Half-yearly Report
9 October 2008
BLACKROCK SMALLER COMPANIES TRUST plc
Half yearly financial announcement of results in respect
of the six months ended 31 August 2008
Performance to 31 August 2008 6 months 1 year 3 years 5 years
Net asset value per share -4.7% -13.6% +31.4% +92.2%
Ordinary share price -7.2% -17.5% +26.5% +85.6%
Hoare Govett Smaller Companies
plus AIM (ex ICs) Index -14.0% -24.2% -1.6% +38.1%
Sources: BlackRock, Datastream.
- The Company's NAV per share decreased by 4.7% compared with a fall in the benchmark,
the Hoare Govett Smaller Companies plus AIM (ex ICs) Index, of -14.0%.
- Revenue return amounted to 4.28p for the period (2007: 4.10p).
- The Directors have declared an interim dividend of 1.95p per share, a 3.2% increase
on the 1.89p interim dividend paid last year. The dividend is payable on 3 November
2008 to shareholders on the Company's register on 17 October 2008. The ex-dividend
date is 15 October 2008.
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
Chairman's Statement
Overview
The volatility in global markets which surfaced in July of last year has
continued throughout the first six months of the Company's financial year and
into the second half of the year. Fuelled by a major shock wave which can still
be felt in the credit markets and the downturn in the global economy, the
turbulence in the wider markets has had a significant impact on smaller
companies' equities which are perceived to be higher risk in periods of
uncertainty.
With confidence at a very low level, governments and central banks in some of
the world's major markets have continued to introduce initiatives aimed at
stabilising the financial markets. This follows the collapse or rescue of some
well known financial institutions in the UK and growing concerns over the
health of others.
Managing the portfolio in this highly volatile climate has been challenging and
in the half year ended 31 August 2008, the Company's net asset value ("NAV")
fell by 4.7% and the share price closed down 7.2%, reflecting the widening of
discounts across the smaller companies' investment trust sector. The Company's
performance suffered less than the benchmark which closed down by 14.0%.
The portfolio remains relatively unchanged as we continue to believe in high
quality companies with strong balance sheets which are performing well,
particularly those which are exposed to markets experiencing growth.
Earnings and dividends
Revenue earnings in the period amounted to 4.28p per share and the Board is
pleased to declare an interim dividend of 1.95p per share (2007: 1.89p per
share). The dividend is payable on 3 November 2008 to shareholders on the
Company's register on 17 October 2008. This represents an increase of 3.2% over
the previous interim dividend.
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. In
the six months to 31 August 2008, net gearing ranged from 6.4% to 10.0% and
currently stands at £15.7 million, 8.2% of shareholders' funds.
Discount and share buy backs
Over the period under review, the discount has ranged from 14.2% to 20.7%. The
Board keeps the level of discount under review and any repurchase of shares
will only be undertaken if it is in the interests of continuing shareholders.
The Company did not repurchase any shares during the six months ended 31 August
2008.
VAT recovery
As mentioned in previous reports, VAT is no longer payable on management fees.
In addition, the Company is able to reclaim from HM Revenue & Customs ("HMRC")
some of the VAT previously paid on management services.
Included in these financial statements is an asset of £629,000 representing VAT
on invoices raised by the incumbent manager, BlackRock. There should be further
recoveries and the Company is currently involved in negotiations with the
previous manager, 3i plc, in respect of claims to be submitted to HMRC.
However, as the amounts are uncertain there is no additional recognition in the
financial statements.
Brokership arrangements
I am pleased to report that Collins Stewart has been appointed as the Company's
corporate broker following the resignation of Dresdner Kleinwort Investment
Bank as broker to the Company at the end of June. This appointment is the
result of a recent beauty parade and subsequent evaluation, at which a number
of brokers were considered.
Outlook
Markets remain exceptionally volatile as the impact of the credit crisis
unfolds. The implications of these problems have yet to be fully felt in the
real economy but the repercussions are likely to be very negative.
