TIDMBRSC
BLACKROCK SMALLER COMPANIES TRUST plc
(LEI: 549300MS535KC2WH4082)
Half yearly financial announcement of results in respect of the six months ended
31 August 2023
PERFORMANCE RECORD
As at As at
31 August2023 28 February2023
Net asset value per ordinary share 1,407.04 1,553.41
(debt at par value) (pence)1
Net asset value per ordinary share 1,460.02 1,601.42
(debt at fair value) (pence)1
Ordinary share price (mid-market) 1,268.00 1,380.00
(pence)1
Numis Smaller Companies plus AIM 14,990.01 16,108.12
(excluding Investment Companies)
Index2
---------------- ----------------
Assets
Total assets less current 753,092 828,033
liabilities (£'000)
Equity shareholders' funds (£'000)3 683,573 758,529
Ongoing charges ratio4,5 0.7% 0.7%
Dividend yield4 3.2% 2.9%
Gearing4 10.3% 6.3%
======== ========
For the six For the six
months ended months ended
31 August2023 31 August2022
Performance (with dividends
reinvested)
Net asset value per share (debt at -7.8% -17.1%
par value)2,4
Net asset value per share (debt at -7.3% -15.4%
fair value)2,4
Ordinary share price (mid-market)2,4 -6.3% -18.9%
Numis Smaller Companies plus AIM -6.9% -11.1%
(excluding Investment Companies)
Index2,4
For the six For the six Change %
months ended months ended
31 August2023 31 August2022
Revenue and dividends
Revenue return per share 25.11p 25.07p +0.2
Interim dividend per share 15.00p 14.50p +3.4
1Without dividends reinvested.
2Total return basis with dividends reinvested.
3The change in equity shareholders' funds represents the portfolio movements
during the year and dividends paid.
4Alternative Performance Measures, see Glossary contained within the Half Yearly
Financial Report. Full details setting out how calculations with dividends
reinvested are performed are set out in the Glossary contained within the Half
Yearly Financial Report.
5Ongoing 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, prior year expenses written back and certain non-recurring items in
accordance with AIC guidelines.
CHAIRMAN'S STATEMENT FOR THE SIX MONTHSED 31 AUGUST 2023
Dear Shareholder
I am pleased to present to shareholders the half yearly financial report for the
six months ended 31 August 2023.
PERFORMANCE
The first six months of the Company's financial year have been characterised by
powerful, sometimes contradictory and volatile, macroeconomic drivers. High
inflation coupled with the threat of contagion from the US banking crisis acted
to exacerbate an already nervous UK market despite a surprisingly robust
consumer environment. Stubborn inflation and persistent wage growth data saw the
Bank of England (BoE) implement a 50-basis point rise in the base interest rate
in June raising interest rates to 5.0%, the highest level since 2008. As the BoE
wrestled with the conundrum of bringing down inflation whilst avoiding an
economic recession, the negative sentiment towards UK assets continued to weigh
heavily on our asset class.
Against this challenging backdrop, the Company's net asset value (NAV) fell by
7.3%1,2,3 over the period under review, to 1,460.02p per share, underperforming
the Company's benchmark, the Numis Smaller Companies plus AIM (excluding
Investment Companies) Index, which fell by 6.9%1,3 over the same period. The
Company's share price fell by 6.3%1,3 to 1,268.00p per share over the same
period. Performance relative to the benchmark was driven mainly by stock
selection, with a number of our stronger conviction stocks underperforming
despite trading well and delivering positively against their long-term
strategies. Further details, and some examples of such stocks, are given in the
Investment Manager's Report below. Looking at the broader market environment the
FTSE 100 Index fell by 3.0%1 over the period, the FTSE 250 Index fell by 4.6%1
and the FTSE All Share Index fell by 3.2%1. The performance of both the NAV and
share price over the longer term are illustrated in the table below.
1 Percentages in Sterling terms with dividends reinvested.
2 Debt at fair value.
3 Alternative Performance Measure, see Glossary contained within the Half
Yearly Financial Report.
RETURNS AND DIVIDS
Dividend revenue from portfolio companies increased this year, with the
Company's revenue return per share for the six months ended 31 August 2023 up by
0.2% to 25.11p per share (compared to 25.07p revenue return per share for the
six months to 31 August 2022). After adjusting for the impact of special
dividends received, which amounted to 2.02p per share (31 August 2022: 1.90p per
share), regular dividend income from portfolio companies decreased by 0.4%
compared to 2022 levels.
Performance to 31 August 6 Months 1 Year 3 Years 5 Years 10 Years
2023 change change change change change
% % % % %
Net asset value per share -7.3 -4.7 +9.7 +0.6 +124.1
(with dividends
reinvested)1,2
Share price (with dividends -6.3 -2.8 +10.7 -4.0 +111.0
reinvested)1
Benchmark (with dividends -6.9 -3.2 +10.6 -0.3 +55.5
reinvested)1
1All calculations are in Sterling terms with dividends reinvested. Full details
of how these calculations are performed are set out in the Glossary contained
within the Half Yearly Financial Report.
2Debt at fair value.
The Board is mindful of the importance of our dividend to shareholders. This is
particularly true in the current environment as inflation and a challenging
global economic backdrop erodes the value of the pound in consumers' pockets.
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 (£617.1 million
as at 31 August 2023, including revenue reserves of £18.4 million). To put this
into context, the annual dividend distribution based on dividends declared in
respect of the year ended 28 February 2023 amounted to £19.5 million.
Accordingly, the Board is pleased to declare an interim dividend of 15.00p per
share (2022: 14.50p per share) representing an increase of 3.4% over the
previous interim dividend. The interim dividend will be paid on 4 December 2023
to shareholders on the Company's register on 3 November 2023. The Board
continues to monitor the Company's income levels and projected future dividend
income streams closely as the year proceeds and will make an assessment in
respect of the final dividend in due course, noting that it has the ability to
utilise revenue reserves should it deem this appropriate.
Your Company has increased its annual dividend every year since 2003 and, in
2023, gained the AIC accolade of "Dividend Hero" for its' consistent 20-year
growth in dividends.
GEARING
The Company has significant borrowing facilities in place: long-term fixed rate
funding in the form of a £25 million senior unsecured fixed rate private
placement notes issued in May 2017 at a coupon of 2.74% with a 20 year maturity,
£20 million senior unsecured fixed rate private placement notes issued in
December 2019 at a coupon of 2.41% with a 25 year maturity and £25 million
senior unsecured fixed rate private placement notes issued in September 2021 at
a coupon of 2.47% with a 25 year maturity. Shorter-term variable rate funding
consisted of an uncommitted overdraft facility of £60 million with The Bank of
New York Mellon (International) Limited with interest charged at SONIA plus 100
basis points.
It continues to be 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
10.5% of net assets as at 23 October 2023, well within our target range.
SHARE BUYBACKS
During the period, the Company's shares traded at an average discount to NAV
(with debt at fair value) of 13.1%. The discount ranged between 11.3% and 14.3%
and ended the period at 13.2%. As at 23 October 2023, the Company's shares were
trading at a discount of 14.1% to NAV (with debt at fair value) as at close of
business on 23 October 2023. During the period the Company bought back a total
of 247,500 ordinary shares into treasury for a total consideration of
£3,295,000. The entire investment trust sector has seen an expansion of the
average discount to net asset values as investor confidence and interest in UK
risk assets has diminished. In such circumstances, we have undertaken a more
aggressive discount management posture.
