Final Results
28 April 2008
BLACKROCK SMALLER COMPANIES TRUST plc
Preliminary announcement of results in respect of the year
ended 29 February 2008
Performance to 29 February 2008 1 year 3 years 5 years
(calculated on a capital only basis)
Net asset value per share -8.7% +45.7% +193.8%
Ordinary share price -13.4% +48.5% +209.8%
Benchmark* -16.7% +10.9% +89.9%
* With effect from 1 September 2007 the Hoare Govett Smaller Companies plus
AIM (ex Investment Companies) Index replaced the FTSE SmallCap Index (ex
Investment Companies) as the Company's benchmark. The above index has been
blended to reflect this.
Sources: BlackRock, Datastream
- The Company has maintained upper quartile ranking in its sector over the one
month, three months, six months, one year, three year and five year periods to
29 February 2008.
- Outperformed the benchmark index by 8.0%.
- Increased final dividend of 3.01p per share, a rise of 2.7% on the previous
year, and a special dividend of 1.25p per share, making a total dividend for
the year of 6.15p, a rise of 29.2% on the previous year.
- The Board has appointed Robert Robertson as a new Director.
For further information please contact:
Jonathan Ruck Keene, Managing Director Investment
Companies - 020 7743 2178
Mike Prentis, Fund Manager - 020 7743 2312
Emma Phillips, Media & Communications - 020 7743 2922
BlackRock Investment Management (UK) Limited
Or
William Clutterbuck
The Maitland Consultancy - 020 7379 5151
The Chairman, Richard Brewster, comments:
Review of the year to 29 February 2008
It has been a year of two periods. In the first four months conditions were
relatively benign until the sub-prime difficulties surfaced in July. Since
then, performance in the year has been largely dominated by periods of
sustained volatility in global markets which helped to fuel high levels of
sell-offs in smaller companies' equity as investors refocused their attention
on more liquid positions. Much of the turbulence experienced during the year
was due to the impact of the "credit crunch" on markets. Against this
backdrop, the Company's net asset value fell by 8.7% and the share price
closed down 13.4% reflecting a widening of discounts across the UK smaller
companies investment trust sector. However, this compares favourably against
the benchmark which closed down 16.7%.*
Earnings and dividends
Revenue earnings per share for the year amounted to 7.16p compared with 5.61p
for the previous year. Encouragingly, dividend growth has again been strong in
many of the portfolio holdings.
The proposed final dividend is 3.01p per share, an increase of 2.7% over the
2.93p paid last year. In view of the special nature of several dividends
received during the year, the Board has declared a special dividend of 1.25p
per share. This makes a total for the year of 6.15p, an increase of 29.2% over
the 4.76p paid last year.
Gearing
The Company's gearing levels are regularly reviewed and the Board continues to
believe that moderate gearing is in the long term interests of shareholders.
Net borrowings ranged from £16 million to £25 million over the year.
Currently, net borrowings stand at £18.3 million, 9.3% of shareholders' funds.
Discount and share buy backs
The Board pays close attention to the discount at which the Company's shares
trade compared to net asset value. In the year to 29 February 2008, the
discount ranged from 13.1% to 25.8% and the opportunity was taken to buy back
1,483,815 shares, representing 3.0% of the share capital in issue at the start
of the year. The shares were bought in at an average discount of 20.6% and
placed in treasury.
In common with previous years, the Board will endeavour to work with the
Investment Manager in order to manage the discount as effectively as possible.
The Board will be seeking renewal of its authority to buy back shares at the
Annual General Meeting and the primary purpose of any buy back would be to
enhance the net asset value for continuing shareholders.
Company name
At a General Meeting held on 23 April 2008, shareholders resolved to change
the Company's name to BlackRock Smaller Companies Trust plc. The change of
name was effective from 25 April 2008. As explained in the circular to
shareholders posted in March, the change follows the merger of Merrill Lynch
Investment Managers with BlackRock and a full product rebrand. I am pleased to
report that BlackRock has borne all costs associated with changing the
Company's name.
