Half-yearly Report
8 October 2009
BLACKROCK SMALLER COMPANIES TRUST plc
Half yearly financial announcement of results in respect
of the six months ended 31 August 2009
Financial Highlights
Six months ended
31 August 2009
Performance
Net asset value per share 335.68p
Movement in net asset value per share +47.6%
Movement in Hoare Govett Smaller Companies plus AIM (ex
Investment Companies) Index +52.2%
Share price per share 271.75p
Movement in share price +53.5%
Revenue Performance
Return per share 4.00p
Interim dividend per share 2.00p
Chairman's Statement
Overview
The severe economic downturn in 2008 continued into 2009, with markets falling
by early March, the start of the Company's financial year, to their lowest levels
for over a decade. The UK Smaller Companies sector suffered significantly during
this downward spiral but has rebounded since mid-March as cyclical stocks
recovered and risk aversion declined. Volatility has remained high and setbacks,
such as that seen in June, are inevitable. However, there have been clearer signs
that a number of economic indicators are stabilising and even beginning to show
some improvement.
During the six months to 31 August 2009, the Company's net asset value ("NAV") per
share grew by 47.6%, compared to a rise in the Company's benchmark of 52.2%. This
reflects the Manager's continued focus on good quality growth stocks and an
underweight exposure to the recently favoured recovery stocks. The Company's
share price rose by 53.5%.
Since the period end, the Company's net asset value has increased by a further
7.8% and the share price by 6.7%, compared with an increase in the benchmark
of 6.0%. The last twelve months has been a roller coaster ride but it is encouraging
to note that the fall in NAV suffered in the second half of the Company's last
financial year has now been substantially recovered. Further information on the
Company's performance is included in the Investment Manager's Report.
Earnings and dividends
At a time when dividends generally will be under pressure, the revenue return
per share amounted to 4.00p for the period, a fall of 6.5% on the corresponding
six months in the previous year. The Board has declared an interim dividend of
2.00p per share (2008: 1.95p per share), representing an increase of 2.6% over
the previous interim dividend. The dividend will be paid on 2 November 2009 to
shareholders on the Company's register on 16 October 2009.
Gearing
The Company has an overdraft facility and a £15 million debenture, which gives
the Investment Manager the ability to gear tactically. In the six months to
31 August 2009, net gearing ranged from 10.2% to 13.8% and has been beneficial
to performance. It currently stands at £17.8 million, 10.2% of shareholders'
funds.
Discount and share buy backs
The Board will use its powers to buy back the Company's shares where it
considers that there is likely to be a benefit to shareholders. In April, the
Board took the opportunity to repurchase 300,000 shares at a price of 201.00p
per share and a discount to net asset value of 17.1%, to assist in managing an
imbalance between the supply and demand for the Company's shares. The discount
stood at 19.0% as at 31 August 2009.
VAT recovery
As shareholders will be aware from my previous statements, VAT is no longer
payable on management fees. I am pleased to report that HM Revenue & Customs
("HMRC") has now repaid all of the irrecoverable VAT on invoices raised by
the current Investment Manager, BlackRock, since taking over the management
of the Company in December 2004, amounting to £617,000. The VAT recovered has
been allocated 20% to revenue and 80% to capital in accordance with the original
allocation of the management fees.
Outlook
Markets have strengthened as recessionary pressures have eased and leading
indicators point towards a brighter outlook. However, although we do not expect
a further test of the March market lows, the environment is still clearly a
challenging one fuelled by rising unemployment, faltering retail sales and huge
budget deficits in Western economies. Given this ongoing uncertainty, we expect
the recovery to be slow, with economic growth gradually returning to positive
territory during 2010.
Despite this, we believe that the market is currently providing good long term
opportunities with significant value now available in a broad range of smaller
company sectors. We will maintain our focus on quality businesses with strong
balance sheets and exposure to overseas growth markets.
Interim Management Report and Responsibility Statement
The Chairman's Statement above and the Investment Manager's Report below 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 28 February 2009.
A detailed explanation can be found on pages 15 and 16 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
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 and the above
responsibility statement was signed on its behalf by the Chairman.
Investment Manager's Report
Market review and overall investment performance
Markets have rallied strongly since March as hopes have started to build that
economies are stabilising and recovery is in prospect. This has enabled us to
recover a significant part of the losses sustained in the latter part of 2008.