The Board believes that the share buyback activity undertaken has helped reduce
the volatility in our share rating, which currently stands at 14.1% compared to
an AIC UK Smaller Companies sector average of 14.8%. As we navigate these more
volatile and uncertain markets, your Board will continue to monitor the
Company's share rating and may deploy its powers to buy back the Company's
shares where it believes that it is in shareholders' long-term best interests to
do so. Shares are only bought back at a discount to NAV which ensures that these
transactions are accretive to the NAV per share and enhance NAV returns for
shareholders.
Since the period end and as at the date of this report, the Company has bought
back 330,000 shares to be held in treasury for a total consideration of
£4,092,000 at an average discount of 13.5%. Collectively, this share buyback
activity undertaken in 2023 contributed 0.13% to the NAV per share return over
this period.
BOARD COMPOSITION, IMPLEMENTATION OF POLICY ON TENURE AND DIVERSITY
In previous Chairman's Statements, I have noted that the Board has adopted a
policy of limiting directors' tenure to nine years (or twelve years in the case
of the Chairman in certain circumstances). The Board remains focused on high
standards of governance and is cognisant that the Parker Review in respect of
board diversity and the recent changes to the FCA's Listing Rules set new
diversity targets and associated disclosure requirements for UK companies listed
on the premium and standard segment of the London Stock Exchange. Your Board
recognises the benefits of diversity at Board level and believes that Directors
should have a mix of different skills, experience, backgrounds, ethnicity,
gender and other characteristics.
The Board appointed an external agency to undertake a search and selection
process in 2023 with the aim of further enhancing Board diversity. A broad range
of factors were taken into account in setting the appointment brief and during
the search and selection process. These will be underpinned by our conviction
that all Board appointments must be made on merit, in the context of the skills,
experience, independence and knowledge which the Board as a whole requires to be
effective.
As previously announced, the Board has appointed a new Director, Ms Dunke Afe,
as a non-executive Director with effect from 1 January 2024. Ms Afe is an
accomplished global marketing executive with extensive experience in raising
brand and product awareness, as a marketing expert the Board expects this to be
helpful for the Company in the future. She has previously worked with top blue
chip multinationals including Unilever, Kimberly-Clark and Estee Lauder
companies. She is also a non-Executive Director of CT UK Capital and Income
Investment Trust plc. We look forward to benefitting from her outstanding
marketing knowledge and insights as we navigate an increasingly competitive
environment for investor attention.
OUTLOOK
Since the period end, and up until the close of business on 23 October 2023, the
Company's NAV per share fell by 5.9%1,2 and the share price decreased by 6.9%,
whilst the benchmark fell by 8.3%1.
There are indications that we may be reaching the peak of the current interest
rate hike cycle, which may be the catalyst for a change in sentiment towards UK
risk assets and smaller companies in particular and in turn a potential re
-rating of our asset class. The Board believes that this presents a compelling
investment opportunity for the medium to long-term investor. Our Portfolio
Manager's focus on financially strong companies with innovative and disruptive
business models and market leading offerings should, over time, see a return of
the strong and consistent investment performance to which our shareholders have
become accustomed. Your Board therefore remains fully supportive of our
Portfolio Manager, their investment philosophy and the investment approach.
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
25 October 2023
1All calculations are in Sterling terms with dividends reinvested.
2Debt at fair value.
INVESTMENT MANAGER'S REPORT FOR THE SIX MONTHSED 31 AUGUST 2023
We are now in one of the deepest and longest cycles of UK small and mid-cap
underperformance in recent history, and if there is one question I have heard
more than any other this year on the lips of every investor and potential
investor in UK equities, it is "but what is the catalyst?" The question itself
is telling, it suggests most investors accept that most of the prerequisites for
investing (valuation, outlook, opportunity) have been accomplished; yet one
major impediment remains: the elusive catalyst.
In this report I hope to provide some degree of comfort that our on-going
positivity towards the UK Small and Mid-cap market is well founded, that the
economic outlook whilst still volatile and uncertain is perhaps not as bad as
some fear, that structural changes present opportunity, and that investors from
outside the equity market (such as Private Equity firms) are starting to take
interest.
Our process has forever been bottom-up, focused on the specifics of each
investment case and the opportunity that each individual company brings. Over
time this analysis, when correctly placed, will identify companies capable over
many years of compounding earnings growth which will eventually and inevitably
be reflected in share prices. Unfortunately, there can be periods where earnings
and share prices fundamentally disconnect, and we are most certainly in one of
those periods. As such, unusually, we will begin this report with a focus on the
market environment.
During the final quarter of 2021 the market correctly identified that inflation
and therefore rising interest rates were a risk, catalysing a dramatic and
prolonged period of Small and Mid-cap underperformance. To put this in context,
this cycle of mid-cap underperformance is worse than those experienced during
the Global Financial Crisis of 2008, COVID-19, Brexit, the bursting of the Tech
bubble and subsequent sell-off of 2001 and the Black Monday stock market crash
of 1987. In the face of rapidly accelerating inflation, Central Banks bought a
sudden and immediate end to the global low interest rate policy.
In the face of this, the UK has been highlighted by many as a particularly weak
economy, with inflation more persistent than other developed nations, a poor
recent record of growth, a succession of Prime Ministers, a weakening consumer
environment, and a collapsing housing market. All of these factors have been
compounded by the on-going disruption caused by Brexit. However, we would
question this negative narrative. Starting with inflation (where recent
published data has shown a moderation from the high levels previously
experienced) we note that higher wage settlements are starting to feed through
into the economy. The result is a potential increase in real wages towards the
end of the year which (all else being equal) will be supportive for consumer
spending. How about mortgage costs? No doubt mortgage costs at the population
level are increasing, and will continue to do so, but the transmission mechanism
is not as immediate as in previous interest rate cycles, with a higher
proportion of mortgages on five-year fixed rate deals, giving time for wage
growth to moderate the impact (or indeed for the rate cycle to start to turn).
There is no doubt the housing market will continue to face headwinds as
potential homeowners either struggle to find willing lenders or hold off
purchases in the expectation of a better deal next year, but we believe that the
housing market will eventually bounce back perhaps as a reaction to government
policy. Finally, we note that unemployment, which tends to have a high
correlation to consumer confidence, has remained low.
However, the negative narrative has gained traction, bolstered by a political
backdrop which gives a perception of a country in turmoil. It is interesting to
note the recent changes to GDP statistics show that rather than lagging behind
pre-COVID-19 GDP, the UK has in fact recovered all lost ground. But perception
matters, and in the case of equity markets, perception manifests in flows, with
the UK Small-cap market recording negative flows every month since September
2021. We note the recent statements from the Chancellor with regards to
encouraging equity ownership in the UK, and from the London Stock Exchange with
regards to reviewing and amending the Listing Rules in an attempt to encourage
more companies to list in the UK. We also have to acknowledge the potential for
the Labour party to win the next election, a party who are currently projecting
a more market friendly set of policies, not least with regards to housing.
If equity investors are unwilling to take advantage of the valuation
opportunities that currently exist, there are other forms of capital more than
capable of doing so. After a lull around the time of the Truss budget, M&A
activity has started to step up again in the UK. The Company has directly
benefited from Deutsche Bank's acquisition of broker Numis, and the recently
announced offer for Ergomed. But whilst the Company has had limited
participation, there have been a number of bids in the market from cash rich
Private Equity firms. Given the huge sums these parties have to invest, and the
attractive valuations of UK assets, we would expect this to continue.
