Final Results
23 April 2009
BLACKROCK SMALLER COMPANIES TRUST plc
Annual results announcement for the year
ended 28 February 2009
CHAIRMAN'S STATEMENT
Review of the year to 28 February 2009
This is the most difficult statement I have had to write to shareholders given
the loss in value over the last twelve months. It is only of small comfort to
the Board and shareholders that the loss is less severe than the fall in the
Company's benchmark index.
The second half of the year was dominated by rapidly worsening conditions in
financial markets and the global economy, giving rise to one of the most
challenging environments for investors in history. Despite co-ordinated action
from governments and central banks around the world to stabilise the global
financial system, the availability of credit remained massively impaired.
With increased investor uncertainty and escalating risk aversion, and a lack of
liquidity, the UK equity market experienced unprecedented levels of market
volatility during the year. Smaller capitalisation stocks fared particularly
badly and the Company's benchmark, the Hoare Govett Smaller Companies plus AIM
(excluding Investment Companies) Index, closed down 48.3% in the year. The
Company's net asset value fell by 45.1% and the share price declined by 47.9%.
The market environment was not an easy one for our Investment Manager and focus
continued on stocks with little or no exposure to the UK high street due to the
high levels of consumer debt, and on good quality growth companies with
recurring revenues and strong management with a proven track record.
Earnings and dividends
The Company's revenue return per share for the year remained at a high level
and amounted to 7.21p compared with 7.16p for the previous year. Dividend
contributions continued to be strong in many of our portfolio holdings,
although the outlook for dividends in the current year is uncertain.
The Directors are recommending the payment of a final dividend of 3.10p
(2008: 3.01p). The Board has also declared a special dividend of 0.70p per share.
This, together with the interim dividend of 1.95p per share, makes a total for the
year of 5.75p (2008: 6.15p). The dividend will be payable on 24 June 2009 to
shareholders on the register on 5 June 2009; the ex dividend date is 3 June 2009.
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 £13.5 million to £22.7 million over the year.
Currently, net borrowings stand at £14.4 million, 11.6% of shareholders' funds.
The use of gearing in the year has had a negative impact on performance.
Discount and share buy backs
The Company's discount to net asset value widened during the year, reflecting
the extremely difficult market conditions. In the year to 28 February 2009, the
discount ranged from 14.1% to 36.3% and the Company bought back and placed in
treasury a total of 14,916 shares at an average price of 150.33p per share and
an average discount to net asset value of 35.8%. Since the year end, a further
300,000 shares have been purchased and placed in treasury.
Share buy back activity in general had reduced during 2008, compared to 2007.
The Board will be seeking renewal of its authority to buy back shares at the
forthcoming Annual General Meeting. The primary purpose of any buy back would
be to enhance the net asset value for continuing shareholders.
Annual General Meeting
The Annual General Meeting of the Company will take place at BlackRock's
offices at 33 King William Street, London on Wednesday, 17 June 2009 at 10.30
a.m. The Investment Manager will give a presentation on the Company's progress
and both the Directors and the Investment Manager look forward to meeting
shareholders informally after the meeting.
Outlook
Recessionary pressures look set to prevail throughout 2009. There is still a
risk that the banks do not lend adequately and consumers and companies are
obliged to cut back their debt levels further. If this happens, we must expect
a more protracted recession.
On a more positive note, central banks have pared interest rates to record
levels and in the UK and the USA are creating liquidity to stimulate a
recovery. In addition, with the fall in equity prices, our Managers are
identifying many stocks at attractive valuations. For this reason, excellent
opportunities will arise for us to continue investing in good quality companies
with growth potential, supported by strong balance sheets. We believe that
investment in such companies will be rewarded in the longer term.
MANAGEMENT REPORT AND RESPONSIBILITY STATEMENT
Principal risks
The key risks faced by the Company are set out below. The Board regularly
reviews and agrees policies for managing each risk, as summarised below.
- Performance risk - The Board is responsible for deciding the investment
strategy to fulfil the Company's objectives and monitoring the performance of
the Investment Manager. An inappropriate strategy may lead to underperformance
against the benchmark index. To manage this risk the Investment Manager
provides an explanation of significant stock selection decisions and the
rationale for the composition of the investment portfolio. The Board monitors
and mandates an adequate spread of investments, in order to minimise the risks
associated with factors specific to particular sectors and based on the
diversification requirements inherent in the Company's investment policy. The
Board also receives reports showing an analysis of the Company's performance
against the benchmark.
- Income/dividend risk - The amount of dividends and future dividend growth
will depend on the Company's underlying portfolio. Any change in the tax
treatment of the dividends or interest received by the Company may reduce the
level of dividends received by shareholders. The Board monitors this risk
through the receipt of detailed income forecasts and considers the level of
income at each meeting.
