Final Results
25 April 2014
BlackRock Smaller Companies Trust plc
Annual results announcement for the
Year ended 28 February 2014
Overview
Performance record
Financial Highlights
Year ended Year ended
28 February 2014 28 February 2013 % change
Performance
Net asset value per share
(debenture at par value) 985.47p 720.42p +36.8
Net asset value per share
(debenture at par value, capital only) 975.48p 712.39p +36.9
Net asset value per share
(debenture at fair value) 978.01p 715.37p +36.7
Numis Smaller Companies plus AIM
(ex Investment Companies) Index (1) 5,003.30 4,026.91 +24.2
Share price 908.00p 626.50p +44.9
-------- -------- --------
Revenue return per share 14.59p 11.53p +26.5
Interim dividend per share 4.60p 3.50p +31.4
Proposed final dividend per share 7.40p 6.50p +13.8
Total dividends paid and payable
in respect of the year ended 12.00p 10.00p +20.0
-------- -------- --------
Total assets less current
liabilities (£'000) 511,720 374,797 +36.5
Equity shareholders' funds (£'000) 471,843 344,934 +36.8
-------- -------- --------
Ongoing charges ratio (2) 0.7% 0.6%
Ongoing charges ratio
(including performance fees) 1.0% 1.0%
Dividend yield 1.3% 1.6%
Gearing 8.2% 9.2%
(1) Excludes income reinvested.
(2) Ongoing charges ratio calculated as a percentage of average shareholders'
funds and using expenses, excluding finance costs, performance fees and
taxation in accordance with AIC guidelines.
Source: BlackRock.
Overview
Chairman's statement
Over the last ten years Net Asset Value per share has increased by 388% and
Dividends per share by 171%. Your Company continues to be an outstanding long
term investment.
Performance
I am pleased to report excellent results for your Company for the year ended
28 February 2014. During the year the net asset value ("NAV") increased by 36.8%
to 985.5p per share, substantially outperforming the Company's benchmark, the
Numis Smaller Companies plus AIM (excluding Investment Companies) Index, which
increased by 24.2% in the year. Your Company's share price rose by 44.9% to
908.0p per share (1).
Relative outperformance was driven by good stock selection, and assisted by
sector allocation and gearing. Details of the various contributors to
performance can be found in the Investment Manager's Report.
Small and midcap stocks have performed well during the year with the FTSE 250
Index (1) rising by 22.1% compared with an increase of 7.1% for the FTSE 100
Index (1). The FTSE AIM All Share Index (1) improved significantly on its poor
performance at the last year end, up by 20.5%.
Since the financial year end, the Company's NAV has decreased by 3.2%, against a
decrease in the benchmark of 4.4%, and the share price has fallen by 6.0%.
Over the longer term the Company's performance has substantially exceeded its
benchmark, as shown in the table below.
(1) All percentages in sterling terms without income reinvested.
Performance to
28 February 2014 1 Year 3 Years 5 Years 10 Years
Net asset value per share +36.8% +58.8% +333.4% +319.9%
Benchmark (1) +24.2% +34.8% +183.4% +74.1%
Net Asset Value per share
(with income reinvested) +38.7% +65.6% +367.1% +387.9%
Benchmark (with income
reinvested) (1) +27.4% +45.1% +219.9% +122.3%
Share price (with income
reinvested) +47.2% +75.9% +460.8% +494.0%
(1) Benchmark - Numis Smaller Companies plus AIM (excluding Investment
Companies) Index from 1 September 2007; FTSE SmallCap Index excluding
Investment Companies prior to that date.
Earnings and Dividends
The Company's revenue return per share for the year ended 28 February 2014
amounted to 14.59p compared with 11.53p for the previous year.
In October 2013 the Board declared an interim dividend of 4.60p per share
(2013: 3.50p per share). The Directors are now pleased to recommend the payment
of a final dividend of 7.40p per share (2013: 6.50p per share), making a total
for the year of 12.00p, an increase of 20.0% over the total dividends of 10.00p
per share paid in the previous year.
Subject to shareholder approval, the final dividend will be paid on 17 June
2014 to shareholders on the register on 16 May 2014; the ex-dividend date is
14 May 2014.
As a result of continued growth in earnings, in each of the last ten years your
Company has increased its annual dividends per share, which have risen by
171% over the decade.
Gearing
During the financial year the Board negotiated an increase in the three year
revolving loan facility with Scotia Bank (Ireland) Limited from £15 million to
£25 million in order to be less dependent on short term borrowings and to
enable the Company to benefit from the perceived improvement in prospects for
the smaller companies sector. This facility is in addition to the Company's
existing £15 million debenture and an uncommitted bank overdraft facility of
£20 million.
It is the Board's intention that gearing will not exceed 15% of the net assets
of the Company at the time of the drawdown of the relevant borrowings. Under
normal operating conditions it is envisaged that gearing will be within a
range of 0%-15% of net assets.
Gearing levels and sources of funding are reviewed regularly and the Board
continues to believe that moderate gearing is in the long term interests of
shareholders; for the year under review, gearing contributed approximately
3.0% to performance. At the year end, the Company's gearing was 8.2% of net
assets.
Discount
The discount to net assets at which the share price stood averaged 8.8%
over the year under review, ranging from a premium of 0.1% to a discount
of 15.6%, and ended the year at 7.2% (all measured against NAV with debt
at fair value). The Company’s discount has since widened to 9.8% as at
the date of this report.
Share ownership
The Board continued to focus on broadening the awareness of the Company’s
attractions, particularly to wealth managers and to the wider retail
shareholder market. Over the last three years the number of shares in the
Company held by retail shareholders has increased from 20% to over 46% and
we aim for this trend to continue.
Alternative Investment Fund Managers' Directive
The Alternative Investment Fund Managers' Directive issued by the European
Commission (the "Directive") seeks to reduce systemic risk by regulating
alternative investment fund managers ("AIFMs"). AIFMs are responsible for
managing investment products that fall within the category of Alternative
Investment Funds (`AIFs') and investment trusts are included in this. The
Directive was implemented on 22 July 2013 although the Financial Conduct
Authority has permitted a transitional period of one year after that during
which UK AIFMs must seek authorisation. The Board has taken, and will continue
to take, independent advice on the consequences for the Company and has decided
in principle that BlackRock Fund Managers Limited will be appointed as its AIFM
in advance of the end of the transitional period on 22 July 2014.
Annual General Meeting & Articles of Association
At the forthcoming Annual General Meeting, shareholders will be asked to
approve new Articles of Association in substitution for the current
Articles of Association. The Board is proposing to make these amendments
to the Articles of Association in response to the Alternative Investment
Fund Managers’ Directive. Details of the principal changes are given on
page 23 of the Directors’ Report in the Annual Report and Financial
Statements. In addition, the Board is proposing an amendment to the
aggregate limit on Directors’ remuneration. At present the Company’s
Articles of Association set an aggregate limit of £150,000 per annum for
Directors’ fees. The Board is proposing as an ordinary resolution that
the aggregate limit on Directors’ fees be increased to £200,000. This
will provide for the possibility of an overlap of Directors upon retirement
and replacement in accordance with the Company’s succession plan. The
increase in the aggregate limit would also facilitate any future increase
in Directors’ fees to reflect market trends and to ensure that the
remuneration of the Directors is sufficient to attract and retain
Directors with suitable knowledge and experience. Full details of the
fees paid to Directors are set out in the Directors’ Remuneration Report
on pages 25 to 28 of the Annual Financial Report and Financial Statements.
