BLACKROCK SMALLER COMPANIES TRUST PLC
(Legal Entity Identifier: 549300MS535KC2WH4082)

Information disclosed in accordance with Article 5 Transparency Directive and DTR 4.1

Annual results announcement for the year ended 28 February 2021




PERFORMANCE RECORD

28 February 2021  29 February 2020  Change % 
Performance
Net asset value per share (debt at par value)1,2 1,784.35p  1,572.55p  +13.5 
Net asset value per share (debt at par value, capital only)1,2 1,777.63p  1,548.57p  +14.8 
Net asset value per share (debt at fair value)1,2,3 1,774.71p  1,556.41p  +14.0 
Numis Smaller Companies plus AIM (excluding Investment Companies) Index1 6,350.94  5,159.73  +23.1 
Ordinary share price1 1,698.00p  1,484.00p  +14.4 

   



 
Year ended 
28 February 2021 
Year ended 
29 February 2020 
Change 
Revenue and dividends
Revenue return per share 13.36p  37.13p  -64.0 
Interim/First interim dividend per share 12.80p  12.80p  – 
Final/Second interim dividend per share 20.50p  19.70p  +4.1 
--------------  --------------  -------------- 
Total dividends paid and payable 33.30p  32.50p  +2.5 
========  ========  ======== 
Assets
Total assets less current liabilities (£’000) 960,900  847,423  +13.4 
Equity shareholders’ funds (£’000) 871,296  767,873  +13.5 
Ongoing charges ratio2,4 0.8%  0.7%  +14.3 
Dividend yield2 2.0%  2.2% 
Gearing2 8.9%  5.7% 

1     Without income reinvested.

2     Alternative performance measures, see Glossary contained within the annual report.

3     The basis of calculation for the fair value of the debt is disclosed in note 10 to the financial statements contained within the annual report and the calculation of net asset value per share (debt at fair value) is included in the Glossary contained within the annual report.

4     Ongoing charges ratio calculated as a percentage of average daily net assets and using the management fee and all other operating expenses, excluding finance costs, direct transaction costs, custody transaction charges, VAT recovered, taxation and certain non-recurring items, in accordance with AIC guidelines.

Sources: BlackRock and Datastream.

CHAIRMAN’S STATEMENT

Dear Shareholder

The year ended 28 February 2021 has been a challenging one for companies, investors and all of us as individuals. While your Company has managed its business through this difficult period with reasonable success, we are conscious that the volatile market environment has taken a toll on results. The challenges presented by the ongoing COVID-19 pandemic have generated extraordinary market volatility as investors reacted to short-term fears and longer-term concerns, which have clearly impacted portfolio performance. In light of the scale of the pandemic, its uncertain duration, and the impact on economic activity, this market volatility is not surprising. However, as we move into more stable circumstances, we believe your Manager is well positioned and prepared to take advantage of the investment opportunities that lie ahead. It is against that backdrop that I encourage our shareholders to consider this report with an eye to a more positive future.

PERFORMANCE
In the year under review the Company’s Net Asset Value per share increased by 13.5%1,2,3, underperforming the benchmark, the Numis Smaller Companies plus AIM (excluding Investment Companies) Index, return of 23.1%1, for the first time in fifteen years1. Over the same period your Company’s share price increased by 14.4%1 to 1,698.00p per share compared with the FTSE AIM All-Share Index which rose by 0.8%1, the FTSE 250 Index which rose by 8.2%1 and the FTSE 100 Index which decreased by 1.5%1.

OVERVIEW
The year ended 28 February 2021 saw enormous disruption brought on by the global pandemic, which led to the partial shutdown of many economies across the world for much of the period. The nature and scale of the disruption was unprecedented but the significant fiscal and monetary response was unparalleled and played a vital role in markets rebounding from their March 2020 lows.

Throughout the COVID-19 outbreak, the Board has had to adjust its mode of operation to minimise the risk the virus has posed to the health and wellbeing of those working on the management and administration of the Company. The Board has continued to meet regularly and since March 2020 all meetings have been held by video conference. The Board has also worked closely with the Manager to ensure that the Company’s operations have not been adversely impacted, that BlackRock and key service providers have established business continuity plans and a good level of service has continued to be maintained. Unfortunately, however, the arrangements for last year’s Annual General Meeting were disrupted as a result of COVID-19 related restrictions and, with the current lockdowns in place, this will be appropriate again for the forthcoming Annual General Meeting. The proposed Annual General Meeting arrangements are set out below.

The table below demonstrates your Company’s performance in comparison to its benchmark during the last fifteen years.



Performance to 28 February 2021
1 Year 
change 
%
3 Years 
change 
%
5 Years 
change 
%
10 Years 
change 
%
15 Years 
change 
%
NAV per share1, 2,3 13.5  18.4  79.8  187.5  394.0 
Benchmark1 23.1  11.4  45.3  71.1  74.6 
Share price1 14.4  28.2  96.8  213.3  444.2 
NAV per share2,3 (with income reinvested) 16.1  26.0  97.9  240.0  527.9 
Benchmark (with income reinvested) 24.9  19.4  63.9  119.5  153.7 
Share price3 (with income reinvested) 17.2  36.8  118.4  277.3  615.2 

1     Percentages in sterling terms without income reinvested.
2     Debt at par.
3     Alternative Performance Measures – See Glossary contained within the annual report.

In addition to strong capital returns, the Company has also provided impressive income growth.

The chart on page 7 of the annual report and accounts for the year ended 28 February 2021 illustrates how long-term investors have had an opportunity to build up an attractive annual income from an investment in the Company. Even if the initial dividend yield at the point of purchase has been unremarkable, the strong underlying growth in dividends over the years has resulted in a competitive yield on cost when compared with equity income funds in general.

To illustrate this investment and income success, the chart on page 7 of the annual report shows that £1,000 invested in the Company on 28 February 2006 would have increased in value by 528% in NAV terms to 28 February 2021, whereas £1,000 invested in the median open-ended UK Income Fund would have increased by just 112%. The chart also demonstrates that while the yield on the Company’s shares was much lower at the beginning of the period, over time the Company’s dividend has grown at a much faster rate than open-ended UK income fund competitors. As a result, the yield on the purchase cost of an investment in the Company would now be more than that on the median UK Income Fund.

RETURNS AND DIVIDENDS
The COVID-19 pandemic and associated lockdown measures have wrought havoc on significant sectors of the global economy, impacting dividend yields both in the UK and throughout the world. For the year to 28 February 2021, a substantial portion of companies in the portfolio had reduced or cancelled dividends in response to the impact of the pandemic as well as government restrictions. This resulted in a fall in the Company’s revenue return per share for the year to 28 February 2021 to just 13.36p per share (a 64.0% decrease compared with 37.13p for the previous year). After adjusting to remove special dividends, which fell by 44.5% to £885,000 (£1,595,000 for the year ended 29 February 2020), regular dividend income from portfolio companies decreased by 55.0%.

While the Board is mindful of the importance of financial prudence and has, to date, ensured that dividend payments are covered by portfolio income, it is also aware of the importance of yield to shareholders. This is particularly the case in the current situation where a low interest rate environment is likely to persist for some time and investors are struggling to maintain income levels. The Board is also cognisant of the benefits of the Company’s investment trust structure which enables it to retain up to 15% of total revenue each year to build up reserves which may be carried forward and used to pay dividends during leaner times. The Company has substantial distributable reserves (£804.8 million as at 28 February 2021, including revenue reserves of £15.6 million). Taking note of your Company’s current reserves, the Board has decided to declare a final dividend of 20.50p per share, representing a 2.5% increase over total dividends declared for the year to 29 February 2020. The dividend will be paid on 18 June 2021 to shareholders on the Company’s register as at 21 May 2021. The Board has also taken this decision recognising that many portfolio companies are demonstrating a robust rebound in their dividend paying ability, allowing us to take a more optimistic view of future prospects.

Your Company has now increased its annual dividends every year since 2003. The annualised increase in dividends paid since this date equate to 12.0%.

AMENDMENTS TO INVESTMENT POLICY
The Board, in conjunction with the Manager, has conducted a review of the validity of the AIM limit of 50%. The background context for this review is that, in recent years, many of the Company’s AIM holdings have performed well and this has resulted in an increase in the portfolio’s aggregate exposure to AIM to just under 50% of the portfolio by value. The Board considers that it would be preferable for the Company not to be required to dispose of these AIM stocks solely as a result of circumstances where the performance of these stocks has brought the Company’s total AIM holdings close to the current 50% limit. The Investment Manager believes that tighter regulations applicable to AIM companies over recent years has resulted in higher standards of governance and transparency, such that the quality of AIM-traded companies has improved. The Investment Manager additionally believes that a restriction on the value of AIM traded stocks as a percentage of the Company’s portfolio could restrict the Company’s ability to subscribe to IPOs or placings of AIM companies that are regarded by the Investment Manager as attractive investment propositions for the Company.

The Investment Manager’s investment process involves looking at companies on their own merits. The Board believes that whether such a company is AIM traded or fully listed should be a secondary consideration, and the Company should have access to a full range of investment opportunities. As a result of these factors, the Board considers that the AIM limit should be removed. Consequently, the Board is putting a resolution to the Company’s AGM in June to remove the current investment restriction that the value of AIM-traded stocks as a percentage of the Company’s portfolio should not exceed 50% of the portfolio by value. If approved by shareholders, the removal of this limit will be implemented with effect from the conclusion of the Company’s AGM on 11 June 2021. A number of other non-material amendments have been made to the wording of the investment policy for the purposes of clarification. A blackline version of the amendments with additions and deletions clearly indicated and the material changes highlighted is set out on pages 31 and 32 of the annual report and in the Strategic Report below.

GEARING AND SOURCES OF FINANCE
The Company has traditionally maintained a range of borrowings and facilities to provide balance between longer-term and short-term maturities and between fixed and floating rates of interest. The Company currently has in place fixed rate funding consisting of the £15 million debenture maturing in July 2022, £25 million senior unsecured fixed rate private placement notes maturing in 2037 and £20 million senior unsecured notes maturing in 2044. Variable rate funding consists of a £35 million three-year revolving loan facility with Sumitomo Mitsui Banking Corporation Europe Limited and an uncommitted overdraft facility of £10 million with The Bank of New York Mellon (International) Limited.

It is the Board’s intention that net gearing will not exceed 15% of the net assets of the Company at the time of the drawdown of the relevant borrowings. Under normal operating conditions it is envisaged that gearing will be within a range of 0%-15% of net assets. The Company’s net gearing stands at 7.8% of net assets as at 4 May 2021. At the year end, the Company’s net gearing was 8.9% of net assets (2020: 5.7%).

DISCOUNT
The Board monitors the Company’s share rating closely, and recognises the importance to shareholders that the price of the Company’s shares in the stock market does not trade at either a significant premium or discount to the underlying NAV.

As markets descended into turmoil following the outbreak of COVID-19, discounts across the closed-end funds sector trended wider, and your Company’s average discount also widened, trading at an average discount of 5.5% to NAV (with debt at fair value) over the full year (compared to an average discount of 2.9% for the year to 29 February 2020). To put this in context, the average discount for companies in the AIC UK Smaller Companies sector for the same period was 8.1%. The Company’s discount currently stands at 5.0%.

BOARD COMPOSITION AND IMPLEMENTATION OF POLICY ON TENURE
Mr Robert Robertson, who had served on the Board since April 2008, retired from the Board on 5 November 2020. The Board wishes to thank Mr Robertson for his wise counsel and invaluable contribution to the Company over his tenure as a Director and as Senior Independent Director. Ms Platts-Martin took over the role of Senior Independent Director with effect from 28 July 2020.

I am delighted to welcome Mr Mark Little to the Board as a non-executive Director. Mr Little joined with effect from 1 October 2020 and brings to the Board a wealth of experience in the financial services sector. He began his career as a fund manager with Scottish Widows Investment Management after qualifying as a chartered accountant with Price Waterhouse in 1991. He subsequently worked as Global Head of Automotive Research for Deutsche Bank and joined Barclays Wealth in 2005, where he became Managing Director of Barclays Wealth (Scotland and Northern Ireland). Mr Little also chairs the audit committees of Majedie Investments Plc and Securities Trust of Scotland Plc.

In my 2020 Chairman’s Statement, I highlighted that, mindful of the desirability of a combination of continuity and renewal, the Board had decided to gradually implement a policy of limiting directors’ tenure to nine years. Subject to the constraints of effective succession planning, it is the Board’s aim that no Director will serve on the Board for more than nine years, or twelve years in the case of the Chairman. To ensure an orderly Board refreshment process, the implementation of the new policy on tenure is being phased in over a period of time. Mr Peacock (whose tenure would have exceeded nine years in July 2021) has announced his intention to retire from the Board at the AGM in June 2021 and he will not be seeking re-election. Mr Peacock chairs the Audit Committee and will be replaced in this role by Mr Little.

Mrs Burton’s tenure has exceeded nine years and the Board has requested that she remain for a further year to provide continuity of experience and knowledge while a replacement is recruited. The Board has commenced the recruitment process and a further announcement will be made in due course.

ANNUAL GENERAL MEETING
The AGM will be held at 2:00 p.m. on 11 June 2021 at the offices of BlackRock at 12 Throgmorton Avenue, London EC2N 2DL. At the time of writing, various guidances have been issued by the UK, Scottish and Welsh governments respectively, regarding measures to reduce the transmission of COVID-19 in the UK. These measures are, and will continue to be, subject to periodic amendment and currently impose rules on social distancing and limitations on, among other things, public gatherings. Accordingly, in view of this guidance, the format of the AGM this year will follow the minimum legal requirements for an AGM. Only the formal business set out in the Notice will be considered, with no live presentation by the portfolio manager. In line with this guidance, shareholders are strongly discouraged from attending the meeting and indeed entry will be refused if current UK Government guidance is unchanged. As shareholders will not be able to attend the Annual General Meeting, the Board strongly encourages all shareholders to exercise their votes by completing and returning their proxy forms in accordance with the notes to the Notice of Meeting contained within the annual report. If there are any changes to the arrangements for the Annual General Meeting as a result of changes to government guidance, the Company will update shareholders through the Company’s website and, if appropriate, through an announcement on the London Stock Exchange. The Board would like to thank shareholders for their understanding and co-operation at this difficult time and looks forward to meeting you at some safer stage in future.

The Board is aware that many shareholders look forward to hearing the views of the portfolio manager and may have questions for the portfolio manager and the Board. Accordingly, the Annual General Meeting will be immediately followed by a webinar, to include a presentation from the portfolio manager, followed by a live question and answer session. Shareholders are invited to join the webinar and address any questions they have either by submitting questions during the webinar or in advance by writing to the Company Secretary at the address contained within the annual report or by email to: cosec@blackrock.com. Details on how to register for this event can be found on the Company’s website, or obtained by writing to the Company Secretary.

OUTLOOK
Since the financial year end the Company’s NAV (as at 4 May 2021) has increased by 13.0%1, against an increase in the benchmark of 9.3%1, and the share price has risen by 12.2%1.

The COVID-19 outbreak and its rapid and recurring resurgence has created significant volatility in stock markets around the world. The market falls in March and April 2020 as the crisis developed were savage and indiscriminate, only to be followed by equally dramatic rallies. A year on, COVID-19-driven newsflow continues to dominate markets as optimism over positive news on vaccine rollout is tempered by concerns as new variants emerge and governments struggle with vaccine supply chains and concerns over vaccine effectiveness. This volatility is likely to characterise markets for some time and has created dislocations in company valuations that are not consistent with the long-term fundamentals of the stocks in which we invest; our portfolio management team remain attuned to the investment opportunities that may be presented by these dislocations in pricing.

The portfolio manager’s focus on financially strong businesses with robust balance sheets provides us with confidence that the Company’s portfolio is well placed to weather the storm. The Company’s investment strategy remains focused on quality growth investment opportunities in smaller companies, a style that has demonstrably worked for the long-term, and historically, periods of sudden underperformance, such as this, have proven to be excellent investment opportunities.

If shareholders would like to contact me, please write to BlackRock Smaller Companies Trust plc, Exchange Place One, 1 Semple Street, Edinburgh EH3 8BL marked for the attention of the Chairman.