- Regulatory risk - The Company operates as an investment trust in accordance
with section 842 of the ICTA 1988. 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 section 842 are not breached and the results are
reported to the Board.
- Operational risk - In common with most other investment trust companies, the
Company has no employees. The Company therefore relies upon the services
provided by third parties and is dependent on the control systems of the
Investment Manager and the Company's other service providers. The security, for
example, of the Company's assets, dealing procedures, accounting records and
maintenance of regulatory and legal requirements, depend on the effective
operation of these systems. These are regularly tested and monitored and an
internal control report, which includes an assessment of risks together with
procedures to mitigate such risks, is prepared by the Investment Manager and
reviewed by the Audit Committee twice a year. The custodian and the Investment
Manager also produce annual internal control reports which are reviewed by
their respective auditors and give assurance regarding the effective operation
of controls.
- 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 the
annual report, together with a summary of the policies for managing these
risks.
Related party transactions
The Investment Manager is regarded as a related party and details of the
investment management fees payable are set out in note 4.
Statement of Directors' Responsibilities
The Directors confirm to the best of their knowledge that:
- the financial statements, prepared in accordance with applicable accounting
standards, give a true and fair view of the assets, liabilities, financial
position and profit or loss of the Company; and
- the management report includes a fair view of the development and performance
of the business and the position of the Company, together with a description of
the principal risks and uncertainties that the Company faces.
For and on behalf of the Board of Directors
Richard Brewster
Chairman
23 April 2009
INVESTMENT MANAGER'S REPORT
Market review and overall investment performance
The last year has been an unprecedented one for stock markets and the Company.
During the first half of the Company's year, the NAV fell by 4.7% and the
benchmark by 14.0%. Markets had fallen sharply in July, but then slumped in
September and October, which were unusually savage months. At the macro level,
initially the focus was the banking system with various household names in the
US and UK failing, most particularly Lehman Brothers, and others being wholly
or partially nationalised, or being forced into hastily agreed takeovers. Most
Western banks had become overleveraged by historical standards and the quality
of their assets, especially mortgage backed securities and similar debt
instruments, began to look highly dubious as real estate prices began to fall
sharply. The interbank lending market virtually ground to a halt, and as banks
struggled to reduce gearing, credit availability became very limited.
Worries then extended to the global economy; data was published that showed the
UK, US and some other developed economies had seen a fall in GDP in the third
calendar quarter of 2008. It also became clear that emerging markets had not
decoupled and their GDP growth was also slowing rapidly. Even countries such as
China began to see slowing growth and rising unemployment. Resources prices
fell sharply as demand slowed, with the oil price falling more than US$100 a
barrel from its May peak, and dramatic falls also being seen in the price of
base metals.
Governments responded aggressively not only by rescuing the banking system, but
also by aggressive interest rate cuts, increasing public spending and reducing
taxes. The extent of support to the economic system in the US has been
unprecedented. Even in the UK, our relatively cautious Monetary Policy
Committee has not only cut interest rates virtually to zero, but now embarked
on a programme of `quantitative easing' designed to pump more liquidity into
the economy quickly.
In the second half of the year, the Company's portfolio suffered in line with
markets and sadly experienced a large and very sharp fall in its net asset
value per share. During the six month period, the NAV per share fell by 42.4%
and the benchmark by 39.9%. We maintained our usual 10% gearing stance which we
regard as our neutral level; this had not proved too costly over the previous
eighteen months, but accounted for all of the underperformance in the second
half. We did not expect the large and rapid falls in small and midcap stocks
which we experienced in September and October last year. Had we done so, we
would have sold equities and built up cash to neutralise the Company's long
term debenture.
Portfolio performance
Over the full year, the Company's NAV per share fell by 45.1% and the benchmark
by 48.3%. The FTSE 100 Index, by contrast, fell by 34.9%; it is probably not
surprising to see smaller companies underperforming at the onset of a serious
recession. We started the year with a neutral gearing position of 10%; with the
falls in markets in the autumn the gearing level briefly reached 14% before we
raised some cash, but gearing stayed above 10% throughout the remainder of the
financial year. With the benchmark falling by 48.3%, the impact of being this
highly geared throughout the year was to reduce relative performance by about
4.8%.
Of the major sectors represented in our benchmark, largest falls were seen in
the mining and real estate sectors with sector falls of 71.9% and 66.5%,
respectively. Within these sectors we had some very disappointing performers,
notably Albidon and International FerroMetals. Albidon brought its Munali
nickel mine into production within a few months of schedule but suffered badly
due to sharply lower nickel prices and the inevitable teething issues facing
any mining company bringing a new mine into production, both of which led to a
shortage of cash. International FerroMetals suffered on collapsing demand for
ferrochrome but has remained cash rich. On average we were slightly overweight
in the sector during the year, although for several months now we have had an
underweight position. We held an underweight position in the real estate sector
throughout the financial year and this proved to be our most successful sector
call during the period.