Board changes
As mentioned in the half yearly financial report, the Board commenced a search
for a new Director following the retirement of Robert Ffoulkes-Jones, to
ensure a good balance of skills would be maintained on the Board in the
future. In his place, we are very pleased to welcome Robert Robertson, who
joined us on 23 April 2008. Mr Robertson spent more than thirty years with the
Anglo American Group, from which he retired in 2006, and during his time at
Anglo served as a Director on a number of external boards embracing various
industries. He is currently non-executive chairman of West China Cement
Limited and a non-executive director of Avocet Mining PLC.
VAT
The Board welcomes the success of the Association of Investment Companies
("AIC") and JPMorgan Claverhouse Investment Trust plc who have won their
lengthy test case against HM Revenue & Customs ("HMRC") challenging the
imposition of VAT on management services supplied to investment trusts. HMRC
has now accepted the European Court of Justice's judgement on 28 June 2007
that management services supplied to investment trusts should be exempt from
VAT.
Total VAT incurred by the Company on management fees since inception is
estimated at £2.2 million and the prospective saving for your Company is
estimated at £300,000 per annum.
The investment management agreement between the Company and BlackRock
stipulates that in the event of a successful outcome in the JPMorgan
Claverhouse case for the plaintiff, any VAT levied will be repaid gross to the
Company by the Investment Manager. Consequently, there is sufficient certainty
over the recoverability and calculation of the amounts involved to enable an
asset of £629,000 to be accrued in the financial statements, representing VAT
on invoices raised by the incumbent manager. Additional information is given
in note 4. It is anticipated that the VAT will be received by the Company as
soon as BlackRock has received settlement from HMRC. Given the volume of
claims HMRC has to process it is likely to be a significant period of time
before any amounts are refunded.
A further amount is due to be recovered from the previous manager, 3i plc.
However, as the exact amount has not yet been agreed no asset in respect of
this sum has been recognised in the financial statements.
Outlook
There are strong headwinds confronting the financial sector, with a
consequential knock-on effect on a global economy which is already
experiencing a general slowdown. The near future is unclear and expected to
remain so until real confidence returns to lenders. The investment policy of
the Company to invest in growth companies with positive cash flows and low
levels of debt provides a solid foundation, although the rate of profits
growth is likely to continue to decline in the short term. However, with
falling interest rates and more attractive valuations, some good investment
opportunities will arise.
*The benchmark was the FTSE SmallCap Index excluding Investment Companies for
the first half of the year and the Hoare Govett Smaller Companies plus AIM
(excluding Investment Companies) Index from 1 September 2007.
Commenting upon the outlook for the Company, Mike Prentis of BlackRock
Investment Management (UK) Limited, the Investment Manager, notes:
Overall performance
Performance during the financial year was disappointing with stockmarkets
reacting badly to concerns about sub-prime lending in the US and UK. The
Company's net asset value ("NAV") was fairly flat in the first half, but fell
sharply thereafter particularly in November. Over the financial year the NAV
fell by 8.7%; this was however well ahead of the benchmark index which fell by
16.7%. Both percentages are on a capital only basis. Large caps performed
little better with the FTSE100 Index falling by 12.4%.
Portfolio performance
The portfolio benefited from takeover activity during the year with three
holdings, Kiln, Broker Network and MTL Instruments, falling to bids and Expro
International indicating that it had received an early stage approach on the
last day of the financial year. In absolute terms each of these stocks
generated good returns in excess of 35% during the financial year, and
collectively accounted for almost 2.5% of our outperformance. We do not buy
stocks in anticipation of takeovers; our policy is to invest mainly in growth
stocks and these are generally less likely to be taken over. The level of
activity in this context is rather unusual.
The portfolio has also benefited from strong resources prices; amongst our
best performers were Albidon, Encore Oil, Avocet Mining and JKX Oil & Gas.