The Board also proposes to increase the limit of the number of shares
that may be issued with pre-emption rights dis-applied from 5% to 10%
when this authority is renewed at the forthcoming Annual General Meeting
(“AGMâ€) in June 2014. Details are set out in the Directors' Report and
in the Notice of AGM contained within the Annual Report and Financial
Statements.
The AGM of the Company will be held at the offices of BlackRock at
12 Throgmorton Avenue, London EC2N 2DL on 10 June 2014 at 11.30 a.m.
Mike Prentis, the Portfolio Manager, will be making a presentation to
shareholders on the Company’s performance and the outlook for equity
markets. The Directors and representatives of the Investment Manager
look forward to meeting shareholders informally after the meeting and
I hope that as many shareholders as possible will choose to attend.
Outlook
Recent upgrades to forecasts for the UK economy are encouraging.
The holdings in the Company's portfolio are well placed to make the
most of these positive economic conditions, with strong management
and exposure to the better performing sectors of the economy. On a
more cautionary note, the strength of sterling may hamper growth for
companies with international exposure and valuations are beginning
to look full for more companies. Nevertheless, we anticipate good
earnings growth from your Company's holdings, and this should feed
through into positive returns for the Company's shareholders in
the medium term.
Nicholas Fry
Chairman
25 April 2014
Performance
Investment manager's report
Your Company continues to outperform its benchmark, and we expect good earnings
growth in portfolio holdings to feed through to share prices.
Market review and overall investment performance
During the financial year stockmarkets in the developed world have generally
moved steadily ahead. Economic data from the UK has been rather better than
expected and GDP growth looks to be accelerating. In the US the data from the
private sector has also been supportive and economic momentum looks to be
building slowly. The economies in Continental Europe appear to be stabilising,
especially in Germany. Data from Asia and Emerging Markets have been mixed and
overall sentiment seems to be steady. We have experienced periods of
uncertainty mainly caused by the tapering of quantitative easing in the US and
also by events in the Ukraine, but so far these have not prevented markets
edging higher after setbacks.
Over the year the Company's NAV per share rose by 36.8% to 985.47p; the
benchmark rose by 24.2%, whilst the FTSE 100 Index rose by only 11.0%, all
percentages in sterling terms without income reinvested. All percentages in
sterling terms, without income reinvested.
Performance review
Relative outperformance was driven by good stock selection, assisted by sector
allocation and gearing. Gearing was maintained in the range of 8%-10%
throughout the year.
Looking at stock selection, the most significant positive contributors to
relative performance were our holdings in Optimal Payments, Xaar, Workspace
Group, Howden Joinery Group, Polar Capital Holdings and Walker Greenbank. Good
contributions were also made by other core holdings Ashtead Group, Restaurant
Group, Bellway and Booker Group.
Optimal Payments, a leading online payments provider, announced interim results
showing sharply higher profits and good cash generation, followed by a full
year trading update which indicated that profits would be ahead of market
expectations. Management remains very confident of medium term prospects and
the company's share price trebled over the financial year.
Xaar, the leading manufacturer of print heads used in ink jet printers, issued
a positive year end trading update indicating full year organic revenue growth
of 55% and expected operating margins of 30%. This performance is largely
attributable to Xaar's huge success with the sales of its Platform 3 inkjet
heads, which are mainly being sold to enable the decoration of ceramic tiles.
Xaar has taken significant market share. The company remains well positioned
and is looking at other vertical markets for its printheads. We have held Xaar
shares for many years, including through some difficult trading periods;
therefore it was particularly pleasing to see management delivering such
outstanding performance. Against this improving background, the company's share
price more than trebled during the year.
Workspace Group's share price performed strongly on the back of a good NAV growth
forecast released by the company. Its property is generally located on the
fringes of Central London where rents are growing fastest. Workspace's passing
rents are relatively modest with good scope to increase gradually. Yet its
portfolio is valued off a relatively high yield with scope for some yield
compression. At the same time, the company has been very successful in gaining
approval to add extra space or to change the use of space, in both cases
offering the prospect of further increases in rents or capital profits.
Howden Joinery Group has continued to gain market share in the supply of good
quality kitchens to the UK market, focusing on local builders. Polar Capital
Holdings announced assets under management had grown strongly on the back of
consistently good investment performance and successful new fund launches.
Walker Greenbank, the leading interior furnishings company has benefited from
increasing consumer confidence and the pick-up in the UK housing market. The
company has also seen better trading in overseas markets. The shares had been
very cheap and the market has begun to appreciate the company's qualities.
On the negative side the largest detractors from relative performance were
Ocado, Oxford Instruments, AZ Electronic Materials and Anite. Ocado was a
constituent of our benchmark index for most of the financial year and its share
price performed very strongly over the year. We did not own shares in Ocado.
Oxford Instruments has had a more difficult year, driven partly by pressure on
government funded research budgets, the ending of one high margin contract, the
strength of sterling impacting the translation of overseas profits and weakness
in some overseas markets. The company did complete the purchase of Andor Technology
which should be beneficial over the medium term, and continues to innovate; we
expect the fortunes of the company to improve in due course.
AZ Electronic Materials announced that it had a weaker start to the year and
expected this trend to continue into the second quarter; and not for the first
time, earnings were downgraded. We were impatient in selling our holding prior
to a bid by Merck at a good premium.
Anite provides testing for telecoms handsets and networks. The company's
revenues can be quite lumpy and it has seen some delays in new contracts. The
company is however very well placed to benefit from the introduction of the latest
generation of handsets.
Sector allocation benefited from our overweight sector positions in
housebuilders and food and drug retailers, where we hold Booker Group, and our
underweight positions in the oil & gas sector.
Activity
Our general approach is to slowly recycle from our largest capitalisation
stocks into smaller companies which we hope will also fare well. For example,
during December we sold our remaining holding in Ashtead Group following its
promotion to the FTSE 100 Index. We bought the holding in 2010 when the share
price was about 100p. The company is very well managed and has taken full
advantage of improving conditions in the US market. We believe Ashtead Group
looks well set but our usual practice is to sell holdings when they get into
the FTSE 100 Index, as we did with our holding in Hargreaves Lansdown a few
years ago. We also took profit in a number of other holdings, selling out of
some completely, and using the proceeds to invest in smaller companies.
We participated in a number of IPOs and placings during the year, including
Foxtons Group, the London focused estate agent, DX Services, a mail, parcels
and logistics business, Judges Scientific, a designer of precision instruments,
Incadea, a leading supplier of software to the global automotive retail and
wholesale market, Parkmead, the North Sea focused oil & gas company set up by
Tom Cross, former CEO of Dana Petroleum; and Tarsus, the exhibitions group
which is quite heavily focused on emerging markets. In these and other new
investments we have identified strong and ambitious management teams running
businesses with considerable medium term potential. These companies have the
potential to be larger holdings if they can deliver on their initial promise.
Portfolio Positioning
We have sought to maintain good exposure to themes we expect to remain strong,
notably the strengthening UK and US housing markets; improving UK consumer
confidence; the strength of the London economy; increasing flows into equities;
leading technologies; and the increasing use of advanced, often online
payments. We have also more recently sought to gain additional exposure to
Continental Europe in anticipation of gradual recovery.
We have maintained an underweight position in companies too heavily exposed to
government spending both in the UK and US, and food producers and similar
companies with limited pricing power.
The portfolio remains well diversified with more than 150 holdings, the largest
of which is about 2.1% of total portfolio investments. All of our larger holdings
are well established companies. Positions in very small companies are taken where
we believe the upside is potentially very attractive, but position sizing is
small recognising the greater risk of disappointment.
