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
31 August 2023
|
As at
28 February 2023
|
Net asset value per ordinary share (debt at par value)
(pence)1
|
1,407.04
|
1,553.41
|
Net asset value per ordinary share (debt at fair value)
(pence)1
|
1,460.02
|
1,601.42
|
Ordinary share price (mid-market) (pence)1
|
1,268.00
|
1,380.00
|
Numis Smaller Companies plus AIM (excluding Investment Companies)
Index2
|
14,990.01
|
16,108.12
|
|
----------------
|
----------------
|
Assets
|
|
|
Total assets less current liabilities (£’000)
|
753,092
|
828,033
|
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
months ended
31 August 2023
|
For the six
months ended
31 August 2022
|
Performance (with dividends reinvested)
|
|
|
Net asset value per share (debt at par value)2,4
|
-7.8%
|
-17.1%
|
Net asset value per share (debt at fair value)2,4
|
-7.3%
|
-15.4%
|
Ordinary share price (mid-market)2,4
|
-6.3%
|
-18.9%
|
Numis Smaller Companies plus AIM (excluding Investment Companies)
Index2,4
|
-6.9%
|
-11.1%
|
|
For the six
months ended
31 August 2023
|
For the six
months ended
31 August 2022
|
Change %
|
Revenue and dividends
|
|
|
|
Revenue return per share
|
25.11p
|
25.07p
|
+0.2
|
Interim dividend per share
|
15.00p
|
14.50p
|
+3.4
|
1 Without
dividends reinvested.
2 Total
return basis with dividends reinvested.
3 The
change in equity shareholders’ funds represents the portfolio
movements during the year and dividends paid.
4 Alternative
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.
5 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, prior year
expenses written back and certain non-recurring items in accordance
with AIC guidelines.
CHAIRMAN’S STATEMENT FOR THE SIX MONTHS ENDED 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 DIVIDENDS
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 2023
|
6 Months
change
%
|
1 Year
change
%
|
3 Years
change
%
|
5 Years
change
%
|
10 Years
change
%
|
|
|
|
|
|
|
Net asset value per share (with dividends
reinvested)1,2
|
-7.3
|
-4.7
|
+9.7
|
+0.6
|
+124.1
|
Share price (with dividends reinvested)1
|
-6.3
|
-2.8
|
+10.7
|
-4.0
|
+111.0
|
Benchmark (with dividends reinvested)1
|
-6.9
|
-3.2
|
+10.6
|
-0.3
|
+55.5
|
1 All
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.
2 Debt
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
1 All
calculations are in Sterling terms with dividends
reinvested.
2 Debt
at fair value.
INVESTMENT MANAGER’S REPORT FOR THE SIX MONTHS ENDED
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
value
£’000
|
% of
total
portfolio
|
|
|
|
|
4imprint Group
|
Promotional merchandise in the US
|
20,726
|
2.8
|
CVS Group
|
Operator of veterinary surgeries
|
20,545
|
2.7
|
Gamma Communications
|
Provider of communication services to UK businesses
|
19,403
|
2.6
|
Hill & Smith
|
Production of infrastructure products and supply of galvanizing
services
|
16,878
|
2.2
|
Workspace Group
|
Supply of flexible workspace to businesses in London
|
15,029
|
2.0
|
Breedon
|
UK construction materials
|
14,539
|
1.9
|
Chemring Group
|
Advanced technology products and services for the aerospace,
defence and security markets
|
14,161
|
1.9
|
Watches of Switzerland