RONALD GOULD
Chairman
7 May 2021

1     Percentages in sterling terms without income reinvested.

INVESTMENT MANAGER’S REPORT

MARKET REVIEW AND OVERALL INVESTMENT PERFORMANCE

The Company’s financial year has almost perfectly coincided with the arrival of the COVID-19 pandemic in the UK, the first impacts of which were felt in equity markets in February 2020. Since then the pandemic has proved to be the primary driver of investment returns, as well as impacting economies and lives around the world. The outbreak of the virus catalysed one of the most rapid falls in equity markets ever witnessed, as investors attempted to gauge the impact on the economy. Virus case numbers rose and fell in waves throughout the period as countries entered into lockdowns of varying rigour, resulting in a sharp contraction in global economic activity. In response, governments and central banks around the world announced unprecedented levels of fiscal and monetary stimulus. These included both aggressive monetary stimulus measures, including unconventional direct interventions to cover labour costs and ease business expenses in the face of a mandated shutdown.

The second half of our year was characterised by vaccine news and recovery, with many equity markets rebounding from the falls of the first half. Politics were, as expected, a significant market factor with US elections and Brexit negotiations providing a degree of uncertainty. But the pandemic and its ramifications remained the major source of market change. The approval and subsequent deployment of several vaccines gave hope that economic activity would soon return to normal. Equity markets have soared as vaccine progress has provided an encouraging backdrop. With rising markets, value-orientated sectors have led the rally, many of these businesses having been some of the biggest victims of the initial pandemic induced falls. The growth shares that form the core of our portfolio lagged behind in this rebound. For UK domestic investors, December finally delivered positive progress on Brexit, with an agreement on trade terms for goods, removing a significant tail risk from the market.

PERFORMANCE REVIEW
The Company’s NAV per share (debt at par) rose by 13.5% during the financial year, underperforming our benchmark which rose 23.1%. For comparison the large cap FTSE 100 Index fell 1.5% during the period (all percentages stated without income reinvested).

While the Company’s NAV rose over the year, we were clearly disappointed by our results relative to our stated benchmark. This underperformance was concentrated in the first half of the year, with the Company’s return in the second half broadly in-line with the benchmark. Therefore, while positive for the year in absolute terms, we were unable to offset the losses from earlier in the year.

As always, hindsight allows us to see where we could have done better. First, we started the year with too much exposure to the UK domestic economy. Following years of being underweight, we felt that a clear UK election result would finally lift the cloud over the UK by increasing the likelihood of progress with Brexit negotiations. Coupled with what would traditionally be seen as a business-friendly government, we thought this would provide the catalyst for investors to reappraise the attractiveness and the value offered by UK plc. Unfortunately, as the COVID-19 virus began to make its way from China into the rest of the world, these sectors were among the worst impacted by the lockdown restrictions, and several portfolio companies were mandated to suspend operations. Never did we anticipate scenarios in which some of our investment companies would have virtually no revenue at all for significant periods during the year. Sadly, this was where we found ourselves in March and April. Exhibitions business Hyve, for example, saw its share price collapse early in the year, as travel restrictions and lockdown measures resulted in major disruption to a number of the company’s scheduled events during 2020. Since the announcement of the vaccine the shares have made up some lost ground, and we believe there will be further upside potential as more of its events resume. Flexible office space provider Workspace Group faced similar challenges as the business saw a significant slowdown in enquiries and rents received as tenants were no longer allowed to use their contracted space.

We were also too early to take part in some of the COVID-19 related recapitalisations taking place in this period. While we expect these companies to endure the pandemic and emerge stronger than before, we were too early with this call. For example, we took part in placings for SSP and JD Wetherspoon, which continued to struggle throughout the year as lockdown went on longer than initially hoped. Longer-term, we believe that the businesses that we have exposure to in these areas are best in class, with sufficient liquidity to survive the pandemic and emerge stronger than before. Furthermore, given the high levels of uncertainty around the economic outlook, the decision was also taken to reduce the single stock risk by reducing position sizes in some of the largest holdings in the portfolio. However, many of these holdings like Watches of Switzerland, Ergomed, IntegraFin and Pets at Home continued to trade extremely well throughout the pandemic, growing revenues and profits, beating expectations and raising guidance.

Other detractors during the year included defence technology business Qinetiq Group, which fell after it warned that global restrictions to prevent the spread of COVID-19 would negatively impact revenue, although like many businesses earnings expectations for the coming years are now higher than pre-pandemic levels. 4imprint Group, a long-term core holding for the Company, fell after the company reported a 99% fall in profits in the first half as COVID-19 resulted in a collapse in customer demand. This is a business that has been a significant contributor to relative performance over a number of years, having consistently delivered revenue growth through taking share in highly fragmented end markets. While there remain challenges to the business as a result of COVID-19 uncertainties, we remain confident that the company’s leading market position and flexible capital light business model will ensure that the business will emerge from the pandemic in a stronger position relative to peers.

While overall performance was constrained, many of our top 30 holdings delivered impressive results throughout the period. It is encouraging that many of these quality businesses were able to successfully navigate the pandemic, and in many cases thrive. The single largest contributor during the year was pharmaceutical services business Ergomed. The defensive nature of the pharmaceuticals industry meant that Ergomed was less impacted by the effects of the pandemic, and the company upgraded earnings expectations throughout the year. Furthermore, the company expanded into the strategically important US market through the acquisition of MedSource. Shares in cell engineering specialist MaxCyte have been exceptionally strong during the year. The company upgraded guidance throughout the period, despite the challenges brought on by COVID-19, as revenue growth continued to accelerate, reflecting the increasing adoption of the company’s products and technologies. Specialist sustainable investing fund manager, Impax Asset Management ,rose during the year as the business reported continued growth in assets under management, as their high performing strategies continued to benefit from the trend of increasing investor demand for sustainable products. Watches of Switzerland also performed well, as demand for high end watches and jewellery has been far stronger than expected and the relationship with Rolex has proved a point of differentiation in securing access to watches where demand continues to exceed supply.

ACTIVITY
The portfolio is currently comprised of 122 positions, an increase from the half yearly report (31 August 2020: 110 positions) that reflects our decision to reduce single stock risks within the portfolio, but also the number of attractive opportunities that we are seeing in the current environment.

Since the confirmation of the first efficacious vaccine in November the market has been firmly focused on recovery and the beneficiaries of economic reopening. We have been adding to certain names within the portfolio that will benefit from a recovery, but have maintained our focus on quality. We have therefore added to our Oil & Gas and Mining exposure in recent months through purchases in Gulf Keystone Petroleum, Serica Energy and adding to Central Asia Metals and Jadestone Energy. Because we maintain our stringent investment criteria such as balance sheet strength and cash generation, holdings in the resources sector will typically own producing assets.

We have added exposure to domestic earnings and to a recovery from the pandemic through Grafton Group, SSP, Vistry and Morgan Sindall, which should all benefit from UK consumer spending, and the continued strength of the housing market.

Many long-term structural trends have accelerated in response to the COVID-19 pandemic, for instance the shift to online retail, which led to our participation in the IPO of Moonpig. The company has built an enviable position in the UK greeting card market, delivering exceptional growth in the pandemic. A broader product range should drive further growth in 2022.

PORTFOLIO POSITIONING
We have a stock selection driven approach and many of our largest holdings remain unchanged from previous reports. This reflects our belief that they are well managed, differentiated businesses that are exposed to strong long-term secular tailwinds offering many years of attractive growth. YouGov, for example, remains one of our largest holdings given its strong market position and leading analytical tools. The company continues to deliver on its strategy to monetise its online panel data across an increasing array of industries seeking data insights, and we expect demand for data analytics to accelerate.

We are overweight Retail, but not of the traditional sort. Our approach is focused on companies with a strong digital offer, and those enabling the digital transition for others, both areas which we have been drawn to for a long period of time. These businesses have continued to flourish throughout the pandemic, and we expect an acceleration of this trend as corporates invest in their digital capabilities and aim to win market share by adapting to changes in consumer behaviour. Other consumer related holdings include differentiated retailers with strong digital offerings such as Games Workshop, Pets at Home and Watches of Switzerland. On the other hand, we have been more cautious on some of the short-term COVID-19 beneficiaries, which we believe will see a fall in demand as people return to work, for example spreadbetting companies.

We also remain overweight Financial Services with a focus on equities, alternatives, sustainable investing or outsourcing services. Holdings include IntegraFin, Impax Asset Management, Liontrust Asset Management, AJ Bell and Tatton Asset Management.

Having increased our exposure to Resources, we are now broadly benchmark weight in these areas, and we are also overweight Industrials, an ill-defined category that includes a bias towards an aerospace recovery. Our portfolio also includes beneficiaries of increasing fiscal stimulus led investment in the UK: for example Breedon and Grafton.

We have increased our exposure to Travel & Leisure, although we remain underweight as we are cautious on the extent to which recovery has been priced into many of the stocks. This has left many of these businesses trading on peak multiples of historic earnings despite their need for equity over the last year. Our holdings include owners of freehold backed pubs such as Fuller Smith & Turner, City Pub Company, and Youngs, and also holdings in well capitalised leisure companies such as Ten Entertainment, the operator of bowling venues, which we are convinced offers great value on a long-term view.

OUTLOOK
The vaccine rollout programme continues to gather speed and the market is now heavily focused on the ‘reopening trade’ and the pace at which the world can return to some level of normality. With the UK ahead in its vaccine rollout we are cautiously optimistic about the reopening in the UK. However, questions remain over the vaccine rollout elsewhere in the world and the potential for new vaccine resistant "Variants of Concern"; as such there remains potential for market setbacks and sharp spikes in volatility. Strengthening sterling and the steepening yield curve has caused a challenging headwind for many growth companies. We do not believe this will be a long-term issue and we do not see persistent higher levels of inflation ahead.

The Brexit trade deal removes a huge cloud that has been overhanging the UK market for a number of years. The UK market is under-owned and trades at a discount compared with other global markets. With Brexit concerns increasingly behind us, there is real potential for increased flows into UK equities, particularly further down the market cap spectrum into small and medium sized companies.

Many of the structural shifts that have been witnessed through the pandemic have accelerated and could prove to be permanent, while others are less certain. We are focused on differentiated companies with compelling offerings, that are well financed and therefore have the ability to adapt to ongoing changes in consumer behaviour and are able to take market share from weaker peers. The Company’s portfolio contains a number of such companies and we continue to find exciting opportunities within our universe. This is a style that has demonstrably worked over the long-term, and the positive trading updates that we have heard from our companies in recent weeks reassure us that this is the right strategy that will reward our shareholders over the long-term.

ROLAND ARNOLD
BlackRock Investment Management (UK) Limited
7 May 2021

TEN LARGEST INVESTMENTS
as at 28 February 2021

1 WATCHES OF SWITZERLAND
Personal goods
Portfolio value £23,850,000
Percentage of portfolio 2.5%

The UK’s leading luxury watch specialist with a growing US presence. The group is comprised of four prestigious retail brands: Watches of Switzerland, Mappin & Webb, Goldsmiths and Mayors and has been transformed over the last 5 years into a modern, technologically advanced, multi-channel retailer. The group has a showroom network which includes flagships in London, two flagship showrooms in New York, and increasing presence of mono-brand boutiques along with an industry leading e-commerce platform.

2 TREATT
Chemicals
Portfolio value £19,466,000
Percentage of portfolio 2.0%

An ingredients manufacturer and solutions provider to the global flavour, fragrance and consumer goods markets with operations based in the UK, the US and China.

3 YOUGOV
Data analytics
Portfolio value £19,126,000
Percentage of portfolio 2.0%

An international provider of specialist data analytics and marketing information. The company was recently named one of the world’s top 25 research companies.

4 ERGOMED
Pharmaceuticals & Biotechnology
Portfolio value £18,116,000
Percentage of portfolio 1.9%

The company is involved in the provision of specialised services to the pharmaceutical industry and the development of new drugs. Operating with a global footprint in over 65 countries, Ergomed enables its clients to access solutions even for their toughest clinical development and trial management challenges from early phase to complex late stage programmes.

5 STOCK SPIRITS GROUP
Consumer goods
Portfolio value £17,149,000
Percentage of portfolio 1.8%

A British leading owner and producer of branded alcoholic beverages that are principally sold in Poland, the Czech Republic and Italy. The company has a portfolio of more than 70 brands across a broad range of spirits, including vodka, vodka-based flavoured liqueurs, rum, brandy, bitters and limoncello.

6 BREEDON
Construction and materials
Portfolio value £16,586,000
Percentage of portfolio 1.7%

A leading construction materials group in Great Britain and Ireland producing cement, aggregates, asphalt, ready-mixed concrete, specialist concrete and clay products.

7 INTEGRAFIN
Financial Services
Portfolio value £16,163,000
Percentage of portfolio 1.7%

Provider of a leading investment platform, called Transact, to UK financial advisers and their clients. The platform runs off proprietary technology, facilitating the smooth operation of client portfolios.

8 GRAFTON GROUP
Support services
Portfolio value £15,955,000
Percentage of portfolio 1.7%

An international trade focused, multi-channel distributor of construction products. The success of the business is based on the quality of the products it distributes and the quality of the service it provides to its customers. The Group aims to build on its leading market positions in the UK, Ireland and the Netherlands and to grow internationally in distribution and related markets.

9 CALISEN
Financial Services
Portfolio value £15,912,000
Percentage of portfolio 1.7%

A leading smart meter provider. Smart meters help homeowners more efficiently manage their energy consumption, leading to lower bills for customers and lower emissions overall.

10 CVS GROUP
General Retailers
Portfolio value £15,667,000
Percentage of portfolio 1.6%

CVS Group plc is one of the largest integrated veterinary services providers in the UK encompassing four main business areas: veterinary practices, diagnostic laboratories, pet crematoria and e-commerce division.

FIFTY LARGEST INVESTMENTS
as at 28 February 2021



Company


Business activity
Market 
value 
£’000 

% of 
portfolio 
Watches of Switzerland Retailer of luxury watches 23,850  2.5 
Treatt Development and manufacture of ingredients for the flavour and fragrance industry 19,466  2.0 
YouGov Survey data specialist data analytics 19,126  2.0 
Ergomed Provider of pharmaceuticals services 18,116  1.9 
Stock Spirits Group Development and manufacture of branded spirits mainly in Eastern Europe 17,149  1.8 
Breedon Construction materials 16,586  1.7 
IntegraFin Investment platform for financial advisers 16,163  1.7 
Grafton Group Builders merchants in the UK, Ireland and Netherlands 15,955  1.7 
Calisen Leading owner and manager of essential energy infrastructure assets 15,912  1.7 
CVS Group Operator of veterinary surgeries 15,667  1.6 
Central Asia Metals Mining operations in Kazakhstan and Macedonia 14,832  1.6 
Impax Asset Management Asset management 14,718  1.5 
Qinetiq Group British multi-national defence technology company 14,399  1.5 
OSB Group Specialist lending business 14,288  1.5 
Pets at Home Pet supplies retailer 14,036  1.5 
Team 17 British video game developer and publisher 13,437  1.4 
Oxford Instruments Design and manufacture of tools and systems for industry and research 12,717  1.3 
4imprint Group Promotional merchandise in the US 12,154  1.3 
Games Workshop Developer, publisher and manufacturer of miniature war games 12,100  1.3 
DiscoverIE Specialist components for electronics applications 12,022  1.3 
Learning Technologies E-learning services 11,788  1.2 
Robert Walters Recruitment services 11,269  1.2 
Moonpig Internet based provider of personalised cards and gifts 11,128  1.2 
Morgan Sindall Office fit-out, construction and urban regeneration services 10,990  1.2 
Sirius Real Estate Owner and operator of business parks, offices and industrial complexes in Germany 10,570  1.1 
Draper Esprit Technology focused venture capital firm 10,486  1.1 
IG Design Group Design and supply of greetings products 10,123  1.1 
Gamma Communications Provider of communication services to UK businesses 10,024  1.1 
Fuller Smith & Turner – A Shares Owner and operator of pubs in the London area and South East England 9,713  1.0 
Workspace Group Supply of flexible workspace to businesses in London 9,701  1.0 
TT Electronics Global manufacturer of electronic components 9,580  1.0 
Alliance Pharma Pharmaceutical and healthcare products 9,532  1.0 
Liontrust Asset Management Asset management 9,432  1.0 
Sumo Group Creative and development services to the video games and entertainment industries 9,400  1.0 
Bloomsbury Publishing Publisher of fiction and non-fiction 9,370  1.0 
Chemring Group Advanced technology products and services for the aerospace, defence and security markets 9,259  1.0 
Next Fifteen Communications Digital communication products and services 9,250  1.0 
Serco Group Public services across health, transport, immigration, defence, justice and citizen services 9,162  1.0 
XP Power Leading provider of power solutions 9,087  1.0 
The Pebble Group Design and manufacture of promotional goods 9,056  0.9 
Avon Rubber Safety masks 8,424  0.9 
Gulf Keystone Petroleum Operation of oil producing assets in the Kurdistan region of Iraq 8,149  0.9 
RM Educational software company 8,149  0.9 
Jadestone Energy Oil and gas development and production company 8,118  0.9 
Young & Co’s Brewery - A Shares Owner and operator of pubs mainly in the London area 7,907  0.8 
Tatton Asset Management Provider of discretionary fund management services to financial advisors 7,881  0.8 
Hochschild Mining British-based silver and gold mining business operating in North, Central and South America 7,781  0.8 
Joules Clothing retailer inspired by British country lifestyles 7,606  0.8 
MaxCyte Clinical-stage global cell-based therapies and life sciences company 7,582  0.8 
NCC Group Cyber security business 7,495  0.8 
50 largest investments 590,705  62.3 
Remaining investments 357,743  37.7 
-----------------  ----------------- 
Total 948,448  100.0 
==========  ========== 

Details of the full portfolio are available on the Company’s website at blackrock.com/uk/brsc.

