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 |
3 |
9,301 |
– |
9,301 |
20,294 |
– |
20,294 |
| Other income |
3 |
58 |
– |
58 |
157 |
– |
157 |
|
|
-------------- |
-------------- |
-------------- |
-------------- |
-------------- |
-------------- |
| Total income |
|
9,359 |
118,368 |
127,727 |
20,451 |
80,422 |
100,873 |
|
|
======== |
======== |
======== |
======== |
======== |
======== |
| Expenses |
|
|
|
|
|
|
|
| Investment management fee |
4 |
(1,133) |
(3,648) |
(4,781) |
(1,170) |
(3,511) |
(4,681) |
| Operating expenses |
5 |
(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) |
7 |
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 |
6 |
– |
– |
– |
– |
(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 |
6 |
– |
– |
– |
– |
(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 |
8 |
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 |
9 |
(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) |
7 |
1,784.35 |
1,572.55 |
|
|
======== |
======== |
| Net asset value per ordinary
share (debt at fair value) (pence) |
7 |
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 |
7 |
1 |
| 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 |
1 |
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 |
7 |
7 |
| Depositary fees |
81 |
84 |
| Auditor’s remuneration: |
|
|
| – audit services |
33 |
27 |
| – audit services – additional
non-recurring fees1 |
13 |
– |
| – non-audit
services2 |
3 |
3 |
| 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 |
– |
– |
3 |
(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:
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