|
Retailer of luxury watches
|
13,231
|
1.8
|
Oxford Instruments
|
Designer and manufacturer of tools and systems for industry and
scientific research
|
13,150
|
1.7
|
Baltic Classifieds Group
|
Operator of online classified businesses in the Baltics
|
13,138
|
1.7
|
Bloomsbury Publishing
|
Publisher of fiction and non-fiction
|
13,071
|
1.7
|
Ergomed
|
Provider of pharmaceuticals services
|
12,998
|
1.7
|
Tatton Asset Management
|
Provider of discretionary fund management services to financial
advisors
|
12,938
|
1.7
|
Moneysupermarket.com
|
Price comparison website specialising in financial
services
|
12,592
|
1.7
|
QinetiQ Group
|
British multi-national defence technology company
|
12,370
|
1.6
|
YouGov
|
International online research data and analysis group
|
11,838
|
1.6
|
TT Electronics
|
Global manufacturer of electronic components
|
11,414
|
1.5
|
Auction Technology Group
|
Operator of marketplaces for curated online auctions
|
10,974
|
1.5
|
Grafton
|
Builders merchants in the UK, Ireland and Netherlands
|
10,954
|
1.5
|
IntegraFin
|
Investment platform for financial advisers
|
10,340
|
1.4
|
Twenty largest investments
|
|
280,289
|
37.2
|
Remaining investments
|
|
473,470
|
62.8
|
|
|
----------------
|
----------------
|
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 £1m
|
2
|
0.2
|
£2m to £3m
|
3
|
0.9
|
£3m to £4m
|
12
|
5.7
|
£4m to £5m
|
13
|
7.5
|
£5m to £6m
|
17
|
12.5
|
£6m to £7m
|
8
|
6.8
|
£7m to £8m
|
14
|
13.7
|
£8m to £9m
|
7
|
7.8
|
£9m to £10m
|
5
|
6.3
|
£10m to £11m
|
4
|
5.6
|
£11m to £12m
|
2
|
3.1
|
£12m to £13m
|
4
|
6.8
|
£13m to £14m
|
4
|
7.0
|
£14m to £15m
|
2
|
3.8
|
£15m to £16m
|
1
|
2.0
|
£16m to £17m
|
1
|
2.2
|
£19m to £20m
|
1
|
2.6
|
£20m to £21m
|
2
|
5.5
|
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 MONTHS ENDED 31 AUGUST 2023
|
|
Six months ended
31 August 2023
(unaudited)
|
Six months ended
31 August 2022
(unaudited)
|
Year ended
28 February 2023
(audited)
|
|
Notes
|
Revenue
£’000
|
Capital
£’000
|
Total
£’000
|
Revenue
£’000
|
Capital
£’000
|
Total
£’000
|
Revenue
£’000
|
Capital
£’000
|
Total
£’000
|
|
|
|
|
|
|
|
|
|
|
|
Losses on investments held at fair value through profit or
loss
|
|
–
|
(69,846)
|
(69,846)
|
–
|
(165,111)
|
(165,111)
|
–
|
(155,358)
|
(155,358)
|
Gains/(losses) on foreign exchange
|
|
–
|
–
|
–
|
–
|
12
|
12
|
–
|
(5)
|
(5)
|
Income from investments held at fair value through profit or
loss
|
3
|
13,385
|
782
|
14,167
|
13,371
|
–
|
13,371
|
21,468
|
–
|
21,468
|
Other income
|
3
|
155
|
–
|
155
|
368
|
–
|
368
|
1,237
|
–
|
1,237
|
|
|
----------------
|
----------------
|
----------------
|
----------------
|
----------------
|
----------------
|
----------------
|
----------------
|
----------------
|
Total income/(loss)
|
|
13,540
|
(69,064)
|
(55,524)
|
13,739
|
(165,099)
|
(151,360)
|
22,705
|
(155,363)
|
(132,658)
|
|
|
==========
|
==========
|
==========
|
==========
|
==========
|
==========
|
==========
|
==========
|
==========
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
Investment management fee
|
4
|
(564)
|
(1,692)
|
(2,256)
|
(638)
|
(1,915)
|
(2,553)
|
(1,196)
|
(3,588)
|
(4,784)
|
Operating expenses
|
5