Investment Size as at 28 February 2014
Rebased to total
Number of assets (investment
investments + cash)
£0m to £1m 31 2.6
£1m to £2m 57 16.1
£2m to £3m 28 13.4
£3m to £4m 24 16.4
£4m to £5m 19 16.5
£5m to £6m 11 11.7
£6m to £7m 1 1.3
£7m to £8m 10 14.5
£8m to £9m 1 1.7
£9m to £10m 2 3.7
£10m to £11m 1 2.1
Source: BlackRock.
Market Capitalisation as at 28 February 2014
% of portfolio and cash
£0m to £100m 10.0
£100m to £400m 33.5
£400m to £1bn 33.9
£1bn+ 22.6
Source: BlackRock.
Outlook
Newsflow from our holdings largely exposed to the UK economy has generally
continued to be good; this includes housebuilders such as Bellway, and other UK
consumer exposed companies such as Restaurant Group and Howden Joinery Group.
We expect these and similar companies to continue to trade well. Many of the
industrial companies and some software and media companies are very
international, and can expect demand levels to vary quite markedly around the
world, although this situation is no worse in 2014 than 2013. However, the
strength of sterling presents an additional headwind in 2014.
We think share prices will be driven more by earnings growth in 2014 and
further earnings multiple expansion looks unlikely for many companies.
However, we expect good earnings growth from our holdings and this should
feed through to share prices, although a repeat of 2013 performance is highly
unlikely.
Mike Prentis
BlackRock Investment Management (UK) Limited
25 April 2014
Performance
Summary of ten largest investments 28 February 2014
Set out below is a brief description by the Investment Manager of the Company's
ten largest investments
Optimal Payments - 2.1% (2013: 1.0%) is a global provider of online and mobile
payment processing services. The company operates under two brands: NETBANX
which offers straight through processing services; and NETELLER which operates
online e-wallets for use by consumers. Optimal Payments has grown revenues
significantly in recent years benefiting from the increase in e-commerce, with
excellent profit growth as the company has leveraged its relatively fixed cost
base. The company has a long track record of successfully operating in the
payments industry, and as a result is well positioned to capitalise on the
regulation of online gaming in the USA.
Bellway - 1.9% (2013: 2.3%) is one of the largest housebuilders in the United
Kingdom with operations across the country. Management is very experienced and
has run the company in good and bad housing market conditions. Bellway has
bought land steadily over the last few years; operating margins are increasing
further as more recently acquired land is built on. Bellway has the scope to
increase volumes of sales over the next few years and average selling prices
are also likely to increase. Bellway shares still trade at a slight premium to
net tangible assets and look good value in absolute terms and relative to the
sector.
Workspace Group - 1.8% (2013: 1.8%) is a provider of premises tailored to the
needs of new and growing businesses across London. It owns more than 100
properties in London providing 5.4 million square feet of space which is home
to some 4,000 businesses employing more than 30,000 people. Workspace provides
the right properties to attract and retain customers giving them the
flexibility to adjust the space they need to help them grow. Occupancy levels
have continued to increase as have rents per square foot. Workspace has also
supplemented core operational income and capital values by redeveloping certain
property assets. This has enabled the company's net asset value to grow
steadily and we expect this to continue as London thrives and creates more
jobs.
Senior - 1.7% (2013: 2.4%) is an international manufacturing group providing
engineered products for demanding operating environments. The group's strategy
is to focus on sectors where it is positioned to benefit from both global
market growth and increasingly stringent emission control legislation. Senior
operates through two Divisions: Aerospace, which serves both the commercial
aerospace and defence markets and Flexonics, which serves automotive and other
industrial markets. The company is particularly closely aligned to the growth
of the commercial aerospace sector and especially to wide bodied aircraft
production. Senior's designed in products and high order book give it excellent
revenue visibility. Growth in earnings in recent years has been strong and the
shares remain modestly rated.
Xaar - 1.5% (2013: 0.8%) is the leading global independent supplier of digital
inkjet print heads. The company is well positioned to capitalise on the growing
use of digital printing in industrial applications, particularly the printing
of decoration onto ceramic tiles where the conversion of production from
analogue to digital printers is only partially complete. Strong revenue and
profit growth in recent years has enabled the company to significantly increase
its investments in research & development of new products and interesting new
technologies, which in turn will drive growth in the future.
Elementis - 1.5% (2013: 1.0%) is a global specialty chemicals company which
operates in three divisions: Specialty Products, Surfactants, and Chromium
Chemicals. The largest business Specialty Products develops and supplies
rheology additives for use in paints and coatings, cosmetics and oilfield
drilling fluids. This business has been the key driver of revenue and profit
growth, as the company has benefited from growth in its end markets and the
introduction of new products to gain market share. Surfactants and Chromium
Chemicals benefit from strong market positions and are highly cash generative,
providing the funds to invest in growing the higher margin specialty products
business. The company is highly cash generative with a strong balance sheet and
a track record of returning excess cash to shareholders via special dividends.
Restaurant Group - 1.5% (2013: 1.5%) operates 440 branded restaurants, pub
restaurants and airport concessions across the UK. The group occupies market
leading positions in edge of town, out of town, rural and airport locations and
its principle brands are Frankie & Benny's, Chiquito, Coast to Coast and
Garfunkels. Restaurant Group has an excellent track record of delivering
consistent year on year growth in cash flow and profits combined with high
returns on investment which funds both new restaurant openings and a
progressive dividend policy. The strong offer combined with excellent
operational performance means that Restaurant Group is both popular with
consumers and an attractive tenant for landlords, and as a result the group has
a strong pipeline of new restaurants to be opened in coming years.
Polar Capital Holdings - 1.5% (2013: 1.1%) is an investment management company
which offers a range of geographical and sector funds, both long only and
absolute return, to professional and institutional investors. The company
benefits from strong management who seek to maintain an entrepreneurial culture
focused on delivering superior performance, combined with robust operational
processes which ensure the interests of their investment managers and clients
are aligned. The company has seen significant growth in its assets under
management and now manages US$13 billion split across 22 funds and 5 managed
accounts. Its strong product offering means Polar Capital Holdings is well
positioned to continue to grow its assets under management and its net cash
balance sheet provides reassurance in tougher market conditions.
Dunelm Group - 1.5% (2013: 1.6%) is a specialist out of town homewares retailer
operating 131 superstores in the UK with an average sales area of 30,000 square
feet plus an online store. The company's 'Simply Value for Money' proposition
focuses on offering consumers market leading choice of high quality and good
value products, supported by strong customer service. Dunelm's store network
still has limited coverage across some parts of the UK and management target a
mature store portfolio of 200 stores. Looking forward, adding new stores as well
as developing newer retail channels such as online provides considerable
opportunity for future growth. The business is highly profitable and cash
generative and has a track record of periodically returning excess capital to
shareholders through special dividends which is expected to continue.
Avon Rubber - 1.4% (2013: 1.0%) is an engineering company which has been
successfully transformed from a diverse conglomerate to a more focused business
over recent years, and now specialises in two core markets, Protection &
Defence and Dairy. Protection & Defence is the global leader in advanced
Chemical, Biological, Radiological and Nuclear respiratory protection solutions
for use by the military, national security and emergency services. The
company's principle products are a range of respirator masks and replacement
filters, with scope to grow considerably in its core US market as well as
overseas. The dairy business manufactures and supplies dairy liners and tubing
both to OEM manufacturers of milking parlour systems and directly to farms
through its market leading Milkrite brand.
All percentages reflect the value of the holding as a percentage of total
investments. Percentages in brackets represent the value of the holding as at
28 February 2013. Together, the ten largest investments represents 16.4% of the
Company's portfolio (ten largest investments as at 28 February 2013: 14.5%).