PORTFOLIO HOLDINGS IN EXCESS OF 3% OF ISSUED SHARE CAPITAL
At 28 February 2021, the Company did not hold any equity investments comprising more than 3% of any Company’s share capital other than as disclosed in the table below:

Security % of share capital held
Longboat Energy 4.90 
Angling Direct 4.76 
RM 4.65 
Ten Entertainment Group 4.58 
Everyman Media GP 4.48 
Capital Drilling 4.40 
Tatton Asset Management 4.39 
Bloomsbury Publishing 4.20 
The Pebble Group 4.01 
MacFarlane Group 3.87 
Treatt 3.71 
Venture Life Group 3.70 
Joules 3.66 
Central Asia Metals 3.50 
City Pub Group 3.50 
Fuller Smith & Turner - A Shares 3.48 
Vertu Motors Plc 3.32 
Stock Spirits Group 3.25 
Lok'n Store Group 3.04 
Supreme 3.03 

DISTRIBUTION OF INVESTMENTS
as at 28 February 2021

Sector % of portfolio
Oil & Gas Producers 3.6 
========== 
Oil & Gas 3.6 
========== 
Chemicals 2.1 
Mining 3.8 
========== 
Basic Materials 5.9 
========== 
Construction & Materials 4.7 
Aerospace & Defence 3.4 
Electronic & Electrical Equipment 6.2 
General Industrials 0.6 
Industrial Engineering 2.3 
Industrial Transportation 0.5 
Support Services 8.5 
========== 
Industrials 26.2 
========== 
Beverages 1.8 
Household Goods & Home Construction 2.3 
Personal Goods 3.3 
Leisure Goods 3.7 
========== 
Consumer Goods 11.1 
========== 
Health Care Equipment & Services 0.4 
Pharmaceuticals & Biotechnology 4.4 
========== 
Health Care 4.8 
========== 
Food & Drug Retailers 2.5 
General Retailers 6.6 
Media 6.7 
Travel & Leisure 5.5 
========== 
Consumer Services 21.3 
========== 
Mobile Telecommunications 1.1 
========== 
Telecommunications 1.1 
========== 
Financial Services 13.7 
Real Estate Investment & Services 2.9 
Real Estate Investment Trusts 1.6 
========== 
Financials 18.2 
========== 
Software & Computer Services 7.2 
Technology Hardware & Equipment 0.6 
========== 
Technology 7.8 
----------------- 
Total 100.0 
========== 

PORTFOLIO ANALYSIS
as at 28 February 2021

Analysis of portfolio value by sector





Company
%
Benchmark
(Numis Smaller Companies, plus AIM
(ex Investment Companies) Index)
%
Oil & Gas 3.6 4.9
Basic Materials 5.9 6.6
Industrials 26.2 24.9
Consumer Goods 11.1 8.3
Health Care 4.8 6.8
Consumer Services 21.3 16.0
Telecommunications 1.1 3.0
Financials 18.2 19.9
Technology 7.8 8.0
Utilities 0.0 1.6


Sources: BlackRock and Datastream.

INVESTMENT SIZE AS AT 28 FEBRUARY 2021



Number of investments
Market value of investments as % of portfolio
£0m to £1m 3 0.1
£2m to £3m 7 1.9
£3m to £4m 8 3.1
£4m to £5m 16 7.7
£5m to £6m 13 7.4
£6m to £7m 19 12.9
£7m to £8m 12 9.4
£8m to £9m 4 3.6
£9m to £10m 12 11.9
£10m to £11m 5 5.6
£11m to £12m 3 3.6
£12m to £13m 4 5.2
£13m to £14m 1 1.4
£14m to £15m 5 7.6
£15m to £16m 3 5.0
£16m to £17m 2 3.4
£17m to £18m 1 1.8
£18m to £19m 1 1.9
£19m to £20m 2 4.0
£23m to £42m 1 2.5


Source: BlackRock.

MARKET CAPITALISATION OF OUR PORTFOLIO COMPANIES AS AT 28 FEBRUARY 2021

% of portfolio
£0m to £200m 10.6
£200m to £600m 30.8
£600m to £1500m 37.9
£1500m+ 20.7


Source: BlackRock.


STRATEGIC REPORT
The Directors present the Strategic Report of the Company for the year ended 28 February 2021. The aim of the Strategic Report is to provide shareholders with the information to assess how the Directors have performed their duty to promote the success of the Company for the collective benefit of shareholders.

The Chairman’s Statement together with the Investment Manager’s Report and the Directors’ Statement setting out how they promote the success of the Company as set out below and on pages 38 to 44 of the annual report form part of the Strategic Report. The Strategic Report was approved by the Board at its meeting on 7 May 2021.

PRINCIPAL ACTIVITY
The Company is a public company limited by shares and carries on business as an investment trust and its principal activity is portfolio investment. Investment trusts, like unit trusts and OEICs, are pooled investment vehicles which allow exposure to a diversified range of assets through a single investment, thus spreading, although not eliminating investment risk.

INVESTMENT OBJECTIVE
The Company’s prime objective is to achieve long-term capital growth for shareholders through investment mainly in smaller UK quoted companies.

No material change will be made to the Company’s investment objective without shareholder approval.

To achieve its investment objective the Company invests predominantly in UK Smaller Companies which are listed or traded on the London Stock Exchange or on the Alternative Investment Market (AIM), with a limit on the level of AIM investments that may be held within the portfolio of 50% of the portfolio by value. The Company may also invest in securities which are listed overseas but have a secondary UK quotation. Although investments are primarily in companies traded on the London Stock Exchange or AIM, the Investment Manager may also invest in less liquid unquoted securities with the prior approval of the Board. The Manager has adopted a consistent investment process, focusing on good quality growth companies; stock selection is the primary focus, but consideration is also given to sector weightings and underlying themes. Whilst there are no set limits on individual sector exposures against the Company’s benchmark, a schedule of sector weightings is presented at each Board meeting for review. In applying the investment objective, the Investment Manager expects the Company to be substantially fully invested and to borrow as and when appropriate. The Company seeks to achieve an appropriate spread of investment risk by investing in a number of holdings across a range of sectors. The Company may not hold more than 6% of the share capital of any company in which it has an investment. In addition, while the Company may hold shares in other listed investment companies (including investment trusts), the Board has agreed that the Company will not invest more than 15% of its total assets in other UK listed investment companies. The Investment Manager will not deal in derivatives without prior approval of the Board.

PROPOSED AMENDMENTS TO THE INVESTMENT POLICY
For the reasons set out in the Chairman’s Statement above, the Board announced on 15 March 2021 that it was undertaking a review of the AIM threshold of 50%. After consultation with the Company’s largest shareholders, the Board has decided to seek approval from shareholders to remove the AIM limit of 50% of the portfolio by value. The Investment Manager’s approach in determining the optimal exposure to AIM investments is to focus on the merits of the underlying company and to seek value rather than to focus on the exchange on which the holding is listed or traded.

The amended investment policy that shareholders are being asked to approve is set out on pages 31 and 32 of the annual report for the year ended 28 February 2021. Please note, in addition to the removal of the AIM limit, the Company is proposing other, non-material amendments to the wording of the investment policy for the purposes of clarification. In particular, the investment policy has been expanded to clarify that (as previously stated in the investment philosophy section of the strategic report) the general aim is for portfolio holdings not to exceed 3% of the Company’s net assets (excluding cash fund investments held for cash management purposes) at the time of purchase and that no single portfolio holding (excluding holdings in cash fund investments held for cash management purposes) will, on the date such holding is acquired by the Company, exceed 5% of the Company’s net asset value. The amended investment policy that the shareholders are being asked to approve is also set out below.  To assist shareholders with their review the amendment relating to the removal of the AIM limit is in bold. Deleted text has been shown below in square brackets.  Inserted text has been shown as underlined.

“To achieve its investment objective the Company invests predominantly in UK [removed: S]smaller [Removed: C]companies with securities admitted to trading on the Main Market of the London Stock Exchange or [removed: which are listed on the London Stock Exchange or on the Alternative Investment Market] AIM [removed: with a limit on the level of AIM investments that may be held within the portfolio of 50% of the portfolio by value]. The Company may also invest in securities which are listed overseas but have a secondary UK quotation. Although investments are primarily in companies with securities admitted to trading [removed: listed] on recognised stock exchanges or AIM, the Investment Manager may also invest in less liquid unquoted securities with the prior approval of the Board.

The Manager has adopted a consistent investment process, focusing on good quality growth companies that are trading well; stock selection is the primary focus but consideration is also given to sector weightings and underlying themes. Whilst there are no set limits on individual sector exposures against the Company’s benchmark, a schedule of sector weightings is presented at each Board meeting for review. In applying the investment objective, the Investment Manager expects the Company to be fully invested and to borrow as and when appropriate. The Company seeks to achieve an appropriate spread of investment risk by investing in a number of holdings across a range of sectors. The Company may not hold more than 6% of the share capital of any company in which it has an investment. No single portfolio holding (excluding holdings in cash fund investments held for cash management purposes) will, on the date such holding is acquired by the Company, exceed 5% of the Company’s net asset value. Notwithstanding the foregoing, the general aim is that no single portfolio holding (excluding cash fund investments held for cash management purposes) will, on the date such holding is acquired by the Company, exceed 3% of the Company’s net asset value. In addition, while the Company may hold shares in other listed investment companies (including investment trusts) the Board has agreed that the Company will not invest more than 15% of its total assets in other UK listed investment companies. The Investment Manager will not deal in derivatives without the prior approval of the Board.”

The amended investment policy will apply, subject to shareholder approval, with effect from the date of the Company’s AGM on 11 June 2021.

BENCHMARK
Performance is measured against an appropriate benchmark, the Numis Smaller Companies plus AIM (excluding Investment Companies) Index.

GEARING POLICY
It is intended that net gearing will not exceed 15% of the net assets of the Company at the time of the drawdown of the relevant borrowings. Under normal operating conditions it is envisaged that gearing will be within a range of 0%-15% of net assets.

BUSINESS MODEL
The Company’s business model follows that of an externally managed investment trust. Therefore, the Company does not have any employees and outsources its activities to third-party service providers including the Manager, who is the principal service provider. The management of the investment portfolio and the administration of the Company have been contractually delegated to the Manager who in turn (with the permission of the Company) has delegated certain investment management and other ancillary services to the Investment Manager. The Manager, operating under guidelines determined by the Board, has direct responsibility for the decisions relating to the day-to-day running of the Company and is accountable to the Board for the investment, financial and operating performance of the Company. The Company delegates fund accounting services to BlackRock Investment Management (UK) Limited (“BIM (UK)”), which in turn sub-delegates these services to The Bank of New York Mellon (International) Limited (“BNYM”).

Other service providers include the Depositary (also BNYM) and the Registrar, Computershare Investor Services PLC.

The Depositary has sub-delegated the provision of custody services to the Asset Servicing division of BNYM. Details of the contractual terms with the Manager and the Depositary and more details of the sub-delegation arrangements in place governing custody services are set out in the Directors’ Report, contained within the annual report.

INVESTMENT PHILOSOPHY
The Investment Manager seeks to identify companies which it believes have superior long-term growth prospects and the management in place to take advantage of these prospects. This is done through monitoring market newsflow carefully, looking for signs of outperformance, and by working closely with BlackRock’s network of brokers. Initially, if the Investment Manager is sufficiently impressed with a company’s prospects, it will look to take a small position, usually 0.25% to 0.50% of the Company’s net assets, in a new holding. These holdings will be closely monitored, and members of the portfolio management team will meet with management on a regular basis. If these companies continue to prosper and make the most of opportunities, the Investment Manager will gradually add to the portfolio holding. Where initial expectations are disappointed, the holding will be sold. The anticipation is that each holding will develop into a core holding over time; one that meets the Investment Manager’s criteria for high quality growth companies.

Valuation is a key consideration; it is important not to overpay for new holdings. However, investment fundamentals are also important, and the Investment Manager may be prepared to pay what seems like a high price if it believes that long-term growth prospects are very strong. Generally, a company will be held within the portfolio if it meets the criteria for core holdings; in respect of recent investments, the Investment Manager will consider whether they have the potential to meet these criteria. Holdings will be sold if there are concerns that the investment case has changed in a negative way. Holdings will be reduced where the position size becomes too large and raises concerns about risk and diversification. The general aim is for portfolio holdings not to exceed 3% of the Company’s net assets (excluding cash fund investments held for cash management purposes). As the investments within the portfolio become larger over time, the Portfolio Manager will continue to assess growth prospects in comparison to smaller businesses operating within similar markets. New holdings must have a market cap beneath £2 billion, however holdings that move above that level will be maintained providing the investment adheres to the original thesis and remains the most attractive opportunity that can be found amongst a comparable peer group. In accordance with the guidelines, the Portfolio Manager will sell any stock that enters the FTSE 100 Index within thirty days of entry.

The Investment Manager believes that consistent outperformance can be achieved by employing a combination of bottom-up and top-down analysis, based upon strong fundamental research.

In building a robust portfolio the Investment Manager will also consider the macro-economic background, working with strategists, economists and other teams internally and externally to understand this better. It also works closely with BlackRock’s risk team to assess the risks in the structure of the portfolio. Any necessary adjustments will be made to the portfolio to ensure that it is structured in an appropriate way from a macro and risk point of view.

PORTFOLIO ANALYSIS
A detailed analysis of the portfolio has been provided above.

PERFORMANCE
Details of the Company’s performance including the dividend are set out in the Chairman’s Statement above. The Chairman’s Statement and the Investment Manager’s Report form part of this Strategic Report and include a review of the main developments during the year, together with information on investment activity within the Company’s portfolio.

RESULTS AND DIVIDENDS
The results for the Company are set out in the Income Statement in the Financial Statements. The total net profit for the year, after taxation, was £119,293,000 (2020: £93,080,000) of which the revenue return amounted to £6,526,000 (2020: £17,837,000), and the capital profit amounted to £112,767,000 (2020: £75,243,000).

The Company’s revenue return amounted to 13.36p per share (2020: 37.13p). The Directors have declared a final dividend of 20.50p per share as set out in the Chairman’s Statement above.

FUTURE PROSPECTS
The Board’s main focus is to achieve long-term capital growth. The future performance of the Company is dependent upon the success of the investment strategy and, to a large extent, on the performance of financial markets. The outlook for the Company in the next twelve months is discussed in the Chairman’s Statement and the Investment Manager’s Report above.

SOCIAL, COMMUNITY AND HUMAN RIGHTS ISSUES
As an investment trust, the Company has no direct social or community responsibilities. However, the Directors believe that it is in shareholders’ interests to consider human rights issues, environmental, social and governance matters when selecting and retaining investments. Details of the Company’s policy on socially responsible investment are set out in the annual report.