The best performing larger sector in our benchmark was non-life assurance, the
only sector to rise during the financial year; it rose by 7.1%. The sector did
so well because the soft insurance market which had been in place was brought
to an end, firstly, by the larger than expected claims arising from hurricane
Ike, and secondly, by the failure of AIG. AIG had been a major insurer in many
markets in which the Lloyd's of London underwriters are active. Our exposure to
this sector was fairly modest; it was our worst performing sector contributing
underperformance of 1.7%. We do however have a holding in Hardy Underwriting
and this was one of our best performers finishing up 19.3% over the financial
year. Hardy Underwriting is a relatively small specialist insurer and reinsurer
operating within Lloyd's of London and believes it has an unparalleled record
of profitability over more than 30 years and has never made an underwriting
loss. The company has a very prudent investment policy of essentially not
taking any risk with its investment book; this approach has been relatively
rare amongst its peer group at Lloyd's.
Software and computer services, aerospace & defence, and general retailers all
performed relatively well with sector falls of 22.8%, 31.3% and 34.3%,
respectively. The first two sectors were our biggest overweight sectors and so
generated strong relative performance. From a stock point of view particularly
solid performances came from Fidessa, a world leading supplier of multi-asset
trading software and market information, which continues to grow strongly
despite supplying a challenged customer base of banks and fund management
groups, and Axon and Detica, both of which were bid for during the year.
Leading aerospace holdings were defence companies Chemring, the world's leading
producer of expendable decoy countermeasures for protecting air, sea and land
platforms against guided missile threats, and Ultra Electronics which supplies
complex electronic and electromechanical systems used mainly by the military
services. We were surprised that retailing shares held up so well given the
weak UK consumer backdrop, and had virtually no investment in the sector until
late in the financial year.
Other than those stocks already mentioned we had strongly positive
contributions from Dechra Pharmaceuticals, Emerald Energy and Abcam, all of
whose shares rose during the financial year. Dechra develop and supply drugs
used by vets to treat companion animals; this is a fairly economically
insensitive business since pet owners want to look after their dogs and cats.
Dechra has now received full FDA approval to market its key drug Vetoryl in the
US, and it has now been launched. Emerald Energy shares rose 79.5% over the
financial year as it brought onstream its Khurbet East field in Syria; the
potential for this field and adjoining acreage owned by Emerald Energy is
significant. Its production in Colombia also continues to grow following recent
drilling successes. Abcam produce and distribute a wide range of research-grade
antibodies. In January, Abcam's trading update indicated that profits for its
full year are likely to be materially ahead of market expectations; the year
does not end until 30 June 2009. The company remains confident in the prospects
for continued growth and should be reasonably resilient to any downturn.
Abcam's shares ended up 61.2% over the financial year.
Core holdings, Spirax-Sarco Engineering, Rathbone Brothers, Mouchel Group,
Connaught, Brewin Dolphin and London Capital all performed well during the
financial year, even though their share prices did fall. Poorly performing
holdings during the year were Hyder Consulting, Encore Oil, White Young Green
and Gooch & Housego. The latter two holdings suffered due to a combination of
weaker trading, relatively high debt levels and modest share liquidity. Encore
Oil failed to demonstrate the technical viability of its huge subsea potential
gas storage project. Hyder derives a significant proportion of its profits from
the Middle East where it has operated across the region for many years. With
the Dubai property market coming to an abrupt halt there has been a read across
to Hyder but the shares are already inexpensive.
Activity
Whilst we saw considerable mergers and acquisitions activity in the early part
of the financial year, leading to the takeover of both Axon and Detica,
acquisition activity has been very modest in recent months. When the world
economy has stabilised we expect to see overseas corporates bargain hunting for
good quality UK companies; the strength of the US dollar relative to the pound
makes this potentially an excellent time for US companies to pounce.
Our core holdings in the year have not changed materially; these are well
managed market leading companies which are well differentiated from
competitors, protected by effective barriers to entry, have real pricing power
and can demonstrate clear records of earnings growth and cash generation giving
them strong balance sheets. Most of our large holdings meet our criteria for
core holdings. Sadly these attributes have not fully protected these companies
in such a harsh downturn, some have seen their earnings downgraded and most
have been derated.
More recently we have been looking to increase exposure to early cyclical
companies, many of which are consumer facing. Towards the end of 2008 we bought
small positions in Savills and Mothercare. More recently we have started
holdings in a number of consumer related companies: Asos, Burberry, Greene
King, Halfords, Persimmon and William Hill. All of these companies are leading
players in their markets. Burberry, Persimmon and William Hill are all good
examples of larger companies which have been derated, and should be good
recovery stocks in due course. We also added a holding in Charter, an
engineering group which through its welding supplies division benefits from
high steel consumption. Clearly steel consumption has fallen recently, but so
too has Charter's share price; whilst it awaits recovery it has a very strong
cash rich balance sheet.