During the first half of the Company's year, the NAV rose by 47.6% and the
benchmark rose by 52.2%. Over this period larger companies lagged, with the
FTSE100 Index rising by only 28.2%.
Portfolio performance
Our best performance came in the technology sectors. Software stocks were our
largest overweight sector during the period and, on average, our holdings
increased in value by 61%. The largest percentage increases came from our holdings
in Alterian and Kewill Systems, both small companies but key global players in
their respective markets, and our larger holdings in Aveva Group and Fidessa
performed well too. Hardware stocks also did well with holdings in Pace, a leading
global supplier of set top boxes, and BATM Advanced Communications, a supplier of
leading edge communications technology, contributing significantly.
Some of our emerging market and resources investments rebounded sharply, notably
OPG Power Ventures, which generates power in India, and International FerroMetals,
a supplier of ferrochrome based in South Africa.
By contrast, a number of our core holdings lagged because the stockmarket chose
to focus on recovery stocks. Poor performers included Mouchel Group, London
Capital Group, Dechra Pharmaceuticals, Alternative Networks, Rathbone Brothers,
Chemring, Consort Medical, Caretech and Ultra Electronics. We decided to sell
our holdings in Mouchel and Chemring, the former because it is almost exclusively
UK public sector focused and we expect its relatively high margin consultancy
business to suffer around the time of a general election when a hiatus in public
spending is a possibility. Chemring has been well managed in recent years, but
we expect UK and US defence budgets, on which it depends, to be cut back over
the next few years. London Capital, which provides spread betting products on
financial markets, suffered in the Spring because markets had become less volatile
and we have reduced our position. We retain all of the other holdings; they have
not been immune from cyclical forces, but are all well managed, with excellent
market positions generally based on proprietary technology or strong brands, and
each is soundly financed. We expect these companies to perform well operationally
over the next three years, although their share prices could continue to lag in a
cyclical recovery.
Our performance against our benchmark suffered as we did not own many of the best
performing recovery stocks in the benchmark, which in general had fallen sharply
in 2008 for good reason and only joined our benchmark on 1 January 2009. Often
these businesses were not only of average quality, at best, but also overly indebted.
Activity
Our strategy, for about twelve months now, has been looking to increase exposure
to early cyclical companies. We have generally bought companies with strong market
positions, preferably serving international markets, and with proprietary
technology or strong brands. Purchases during the period included Cookson, Charter,
3i Group, Greene King, Halfords and Persimmon. Cookson stands to benefit from a
recovery in steel consumption in China; a significant part of its supplies are
consumables. Charter is an engineering group which through its welding supplies
division would, like Cookson, be a direct beneficiary from a recovery in steel
consumption. 3i is a leading private equity group; its shares were sold down too
aggressively on financing fears and we bought a holding when the share price was
below 3i's share price on IPO in 1994. As fears subsided, and with the help of a
rights issue, the shares have recovered sharply and we took the opportunity to sell
out. Greene King, Halfords and Persimmon are all well run UK orientated consumer
companies; the latter, a former FTSE100 constituent, in particular has been a strong
performer.
In addition to the sale of shares in 3i, we sold other early cyclicals in which we
had achieved strong gains, for instance our holding in Burberry which had doubled
in the six months we had owned it. With hindsight, we have sold some of these
companies too soon, but they have returned to the FTSE100 and in such circumstances
we tend to sell and look for other opportunities at the smaller end of the market.
Gearing
Gearing has generally been around 10% to 14% in recent months and was beneficial in
the first half of the year. We aim to retain gearing at 10% or more over the coming
months.
Portfolio positioning
We are focused mainly on good quality growth companies which meet our criteria for
core holdings; these are the large positions in the portfolio. Looking at our
current largest holdings, many have strong, leading technology, including holdings
such as Fidessa, Aveva, Pace, Dechra Pharmaceuticals, Domino Printing Sciences,
BATM Advanced Communications, Alterian, Kewill, Intec Telecom Systems and Spirent.
Other portfolio holdings have well known brands, for instance Rathbone Brothers,
Rensburg Sheppards, Brewin Dolphin and Abcam. Others give excellent exposure to
emerging markets, many of which we expect to lead global GDP growth over the next
five years, for instance City of London Investment Group, ITE Group, Rotork,
Spirax-Sarco and Victrex.
We have increased our exposure to real estate companies over the last six months.
Our preference is very much the West End of London, represented by holdings in Derwent
London, Shaftesbury and Great Portland Estates. We also like the developers which
have excellent management and track records, notably St Modwen Estates, Development
Securities and Helical Bar.