MODERN SLAVERY ACT
As an investment vehicle the Company does not provide goods or services in the normal course of business, and does not have customers. Accordingly, the Directors consider that the Company is not required to make any slavery or human trafficking statement under the Modern Slavery Act 2015. In any event, the Board considers the Company’s supply chain, dealing predominantly with professional advisers and service providers in the financial services industry, to be low risk in relation to this matter.

DIRECTORS, GENDER REPRESENTATION AND EMPLOYEES
The Directors of the Company on 28 February 2021 are set out in the Directors’ biographies contained within the annual report. With effect from 5 November 2020, the Board consists of three male Directors and two female Directors. The Company’s policy on diversity is set out in the annual report. The Company does not have any executive employees.

Additionally, the Board regularly reviews many indices and ratios to understand the impact on the Company’s relative performance of the various components such as asset allocation and stock selection. The Board also reviews the performance and ongoing charges of the Company against a peer group of UK smaller companies trusts and open-ended funds.

KEY PERFORMANCE INDICATORS
At each Board meeting, the Directors consider a number of performance measures to assess the Company’s success in achieving its objectives. The key performance indicators (KPIs) used to measure the progress and performance of the Company over time and which are comparable to those reported by other investment trusts are set out below. As indicated in footnote 2 to the table, some of these KPIs fall within the definition of ‘Alternative Performance Measures’ (APMs) under guidance issued by the European Securities and Markets Authority (ESMA) and additional information explaining how these are calculated is set out in the Glossary contained within the annual report.


Key Performance Indicators
Year ended 
28 February 2021 
Year ended 
29 February 2020 
NAV per share (debt at par value)1,2 13.5%  11.7% 
NAV per share (debt at fair value)1,2 14.0%  11.1% 
NAV per share (debt at par value, capital only)1,2 14.8%  11.7% 
NAV per share total return performance (debt at fair value)2 16.7%  13.5% 
Share price1,2 14.4%  11.6% 
Benchmark return1 23.1%  -1.4% 
Average discount to NAV with debt at fair value2 5.5%  2.9% 
Revenue return per share 13.36p  37.13p 
Ongoing charges ratio2,3 0.8%  0.7% 
Retail ownership 65.3%  64.9% 

1     Without income reinvested.
2     Alternative performance measures, see Glossary contained within the annual report.
3    Calculated as a percentage of average daily net assets and using the management fee and all other operating expenses, excluding finance costs, direct transaction costs, custody transaction charges, VAT recovered, taxation and certain nonrecurring items in accordance with AIC guidelines.

Sources: BlackRock and Datastream.

PRINCIPAL RISKS
The Company is exposed to a variety of risks and uncertainties. As required by the UK Code, the Board has in place a robust ongoing process to identify, assess and monitor the principal risks and emerging risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity. A core element of this process is the Company’s risk register which identifies the risks facing the Company and assesses the likelihood and potential impact of each risk and the quality of the controls operating to mitigate it. A residual risk rating is then calculated for each risk based on the outcome of the assessment.

The risk register, its method of preparation and the operation of key controls in BlackRock’s and third-party service providers’ systems of internal control are reviewed on a regular basis by the Audit Committee. In order to gain a more comprehensive understanding of BlackRock’s and other third-party service providers’ risk management processes and how these apply to the Company’s business, BlackRock’s internal audit department provides an annual presentation to the Audit Committee Chairman setting out the results of testing performed in relation to BlackRock’s internal control processes. The Audit Committee also periodically receives presentations from BlackRock’s Risk and Quantitative Analysis team and reviews Service Organisation Control (SOC 1) reports from the Company’s service providers. The current risk register categorises the Company’s main areas of risk as follows:

  • Investment performance risk;
  • Market risk;
  • Income/dividend risk;
  • Legal & compliance risk;
  • Operational risk;
  • Financial risk; and
  • Marketing risk.

The Board has undertaken a robust assessment of both the principal and emerging risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity. Over the course of 2020 and through into 2021, the COVID-19 pandemic has given rise to unprecedented challenges for businesses across the globe and the Board has taken into consideration the risks posed to the Company by the crisis and incorporated these into the Company’s risk register. The risks identified by the Board have been described in the table that follows, together with an explanation of how they are managed and mitigated. Emerging risks are considered by the Board as they come into view and are incorporated into the existing review of the Company’s risk register. They were also considered as part of the annual evaluation process.

Additionally, the Manager considers emerging risks in numerous forums and the Risk and Quantitative Analysis team produces an annual risk survey. Any material risks of relevance to the Company identified through the annual risk survey will be communicated to the Board.

The Board will continue to assess these risks on an ongoing basis. In relation to the UK Code, the Board is confident that the procedures that the Company has put in place are sufficient to ensure that the necessary monitoring of risks and controls has been carried out throughout the reporting period.

Principal risk Mitigation/Control
Investment performance
Returns achieved are reliant primarily upon the performance of the portfolio.
The Board is responsible for:
  • deciding the investment strategy to fulfil the Company’s objective; and
  • monitoring the performance of the Investment Manager and the implementation of the investment strategy.
An inappropriate investment strategy may lead to:
  • poor performance compared to the Benchmark Index and the Company’s peer group;
  • a loss of capital; and
  • dissatisfied shareholders.

To manage this risk the Board:
  • regularly reviews the Company’s investment mandate and long-term strategy;
  • has set investment restrictions and guidelines which the Investment Manager monitors and regularly reports on;
  • receives from the Investment Manager a regular explanation of stock selection decisions, portfolio exposure, gearing and any changes in gearing and the rationale for the composition of the investment portfolio;
  • monitors the maintenance of an adequate spread of investments in order to minimise the risks associated with factors specific to particular sectors, based on the diversification requirements inherent in the investment policy; and
  • receives reports showing the Company’s performance against the benchmark.
Market risk
Market risk arises from volatility in the prices of the Company’s investments influenced by currency, interest rate or other price movements. It represents the potential loss the Company might suffer through holding market positions in financial instruments in the face of market movements.

Market risk includes the potential impact of events which are outside the Company’s control, such as the COVID-19 pandemic.

The Board considers asset allocation, stock selection and levels of gearing on a regular basis and has set investment restrictions and guidelines which are monitored and reported on by the Investment Manager.

The Board monitors the implementation and results of the investment process with the Investment Manager.

The Board also recognises the benefits of a closed end fund structure in extremely volatile markets such as those experienced as a consequence of the COVID-19 pandemic. Unlike open ended counterparts, closed end funds are not obliged to sell down portfolio holdings at low valuations to meet liquidity requirements for redemptions. During times of elevated volatility and market stress, the ability of a closed end fund structure to remain invested for the long-term enables the portfolio manager to adhere to disciplined fundamental analysis from a bottom-up perspective and be ready to respond to dislocations in the market as opportunities present themselves.
 
Income/dividend risk
The amount of dividends and future dividend growth will depend on the performance of the Company’s underlying portfolio and may be impacted by events which are outside the Company’s control, such as the COVID-19 pandemic. In addition, 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 Board meeting.

The Company has substantial revenue reserves which can be utilised and also has the ability to make distributions by way of dividends from capital reserves if required.
Legal & Compliance risk
The Company has been approved by HM Revenue & Customs as an investment trust, subject to continuing to meet the relevant eligibility conditions and operates as an investment trust in accordance with Chapter 4 of Part 24 of the Corporation Tax Act 2010. As such, the Company is exempt from capital gains tax on the profits realised from the sale of its investments.

Any breach of the relevant eligibility conditions could lead to the Company losing investment trust status and being subject to corporation tax on capital gains realised within the Company’s portfolio. In such event the investment returns of the Company may be adversely affected.

Any serious breach could result in the Company and/or the Directors being fined or the subject of criminal proceedings or the suspension of the Company’s shares which would in turn lead to a breach of the Corporation Tax Act 2010.

Amongst other relevant laws and regulations, the Company is required to comply with the provisions of the Companies Act 2006, the Alternative Investment Fund Managers’ Directive, the UK Listing Rules and Disclosure Guidance and Transparency Rules and the Market Abuse Regulation.
 

The Investment Manager monitors investment movements and the amount of proposed dividends to ensure that the provisions of Chapter 4 of Part 24 of the Corporation Tax Act 2010 are not breached. The results are reported to the Board at each meeting.

Compliance with the accounting rules affecting investment trusts is also carefully and regularly monitored.

The Company Secretary and the Company’s professional advisers provide regular reports to the Board in respect of compliance with all applicable rules and regulations.
Operational risk
In common with most other investment trust companies, the Company has no employees. The Company therefore relies on the services provided by third parties. Accordingly, it is dependent on the control systems of the Manager, the Depositary and the Fund Accountant who maintain the Company’s assets, dealing procedures and accounting records.

The security of the Company’s assets, dealing procedures, accounting records and adherence to regulatory and legal requirements and the prevention of fraud depend on the effective operation of the systems of these other third-party service providers. There is a risk that a major disaster, such as floods, fire, a global pandemic, or terrorist activity, renders the Company’s service providers unable to conduct business at normal operating capacity and effectiveness.

Failure by any service provider to carry out its obligations to the Company could have a material adverse effect on the Company’s performance. Disruption to the accounting, payment systems or custody records could prevent the accurate reporting and monitoring of the Company’s financial position.

Due diligence is undertaken before contracts are entered into with third party service providers. Thereafter, the performance of the provider is subject to regular review and reported to the Board.

The Board reviews on a regular basis an assessment of the fraud risks that the Company could potentially be exposed to, and also a summary of the controls put in place by the Manager, the Depositary, the Custodian, the Fund Accountant and the Registrar designed specifically to mitigate these risks.
Most third-party service providers produce Service Organisation Control (SOC 1) reports to provide assurance regarding the effective operation of internal controls as reported on by their reporting accountants. These reports are provided to the Audit Committee.

The Company’s assets are subject to a strict liability regime and in the event of a loss of financial assets held in custody, the Depositary must return assets of an identical type or the corresponding amount, unless able to demonstrate the loss was a result of an event beyond its reasonable control.

The Board reviews the overall performance of the Manager, Investment Manager and all other third-party service providers and compliance with the Investment Management Agreement on a regular basis.

The Board also considers the business continuity arrangements of the Company’s key service providers on an ongoing basis and reviews these as part of their review of the Company’s risk register. In respect of the unprecedented risks posed by the COVID-19 pandemic in terms of the ability of service providers to function effectively, the Board has received reports from key service providers (the Manager, the Depositary, the Custodian, the Fund Administrator, the Broker, the Registrar and the printers) setting out the measures that they have put in place to address the crisis in addition to their existing business continuity framework. Having considered these arrangements and reviewed service levels since the crisis has evolved, the Board is confident that a good level of service will continue to be maintained.
 
Financial risk
The Company’s investment activities expose it to a variety of financial risks that include interest rate, credit and liquidity risk.

Details of these risks are disclosed in note 17 to the financial statements contained within the annual report, together with a summary of the policies for managing these risks.
 
Marketing risk
Marketing efforts are inadequate, do not comply with relevant regulatory requirements, and fail to communicate adequately with shareholders or reach out to potential new shareholders resulting in reduced demand for the Company’s shares and a widening discount.
 

The Board focuses significant time on communications with shareholders and reviewing marketing strategy and initiatives. All investment trust marketing documents are subject to appropriate review and authorisation.

VIABILITY STATEMENT
In accordance with provision 31 of the 2018 UK Corporate Governance Code, the Directors have assessed the prospects of the Company over a longer period than the 12 months referred to by the ‘Going Concern’ guidelines.

The Board is cognisant of the uncertainty surrounding the potential duration of the COVID-19 pandemic, its impact on the global economy and the prospects for many of the Company’s portfolio holdings. Notwithstanding this crisis, and given the factors stated below, the Board expects the Company to continue for the foreseeable future and has therefore conducted this review for the period up to the AGM in 2026 being a five-year period from the date that this Annual Report will be approved by shareholders. This assessment term has been chosen as it represents a medium-term performance period over which investors in the smaller companies’ sector generally refer to when making investment decisions.

In making this assessment the Board has considered the following factors:

  • The Company’s principal risks as set out above;
  • The impact of a significant fall in UK equity markets on the value of the Company’s investment portfolio, factoring in the impact of recent market volatility related to the COVID-19 pandemic;
  • The potential impact of the COVID-19 pandemic on the ability of portfolio companies to pay dividends, and the consequent impact on the Company’s portfolio yield and ability to pay dividends;
  • The ongoing relevance of the Company’s investment objective in the current environment; and
  • The level of demand for the Company’s ordinary shares.

The Board has also considered a number of financial metrics and other factors, including:

  • The Board has reviewed portfolio liquidity as at 28 February 2021 in light of the impact of the COVID-19 pandemic on global market liquidity;
  • The Board has reviewed the Company’s revenue and expense forecasts in light of the COVID-19 pandemic and its anticipated impact on dividend income and market valuations. The Board is confident that the Company’s business model remains viable and that the Company has sufficient resources to meet all liabilities as they fall due for the period under review;
  • The Board has reviewed the Company’s borrowing and debt facilities and considers that the Company continues to meet its financial covenants in respect of these facilities and has a wide margin before any relevant thresholds are reached;
  • The Board keeps the Company’s principal risks and uncertainties as set out above under review, and is confident that the Company has appropriate controls and processes in place to manage these and to maintain its operating model, even given the challenges posed by COVID-19;
  • The operational resilience of the Company and its key service providers (the Manager, Depositary, Custodian, Fund Administrator, Registrar and Broker) and their ability to continue to provide a good level of service for the foreseeable future;
  • The effectiveness of business continuity plans in place for the Company and key service providers in particular in respect to COVID-19;
  • The level of current and historic ongoing charges incurred by the Company;
  • The discount to NAV;
  • The level of income generated by the Company; and
  • Future income forecasts.

The Company is an investment company with a relatively liquid portfolio. As at 28 February 2021, the Company held no illiquid unquoted investments and 58% of the Company’s portfolio investments were readily realisable and listed on the London Stock Exchange. The remaining 42% that were listed on the Alternative Investment Market are also considered to be readily realisable. The Company has largely fixed overheads which comprise a very small percentage of net assets. Therefore, the Board has concluded that, even in exceptionally stressed operating conditions, including the challenges presented by the COVID-19 pandemic, the Company would comfortably be able to meet its ongoing operating costs as they fall due.

Based on the results of their analysis, the Directors have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment.

SECTION 172 STATEMENT: PROMOTING THE SUCCESS OF THE COMPANY
New regulations (The Companies (Miscellaneous Reporting) Regulations 2018) require directors to explain in greater detail how they have discharged their duties under Section 172(1) of the Companies Act 2006 in promoting the success of their companies for the benefit of members as a whole. This enhanced disclosure is required under the Companies Act 2006 and the AIC Code of Corporate Governance and covers how the Board has engaged with and understands the views of stakeholders and how stakeholders’ needs have been taken into account, the outcome of this engagement and the impact that it has had on the Board’s decisions.

As the Company is an externally managed investment company and does not have any employees or customers, the Board considers the main stakeholders in the Company to be the shareholders, key service providers (being the Manager and Investment Manager, the Custodian, Depositary, Registrar and Broker) and investee companies. The reasons for this determination, and the Board’s overarching approach to engagement, are set out in the table below.

Stakeholders
Shareholders Manager and Investment Manager Other key service providers Investee companies
Continued shareholder support and engagement are critical to the continued existence of the Company and the successful delivery of its long-term strategy. The Board is focused on fostering good working relationships with shareholders and on understanding the views of shareholders in order to incorporate them into the Board’s strategy and objectives in delivering long- term growth and income. The Board’s main working relationship is with the Manager, who is responsible for the Company’s portfolio management (including asset allocation, stock and sector selection) and risk management, as well as ancillary functions such as administration, secretarial, accounting and marketing services. The Manager has sub-delegated portfolio management to the Investment Manager. Successful management of shareholders’ assets by the Investment Manager is critical for the Company to successfully deliver its investment strategy and meet its objective. The Company is also reliant on the Manager as AIFM to provide support in meeting relevant regulatory obligations under the AIFMD and other relevant legislation. In order for the Company to function as an investment trust with a listing on the premium segment of the official list of the FCA and trade on the London Stock Exchange’s (LSE) main market for listed securities, the Board relies on a diverse range of advisors for support in meeting relevant obligations and safeguarding the Company’s assets. For this reason, the Board considers the Company’s Custodian, Depositary, Registrar and Broker to be stakeholders. The Board maintains regular contact with its key external service providers and receives regular reporting from them through the Board and committee meetings, as well as outside of the regular meeting cycle. Portfolio holdings are ultimately shareholders’ assets, and the Board recognises the importance of good stewardship and communication with investee companies in meeting the Company’s investment objective and strategy. The Board monitors the Manager’s stewardship arrangements and receives regular feedback from the Manager in respect of meetings with the management of portfolio companies.