Gearing
The Company has in issue a £15 million 7.75% debenture maturing in 2022. The
logic for issuing the debenture, more than ten years ago, was that over the
long term equity markets rise and an element of structural gearing is
appropriate to obtain additional performance. Having the £15 million debenture
fully invested in equities from spring 2003 to summer 2007 was clearly
beneficial, with annual returns running in excess of 20% compared to a coupon
on the debenture of 7.75%. However, since worries over the stability of the
banking system emerged in the summer of 2007, markets have fallen and with
hindsight we could have reduced effective gearing by raising cash but timing
such moves is always difficult especially with smaller companies where
liquidity can, and has been, poor. Even if we had successfully implemented a
reduction in gearing, we would have faced the challenge of when to re-introduce
it.
In addition to the debenture, the Company has an overdraft facility, part of
which was used during the summer of 2008. Our approach in recent months has
been to avoid using the overdraft facility and to maintain about £13 million of
the debenture invested in equities. This has resulted in effective gearing of
11% to 14% in recent months. Whilst this is higher than our neutral gearing
level it should be borne in mind that many of our larger holdings have net cash
on their balance sheets and few large holdings have material debt.
Additionally, markets fell by more than 50% from peak levels, and taking a
medium term view, this should be a reasonable time to have gearing. However, it
remains possible that markets could fall materially further, particularly after
the strong rally of the last several weeks. We are unlikely to use much of our
overdraft facility until such time as we are convinced that the global economy
is showing what we believe to be sustainable signs of recovery.
Portfolio positioning
We are focused mainly on good quality growth companies which meet our criteria
for core holdings. We have also favoured more liquid stocks. Despite this
naturally cautious approach, trading prospects are now far more difficult to
assess for many companies given the rapid fall off of GDP growth in many
countries. Even for some of the strongest companies, earnings forecasts for
2009 and 2010 may still be too high. Usually the market has anticipated an
earnings downgrade, although when they do materialise it is rare for this to go
unpunished.
From a sector point of view we are most overweight aerospace & defence,
software & computer services, and health care equipment & services. Within the
defence sector, in addition to our large holdings in Ultra Electronics and
Chemring, we have a position in Qinetiq which has much interesting defence
related technology and is growing particularly fast in the US. Our largest
software positions are in companies with strong or leading global market
positions; Aveva in industrial plant design and maintenance, Fidessa in
securities trading, and SDL in language translation. Our health care holdings
are Caretech, which provides long term residential care to people needing
constant attention, Consort Medical, a supplier of drug delivery systems for
the pharmaceutical industry and disposable breathing products used in
hospitals, Synergy Health, which delivers a linen cleaning and surgical
instrument sterilisation to health care providers, and Care UK which carries
out surgical operations and provides residential and domiciliary care services.
Our exposure to non aerospace and defence industrials has been reduced over the
last six months but we remain overweight. Our industrials exposure is to
engineering companies selling worldwide but with a high proportion of emerging
market sales; holdings include Rotork and Spirax-Sarco Engineering. We believe
that when world economies recover, Asian economies in particular will resume
their secular growth, and we are therefore very keen to retain exposure to
companies which have strong sales into these Asian economies. Slowing emerging
markets growth has also impacted the resources sectors. We have small
underweight positions in these sectors.
We maintain a significant underweight position in UK discretionary consumer
related sectors especially travel & leisure and general retailers, although
these positions have been reduced by recent buying.
We have carried out a rough exercise to estimate the proportion of the
portfolio's sales by destination. This indicates that fractionally over half of
our portfolio sales are into the UK economy, with the balance being split
almost equally between Western Europe excluding the UK, North America, and Asia
Pacific and other Emerging Markets.
Outlook
Markets remain highly volatile; most recently we have experienced a sharp
rally, but it is probably too soon to assess whether it is sustainable. It is
hard to feel positive about the state of the global economy. However, central
banks and world political leaders have shown considerable determination to
address the economic and financial problems being faced. There have been early
signs of stabilisation in some US and Asian economic indicators.
In the UK, we are now in the fourth quarter of a recession and typically
recessions last for about six quarters. This recession however is clearly
deeper and more global than any we have experienced for many decades.
Historically, stock markets have tended to bottom in the first half of
recessions and recovery is anticipated a few quarters ahead. If the past is
repeated, this could point to better times ahead later in 2009 or early in
2010. In the meantime, we should expect continued volatility.
In recent weeks recovery stocks have performed very strongly. Whilst we have
increased investment in recovery stocks, our portfolio positioning remains
mostly defensive. In the short term this has led to underperformance of our
benchmark index, which may continue whilst recovery stocks outperform.
