BlackRock Smaller Companies Trust Plc - Final Results

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

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

Annual Report and Financial Statements 29 February 2024

PERFORMANCE RECORD

1 Without dividends reinvested.

2 Total return basis with dividends reinvested.

3 The change in equity shareholders’ funds represents the portfolio movements, shares repurchased into treasury and dividends paid during the year.

4 Alternative Performance Measure, see Glossary contained within the Annual Report and Financial Statements. Full details setting out how calculations with dividends reinvested are performed are set out in the Glossary contained within the Annual Report and Financial Statements.

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

MARKET OVERVIEW
In my Half-Yearly statement in October, I described how the first six months of our financial year had been characterised by powerful geo-political and macroeconomic drivers. As the year progressed, rising tensions in the Middle East led to increasing concern around the inflationary impact of disruption to major shipping routes in the Red Sea and an escalation into a wider conflict in the region. Market concerns in the second half of the year continued to focus on persistent inflation and high interest rates, with the Bank of England (BoE) implementing a 25-basis point rise in the base interest rate in August, raising interest rates to 5.25%, the highest level since 2008. The BoE continued its policy of monetary tightening throughout most of the year with the Monetary Policy Committee (MPC) voting to hold the base rate at 5.25% in September 2023 (ending a run of fourteen consecutive rate increases since December 2021). The high interest rate environment continues to weigh on the valuations of the type of long-duration, higher growth shares favoured in our portfolio. As a result, UK small and mid-caps have continued to underperform large caps in what amounts to the longest cycle of underperformance in recent history (including that seen in the Global Financial Crisis of 2008, COVID-19, Brexit, the Tech sell-off or Black Monday). The fourth quarter of 2023 saw markets reflect the expectation of rate cuts in 2024 in response to easing inflation data, but as we entered 2024, a shift in market sentiment has seen a volatile start to the year in equity markets.

Despite this challenging backdrop, it is comforting to note that many of our portfolio holdings continue to deliver against their objectives. Your Board also notes that the UK equity market continues to look cheap on a range of valuation metrics. One should also be mindful that historically, periods of heightened volatility have been followed by strong returns for the strategy and presented excellent investment opportunities.

PERFORMANCE
In the year under review, the Company’s net asset value (NAV) per share outperformed the benchmark index (the Deutsche Numis Smaller Companies plus AIM (excluding Investment Companies) Index) by 2.2%, falling by 3.6%1,2,3, in comparison to the decline in the benchmark of 5.8%1,3. Over the same period your Company’s share price on a total return basis with dividends reinvested was broadly flat, falling marginally by 0.8%1,3 compared with the FTSE AIM All-Share Index which fell by -2.3%1, the FTSE 250 Index which fell by -1.3%1 and the FTSE 100 Index which rose by 0.8%1. The wide disparity between index returns reflected changing investor sentiment about large versus smaller cap companies during a period of great market uncertainty over future prospects.

More detail on the significant contributors to and detractors from performance during the year are given in the Investment Manager’s Report below.

The Company’s longer-term performance is set out in the Annual Report and Financial Statements. More information is also given in the chart contained within the Annual Report and Financial Statements which illustrates how long-term investors have had an opportunity to build up an attractive annual income from an investment in the Company. Even if the initial dividend yield at the point of purchase has been unremarkable, the strong underlying growth in dividends over the years has resulted in a competitive yield on cost when compared with equity income funds in general. To illustrate this investment and income success, the chart contained within the Annual Report and Financial Statements shows that £1,000 invested in the Company on 28 February 2006 would have increased in value by 421.5%1 in NAV terms to 29 February 2024, whereas £1,000 invested in the UK open-ended income sector median would have increased by just 150.7%1. The chart also demonstrates that while the yield on the Company’s shares was much lower at the beginning of the period, over time the Company’s dividend has grown at a much faster rate than open-ended UK income fund competitors.

1 Percentages in Sterling terms with dividends reinvested.
2 NAV with debt at fair value.
3 Alternative Performance Measure, see Glossary contained within the Annual Report and Financial Statements.