Within the resources sectors our larger holdings are sensibly valued producers, for
instance Premier Oil, Gulfsands Petroleum and Valiant Petroleum amongst oil producers,
and Petropavlovsk (formerly Peter Hambro Mining), International FerroMetals and
Eastern Platinum amongst the miners. We do have small investments in a number of
exploration companies where success would be transformational; these include Falkland
Oil & Gas and BPC, which has interesting licences between Cuba and the Bahamas which
it is farming out to Statoil.
Our other cyclical holdings include construction related companies such as Keller,
again a leading global player in ground preparation, house builders Persimmon and
Bellway, engineering consultancy WSP Group, and pub companies Enterprise Inns and
Greene King.
We are generally cautious on the outlook for the UK economy. It faces headwinds
stronger than many developed economies, including high public sector debt, with the
likelihood of large increases in both taxes, and reductions in public sector spending
soon after the impending general election. We continue to hold shares in Connaught
and Caretech which have very high levels of long term contracted revenues, strong
management teams and scope to gain significant market share even if public spending is
cut sharply. We maintain significant underweight positions in UK discretionary
consumer related sectors, especially travel & leisure and general retailers.
We have repeated a rough exercise to estimate the proportion of the portfolio's sales
by destination. This indicates that about 45% of our portfolio sales are into the UK
economy, down from just over 50% six months ago. The reduction in sales to the UK is
counterbalanced by an increase in sales to Asia Pacific and other Emerging Markets,
which now account for 20% of the portfolio's sales. The balance is split almost equally
between Western Europe excluding the UK, and North America.
A review of our portfolio's style relative to our benchmark shows unsurprising results.
Our portfolio beta on an ungeared basis is 0.92, reflecting our preference for less
volatile stocks. Our tracking error has edged down slightly over the last six months and
the largest constituents of this are, from a style point of view, in order, below average
market capitalisation of holdings compared to the benchmark, less volatile than average
share prices of holdings, less exposure to value stocks, more exposure to less liquid
stocks and more exposure to growth stocks.
Outlook
Developed economies are starting to recover from a painful recession. Recovery is expected
to be slow, but we hope that we can look forward to a gradual recovery and a return to a
period of sustainable growth. Cyclical recovery stocks have performed very strongly
since March; many have already seen their share prices double from cyclical lows, although
generally their share prices are still well below the levels seen in 2007. The quality
growth companies which we know best, and which dominate our portfolio, have lagged over
the last six months but should deliver good absolute performance in the long term.
Investment exposure as at 31 August 2009
Number of % of Portfolio
investments
<£1m 89 26.3
£1m to £2m 53 42.4
£2m to £3m 18 24.7
£3m to £4m 2 4.1
>£4m 1 2.5
Market capitalisation as at 31 August 2009
% of Portfolio
< £100m 18.8
£100m to £400m 43.9
£400m to £1bn 26.4
>£1bn 10.9
Twenty Largest Holdings (in alphabetical order) as at 31 August 2009
Company Business activity
Abcam Production and distribution of research
grade antibodies and associated products
Alterian Development and marketing of customer
relationship software
Aveva Group Development and marketing of engineering
computer software
BATM Advanced Communications Development and production of advanced data
and telecommunication products
Brewin Dolphin Holdings Fund management and stockbroking
City of London Investment Group Management of investment funds primarily
invested in emerging markets
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
Hardy Underwriting Provision of specialist insurance
ITE Group Organisation of exhibitions in emerging
markets
PACE Design and supply of set top boxes
Premier Oil Exploration and production of oil and gas
Rathbone Brothers Private client fund management
Rensburg Sheppards Private client fund management
Rotork Engineering, manufacturing and design and
assembly of valve actuators