|
(439)
|
(14)
|
(453)
|
(436)
|
(12)
|
(448)
|
(832)
|
(22)
|
(854)
|
|
|
----------------
|
----------------
|
----------------
|
----------------
|
----------------
|
----------------
|
----------------
|
----------------
|
----------------
|
Total operating expenses
|
|
(1,003)
|
(1,706)
|
(2,709)
|
(1,074)
|
(1,927)
|
(3,001)
|
(2,028)
|
(3,610)
|
(5,638)
|
|
|
==========
|
==========
|
==========
|
==========
|
==========
|
==========
|
==========
|
==========
|
==========
|
Net profit/(loss) on ordinary activities before finance
costs and taxation
|
|
12,537
|
(70,770)
|
(58,233)
|
12,665
|
(167,026)
|
(154,361)
|
20,677
|
(158,973)
|
(138,296)
|
Finance costs
|
6
|
(237)
|
(708)
|
(945)
|
(356)
|
(1,067)
|
(1,423)
|
(577)
|
(1,733)
|
(2,310)
|
|
|
----------------
|
----------------
|
----------------
|
----------------
|
----------------
|
----------------
|
----------------
|
----------------
|
----------------
|
Net profit/(loss) on ordinary activities before
taxation
|
|
12,300
|
(71,478)
|
(59,178)
|
12,309
|
(168,093)
|
(155,784)
|
20,100
|
(160,706)
|
(140,606)
|
|
|
==========
|
==========
|
==========
|
==========
|
==========
|
==========
|
==========
|
==========
|
==========
|
Taxation
|
|
(88)
|
–
|
(88)
|
(66)
|
–
|
(66)
|
(120)
|
–
|
(120)
|
|
|
----------------
|
----------------
|
----------------
|
----------------
|
----------------
|
----------------
|
----------------
|
----------------
|
----------------
|
Net profit/(loss) on ordinary activities after
taxation
|
|
12,212
|
(71,478)
|
(59,266)
|
12,243
|
(168,093)
|
(155,850)
|
19,980
|
(160,706)
|
(140,726)
|
|
|
==========
|
==========
|
==========
|
==========
|
==========
|
==========
|
==========
|
==========
|
==========
|
Earnings/(loss) per ordinary share (pence) - basic and
diluted
|
8
|
25.11
|
(146.99)
|
(121.88)
|
25.07
|
(344.24)
|
(319.17)
|
40.92
|
(329.12)
|
(288.20)
|
|
|
==========
|
==========
|
==========
|
==========
|
==========
|
==========
|
==========
|
==========
|
==========
|
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 MONTHS ENDED
31 AUGUST 2023
|
Called
up share
capital
£’000
|
Share
premium
account
£’000
|
Capital
redemption
reserve
£’000
|
Capital
reserves
£’000
|
Revenue
reserve
£’000
|
Total
£’000
|
For the six months ended 31 August 2023
(unaudited)
|
|
|
|
|
|
|
At 28 February 2023
|
12,498
|
51,980
|
1,982
|
673,479
|
18,590
|
758,529
|
Total comprehensive (loss)/income:
|
|
|
|
|
|
|
Net (loss)/profit for the period
|
–
|
–
|
–
|
(71,478)
|
12,212
|
(59,266)
|
Transactions with owners, recorded directly to equity:
|
|
|
|
|
|
|
Ordinary shares repurchased into treasury
|
–
|
–
|
–
|
(3,272)
|
–
|
(3,272)
|
Share buyback costs
|
–
|
–
|
–
|
(23)
|
–
|
(23)
|
Dividends paid1
|
–
|
–
|
–
|
–
|
(12,395)
|
(12,395)
|
|
----------------
|
----------------
|
----------------
|
----------------
|
----------------
|
----------------
|
At 31 August 2023
|
12,498
|
51,980
|
1,982
|
598,706
|
18,407
|
683,573
|
|
==========
|
==========
|
==========
|
==========
|
==========
|
==========
|
For the six months ended 31 August 2022
(unaudited)
|
|
|
|
|
|
|
At 28 February 2022
|
12,498
|
51,980
|
1,982
|
834,185
