tax suffered (22) (19)
------- -------
Total taxation (35) (39)
------- -------
Capital expenditure and financial
investment
Purchase of investments (128,451) (104,882)
Proceeds from sale of investments 121,693 99,144
------- -------
Net cash outflow from capital
expenditure and financial
investment (6,758) (5,738)
------- -------
Equity dividends paid (3,016) (2,795)
------- -------
Net cash outflow before financing (7,689) (5,859)
------- -------
Financing
Purchase of ordinary shares - (1,527)
------- -------
Net cash outflow from financing - (1,527)
------- -------
Decrease in cash in the year (7,689) (7,386)
======= =======
Notes to the Financial Statements
1. Principal activity
The principal activity of the Company is that of an investment trust company
within the meaning of section 1158 of the Corporation Tax Act 2010.
2. Accounting policies
(a) Basis of preparation
The Company's financial statements have been prepared on a going concern basis
and on the historical cost basis of accounting, except for investments which
are managed and evaluated on a fair value basis, in accordance with the
Companies Act 2006, UK Generally Accepted Accounting Practice ("UK GAAP") and
with the Statement of Recommended Practice ("SORP") for investment trusts and
venture capital trusts issued by the Association of Investment Companies
("AIC"), revised in January 2009. The principal accounting policies adopted by
the Company are set out below. All of the Company's operations are of a
continuing nature.
The Company's financial statements are presented in sterling, which is the
currency of the primary economic environment in which the Company operates. All
values are rounded to the nearest thousand pounds (£'000) except where
otherwise stated.
(b) Presentation of Income Statement
In order to better reflect the activities of an investment trust company and in
accordance with guidance issued by the AIC, supplementary information which
analyses the Income Statement between items of a revenue and capital nature has
been presented alongside the Income Statement. In accordance with the Company's
status as a UK investment company under section 833 of the Companies Act 2006,
net capital returns may not be distributed by way of dividend.
(c) Investments designated as held at fair value through profit or loss
The Company's investments are classified as held at fair value through profit
or loss in accordance with FRS 26 - 'Financial instruments: Recognition and
Measurement' and are managed and evaluated on a fair value basis in accordance
with its investment strategy.
All investments are designated upon initial recognition as held at fair value
through profit or loss. The sales of assets are recognised at the trade date of
the disposal. Proceeds will be measured at fair value, which will be regarded
as the proceeds of sale less any transaction costs.
The fair value of the financial instruments is based on their quoted bid price
at the balance sheet date on the exchange on which the investment is quoted,
without deduction for estimated future selling costs. Unquoted investments are
valued by the Directors at fair value using International Private Equity and
Venture Capital Valuation Guidelines. This policy applies to all current and
non current asset investments of the Company.
Changes in the value of investments held at fair value through profit or loss
and gains and losses on disposal are recognised in the Income Statement as
"Gains or losses on investments held at fair value through profit or loss".
Also included within this heading are transaction costs in relation to the
purchase or sale of investments.
In order to improve the disclosure of how companies measure the fair value of
their financial investments, the disclosure requirements in FRS 29 have been
extended to include a fair value hierarchy. The fair value hierarchy consists
of the following three levels:
Level 1 - quoted prices (unadjusted) in active markets for identical assets or
liabilities
Level 2 - inputs other than quoted prices included within Level 1 that are
observable for the asset or liability
Level 3 - inputs for the asset or liability that are not based on observable
market data
This policy applies to non current asset investments held by the Company.
(d) Segmental reporting
The Directors are of the opinion that the Company is engaged in a single
segment of business being investment business.
(e) Income
Dividends receivable on equity shares are treated as revenue for the year on an
ex-dividend basis. Where no ex-dividend date is available, dividends receivable
on or before the year end are treated as revenue for the year. Provision is
made for any dividends not expected to be received. Fixed returns on non equity
securities are recognised on a time apportionment basis. Interest income is
accounted for on an accruals basis.
Special dividends are treated as a capital receipt or revenue receipt depending
on the facts or circumstances of each particular case.
Dividends are accounted for in accordance with Financial Report 16 'Current
Taxation (FRS 16)' on the basis of income actually receivable, without
adjustment for the tax credit attaching to the dividends. Dividends from
overseas companies continue to be shown gross of withholding tax.
Where the Company has elected to receive its dividends in the form of
additional shares rather than in cash, the amount of the cash dividend foregone
is recognised in the capital column of the Income Statement.
(f) Expenses
All expenses are accounted for on an accruals basis. Expenses have been treated
as revenue except as follows:
- expenses including finance costs which are incidental to the acquisition or
disposal of investments are included within the cost of the investments.
- the investment management fee has been allocated 75% to the capital column
and 25% to the revenue column of the Income Statement in line with the Board's
expected long term split of returns, in the form of capital gains and income
respectively, from the investment portfolio; and
- performance fees have been allocated 100% to the capital column of the Income
Statement, as performance has been predominantly generated through capital
returns of the investment portfolio.