Whilst the narrative so far has focused on the UK, we should not forget that the
UK market is not the UK economy. UK listed growth companies have significant
international exposure and global trends matter. From a global perspective we
see a number of opportunities. The significant disruption to supply chains
brought about by COVID-19 will see a prolonged period of capital investment.
Investment will be made to near shore or "friend shore" essential components,
supported by government initiatives such as the Inflation Reduction Act. The
increasing cost of labour will lead to a long overdue investment in productivity
as firms look to reduce labour content and automate where possible. This brings
us on to those two magic letters, "AI" (Artificial Intelligence). AI has hit the
headlines at a furious pace this year. Never have we seen a technology so widely
adopted so quickly. AI will change business models and industries for years to
come, there will be use cases that haven't been thought of yet. But as with all
new waves of technology, the reality is often more nuanced than the rhetoric
would suggest, leading to opportunities to invest in businesses where the
valuation suggests their business models will be obliterated.
And so we turn to performance. The Company's NAV (debt at fair value) fell by
7.3% during the first half of the year, broadly in line with the benchmark which
fell by 6.9%. Whilst it is disappointing that we didn't produce a more positive
result for the six months, it is comforting to note that the accelerated
devaluation of UK growth companies appears to have passed, leaving share prices
much more correlated to underlying earnings rather than sentiment.
4imprint Group has once again been the most significant contributor to
performance. Long term holders of the Company will have heard this story many
times before, indeed it is the consistency of the investment case that is so
attractive. 4Imprint Group provides promotional products into the US market,
where 6% market share makes them the overwhelming market leader. Management
continue to fine tune their advertising strategy, exploring different media and
developing the brand, whilst investing in the infrastructure required to fulfil
the subsequent demand. Following the disposal of their French galvanising
operations, Hill & Smith is now much more exposed to structurally growing US
infrastructure expenditure, which itself is supported by a number of initiatives
from the US Democratic Party. The recent interim statement demonstrated the
benefit of this re-positioning, with 29% revenue growth in the Engineered
Solutions division. Veterinary group CVS Group performed strongly in the period
under discussion, although it would be remiss not to address the more recent
newsflow regarding the CMA's decision to conduct a market study into the
veterinary sector. It would be inappropriate for us to comment on the merits of
an investigation or to pre-empt the Competition and Markets Authority's (CMA)
conclusions, we would however note that previous investigations into sectors
with far higher margins have proposed behavioural remedies rather than price
controls. We accept the CMA provides unwelcome uncertainty to the CVS Group
investment case, which is frustrating given the continued operational success
and new Australian acquisition strategy. Finally Baltic Classifieds Group has
seen a recovery in the share price following the substantial drop that followed
the Russian invasion of Ukraine. Trading at Baltic Classifieds Group has
remained robust, with continued investment in their brands leading to the
already substantial gap to their rivals widening even further.
Turning to the positions that have detracted from performance it is frustrating
to once again be highlighting Watches of Switzerland as the largest detractor.
The shares were weak through the period on persistent fears of a slowdown in the
luxury watch category. A trading statement in May highlighted some weakness in
margins, but this was due to the cost of providing interest free credit, not due
to underlying demand. The following statement in July reinforced the demand
outlook, and started to generate some positive momentum in the shares.
Frustratingly this has been curtailed by Rolex's acquisition of jeweller
Bucherer, which raises the prospect of Rolex diverting volume to their own
retail operations, although Rolex have been clear to point out they expect their
retail partners to see no impact. As with CVS Group this "black swan" event
increases the range of outcomes for the industry but we feel this is captured in
the 10x PE that Watches of Switzerland now trades on. One of the peculiarities
of the Numis Smaller Companies Benchmark is that the constituents are rebalanced
on an annual basis, rather than the quarterly basis that is more common in FTSE
or MSCI benchmarks. Typically this isn't an issue, but following years where
market moves have been more extreme it brings the "fallen angels" into the top
end of the benchmark. This year we have seen Aston Martin, Burford, Carnival and
Alphawave all fall into the benchmark. For a variety of reasons none of these
businesses pass our investment criteria, it could be market position, debt
levels, or earnings visibility. However this doesn't mean they don't meet the
criteria for other investors, or indeed look attractive simply because of the
scale of the decline in their share prices. Collectively the rally in these
shares has cost nearly 2% in relative performance.
The fallen angel phenomenon has presented us with the opportunity to invest in
some exciting new opportunities. The first of these is UK defence business
Babcock, where the new management team are getting to grips with the business,
have reset margin expectations, disposed of non core assets to put the balance
sheet into good shape, and most importantly repaired the relationship with the
Ministry of Defence. Industry change is an important dynamic, and when we see
industry participants change their business models it often presents an
opportunity. The food delivery industry has been unattractive to us for a number
of years, with unprofitable players battling for market share in a world where
cash was easy to come by. However rising rates have changed the rules of the
game, leading to a focus on profitability. With this in mind we have initiated a
position in Deliveroo.
We have exited a few positions in the period. The most significant has been
Alpha Financial Markets Consulting, where we have become worried about budgetary
pressure and extended decision making in their client base. We also exited
Spirent for similar reasons. On a more positive note we sold our position in
Numis post the announcement of the approach from Deutsche Bank.
Inevitably we have to come back to the awkward question posed at the start,
"what is the catalyst to end this period of UK Small and Mid-cap
underperformance?" Sadly the answer is unsatisfactory. I don't know. There it
is, I simply don't know. So often the catalyst is something we only see in a
rear view mirror, a moment that is only identified from post event analysis, a
trough on a Bloomberg chart we look back on and say "that was the bottom, and
what an opportunity it was". I have highlighted the issues (the economic
uncertainty, the political uncertainty, the structural flow issues in the UK
market, the risk of more pervasive inflation) but also the opportunities (the
companies delivering on their ambitions, the potential end of interest rate
rises, the significant level of return-hungry outside capital, the industries
going through structural change, and the impact government measures can have).
At some point investors will decide the balance of probabilities is in favour of
the opportunities, that the risks are more than adequately priced in, and that
an increased allocation to UK Small and Mid-caps is warranted. In the meantime
quality management teams will get on with the day job, manage their businesses,
grow their earnings, and wait patiently for the day when share prices reward us
all.
Roland Arnold
BlackRock Investment Management (UK) Limited
25 October 2023
TWENTY LARGEST INVESTMENTS AS AT 31 AUGUST 2023
Company Business activity Market % of
value total
£'000 portfolio
4imprint Group Promotional 20,726 2.8
merchandise in the US
CVS Group Operator of veterinary 20,545 2.7
surgeries
Gamma Communications Provider of 19,403 2.6
communication services
to UK
businesses
Hill & Smith Production of 16,878 2.2
infrastructure
products and
supply of galvanizing
services
Workspace Group Supply of flexible 15,029 2.0
workspace to
businesses
in London
Breedon UK construction 14,539 1.9
materials
Chemring Group Advanced technology 14,161 1.9
products and services
for the aerospace,
defence and security
markets
Watches of Retailer of luxury 13,231 1.8
Switzerland watches
Oxford Instruments Designer and 13,150 1.7
manufacturer of tools
and
systems for industry
and scientific
research
Baltic Classifieds Operator of online 13,138 1.7
Group classified businesses
in
the Baltics
Bloomsbury Publisher of fiction 13,071 1.7
Publishing and non-fiction
Ergomed Provider of 12,998 1.7
pharmaceuticals
services
Tatton Asset Provider of 12,938 1.7
Management discretionary fund
management
services to financial
advisors
Moneysupermarket.com Price comparison 12,592 1.7
website specialising
in
financial services
QinetiQ Group British multi-national 12,370 1.6
defence technology
company
YouGov International online 11,838 1.6
research data and
analysis group
TT Electronics Global manufacturer of 11,414 1.5
electronic components
Auction Technology Operator of 10,974 1.5
Group marketplaces for
curated online
auctions
Grafton Builders merchants in 10,954 1.5
the UK, Ireland and
Netherlands
IntegraFin Investment platform 10,340 1.4
for financial advisers
Twenty largest 280,289 37.2
investments
Remaining 473,470 62.8
investments
---------- ----------
------ ------
Total 753,759 100.0
========== ==========
Details of the full portfolio are available on the Company's website at
www.blackrock.com/uk/brsc.