A summary of the key areas of engagement undertaken by the Board with its key stakeholders in the year under review and how Directors have acted upon this to promote the long-term success of the Company are set out in the table below.

Area of Engagement Issue Engagement Impact
Management of share rating The Board recognises that it is in the long-term interests of shareholders that shares do not trade at a significant discount or premium to their prevailing net asset value. The Board monitors the Company’s share rating on an ongoing basis and receives regular updates from the Company’s brokers and Manager regarding the level of discount and the drivers behind this. The Manager provides regular performance updates and detailed performance attribution.
The Board believes that the best way of maintaining the share rating at an optimal level over the long- term is to create demand for the shares in the secondary market. To this end the Investment Manager is devoting considerable effort to broadening the awareness of the Company, particularly to wealth managers and to the wider retail shareholder market.

The Company contributes to a focused investment trust sales and marketing initiative operated by BlackRock on behalf of the investment trusts under its management. The Company’s contribution to the consortium element of the initiative, which enables the trusts to achieve efficiencies by combining certain sales and marketing activities was a fixed amount of £73,800 and this contribution is matched by the Investment Manager for the year ended 31 December 2020. In addition, a budget of £86,000 was allocated for Company specific sales and marketing activity also for the year to 31 December 2020. The purpose of the programme overall is to ensure effective communication with existing shareholders and to attract new shareholders to the Company to improve liquidity in the Company’s shares and to sustain the stock market rating of the Company.
 
Over the last four years, the Company’s discount has narrowed steadily, from an average discount of 15.4% for the year to 28 February 2017 to 5.5% for the year ended 28 February 2021. As at 4 May 2021 the Company’s shares were trading at a discount of 5.0% to the cum income NAV (with debt at fair value).

Over the last ten years, the number of shares held by retail shareholders has increased from 29.5% (as at 28 February 2011) to 65.3% at 28 February 2021.
Investment mandate and objective The Board has the responsibility to shareholders to ensure that the Company’s portfolio of assets is invested in line with the stated investment objective and in a way that ensures an appropriate balance between spread of risk and portfolio returns. The Board works closely with the Investment Manager throughout the year in further developing our investment strategy and underlying policies, not simply for the purpose of achieving the Company’s investment objective but in the interests of shareholders and future investors.

The Board worked with the Manager to review the Company’s limits on investing in AIM-traded securities. This review was driven by the fact that, in recent years, some of the Company’s AIM holdings had performed well and this resulted in an increase in the portfolio’s aggregate exposure to AIM to just under 50% of the portfolio by value. Had no action been taken, the Company would be required to dispose of these AIM stocks solely as a result of circumstances where the performance of these stocks has brought the Company’s total AIM holdings close to the current 50% limit. This limit could also restrict the Company’s ability to subscribe to IPOs or placings of AIM companies that are regarded as attractive investment propositions by the Investment Manager.
 
The portfolio activities undertaken by the Investment Manager can be found in the Investment Manager's Report above.

Details regarding the Company’s NAV and share price performance can be found in the Chairman’s Statement above and in the Strategic Report contained within the annual report.

A shareholder consultation was undertaken in March 2021, in respect of the removal of the AIM limit, and as a result of feedback received, a resolution will be put forward to the Company’s AGM on 11 June 2021 seeking shareholder approval to remove the AIM limit.

A blackline version of the amendments being proposed to the investment policy with additions and deletions clearly indicated and the material changes highlighted is set out on pages 31 and 32 of the annual report.
Responsible investing More than ever, good governance and consideration of sustainable investment is a key factor in making investment decisions. Climate change is becoming a defining factor in companies’ long-term prospects across the investment spectrum, with significant and lasting implications for economic growth and prosperity. The Board believes that responsible investment and sustainability are integral to the longer-term delivery of the Company’s success. The Board works closely with the Investment Manager to regularly review the Company’s performance, investment strategy and underlying policies to ensure that the Company’s investment objective continues to be met in an effective, responsible and sustainable way in the interests of shareholders and future investors.

The Investment Manager’s approach to the consideration of Environmental, Social and Governance (‘ESG’) factors in respect of the Company’s portfolio, as well as the Investment Manager’s engagement with investee companies to encourage the adoption of sustainable business practices which support long-term value creation are kept under review by the Board. The Investment Manager reports to the Board in respect of its ESG policies and how these are integrated into the investment process; a summary of BlackRock’s approach to ESG and sustainability is set out in the annual report. The Investment Manager’s engagement and voting policy is detailed in the annual report and on the BlackRock website.
 
The Board and the Investment Manager believe there is a positive correlation between strong ESG practices and investment performance. Details of the Company’s performance in the year are given in the Chairman’s Statement above and the Performance Record contained within the annual report.
Gearing and sources of finance The Board believes that it is important for the Company to have an appropriate range of borrowings and facilities in place to provide a balance between longer-term and short-term maturities and between fixed and floating rates of interest. Gearing levels and sources of funding are reviewed regularly by the Board with a view to ensuring that the Company has a suitable mix of financing at competitive market rates.

As at 28 February 2021, the Company had the following borrowing facilities in place: long- term fixed rate funding in the form of a £15 million debenture with a coupon of 7.75% maturing in 2022, £25 million senior unsecured fixed rate private placement notes issued in May 2017 at a coupon of 2.74% with a 20 year maturity and £20 million senior unsecured fixed rate private placement notes issued in December 2019 at a coupon of 2.41% with a 25 year maturity. Shorter-term variable rate funding consisted of a £35 million three-year revolving loan facility with Sumitomo Mitsui Banking Corporation Europe Limited with interest charged at Libor plus 75 basis points and an uncommitted overdraft facility of £10 million with The Bank of New York Mellon (International) Limited with interest charged at Libor plus 100 basis points.

It is the Board’s intention that gearing will not exceed 15% of the net assets of the Company at the time of the drawdown of the relevant borrowings. Under normal operating conditions it is envisaged that gearing will be within a range of 0%-15% of net assets.
 
The Board has been proactive over the last few years in putting in place structural fixed gearing with the issue of the £20 million private placement notes in December 2019 to lock in fixed rate, long dated, sterling denominated financing at a highly competitive pricing level.

For the year to 28 February 2021, it is estimated that gearing contributed 0.2% to the NAV per share performance.

At the year end, the Company’s gearing was 8.9% of net assets.
Service levels of third party providers The Board acknowledges the importance of ensuring that the Company’s principal suppliers are providing a suitable level of service: including the Manager in respect of investment performance and delivering on the Company’s investment mandate; the Custodian and Depositary in respect of their duties towards safeguarding the Company’s assets; the Registrar in its maintenance of the Company’s share register and dealing with investor queries and the Company’s Brokers in respect of the provision of advice and acting as a market maker for the Company’s shares. The Manager reports to the Board on the Company’s performance on a regular basis. The Board carries out a robust annual evaluation of the Manager’s performance, their commitment and available resources.

The Board performs an annual review of the service levels of all third-party service providers and concludes on their suitability to continue in their role.
The Board receives regular updates from the AIFM, Depositary, Registrar and Brokers on an ongoing basis.

The COVID-19 pandemic has posed significant challenges to the operation of businesses across the globe, the Board has worked closely with the Manager to gain comfort that relevant business continuity plans are operating effectively for all of the Company’s service providers as the COVID-19 pandemic persists.
 
All performance evaluations were performed on a timely basis and the Board concluded that all third-party service providers, including the Manager were operating effectively and providing a good level of service.

The Board has received updates in respect of business continuity planning from the Company’s Manager, Custodian, Depositary, Fund Administrator, Brokers, Registrar and printers, and is confident that arrangements are in place to ensure that a good level of service will continue to be provided despite the impact of the COVID-19 pandemic.
Board composition The Board is committed to ensuring that its own composition brings an appropriate balance of knowledge, experience and skills, and that it is compliant with best corporate governance practice under the new UK Code, including guidance on tenure and the composition of the Board’s committees. During the 2020 financial year Mr Robertson advised of his desire to retire at the 2020 AGM, creating the need to appoint a new director and Senior Independent Director.

The Nomination Committee agreed the selection criteria and the method of selection, recruitment and appointment. Board diversity, including gender, was taken into account when establishing the criteria. The services of an external search consultant were used to identify potential candidates.

All Directors are subject to a formal evaluation process on an annual basis (more details and the conclusions in respect of the 2021 evaluation process are given in the annual report). All Directors stand for re-election by shareholders annually.

Notwithstanding the issues posed by the COVID-19 pandemic, in normal operating conditions, shareholders may attend the AGM and raise any queries in respect of Board composition or individual Directors in person, or may contact the Company Secretary or the Chairman using the details provided within the annual report with any issues.
As a result of the recruitment process, Mr Little was appointed as a Director of the Company with effect from 1 October 2020. Mr Robertson retired as Senior Independent Director on 28 July 2020, with Ms Platts-Martin taking over the role of Senior Independent Director with effect from this date. Mr Robertson subsequently retired as a Director of the Company on 5 November 2020.

Two Board Directors have tenure close to or in excess of nine years at the date of this report. Mrs Burton, has served for nine years and ten months, and Mr Peacock has served for eight years and ten months. Mr Peacock has given notice of his intention to retire at the Company’s AGM on 11 June 2021 and he will not be seeking re-election. He will be replaced as Audit Committee Chairman by Mr Little.

The Board announced in June 2020 that it would implement, over time, a policy of limiting directors’ tenure to nine years. Subject to the constraints of effective succession planning, it is the Board’s aim that no Director will serve on the Board for more than nine years (or twelve years in the case of the Chairman).

In setting this policy, the Board was mindful that several Board members had exceeded or were close to exceeding the proposed nine year limit, and therefore to ensure an orderly Board refreshment process, the implementation of the new policy on tenure is being phased in over a period of time. For this reason Mrs Burton has agreed to remain on the Board for a further year to provide continuity of leadership while a replacement is found. The recruitment process is underway and it is envisaged that Mrs Burton will retire in due course.

Details of each Directors’ contribution to the success and promotion of the Company are set out in the Directors’ report contained within the annual report and details of Directors’ biographies can be found in the annual report.

The Directors are not aware of any issues that have been raised directly by shareholders in respect of Board composition in the year under review. Details for the proxy voting results in favour and against individual Directors’ re-election at the 2020 AGM are given on the Company’s website at blackrock.com/uk/brsc.
 
Shareholders Continued shareholder support and engagement are critical to the continued existence of the Company and the successful delivery of its long-term strategy. The Board is committed to maintaining open channels of communication and to engage with shareholders. Under normal operating circumstances, the Board welcomes and encourages attendance and participation from shareholders at its Annual General Meetings. Given the COVID-19 crisis and restrictions on public meetings, this may not be possible for the 2021 AGM, however the Board looks forward to offering opportunities for shareholders to meet the portfolio manager and the Board at some safer stage in the future. If shareholders wish to raise issues or concerns with the Board outside of the AGM, they are welcome to do so at any time. The Chairman is available to meet directly with shareholders periodically to understand their views on governance and the Company’s performance where they wish to do so. He may be contacted via the Company Secretary whose details are given in the annual report.

The Annual Report and Half Yearly Financial Report are available on the Company’s website and are also circulated to shareholders either in printed copy or via electronic communications. In addition, regular updates on performance, monthly factsheets, the daily NAV and other information are also published on the website at blackrock.com/uk/brsc.

The Board also works closely with the Manager to develop the Company’s marketing strategy, with the aim of ensuring effective communication with shareholders in respect of the investment mandate and objective. Unlike trading companies, one-to-one shareholder meetings usually take the form of a meeting with the portfolio manager as opposed to members of the Board. As well as attending regular investor meetings the portfolio managers hold regular discussions with wealth management desks and offices to build on the case for, and understanding of, long-term investment opportunities in the UK smaller companies sector.

The Manager also coordinates public relations activity, including meetings between the portfolio managers and shareholders and potential investors to set out their vision for the portfolio strategy and outlook for the region. As social distancing restrictions were implemented during the COVID-19 pandemic, the Company held a number of webcasts and virtual conferences as well as meeting with investors by videoconference.

The Manager releases monthly portfolio updates to the market to ensure that investors are kept up to date in respect of performance and other portfolio developments, and maintains a website on behalf of the Company that contains relevant information in respect of the Company’s investment mandate and objective.
The Board values any feedback and questions from shareholders ahead of and during Annual General Meetings in order to gain an understanding of their views and will take action when and as appropriate. Feedback and questions will also help the Company evolve its reporting, aiming to make reports more transparent and understandable.

Feedback from all substantive meetings between the Investment Manager and shareholders will be shared with the Board. The Directors will also receive updates from the Company’s broker on any feedback from shareholders, as well as share trading activity, share price performance and an update from the Investment Manager.

The portfolio management team attended a number of professional investor meetings (mainly by videoconference) and held discussions with many different wealth management desks and offices in respect of the Company during the year under review.

BlackRock’s marketing team held a group webcast attended by 49 investors and a virtual conference in conjunction with Kepler attended by 120 investors. In addition the portfolio manager met with a number of investors throughout the year by videoconference.

Investors gave positive feedback in respect of the portfolio manager, the good long-term track record, clear investment strategy and low fee. Some investors commented that they liked the fact that a significant proportion of the portfolio companies’ revenues were generated overseas, and the potential that this gave to benefit from a weak sterling currency especially in light of Brexit.

Investors expressed concerns over the impact of Brexit on the UK Smaller Companies sector.

SUSTAINABILITY AND OUR ESG POLICIES

THE BOARD’S APPROACH
Environmental, social and governance (ESG) issues can present both opportunities and threats to long-term investment performance. These ethical and sustainability issues cannot be ignored, and your Board is committed to ensuring that we have appointed a manager that applies the highest standards of ESG practice. The Board believes effective engagement with management is, in most cases, the most effective way of driving meaningful change in the behaviour of investee company management. This is particularly true for the Manager given the extent of BlackRock’s shareholder engagement (BlackRock held 3,040 engagements with 2,020 companies based in 54 markets for the year to 30 June 2020). As well as the advantages afforded by its scale, the Board believes that BlackRock is well placed as Manager to fulfil these requirements due to the integration of ESG into its investment processes, the emphasis it places on sustainability, its collaborative approach in its investment stewardship activities and its position in the industry as one of the largest suppliers of sustainable investment products in the global market. More information on BlackRock’s approach to sustainability is set out below.

BLACKROCK’S APPROACH TO SUSTAINABLE INVESTING
Sustainability is BlackRock’s standard for investing, based on the investment conviction that integrating sustainability can help investors build more resilient portfolios and achieve better long-term, risk-adjusted returns. BlackRock believes that climate change is a defining factor in companies’ long-term prospects and that it will have a significant and lasting impact on economic growth and prosperity. BlackRock believes that climate risk equates to investment risk and this will drive a profound reassessment of risk and asset values as investors seek to react to the impact of climate policy changes. This in turn is likely to drive a significant reallocation of capital away from traditional carbon intensive industries over the next decade.

In January 2020, with this transition in mind, BlackRock outlined how it was making sustainability integral to the way BlackRock manages risk, generates alpha, builds portfolios and pursues investment stewardship, in order to help improve investment outcomes for clients.

By December 2020, BlackRock announced that the following key achievements had been made in progress towards its goals, including:

  • Ensuring that 100% of active and advisory portfolios are ESG-integrated;
  • Launching a new database (Aladdin Climate) to set a new standard for climate data and analytics;
  • Intensifying the investment stewardship focus on sustainability;
  • Joining Climate Action 100+, a natural progression in BlackRock’s work to advance sustainable business practices aligned with the Task Force on Climate-related Financial Disclosures (TCFD); and
  • Establishing nearly a hundred new sustainable BlackRock funds in 2020, helping to increase access and provide investors with greater choice.