Shaftesbury Ownership and management of retail, leisure
and office property in London's West End
Spirax-Sarco Engineering Design and manufacture of steam management
systems
Ultra Electronic Holdings Design and supply of electronic products to
the aerospace and defence sector
Victrex Manufacture and supply of PEEK
thermoplastic products
Distribution of investments as at 31 August 2009
Analysis of portfolio %
Oil & Gas Producers 7.0
Oil Equipment, Services & Distribution 1.5
Chemicals 2.1
Industrial Metals 1.3
Mining 6.3
Construction & Materials 2.0
Aerospace & Defence 2.8
General Industrials 0.8
Electronic & Electrical Equipment 3.2
Industrial Engineering 5.4
Industrial Transportation 0.8
Support Services 7.9
Automobiles & Parts 0.4
Beverages 1.5
Household Goods 3.8
Health Care Equipment & Services 3.3
Pharmaceuticals & Biotechnology 2.5
Food & Drug Retailers 0.5
General Retailers 4.1
Media 2.9
Travel & Leisure 4.7
Fixed-Line Telecommunications 0.9
Electricity 0.9
Non-life Insurance 2.2
Real Estate 6.8
General Financial 9.5
Equity Investment Instruments 0.0
Software & Computer Services 10.3
Technology Hardware & Equipment 4.3
Other 0.1
Cash 0.2
INCOME STATEMENT
for the six months ended 31 August 2009
Revenue £'000 Capital £'000 Total £'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
31.08.09 31.08.08 28.02.09 31.08.09 31.08.08 28.02.09 31.08.09 31.08.08 28.02.09
(unaudited) (unaudited) (audited) (unaudited) (unaudited) (audited) (unaudited) (unaudited) (audited)
Gains/
(losses) on
investments
held at
fair value
through
profit or
loss - - - 52,809 (8,101) (89,186) 52,809 (8,101) (89,186)
Income from
investments
held at
fair value
through
profit or
loss (note 2) 2,346 2,469 4,320 - - - 2,346 2,469 4,320
Other
income
(note 2) 20 6 20 - - - 20 6 20
Investment
management
and
performance
fees (note 3) (111) (146) (233) (333) (966) (1,125) (444) (1,112) (1,358)
Write back
of prior
years' VAT
(note 3) (12) - - - - - (12) - -
Other
operating
expenses (145) (84) (273) - - - (145) (84) (273)
----- ----- ----- ------ ----- ------ ------ ----- -----
Net return
before
finance
costs and
taxation 2,098 2,245 3,834 52,476 (9,067) (90,311) 54,574 (6,822) (86,477)
Finance
costs (152) (165) (329) (454) (490) (940) (606) (655) (1,269)
----- ----- ----- ------ ----- ------ ------ ----- -----
Return on
ordinary
activities
before
taxation 1,946 2,080 3,505 52,022 (9,557) (91,251) 53,968 (7,477) (87,746)
Taxation on
ordinary
activities (15) (4) (6) - - - (15) (4) (6)
----- ----- ----- ------ ----- ------ ------ ----- -----
Return on
ordinary
activities
after
taxation 1,931 2,076 3,499 52,022 (9,557) (91,251) 53,953 (7,481) (87,752)
===== ===== ===== ======= ====== ======= ======= ====== =======
Return per
ordinary
share (note
4) 4.00p 4.28p 7.21p 107.80p (19.70p) (188.12p) 111.80p (15.42p) (180.91p)
===== ===== ===== ======= ====== ======= ======= ====== =======
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 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 2009
Share Capital
Share premium redemption Capital Revenue
capital account reserve reserves reserve Total
£'000 £'000 £'000 £'000 £'000 £'000
For the six months ended 31 August 2009 (unaudited)
At 28 February 2009 12,498 38,952 1,982 50,566 6,267 110,265
Return for the period - - - 52,022 1,931 53,953
Shares purchased and
held in treasury - - - (607) - (607)
Dividends paid (a) - - - - (1,831) (1,831)
------ ------ ----- ------- ----- -------
At 31 August 2009 12,498 38,952 1,982 101,981 6,367 161,780
------ ------ ----- ------- ----- -------
For the six months ended 31 August 2008 (unaudited)
At 29 February 2008 12,498 38,952 1,982 141,840 5,780 201,052
Return for the period - - - (9,557) 2,076 (7,481)
Dividends paid (b) - - - - (2,067) (2,067)
------ ------ ----- ------- ----- -------
At 31 August 2008 12,498 38,952 1,982 132,283 5,789 191,504
------ ------ ----- ------- ----- -------
For the year ended 28 February 2009 (audited)
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 (c) - - - - (3,012) (3,012)
------ ------ ----- ------ ----- -------
At 28 February 2009 12,498 38,952 1,982 50,566 6,267 110,265
------ ------ ----- ------ ----- -------
(a) Final dividend of 3.10p and special dividend of 0.70p per share for the
year ended 28 February 2009, declared on 22 April 2009 and paid on 24 June
2009.
(b) Final dividend of 3.01p and 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.