Performance
Fifty largest investments
Market
value % of total
Company £'000 portfolio Business activity
Optimal Payments 10,620 2.1 Provision of online payments
solutions
Bellway 9,726 1.9 Housebuilding
Workspace Group 9,110 1.8 Supply of flexible workspace to
businesses in London
Senior 8,596 1.7 Manufacture and supply of
components for the aerospace and
automotive sector
Xaar 7,932 1.5 Design and manufacture of
industrial printheads used in
inkjet printers
Elementis 7,929 1.5 Manufacture of additives that
enhance the feel, flow and finish
of everyday products
Restaurant Group 7,712 1.5 Operation of branded restaurants
Polar Capital Holdings 7,649 1.5 Investment management
Dunelm Group 7,473 1.5 Supply of home furnishings
Avon Rubber 7,204 1.4 Production of safety masks and
dairy related products
Headlam Group 7,178 1.4 Distribution of carpets and other
floor coverings
Howden Joinery Group 7,152 1.4 Design and manufacture of
kitchens sold to local builders
Paragon 7,123 1.4 Provision of loans mainly to buy
to let landlords
ITE Group 7,112 1.4 Organisation of trade exhibitions
in Russia and other former Soviet
Union countries
Bovis Homes Group 6,438 1.3 Housebuilding
Oxford Instruments 5,995 1.2 Design and manufacture of tools
and systems to analyse and
manipulate matter at the atomic
level
LSL Property Services 5,659 1.1 Provision of residential property
services
Galliford Try 5,627 1.1 Housebuilding and construction
St Modwen Properties 5,597 1.1 Property investment and
development
Clarkson 5,548 1.1 Shipbroking and related
activities
Paypoint 5,488 1.1 Provision of payment solutions
Big Yellow Group 5,458 1.1 Self-storage and related services
Brewin Dolphin 5,367 1.0 Private client fund management
Holdings
Lookers 5,242 1.0 Supply of cars and after market
parts and services
Ted Baker 5,205 1.0 Design and sale of fashion
clothing
UTV Media 5,050 1.0 Television and radio broadcasting
Rathbone Brothers 4,929 1.0 Private client fund management
Walker Greenbank 4,909 1.0 Design, manufacture and
distribution of wallcoverings and
furnishing fabrics
Gooch & Housego 4,816 0.9 Design and manufacture of
precision optical components,
subsystems and instruments used
to transmit and measure light
Hyder Consulting 4,766 0.9 Provision of engineering design
services
Dechra Pharmaceuticals 4,754 0.9 Development and supply of
pharmaceutical and other products
focused on the veterinary market
Victrex 4,730 0.9 Manufacture and supply of PEEK
thermoplastic products
Consort Medical 4,665 0.9 Manufacture of drug delivery
services
Tyman 4,643 0.9 Manufacture and supply of window
and door components
Telit Communications 4,612 0.9 Design and sale of cellular
communication products
Telecom Plus 4,482 0.9 Supply of telecom, gas,
electricity and other utility
services
Grainger 4,472 0.9 Ownership and rental of
residential property
Fidessa Group 4,454 0.9 Development and marketing of
financial trading and
connectivity software
Topps Tiles 4,411 0.9 Sourcing and retail of ceramic
tiles
SIG 4,332 0.8 Supply of insulation, roofing and
interior fit out materials
James Fisher & Sons 4,107 0.8 Provision of marine services
Abcam 4,083 0.8 Production and distribution of
research grade antibodies and
associated products
Hutchinson China 4,075 0.8 Development and supply of
Meditech traditional Chinese medicines to
the Chinese market
Foxtons Group 4,011 0.8 Provision of property services
Booker Group 3,994 0.8 Wholesale of grocery products
Savills 3,943 0.8 Provision of property services
Ithaca Energy 3,925 0.8 Development and production of oil
in the North Sea
Quintain Estates & 3,863 0.8 Property investment and
Development development with a current focus
on Wembley
4Imprint 3,757 0.7 Supply of promotional merchandise
in the US
Blinkx 3,753 0.7 Supply of video technology and an
online catalogue to enable video
clips to be viewed
======= =====
50 largest investments 283,676 55.6
Remaining Investments 226,951 44.4
======= =====
TOTAL 510,627 100.0
======= =====
A complete listing of all of the Company's portfolio holdings as at 28 February
2014 is given on the Company's website at the following link:
http://www.blackrock.co.uk/intermediaries/literature/fund-update/brsct-portfolio-
disclosure.pdf. At 28 February 2014, the Company did not hold any equity interests
comprising more than 3% of any company's share capital other than as disclosed in
the table below:
%
Company owned
Richland Resources Ltd 4.6
Air Partner plc 4.5
Walker Greenbank plc 4.5
Brainjuicer Group plc 4.2
Avon Rubber plc 3.7
City of London Investment Group plc 3.4
Source Bioscience plc 3.4
Hayward Tyler Group plc 3.4
Kalibrate Technologies plc 3.1
Comparatives for Ten Largest Investments
2014
Market 2014 2013 2013
value % total Market value % total
Company £'000 portfolio £'000 portfolio
Optimal Payments 10,620 2.1 3,846 1.0
Bellway 9,726 1.9 8,607 2.3
Workspace Group 9,110 1.8 7,018 1.8
Senior 8,596 1.7 9,042 2.4
Xaar 7,932 1.5 2,925 0.8
Elementis 7,929 1.5 3,701 1.0
Restaurant Group 7,712 1.5 5,602 1.5
Polar Capital Holdings 7,649 1.5 4,083 1.1
Dunelm Group 7,473 1.5 6,103 1.6
Avon Rubber 7,204 1.4 3,662 1.0
------ ---- ------ ----
83,951 16.4 54,589 14.5
====== ==== ====== ====
Performance
Distribution of investments
Sector % of portfolio
Oil & Gas Producers 3.5
----
Oil & Gas 3.5
----
Industrial Metals & Mining 0.7
Mining 2.7
Chemicals 3.0
----
Basic Materials 6.4
----
Support Services 11.3
Electronic & Electrical Equipment 4.5
Industrial Engineering 1.2
Aerospace & Defence 3.5
Industrial Transport 2.8
Construction & Materials 3.5
----
Industrials 26.8
----
Food Producers 0.1
Beverages 0.3
Personal Goods 1.0
Household Goods & Home Construction 6.8
----
Consumer Goods 8.2
----
Health Care Equipment & Services 2.5
Pharmaceuticals & Biotechnology 4.6
----
Health Care 7.1
----
Food & Drug Retailers 1.1
Travel & Leisure 5.3
Media 5.7
General Retailers 6.0
----
Consumer Services 18.1
----
Fixed-Line Telecommunications Services 2.0
----
Telecommunications Services 2.0
----
Equity Investment Instruments 0.2
Retail Real Estate Investment Trust 2.9
Real Estate Investments Services 6.6
Financial Services 8.8
----
Financials 18.5
----
Technology Hardware & Equipment 1.7
Software & Computer Services 7.7
----
Technology 9.4
----
Analysis of Portfolio Value by Sector
%
Oil & Gas 3.5
Basic Materials 6.4
Industrials 26.8
Consumer Goods 8.2
Health Care 7.1
Consumer Services 18.1
Telecommunications Services 2.0
Financials 18.5
Technology 9.4
Sources: BlackRock.
Performance
Strategic report
The Directors present the Strategic Report of the Company for the year ended
28 February 2014.
The aim of the Strategic Report is to provide shareholders with the ability to
assess how the Directors have performed their duty to promote the success of
the Company for shareholders' collective benefit.