A detailed summary of the actions taken by BlackRock in 2020 on making sustainability the new standard for investing can be found at https://blackrock.com/corporate/ literature/publication/our-2020-sustainability-actions.pdf.

BlackRock also announced in January 2021 that it is committed to supporting the goal of ‘net zero’ (building an economy that emits no more carbon dioxide than it removes from the atmosphere) by 2050 (the scientifically-established threshold necessary to keep global warming well below 2ºC). BlackRock is taking a number of steps to help investors prepare their portfolios for a net zero world, including capturing opportunities created by the net zero transition. Key actions targeted by BlackRock for 2021 include:

MEASUREMENT AND TRANSPARENCY

  • Publishing the proportion of BlackRock assets under management which are currently aligned to net zero, and announcing an interim target on the proportion of BlackRock’s assets under management that will be aligned to net zero in 2030, for markets with sufficiently reliable data; and
  • Through Aladdin Climate, helping more investors manage and meet their climate objectives by tracking investment portfolios’ trajectories toward net zero, and helping to catalyse increasingly robust and standardised climate data and metrics to better serve the industry.

INVESTMENT MANAGEMENT

  • Incorporating the impacts of climate change into BlackRock’s capital market assumptions, the cornerstone for portfolio construction at BlackRock;
  • Implementing a ‘heightened-scrutiny model’ in BlackRock’s active portfolios as a framework for managing securities that pose significant climate risk; and
  • Helping BlackRock’s clients benefit from opportunities created by the energy transition, from investments in electric cars to clean energy to energy-efficient housing.

STEWARDSHIP

  • Using investment stewardship to ensure the companies that BlackRock invests in on behalf of clients are mitigating climate risk and considering the opportunities presented by the net zero transition;
  • Asking companies to disclose a business plan aligned with the goal of limiting global warming to well below 2ºC, consistent with achieving net zero global greenhouse gas emissions by 2050; and
  • Increasing the role of votes on shareholder proposals in BlackRock’s stewardship efforts around sustainability.

INTEGRATION OF ESG INTO BLACKROCK’S INVESTMENT MANAGEMENT PROCESS
As well as the initiatives set out above, as part of BlackRock’s structured investment process, ESG risks and opportunities are considered within the portfolio management team’s fundamental analysis of companies and industries. The team aims to assess financial materiality in relation to ESG via data insights integrated into the team’s standard research templates shown in the BlackRock ESG Risk Window. The Risk Window, using MSCI data, flags any stock-specific concerns allowing investors to investigate them further. It screens for ESG metrics through over 400 single data points and ranks potential risks from High to Managed. BlackRock’s portfolio management teams also have access to other data sources such as RepRisk or Sustainalytics to complement the Risk Window. BlackRock’s unparalleled access to company management allows it to engage on these issues through questioning management teams and conducting site visits. BlackRock looks to understand how management approaches ESG risks and opportunities and the potential impact this may have on company financials.

The BlackRock Investment Stewardship team (BIS) promotes sound corporate governance and sustainable business practices to help maximise long-term shareholder value for BlackRock’s clients. BIS does this in three ways: engaging with companies, using BlackRock’s vote and promoting thought leadership. Through this combination of quantitative and qualitative assessment, BlackRock ensures that its understanding of the portfolio’s investments is thorough, reliable and up to date. The portfolio management team’s understanding of ESG issues is further supported by BlackRock’s Sustainable Investment team (BSI). BSI looks to advance ESG research and integration, active engagement and the development of sustainable investment solutions across the firm. BlackRock believes ESG issues have important financial impacts over the long-term.

The sustainable investing effort is embedded into BlackRock’s culture from the top down, through the belief that a company’s ability to manage ESG matters demonstrates the leadership and good governance that is essential to sustainable, long-term growth.

INVESTMENT STEWARDSHIP
BIS plays a fundamental role in the activation of BlackRock’s purpose of helping more and more people experience financial well-being. As a fiduciary, BlackRock has a responsibility to its clients to make sure companies are adequately managing and disclosing ESG risks and opportunities that can impact their ability to generate long-term financial performance and to hold them accountable through BlackRock’s vote if they are not.

BlackRock’s BIS team has been focusing on sustainability issues for years. Each year, the BIS team prioritises its work around several engagement themes that it believes will encourage sound governance practices and deliver sustainable long-term financial performance for BlackRock’s clients. For each engagement priority, BIS provides a high level, globally relevant ‘Key Performance Indicator’ (KPI) so companies are aware of BlackRock’s expectations.

In 2020, BIS put an increased focus on ESG-related issues and relevant disclosures, given the growing impact of these issues on long-term value creation. To that end, BIS made an explicit ask that companies align their disclosures to the TCFD framework and the Sustainability Accounting Standards Board (SASB) standards. BlackRock is greatly encouraged by the progress it has seen over the past year – a 363% increase in SASB disclosures and more than 1,700 organisations expressing support for the TCFD.

As reported in the BIS 2020 annual report, in the year from 1 July 2019 to 30 June 2020, BIS held over 3,000 engagements globally with over 2,000 companies covering 61% value of BlackRock’s clients’ equity investments. In terms of voting, BIS voted at approximately 16,200 shareholder meetings and on 153,000 proposals. For a detailed summary of BIS’ approach to sustainability and stewardship activities during 2020, please refer to the BIS 2020 Annual Report: https://www.blackrock.com/corporate/ literature/publication/blk-annual-stewardship-report-2020.pdf.

As the past year has only intensified BlackRock’s conviction that sustainability risk, and climate risk in particular, is investment risk, BIS is continuing to increase its focus on how sustainability-related factors are impacting a company’s ability to generate shareholder returns. As detailed in the 2021 BIS Stewardship Expectations report and the BIS commentary on Climate Risk and Transition to a Low-Carbon Economy, BIS expects companies to disclose a business plan aligned with the goal of limiting global warming to well below 2ºC, consistent with achieving net zero global greenhouse gas (GHG) emissions by 2050. These disclosures are essential to helping investors assess a company’s ability to transition its business to a low-carbon world and to capture value-creation opportunities created by the climate transition. This report can be found at https://www. blackrock.com/corporate/literature/publication/our-2021-stewardship-expectations.pdf.

BlackRock is also committed to transparency in terms of disclosure on its engagement with companies and voting rationales. More details about BlackRock Investment Stewardship can be found on BlackRock’s website at www.blackrock.com/corporate/about-us/investment-stewardship. In terms of its own reporting, BlackRock believes that the SASB provides a clear set of standards for reporting sustainability information across a wide range of issues, from labour practices to data privacy to business ethics. For evaluating and reporting climate-related risks, as well as the related governance issues that are essential to managing them, the TCFD provides a valuable framework.

BlackRock recognises that reporting to these standards requires significant time, analysis, and effort. BlackRock’s own SASB-aligned disclosure is available on its website at www.blackrock.com/corporate/literature/continuous-disclosure-and-important-information/blackrock-2019-sasb-disclosure.pdf and BlackRock published a detailed TCFD-aligned report on its 2020 activities. More information on BlackRock’s policies on Corporate Sustainability can be found on BlackRock’s website at www.blackrock.com/ corporate/sustainability.

BY ORDER OF THE BOARD

SARAH BEYNSBERGER
FOR AND ON BEHALF OF
BLACKROCK INVESTMENT MANAGEMENT (UK) LIMITED
Company Secretary

7 May 2021

RELATED PARTY TRANSACTIONS: TRANSACTIONS WITH THE MANAGER AND INVESTMENT MANAGER

The Manager was appointed as the Company’s Alternative Investment Fund Manager (AIFM) with effect from 2 July 2014. The Manager has (with the Company’s consent) delegated certain portfolio and risk management services, and other ancillary services, to the Investment Manager. Details of the fees payable to the Manager are set out in note 4 below.

The Manager provides management and administration services to the Company under a contract which is terminable on six months’ notice. The Manager has (with the Company’s consent) delegated certain portfolio and risk management services, and other ancillary services, to BIM (UK). Further details of the investment management contract are disclosed in the Directors’ Report.

The investment management fee payable for the year ended 28 February 2021 amounted to £4,781,000 (2020: £4,681,000) as disclosed in note 4 to the Financial Statements. At the year end, £2,594,000 was outstanding in respect of the management fee (2020: £2,383,000).

In addition to the above services, BlackRock provided the Company with marketing services. The total fees paid or payable for these services for the year ended 28 February 2021 amounted to £166,000 including VAT (2020: £153,000). Marketing fees of £166,000 (2020: £151,000) were outstanding at year end.

As of 28 February 2021, an amount of £108,000 (2020: £190,000) was payable to the Manager in respect of Directors’ fees.

The ultimate holding company of the Manager and the Investment Manager is BlackRock, Inc. a company incorporated in Delaware USA. During the period, PNC Financial Services Group, Inc. (“PNC”) was a substantial shareholder in BlackRock, Inc. PNC did not provide any services to the Company during the financial year ended 29 February 2020, and the period up to 11 May 2020, when PNC announced its intention to sell its investment in BlackRock, Inc. through a registered offering and related buyback by BlackRock, Inc.

RELATED PARTY DISCLOSURE: DIRECTORS’ EMOLUMENTS

The Board consists of five non-executive Directors, all of whom are considered to be independent by the Board. None of the Directors has a service contract with the Company. For the year ended 28 February 2021, the Chairman received an annual fee of £42,500, the Chairman of the Audit Committee received an annual fee of £32,500 and each other Director received an annual fee of £28,500. With effect from the 1 March 2021 the Chairman will receive an annual fee of £42,750, the Chairman of the Audit Committee will receive an annual fee of £32,750, the Senior Independent Director will receive an annual fee of £29,750 and each other Directors will receive an annual fee of £28,750. 

As at 7 May 2021, with the exception of Mark Little who was appointed to the Board on 1 October 2020, all members of the Board held shares in the Company. Ronald Gould held 1,000 ordinary shares, Michael Peacock held 1,000 ordinary shares, Caroline Burton held 5,500 ordinary shares and Susan Platts-Martin held 2,800 ordinary shares.

STATEMENT OF DIRECTORS’ RESPONSIBILITIES IN RESPECT OF THE ANNUAL REPORT AND FINANCIAL STATEMENTS

The Directors are responsible for preparing the Annual Report and Financial Statements in accordance with applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law they have elected to prepare the financial statements in accordance with applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice).

Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company as at the end of each financial year and of the profit or loss of the Company for that year.

In preparing those financial statements, the Directors are required to:

  • present fairly the financial position, financial performance and cash flows of the Company;
  • select suitable accounting policies and then apply them consistently;
  • present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;
  • make judgements and estimates that are reasonable and prudent;
  • state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and
  • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and that enable them to ensure that the Financial Statements and the Directors’ Remuneration Report comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors are also responsible for preparing the Strategic Report, Directors’ Report, the Directors’ Remuneration Report, the Corporate Governance Statement and the Report of the Audit Committee in accordance with the Companies Act 2006 and applicable regulations, including the requirements of the Listing Rules and the Disclosure Guidance and Transparency Rules. The Directors have delegated responsibility to the Manager for the maintenance and integrity of the Company’s corporate and financial information included on BlackRock’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Each of the Directors, whose names are listed within the annual report, confirms that, to the best of their knowledge:

  • 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 Strategic Report contained in the Annual Report and Financial Statements includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces.

The UK Code also requires Directors to ensure that the Annual Report and Financial Statements are fair, balanced and understandable. In order to reach a conclusion on this matter, the Board has requested that the Audit Committee advise on whether it considers that the Annual Report and Financial Statements fulfil these requirements. The process by which the Committee has reached these conclusions is set out in the Audit Committee’s report within the annual report. As a result, the Board has concluded that the Annual Report and Financial Statements for the year ended 28 February 2021, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company’s position, performance, business model and strategy.

FOR AND ON BEHALF OF THE BOARD
RONALD GOULD
Chairman

7 May 2021

INCOME STATEMENT FOR THE YEAR ENDED 28 FEBRUARY 2021

2021 2020

 
 
Notes 
Revenue 
£’000 
Capital 
£’000 
Total 
£’000 
Revenue 
£’000 
Capital 
£’000 
Total 
£’000 
Gains on investments held at fair value through profit or loss –  118,375  118,375  –  80,423  80,423 
Losses on foreign exchange –  (7) (7) –  (1) (1)
Income from investments held at fair value through profit or loss 9,301  –  9,301  20,294  –  20,294 
Other income 58  –  58  157  –  157 
--------------  --------------  --------------  --------------  --------------  -------------- 
Total income 9,359  118,368  127,727  20,451  80,422  100,873 
========  ========  ========  ========  ========  ======== 
Expenses
Investment management fee (1,133) (3,648) (4,781) (1,170) (3,511) (4,681)
Operating expenses (916) (93) (1,009) (839) (28) (867)
--------------  --------------  --------------  --------------  --------------  -------------- 
Total operating expenses (2,049) (3,741) (5,790) (2,009) (3,539) (5,548)
========  ========  ========  ========  ========  ======== 
Net profit on ordinary activities before finance costs and taxation 7,310  114,627  121,937  18,442  76,883  95,325 
Finance costs (620) (1,860) (2,480) (547) (1,640) (2,187)
--------------  --------------  --------------  --------------  --------------  -------------- 
Net profit on ordinary activities before taxation 6,690  112,767  119,457  17,895  75,243  93,138 
========  ========  ========  ========  ========  ======== 
Taxation (164) –  (164) (58) –  (58)
--------------  --------------  --------------  --------------  --------------  -------------- 
Net profit on ordinary activities after taxation 6,526  112,767  119,293  17,837  75,243  93,080 
========  ========  ========  ========  ========  ======== 
Revenue return per ordinary share (pence) 13.36  230.94  244.30  37.13  156.62  193.75 
========  ========  ========  ========  ========  ======== 

The total column of this statement represents the Company’s profit and loss account. The supplementary revenue and capital columns are both prepared under guidance published by the Association of Investment Companies (AIC). All items in the above statement derive from continuing operations. No operations were acquired or discontinued during the year. All income is attributable to the equity holders of the Company.

The net profit for the year disclosed above represents the Company’s total comprehensive income.

STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 28 FEBRUARY 2021




 
 
 
 
Notes 
Called 
up share 
capital 
£’000 
Share 
premium 
account 
£’000 
Capital 
redemption 
reserve 
£’000 
 
Capital 
reserves 
£’000 
 
Revenue 
reserve 
£’000 
 
 
Total 
£’000 
For the year ended 28 February 2021
At 29 February 2020 12,498  51,980  1,982  676,512  24,901  767,873 
Total comprehensive income:
Net profit for the year –  –  –  112,767  6,526  119,293 
Transactions with owners, recorded directly to equity:
Dividends paid1 –  –  –  –  (15,870) (15,870)
--------------  --------------  --------------  --------------  --------------  -------------- 
At 28 February 2021 12,498  51,980  1,982  789,279  15,557  871,296 
========  ========  ========  ========  ========  ======== 
For the year ended 29 February 2020
At 28 February 2019 12,498  38,952  1,982  598,272  22,385  674,089 
Total comprehensive income:
Net profit for the year –  –  –  75,243  17,837  93,080 
Transactions with owners, recorded directly to equity:
Share issues –  13,028  –  3,029  –  16,057 
Share issue costs –  –  –  (32) –  (32)
Dividends paid2 –  –  –  –  (15,321) (15,321)
--------------  --------------  --------------  --------------  --------------  -------------- 
At 29 February 2020 12,498  51,980  1,982  676,512  24,901  767,873 
========  ========  ========  ========  ========  ======== 

1      Interim dividend paid in respect of the year ended 28 February 2021 of 12.80p was declared on 5 November 2020 and paid on 2 December 2020. Second interim dividend paid in respect of the year ended 29 February 2020 of 19.70p was declared on 3 June 2020 and paid on 29 June 2020.

2     Interim dividend paid in respect of the year ended 29 February 2020 of 12.80p was declared on 5 November 2019 and paid on 3 December 2019. Final dividend paid in respect of the year ended 28 February 2019 of 19.20p was declared on 5 May 2019 and paid on 12 June 2019.