We are cautious and continue to hold stocks the Investment Manager knows well,
with good fundamentals and sound balance sheets, which should be able to trade
successfully through these difficult times. Stockmarkets have fallen a long way
and such well differentiated growth companies are now trading at prices not
seen for years. Over the past six months we have seen corporate buyers making
strategic acquisitions of such businesses, several of which we have owned. We
expect this acquisition activity to resume as markets stabilise, and this
should help markets to regain confidence. Your Board believes it is important
for shareholders to take a medium term view, which should be well rewarded in
due course.
Interim Management Report and Responsibility Statement
The Chairman's Statement and the Investment Manager's Report above give details
of the important events which have occurred during the period and their impact
on the financial statements.
Principal risks and uncertainties
The principal risks faced by the Company can be divided into various areas as
follows:
- Performance;
- Income/dividend;
- Regulatory;
- Operational; and
- Financial.
The Board reported on the principal risks and uncertainties faced by the
Company in the Annual Report and Accounts for the year ended 29 February 2008.
A detailed explanation can be found on pages 14 and 15 of the Annual Report and
Accounts which is available on the website maintained by the Investment
Manager, BlackRock Investment Management (UK) Limited, at www.blackrock.co.uk/
its.
In the view of the Board, there have not been any changes to the fundamental
nature of these risks since the previous report and these principal risks and
uncertainties are equally applicable to the remaining six months of the
financial year as they were to the six months under review.
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 3.
Directors' responsibility statement
The Disclosure and Transparency Rules ("DTR") of the UK Listing Authority
require the Directors to confirm their responsibilities in relation to the
preparation and publication of the Interim Management Report and Financial
Statements.
The Directors confirm to the best of their knowledge that:
- the condensed set of financial statements contained within the half yearly
financial report has been prepared in accordance with applicable UK Accounting
Standards and the Accounting Standards Board's Statement `Half Yearly Financial
Reports'; and
- the interim management report, together with the Chairman's Statement and
Investment Manager's Report, include a fair review of the information required
by 4.2.7R and 4.2.8R of the FSA's Disclosure and Transparency Rules.
The half yearly financial report was approved by the Board on 8 October 2008
and the above responsibility statement was signed on its behalf by the
Chairman.
Investment Manager's Report
Overall performance
The Company's net asset value ("NAV") per share fell by 4.7% to 394.78p during
the period. Markets continued to react negatively to the banking crisis, its
broader implications for bank lending and house prices, and the sharp weakening
of GDP growth in many countries. Whilst the NAV fell, performance was well
ahead of the benchmark index which fell by 14.0%. Large capitalisation stocks
performed rather better with the FTSE100 Index falling by only 4.2%. Markets
have fallen sharply since the period end as the credit crisis has led to
various failures and takeovers of financial companies.
Portfolio performance
During the half year relative outperformance has once again been driven mainly
by good stock selection, although most of our preferred themes and sectors have
also performed well. We have seen a continuation of the mergers and acquisition
activity which surfaced last year. Our holdings in Detica, Chloride, Civica,
Expro International and Axon all received bid approaches. The approach for
Chloride has been rebuffed, whilst the others bids have been, or look likely to
be, successful. It is interesting to see companies of this quality being
acquired; in a better economic climate such growth stocks would be premium
rated and highly unlikely to attract bids. With share prices lower,
strategically valued companies such as these are attractive to predators.
Our holdings in these five companies accounted for more than 2.6% of
outperformance. Many of the Company's other core holdings also performed well
in share price terms, reflecting continuing strong trading; amongst the best
contributors were Aveva, Spirax-Sarco, Synergy Healthcare, Ultra Electronics,
and Dechra Pharmaceuticals. All are well managed market leaders with reliable
revenues streams, good cash and profit generation, and strong balance sheets.
Other strong performers included Emerald Energy, which brought its new oilfield
in Syria into production, and BATM which sharply increased sales of its
equipment which controls and switches data over latest generation telecoms
networks leading to large earnings upgrades.