Each of these stocks rose by more than 60% during the year. Albidon is
expecting to bring its Munali nickel mine into production by the middle of the
year. At current nickel prices the Munali mine, which is located in Zambia,
will payback in about a year but has the potential to produce for at least 8
years. Albidon also has some other very interesting licenses around Africa
which it has joint ventured with various major mining companies. Encore Oil
has licences over a variety of North Sea oil and gas prospects and has had
good drilling success. However, the main driver of its share price has been
the interest shown in its large offshore gas storage assets. Avocet Mining has
been a beneficiary of the strong gold price. Its production is all in Malaysia
and Indonesia. It is a relatively low cost producer unlike many of the deep
South African gold mines, which have also had to worry more about power
availability in recent months. JKX Oil & Gas produces oil and gas in the
Ukraine. Volumes and prices are increasing; JKX is benefiting from Russian
attempts to increase the price of gas at which Gazprom sells to the Ukraine.
Other strong stock performances came from Dechra Pharmaceuticals and London
Capital. Dechra, the Company's largest holding, completed the acquisition of
VetXX, which gives it a strong European footprint and materially increases its
range of licensed veterinary products. The acquisition was well received.
Trading from the existing veterinary pharmaceuticals products and distribution
businesses remains strong. These factors led to a significant earnings
upgrade. London Capital has also seen its earnings increase considerably on
the back of its online spreadbetting and foreign exchange activities.
Volatility in share markets has been one of the drivers of London Capital's
rapid growth.
The worst performing sector during the year was real estate. We held an
overweight position for most of the year, and the sector holding cost us
almost 2% in terms of relative performance. Stocks such as Colliers CRE and
O Twelve Estates both fell by more than 60%. We sold part of the holding in the
former at much higher prices but have only recently completed the sale of the
balance.
The most disappointing holding, Jarvis, issued a profit warning several months
after a series of highly upbeat site visits. We sold the holding.
Activity
As markets continued to deteriorate in the latter part of 2007, we decided to
reduce the cyclical exposure of the portfolio further. We sold the holding in
Euromoney, a business exposed to the financial services sector, which might
see a reduction in advertising spend which accounts for a large proportion of
its revenue generation. We also sold our holdings in Bodycote, whose heat
treatment operations are highly operationally geared and partly exposed to the
US automotive sector, and Keller and Galliford Try, both of which are new
construction related businesses. As mentioned previously, we have seen a
resurgence in mergers and acquisitions activity, with cash bids from trade
buyers for several holdings. In each case we have accepted bids or sold the
stocks in the market.
In recent months we have added holdings which we regard as high quality and
well managed, and which should fare well over the next few years. These
included Chemring, providers of specialist decoys to protect helicopters and
other aircraft and their occupants from missile attack; Great Portland, a
major investor in and developer of London West End offices; Helical Bar, a
real estate developer with one of the best track records over the long term;
and Big Yellow, a leading provider of self storage facilities mainly in South
East England. These real estate companies have all been added after sharp
share price falls over the last year. We have also selectively added to our
resources position with small new holdings in companies such as Nighthawk
Energy, Petra Diamonds and Ridge Mining. Nighthawk is an oil and gas
exploration company with significant acreage particularly in Utah and
Colorado. It has started a drilling program and is hopeful of bringing its gas
and potential oil assets into production quickly. Petra is a diamond producer
operating in Southern Africa. Ridge is due to bring its Blue Ridge platinum
mine into production later this year. At current platinum prices this will
generate a lot of cash.
Investment strategy and portfolio positioning
We are concerned about the prospects for both the UK and US economies in the
short term. The sub-prime crisis is impairing the ability and willingness of
the banks to lend. The UK consumer, particularly those who are highly
indebted, will come under significant pressure. We have very little exposure
to UK discretionary spending with less than 1% of the portfolio invested in
general retailers and leisure stocks. Arguably the larger holding, Goals
Soccer Centres, is unlikely to be materially affected by a general consumer
slowdown. Highly indebted companies will also find their bankers less
supportive and their credit facilities more expensive. The balance sheets of
most of the major holdings are showing net cash balances. We are wary of
companies that derive a lot of business from retail and investment banks; this
spending may prove to be less reliable than it had been previously. We are
also concerned about UK Government spending which has been strong in recent
years. We expect more discretionary elements to be challenged and subject to
delay or cancellation.