Portfolio holdings in excess of 3% of issued share capital
At 31 August 2023, 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
City Pub Group 5.2
The Pebble Group 5.0
Tatton Asset Management 4.4
Ten Entertainment Group 4.4
Distribution Finance Capital Holdings 4.2
Bloomsbury Publishing 3.9
TT Electronics 3.8
Animalcare Group 3.6
Robert Walters 3.5
Kitwave Group 3.4
Mercia Asset Management 3.4
Fuller Smith & Turner - A Shares 3.3
Gresham Technologies 3.3
Macfarlane Group 3.3
INVESTMENT EXPOSURE AS AT 31 AUGUST 2023
Investment size
Number of investments Market value of investments as % of portfolio
£0m to 2 0.2
£1m
£2m to 3 0.9
£3m
£3m to 12 5.7
£4m
£4m to 13 7.5
£5m
£5m to 17 12.5
£6m
£6m to 8 6.8
£7m
£7m to 14 13.7
£8m
£8m to 7 7.8
£9m
£9m to 5 6.3
£10m
£10m 4 5.6
to
£11m
£11m 2 3.1
to
£12m
£12m 4 6.8
to
£13m
£13m 4 7.0
to
£14m
£14m 2 3.8
to
£15m
£15m 1 2.0
to
£16m
£16m 1 2.2
to
£17m
£19m 1 2.6
to
£20m
£20m 2 5.5
to
£21m
Source: BlackRock.
Analysis of portfolio value by sector
Company Benchmark
(Numis Smaller Companies, plus AIM
(ex Investment Companies) Index)
Other 0.0 0.8
Energy 2.7 5.2
Basic Materials 8.6 7.3
Industrials 32.5 21.8
Consumer Discretionary 19.6 17.8
Health Care 3.7 3.9
Consumer Staples 7.8 7.8
Telecommunications 1.7 1.6
Financials 14.5 16.8
Real Estate 0.8 6.5
Technology 8.1 9.8
Utilities 0.0 0.7
Sources: BlackRock and Datastream.
INTERIM MANAGEMENT REPORT AND RESPONSIBILITY STATEMENT
The Chairman's Statement and the Investment Manager's Report above give details
of the important events which have occurred during the period and their impact
on the financial statements.
Principal risks and uncertainties
The principal risks faced by the Company can be divided into various areas as
follows:
?Investment performance;
?Market;
?Counterparty;
?Income/dividend;
?Legal and regulatory compliance;
?Operational;
?Financial; and
?Marketing.
The Board reported on the principal risks and uncertainties faced by the Company
in the Annual Report and Financial Statements for the year ended 28 February
2023. A detailed explanation can be found in the Strategic Report on pages 31 to
34 and note 17 on pages 92 to 99 of the Annual Report and Financial Statements
which is available on the website maintained by BlackRock at
www.blackrock.com/uk/brsc.
The Board and the Investment Manager continue to monitor investment performance
in line with the Company's investment objectives, and the operations of the
Company and the publication of net asset values are continuing.
In the view of the Board, there have not been any changes to the fundamental
nature of the principal risks and uncertainties since the previous report and
these are equally applicable to the remaining six months of the financial year
as they were to the six months under review.
Going concern
The Board is mindful of the risk that unforeseen or unprecedented events
including (but not limited to) heightened geopolitical tensions such as the war
in Ukraine, high inflation and the current cost of living crisis has had a
significant impact on global markets. Notwithstanding this significant degree of
uncertainty, the Directors, having considered the nature and liquidity of the
portfolio, the Company's investment objective, the Company's projected income
and expenditure, are satisfied that the Company has adequate resources to
continue in operational existence for the foreseeable future and is financially
sound.
Related party disclosure and transactions with the AIFM and Investment Manager
BlackRock Fund Managers Limited (BFM) was appointed as the Company's Alternative
Investment Fund Manager (AIFM) with effect from 2 July 2014. BFM has (with the
Company's consent) delegated certain portfolio and risk management services, and
other ancillary services, to BlackRock Investment Management (UK) Limited (BIM
(UK)). Both BFM and BIM (UK) are regarded as related parties under the Listing
Rules. Details of the management and marketing fees payable are set out in notes
4 and 5 respectively and note 14 below. The related party transactions with the
Directors are set out in note 15 below.
Directors' Responsibility Statement
The Disclosure Guidance and Transparency Rules (DTR) of the UK Listing Authority
require the Directors to confirm their responsibilities in relation to the
preparation and publication of the Interim Management Report and Financial
Statements.
The Directors confirm to the best of their knowledge and belief that:
?the condensed set of financial statements contained within the Half Yearly
Financial Report has been prepared in accordance with the applicable UK
Accounting Standard FRS 104 Interim Financial Reporting; and
?the Interim Management Report together with the Chairman's Statement and
Investment Manager's Report, include a fair review of the information required
by 4.2.7R and 4.2.8R of the Financial Conduct Authority's (FCA) Disclosure
Guidance and Transparency Rules.
The Half Yearly Financial Report has not been audited or reviewed by the
Company's Auditor.
The Half Yearly Financial Report was approved by the Board on 25 October 2023
and the above Responsibility Statement was signed on its behalf by the Chairman.