(g) Long term borrowings and finance costs
Long term borrowings are carried in the Balance Sheet at amortised cost,
representing the cumulative amount of net proceeds on issue plus accrued
finance costs. Finance costs are accounted for on an accruals basis. Finance
costs are allocated, insofar as they relate to the financing of the Company's
investments, 75% to the capital column and 25% to the revenue column of the
Income Statement, in line with the Board's expected long term split of returns,
in the form of capital gains and income respectively, from the investment
portfolio.
(h) Taxation
Deferred tax is recognised in respect of all temporary differences at the
balance sheet date, where transactions or events that result in an obligation
to pay more tax in the future or right to pay less tax in the future have
occurred at the balance sheet date. Deferred tax is measured on a
non-discounted basis, at the average tax rates that are expected to apply in
the periods in which the timing differences are expected to reverse, based on
tax rates and laws that have been enacted or substantively enacted by the
balance sheet date. This is subject to deferred tax assets only being
recognised if it is considered more likely than not that there will be suitable
profits from which the future reversal of the temporary differences can be
deducted.
Where expenses are allocated between capital and revenue, any tax relief in
respect of the expenses is allocated between capital and revenue returns on the
marginal basis using the Company's effective rate of corporation tax for the
accounting period.
(i) Dividends payable
Under FRS 21 final dividends should not be accrued in the financial statements
unless they have been approved by shareholders before the balance sheet date.
Interim and special dividends should not be accrued in the financial statements
unless they have been paid.
Dividends payable to equity shareholders are recognised in the Reconciliation
of Movements in Shareholders' Funds when they have been approved by
shareholders in the case of a final dividend, or paid in the case of an interim
dividend, and have become a liability of the Company.
(j) Cash and cash equivalents
Cash comprises cash in hand and demand deposits. Cash equivalents are short
term, highly liquid investments, that are readily convertible to known amounts
of cash and that are subject to an insignificant risk of changes in value.
3. Income
2011 2010
£'000 £'000
Investment income:
UK listed dividends 4,422 3,817
Overseas listed
dividends 411 391
----- -----
4,833 4,208
----- -----
Other income:
Deposit interest - 1
Interest on VAT
refunds 227 34
Underwriting
commission 41 31
----- -----
268 66
----- -----
Total 5,101 4,274
===== =====
Total income
comprises:
Dividends 4,833 4,208
Other income 268 66
----- -----
5,101 4,274
===== =====
4. Investment management and performance fees
2011 2010
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Investment management
fee 334 1,003 1,337 239 717 956
Performance fee - 637 637 - 404 404
--- ----- ----- --- ----- -----
334 1,640 1,974 239 1,121 1,360
Write back of prior
years' VAT - - - (176) (526) (702)
--- ----- ----- --- ----- -----
Total 334 1,640 1,974 63 595 658
=== ===== ===== === ===== =====
The investment management fee is calculated based on 0.65% in respect of the
first £50 million of the Company's total assets less current liabilities,
reducing to 0.50% thereafter. A performance fee is payable at the rate of 10%
of the annualised excess performance in the two previous financial years,
applied to the average of the total assets less current liabilities of the
Company. The fee is payable annually in April and is capped at 0.25% of the
average of the total assets less current liabilities of the Company.
Performance fees have been wholly allocated to capital reserves as the
performance has been predominantly generated through capital returns of the
investment portfolio. A performance fee of £637,000 is accrued for the year
ended 28 February 2011 (2010: £404,000).
5. Operating activities
2011 2010
£'000 £'000
(a) Other operating
expenses
Auditors' remuneration:
- audit services 16 15
- non audit services* 6 6
Registrar's fee 28 24
Directors' remuneration 103 97
Other administrative
costs 175 174
--- ---
328 316
=== ===
The Company's total
expense ratio ("TER"),
calculated as a
percentage of average net
assets and using
expenses, excluding
performance fees,
interest costs and VAT
written back, after
relief for taxation was: 0.7% 0.9%
The Company's total
expense ratio ("TER"),
calculated as a
percentage of average net
assets and using
expenses, including
performance fees and
excluding interest costs
and VAT written back,
after relief for taxation
was: 1.0% 1.2%
==== ====
*Non audit services relate to the review of the half yearly financial
statements.
2011 2010
£'000 £'000
(b) Reconciliation of net return
before finance costs and
taxation to net cash flow from
operating activities
Total return before finance
costs and taxation 119,287 77,567
Less: capital return before
finance costs and taxation (114,848) (73,672)
------- ------
Net revenue return before
finance costs and taxation 4,439 3,895
Investment management and
performance fees charged to
capital (1,640) (1,121)
VAT refund credited to capital - 526
Decrease in accrued income 142 65
Decrease in debtors - 629
Increase/(decrease) in creditors 489 (67)
------- ------
Net cash inflow from operating
activities 3,430 3,927
======= ======
6. Dividends
Dividends paid or
proposed on equity 2011 2010
shares: Record date Payment date £'000 £'000
2009 final of 3.10p 5 June 2009 24 June 2009 - 1,494
2009 special of 0.70p 5 June 2009 24 June 2009 - 337
2010 interim of 2.00p 16 October 2009 2 November 2009 - 964
2010 final of 3.60p 14 May 2010 22 June 2010 1,724 -
2010 special of 0.50p 14 May 2010 22 June 2010 239 -
2011 interim of 2.20p 22 October 2010 26 November 2010 1,053 -
----- -----
3,016 2,795
===== =====
The Directors have proposed a final dividend of 4.80p per share in respect of the
year ended 28 February 2011. The proposed final dividend will be paid, subject
to shareholders' approval, on 21 June 2011 to shareholders on the Company's
register on 13 May 2011. The final dividend has not been included as a
liability in these financial statements as final dividends are only recognised
in the financial statements when they have been approved by shareholders, or in
the case of special dividends, recognised when paid to shareholders.