|
16,433
|
917,078
|
Total comprehensive (loss)/income:
|
|
|
|
|
|
|
Net (loss)/profit for the period
|
–
|
–
|
–
|
(168,093)
|
12,243
|
(155,850)
|
Transactions with owners, recorded directly to equity:
|
|
|
|
|
|
|
Dividends paid2
|
–
|
–
|
–
|
–
|
(10,743)
|
(10,743)
|
|
----------------
|
----------------
|
----------------
|
----------------
|
----------------
|
----------------
|
At 31 August 2022
|
12,498
|
51,980
|
1,982
|
666,092
|
17,933
|
750,485
|
|
==========
|
==========
|
==========
|
==========
|
==========
|
==========
|
For the year ended 28 February 2023
(audited)
|
|
|
|
|
|
|
At 28 February 2022
|
12,498
|
51,980
|
1,982
|
834,185
|
16,433
|
917,078
|
Total comprehensive (loss)/income:
|
|
|
|
|
|
|
Net (loss)/profit for the year
|
–
|
–
|
–
|
(160,706)
|
19,980
|
(140,726)
|
Transactions with owners, recorded directly to equity:
|
|
|
|
|
|
|
Dividends paid3
|
–
|
–
|
–
|
–
|
(17,823)
|
(17,823)
|
|
----------------
|
----------------
|
----------------
|
----------------
|
----------------
|
----------------
|
At 28 February 2023
|
12,498
|
51,980
|
1,982
|
673,479
|
18,590
|
758,529
|
|
==========
|
==========
|
==========
|
==========
|
==========
|
==========
|
1 Final
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.
2 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.
3 Interim
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
2023
(unaudited)
£’000
|
31 August
2022
(unaudited)
£’000
|
28 February
2023
(audited)
£’000
|
Fixed assets
|
|
|
|
|
Investments held at fair value through profit or loss
|
13
|
753,759
|
734,959
|
806,088
|
|
|
----------------
|
----------------
|
----------------
|
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 (liabilities)/assets
|
|
(667)
|
85,017
|
21,945
|
|
|
==========
|
==========
|
==========
|
Total assets less current liabilities
|
|
753,092
|
819,976
|
828,033
|
|
|
==========
|
==========
|
==========
|
Creditors – amounts falling due after more than one year
|
9, 10
|
(69,519)
|
(69,491)
|
(69,504)
|
|
|
----------------
|
----------------
|
----------------
|
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 share (debt at par value)
(pence)
|
8
|
1,407.04
|
1,536.94
|
1,553.41
|
|
|
----------------
|
----------------
|
----------------
|
Net asset value per ordinary share (debt at fair value)
(pence)
|
8
|
1,460.02
|
1,572.01
|
1,601.42
|
|
|
==========
|
==========
|
==========
|
STATEMENT OF CASH FLOWS FOR THE SIX MONTHS ENDED
31 AUGUST 2023
|
Six months
ended
31 August 2023
(unaudited)
£’000
|
Six months
ended
31 August 2022
(unaudited)
£’000
|
Year
ended
28 February 2023
(audited)
£’000
|
Operating activities
|
|
|
|
Net loss on ordinary activities before taxation
|
(59,178)
|
(155,784)
|
(140,606)
|
Add back finance costs
|
945
|
1,423
|
2,310
|
Losses on investments held at fair value through profit or
loss
|
69,846
|
165,111
|
155,358
|
Net movement in foreign exchange
|
–
|
(12)
|
5
|
Sales of investments held at fair value through profit or
loss
|
149,604
|
178,013
|
304,837
|
Purchases of investments held at fair value through profit or
loss
|
(163,539)
|
(120,867)
|
(309,973)
|
Net amount for capital special dividends received