Ronald Gould
for and on behalf of the Board
25 October 2023
INCOME STATEMENT FOR THE SIX MONTHSED 31 AUGUST 2023
Six months Six months
Year ended
ended ended
28
31 August 31 August
February
2023 2022
2023
(unaudited) (unaudited)
(audited)
Notes Revenue Capital Total Revenue Capital
Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000
£'000 £'000 £'000 £'000
Losses on - (69,846) (69,846) - (165,111)
(165,111) - (155,358) (155,358)
investments
held
at fair
value
through
profit or
loss
Gains/(losse - - - - 12
12 - (5) (5)
s) on
foreign
exchange
Income from 3 13,385 782 14,167 13,371 -
13,371 21,468 - 21,468
investments
held
at fair
value
through
profit or
loss
Other 3 155 - 155 368 -
368 1,237 - 1,237
income
----------- ---------- ---------- ----------- ---------
- ---------- ---------- ---------- ----------
----- ------ ------ ----- ------
------ ------ ------ ------
Total 13,540 (69,064) (55,524) 13,739 (165,099)
(151,360) 22,705 (155,363) (132,658)
income/(loss
)
========== ========== ========== ==========
========== ========== ========== ========== ==========
Expenses
Investment 4 (564) (1,692) (2,256) (638) (1,915)
(2,553) (1,196) (3,588) (4,784)
management
fee
Operating 5 (439) (14) (453) (436) (12)
(448) (832) (22) (854)
expenses
----------- ---------- ---------- ----------- ---------
- ---------- ---------- ---------- ----------
----- ------ ------ ----- ------
------ ------ ------ ------
Total (1,003) (1,706) (2,709) (1,074) (1,927)
(3,001) (2,028) (3,610) (5,638)
operating
expenses
========== ========== ========== ==========
========== ========== ========== ========== ==========
Net 12,537 (70,770) (58,233) 12,665 (167,026)
(154,361) 20,677 (158,973) (138,296)
profit/(loss
)
on ordinary
activities
before
finance
costs and
taxation
Finance 6 (237) (708) (945) (356) (1,067)
(1,423) (577) (1,733) (2,310)
costs
----------- ---------- ---------- ----------- ---------
- ---------- ---------- ---------- ----------
----- ------ ------ ----- ------
------ ------ ------ ------
Net 12,300 (71,478) (59,178) 12,309 (168,093)
(155,784) 20,100 (160,706) (140,606)
profit/(loss
)
on ordinary
activities
before
taxation
========== ========== ========== ==========
========== ========== ========== ========== ==========
Taxation (88) - (88) (66) -
(66) (120) - (120)
----------- ---------- ---------- ----------- ---------
- ---------- ---------- ---------- ----------
----- ------ ------ ----- ------
------ ------ ------ ------
Net 12,212 (71,478) (59,266) 12,243 (168,093)
(155,850) 19,980 (160,706) (140,726)
profit/(loss
)
on ordinary
activities
after
taxation
========== ========== ========== ==========
========== ========== ========== ========== ==========
Earnings/(lo 8 25.11 (146.99) (121.88) 25.07 (344.24)
(319.17) 40.92 (329.12) (288.20)
ss)
per
ordinary
share
(pence) -
basic
and diluted
========== ========== ========== ==========
========== ========== ========== ========== ==========
The total columns of this statement represent the Company's profit and loss
account. The supplementary revenue and capital accounts 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 period. All income is attributable to the
equity holders of the Company.
The net profit/(loss) for the period disclosed above represents the Company's
total comprehensive income/(loss).
STATEMENT OF CHANGES IN EQUITY FOR THE SIX MONTHSED 31 AUGUST 2023
Called Share Capital Capital Revenue
Total
up share premium redemption reserves reserve
£'000
capital account reserve £'000 £'000
£'000 £'000 £'000
For the six
months ended
31
August 2023
(unaudited)
At 28 12,498 51,980 1,982 673,479 18,590
758,529
February 2023
Total
comprehensive
(loss)/income:
Net - - - (71,478) 12,212
(59,266)
(loss)/profit
for the
period
Transactions
with owners,
recorded
directly to
equity:
Ordinary - - - (3,272) -
(3,272)
shares
repurchased
into treasury
Share buyback - - - (23) - (23)
costs
Dividends - - - - (12,395)
(12,395)
paid1
---------- ---------- ---------- ---------- ---------- ----
------
------ ------ ------ ------ ------ ----
--
At 31 August 12,498 51,980 1,982 598,706 18,407
683,573
2023
========== ========== ========== ========== ==========
==========
For the six
months ended
31
August 2022
(unaudited)
At 28 12,498 51,980 1,982 834,185 16,433
917,078
February 2022
Total
comprehensive
(loss)/income:
Net - - - (168,093) 12,243
(155,850)
(loss)/profit
for the
period
Transactions
with owners,
recorded
directly to
equity:
Dividends - - - - (10,743)
(10,743)
paid2
---------- ---------- ---------- ---------- ---------- ----
------
------ ------ ------ ------ ------ ----
--
At 31 August 12,498 51,980 1,982 666,092 17,933
750,485
2022
========== ========== ========== ========== ==========
==========
For the year
ended 28
February 2023
(audited)
At 28 12,498 51,980 1,982 834,185 16,433
917,078
February 2022
Total
comprehensive
(loss)/income:
Net - - - (160,706) 19,980
(140,726)
(loss)/profit
for the
year
Transactions
with owners,
recorded
directly to
equity:
Dividends - - - - (17,823)
(17,823)
paid3
---------- ---------- ---------- ---------- ---------- ----
------
------ ------ ------ ------ ------ ----
--
At 28 12,498 51,980 1,982 673,479 18,590
758,529
February 2023
========== ========== ========== ========== ==========
==========
1Final dividend paid in respect of the year ended 28 February 2023 of 25.50p per
share was declared on 9 May 2023 and paid on 27 June 2023.
2Final dividend paid in respect of the year ended 28 February 2022 of 22.00p was
declared on 29 April 2022 and paid on 17 June 2022.
3Interim dividend paid in respect of the year ended 28 February 2023 of 14.50p
was declared on 3 November 2022 and paid on 9 December 2022. Final dividend paid
in respect of the year ended 28 February 2022 of 22.00p was declared on 29 April
2022 and paid on 17 June 2022.
For information on the Company's distributable reserves, please refer to note 12
below.
BALANCE SHEET AS AT 31 AUGUST 2023
Notes 31 August 31 August 28
2023 2022 February
(unaudited) (unaudited) 2023
£'000 £'000 (audited)
£'000
Fixed assets
Investments held at fair value 13 753,759 734,959 806,088
through profit or loss
----------- ----------- ----------
----- ----- ------
Current assets
Current tax assets 177 78 97
Debtors 2,092 4,173 6,858
Cash and cash equivalents 644 85,189 23,536
----------- ----------- ----------
----- ----- ------
Total current assets 2,913 89,440 30,491
========== ========== ==========
Creditors - amounts falling due
within one year
Other creditors (3,580) (4,423) (8,546)
----------- ----------- ----------
----- ----- ------
Net current (667) 85,017 21,945
(liabilities)/assets
========== ========== ==========
Total assets less current 753,092 819,976 828,033
liabilities
========== ========== ==========
Creditors - amounts falling due 9, 10 (69,519) (69,491) (69,504)
after more than one year
----------- ----------- ----------
----- ----- ------
Net assets 683,573 750,485 758,529
========== ========== ==========
Capital and reserves
Called up share capital 11 12,498 12,498 12,498
Share premium account 51,980 51,980 51,980
Capital redemption reserve 1,982 1,982 1,982
Capital reserves 598,706 666,092 673,479
Revenue reserve 18,407 17,933 18,590
----------- ----------- ----------
----- ----- ------
Total shareholders' funds 8 683,573 750,485 758,529
========== ========== ==========
Net asset value per ordinary 8 1,407.04 1,536.94 1,553.41
share (debt at par value)
(pence)
----------- ----------- ----------
----- ----- ------
Net asset value per ordinary 8 1,460.02 1,572.01 1,601.42
share (debt at fair value)
(pence)
========== ========== ==========
STATEMENT OF CASH FLOWS FOR THE SIX MONTHSED 31 AUGUST 2023
Six months Six months Year
ended ended ended
31 31 28 February2023
August2023 August2022 (audited)
(unaudited) (unaudited) £'000
£'000 £'000
Operating activities
Net loss on ordinary activities (59,178) (155,784) (140,606)
before taxation
Add back finance costs 945 1,423 2,310
Losses on investments held at 69,846 165,111 155,358
fair value through profit or loss
Net movement in foreign exchange - (12) 5
Sales of investments held at fair 149,604 178,013 304,837
value through profit or loss
Purchases of investments held at (163,539) (120,867) (309,973)
fair value through profit or loss
Net amount for capital special (782) - -
dividends received
Increase in debtors (771) (629) (591)
(Decrease)/increase in creditors (2,315) (2,269) 36
Taxation on investment income (88) (66) (120)
----------- ----------- ----------------
----- -----
Net cash (used in)/generated from (6,278) 64,920 11,256
operating activities
========== ========== ==========
Financing activities
Redemption of 7.75% debenture - (15,000) (15,000)
stock
Repayment of SMBC Bank - (25,000) (25,000)
International plc revolving
credit facility
Interest paid (924) (1,479) (2,371)
Ordinary shares repurchased into (3,295) - -
treasury
Dividends paid (12,395) (10,743) (17,823)
----------- ----------- ----------------
----- -----
Net cash used in financing (16,614) (52,222) (60,194)
activities
========== ========== ==========
(Decrease)/increase in cash and (22,892) 12,698 (48,938)
cash equivalents
Cash and cash equivalents at 23,536 72,479 72,479
beginning of the period/year
Effect of foreign exchange rate - 12 (5)
changes
----------- ----------- ----------------
----- -----
Cash and cash equivalents at end 644 85,189 23,536
of period/year
========== ========== ==========
Comprised of:
Cash at bank 644 8,826 794
Cash Fund* - 76,363 22,742
----------- ----------- ----------------
----- -----
644 85,189 23,536
========== ========== ==========
*Cash Fund represents funds held on deposit with the BlackRock Institutional
Cash Series plc - Sterling Liquid Environmentally Aware Fund.