Our worst performing holding was Avocet Mining which fell by 42% during the
half year. Having been successful at increasing gold production and reducing
costs, in its March 2008 year end statement it indicated that production was
slipping in the first half of the current financial year and that costs were
rising sharply. We expect better news next year. Meanwhile, the company's net
cash position is more than 50% of its market capitalisation. A few other small
resource companies disappointed and have been severely treated; these include
Hambledon Mining and African Copper, both of which have recently come into
production but are struggling to achieve planned production levels and in
common with the sector, are facing higher costs.
Activity
Early in the half year we started to increase our exposure to real estate
stocks as this was considered to be the safest way of rebuilding our position
in more cyclical companies. We bought holdings in Big Yellow, Great Portland
Estates and Helical Bar. As the half year progressed we became more cautious
about the outlook for the UK economy and also for real estate stocks, and these
stocks were subsequently sold. As the oil price rose strongly towards US$150
per barrel we sold various oil producers including Oilexco, Dana Petroleum, JKX
Oil & Gas and, following a bid approach, we also sold Imperial Energy.
We deployed the proceeds from these sales into companies with very high levels
of revenue visibility including Mitie, Xchanging and Caretech; other companies
trading strongly with predominantly global operations including Spectris and
Fenner; ferrochrome producer International Ferrometals after a rather extreme
fall in its share price; OPG Power Ventures, a developer and operator of power
stations in India, the Company's only investment in an IPO during the period;
and PV Crystalox Solar, a producer of solar grade wafers used in electricity
generation. We replaced our holding in Expro International with oil services
companies Hunting and Wellstream.
Investment strategy and portfolio positioning
Our investment strategy has not changed materially over the half year. We
remain focused on good quality growth companies which are trading well and
sensibly valued.
Our portfolio positioning and the themes running through the portfolio remain
much the same. We continue to favour companies exposed to infrastructure
spending, much of which is taking place in countries experiencing relatively
high levels of GDP growth such as China, other Far Eastern countries, and the
Middle East; defence spending, which looks likely to remain at least stable
globally despite pressures on governments to reduce it; and companies which
help to manage and maintain the UK's infrastructure of roads, social housing
and other such assets. We have very little invested in companies which are
exposed to UK discretionary spending. In general we do not hold companies which
we believe have no sustainable pricing power, for example food manufacturing
companies, although we do hold some oil and gas producers and mining companies,
where we believe attractive production growth and cash generation can be
achieved.
We have slightly increased our exposure to midcap stocks expecting these more
liquid companies to benefit from renewed investor interest ahead of microcaps.
Microcaps and AIM stocks are currently very out of favour. A sizeable
proportion of the portfolio is invested in the sub £100 million market
capitalisation holdings, many of which are AIM listed and these have
undoubtedly been a drag on our overall performance. It is hard to see what will
drive the share prices of these companies up in the near term, short of bids,
and the risks associated with companies of these sizes tend to be higher
especially in an economic slowdown. We have tended to retain them because they
are illiquid and we like their longer term prospects.
Outlook
Stockmarket conditions in recent months have been very poor with continued
nervousness about the state of the world economy, and in particular the banking
system. In recent weeks we have seen various takeovers, nationalisations and
failures of banks and insurance companies many of which were regarded as robust
only six months ago. The US Treasury has also had to fight hard to put in place
a US$700bn fund to buy troubled bank assets and, in the UK, the government has
had to provide a substantial funding package. The UK housing market is in
crisis and likely to deteriorate, consumer spending is weakening and government
tax receipts look likely to fall short of expectations with implications for
government spending and debt. Resource prices have fallen sharply as
speculative froth was blown away, although the falls may also indicate some
demand destruction. Inflation remains high in most countries but providing
resource prices do not recover, the effects of past resource price increases
will gradually fall out of statistics, helping to bring inflation down in due
course. GDP growth in key countries such as China has slowed partly due to
reduced demand from the US. A combination of continued infrastructure build and
structurally growing domestic consumption, helped by looser monetary policy,
should see China and other major emerging economies continue to grow strongly
relative to developed economies, but at much lower levels than previously
expected. Property bubbles have emerged in some developing economies, including
China and Dubai, and the implications of this consumer spending and GDP growth
are unlikely to be positive.