Our portfolio is in good shape, but it is inevitable we will experience further
earnings downgrades and profit warnings. We expect the market to be more
prepared to look through these provided the companies concerned are well
funded. This is a much better time to build holdings in good quality UK smaller
companies than two years ago, but a medium term view is still essential.
Valuations are more compelling than for many years.
Mike Prentis
BlackRock Investment Management (UK) Limited
23 April 2009
Top 50 Holdings
Company Market % of Prospective Business activity
value £ total PE Ratio*
'000 portfolio
Dechra 3,827 3.1 16.1 Development, manufacture
Pharmaceuticals and supply of veterinary
products
Ultra Electronics 3,533 2.8 12.7 Design and supply of
Holdings electronic products to the
aerospace and defence
sector
Rathbone Brothers 3,354 2.7 13.3 Private client fund
management
Fidessa Group 3,353 2.7 14.9 Development and marketing
of financial trading and
connectivity software
Chemring Group 3,197 2.6 9.9 Manufacture and supply of
defence decoy
countermeasures and
energetic materials
Mouchel Group 3,093 2.5 9.6 Provision of road, rail and
other infrastructure
services
Brewin Dolphin 2,856 2.3 11.2 Fund management and stock
Holdings broking
Connaught 2,675 2.2 14.2 Services to improve the
quality of social housing
Victrex 2,655 2.1 16.9 Manufacture and supply of
PEEK thermoplastic
London Capital 2,604 2.1 11.4 Provision of online spread
Group Holdings betting and foreign
exchange trading
Emerald Energy 2,476 2.0 9.6 Exploration and production
of oil and gas
Rotork 2,216 1.8 12.5 Engineering, manufacturing
and design of valve
actuators
Aveva Group 2,114 1.7 7.2 Development and marketing
of engineering computer
software
Alternative 2,093 1.7 8.9 Provision of mobile and
Networks fixed line telecom
solutions to business users
Abcam 2,033 1.6 18.0 Production and distribution
of research grade anti-
bodies and associated
products
Domino Printing 1,972 1.6 8.1 Manufacture of inkjet and
Sciences laser commercial printers
Spirax-Sarco 1,836 1.5 9.9 Design and manufacture of
Engineering steam management systems
Babcock 1,800 1.5 10.6 Provision of engineering
International support services
Group
BSS Group 1,783 1.4 7.7 Distribution of heating,
plumbing, process control
and pipeline equipment
Caretech Holdings 1,776 1.4 12.9 Provision of care and
housing for people with
learning and physical
disabilities
SDL 1,743 1.4 11.2 Supply of multilingual
translation software and
translation services
Hardy 1,571 1.3 5.2 Provision of specialist
Underwriting insurance
Kier Group 1,563 1.3 8.6 House building,
construction and project
management
Chloride Group 1,544 1.2 10.3 Design and manufacture of
uninterruptable power
solutions
City Of London 1,524 1.2 8.4 Management of investment
Investment Group funds primarily invested in
emerging markets
Chaucer Holdings 1,452 1.2 8.0 Provision of insurance
services
Rensburg 1,432 1.1 7.1 Private client fund
Sheppards management
Consort Medical 1,432 1.1 9.2 Design and manufacture of
speciality medical
equipment
BATM Advanced 1,430 1.1 5.9 Development and production
Communciations of data and
telecommunication products
Synergy 1,404 1.1 9.5 Provision of medical and
Healthcare health related support
services
Micro Focus 1,305 1.1 9.8 Provision of software
International solutions
Care UK 1,263 1.0 8.5 Provision of health and
social care to the elderly,
disabled and unwell
ITE Group 1,254 1.0 3.9 Organisation of exhibitions
in emerging markets
Hill & Smith 1,214 1.0 4.2 Manufacture and hire of
Holdings steel road barriers and
related products and
services
Keller Group 1,186 1.0 6.5 Provision of solutions for
ground engineering projects
and refurbishment solutions
Xchanging 1,155 0.9 13.2 Provision of outsourcing
services for the insurance
and financial markets
Premier Oil 1,150 0.9 6.9 Exploration and production
of oil and gas
Bellway 1,131 0.9 29.3 House building
Paypoint 1,130 0.9 10.3 Supply of convenient cash
payment and money transfer
solutions
WSP Group 1,078 0.9 4.2 Provision of engineering
design, planning and
project management
consultancy services
JKX Oil & Gas 1,056 0.9 4.1 Exploration and production
of oil and gas
RM 987 0.8 12.2 Provision of educational
products and services to
schools and government
education departments
Charter 927 0.8 6.5 Design and manufacture of
International equipment for welding and
air and gas handling
Fisher (James) & 924 0.7 8.1 Provision of services to
Sons the marine market
Qinetiq Group 915 0.7 8.7 Provision of research,
technical advice,
technology solutions and
services to customers in
core markets of defence and
security
Next Fifteen 912 0.7 5.5 Provision of public and
Communications press communications
Kewill Systems 911 0.7 4.5 Provision of computer
software and services
Derwent London 907 0.7 13.6 Property investment in
central London offices
Hargreaves 866 0.7 8.0 Provision of haulage
Services services, waste
transportation, mining,
processing and coke
manufacturing
Avocet Mining 810 0.7 12.5 Gold mining, mineral
processing and exploration
50 Largest 87,422 70.3
Investments
Remaining 37,007 29.7
Investments
------- -----
TOTAL 124,429 100.0
------- -----
*Prospective PE ratio derived using March 2009 analyst estimates.