NOTES TO THE FINANCIAL STATEMENTS FOR THE SIX MONTHSED 31 AUGUST 2023
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. BASIS OF PREPARATION
The financial statements of the Company are prepared on a going concern basis in
accordance with Financial Reporting Standard 104 Interim Financial Reporting
(FRS 104) applicable in the United Kingdom and Republic of Ireland 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 updated in July 2022, and the
provisions of the Companies Act 2006.
The accounting policies and estimation techniques applied for the condensed set
of financial statements are as set out in the Company's Annual Report and
Financial Statements for the year ended 28 February 2023.
3. INCOME
Six months Six months Year
ended ended ended
31 August2023 31 August2022 28 February2023
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Investment income1:
UK dividends 9,686 9,347 15,162
UK special dividends 984 210 389
Property income dividends 558 571 851
Overseas dividends 2,157 2,526 4,348
Overseas special dividends - 717 718
---------------- ---------------- ----------------
Total investment income 13,385 13,371 21,468
========== ========== ==========
Other income:
Bank interest 3 4 76
Interest from Cash Fund 152 364 1,161
---------------- ---------------- ----------------
155 368 1,237
========== ========== ==========
Total income 13,540 13,739 22,705
========== ========== ==========
1UK and overseas dividends are disclosed based on the country of domicile of the
underlying portfolio company.
Special dividends of £782,000 have been recognised in capital during the period
ended 31 August 2023 (six months ended 31 August 2022: £nil; year ended 28
February 2023: £nil).
Dividends and interest received in cash in the period amounted to £12,413,000
and £231,000 (six months ended 31 August 2022: £12,760,000 and £282,000; year
ended 28 February 2023: £20,835,000 and £1,174,000).
4. INVESTMENT MANAGEMENT FEE
Six months Six months
Year ended
ended ended
28
31 August 31 August
February
2023 2022
2023
(unaudited) (unaudited)
(audited)
Revenue Capital Total Revenue Capital Total
Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
£'000 £'000 £'000
Investment 564 1,692 2,256 638 1,915 2,553
1,196 3,588 4,784
management
fee
----------- ---------- ---------- ----------- ---------- ------
---- ---------- ---------- ----------
----- ------ ------ ----- ------ ------
------ ------ ------
Total 564 1,692 2,256 638 1,915 2,553
1,196 3,588 4,784
========== ========== ========== ========== ==========
========== ========== ========== ==========
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 25% to the revenue account and 75% to the
capital account of the Income Statement.
5. OPERATING EXPENSES
Six monthsended Six monthsended Yearended
31 August2023 31 August2022 28 February2023
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Allocated to
revenue:
Custody fees 5 5 9
Depositary fees 52 52 98
Auditor's 34 23 48
remuneration
Registrar's fee 19 21 45
Directors' 90 90 188
emoluments
Director search 18 - 4
fees
Marketing fees 59 109 170
AIC fees 11 11 21
Bank charges 16 28 51
Broker fees 18 18 40
Stock exchange 17 27 48
listings
Printing and 22 16 37
postage fees
Legal fees 8 6 -
Prior year (7) (23) (7)
expenses written
back1
Other 77 53 80
administrative
costs
---------------- ---------------- ----------------
439 436 832
========== ========== ==========
Allocated to
capital:
Custody 14 12 22
transaction
charges2
---------------- ---------------- ----------------
453 448 854
========== ========== ==========
1Relates to prior year accruals for depositary fees and miscellaneous fees
written back during the six month period ended 31 August 2023 (six months ended
31 August 2022: legal fees and Directors' expenses; year ended 28 February 2023:
legal fees).
2For the six month period ended 31 August 2023, expenses of £14,000 (six months
ended 31 August 2022: £12,000; year ended 28 February 2023: £22,000) were
charged to the capital account of the Income Statement. These relate to
transaction costs charged by the custodian on sale and purchase trades.
The direct transaction costs incurred on the acquisition of investments amounted
to £708,000 for the six months ended 31 August 2023 (six months ended 31 August
2022: £427,000; year ended 28 February 2023: £1,233,000). Costs relating to the
disposal of investments amounted to £113,000 for the six months ended 31 August
2023 (six months ended 31 August 2022: £142,000; year ended 28 February 2023:
£243,000). All direct transaction costs have been included within capital
reserves.
6. FINANCE COSTS
Six months Six months
Year ended
ended ended
28
31 August 31 August
February
2023 2022
2023
(unaudited) (unaudited)
(audited)
Revenue Capital Total Revenue Capital Total
Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
£'000 £'000 £'000
Interest - - - 120 360 480
117 355 472
on
7.75%
debenture
stock
20221
Interest 87 260 347 87 260 347
173 518 691
on
2.74%
loan
note 2037
Interest 60 182 242 60 182 242
121 362 483
on
2.41%
loan
note 2044
Interest 76 228 304 76 228 304
152 456 608
on
2.47%
loan
note 2046
Interest - - - 8 23 31
6 18 24
on
bank loan
Interest 10 28 38 - - -
- - -
on
bank
overdraft
7.75% - - - 1 4 5
- 4 4
Amortised
debenture
stock
issue
expenses1
2.74% 2 5 7 2 5 7
4 10 14
Amortised
loan
note
issue
expenses
2.41% 1 2 3 1 2 3
2 5 7
Amortised
loan
note
issue
expenses
2.47% 1 3 4 1 3 4
2 5 7
Amortised
loan
note
issue
expenses
----------- ---------- ---------- ----------- ---------- -------
--- ---------- ---------- ----------
----- ------ ------ ----- ------ ------
------ ------ ------
Total 237 708 945 356 1,067 1,423
577 1,733 2,310
========== ========== ========== ========== ==========
========== ========== ========== ==========
1The £15 million 7.75% debenture stock was redeemed at par on 31 July 2022.
Finance costs have been allocated 25% to the revenue account and 75% to the
capital account of the Income Statement.
7. DIVIDS
In accordance with FRS 102, Section 32 Events After the End of the Reporting
Period, the interim dividend payable on the ordinary shares has not been
included as a liability in the financial statements, as interim dividends are
only recognised when they have been paid.