Our view is that it is safest to position our portfolio to areas of continuing
growth and revenue visibility. Holding companies which generate a major part of
their revenues overseas also helps us to benefit from the weakness of Sterling.
We continue to monitor and meet with companies exposed to the more cyclical
elements of the UK economy. However, it is difficult to see a likely turning
point in the UK economy which could be some way off.
Over the coming months we expect more bad news from the UK and other economies,
possibly including failures of some UK housebuilders, retailers and leisure
companies, more bad news out of the global banking sector and continuing
stockmarket volatility. By focusing on investments of good quality, well funded
companies, we believe our portfolio should fare reasonably well over the medium
term.
Investment exposure as at 31 August 2008
Number of % of
investments Portfolio
<£1m 62 16.5
£1m to £2m 39 26.1
£2m to £3m 13 15.2
£3m to £4m 16 26.2
>£4m 7 16.0
Market capitalisation as at 31 August 2008
% of
Portfolio
< £100m 21.3%
£100m to £400m 47.5%
£400m to £1bn 29.4%
>£1bn 1.8%
Twenty Largest Holdings (in alphabetical order)as at 31 August 2008
Company Business activity
Aveva Group Development and marketing of engineering
computer software
BATM Advanced Communications Development and production of data and
telecommunication products
Brewin Dolphin Holdings Fund management and stockbroking
Chemring Group Manufacture and supply of defence decoy
countermeasures and energetic materials
Chloride Group Design and manufacture of uninterruptible
power solutions
Connaught Services to improve the quality of social
housing
Dechra Pharmaceuticals Development, manufacture and supply of
veterinary products
Domino Printing Sciences Manufacture of inkjet and laser commercial
printers
Fidessa Group Development and marketing of financial trading
and connectivity software
Hampson Industries Design, engineering and manufacture of components,
transparencies and composites
Hill & Smith Holdings Manufacture and hire of steel road barriers and
related products and services
ITE Group Organisation of exhibitions in emerging markets
Mouchel Group Provision of road, rail and other infrastructure
services
Rathbone Brothers Private client fund management
Rotork Engineering, manufacturing and design of valve
actuators
Spirax-Sarco Engineering Design and manufacture of steam management systems
Synergy Healthcare Provision of medical and health related support
services
Ultra Electronic Holdings Design and supply of electronic products to the
aerospace and defence sector
Victrex Manufacture and supply of PEEK thermoplastic products
WSP Group Engineering design, planning and project management
consultancy
Distribution of investments as at 31 August 2008
Analysis of portfolio %
Oil & Gas Producers 7.66
Oil Equipment, Services & Distribution 1.76
Chemicals 3.29
Industrial Metals 0.69
Mining 7.37
Construction & Materials 0.77
Aerospace & Defence 7.70
General Industrials 0.22
Electronic & Electrical Equipment 5.88
Industrial Engineering 9.48
Industrial Transportation 0.84
Support Services 13.56
Automobiles & Parts 0.15
Food Producers 0.53
Household Goods 0.37
Health Care Equipment & Services 4.52
Pharmaceuticals & Biotechnology 3.46
General Retailers 0.32
Media 3.36
Travel & Leisure 1.10
Fixed-Line Telecommunications 1.11
Electricity 0.63
Non Life Insurance 0.86
Real Estate 1.58
General Financial 8.71
Equity Investment Instruments 0.10
Software & Computer Services 12.60
Technology Hardware & Equipment 1.81
Cash Equivalents -0.43
INCOME STATEMENT
for the six months ended 31 August 2008
Revenue Return Capital Return Total
£'000 £'000 £'000