Fortunately, there are areas where demand is likely to remain strong. As a
general rule we like companies that deliver organic sales growth in the
current environment, and can also demonstrate robust pricing power thus
indicating the strength of their market position. In terms of themes, we like
companies with high levels of emerging markets exposure, resources stocks,
defence stocks, and companies with long term contractually committed
Government spending. Examples of larger stock positions held in respect of the
first theme are Aveva and ITE. Aveva is the globally leading supplier of
software used to design, build and maintain large plants such as nuclear and
other power stations, oil refineries, and large ships. Demand from the Far
East is expected to remain strong as infrastructure projects continue to help
these countries develop further. ITE is the leading organiser of trade
exhibitions in Russia and the Former Soviet Union. Its results continue to be
very strong, and like Aveva it has excellent revenue visibility. It is not
unrealistic to expect ITE's revenues to double over the next three to five
years. We like a mix of resources companies such as Avocet Mining and Albidon,
whose mine we visited in November. Among oil stocks, we focus on those which
are expected to show strong production growth. These include Oilexco and Dana
Petroleum, both oil producers with big North Sea interests which are
generating very strong cash flows at current prices, and companies such as JKX
Oil & Gas and Emerald Energy which produce oil and gas in the Ukraine and
Colombia respectively.
Specialist defence companies are unlikely to face major cutbacks given the
many areas of tension in the world today. Holdings include Ultra Electronics,
specialists in battlefield IT, Chemring, and Detica, leaders in the provision
of counterterrorism IT. Civil aerospace order books are at record levels,
driven by new wide bodied aircraft, giving excellent revenue visibility, and
benefiting companies such as Senior and Hampson Industries. Mouchel and
Connaught are examples of companies supplying the public sector with long term
contractually committed services. Mouchel help manage many UK road networks,
and Connaught refurbish and maintain UK social housing.
Gearing
Gearing has been maintained at about 10% of shareholders' funds throughout the
year. This is partly because trading news from the portfolio has generally
remained good, and also because stock liquidity is poor. We believe many hedge
funds operating in the UK smallcap arena will have eliminated their previous
net long positions, and long only funds will have built up cash reserves to
fund potential redemptions. We would expect these moves to be reversed on a
recovery with marginal funds going into better quality midcap and smallcap
stocks. Had we reduced gearing we would not have been confident of being able
to buy back the stocks we like in markets which may still be thin.
Outlook
The market has remained volatile in recent weeks. We expect that further bad
news relating to the sub-prime crisis will emerge over the coming months and
this will feed through into the real economy and company results. Stockmarkets
may not take this news in their stride. It is possible that we will see
significant further sell-offs before markets bottom out. In this situation, UK
smallcap stocks would certainly not be immune.
That said, we have structured our portfolio to take account of, and avoid, the
main areas of weakness in the world economy. For instance, we have very little
exposure to discretionary UK consumer spending. We have reduced our exposure
to the UK construction sector; the companies we do hold, such as Kier Group,
are very well managed and soundly financed. We have also sold investments that
derive the majority of their revenues from the US.
Our portfolio is exposed to themes that remain strong. In particular, we have
sought to gain good exposure to emerging markets where GDP growth is likely to
remain robust despite the weakness in the US economy. This has been achieved
by owning holdings in software, engineering, base metals and oil and gas
stocks all benefiting from strong emerging market demand. We also like the
aerospace and defence sectors where order books are long. We own many other
companies with highly predictable, growing revenues ranging from private
client fund management companies and companies maintaining the UK's
infrastructure of roads, rail and social housing.
As a hedge against market volatility we own a few gold producers, in
particular Avocet Mining, and London Capital, which benefits from highly
volatile stock and commodity markets.
The results season for companies with June and December year ends has passed
and the outlook statements accompanying results of our portfolio companies
have, with a few exceptions, indicated that trading remains sound. This has
not stopped share prices falling with the market. The combination of higher
earnings and lower share prices has led to a significant derating and
valuations are now looking more attractive once again.