BALANCE SHEET AS AT 28 FEBRUARY 2021


 
 
Notes 
2021 
£’000 
2020 
£’000 
Fixed assets
Investments held at fair value through profit or loss 948,448  812,016 
Current assets
Debtors 7,731  3,825 
Cash and cash equivalents 12,149  39,250 
--------------  -------------- 
Total current assets 19,880  43,075 
========  ======== 
Creditors – amounts falling due within one year (7,428) (7,668)
--------------  -------------- 
Net current assets 12,452  35,407 
========  ======== 
Total assets less current liabilities 960,900  847,423 
========  ======== 
Creditors – amounts falling due after more than one year 10  (89,604) (79,550)
--------------  -------------- 
Net assets 871,296  767,873 
========  ======== 
Capital and reserves
Called up share capital 11  12,498  12,498 
Share premium account 12  51,980  51,980 
Capital redemption reserve 12  1,982  1,982 
Capital reserves 12  789,279  676,512 
Revenue reserve 12  15,557  24,901 
--------------  -------------- 
Total shareholders’ funds 871,296  767,873 
========  ======== 
Net asset value per ordinary share (debt at par value) (pence) 1,784.35  1,572.55 
========  ======== 
Net asset value per ordinary share (debt at fair value) (pence) 1,774.71  1,556.41 
========  ======== 

STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 28 FEBRUARY 2021


 
2021 
£’000 
2020 
£’000 
Operating activities
Net profit before taxation 119,457  93,138 
Add back finance costs 2,480  2,187 
Gains on investments held at fair value through profit or loss (118,375) (80,423)
Net movement in foreign exchange
Sales of investments held at fair value through profit or loss 510,452  307,040 
Purchases of investments held at fair value through profit or loss (533,433) (330,558)
Decrease/(increase) in debtors 603  (166)
Increase in creditors 189  375 
Taxation on investment income (164) (58)
--------------  -------------- 
Net cash used in operating activities (18,784) (8,464)
========  ======== 
Financing activities
Proceeds from 2.41% loan note issue –  20,000 
Issue costs of loan note –  (179)
Drawdown of Sumitomo Mitsui Banking Corporation revolving credit facility 10,000  20,000 
Net repayment of Scotiabank revolving credit facility –  (2,500)
Interest paid (2,440) (2,029)
Cash proceeds from ordinary shares re-issued from treasury –  16,025 
Dividends paid (15,870) (15,321)
--------------  -------------- 
Net cash (used in)/generated from financing activities (8,310) 35,996 
========  ======== 
(Decrease)/increase in cash and cash equivalents (27,094) 27,532 
Cash and cash equivalents at beginning of the year 39,250  11,719 
Effect of foreign exchange rate changes (7) (1)
--------------  -------------- 
Cash and cash equivalents at end of year 12,149  39,250 
========  ======== 
Comprised of:
Cash at bank 2,285  12,584 
Cash Funds* 9,864  26,666 
--------------  -------------- 
12,149  39,250 
========  ======== 

*     Cash Funds represent funds held on deposit with the BlackRock Institutional Cash Series plc - Sterling Liquid Environmentally Aware Fund (2020: BlackRock Institutional Cash Series plc - Sterling Liquid Environmentally Aware Fund).

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 28 FEBRUARY 2021

1. PRINCIPAL ACTIVITY
The principal activity of the Company is that of an investment trust company within the meaning of Section 1158 of the Corporation Tax Act 2010.

2. ACCOUNTING POLICIES
The principal accounting policies adopted by the Company are set out below.

(a) Basis of preparation
The financial statements have been prepared on a going concern basis in accordance with ‘The Financial Reporting Standard applicable in the UK and Republic of Ireland’ (FRS 102) and the revised Statement of Recommended Practice – ‘Financial Statements of Investment Trust Companies and Venture Capital Trusts’ (SORP) issued by the Association of Investment Companies (AIC) in October 2019 and the provisions of the Companies Act 2006.

The Directors have considered any potential impact of the COVID-19 pandemic and the mitigation measures which key service providers, including the Manager, have in place to maintain operational resilience on the going concern of the Company. The Directors have reviewed compliance with the covenants associated with the debenture, loan notes and revolving credit facility, income and expense projections and the liquidity of the investment portfolio in making their assessment.

The principal accounting policies adopted by the Company are set out below. Unless specified otherwise, the policies have been applied consistently throughout the year and are consistent with those applied in the preceding year. All of the Company’s operations are of a continuing nature.

The Company’s financial statements are presented in sterling, which is the currency of the primary economic environment in which the Company operates. All values are rounded to the nearest thousand pounds (£’000) except where otherwise stated.

(b) Presentation of Income Statement
In order to better reflect the activities of an investment trust company and in accordance with guidance issued by the AIC, supplementary information which analyses the Income Statement between items of a revenue and a capital nature has been presented on the face of the Income Statement.

(c) Segmental reporting
The Directors are of the opinion that the Company is engaged in a single segment of business being investment business.

(d) Income
Dividends receivable on equity shares are treated as revenue for the year on an ex-dividend basis. Where no ex-dividend date is available, dividends receivable on or before the year end are treated as revenue for the year. Provisions are made for dividends not expected to be received. The return on a debt security is recognised on a time apportionment basis.

Special dividends are recognised on an ex-dividend basis and are treated as capital or revenue depending on the facts or circumstances of each dividend.

Dividends are accounted for in accordance with Section 29 of FRS 102 on the basis of income actually receivable. Dividends from overseas companies continue to be shown gross of withholding tax.

Deposit interest receivable is accounted for on an accruals basis.

Where the Company has elected to receive its dividends in the form of additional shares rather than in cash, the cash equivalent of the dividend foregone is recognised in the revenue column of the Income Statement. Any excess in the value of the shares over the amount of the cash dividend is recognised in capital reserves.

(e) Expenses
All expenses, including finance costs, are accounted for on an accruals basis. Expenses have been charged wholly to the revenue column of the Income Statement, except as follows:

  • expenses which are incidental to the acquisition or disposal of an investment are treated as capital. Details of transaction costs on the purchases and sales of investments are shown in note 10;
  • expenses are treated as capital where a connection with the maintenance or enhancement of the value of the investments can be demonstrated; and
  • the investment management fee and finance costs have been allocated 75% to the capital column and 25% to the revenue column of the Income Statement.

(f) Taxation
The tax expense represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on the taxable profit for the year. Taxable profit differs from net profit as reported in the Income Statement because it excludes items of income or expenses that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Company’s liability for current tax is calculated using tax rates that were applicable at the balance sheet date.

Deferred taxation is recognised in respect of all timing differences at the financial reporting date, where transactions or events that result in an obligation to pay more taxation in the future or right to less taxation in the future have occurred at the balance sheet date. Deferred tax is measured on a non-discounted basis, at the average tax rates that are expected to apply in the periods in which the timing differences are expected to reverse based on tax rates and laws that have been enacted or substantively enacted by the balance sheet date. This is subject to deferred taxation assets only being recognised if it is considered more likely than not that there will be suitable profits from which the future reversal of the timing differences can be deducted.

(g) Investments held at fair value through profit or loss
The Company’s investments are classified as held at fair value through profit or loss in accordance with Sections 11 and 12 of FRS 102 and are managed and evaluated on a fair value basis in accordance with its investment strategy.

All investments are classified upon initial recognition as held at fair value through profit or loss. Purchases of investments are recognised on a trade date basis. Sales of assets are recognised at the trade date of the disposal. Proceeds will be measured at fair value, which will be regarded as the proceeds of the sale less any transaction costs.

The fair value of the financial investments is based on their quoted bid price at the Balance Sheet date on the exchange on which the investment is quoted, without deduction for the estimated future selling costs.

Unquoted investments are valued by the Directors at fair value using International Private Equity and Venture Capital Valuation Guidelines. This policy applies to all current and non-current asset investments of the Company.

Changes in the value of investments held at fair value through profit or loss and gains and losses on disposal are recognised in the Income Statement as ‘Gains or losses on investments held at fair value through profit or loss’. Also included within this heading are transaction costs in relation to the purchase or sale of investments.

The fair value hierarchy consists of the following three levels:

Level 1 – Quoted market price for identical instruments in active markets.

Level 2 – Valuation techniques using observable inputs.

Level 3 – Valuation techniques using significant unobservable inputs.

(h) Dividends payable
Under Section 32 of FRS 102 final dividends should not be accrued in the financial statements unless they have been approved by shareholders before the Balance Sheet date. Dividends payable to equity shareholders are recognised in the Statement of Changes in Equity when they have been approved by shareholders and have become a liability of the Company. Interim dividends are recognised in the financial statements in the period in which they are paid.

(i) Foreign currency translation
In accordance with Section 30 of FRS 102, the Company is required to nominate a functional currency, being the currency in which the Company predominately operates. The functional and reporting currency is sterling, reflecting the primary economic environment in which the Company operates. Transactions in foreign currencies are translated into sterling at the rates of exchange ruling on the date of the transaction. Foreign currency monetary assets and liabilities are translated into sterling at the rates of exchange ruling at the Balance Sheet date. Profits and losses thereon are recognised in the capital column of the Income Statement and taken to the capital reserve.

(j) Share repurchases and re-issues
Shares repurchased and subsequently cancelled – share capital is reduced by the nominal value of the shares repurchased, and the capital redemption reserve is correspondingly increased in accordance with Section 733 of the Companies Act 2006. The full cost of the repurchase is charged to an appropriate reserve.

Shares repurchased and held in treasury – the full cost of the repurchase is charged to an appropriate reserve.

Where treasury shares are subsequently re-issued:

  • amounts received to the extent of the repurchase price are credited to an appropriate reserve; and
  • any surplus received in excess of the repurchase price is taken to the share premium account.

(k) Debtors
Debtors include sales for future settlement, other debtors and pre-payments and accrued income in the ordinary course of business. If collection is expected in one year or less, they are classified as current assets. If not, they are presented as non-current assets.

(l) Creditors
Creditors include purchases for future settlement, interest payable, share buyback costs and accruals in the ordinary course of business. Creditors, loans and debentures are classified as creditors – amounts due within one year if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not, they are presented as creditors – amounts falling due after more than one year.

(m) Cash and cash equivalents
Cash comprises cash in hand and on demand deposits and bank overdrafts repayable on demand. Cash equivalents include short-term, highly liquid investments, that are readily convertible to known amounts of cash and that are subject to an insignificant risk of changes in value.

(n) Critical accounting estimates and judgements
The Company makes estimates and assumptions concerning the future. The resulting accounting estimates and assumptions will, by definition, seldom equal the related actual results. Estimates and judgements are regularly evaluated and are based on historical experience and other factors, including expectations of future events and that are believed to be reasonable under the circumstances. The Directors do not believe that any accounting judgements or estimates have a significant risk of causing material adjustment to the carrying amount of assets and liabilities within the next financial year.

3. INCOME


 
2021 
£’000 
2020 
£’000 
Investment income:
UK listed dividends 6,394  16,012 
UK listed scrip dividends 598  – 
UK listed special dividends 856  1,210 
Property income dividends 473  809 
Overseas listed dividends 951  1,878 
Overseas listed special dividends 29  385 
--------------  -------------- 
9,301  20,294 
========  ======== 
Other income:
Bank interest 10 
Interest from Cash Funds 57  147 
--------------  -------------- 
58  157 
--------------  -------------- 
Total 9,359  20,451 
========  ======== 

Special dividends of £707,000 have been recognised in capital during the year (2020: £nil).

Dividends and interest received in cash in the period amounted to £9,098,000 and £71,000 (2020: £20,020,000 and £153,000).

4. INVESTMENT MANAGEMENT FEE

2021 2020

 
Revenue 
£’000 
Capital 
£’000 
Total 
£’000 
Revenue 
£’000 
Capital 
£’000 
Total 
£’000 
Investment management fee 1,133  3,648  4,781  1,170  3,511  4,681 
--------------  --------------  --------------  --------------  --------------  -------------- 
Total 1,133  3,648  4,781  1,170  3,511  4,681 
========  ========  ========  ========  ========  ======== 

The investment management fee is based on a rate of 0.6% of the first £750 million of total assets (excluding current year income) less the current liabilities of the Company (the “Fee Asset Amount”), reducing to 0.5% above this level. The fee is calculated at the rate of one quarter of 0.6% of the Fee Asset Amount up to the initial threshold of £750 million, and one quarter of 0.5% of the Fee Asset Amount in excess thereof, at the end of each quarter. The investment management fee is allocated 75% to the capital column and 25% to the revenue column of the Income Statement.

BlackRock has agreed to waive management fees payable by the Company up to the value of £83,254 to cover additional audit and legal costs incurred in the year ended 28 February 2021 as a result of the work required to correct the Company’s Articles and restate the brought forward reserves following an administrative error. Please see note 5 below for a further breakdown of the expenses incurred.

A credit of £83,254 has been applied to the Investment Management fee in the table above and in the revenue column of the Income Statement.

5. OTHER OPERATING EXPENSES


 
2021 
£’000 
2020 
£’000 
Allocated to revenue:
Custody fees
Depositary fees 81  84 
Auditor’s remuneration:
– audit services 33  27 
– audit services – additional non-recurring fees1 13  – 
– non-audit services2
Registrar’s fee 42  43 
Directors’ emoluments3 164  172 
Director search fees 30  24 
Marketing fees 166  153 
AIC fees 25  26 
Bank charges 64  87 
Broker fees 36  46 
Stock exchange listings 28  22 
Printing and postage fees 45  37 
Legal fees:
– legal fees – ongoing services 12  29 
– legal fees – non-recurring fees for ad hoc legal advice1 70  – 
Other administrative costs 97  79 
--------------  -------------- 
916  839 
========  ======== 
Allocated to capital:
Custody transaction charges 93  28 
--------------  -------------- 
1,009  867 
========  ======== 

   

2021  2020 
The Company’s ongoing charges4, calculated as a percentage of average daily net assets and using the management fee and all other operating expenses, excluding finance costs, direct transaction costs, custody transaction charges, VAT recovered, taxation and certain non-recurring items were: 0.8%  0.7% 
========  ======== 

1     Additional audit fees of £13,200 including VAT and additional legal fees totalling £70,054 including VAT were incurred in the year ended 28 February 2021 as a result of the work required to correct the Company’s Articles and restate the brought forward reserves following an administrative error. These costs will be absorbed by BlackRock by way of a management fee waiver. Please see note 4 above for further details.

2     Fees for non-audit services relate to the debenture compliance work carried out by the Auditors (2020: debenture compliance work).

3     Further information on Directors’ emoluments can be found in the Directors’ Remuneration Report contained within the annual report.

4     Alternative performance measures, see Glossary contained within the annual report.

6. DIVIDENDS


Dividends paid on equity shares:
 
Record date 
 
Payment date 
2021 
£’000 
2020 
£’000 
2019 Final of 19.20p 17 May 2019  12 June 2019  –  9,193 
2020 First Interim of 12.80p 15 November 2019  3 December 2019  –  6,128 
2020 Second Interim of 19.70p 12 June 2020  29 June 2020  9,619  – 
2021 Interim of 12.80p 13 November 2020  2 December 2020  6,251  – 
--------------  -------------- 
15,870  15,321 
========  ======== 

The Directors have proposed a final dividend of 20.50p per share in respect of the year ended 28 February 2021. The final dividend will be paid, subject to shareholders’ approval, on 18 June 2021 to shareholders on the Company’s register on 21 May 2021. The proposed final dividend has not been included as a liability in these financial statements, as final dividends are only recognised in the financial statements when they have been approved by shareholders.

The total dividends payable in respect of the year which form the basis of determining retained income for the purposes of Section 1158 of the Corporation Tax Act 2010 and Section 833 of the Companies Act 2006, and the amount proposed for the year ended 28 February 2021 meet the relevant requirements as set out in this legislation.


Dividends paid or proposed on equity shares:
2021 
£’000 
2020 
£’000 
Interim dividend paid 12.80p (2020: 12.80p) 6,251  6,128 
Final dividend payable of 20.50p per share* (2020 second interim dividend: 19.70p) 10,010  9,619 
--------------  -------------- 
16,261  15,747 
========  ======== 

*     Based upon 48,829,792 ordinary shares (excluding treasury shares) in issue on 7 May 2021.

All dividends paid or payable are distributed from the Company’s distributable reserves.