Six months Six months Year Six months Six months Year Six months Six months Year
ended ended ended ended ended ended ended ended ended
31.08.08 31.08.07 29.02.08 31.08.08 31.08.07 29.02.08 31.08.08 31.08.07 29.02.08
(unaudited) (unaudited) (audited) (unaudited) (unaudited) (audited) (unaudited) (unaudited) (audited)
(Losses)/
gains on
investments
held at
fair value
through
profit or
loss - - - (8,101) 4,332 (19,451) (8,101) 4,332 (19,451)
Income from
investments
held at
fair value
through
profit or
loss (note 2) 2,469 2,579 4,467 - - - 2,469 2,579 4,467
Other
income
(note 2) 6 4 13 - - - 6 4 13
Investment
management and
performance
fees (note 3) (146) (192) (334) (966) (1,284) (1,574) (1,112) (1,476) (1,908)
Write back
of prior
years' VAT - - 111 - - 518 - - 629
Operating
expenses (84) (129) (303) - - - (84) (129) (303)
----- ----- ----- ----- ----- ------ ----- ----- ------
Net return/
(loss)
before
finance
costs and
taxation 2,245 2,262 3,954 (9,067) 3,048 (20,507) (6,822) 5,310 (16,553)
Finance
costs (165) (216) (410) (490) (637) (1,207) (655) (853) (1,617)
----- ----- ----- ----- ----- ------ ----- ----- ------
Return/
(loss) on
ordinary
activities
before
taxation 2,080 2,046 3,544 (9,557) 2,411 (21,714) (7,477) 4,457 (18,170)
Taxation on
ordinary
activities (4) (2) (4) - - - (4) (2) (4)
----- ----- ----- ----- ----- ------ ----- ----- ------
Return/
(loss) on
ordinary
activities
after
taxation 2,076 2,044 3,540 (9,557) 2,411 (21,714) (7,481) 4,455 (18,174)
===== ===== ===== ===== ===== ====== ===== ===== ======
Return/
(loss) per
ordinary
share (note 4) 4.28p 4.10p 7.16p (19.70p) 4.84p (43.93p) (15.42p) 8.94p (36.77p)
===== ===== ===== ===== ===== ====== ====== ===== ======
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 has 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 period.
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
for the six months ended 31 August 2008
Share Capital Capital Capital
Share premium redemption reserve - reserve - Revenue
capital account reserve realised unrealised reserve Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000
For the six months
ended 31 August 2008
(unaudited)
At 29 February 2008 12,498 38,952 1,982 107,449 34,391 5,780 201,052
Return/(loss) for
the period - - - 3,377 (12,934) 2,076 (7,481)
Shares purchased
and cancelled - - - - - - -
Ordinary dividends
paid (a) - - - - - (1,460) (1,460)
Special dividends
paid (a) - - - - - (607) (607)
------ ------ ----- ------- ------ ----- -------
At 31 August 2008 12,498 38,952 1,982 110,826 21,457 5,789 191,504
------ ------ ----- ------- ------ ----- -------
For the six months
ended 31 August 2007
(unaudited)
At 28 February 2007 12,498 38,952 1,982 93,551 75,237 4,640 226,860
Return/(loss) for
the period - - - 14,676 (12,265) 2,044 4,455
Shares purchased
and held in treasury - - - (2,128) - - (2,128)
Ordinary dividends
paid (b) - - - - - (1,465) (1,465)
------ ------ ----- ------- ------ ----- -------
At 31 August 2007 12,498 38,952 1,982 106,099 62,972 5,219 227,722
------ ------ ----- ------- ------ ----- -------
For the year ended
29 February 2008
(audited)
At 28 February 2007 12,498 38,952 1,982 93,551 75,237 4,640 226,860
Return/(loss) for
the year - - - 19,132 (40,846) 3,540 (18,174)
Shares purchased
and held in treasury - - - (5,234) - - (5,234)
Ordinary dividends
paid (c) - - - - - (2,400) (2,400)
------ ------ ----- ------- ------ ----- -------
At 29 February 2008 12,498 38,952 1,982 107,449 34,391 5,780 201,052
------ ------ ----- ------- ------ ----- -------
(a) Final dividend of 3.01p per share and special dividend of 1.25p per share for the year ended
29 February 2008, declared on 25 April 2008 and paid on 11 June 2008.
(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.