RETURNS AND DIVIDENDS
Your Company’s total revenues per year are a reflection of the dividends we receive from portfolio companies. Total revenue return for the year was 40.70 pence per share (2023: 40.92 pence per share). The Board continues its policy to ensure the sustainability of dividends and their future growth through investment in companies with strong balance sheets, solid management and sustainable business growth models. We remain mindful of the importance of yield to shareholders. 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 (£619.7 million as at 29 February 2024, including revenue reserves of £18.6 million). Taking note of your Company’s current reserves, the Board has decided to declare a final dividend of 27.00 pence per share. Combined with the interim dividend of 15.00 pence per share, this represents total dividends declared of 42.00 pence per share for the year to 29 February 2024, an increase of 5 % over total dividends declared for the year to 28 February 2023. The dividend will be paid on 27 June 2024 to shareholders on the Company’s register as at 24 May 2024. The Board has also taken this decision recognising that many portfolio companies are demonstrating strong earnings forecasts, allowing us to take a more optimistic view of future prospects. Your Company has now increased its annual dividend every year since 2003.

The annualised increase in dividends paid since this date equates to 10.9% and your Company has received the AIC accolade of ‘Dividend Hero’ for its’ consistent growth in dividends for a period in excess of 20 years.

GEARING AND SOURCES OF FINANCES
The Company has traditionally maintained a range of borrowings and facilities to provide balance between longer-term and short-term maturities and between fixed and floating rates of interest. Over the past few years the Board has taken steps to lock in borrowing at what we considered to be very attractive interest rates, and the Company currently has in place a range of longer-term fixed rate funding consisting of £25 million 2.74% senior unsecured fixed rate private placement notes maturing in 2037, £20 million 2.41% senior unsecured notes maturing in 2044 and £25 million 2.47% senior unsecured notes maturing in 2046. The logic of the Board’s decision to capture these lower interest rates for funding has been borne out by economic developments over the past few years; by way of illustration, interest on an equivalent level of £70 million of funding through a bank overdraft would attract interest at SONIA plus 1% (currently c. 6.25%), amounting to interest of c. £4.4 million, compared to the current cost of debt of just £1.9 million per annum. The Company also has in place variable rate funding consisting of a £60 million uncommitted overdraft facility with The Bank of New York Mellon (International) Limited.

It is the Board’s intention that net gearing will not exceed 15% of the net assets of the Company at the time of the drawdown of the relevant borrowings. Under normal operating conditions it is envisaged that gearing will be within a range of 0%-15% of net assets. At the year end, the Company’s net gearing was 11.5%1 of net assets (2023: 6.3%).

MANAGEMENT OF SHARE RATING
The Board monitors the Company’s share rating closely, and recognises the importance to shareholders that the price of the Company’s shares do not trade at either a significant premium or discount to the underlying NAV. Therefore, where deemed to be in shareholders’ long-term interests, it may exercise its powers to issue shares or buy back shares with the objective of ensuring that an excessive premium or discount does not arise. As market volatility persisted through the year, discounts across the closed-end funds sector remained wide and the Company’s shares traded at a discount to NAV ranging from 7.8% to 15.1% over the period. As the discount widened, the Board took action to address this, buying back 1.5 million shares during the year under review for a total cost of £20.0 million. All shares were bought back at a discount to NAV, delivering an uplift to the NAV per share of 0.3% for continuing shareholders for the year under review. The Board believes that the action it has taken has helped to minimise discount volatility, with the Company’s shares trading at an average discount to NAV (with debt at fair value) over the full year of 12.4%, compared to an average discount of 13.9% for the year to 28 February 2023. To put this in context, the average discount for companies in the AIC UK Smaller Companies sector for the same period was 11.9%.

Since the year end, and up to the date of this report, the Company has bought back 220,000 shares for costs of £2,946,000 (at an average discount to NAV of 13.0%). The Company’s discount currently stands at 11.1% compared to a sector average of 11.7%.

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 were 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 a result of the search, the Board announced the appointment of 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. Further information on Board composition can be found in the Corporate Governance Statement contained within the Annual Report and Financial Statements.