Objective
The Company's prime objective is to achieve long term capital growth for
shareholders through investment mainly in smaller UK quoted companies. No
material change will be made to this objective without shareholder approval.
Strategy, business model and investment policy
The Company is an investment trust which invests in accordance with the
objective given above. It has no employees and outsources its management
function to the Investment Manager, BlackRock Investment Management (UK)
Limited.
To achieve its investment objective the Company may invest in securities which
are listed overseas but have a secondary UK quotation. The Company may also
trade on the Alternative Investment Market ("AIM") and the Board's current
intention is that the value of AIM listed stocks as a percentage of the
Company's portfolio should not exceed 40%. The Manager's approach in
determining the optimal exposure to AIM investments subject to the parameters
set by the Board is to focus on the merits of the underlying company and to
seek value rather than to focus on the exchange on which the holding is listed,
and consequently the level of exposure to AIM investments will vary from time
to time. Although investments are primarily in companies listed on recognised
stock exchanges, the Investment Manager may also invest in unquoted securities
with the prior approval of the Board. The Manager's approach in determining the
optimal exposure to AIM investments subject to the parameters set by the Board
is to focus on the merits of the underlying company and to seek value rather
than to focus on the exchanges on which the holding is listed and consequently
the level of exposure to AIM investments will vary from time to time.
Although investments are primarily in companies listed on recognised stock
exchanges, the Investment Manager may also invest in unquoted securities
with the prior approval of the Board.
Performance is measured against an appropriate benchmark, the Numis Smaller
Companies plus AIM (excluding Investment Companies) Index.
The Investment Manager has adopted a consistent investment process, focusing on
good quality growth companies that are trading well; stock selection is the
primary focus but consideration is also given to sector weightings and
underlying themes. Whilst there are no set limits on individual sector
exposures against the Company's benchmark, a schedule of sector weightings is
presented at each Board meeting for review.
In applying the investment objective, the Investment Manager expects the
Company to be fully invested and to borrow as and when appropriate. The Company
seeks to achieve an appropriate spread of investment risk by investing in a
number of holdings across a range of sectors.
The Company may not hold more than 5% of the share capital of any company in
which it has an investment. In addition, while the Company may hold shares in
other listed investment companies (including investment trusts) the Board has
agreed that the Company will not invest more than 15% of its total assets in
other UK listed investment companies.
The Investment Manager will not deal in derivatives without the prior approval
of the Board and derivative instruments, such as options and futures contracts,
have not been used during the year.
Gearing policy
The Investment Manager believes that gearing can add value over the long term.
The Company currently has £15 million of debenture stock in issue, a £25 million
multi-currency revolving loan facility with Scotia Bank (Ireland) Limited and a
bank overdraft facility of £20 million with Bank of New York Mellon ("BNYM").
The benefits of gearing are discussed and the effective level agreed with the
Board regularly. It is intended that gearing will not exceed 15% of the net
assets of the Company at the time of the drawdown of the relevant borrowings
and at the balance sheet date stood at 8.2% of net assets. Under normal operating
circumstances, it is envisaged that gearing will fall in a range between 0-15%
of net assets.
Portfolio analysis
A detailed analysis of the portfolio has been provided on pages 12 to 14 of the
Annual Report and Financial Statements.
Performance
In the year to 28 February 2014, the Company's NAV increased by 36.8% compared
with a rise of 24.2% in the benchmark (the Numis Smaller Companies plus AIM (ex
Investment Companies) Index). The Company's ordinary share price rose by 44.9%
(all percentages calculated in sterling terms and without income reinvested).
The Investment Manager's Report includes a review of the main developments
during the year, together with information on investment activity within the
Company's portfolio.
Results and dividends
The results for the Company are set out in the Income Statement. The total
profit for the year, after taxation, was £132,223,000 (2013: £52,740,000)
which was comprised of revenue return of £6,987,000 (2013: £5,520,000), and a
capital return of £125,236,000 (2013: £47,220,000).
The Company's revenue return amounted to 14.59p per share (2013: 11.53p per
share).
The Directors recommend the payment of a final dividend of 7.40p per share
(2013: 6.50p per share) which, together with the interim dividend of 4.60p per
share (2013: 3.50p per share), makes a total of 12.00p per share in respect
of the year ended 28 February 2014 (2013: 10.00p per share). The dividend will
be paid on 17 June 2014 to shareholders on the register of members at the close
of business on 16 May 2014. The cost of the final dividend amounts to £3,543,000
(2013: £3,112,000).
Key performance indicators
At each Board meeting, the Directors consider a number of performance measures
to assess the Company's success in achieving its objectives. Amongst others,
the key performance indicators ("KPIs") used to measure the progress and
performance of the Company over time and which are comparable to those reported
by other investment trusts are set out below.
2014 2013
Net asset value (debenture at par value) 985.47p 720.42p
Net asset value (denture at fair value) 978.01p 715.37p
Net asset value (debenture at par value,
capital only) 975.48p 712.39p
Share price 908.00p 626.50p
Total return performance 38.7% 18.1%
Discount to NAV with debenture at fair value 7.2% 12.4%
Revenue return per share 14.59p 11.53p
Ongoing charges (1) 0.7% 0.6%
------- -------
Ongoing charges (including performance fees) 1.0% 1.0%
------- -------
1. Calculated as a percentage of average shareholders' funds and using
expenses, excluding finance costs, performance fees and taxation in accordance
with AIC guidelines.
Sources: BlackRock and Datastream.
Additionally, the Board regularly reviews a number of indices and ratios to
understand the impact on the Company's relative performance of the various
components such as asset allocation and stock selection. The Board also reviews
the performance and ongoing charges of the Company against a peer group of UK
smaller companies trusts and open ended funds.
The Directors recognise that it is in the long term interests of shareholders
that shares do not trade at a significant discount to their prevailing net
asset value. During the year the shares traded between a premium of 0.1% and a
discount of 15.6% ending the year at 7.2% (based on NAV with debt at fair
value).
Your Board believes that the best way of addressing the discount over the long
term is to create demand for the shares in the secondary market. To this end
your Investment Manager is devoting considerable effort to broadening the
awareness of the Company's outstanding attractions particularly to wealth
managers and to the wider retail shareholder market. Over the last three
years, the number of shares held by retail shareholders has increased from
20% to nearly 46%.
Principal risks
The key risks faced by the Company are set out below. The Board regularly
reviews and agrees policies for managing each risk, as summarised below.
- Performance risk - The Board is responsible for deciding the investment
strategy to fulfil the Company's objectives and monitoring the performance of
the Investment Manager. An inappropriate strategy may lead to underperformance
against the benchmark index. To manage this risk the Investment Manager
provides an explanation of significant stock selection decisions and the
rationale for the composition of the investment portfolio. The Board monitors
and mandates an adequate spread of investments, in order to minimise the risks
associated with factors specific to particular sectors and based on the
diversification requirements inherent in the Company's investment policy. The
Board also receives reports showing an analysis of the Company's performance
against the benchmark. Past performance is not necessarily a guide to future
performance and the value of your investment in the Company and the income from
it can fluctuate as the value of the underlying investments fluctuate.
- Market risk - Market risk arises from volatility in the prices of the
Company's investments. It represents the potential loss the Company might
suffer through holding investments in the face of negative market movements.
The Board considers asset allocation, stock selection and levels of gearing on
a regular basis and has set investment restrictions and guidelines which are
monitored and reported on by the Investment Manager. The Board monitors the
implementation and results of the investment process with the Investment
Manager.