(c) 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 31 August 2008
31 August 31 August 29 February
2008 2007 2008
£'000 £'000 £'000
(unaudited) (unaudited) (audited)
Fixed assets
Investments held at fair value
through profit or loss 207,616 251,641 218,175
------- ------- -------
Current assets
Debtors 900 1,548 3,282
Cash and other short term
deposits 28 14 1
------- ------- -------
928 1,562 3,283
Creditors - amounts falling
due within one year
Bank overdrafts (952) (7,937) (917)
Other creditors (1,291) (2,761) (4,698)
------- ------- -------
Net current liabilties (1,315) (9,136) (2,332)
------- ------- -------
Total assets less
current liabilities 206,301 242,505 215,843
Creditors - amounts falling
due after more than one year (14,797) (14,783) (14,791)
------- ------- -------
Net assets 191,504 227,722 201,052
======= ======= =======
Capital and reserves
Share capital 12,498 12,498 12,498
Share premium account 38,952 38,952 38,952
Capital redemption reserve 1,982 1,982 1,982
Capital reserve 132,283 169,071 141,840
Revenue reserve 5,789 5,219 5,780
------- ------- -------
Total equity
shareholders' funds 191,504 227,722 201,052
======= ======= =======
Net asset value per
ordinary share (note 4) 394.78p 460.28p 414.46p
======= ======= =======
CASH FLOW STATEMENT
for the six months ended 31 August 2008
Six months Six months
ended ended Year ended
31 August 31 August 29 February
2008 2007 2008
£'000 £'000 £'000
(unaudited) (unaudited) (audited)
Net cash inflow from
operating activities 977 1,174 2,395
Servicing of finance (647) (799) (1,602)
------- ------- -------
Capital expenditure
and financial investment
Purchases of investments (49,286) (69,415) (148,029)
Sales of investments 51,012 72,139 161,381
------- ------- -------
Net cash inflow from capital
expenditure and financial
investment 1,726 2,724 13,352
------- ------- -------
Equity dividends paid (2,067) (1,465) (2,400)
------- ------- -------
Net cash (outflow)/inflow
before financing (11) 1,634 11,745
------- ------- -------
Financing
Purchase of ordinary shares - (2,128) (5,234)
------- ------- -------
Net cash outflow from financing - (2,128) (5,234)
------- ------- -------
(Decrease)/increase in cash in
the period (note 5) (11) (494) 6,511
====== ======= =======
RECONCILIATION OF NET RETURN BEFORE FINANCE COSTS AND TAXATION TO NET CASH FLOW
FROM OPERATING ACTIVITIES
Six months Six months
ended ended Year ended
31 August 31 August 29 February
2008 2007 2008
£'000 £'000 £'000
(unaudited) (unaudited) (audited)
Net (loss)/return before
finance costs and taxation (6,822) 5,310 (16,553)
Losses/(gains) on investments
held at fair value through
profit or loss 8,101 (4,332) 19,451
Decrease/(increase) in
accrued income 108 121 (96)
(Increase)/decrease in
debtors (4) 15 (629)
(Decrease)/increase in
creditors (406) 62 226
Overseas withholding tax
suffered - (2) (4)
----- ----- -----
Net cash inflow from
operating activities 977 1,174 2,395
----- ----- -----
Notes to the Financial Statements
1. Principal activity and basis of preparation
The Company conducts its business so as to qualify as an investment trust
company within the meaning of section 842 of the Income and Corporation Taxes
Act 1988. The half yearly financial statements have been prepared using the
same accounting policies set out in the Company's financial statements for the
year ended 29 February 2008.
Under FRS 26 "Financial Instruments-Measurement" the Company has designated
its assets and liabilities as being measured at "fair value through profit or
loss". The fair value of fixed asset investments is deemed to be the bid market
value at the close of business on the balance sheet date. The taxation charge
has been calculated by applying an estimate of the annual effective tax rate to
any profit for the period.