INCOME STATEMENT
for the year ended 29 February 2008
Revenue Revenue Capital Capital
return return return return Total Total
2008 2007 2008 2007 2008 2007
Notes £'000 £'000 £'000 £'000 £'000 £'000
(Losses)/gains on investments
held at fair value
through profit or loss - - (19,451) 48,182 (19,451) 48,182
Income from investments 3 4,467 3,729 - - 4,467 3,729
Other income 3 13 90 - - 13 90
Investment management and 4
performance fees (334) (336) (1,574) (1,649) (1,908) (1,985)
Write back of prior years' VAT 4 111 - 518 - 629 -
Other operating expenses 5 (303) (299) - - (303) (299)
----- ---- ---- ---- ---- ----
Net return before finance costs
and taxation 3,954 3,184 (20,507) 46,533 (16,553) 49,717
Finance costs 6 (410) (360) (1,207) (874) (1,617) (1,234)
----- ---- ---- ---- ---- ----
Return on ordinary activities before
taxation 3,544 2,824 (21,714) 45,659 (18,170) 48,483
----- ----- ------- ------ ------- ------
Taxation on ordinary activities (4) - - - (4) -
----- ----- ------ ------ ------ ------
Return on ordinary activities
after taxation 3,540 2,824 (21,714) 45,659 (18,174) 48,483
===== ===== ======= ====== ====== ======
Return per ordinary share 8 7.16p 5.61p (43.93p) 90.65p (36.77p) 96.26p
===== ===== ======= ====== ====== ======
The total column of this statement represents the Income Statement of the
Company. The supplementary revenue and capital return 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 29 February 2008
Share Capital
Share premium redemption Capital Revenue
capital account reserve reserve reserve Total
Notes £'000 £'000 £'000 £'000 £'000 £'000
For the year ended 28 February 2007
At 28 February 2006 12,641 38,952 1,839 125,017 4,172 182,621
Return for the year - - - 45,659 2,824 48,483
Shares purchased and cancelled (143) - 143 (1,888) - (1,888)
Dividends paid (see (a) below) 7 - - - - (2,356) (2,356)
------ ------ ----- ------- ----- -------
At 28 February 2007 12,498 38,952 1,982 168,788 4,640 226,860
------ ------ ----- ------- ----- -------
For the year ended 29 February 2008
At 28 February 2007 12,498 38,952 1,982 168,788 4,640 226,860
Return for the year - - - (21,714) 3,540 (18,174)
Shares purchased and held in treasury - - - (5,234) - (5,234)
Dividends paid (see (b) below) 7 - - - - (2,400) (2,400)
------ ------ ----- ------- ----- -------
At 29 February 2008 12,498 38,952 1,982 141,840 5,780 201,052
====== ====== ===== ======= ===== =======
(a) Final dividend of 2.83p per share for the year ended 28 February 2006,
declared on 28 April 2006 and paid on 13 June 2006 and interim dividend of
1.83p per share for the six months ended 31 August 2006, declared on 9 October
2006 and paid on 6 November 2006.
(b) Final dividend of 2.93p per share for the year ended 28 February 2007,
declared on 24 April 2007 and paid on 15 June 2007 and interim dividend of
1.89p per share for the six months ended 31 August 2007, declared on 10
October 2007 and paid on 5 November 2007.
BALANCE SHEET
as at 29 February 2008
2008 2007
£'000 £'000
Fixed assets
Investments held at fair value through profit or loss 218,175 249,835
------- -------
Current assets
Debtors 3,282 1,567
Cash 1 -
------- -------
3,283 1,567
------- -------
Creditors - amounts falling due within one year (5,615) (9,766)
------- -------
Net current liabilities (2,332) (8,199)
------- -------
Total assets less current liabilities 215,843 241,636
Creditors - amounts falling due after more than one year (14,791) (14,776)
------- -------
Net assets 201,052 226,860
======= =======
Capital and reserves
Share capital 12,498 12,498
Share premium account 38,952 38,952
Capital redemption reserve 1,982 1,982
Capital reserve - realised 107,449 93,551
Capital reserve - unrealised 34,391 75,237
Revenue reserve 5,780 4,640
------- -------
Total equity shareholders' funds 201,052 226,860
======= =======
Net asset value per ordinary share 414.46p 453.78p
======= =======
CASH FLOW STATEMENT
for the year ended 29 February 2008
2008 2007
Note £'000 £'000
Net cash inflow from operating activities 5(b) 2,395 1,523
------ ------
Servicing of finance (1,602) (1,219)
------ ------
Capital expenditure and financial investment
Purchase of investments (148,029) (136,841)
Proceeds from sale of investments 161,381 131,186
------ ------
Net cash inflow/(outflow) from capital 13,352 (5,655)
expenditure and financial investment
------ ------
Equity dividends paid (2,400) (2,356)
------ ------
Net cash inflow/(outflow) before financing 11,745 (7,707)
------ ------
Financing
Purchase of ordinary shares (5,234) (1,888)
------ -----
Net cash outflow from financing (5,234) (1,888)
----- -----
Increase/(decrease) in cash in the year 6,511 (9,595)
===== =====
NOTES TO THE PRELIMINARY RESULTS
1. Principal activity
The principal activity of the Company is that of an investment trust company
within the meaning of section 842 of the Income and Corporation Taxes Act
1988.