- Income/dividend risk - The amount of dividends and future dividend growth
will depend on the Company's underlying portfolio. Any change in the tax
treatment of the dividends or interest received by the Company may reduce the
level of dividends received by shareholders. The Board monitors this risk
through the receipt of detailed income forecasts and considers the level of
income at each meeting.
- Regulatory risk - The Company operates as an investment trust in accordance
with Chapter 4 of Part 24 of the Corporation Tax Act 2010. As such, the Company
is exempt from capital gains tax on the profits realised from the sale of its
investments. The Investment Manager monitors 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.
The Company must also comply with the provisions of the Companies Act 2006 and,
as its shares are admitted to the Official List, the UKLA Listing Rules, the
Disclosure and Transparency Rules and the Prospectus Rules. A breach of the
Companies Act 2006 could result in the Company and/or the Directors being fined
or the subject of criminal proceedings. A breach of the UKLA Listing Rules could
result in the Company's shares being suspended from listing, which in turn would
breach the requirements of Chapter 4 of Part 24 of the Corporation Tax Act 2010.
The Board relies on the services of its professional advisers and its corporate
Company Secretary to ensure compliance with all relevant regulations. The Company
Secretary has stringent compliance procedures in place and monitors regulatory
developments and changes.
- 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 regular Service Organisation
Reports (SOC 01) or AAF 01/06 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.
- Financial risks - The Company's investment activities expose it to a variety
of financial risks that include market price risk, currency risk, interest rate
risk, liquidity risk and credit risk. Further details are disclosed in note 18
on pages 52 to 56 of the Annual Report and Financial Statements, together with
a summary of the policies for managing these risks.
Future prospects
The Board's main focus is to achieve long term capital growth. The future
performance of the Company is dependent upon the success of the investment
strategy and, to a large extent, on the performance of financial markets. The
outlook for the Company in the next twelve months is discussed in the
Chairman's Statement and the Investment Manager's Report.
Social, community and human rights issues
As an investment trust, the Company has no direct social or community
responsibilities. However, the Directors believe that it is in shareholders'
interests to consider human rights issues, environmental, social and governance
factors when selecting and retaining investments. Details of the
Company's policy on socially responsible investment are set out on page 32 of
the Annual Report and Financial Statements.
Directors and employees and gender representation
The Directors of the Company on 28 February 2014, all of whom held office
throughout the year, are set out in the Directors' biographies on page 18
of the Annual Report and Financial Statements. The Board consists of 3 male
Directors and 2 female Directors.
The Company does not have any employees.
The information set out on pages 7 to 17 of the Annual Report and Financial
Statements including the Investment Manager's Report, forms part of the
Strategic Report.
The Strategic Report was approved by the Board at its meeting on 25 April 2014.
By order of the Board
BlackRock Investment Management (UK) Limited
Company Secretary
25 April 2014
Related party transactions
The Investment Manager is regarded as a related party under the Listing Rules and
details of the investment management and performance fees payable are set out in
note 4. The investment management and performance fees for the year were £3,411,000
(2013: £2,532,000).
At the year end, the following amounts were outstanding in respect of investment
management and performance fees: £1,755,000 (2013: £1,762,000).
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 year ended 28 February 2014 amounted to £50,000 including
VAT (2013: £nil) of which £50,000 including VAT (2013: £nil) was outstanding at
28 February 2014.
The Board consists of five non-executive Directors, all of whom are considered to
be independent by the Board. None of the Directors has a service contract with
the Company. With effect from 1 March 2014, the remuneration of the Chairman was
increased to £36,000, the Chairman of the Audit Committee increased to £27,000, and
the other Directors increased to £24,000.
All members of the Board hold ordinary shares in the Company. Nicholas Fry holds
40,000 ordinary shares, Gillian Nott holds 11,500 ordinary shares, Caroline Burton
holds 3,000 ordinary shares, Robbie Robertson holds 80,062 ordinary shares and
Michael Peacock holds 1,000 ordinary shares.
Statement of directors' responsibilities
The Directors are responsible for preparing the Annual Report, the Directors'
Remuneration Report and the financial statements in accordance with applicable
law and regulations.
Company law requires the Directors to prepare financial statements for each
financial year. Under that law the Directors have prepared the financial
statements in accordance with United Kingdom Generally Accepted Accounting
Practice (United Kingdom Accounting Standards and applicable law). Under
company law the Directors must not approve the financial statements unless they
are satisfied that they give a true and fair view of the state of affairs of
the Company and of the net return or loss of the Company for that period. In
preparing these financial statements, the Directors are required to:
- select suitable accounting policies and then apply them consistently;
- make judgements and accounting estimates that are reasonable and prudent;
- state whether applicable UK Accounting Standards have been followed, subject
to any material departures disclosed and explained in the financial statements
respectively; and
- prepare the financial statements on the going concern basis, unless it is
inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Company's transactions and disclose with
reasonable accuracy at any time the financial position of the Company and
enable them to ensure that the financial statements and the Directors'
Remuneration Report comply with the Companies Act 2006. They are also
responsible for safeguarding the assets of the Company and hence for taking
reasonable steps for the prevention and detection of fraud and other
irregularities.
The Directors have delegated responsibility to the Investment Manager for the
maintenance and integrity of the Company’s corporate and financial information
included on the Investment Manager’s website. Legislation in the United Kingdom
governing the preparation and dissemination of financial statements may differ
from legislation in other jurisdictions.
The Directors have delegated responsibility to the Investment Manager for the
maintenance and integrity of the Company’s corporate and financial information
included on the Investment Manager’s website. Legislation in the United Kingdom
governing the preparation and dissemination of financial statements may differ
from legislation in other jurisdictions.
The Directors consider that the Annual Report and Financial Statements, taken
as a whole, are fair, balanced and understandable and provide the information
necessary for shareholders to assess the Company's performance, business model
and strategy.
Each of the Directors, whose names and functions are listed on page 18 of the
Annual Report and Financial Statements confirm that, to the best of their knowledge:
- the financial statements, which have been prepared in accordance with United
Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting
Standards and applicable law), give a true and fair view of the assets,
liabilities, financial position and net return of the Company; and
- the Strategic Report contained in the Annual Report and Financial Statements
includes a fair review of the development and performance of the business and
the position of the Company, together with a description of the principal risks
and uncertainties that it faces.
For and on behalf of the Board of Directors
Nicholas Fry
Chairman
25 April 2014
Income statement for the year ended 28 February 2014
Revenue Revenue Capital Capital Total Total
2014 2013 2014 2013 2014 2013
Notes £'000 £'000 £'000 £'000 £'000 £'000
Gains on investments
held at fair value
through profit or loss - - 129,276 50,439 129,276 50,439
Exchange losses - - 1 (1) 1 (1)
Income from
investments held at
fair value through
profit or loss 3 8,460 6,697 - - 8,460 6,697
Other income 3 - 8 - - - 8
Investment management
and performance fees 4 (574) (418) (2,837) (2,114) (3,411) (2,532)
Other operating
expenses 5(a) (492) (397) - - (492) (397)
----- ----- ------- ------ ------- ------
Net return before
finance costs and
taxation 7,394 5,890 126,440 48,324 133,834 54,214
Finance costs (402) (368) (1,204) (1,104) (1,606) (1,472)
----- ----- ------- ------ ------- ------
Net return on ordinary
activities before
taxation 6,992 5,522 125,236 47,220 132,228 52,742
----- ----- ------- ------ ------- ------
Taxation on ordinary
activities (5) (2) - - (5) (2)
----- ----- ------- ------ ------- ------
Net return on ordinary
activities after
taxation 7 6,987 5,520 125,236 47,220 132,223 52,740
====== ====== ======= ====== ======= =======
Return per ordinary
share 7 14.59p 11.53p 261.56p 98.62p 276.15p 110.15p
====== ====== ======= ====== ======= =======
The total column of this statement represents the Profit and Loss Account of
the Company.