(c) Final dividend of 3.01p and 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 31 August 2009
31 August 31 August 28 February
2009 2008 2009
£'000 £'000 £'000
(unaudited) (unaudited) (audited)
Fixed assets
Investments held at fair value through
profit or loss 177,108 207,616 124,429
------- ------- -------
Current assets
Debtors 3,657 900 1,202
Cash - 28 1,271
------- ------- -------
3,657 928 2,473
Creditors - amounts falling due within
one year
Bank overdrafts (1,695) (952) -
Other creditors (2,478) (1,291) (1,831)
------- ------- -------
Net current (liabilities)/assets (516) (1,315) 642
------- ------- -------
Total assets less current liabilities 176,592 206,301 125,071
Creditors - amounts falling due after
more than one year (14,812) (14,797) (14,806)
------- ------- -------
Net assets 161,780 191,504 110,265
====== ====== ======
Capital and reserves
Share capital (note 5) 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 reserves 101,981 132,283 50,566
Revenue reserve 6,367 5,789 6,267
------- ------- -------
Total equity shareholders' funds 161,780 191,504 110,265
======= ======= =======
Net asset value per ordinary share
(note 4) 335.68p 394.78p 227.37p
======= ======= =======
CASH FLOW STATEMENT
for the six months ended 31 August 2009
Six months Six months Year
ended ended ended
31 August 31 August 28 February
2009 2008 2009
£'000 £'000 £'000
(unaudited) (unaudited) (audited)
Net cash inflow from operating activities 2,300 977 2,364
Losses on investments and servicing of
finance (591) (647) (1,257)
Capital expenditure and financial
investment
Purchases of investments (48,414) (49,286) (87,032)
Proceeds from sales of investments 46,178 51,012 91,102
------ ------ ------
Net cash (outflow)/inflow from capital
expenditure and financial investment (2,236) 1,726 4,070
------ ------ ------
Equity dividends paid (1,831) (2,067) (3,012)
------ ------ ------
Net cash (outflow)/inflow before
financing (2,358) (11) 2,165
------ ------ ------
Financing
Purchase of ordinary shares (607) - (23)
------ ------ ------
Net cash outflow from financing (607) - (23)
------ ------ ------
(Decrease)/increase in cash in the period
(note 6) (2,965) (11) 2,142
===== ===== ======
RECONCILIATION OF NET RETURN BEFORE FINANCE COSTS AND TAXATION TO NET CASH FLOW
FROM OPERATING ACTIVITIES
Six months Six months Year
ended ended ended
31 August 31 August 28 February
2009 2008 2009
£'000 £'000 £'000
(unaudited) (unaudited) (audited)
Net gain/(loss) before finance costs and
taxation 54,574 (6,822) (86,477)
(Gains)/losses on investments held at
fair value through profit or loss (52,809) 8,101 89,186
(Increase)/decrease in accrued income (9) 108 102
Decrease/(increase) in debtors 629 (4) -
Decrease in creditors (58) (406) (434)
Income tax suffered (8) - (7)
Overseas withholding tax suffered (19) - (6)
------ ------ -------
Net cash inflow from operating activities 2,300 977 2,364
------ ------ -------
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 28 February 2009.
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 and
revised in December 2005 and January 2009.
2. Income
Six months Six months Year
ended ended ended
31 August 31 August 28 February
2009 2008 2009
£'000 £'000 £'000
(unaudited) (unaudited) (audited)
Investment income:
UK listed dividends 2,086 2,306 3,815
Overseas listed dividends 260 163 505
----- ----- -----
2,346 2,469 4,320
----- ----- -----
Other income:
Deposit interest 1 1 16
Underwriting commission 19 5 4
----- ----- -----
20 6 20
----- ----- -----
Total 2,366 2,475 4,340
----- ----- -----
3. Investment management and performance fees
Six months ended Six months ended Year ended
31 August 2009 31 August 2008 28 February 2009
(unaudited) (unaudited) (audited)
Revenue Capital Total Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Investment
management
fees 111 333 444 146 437 583 233 698 931
Performance
fees - - - - 529 529 - 427 427
--- --- --- --- --- ----- --- ----- -----
111 333 444 146 966 1,112 233 1,125 1,358
Write back
of prior
years' VAT 12 - 12 - - - - - -
--- --- --- --- --- ----- --- ----- -----
123 333 456 146 966 1,112 233 1,125 1,358
--- --- --- --- --- ----- --- ----- -----
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 reserves as the
performance has been predominantly generated through capital returns of the
investment portfolio. No performance fee was accrued for the six month period
to 31 August 2009 (six months ended 31 August 2008: £529,000 and the year ended
28 February 2009: £427,000).
In line with the AIC Statement of Recommended Practice, the performance fee accrual
of £529,000 at 31 August 2008 was an estimate based on outperformance data and
reasonable market assumptions at that date. Subsequent movements in performance
between 31 August 2008 and 28 February 2009 resulted in a performance fee of
£427,000 being crystallised and paid in respect of the full year.