The financial statements have been prepared in accordance with applicable
Accounting Standards, pronouncements on half yearly reporting issued by the
Accounting Standards Board and the Statement of Recommended Practice "Financial
Statements of Investment Trust Companies" ("SORP") dated January 2003, revised
31 December 2005.
2. Income
Six months Six months
ended ended Year ended
31 August 31 August 29 February
2008 2007 2008
£'000 £'000 £'000
(unaudited) (unaudited) (audited)
Investment income:
UK listed dividends 2,306 2,361 3,973
Bond interest - 6 -
Overseas listed dividends 163 212 494
----- ----- -----
2,469 2,579 4,467
----- ----- -----
Other income:
Deposit interest 1 4 8
Underwriting commission 5 - 5
----- ----- -----
6 4 13
----- ----- -----
Total 2,475 2,583 4,480
----- ----- -----
3. Investment management and performance fees
Six months ended Six months ended Year ended
31 August 2008 31 August 2007 29 February 2008
(unaudited) (unaudited) (audited)
Revenue Capital Revenue Capital Revenue Capital
Return Return Total Return Return Total Return Return Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Investment
management
fees 146 437 583 163 492 655 305 917 1,222
Performance
fees - 529 529 - 601 601 - 569 569
VAT - - - 29 191 220 29 88 117
----- ----- ----- ------ ----- ----- ----- ----- -----
146 966 1,112 192 1,284 1,476 334 1,574 1,908
Write back
of prior
years' VAT - - - - - - (111) (518) (629)
----- ----- ----- ------ ----- ----- ----- ----- -----
146 966 1,112 192 1,284 1,476 223 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 0.5% 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.
Performance fees have been wholly allocated to capital reserve as the
performance has been predominantly generated through capital returns of the
investment portfolio. A performance fee of £529,000 has been accrued for the
six month period ended 31 August 2008 (six months ended 31 August 2007:
£601,000 and the year ended 29 February 2008: £569,000).
4. Returns and net asset value per ordinary share
Revenue and capital returns per share are shown below and have been calculated
using the following:
Six months Six months
ended ended Year ended
31 August 31 August 29 February
2008 2007 2008
(unaudited) (unaudited) (audited)
Revenue return (£'000) 2,076 2,044 3,540
Capital (loss)/return
(£'000) (9,557) 2,411 (21,714)
------- ------- -------
Total (loss)/return
(£'000) (7,481) 4,455 (18,174)
------- ------- -------
Equity shareholders'
funds (£'000) 191,504 227,722 201,052
------- ------- -------
The weighted average number
of ordinary shares in
issue on which the return
per ordinary share was
calculated, was: 48,509,708 49,849,721 49,421,723
The actual number of
ordinary shares in issue at
the end of each period, on
which the net asset value per
ordinary share was calculated,
was: 48,509,708 49,474,708 48,509,708
Revenue return per ordinary
share 4.28p 4.10p 7.16p
Capital (loss)/return per
ordinary share (19.70p) 4.84p (43.93p)
------- ------- -------
Total (loss)/return per
ordinary share (15.42p) 8.94p (36.77p)
------- ------- -------
Net asset value per ordinary
share (debt at par value) 394.78p 460.28p 414.46p
------- ------- -------
Net asset value per ordinary
share (debt at fair value) 390.33p 454.60p 409.60p
------- ------- -------
5. Movement in net debt
Six months Six months
ended ended Year ended
31 August 31 August 29 February
2008 2007 2008
£'000 £'000 £'000
(unaudited) (unaudited) (audited)
Reconciliation of net
cash flow to movement in
net debt
(Decrease)/increase in cash
in the period (11) (494) 6,511
Foreign exchange movements 3 2 4
Amortised debenture stock
issue expenses (6) (7) (15)
------ ------ ------
Movement in net (debt)/funds
in the period (14) (499) 6,500
Opening net debt (15,707) (22,207) (22,207)
------ ------ ------
Closing net debt (15,721) (22,706) (15,707)
------ ------ ------
6. Distributable status of capital reserves
The Institute of Chartered Accountants in England and Wales has issued guidance
(TECH 01/08) stating that profits arising out of a change in fair value of
assets, recognised in accordance with Accounting Standards, may be distributed,
provided the relevant assets can be readily converted into cash. Securities
listed on a recognised stock exchange are generally regarded as being readily
convertible into cash and hence unrealised profits less losses amounting to £
21,457,000 currently included within "Capital reserves", may be regarded as
distributable. However, under the terms of the Company's Articles of
Association, sums within "Capital reserves" are available for distribution only
by way of redemption or purchase of any of the Company's shares. In addition,
in order to maintain investment trust status, the Company may only distribute
accumulated "realised" profits.