The supplementary revenue and capital columns are both prepared under guidance
published by the Association of Investment Companies ("AIC"). The Company had
no recognised gains or losses other than those disclosed in the Income
Statement. All items in the above statement derive from continuing operations.
All income is attributable to the equity holders of BlackRock Smaller Companies
Trust plc.
Reconciliation of movements in shareholders' funds for the year ended 28 February 2014
Called-up Share Capital
share premium redemption Capital Revenue
capital account reserve reserves reserve Total
Note £'000 £'000 £'000 £'000 £'000 £'000
For the year ended
28 February 2013
At 29 February 2012 12,498 38,952 1,982 233,770 9,531 296,733
Return for the year - - - 47,220 5,520 52,740
Dividends paid
(see (a) below) 6 - - - - (4,539) (4,539)
------ ------ ----- ------- ------ -------
At 28 February 2013 12,498 38,952 1,982 280,990 10,512 344,934
------ ------ ----- ------- ------ -------
For the year ended
28 February 2014
At 28 February 2013 12,498 38,952 1,982 280,990 10,512 344,934
Return for the year - - - 125,236 6,987 132,223
Dividends paid
(see (b) below) 6 - - - - (5,314) (5,314)
------ ------ ----- ------- ------ -------
At 28 February 2014 12,498 38,952 1,982 406,226 12,185 471,843
------ ------ ----- ------- ------ -------
(a) Final dividend of 5.98p per share for the year ended 29 February 2012,
declared on 26 April 2012 and paid on 4 July 2012 and interim dividend of 3.50p
per share for the six months ended 31 August 2012, declared on 26 October 2012
and paid on 7 December 2012.
(b) Final dividend of 6.50p per share for the year ended 28 February 2013,
declared on 26 April 2013 and paid on 3 July 2013 and interim dividend of 4.60p
per share for the six months ended 31 August 2013, declared on 24 October 2013
and paid on 29 November 2013.
Balance sheet as at 28 February 2014
2014 2013
Note £'000 £'000
Fixed assets
Investments held at fair value through profit or loss 510,627 379,655
------- -------
Current assets
Debtors 2,169 184
Cash 4,187 -
------- -------
6,356 184
------- -------
Creditors - amounts falling due within one year (5,263) (5,042)
------- -------
Net current assets/(liabilities) 1,093 (4,858)
------- -------
Total assets less current liabilities 511,720 374,797
Creditors - amounts falling due after more
than one year (39,877) (29,863)
------- -------
Net assets 471,843 344,934
======= =======
Capital and reserves
Called-up share capital 8 12,498 12,498
Share premium account 38,952 38,952
Capital redemption reserve 1,982 1,982
Capital reserves 406,226 280,990
Revenue reserve 12,185 10,512
------- -------
Total equity shareholders' funds 471,843 344,934
======= =======
Net asset value per ordinary share
(debenture at par value) 9 985.47p 720.42p
======= =======
Net asset value per ordinary share
(debenture at fair value) 9 978.01p 715.37p
======= =======
Cash flow statement for the year ended 28 February 2014
2014 2013
Notes £'000 £'000
Net cash inflow from operating activities 5(b) 5,004 4,097
------- -------
Servicing of finance (1,597) (1,431)
------- -------
Taxation
Income tax received - 20
Overseas withholding tax (paid)/received (1) 5
------- -------
Total taxation (1) 25
------- -------
Capital expenditure and financial investment
Purchase of investments (182,342) (137,299)
Proceeds from sale of investments 180,173 130,345
------- -------
Net cash outflow from capital expenditure and
financial investment (2,169) (6,954)
------- -------
Financing activities
Equity dividends paid 6 (5,314) (4,539)
Inflow from drawdown of revolving loan 10,000 15,000
------- -------
Net cash inflow from financing 4,686 10,461
------- -------
Increase in cash in the year 5,923 6,198
======= =======
Notes to the financial statements
1. Principal activity
The principal activity of the Company is that of an investment trust company
within the meaning of section 1158 of the Corporation Tax Act 2010.
2. Accounting policies
(a) Basis of preparation
The Company's financial statements have been prepared on the historical cost
basis of accounting, except for investments which are managed and evaluated on
a fair value basis, in accordance with the Companies Act 2006, United Kingdom
Generally Accepted Accounting Practice ("UK GAAP") and with the Statement of
Recommended Practice ("SORP") for investment trusts and venture capital trusts
issued by the Association of Investment Companies ("AIC"), revised in January
2009. The principal accounting policies adopted by the Company are set out
below. The policies have been applied consistently throughout the year and are
consistent with those applied in the preceding year. All of the Company's
operations are of a continuing nature.
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.
(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
or last traded 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 FRS 16 - 'Current Taxation' 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.
Details of transaction costs on the purchases and sales of investments are
disclosed in note 10 on page 49 of the Annual Report and Financial Statements;
- the investment management fee has been allocated 75% to the capital column
and 25% to the revenue column of the Income Statement in line with the Board's
expected long term split of returns, in the form of capital gains and income
respectively, from the investment portfolio; and
- performance fees have been allocated 100% to the capital column of the Income
Statement, as performance has been predominantly generated through capital
returns of the investment portfolio.
(g) Long term borrowings and finance costs
Long term borrowings are carried in the Balance Sheet at amortised cost,
representing the cumulative amount of net proceeds on issue plus accrued
finance costs. Finance costs are accounted for on an accruals basis. Finance
costs are allocated, insofar as they relate to the financing of the Company's
investments, 75% to the capital column and 25% to the revenue column of the
Income Statement, in line with the Board's expected long term split of returns,
in the form of capital gains and income respectively, from the investment
portfolio.
(h) Taxation
Deferred 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) Debtors
Debtors are sales for future settlement, other debtors, prepayments and accrued
income in the ordinary course of business. If collection is expected in one
year or less (or in the normal operating cycle of the business if longer), they
are classified as current assets. If not, they are presented as non-current
assets. Debtors are recognised initially at fair value and subsequently
measured at amortised cost using the effective interest rate method.
(j) Creditors
Creditors are purchases for future settlements, interest payable, share buyback
costs and accruals in the ordinary course of business. Creditors are classified
as current liabilities if payment is due within one year or less (or in the
normal operating cycle of the business if longer). If not, they are presented
as non-current liabilities. Creditors are recognised initially at fair value
and subsequently measured at amortised cost using the effective interest rate
method.
(k) 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.
(l) Cash and cash equivalents
Cash comprises cash in hand and demand deposits. Cash equivalents are short
term, highly liquid investments, that are readily convertible to known amounts
of cash and that are subject to an insignificant risk of changes in value.
(m) Going concern
The Directors are satisfied that the Company has adequate resources to continue
in operational existence for the foreseeable future and therefore consider the
going concern assumption to be appropriate.