|
(782)
|
–
|
–
|
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 operating
activities
|
(6,278)
|
64,920
|
11,256
|
|
==========
|
==========
|
==========
|
Financing activities
|
|
|
|
Redemption of 7.75% debenture stock
|
–
|
(15,000)
|
(15,000)
|
Repayment of SMBC Bank International plc revolving credit
facility
|
–
|
(25,000)
|
(25,000)
|
Interest paid
|
(924)
|
(1,479)
|
(2,371)
|
Ordinary shares repurchased into treasury
|
(3,295)
|
–
|
–
|
Dividends paid
|
(12,395)
|
(10,743)
|
(17,823)
|
|
----------------
|
----------------
|
----------------
|
Net cash used in financing activities
|
(16,614)
|
(52,222)
|
(60,194)
|
|
==========
|
==========
|
==========
|
(Decrease)/increase in cash and cash
equivalents
|
(22,892)
|
12,698
|
(48,938)
|
Cash and cash equivalents at beginning of the
period/year
|
23,536
|
72,479
|
72,479
|
Effect of foreign exchange rate changes
|
–
|
12
|
(5)
|
|
----------------
|
----------------
|
----------------
|
Cash and cash equivalents at end of
period/year
|
644
|
85,189
|
23,536
|
|
==========
|
==========
|
==========
|
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 MONTHS ENDED
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
ended
31 August 2023
(unaudited)
£’000
|
Six months
ended
31 August 2022
(unaudited)
£’000
|
Year
ended
28 February 2023
(audited)
£’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
|
|
==========
|
==========
|
==========
|
1 UK
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 ended
31 August 2023
(unaudited)
|
Six months ended
31 August 2022
(unaudited)
|
Year ended
28 February 2023
(audited)
|
|
Revenue
£’000
|
Capital
£’000
|
Total
£’000
|
Revenue
£’000
|
Capital
£’000
|
Total
£’000
|
Revenue
£’000
|
Capital
£’000
|
Total
£’000
|
Investment management fee
|
564
|
1,692
|
2,256
|
638
|
1,915
|
2,553
|
1,196
|
3,588
|
4,784
|
|
----------------
|
----------------
|
----------------
|
----------------
|
----------------
|
----------------
|
----------------
|
----------------
|
----------------
|
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 months ended
31 August 2023
(unaudited)
£’000
|
Six months ended
31 August 2022
(unaudited)
£’000
|
Year ended
28 February 2023
(audited)
£’000
|
Allocated to revenue:
|
|
|
|
Custody fees
|
5
|
5
|
9
|
Depositary fees
|
52
|
52
|
98
|
Auditor’s remuneration
|
34
|
23
|
48
|
Registrar’s fee
|
19
|
21
|
45
|
Directors’ emoluments
|
90
|
90
|
188
|
Director search fees
|
18
|
–
|
4
|
Marketing fees
|
59
|
109
|
170
|
AIC fees
|
11
|
11
|
21
|
Bank charges
|
16
|
28
|
51
|
Broker fees
|
18
|
18
|
40
|
Stock exchange listings
|
17
|
27
|
48
|
Printing and postage fees
|
22
|
16
|
37
|
Legal fees
|
8
|
6
|
–
|
Prior year expenses written back1
|
(7)
|
(23)
|
(7)
|
Other administrative costs
|
77
|
53
|
80
|
|
----------------
|
----------------
|
----------------
|
|
439
|
436
|
832
|
|
==========
|
==========
|
==========
|
Allocated to capital:
|
|
|
|
Custody transaction charges2
|
14
|
12
|
22
|
|
----------------
|
----------------
|
----------------
|
|
453
|
448
|
854
|
|
==========
|
==========
|
==========
|
1 Relates
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).