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 Year
ended ended ended
31 August 31 August 28 February
2009 2008 2009
(unaudited) (unaudited) (audited)
Revenue return (£'000) 1,931 2,076 3,499
Capital return (£'000) 52,022 (9,557) (91,251)
------- ------- -------
Total return (£'000) 53,953 (7,481) (87,752)
------- ------- -------
Equity shareholders' funds (£'000) 161,780 191,504 110,265
------- ------- -------
The weighted average number of ordinary
shares in issue on which the return per
ordinary share was calculated, was: 48,258,379 48,509,708 48,506,488
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: 48,194,792 48,509,708 48,494,792
Revenue return per ordinary share 4.00p 4.28p 7.21p
Capital return per ordinary share 107.80p (19.70p) (188.12p)
------- ------ -------
Total return per ordinary share 111.80p (15.42p) (180.91p)
------- ------ -------
Net asset value per ordinary share (debt
at par value) 335.68p 394.78p 227.37p
------- ------ -------
Net asset value per ordinary share (debt
at fair value) 331.43p 390.33p 221.91p
------- ------ -------
5. Share capital and shares held in treasury
Number of Number of
ordinary treasury Nominal
shares in shares in Total value
issue issue shares £'000
Authorised share capital:
Ordinary shares of 25p each 80,000,000 - 80,000,000 20,000
---------- --------- ---------- ------
At 28 February 2009 48,494,792 1,498,731 49,993,523 12,498
Shares transferred into
treasury (300,000) 300,000 - -
---------- --------- ---------- ------
At 31 August 2009 48,194,792 1,798,731 49,993,523 12,498
---------- --------- ---------- ------
6. Movement in net debt
Six months Six months Year
ended ended ended
31 August 31 August 28 February
2009 2008 2009
£'000 £'000 £'000
(unaudited) (unaudited) (audited)
Reconciliation of net cash flow to movement
in net debt
(Decrease)/increase in cash in the period (2,965) (11) 2,142
Foreign exchange movements (1) 3 45
Amortised debenture stock issue expenses (6) (6) (15)
------ ------ ------
Movement in net debt in the period (2,972) (14) 2,172
Opening net debt (13,535) (15,707) (15,707)
------ ------ ------
Closing net debt (16,507) (15,721) (13,535)
------ ------ ------
7. Distributable status of capital reserves
Under the terms of the Company's Articles of Association, sums standing to the
credit of the capital reserves are distributable only by way of redemption or
purchase of any of the Company's own shares, for so long as the Company carries
on business as an investment company. Company law states that investment
companies may only distribute accumulated "realised" profits.
The Institute of Chartered Accountants in England and Wales in its technical
guidance TECH 01/08, states that profits arising out of a change in fair value
of assets, recognised in accordance with accounting standards, may be
distributed, provided the change recognised 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 in respect of
such securities, currently included within capital reserves, may be regarded as
distributable under company law.
The technical interpretation of the meaning of distributable reserves would, as
a consequence, give rise at 31 August 2009 to capital reserves available for
distribution of approximately £101,981,000 after adjusting for unrealised
capital gains of £8,686,000.
8. Publication of non statutory accounts
The financial information contained in this half yearly financial report does
not constitute statutory accounts as defined in the Companies Act 2006. The
financial information for the six months ended 31 August 2009 and 31 August
2008 has not been audited.
The information for the year ended 28 February 2009 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 237(2) or 237(3) of the Companies
Act 1985.
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 2009 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. 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 2009, 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
For further information please contact:
Jonathan Ruck Keene, Managing Director Investment Companies - 0207 743 2178
Mike Prentis, Fund Manager - 0207 743 2312
Emma Phillips, Media & Communications - 0207 743 2922
BlackRock Investment Management (UK) Limited
or
William Clutterbuck - 0207 379 5151
The Maitland Consultancy
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