2. Accounting policies
The policies set out below have been applied consistently throughout the year.
(a) Basis of preparation
The Company's financial statements have been prepared in accordance with UK
Generally Accepted Accounting Practice ("UK GAAP") and with the Statement of
Recommended Practice "Financial Statements of Investment Trusts Companies"
("SORP") reissued in December 2005. 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 Association of Investment Companies
("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 266 of the Companies Act 1985, 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, without deduction for estimated future selling
costs. Unquoted investments are valued by the Directors at fair value using
International Private Equity and Venture Capital Association 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.
(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 and expenses are accounted for on an accruals basis.
(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 capital reserve -
realised and 25% to the revenue account 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;
- performance fees have been allocated 100% to capital reserve - realised, as
performance has been predominantly generated through capital returns of the
investment portfolio.
(g) 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 capital reserve - realised and 25% to the revenue account,
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. 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
2008 2007
£'000 £'000
Investment income:
UK listed dividends 3,973 3,667
Bond interest - 35
Overseas listed dividends 494 27
----- -----
4,467 3,729
----- -----
Other income:
Deposit interest 8 69
Underwriting commission 5 21
----- -----
13 90
----- -----
Total 4,480 3,819
===== =====
Total income comprises:
Dividends 4,467 3,694
Interest - 35
Other income 13 90
----- -----
4,480 3,819
===== =====
4. Investment management and performance fees
2008 2007
Revenue Capital Revenue Capital
return return Total return return Total
£'000 £'000 £'000 £'000 £'000 £'000
Investment management fees 305 917 1,222 286 859 1,145
Performance fees - 569 569 - 546 546
VAT 29 88 117 50 244 294
--- ----- ----- --- ----- -----
334 1,574 1,908 336 1,649 1,985
Write back of prior years'
VAT (111) (518) (629) - - -
--- ----- ----- --- ----- -----
Total 223 1,056 1,279 336 1,649 1,985
=== ===== ===== === ===== =====
The investment management fee is calculated based on 0.65% in respect of the
first £50 million of the Company's total assets less current liabilities,
reducing to 0.5% thereafter. A performance fee is payable at the rate of 10%
of the annualised 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.
The Investment Management Agreement has been amended with effect from 1
September 2007 to reflect the Company's new benchmark.
Performance fees have been wholly allocated to capital reserve - realised as
the performance has been predominantly generated through capital returns of
the investment portfolio. A performance fee of £569,000 is payable to the
Investment Manager (2007: £546,000).