2 For
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 ended
31 August 2023
(unaudited)
|
Six months ended
31 August 2022
(unaudited)
|
Year ended
28 February 2023
(audited)
|
|
Revenue
£’000
|
Capital
£’000
|
Total
£’000
|
Revenue
£’000
|
Capital
£’000
|
Total
£’000
|
Revenue
£’000
|
Capital
£’000
|
Total
£’000
|
|
|
|
|
|
|
|
|
|
|
Interest on 7.75% debenture stock 20221
|
–
|
–
|
–
|
120
|
360
|
480
|
117
|
355
|
472
|
Interest on 2.74% loan note 2037
|
87
|
260
|
347
|
87
|
260
|
347
|
173
|
518
|
691
|
Interest on 2.41% loan note 2044
|
60
|
182
|
242
|
60
|
182
|
242
|
121
|
362
|
483
|
Interest on 2.47% loan note 2046
|
76
|
228
|
304
|
76
|
228
|
304
|
152
|
456
|
608
|
Interest on bank loan
|
–
|
–
|
–
|
8
|
23
|
31
|
6
|
18
|
24
|
Interest on bank overdraft
|
10
|
28
|
38
|
–
|
–
|
–
|
–
|
–
|
–
|
7.75% Amortised debenture stock issue expenses1
|
–
|
–
|
–
|
1
|
4
|
5
|
-
|
4
|
4
|
2.74% Amortised loan note issue expenses
|
2
|
5
|
7
|
2
|
5
|
7
|
4
|
10
|
14
|
2.41% Amortised loan note issue expenses
|
1
|
2
|
3
|
1
|
2
|
3
|
2
|
5
|
7
|
2.47% Amortised loan note issue expenses
|
1
|
3
|
4
|
1
|
3
|
4
|
2
|
5
|
7
|
|
----------------
|
----------------
|
----------------
|
----------------
|
----------------
|
----------------
|
----------------
|
----------------
|
----------------
|
Total
|
237
|
708
|
945
|
356
|
1,067
|
1,423
|
577
|
1,733
|
2,310
|
|
==========
|
==========
|
==========
|
==========
|
==========
|
==========
|
==========
|
==========
|
==========
|
1 The
£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. DIVIDENDS
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 months ended
31 August 2023
(unaudited)
|
Six months ended
31 August 2022
(unaudited)
|
Year ended
28 February 2023
(audited)
|
Revenue return attributable to ordinary shareholders
(£’000)
|
12,212
|
12,243
|
19,980
|
Capital loss attributable to ordinary shareholders
(£’000)
|
(71,478)
|
(168,093)
|
(160,706)
|
|
----------------
|
----------------
|
----------------
|
Total loss attributable to ordinary shareholders
(£’000)
|
(59,266)
|
(155,850)
|
(140,726)
|
|
==========
|
==========
|
==========
|
Total shareholders’ funds (£’000)
|
683,573
|
750,485
|
758,529
|
|
==========
|
==========
|
==========
|
The weighted average number of ordinary shares in issue during the
period on which the earnings per ordinary share was calculated
was:
|
48,625,566
|
48,829,792
|
48,829,792
|
The actual number of ordinary shares in issue at the end of each
period on which the undiluted net asset value was calculated
was:
|
48,582,292
|
48,829,792
|
48,829,792
|
|
----------------
|
----------------
|
----------------
|
Earnings per share
|
|
|
|
Revenue return per share (pence) - basic and diluted
|
25.11
|
25.07
|
40.92
|
Capital loss per share (pence) - basic and diluted
|
(146.99)
|
(344.24)
|
(329.12)
|
|
----------------
|
----------------
|
----------------
|
Total loss per share (pence) - basic and
diluted
|
(121.88)
|
(319.17)
|
(288.20)
|
|
==========
|
==========
|
==========
|
|
As at
31 August 2023
(unaudited)
|
As at
31 August 2022
(unaudited)
|
As at
28 February 2023
(audited)
|
Net asset value per ordinary share (debt at par value)
(pence)
|
1,407.04
|
1,536.94
|
1,553.41
|
Net asset value per ordinary share (debt at fair value)
(pence)
|
1,460.02
|
1,572.01
|
1,601.42
|
Ordinary share price (pence)
|
1,268.00
|
1,344.00
|
1,380.00
|
|
|
|
|
9. BORROWINGS
|
Six months ended
31 August 2023
(unaudited)
£’000
|
Six months ended
31 August 2022
(unaudited)
£’000
|
Year ended