7. RETURNS AND NET ASSET VALUE PER SHARE
Revenue and capital earnings per share are shown below and have been calculated using the following:


 
Year ended 
28 February 2021 
Year ended 
29 February 2020 
Revenue return attributable to ordinary shareholders (£’000) 6,526  17,837 
Capital return attributable to ordinary shareholders (£’000) 112,767  75,243 
--------------  -------------- 
Total profit attributable to ordinary shareholders (£’000) 119,293  93,080 
========  ======== 
Equity shareholders’ funds (£’000) 871,296  767,873 
The weighted average number of ordinary shares in issue during the year on which the return per ordinary share was calculated was: 48,829,792  48,040,516 
The actual number of ordinary shares in issue at the end of each year on which the undiluted net asset value was calculated was: 48,829,792  48,829,792 
Earnings per share
Revenue return per share (pence) 13.36  37.13 
Capital return per share (pence) 230.94  156.62 
--------------  -------------- 
Total return per share (pence) 244.30  193.75 
========  ======== 

   



 
As at 
28 February 2021 
As at 
29 February 2020 
Net asset value per ordinary share (debt at par value) (pence) 1,784.35  1,572.55 
Net asset value per ordinary share (debt at fair value) (pence) 1,774.71  1,556.41 
Net asset value per ordinary share (with debt at par value, capital only) (pence) 1,777.63  1,548.57 
Ordinary share price (pence) 1,698.00  1,484.00 
========  ======== 

8. DEBTORS


 
2021 
£’000 
2020 
£’000 
Sales for future settlement 7,111  2,602 
Prepayments and accrued income 597  1,132 
Taxation recoverable 23  91 
--------------  -------------- 
7,731  3,825 
========  ======== 

9. CREDITORS – AMOUNTS FALLING DUE WITHIN ONE YEAR


 
2021 
£’000 
2020 
£’000 
Purchases for future settlement 3,977  4,392 
Interest payable 382  396 
Accrued expenditure 3,069  2,880 
--------------  -------------- 
7,428  7,668 
========  ======== 

10. CREDITORS – AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR


 
2021 
£’000 
2020 
£’000 
7.75% debenture stock 2022 15,000  15,000 
Unamortised debenture stock issue expenses (20) (34)
--------------  -------------- 
14,980  14,966 
========  ======== 
2.74% loan note 2037 25,000  25,000 
Unamortised loan note issue expenses (224) (238)
--------------  -------------- 
24,776  24,762 
========  ======== 
2.41% loan note 2044 20,000  20,000 
Unamortised loan note issue expenses (152) (178)
--------------  -------------- 
19,848  19,822 
========  ======== 
Revolving loan facility – Sumitomo Mitsui Banking Corporation 30,000  20,000 
--------------  -------------- 
Total 89,604  79,550 
========  ======== 

The fair value of the 7.75% debenture stock using the last available quoted offer price from the London Stock Exchange as at 28 February 2021 was 121p per debenture (2020: 121p), a total of £18,150,000 (2020: £18,150,000). The fair value of the 2.74% loan note has been determined based on a comparative yield for UK Gilts for similar duration maturity and spreads, and as at 28 February 2021 equated to a valuation of 105.61p per note (2020: 112.21p), a total of £26,403,000 (2020: £28,053,000). The fair value of the 2.41% loan note has been determined based on a comparative yield for UK Gilts for similar duration maturity and spreads, and as at 28 February 2021 equated to a valuation of 98.79p per note (2020: 106.14p), a total of £19,758,000 (2020: £21,228,000).

The £15 million debenture stock was issued on 8 July 1997. Interest on the stock is payable in equal half yearly instalments on 31 July and 31 January in each year. The stock is secured by a first floating charge over the whole of the assets of the Company and is redeemable at par on 31 July 2022.

The £25 million loan note was issued on 24 May 2017. Interest on the note is payable in equal half yearly instalments on 24 May and 24 November in each year. The loan note is unsecured and is redeemable at par on 24 May 2037.

The £20 million loan note was issued on 3 December 2019. Interest on the note is payable in equal half yearly instalments on 3 December and 3 June in each year. The loan note is unsecured and is redeemable at par on 3 December 2044.

The Company has in place a £35 million three year multi-currency revolving loan facility with Sumitomo Mitsui Banking Corporation Europe Limited. As at 28 February 2021, £30 million of the facility had been utilised. Under the agreement the termination date of this facility is the third anniversary of the effective date being November 2022. Interest on this facility is reset every three months and is currently charged at the rate of 0.78%.

The Company also has available an uncommitted overdraft facility of £10 million with BNYM, of which £nil had been utilised at 28 February 2021 (2020: £nil).

11. CALLED UP SHARE CAPITAL



 
Ordinary shares 
in issue 
number 

Treasury 
shares 
number 

Total 
shares 
number 

Nominal 
Value 
£’000 
Allotted, called up and fully paid share capital comprised:
Ordinary shares of 25p each
At 29 February 2020 48,829,792  1,163,731  49,993,523  12,498 
At 28 February 2021 48,829,792  1,163,731  49,993,523  12,498 

During the year ended 28 February 2021, the Company reissued no shares from treasury for a total consideration of £nil including costs (2020: 950,000 shares for a total consideration of £16,025,000).

Since 28 February 2021 and up to the latest practicable date of 6 May 2021, no shares have been reissued.

The ordinary shares (excluding any shares held in treasury) carry the right to receive any dividends and have one voting right per ordinary share. There are no restrictions on the voting rights of the ordinary shares or on the transfer of ordinary shares.

12. RESERVES

Distributable reserves







 
 
 
 
 
Share 
premium 
account 
£’000 
 
 
 
 
Capital 
redemption 
reserve 
£’000 
 
 
Capital 
reserve 
(arising on 
investments 
sold) 
£’000 
Capital 
reserve 
(arising on 
revaluation 
of 
investments 
held) 
£’000 
 
 
 
 
 
Revenue 
reserve 
£’000 
At 29 February 2020 51,980  1,982  499,094  177,418  24,901 
Movement during the year:
Gains on realisation of investments –  –  33,824  –  – 
Change in investment holding gains –  –  –  83,843  – 
Gains/(losses) on foreign currency transactions –  –  (10) – 
Finance costs and expenses charged to capital –  –  (4,893) –  – 
Net profit for the year –  –  –  –  6,526 
Dividends paid during the year –  –  –  –  (15,870)
--------------  --------------  --------------  --------------  -------------- 
At 28 February 2021 51,980  1,982  528,028  261,251  15,557 
========  ========  ========  ========  ======== 

The share premium account and capital redemption reserve are not distributable profits under the Companies Act 2006. In accordance with ICAEW Technical Release 02/17BL on Guidance on Realised and Distributable Profits under the Companies Act 2006, the capital reserves may be used as distributable profits for all purposes and, in particular, for the repurchase by the Company of its ordinary shares and for payment as dividends. In accordance with the Company’s Articles, net capital returns may be distributed by way of dividend. The £261,251,000 of capital reserve arising on the revaluation of investments is subject to fair value movements and may not be readily realisable at short notice, as such it may not be entirely distributable. The investments are subject to financial risks included in note 17 contained within the annual report, as such Capital reserve (arising on investments sold) and Revenue reserve may not be entirely distributable if a loss occurred during the realisation of these investments.

13. VALUATION OF FINANCIAL INSTRUMENTS
Financial assets and financial liabilities are either carried in the Balance Sheet at their fair value (investments) or at an amount which is a reasonable approximation of fair value (due from brokers, dividends and interest receivable, due to brokers, accruals, cash at bank and bank overdrafts). Section 34 of FRS 102 requires the Company to classify fair value measurements using a fair value hierarchy that reflects the significance of inputs used in making the measurements. The valuation techniques used by the Company are explained in the accounting policies note 2 of the Financial Statements.

Categorisation within the hierarchy has been determined on the basis of the lowest level input that is significant to the fair value measurement of the relevant asset.

The fair value hierarchy has the following levels:

Level 1 – Quoted market price for identical instruments in active markets
A financial instrument is regarded as quoted in an active market if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service or regulatory agency and those prices represent actual and regularly occurring market transactions on an arm’s length basis. The Company does not adjust the quoted price for these instruments.

Level 2 – Valuation techniques using observable inputs
This category includes instruments valued using quoted prices for similar instruments in markets that are considered less active; or other valuation techniques where significant inputs are directly or indirectly observable from market data.

Level 3 – Valuation techniques using significant unobservable inputs
This category includes all instruments where the valuation technique includes inputs not based on market data and these inputs could have a significant impact on the instrument’s valuation.

This category also includes instruments that are valued based on quoted prices for similar instruments where significant entity determined adjustments or assumptions are required to reflect differences between the instruments and instruments for which there is no active market. The Investment Manager considers observable data to be that market data that is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market.

The level in the fair value hierarchy within which the fair value measurement is categorised in its entirety is determined on the basis of the lowest level input that is significant to the fair value measurement. For this purpose, the significance of an input is assessed against the fair value measurement in its entirety. If a fair value measurement uses observable inputs that require significant adjustment based on unobservable inputs, that measurement is a Level 3 measurement.

Assessing the significance of a particular input to the fair value measurement in its entirety requires judgement, considering factors specific to the asset or liability.

The table below sets out fair value measurements using FRS 102 fair value hierarchy.


Financial assets at fair value through profit or loss at 28 February 2021
Level 1 
£’000 
Level 2 
£’000 
Level 3 
£’000 
Total 
£’000 
Equity investments 948,448  –  –  948,448 
--------------  --------------  --------------  -------------- 
Total 948,448  –  –  948,448 
========  ========  ========  ======== 

   


Financial assets at fair value through profit or loss at 29 February 2020
Level 1 
£’000 
Level 2 
£’000 
Level 3 
£’000 
Total 
£’000 
Equity investments 812,016  –  –  812,016 
--------------  --------------  --------------  -------------- 
Total 812,016  –  –  812,016 
========  ========  ========  ======== 

There were no transfers between levels for financial assets during the year recorded at fair value as at 28 February 2021 and 29 February 2020. The Company did not hold any Level 3 securities throughout the financial year or as at 28 February 2021 (2020: nil).

Capital management policies and procedures
The Company’s capital management objectives are:

  • to ensure it will be able to continue as a going concern; and
  • to secure long-term capital growth primarily through investing in smaller UK quoted companies

This is to be achieved through an appropriate balance of equity capital and gearing. It is the Board’s intention that gearing should not exceed 15% of net assets. The Company’s objectives, policies and processes for managing capital remain unchanged from the preceding accounting period.

The Company’s total capital at 28 February 2021 was £960,900,000 (2020: £847,423,000) comprising £30,000,000 (2020: £20,000,000) of revolving credit facility, £14,980,000 (2020: £14,966,000) of debenture stock at par value, £24,776,000 (2020: £24,762,000) of 2.74% unsecured loan note, £19,848,000 (2020: £19,822,000) of 2.41% unsecured loan note and £871,296,000 (2020: £767,873,000) of equity share capital and other reserves.

The Board with the assistance of the Investment Manager monitors and reviews the broad structure of the Company’s capital on an ongoing basis. This review includes:

  • the planned level of gearing, which takes into account the Investment Manager’s view on the market; and
  • the need to buyback equity shares, either for cancellation or to be held in treasury, which takes account of the difference between the NAV per share and the share price (i.e. the level of share price discount or premium).

The Company is subject to externally imposed capital requirements:

  • as a public company, the Company has a minimum share capital of £50,000; and
  • in order to be able to pay dividends out of profits available for distribution, the Company has to be able to meet one of the two capital restrictions tests imposed on investment companies by law.

During the year the Company complied with the externally imposed capital requirements to which it was subject including those imposed in respect of loan covenants.

14. TRANSACTIONS WITH THE MANAGER AND THE INVESTMENT MANAGER
The Manager was appointed as the Company’s Alternative Investment Fund Manager (AIFM) with effect from 2 July 2014. The Manager has (with the Company’s consent) delegated certain portfolio and risk management services, and other ancillary services, to the Investment Manager. Details of the fees payable to the Manager are set out in note 4 above.

The Manager provides management and administration services to the Company under a contract which is terminable on six months’ notice. The Manager has (with the Company’s consent) delegated certain portfolio and risk management services, and other ancillary services, to BIM (UK). Further details of the investment management contract are disclosed in the Directors’ Report.

The investment management fee payable for the year ended 28 February 2021 amounted to £4,781,000 (2020: £4,681,000) as disclosed in note 4 to the Financial Statements. At the year end, £2,594,000 was outstanding in respect of the management fee (2020: £2,383,000).

In addition to the above services, BlackRock provided the Company with marketing services. The total fees paid or payable for these services for the year ended 28 February 2021 amounted to £166,000 including VAT (2020: £153,000). Marketing fees of £166,000 (2020: £151,000) were outstanding at year end.

As of 28 February 2021, an amount of £108,000 (2020: £190,000) was payable to the Manager in respect of Directors’ fees.

The ultimate holding company of the Manager and the Investment Manager is BlackRock, Inc. a company incorporated in Delaware USA. During the period, PNC Financial Services Group, Inc. (“PNC”) was a substantial shareholder in BlackRock, Inc. PNC did not provide any services to the Company during the financial year ended 29 February 2020, and the period up to 11 May 2020, when PNC announced its intention to sell its investment in BlackRock, Inc. through a registered offering and related buyback by BlackRock, Inc.

15. RELATED PARTY DISCLOSURE: DIRECTORS’ EMOLUMENTS
Disclosures of the Directors’ interests in the ordinary shares of the Company and fees and expenses payable to the Directors are set out in the Directors’ Remuneration Report. At 28 February 2021, an amount of £13,000 (2020: £13,000) was outstanding in respect of Directors’ fees.

Significant Holdings
The following investors are:

a.      funds managed by the BlackRock Group or are affiliates of BlackRock, Inc. (“Related BlackRock Funds”) or

b.      investors (other than those listed in (a) above) who held more than 20% of the voting shares in issue in the Company and are as a result, considered to be related parties to the Company (“Significant Investors”).

As at 28 February 2021


Total % of shares held by Related
BlackRock Funds
Total % of shares held by Significant
Investors who are not affiliates of
BlackRock Group or BlackRock, Inc.
Number of Significant Investors who
are not affiliates of BlackRock Group or
BlackRock, Inc.
12.8 n/a n/a

As at 29 February 2020


Total % of shares held by Related
BlackRock Funds
Total % of shares held by Significant
Investors who are not affiliates of
BlackRock Group or BlackRock, Inc.
Number of Significant Investors who
are not affiliates of BlackRock Group or
BlackRock, Inc.
12.7 n/a n/a

16. CONTINGENT LIABILITIES
There were no contingent liabilities at 28 February 2021 (2020: nil).

17. 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 auditors. The comparative figures are extracts from the audited financial statements of BlackRock Smaller Companies Trust plc for the year ended 29 February 2020, which have been filed with the Registrar of Companies. The reports of the auditors for the years ended 29 February 2020 and 28 February 2021 contain no qualification or statement under section 498(2) or (3) of the Companies Act 2006. The 2021 Annual Report and Financial Statements will be filed with the Registrar of Companies after the Annual General Meeting.

18. ANNUAL REPORT AND FINANCIAL STATEMENTS
Copies of the Annual Report and Financial Statements will be sent to members shortly and will be available from The Company Secretary, BlackRock Smaller Companies Trust plc, 12 Throgmorton Avenue, London EC2N 2DL.

19. ANNUAL GENERAL MEETING
The Annual General Meeting of the Company will be held at 12 Throgmorton Avenue, London EC2N 2DL on 11 June 2021 at 2:00 p.m.

ENDS

The Annual Report and Financial Statements will also be available on the BlackRock Investment Management website at http://www.blackrock.com/uk/brsc. Neither the contents of the Manager's website nor the contents of any website accessible from hyperlinks on the Manager's website (or any other website) is incorporated into, or forms part of, this announcement.

For further information, please contact:

Melissa Gallagher, Managing Director, Closed End Funds, BlackRock Investment Management (UK) Limited
Tel: 020 7743 3893

Roland Arnold, BlackRock Investment Management (UK) Limited
Tel: 020 7743 5113

Press Enquiries:

Ed Hooper, Lansons Communications – Tel: 020 7294 3620
E-mail: BlackRockInvestmentTrusts@lansons.com or EdH@lansons.com

7 May 2021

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