3. Income
2014 2013
£'000 £'000
Investment income:
UK listed dividends 7,115 5,955
UK listed dividends - special 936 400
Property income dividends 145 133
Overseas listed dividends 264 209
----- -----
8,460 6,697
----- -----
Other income:
Underwriting commission - 8
----- -----
- 8
----- -----
Total 8,460 6,705
===== =====
Total income comprises:
Dividends 8,460 6,697
Other income - 8
----- -----
8,460 6,705
===== =====
4. Investment management and performance fees
2014 2013
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Investment management
fee 574 1,726 2,300 418 1,254 1,672
Performance fee - 1,111 1,111 - 860 860
--- ----- ----- --- ----- -----
Total 574 2,837 3,411 418 2,114 2,532
=== ===== ===== === ===== =====
The investment management fee is calculated based on 0.65% in respect of the
first £50 million of the Company's total assets less current liabilities,
reducing to 0.50% thereafter. A performance fee is payable at the rate of 10%
of the annualised excess performance over the benchmark in the two previous
financial years, applied to the average of the total assets less current
liabilities of the Company. The fee is payable annually in April and is capped
at 0.25% of the average of the total assets less current liabilities of the
Company.
8.4% outperformance was generated against the Company's benchmark for the
performance period ended 28 February 2014 (2013: 3.3%). The fee was restricted
by the 0.25% cap and £1,111,000 has been accrued for the year ended 28 February
2014 (2013: £860,000).
Performance fees have been wholly allocated to capital reserves as the
performance has been predominantly generated through capital returns of the
investment portfolio.
5. Operating activities
2014 2013
£'000 £'000
(a) Other operating expenses
Auditor's remuneration:
- audit services 19 18
- non audit services* 6 6
Registrar's fee 28 25
Directors' remuneration (excluding expenses) 122 118
Other administrative costs 317 230
--- ---
492 397
=== ===
The Company's ongoing charges - calculated as a percentage
of average shareholders' funds and using operating
expenses, excluding performance fees, finance costs and
taxation were: 0.7% 0.6%
---- ----
The Company's ongoing charges - calculated as a percentage
of average shareholders' funds and using operating
expenses, including performance fees, and taxation and
excluding finance costs were: 1.0% 1.0%
==== ====
* Non audit services relate to the review of the half yearly financial
statements and debenture certificate.
2014 2013
£'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 133,834 54,214
Gains on investments held at fair value through
profit and loss (129,276) (50,439)
Exchange losses of a capital nature (1) 1
Increase in accrued income (40) (12)
Increase in creditors 487 333
------- ------
Net cash inflow from operating activities 5,004 4,097
======= ======
6. Dividends
2014 2013
Dividends paid on equity shares: Record date Payment date £'000 £'000
2012 final of 5.98p 1 June 2012 4 July 2012 - 2,863
2013 interim of 3.50p 9 November 2012 7 December 2012 - 1,676
2013 final of 6.50p 31 May 2013 3 July 2013 3,112 -
2014 interim of 4.60p 1 November 2013 29 November 2013 2,202 -
----- -----
5,314 4,539
===== =====
The Directors have proposed a final dividend of 7.40p per share in respect of the
year ended 28 February 2014. The proposed final dividend will be paid, subject
to shareholders' approval, on 17 June 2014 to shareholders on the Company's
register on 16 May 2014. 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.
Dividends paid or proposed on equity shares: 2014 2013
£'000 £'000
Interim paid of 4.60p per share (2013: 3.50p) 2,202 1,676
Final proposed of 7.40p* per share (2013: 6.50p) 3,543 3,112
----- -----
5,745 4,788
===== =====
* Based upon 47,879,792 ordinary shares (excluding treasury shares) in issue on
25 April 2014.
7. Return per ordinary share
Revenue and capital returns per share are shown below and have been calculated
using the following:
2014 2013
Net revenue return attributable to ordinary shareholders
(£'000) 6,987 5,520
Net capital return attributable to ordinary shareholders
(£'000) 125,236 47,220
------- -------
Total return (£'000) 132,223 52,740
======= =======
Total equity shareholders' funds (£'000) 471,843 344,934
======= =======
The weighted average number of ordinary shares in issue
during each year on which the return per ordinary share
was calculated, was: 47,879,792 47,879,792
---------- ----------
The actual number of ordinary shares in issue at the end
of each year on which the net asset value was calculated,
was: 47,879,792 47,879,792
========== ==========
2014 2013
Revenue Capital Total Revenue Capital Total
p p p p p p
Return per share
Calculated on
weighted average
number of shares 14.59 261.56 276.15 11.53 98.62 110.15
Calculated on actual
number of shares 14.59 261.56 276.15 11.53 98.62 110.15
Net asset value per
share (debenture at
par value) - - 985.47 - - 720.42
----- ------ ------ ----- ----- ------
Net asset value per
share (debenture at
fair value) - - 978.01 - - 715.37
===== ====== ====== ===== ===== ======
8. Called-up share capital
Total
Ordinary Treasury shares Nominal
shares shares in value
(nominal) (nominal) issue £'000
Allotted, called up and fully paid
share capital comprised:
Ordinary shares of 25p each
At 1 March 2013 47,879,792 2,113,731 49,993,523 12,498
---------- --------- ---------- ------
At 28 February 2014 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 (2013: nil). The number of ordinary shares in issue at the year end,
excluding treasury shares, was 47,879,792 (2013: 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. Net Asset Value Per Ordinary Share
2014 2013
Net assets attributable to ordinary shareholders (£'000) 471,843 344,934
The actual number of ordinary shares in issue at the
end of each year on which the net asset value per ordinary
share was calculated, was: 47,879,792 47,879,792
Net asset value per ordinary share (with debenture at
par value) 985.47p 720.42p
Net asset value per ordinary share (with debenture at par,
capital only) 975.48p 712.39p
Net asset value per ordinary share (with debenture at
fair value)* 978.01p 715.37p
Ordinary share price 908.00p 626.50p
* The fair value of the 7.75% debenture stock using the last available quoted offer
price from the London Stock Exchange as at 28 February 2014 was 123.00p per debenture,
a total of £18,450,000. (At 28 February 2013: 115.20p, a total of £17,280,000.)
10. Contingent liabilities
There were no contingent liabilities at 28 February 2014 (2013: nil).
11. Publication of non-statutory accounts
The financial information contained in this announcement does not constitute statutory
accounts as defined in section 435 of the Companies Act 2006.
The figures set out above have been reported upon by the auditor. The comparative figures
are extracts from the audited financial statements of BlackRock Smaller Companies Trust plc
for the year ended 28 February 2013, which have been filed with the Registrar of Companies.
The report of the auditor for the years ended 28 February 2013 and 28 February 2014 contain
no qualification or statement under section 498(2) or (3) of the Companies Act 2006. The 2014
Annual Report and Financial Statements will be filed with the Registrar of Companies after
the Annual General Meeting.
12. Annual Report and Financial Statements
Copies of the Annual Report and Financial Statements will be sent to members shortly and
will be available from The Company Secretary, BlackRock Smaller Companies Trust plc,
12 Throgmorton Avenue, London EC2N 2DL.
13. Annual General Meeting
The Annual General Meeting of the Company will be held at 12 Throgmorton Avenue, London
EC2N 2DL on 10 June 2014 at 11:30 a.m.
ENDS
The Annual Report and Financial Statements will also be available on the BlackRock Investment
Management website at http://www.blackrock.co.uk/individual/literature/annual-report/
blackrock-smaller-companies-trust-plc-annual-report-2014.pdf. Neither the contents of the Manager's
website nor the contents of any website accessible from hyperlinks on the Manager's website
(or any other website) is incorporated into, or forms part of, this announcement.
For further information, please contact:
Simon White, Managing Director, Investment Companies, BlackRock Investment Management (UK) Limited
Tel: 020 7743 5284
Mike Prentis, BlackRock Investment Management (UK) Limited
Tel: 020 7743 2312
Emma Phillips, Media & Communications, BlackRock Investment Management (UK) Limited
Tel: 020 7743 2922
25 April 2014
12 Throgmorton Avenue
London EC2N 2DL
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