5. Other operating activities
2008 2007
£'000 £'000
(a) Operating expenses
Auditors' remuneration:
- audit services 17 16
- non audit services 6 10
Registrar's fee 20 22
Directors' remuneration 78 91
Other administrative costs 182 160
--- ---
303 299
=== ===
The Company's total expense ratio ("TER"), calculated as a
percentage of average net assets and using expenses,
excluding 1.0% 1.1%
interest costs and VAT written back, after relief for
taxation was:
£'000 £'000
(b) Reconciliation of net return before finance costs and
taxation to net cash flow from operating activities
Net return before finance costs and taxation 3,954 3,184
Investment management and performance fees capitalised (1,574) (1,649)
VAT refund capitalised 518 -
Increase in accrued income (96) (147)
Increase in debtors of a revenue nature (629) (8)
Increase in creditors 226 143
Overseas withholding tax suffered (4) -
----- -----
Net cash inflow from operating activities 2,395 1,523
===== =====
6. Finance Costs
2008 2007
Revenue Capital Revenue Capital
return return Total return return Total
£'000 £'000 £'000 £'000 £'000 £'000
7.75% Debenture stock interest 290 871 1,161 340 822 1,162
Bank overdraft interest 116 325 441 17 40 57
Amortised Debenture stock
issue expenses 4 11 15 3 12 15
--- ----- ----- --- --- -----
410 1,207 1,617 360 874 1,234
=== ===== ===== === === =====
The allocation of finance costs between revenue and capital reflects the level
of funds on deposit during the year. It takes into account the fact that such
funds on deposit are only capable of earning a revenue return. The remaining
finance costs have been allocated in the ratio 75:25 between capital and
revenue in line with the Directors' expected long term split of returns from
the investment portfolio.
7. Dividends
2008 2007
£'000 £'000
Dividends paid on equity Record date Payment date
shares:
2006 final of 2.83p 5 May 2006 13 June 2006 - 1,431
2007 interim of 1.83p 20 October 2006 6 November 2006 - 925
2007 final of 2.93p 4 May 2007 15 June 2007 1,465 -
2008 interim of 1.89p 19 October 2007 5 November 2007 935 -
----- -----
2,400 2,356
===== =====
The Directors have proposed a final dividend of 3.01p per share and declared a
special dividend of 1.25p per share in respect of the year ended 29 February
2008. The proposed final dividend will be paid, subject to shareholders'
approval, on 11 June 2008 to shareholders on the Company's register on 9 May
2008, together with the special dividend. The final dividends have 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 842 of the Income and
Corporation Taxes Act 1988 and section 266 of the Companies Act 1985, as
amended, and the amounts proposed meet the relevant requirements as set out in
this legislation.
2008 2007
£'000 £'000
Dividends paid or proposed on equity shares:
Interim paid 1.89p (2007: 1.83p) 935 925
Final proposed of 3.01p* (2007: 2.93p) 1,460 1,465
Declared special dividend of 1.25p* (2007: nil) 607 -
----- -----
3,002 2,390
===== =====
*Based on 48,509,708 ordinary shares in issue on
25 April 2008.
8. Return per ordinary share
Revenue and capital returns per share are shown below and
have been calculated using the following:
2008 2007
Net revenue return attributable to ordinary
shareholders (£'000) 3,540 2,824
Net capital return attributable to ordinary
shareholders (£'000) (21,714) 45,659
-------- -------
Total return (£'000) (18,174) 48,483
-------- -------
Equity shareholders' funds (£'000) 201,052 226,860
-------- -------
The weighted average number of ordinary shares
in issue during each year, on which the return per
ordinary share was calculated, was: 49,421,723 50,365,660
The actual number of ordinary shares in issue at the
end of each year, on which the net asset value was
calculated, was: 48,509,708 49,993,523
2008 2007
Revenue Capital Revenue Capital
return return Total return return Total
p p p p p p
Return per share
Calculated on weighted
average number of shares 7.16 (43.93) (36.77) 5.61 90.65 96.26
Calculated on actual number
of shares 7.30 (44.76) (37.46) 5.65 91.33 96.98
---- ---- ------ ---- ---- ------
Net asset value per share - - 414.46 - - 453.78
==== ==== ====== ==== ==== ======
9. Publication of non-statutory accounts
The financial information contained in this preliminary
statement does not constitute statutory accounts as defined in section 240 of
the Companies Act 1985.
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 2007, which have been filed with the Registrar of Companies. The
report of the auditor for the years ended 28 February 2007 and 29 February
2008 contain no qualification or statement under section 237(2) or (3) of the
Companies Act 1985.
The 2008 annual report will be filed with the Registrar of
Companies after the Annual General Meeting.
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. This report will also be
available on the BlackRock Investment Manager's website at
www.blackrock.co.uk/its.
The Annual General Meeting of the Company will be held at
33 King William Street, London EC4R 9AS on 4 June 2008 at 10:30 a.m.
28 April 2008
33 King William Street
London EC4R 9AS
END
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