Disclosure of the Company's smaller holdings would be unlikely to add
materially to the shareholder's understanding of the Company's portfolio
structure and priority investment themes, hence only the fifty largest
investments have been disclosed.
Comparatives for Ten Largest Investments
Company 2008 Market 2008 % of total
value£'000 portfolio
Dechra Pharmaceuticals 5,172 2.4
Ultra Electronic Holdings 4,500 2.1
Rathbone Brothers 4,133 1.9
Fidessa Group 3,051 1.4
Chemring Group 3,483 1.6
Mouchel Group 3,722 1.7
Brewin Dolphin Holdings 4,412 2.0
Connaught 3,464 1.6
Victrex 4,659 2.1
London Capital Group Holdings 3,273 1.5
Distribution of Investments as at 28 February 2009
Sector % of total portfolio
Oil & Gas Producers 5.7
Oil Equipment, Services & Distribution 1.1
-----
Oil & Gas 6.8
-----
Mining 3.0
Chemicals 2.8
Industrial Metals 0.3
-----
Basic Materials 6.1
-----
Support Services 13.6
Aerospace & Defence 8.2
Industrial Engineering 6.1
Electronic & Electrical Equipment 3.8
Construction & Materials 2.0
Automobiles & Parts 1.6
Industrial Transportation 0.8
General Industrials 0.1
-----
Industrials 36.2
-----
Household Goods 1.7
Food Producers 0.6
Personal Goods 0.5
-----
Consumer Goods 2.8
-----
Health Care Equipment & Services 4.7
Pharmaceuticals & Biotechnology 3.0
-----
Health Care 7.7
-----
Media 2.5
General Retailers 1.8
Travel & Leisure 1.6
-----
Consumer Services 5.9
-----
Fixed-Line Telecommunications 1.7
Electricity 0.5
-----
Telecommunications & Utilities 2.2
-----
Software & Computer Services 11.2
Technology Hardware & Equipment 1.8
-----
Technology 13.0
-----
General Financial 11.1
Non-life Insurance 4.3
Real Estate 3.7
Equity Investment Instruments 0.2
-----
Financials 19.3
-----
Total 100.0
-----
INCOME STATEMENT
for the year ended 28 February 2009
Revenue Revenue Capital Capital Total Total
2009 2008 2009 2008 2009 2008
Notes £'000 £'000 £'000 £'000 £'000 £'000
Losses on
investments held at
fair value through
profit or loss - - (89,186) (19,451) (89,186) (19,451)
Income from
investments 3 4,320 4,467 - - 4,320 4,467
Other income 3 20 13 - - 20 13
Investment
management and
performance fees 4 (233) (334) (1,125) (1,574) (1,358) (1,908)
Write back of prior
years' VAT 4 - 111 - 518 - 629
Other operating
expenses 5 (273) (303) - - (273) (303)
----- ----- ------ ------ ------ ------
Net return before
finance costs and
taxation 3,834 3,954 (90,311) (20,507) (86,477) (16,553)
Finance costs 6 (329) (410) (940) (1,207) (1,269) (1,617)
----- ----- ------ ------ ------ ------
Return on ordinary
activities before
taxation 3,505 3,544 (91,251) (21,714) (87,746) (18,170)
----- ----- ------ ------ ------ ------
Taxation on
ordinary activities (6) (4) - - (6) (4)
------- ------- --------- --------- --------- ---------
Return on ordinary
activities after
taxation 3,499 3,540 (91,251) (21,714) (87,752) (18,174)
===== ===== ======= ====== ======= ======
Return per ordinary
share 8 7.21p 7.16p (188.12p) (43.93p) (180.91p) (36.77p)
===== ===== ======= ====== ======= ======
The total column of this statement represents the Income Statement of the
Company. The supplementary revenue and capital columns are both prepared under
guidance published by the Association of Investment Companies. The Company had
no recognised gains or losses other than those disclosed in the Income
Statement and the Reconciliation of Movements in Shareholders' Funds. All items
in the above statement derive from continuing operations. No operations were
acquired or discontinued during the year.