The Board has declared an interim dividend of 15.00p per share (31 August 2022:
14.50p per share), payable on 4 December 2023 to shareholders on the Company's
register as at 3 November 2023; the ex-dividend date is 2 November 2023. The
total cost of this dividend, based on 48,252,292 shares in issue at 23 October
2023, is £7,238,000 (31 August 2022: £7,080,000).
8. RETURNS AND NET ASSET VALUE PER SHARE
Revenue earnings, capital loss and net asset value per share are shown below and
have been calculated using the following:
Six monthsended Six monthsended Yearended
31 August2023 31 August2022 28 February2023
(unaudited) (unaudited) (audited)
Revenue return 12,212 12,243 19,980
attributable to ordinary
shareholders (£'000)
Capital loss (71,478) (168,093) (160,706)
attributable to ordinary
shareholders (£'000)
---------------- ---------------- ----------------
Total loss attributable (59,266) (155,850) (140,726)
to ordinary shareholders
(£'000)
========== ========== ==========
Total shareholders' 683,573 750,485 758,529
funds (£'000)
========== ========== ==========
The weighted average 48,625,566 48,829,792 48,829,792
number of ordinary
shares in issue during
the period on which the
earnings per ordinary
share was calculated
was:
The actual number of 48,582,292 48,829,792 48,829,792
ordinary shares in issue
at the end of each
period on which the
undiluted net asset
value was calculated
was:
---------------- ---------------- ----------------
Earnings per share
Revenue return per share 25.11 25.07 40.92
(pence) - basic and
diluted
Capital loss per share (146.99) (344.24) (329.12)
(pence) - basic and
diluted
---------------- ---------------- ----------------
Total loss per share (121.88) (319.17) (288.20)
(pence) - basic and
diluted
========== ========== ==========
As at As at As at
31 August2023 31 August2022 28 February2023
(unaudited) (unaudited) (audited)
Net asset value per ordinary 1,407.04 1,536.94 1,553.41
share (debt at par value)
(pence)
Net asset value per ordinary 1,460.02 1,572.01 1,601.42
share (debt at fair value)
(pence)
Ordinary share price (pence) 1,268.00 1,344.00 1,380.00
9. BORROWINGS
Six Six monthsended Yearended
monthsended 31 August2022 28 February2023
31 (unaudited) (audited)
August2023 £'000 £'000
(unaudited)
£'000
Amounts falling due after
more than one year
2.74% loan note 2037 25,000 25,000 25,000
Unamortised loan note (189) (203) (196)
issue expenses
----------- ---------------- ----------------
-----
24,811 24,797 24,804
========== ========== ==========
2.41% loan note 2044 20,000 20,000 20,000
Unamortised loan note (136) (143) (140)
issue expenses
----------- ---------------- ----------------
-----
19,864 19,857 19,860
========== ========== ==========
2.47% loan note 2046 25,000 25,000 25,000
Unamortised loan note (156) (163) (160)
issue expenses
----------- ---------------- ----------------
-----
24,844 24,837 24,840
========== ========== ==========
Total amounts falling due 69,519 69,491 69,504
after more than one year
========== ========== ==========
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 31
August 2023 equated to a valuation of 72.24p per note (31 August 2022: 82.80p;
28 February 2023: 75.22p), a total of £18,060,000 (31 August 2022: £20,700,000;
28 February 2023: £18,805,000). 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 31 August 2023 equated to a valuation of 59.30p
per note (31 August 2022: 72.74p; 28 February 2023: 62.80p), a total of
£11,860,000 (31 August 2022: £15,548,000; 28 February 2023: £12,560,000). The
fair value of the 2.47% loan note has been determined based on a comparative
yield for UK Gilts for similar duration maturity and spreads, and as at 31
August 2023 equated to a valuation of 55.44p per note (31 August 2022: 68.48p;
28 February 2023: 58.79p), a total of £13,860,000 (31 August 2022: £17,120,000;
28 February 2023: £14,698,000).
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 second £25 million loan note was issued on 16 September 2021. Interest on
the note is payable in equal half yearly instalments on 16 March and 16
September each year. The loan note is unsecured and is redeemable at par on 16
September 2046.
The Company had in place a £35 million three year multi-currency revolving loan
facility with SMBC Bank International plc. This facility was terminated on 25
November 2022 and any loan amounts repaid. As at 31 August 2022, the facility
was not utilised. Prior to the termination, interest on the facility was reset
every three months and was charged at the Sterling Overnight Index Average rate
(SONIA) plus a credit adjustment spread of 0.326% for one month borrowings and
0.1193% for three month borrowings.
The Company also has available an uncommitted overdraft facility of £60 million
with The Bank of New York Mellon (International) Limited, of which £nil had been
utilised at 31 August 2023 (31 August 2022: £nil; 28 February 2023: £nil).
The Company has complied with all covenants during the period related to the
loan and borrowings.
10. RECONCILIATION OF LIABILITIES ARISING FROM FINANCING ACTIVITIES
Six Six Year ended
monthsended monthsended 28
31 31 February2023
August2023 August2022 (audited)
(unaudited) (unaudited) £'000
£'000 £'000
Debt arising from financing
activities:
Debt arising from financing 69,504 109,454 109,454
activities at beginning of the
period/year
----------- ----------- ------------
----- ----- ----
Cash flows:
Repayment of SMBC Bank - (25,000) (25,000)
International plc revolving credit
facility
Redemption of 7.75% debenture - (15,000) (15,000)
----------- ----------- ------------
----- ----- ----
Non-cash flows:
Amortisation of debenture and loan 15 37 50
note issue expenses
----------- ----------- ------------
----- ----- ----
Debt arising from financing 69,519 69,491 69,504
activities at end of the
period/year
========== ========== ==========
11. CALLED UP SHARE CAPTIAL
Ordinary Treasury Total Nominal
shares shares shares Value
in issue (number) (number) £'000
(number)
Allotted, called up and fully
paid share capital comprised:
Ordinary shares of 25p each
At 28 February 2023 48,829,792 1,163,731 49,993,523 12,498
Ordinary shares bought back (247,500) 247,500 - -
into treasury
---------- ---------- ---------- ----------
------ ------ ------ ------
At 31 August 2023 48,582,292 1,411,231 49,993,523 12,498
========== ========== ========== ==========
During the period ended 31 August 2023, the Company has bought back 247,500
shares into treasury for a total consideration of £3,295,000 (six months ended
31 August 2022: no shares for a total consideration of £nil; year ended 28
February 2023: no shares for a total consideration of £nil).
Since 31 August 2023 and up to the latest practicable date of 23 October 2023 a
further 330,000 shares have been bought back into treasury for a total
consideration of £4,902,000.
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
The share premium account and capital redemption reserve are not distributable
reserves 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 reserve may be used as distributable reserves
for all purposes and, in particular, the repurchase by the Company of its
ordinary shares and for payments such as dividends. In accordance with the
Company's Articles of Association, the capital reserve and the revenue reserve
may be distributed by way of dividend. The gain on the capital reserve arising
on the revaluation of investments of £18,222,000 (31 August 2022: gain of
£19,241,000; 28 February 2023: gain of £52,812,000) 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; as
such capital reserves (arising on investments sold) and the revenue reserve may
not be entirely distributable if a loss occurred during the realisation of these
investments.
13. VALUATION OF FINANCIAL INSTRUMENTS
The Company's investment activities expose it to the various types of risk which
are associated with the financial instruments and markets in which it invests.
The risks are substantially consistent with those disclosed in the previous
annual financial statements.