28 February 2023
(audited)
£’000
|
Amounts falling due after more than one
year
|
|
|
|
2.74% loan note 2037
|
25,000
|
25,000
|
25,000
|
Unamortised loan note issue expenses
|
(189)
|
(203)
|
(196)
|
|
----------------
|
----------------
|
----------------
|
|
24,811
|
24,797
|
24,804
|
|
==========
|
==========
|
==========
|
2.41% loan note 2044
|
20,000
|
20,000
|
20,000
|
Unamortised loan note issue expenses
|
(136)
|
(143)
|
(140)
|
|
----------------
|
----------------
|
----------------
|
|
19,864
|
19,857
|
19,860
|
|
==========
|
==========
|
==========
|
2.47% loan note 2046
|
25,000
|
25,000
|
25,000
|
Unamortised loan note issue expenses
|
(156)
|
(163)
|
(160)
|
|
----------------
|
----------------
|
----------------
|
|
24,844
|
24,837
|
24,840
|
|
==========
|
==========
|
==========
|
Total amounts falling due after more than one
year
|
69,519
|
69,491
|
69,504
|
|
==========
|
==========
|
==========
|
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 months ended
31 August 2023
(unaudited)
£’000
|
Six months ended
31 August 2022
(unaudited)
£’000
|
Year ended
28 February 2023
(audited)
£’000
|
Debt arising from financing activities:
|
|
|
|
Debt arising from financing activities at beginning of the
period/year
|
69,504
|
109,454
|
109,454
|
|
----------------
|
----------------
|
----------------
|
Cash flows:
|
|
|
|
Repayment of SMBC Bank International plc revolving credit
facility
|
–
|
(25,000)
|
(25,000)
|
Redemption of 7.75% debenture
|
–
|
(15,000)
|
(15,000)
|
|
----------------
|
----------------
|
----------------
|
Non-cash flows:
|
|
|
|
Amortisation of debenture and loan note issue expenses
|
15
|
37
|
50
|
|
----------------
|
----------------
|
----------------
|
Debt arising from financing activities at end of the
period/year
|
69,519
|
69,491
|
69,504
|
|
==========
|
==========
|
==========
|
11. CALLED UP SHARE CAPTIAL
|
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 28 February 2023
|
48,829,792
|
1,163,731
|
49,993,523
|
12,498
|
Ordinary shares bought back into treasury
|
(247,500)
|
247,500
|
–
|
–
|
|
----------------
|
----------------
|
----------------
|
----------------
|
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
£’000
|
Level 2
£’000
|
Level 3
£’000
|
Total
£’000
|
|
|
|
|
|
Equity investments
|
753,759
|
–
|
–
|
753,759
|
|
----------------
|
----------------
|
----------------
|
----------------
|
Total
|
753,759
|
–
|
–
|
753,759
|
|
==========
|
==========
|
==========
|
==========
|
Financial assets at fair value through profit or loss at
31 August 2022
(unaudited)
|
Level 1
£’000
|
Level 2
£’000
|
Level 3
£’000
|
Total
£’000
|
|
|
|
|
|
Equity investments
|
734,959
|
–
|
–
|
734,959
|
|
----------------
|
----------------
|
----------------
|
----------------
|
Total
|
734,959
|
–
|
–
|
734,959
|
|
==========
|
==========
|
==========
|
==========
|
Financial assets at fair value through profit or loss at
28 February 2023
(audited)
|
Level 1
£’000
|
Level 2
£’000
|
Level 3
£’000
|
Total
£’000
|
|
|
|
|
|
Equity investments
|
806,088
|
–
|
–
|
806,088
|
|
----------------
|
----------------
|
----------------
|
----------------
|
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:
|
Ordinary shares
25 October 2023
|
Ordinary shares
31 August 2023
|
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 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.
|
9.19
|
n/a
|
n/a
|
As at 31 August 2022
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.
|
12.10
|
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.