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
for the year ended 28 February 2009
Share Capital
Share premium redemption Capital Revenue
capital account reserve reserves reserve Total
£'000 £'000 £'000 £'000 £'000 £'000
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
(a) below) - - - - (2,400) (2,400)
------ ------ ----- ------- ----- -------
At 29 February 2008 12,498 38,952 1,982 141,840 5,780 201,052
------ ------ ----- ------- ----- -------
For the year ended
28 February 2009
At 29 February 2008 12,498 38,952 1,982 141,840 5,780 201,052
Return for the year - - - (91,251) 3,499 (87,752)
Shares purchased
and held in
treasury - - - (23) - (23)
Dividends paid (see
(b) below) - - - - (3,012) (3,012)
------ ------ ----- ------- ----- -------
At 28 February 2009 12,498 38,952 1,982 50,566 6,267 110,265
====== ====== ===== ====== ===== =======
a. 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.
b. Final dividend of 3.01p per share and a special dividend of 1.25p per share
for the year ended 29 February 2008, declared on 28 April 2008 and paid on
11 June 2008 and interim dividend of 1.95p per share for the six months
ended 31 August 2008, declared on 9 October 2008 and paid on 3 November
2008.
BALANCE SHEET
as at 28 February 2009
2009 2008
£'000 £'000
Fixed assets
Investments held at fair value through
profit or loss 124,429 218,175
------- -------
Current assets
Debtors 1,202 3,282
Cash 1,271 1
------- -------
2,473 3,283
------- -------
Creditors - amounts falling due within
one year (1,831) (5,615)
------- -------
Net current assets/(liabilities) 642 (2,332)
------- -------
Total assets less current liabilities 125,071 215,843
Creditors - amounts falling due after
more than one year (14,806) (14,791)
------- -------
Net assets 110,265 201,052
======= =======
Capital and reserves
Share capital 12,498 12,498
Share premium account 38,952 38,952
Capital redemption reserve 1,982 1,982
Capital reserves 50,566 141,840
Revenue reserve 6,267 5,780
------- -------
Total equity shareholders' funds 110,265 201,052
======= =======
Net asset value per ordinary share 227.37p 414.46p
======= =======
CASH FLOW STATEMENT
for the year ended 28 February 2009
2009 2008
Note £'000 £'000
Net cash inflow from operating
activities 5(b) 2,364 2,395
----- -----
Servicing of finance (1,257) (1,602)
----- -----
Capital expenditure and financial
investment
Purchase of investments (87,032) (148,029)
Proceeds from sale of investments 91,102 161,381
------ -------
Net cash inflow from capital
expenditure and financial investment 4,070 13,352
------ -------
Equity dividends paid (3,012) (2,400)
------ -------
Net cash inflow before financing 2,165 11,745
------ -------
Financing
Purchase of ordinary shares (23) (5,234)
------ -------
Net cash outflow from financing (23) (5,234)
------ -------
Increase in cash in the year 2,142 6,511
===== =====
NOTES TO THE ANNUAL RESULTS ANNOUNCEMENT
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. Basis of preparation
The Company's financial statements have been prepared on a going concern basis
and on the historical cost basis of accounting, in accordance with the
Companies Act 1985, UK Generally Accepted Accounting Practice ("UK GAAP") and
with the Statement of Recommended Practice "Financial Statements of Investment
Trust Companies" ("SORP" dated January 2003 and revised in December 2005 and
January 2009). The principal accounting policies adopted by the Company are
as in the Company's financial statements for the year ended 29 February 2008.
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.
3. Income
2009 2008
£'000 £'000
Investment income:
UK listed dividends 3,815 3,973
Overseas listed dividends 505 494
----- -----
4,320 4,467
----- -----
Other income:
Deposit interest 16 8
Underwriting commission 4 5
----- -----
20 13
----- -----
Total 4,340 4,480
===== =====
Total income comprises:
Dividends 4,320 4,467
Other income 20 13
----- -----
4,340 4,480
===== =====
4. Investment management and performance fees
2009 2008
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Investment management
fees 233 698 931 305 917 1,222
Performance fees - 427 427 - 569 569
VAT - - - 29 88 117
--- ----- ----- --- ----- -----
233 1,125 1,358 334 1,574 1,908
Write back of prior
years' VAT - - - (111) (518) (629)
--- ----- ----- --- ----- -----
Total 233 1,125 1,358 223 1,056 1,279
=== ===== ===== === ===== =====
The investment management fee is calculated based on 0.65% in respect of the
first £50 million of the Company's total assets less current liabilities,
reducing to 0.50% thereafter. A performance fee is payable at the rate of 10%
of the annualised excess performance in the two previous financial years,
applied to the average of the total assets less current liabilities of the
Company. The fee is payable annually in April and is capped at 0.25% of the
average of the total assets less current liabilities of the Company.