Market risk arising from price risk
Price risk is the risk that the fair value or future cash flows of a financial
instrument will fluctuate because of changes in market prices (other than those
arising from interest rate risk or currency risk), whether those changes are
caused by factors specific to the individual financial instrument or its issuer,
or factors affecting similar financial instruments traded in the market. Local,
regional or global events such as war, acts of terrorism, the spread of
infectious illness or other public health issues, recessions, climate change or
other events could have a significant impact on the Company and its investments.
The current environment of heightened geopolitical risk given the war in Ukraine
has undermined investor confidence and market direction. In addition to the
tragic and devastating events in Ukraine, the war has constricted supplies of
key commodities, pushing prices up and creating a level of market uncertainty
and volatility which is likely to persist for some time.
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 and cash equivalents 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 on page 83 of the Annual
Report and Financial Statements for the year ended 28 February 2023.
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 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 than 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. 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 including an assessment of the relevant risks including but not
limited to credit risk, market risk, liquidity risk, business risk and
sustainability risk. The determination of what constitutes `observable' inputs
requires significant judgement by the Investment Manager and these risks are
adequately captured in the assumptions and inputs used in the measurement of
Level 3 assets or liabilities.
Fair values of financial assets and financial liabilities
The table below is an analysis of the Company's financial instruments measured
at fair value at the balance sheet date.
Financial assets at fair value through profit or loss at 31 August 2023
(unaudited)
Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Equity 753,759 - - 753,759
investments
---------- ---------------- ---------------- ----------------
------
Total 753,759 - - 753,759
========== ========== ========== ==========
Financial assets at fair value through profit or loss at 31 August 2022
(unaudited)
Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Equity 734,959 - - 734,959
investments
---------- ---------------- ---------------- ----------------
------
Total 734,959 - - 734,959
========== ========== ========== ==========
Financial assets at fair value through profit or loss at 28 February 2023
(audited)
Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Equity 806,088 - - 806,088
investments
---------- ---------------- ---------------- ----------------
------
Total 806,088 - - 806,088
========== ========== ========== ==========
There were no transfers between levels for financial assets during the period
recorded at fair value as at 31 August 2023, 31 August 2022 and 28 February
2023. The Company did not hold any Level 3 securities throughout the six month
period or as at 31 August 2023 (31 August 2022: none; 28 February 2023: none).
For exchange listed equity investments, the quoted price is the bid price.
Substantially, all investments are valued based on unadjusted quoted market
prices. Where such quoted prices are readily available in an active market, such
prices are not required to be assessed or adjusted for any business risks,
including climate risk, in accordance with the fair value related requirements
of the Company's financial reporting framework.
14. TRANSACTIONS WITH THE INVESTMENT MANAGER AND AIFM
BlackRock Fund Managers Limited (BFM) provides management and administration
services to the Company under a contract which is terminable on six months'
notice. BFM has (with the Company's consent) delegated certain portfolio and
risk management services, and other ancillary services to BlackRock Investment
Management (UK) Limited (BIM (UK)). Further details of the investment management
contract are disclosed on page 48 of the Directors' Report in the Company's
Annual Report and Financial Statements for the year ended 28 February 2023.
The investment management fee payable for the six months ended 31 August 2023
amounted to £2,256,000 (six months ended 31 August 2022: £2,553,000; year ended
28 February 2023: £4,784,000). At the period end, £2,256,000 was outstanding in
respect of the management fee (31 August 2022: £2,553,000; 28 February 2023:
£4,784,000).
In addition to the above services, BIM (UK) has provided the Company with
marketing services. The total fees paid or payable for these services for the
period ended 31 August 2023 amounted to £59,000 including VAT (six months ended
31 August 2022: £109,000; year ended 28 February 2023: £170,000). Marketing fees
of £196,000 were outstanding at 31 August 2023 (31 August 2022: £76,000; 28
February 2023: £137,000).
As of 31 August 2023, an amount of £196,000 (31 August 2022: £114,000; 28
February 2023: £105,000) was payable to the Manager in respect of Directors'
fees.
The Company has an investment in the BlackRock Institutional Cash Series plc -
Sterling Liquid Environmentally Aware Fund of £nil as at 31 August 2023 (31
August 2022: £76,363,000; 28 February 2023: £22,742,000).
The ultimate holding company of the Manager and the Investment Manager is
BlackRock, Inc., a company incorporated in Delaware, USA.
15. RELATED PARTY DISCLOSURE
Directors' emoluments
As at 31 August 2023, the Board consisted of five non-executive Directors, all
of whom are considered to be independent of the Manager by the Board. None of
the Directors has a service contract with the Company. The Chairman receives an
annual fee of £46,735, the Audit Committee Chairman receives an annual fee of
£35,700, the Senior Independent Director receives a fee of £32,550 and each of
the other Directors receives an annual fee of £31,500.
As at 31 August 2023, an amount of £15,000 (31 August 2022: £14,000; 28 February
2023: £14,000) was outstanding in respect of Directors' fees.
At the period end members of the Board held ordinary shares in the Company as
set out below:
Ordinaryshares Ordinaryshares
25 October2023 31 August2023
Ronald Gould (Chairman) 3,544 3,544
Susan Platts-Martin 2,800 2,800
Mark Little 491 491
James Barnes 2,500 2,500
Helen Sinclair 988 988
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 31 August 2023
Total % of shares held Total % of Number of Significant Investors who are not
by Related BlackRock shares held affiliates of BlackRock Group or BlackRock,
Funds by Inc.
Significant
Investors
who are not
affiliates
of
BlackRock
Group or
BlackRock,
Inc.
9.19 n/a n/a
As at 31 August 2022
Total % of shares held Total % of Number of Significant Investors who are not
by Related BlackRock shares held affiliates of BlackRock Group or BlackRock,
Funds by Inc.
Significant
Investors
who are not
affiliates
of
BlackRock
Group or
BlackRock,
Inc.
12.10 n/a n/a
16. CONTINGENT LIABILITIES
There were no contingent liabilities at 31 August 2023, 28 February 2023 or 31
August 2022.
17. PUBLICATION OF NON-STATUTORY ACCOUNTS
The financial information contained in this Half Yearly Financial Report does
not constitute statutory accounts as defined in Section 435 of the Companies Act
2006. The financial information for the six months ended 31 August 2023 and 31
August 2022 has not been audited, or reviewed, by the Company's auditors.
The information for the year ended 28 February 2023 has been extracted from the
latest published audited financial statements, which have been filed with the
Registrar of Companies. The report of the auditor in those financial statements
contained no qualification or statement under Sections 498(2) or (3) of the
Companies Act 2006.
18. ANNUAL RESULTS
The Board expects to announce the annual results for the year ending 28 February
2024 in early May 2024.
Copies of the results announcement can be obtained from the Secretary on 020
7743 3000 or at cosec@blackrock.com. The Annual Report should be available by
the beginning of May 2024 with the Annual General Meeting being held in June
2024.
FOR FURTHER INFORMATION, PLEASE CONTACT:
Sarah Beynsberger, Director, Investment Trusts, BlackRock Investment Management
(UK) Limited
Tel: 020 7743 3000
Roland Arnold, Portfolio Manager, BlackRock Investment Management (UK) Limited
Tel: 0207 743 3000
Press enquiries:
Ed Hooper, Lansons Communications - Tel: 020 7294 3616
E-mail: edh@lansons.com
25 October 2023
12 Throgmorton Avenue
London EC2N 2DL
END
The Half Yearly Financial Report 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.
This information was brought to you by Cision http://news.cision.com
END
(END) Dow Jones Newswires
October 25, 2023 09:56 ET (13:56 GMT)
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