7. Publication of non statutory accounts
The financial information contained in this half yearly financial report does
not constitute statutory accounts as defined in section 435 of the Companies
Act 2006. The financial information for the six months ended 31 August 2008 and
31 August 2007 has not been audited.
The information for the year ended 29 February 2008 has been extracted from the
latest published audited financial statements which have been filed with the
Registrar of Companies. The report of the auditors on those accounts contained
no qualification or statement under sections 498(2) or (3) of the Companies Act
2006.
A copy of the half yearly financial report will be available on the BlackRock
Investment Management (UK) Limited website at www.blackrock.com/its.
Independent Review Report to BlackRock Smaller Companies Trust plc
Introduction
We have been engaged by the Company to review the condensed set of financial
statements in the half yearly financial report for the six month period ended
31 August 2008 which comprises the Income Statement, Reconciliation of
Movements in Shareholders' Funds, Balance Sheet, Cash Flow Statement,
Reconciliation of Net Return before Finance Costs and Taxation to Net Cash Flow
from Operating Activities, and the related notes 1 to 7. We have read the
other information contained in the half yearly financial report and considered
whether it contains any apparent misstatements or material inconsistencies with
the information in the condensed set of financial statements.
This report is made solely to the Company in accordance with guidance contained
in International Standard on Review Engagements 2410 (UK and Ireland) "Review
of Interim Financial Information Performed by the Independent Auditor of the
Entity" issued by the Auditing Practices Board. To the fullest extent permitted
by law, we do not accept or assume responsibility to anyone other than the
Company, for our work, for this report, or for the conclusions we have formed.
Directors' responsibilities
The half yearly financial report is the responsibility of, and has been
approved by, the Directors. The Directors are responsible for preparing the
half yearly financial report in accordance with the Listing Rules of the
Financial Services Authority.
As disclosed in note 1, the annual financial statements of the Company are
prepared in accordance with United Kingdom Generally Accepted Accounting
Practice. The condensed set of financial statements included in this half
yearly financial report has been prepared in accordance with the Accounting
Standards Board Statement "Half Yearly Financial Reports".
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed
set of financial statements in the half yearly financial report based on our
review.
Scope of review
We conducted our review in accordance with International Standard on Review
Engagements (UK and Ireland) 2410, "Review of Interim Financial Information
Performed by the Independent Auditor of the Entity" issued by the Auditing
Practices Board for use in the United Kingdom. A review of interim financial
information consists of making enquiries, primarily of persons responsible for
financial and accounting matters and applying analytical and other review
procedures. A review is substantially less in scope than an audit performed in
accordance with International Standards on Auditing (UK and Ireland) and
consequently does not enable us to obtain assurance that we would become aware
of all significant matters that might be identified in an audit. Accordingly,
we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half yearly
financial report does not give a true and fair view of the financial position
of the Company as at 31 August 2008, and of its cash flows for the six month
period then ended, in accordance with the Accounting Standards Board Statement
"Half Yearly Financial Reports" and the Disclosure and Transparency Rules of
the United Kingdom's Financial Services Authority.
Scott-Moncrieff
Chartered Accountants
Edinburgh
Friday, 31st May 2024
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