Performance fees have been wholly allocated to capital reserves as the
performance has been predominantly generated through capital returns of the
investment portfolio. A performance fee of £427,000 is accrued for the year
ended 28 February 2009 (2008: £569,000).
5. Operating activities
2009 2008
£'000 £'000
(a) Other operating expenses
Auditors' remuneration:
- audit services 14 17
- non audit services 6 6
Registrar's fee 19 20
Directors' remuneration 94 78
Other administrative costs 140 182
--- ---
273 303
=== ===
The Company's total expense ratio ("TER"),
calculated as a percentage of average net assets and
using expenses, excluding performance fees, interest
costs and VAT written back, after relief for
taxation was: 0.8% 0.7%
£'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 3,834 3,954
Investment management and performance fees (1,125) (1,574)
capitalised
VAT refund capitalised - 518
Decrease/(increase) in accrued income 102 (96)
Increase in debtors - (629)
(Decrease)/increase in creditors (434) 226
Income tax suffered (7) -
Overseas withholding tax suffered (6) (4)
----- -----
Net cash inflow from operating activities 2,364 2,395
===== =====
6. Finance Costs
2009 2008
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
7.75% debenture stock
interest 290 870 1,160 290 871 1,161
Bank overdraft interest 35 59 94 116 325 441
Amortised debenture stock
issue expenses 4 11 15 4 11 15
--- --- ----- --- ----- -----
329 940 1,269 410 1,207 1,617
=== === ===== === ===== =====
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
2009 2008
£'000 £'000
Dividends paid on equity Record date Payment date
shares:
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
2008 final of 3.01p 9 May 2008 11 June 2008 1,460 -
2008 special of 1.25p 9 May 2008 11 June 2008 607 -
2009 interim of 1.95p 17 October 2008 3 November 2008 945 -
----- -----
3,012 2,400
===== =====
The Directors have proposed a final dividend of 3.10p per share and declared a
special dividend of 0.70p per share in respect of the year ended 28 February
2009. The proposed final dividend will be paid, subject to shareholders'
approval, on 24 June 2009 to shareholders on the Company's register on 5 June
2009, 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 833 of the Companies Act 2006, and the
amounts proposed, meet the relevant requirements as set out in this
legislation.
2009 2008
£'000 £'000
Dividends paid or proposed on equity shares:
Interim paid 1.95p (2008: 1.89p) 945 935
Final proposed of 3.10p* (2008: 3.01p) 1,494 1,460
Special dividend of 0.70p (2008: 1.25p) 337 607
----- -----
2,776 3,002
===== =====
*Based on 48,194,792 ordinary shares in issue on 22 April 2009.
8. Return per ordinary share
Revenue and capital returns per share are shown below and have been calculated
using the following:
2009 2008
Net revenue return attributable to ordinary
shareholders (£'000) 3,499 3,540
Net capital return attributable to ordinary
shareholders (£'000) (91,251) (21,714)
------- -------
Total return (£'000) (87,752) (18,174)
------- -------
Equity shareholders' funds (£'000) 110,265 201,052
------- -------
The weighted average number of ordinary shares in 48,506,488 49,421,723
issue during each year, on which the return per
ordinary share was calculated, was:
The actual number of ordinary shares in issue at the 48,494,792 48,509,708
end of each year, on which the net asset value was
calculated, was:
2009 2008
Revenue Capital Total Revenue Capital Total
p p p p p p
Return per share
Calculated on weighted
average number of shares 7.21 (188.12) (180.91) 7.16 (43.93) (36.77)
Calculated on actual
number of shares 7.22 (188.17) (180.95) 7.30 (44.76) (37.46)
------ ------
Net asset value per share 227.37 414.46
====== ======
9. Publication of non-statutory accounts
The financial information contained in this announcement does not constitute
statutory accounts as defined in section 435 of the Companies Act 2006.
The figures set out above have been reported upon by the auditor. The
comparative figures are extracts from the audited financial statements of
BlackRock Smaller Companies Trust plc for the year ended 29 February 2008,
which have been filed with the Registrar of Companies. The report of the
auditor for the years ended 29 February 2008 and 28 February 2009 contain no
qualification or statement under section 498(2) or (3) of the Companies Act
2006. The 2009 annual report will be filed with the Registrar of Companies
after the Annual General Meeting.
10. Annual Report
Copies of the annual report will be sent to members shortly and will be
available from The Company Secretary, BlackRock Smaller Companies Trust plc,
33 King William Street, London EC4R 9AS. This report will also be available on the
BlackRock Investment Manager's website at www.blackrock.co.uk/its.
11. Annual General Meeting
The Annual General Meeting of the Company will be held at 33 King William
Street, London EC4R 9AS on 17 June 2009 at 10:30 a.m.
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
23 April 2009
33 King William Street
London EC4R 9AS
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