The total dividends payable in respect of the year which form the basis of
determining retained income for the purposes of section 1158 of the Corporation
Tax Act 2010 and section 833 of the Companies Act 2006, and the amounts
proposed, meet the relevant requirements as set out in this legislation.
2011 2010
£'000 £'000
Dividends paid or proposed
on equity shares:
Interim paid of 2.20p (2010: 2.00p) 1,053 964
Final proposed of 4.80p* (2010: 3.60p) 2,298 1,724
Special dividend - nil (2010: 0.50p) - 239
----- -----
3,351 2,927
===== =====
* Based upon 47,879,792 ordinary shares (excluding treasury shares) in issue on
14 April 2011.
7. Return per ordinary share
Revenue and capital returns per share are shown below and have been calculated
using the following:
2011 2010
Net revenue return attributable
to ordinary shareholders (£'000) 4,095 3,572
Net capital return attributable
to ordinary shareholders (£'000) 113,856 72,752
------- -------
Total return (£'000) 117,951 76,324
------- -------
Equity shareholders' funds
(£'000) 297,202 182,267
------- -------
The weighted average number of
ordinary shares in issue during
each year, on which the return
per ordinary share was
calculated, was: 47,879,792 48,207,135
The actual number of ordinary
shares in issue at the end of
each year, on which the net
asset value was calculated,
was: 47,879,792 47,879,792
2011 2010
Revenue Capital Total Revenue Capital Total
p p p p p p
Return per share
Calculated on weighted
average number of
shares 8.55 237.80 246.35 7.41 150.92 158.33
Calculated on actual
number of shares 8.55 237.80 246.35 7.46 151.95 159.41
----------- ----------- ----------- ----------- ----------- -----------
Net asset value per
share (debenture at
par value) 620.73 380.68
Net asset value per
share (debenture at
fair value) 616.49 376.42
====== ======
8. Share capital
Ordinary Treasury Total Nominal
shares shares shares value
(nominal) (nominal) in issue £'000
Allotted, called up and
fully paid share capital
comprised:
Ordinary shares of 25p
each
At 1 March 2010 47,879,792 2,113,731 49,993,523 12,498
---------- --------- ---------- ------
At 28 February 2011 47,879,792 2,113,731 49,993,523 12,498
========== ========= ========== ======
During the year no ordinary shares were purchased for cancellation or placed in
treasury (2010: 615,000 at a cost of £1,527,000). The number of ordinary shares
in issue at the year end, excluding treasury shares, was 47,879,792 (2010:
47,879,792).
The ordinary shares (excluding any shares held in treasury) carry the right to
receive any dividends and have one voting right per ordinary share. There are
no restrictions on the voting rights of the shares or the transfer of the
shares.
9. Publication of non-statutory accounts
The financial information contained in this announcement does not constitute
statutory accounts as defined in section 435 of the Companies Act 2006.
The figures set out above have been reported upon by the auditor. The
comparative figures are extracts from the audited financial statements of
BlackRock Smaller Companies Trust plc for the year ended 28 February 2010,
which have been filed with the Registrar of Companies. The report of the
auditor for the years ended 28 February 2010 and 28 February 2011 contain no
qualification or statement under section 498(2) or (3) of the Companies Act
2006. The 2011 annual report will be filed with the Registrar of Companies
after the Annual General Meeting.
10. Annual Report
Copies of the annual report will be sent to members shortly and will be
available from The Company Secretary, BlackRock Smaller Companies Trust plc, 33
King William Street, London EC4R 9AS.
11. Annual General Meeting
The Annual General Meeting of the Company will be held at 33 King William
Street, London EC4R 9AS on 14 June 2011 at 11:30 a.m.
ENDS
The Annual Report will also be available on the BlackRock Investment Management
website at http://www.blackrock.co.uk/content/groups/uksite/documents/
literature/02013531.pdf. Neither the contents of the Manager's website nor the
contents of any website accessible from hyperlinks on the Manager's website (or
any other website) is incorporated into, or forms part of, this announcement.
For further information, please contact:
Jonathan Ruck Keene, Managing Director, Investment Companies, BlackRock
Investment Management (UK) Limited
Tel: 020 7743 2178
Mike Prentis, BlackRock Investment Management (UK) Limited
Tel: 020 7743 2312
Emma Phillips, Media & Communications, BlackRock Investment Management (UK)
Limited
Tel: 020 7743 2922
14 April 2011
33 King William Street
London EC4R 9AS
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