ANNUAL GENERAL MEETING 
The Company’s Annual General Meeting (AGM) will be held in person at the offices of BlackRock at 12 Throgmorton Avenue, London EC2N 2DL on Thursday 20 June 2024 at 11.30 a.m. Details of the business of the meeting are set out in the Notice of Annual General Meeting contained within the Annual Report and Financial Statements. Shareholders are also invited to join Directors for a hot buffet lunch after the formal business of the meeting has concluded. Prior to the formal business of the meeting, our Investment Manager will make a presentation to shareholders. This will be followed by a question and answer session. Shareholders who are unable to attend the meeting in person but who wish to view the portfolio manager’s presentation can do so via a live webinar this year. Details on how to register, together with access details, will be available shortly on the Company’s website at: www.blackrock.com/uk/brsc or by contacting the Company Secretary at cosec@blackrock.com. It is not possible to speak or vote via this medium and it is solely intended to provide shareholders with the ability to watch the portfolio manager’s presentation. Additionally, if you are unable to attend you can exercise your right to vote by proxy or appoint a proxy to attend in your place. Details of how to do this are included on the AGM Proxy Card provided to shareholders with the Annual Report. If you hold your shares through a platform or a nominee company, you will need to contact them directly and ask them to appoint you as a proxy in respect of your shares in order to attend, speak and vote at the AGM. Further information on the business of this year's AGM can be found in the Notice of the AGM contained within the Annual Report and Financial Statements.

OUTLOOK
Since the financial year end, the Company’s NAV (as at 8 May 2024) has increased by 8.0%1,2, against an increase in the benchmark of 7.8%1, and the share price has risen by 8.7%1. These results should be seen in the context of continued and significant market volatility, which persists in an ongoing high interest rate environment, fuelled by heightened geo-political risk, with the ongoing conflict in Ukraine and tensions escalating in the Middle East. Looking forward, there are also several significant elections in 2024, notably in the UK, US and Europe, with a range of outcomes, all of which could impact market volatility and sentiment.

Against this turbulent backdrop, the Company’s portfolio is weighted towards companies with well capitalised balance sheets and entrepreneurial management teams that are able to rapidly adapt their businesses to the shifting market dynamics. As such we believe your Company is well-positioned and prepared to take advantage of the investment opportunities that lie ahead despite the uncertain market conditions. 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

13 May 2024

1 Percentages in Sterling terms with dividends reinvested.

2 NAV with debt at fair value.

3 Alternative Performance Measure, see Glossary contained within the Annual Report and Financial Statements.

INVESTMENT MANAGER’S REPORT

MARKET REVIEW
As ever when I sit and write these annual reviews, the first point of reference is always my previous manager report; what did I write this time last year, what was my outlook for the coming twelve months, how far off the mark was I, and what unexpected events were thrown at us? Last year’s review highlighted the almost schizophrenic behaviour of the markets, flitting between rising and falling bond yields, inflation expectations, commodity and asset prices, whilst the outlook suggested inflation expectations would moderate, we would avoid a hard landing, and the low valuation of the UK market would see an increase in corporate activity. I fear this year’s review will not veer too much from this narrative. Many of the drivers of uncertainty and volatility remain; will major economies avoid a hard landing, what is the impact of geo-political conflict, will inflation fall enough to gift central banks the freedom to reduce interest rates? Underlying these macro factors is the one unescapable truth, the valuation of UK small and medium sized companies remains incredibly attractive. Overlay valuations below their historic range with corporate balance sheets as well capitalised as I can remember in my career, and you could have a very attractive opportunity to create long-term value.

PERFORMANCE REVIEW
For the second half of the financial year the Company’s NAV outperformed the benchmark by 3.4%, producing a positive return of 4.6% against our benchmark return of 1.2%. This takes the Company’s NAV return to -3.4% for the financial year, and although it is disappointing to be reporting another year of negative asset value, it outperformed our benchmark return of -5.8%.

In my interim report I asked “what’s the catalyst?” to seeing a change in market sentiment, and an end to the persistent outflows we have seen in small and mid cap equities. Sadly my conclusion was I don’t know, that history tells us there will be one, but typically we only see the catalyst in the rear view mirror. What is clear to me is the current valuation of the UK market, and in particular UK small and mid-cap, is attractive. In addition, the second half of the financial year has given significant cause for optimism. Unemployment remains low, balance sheets remain strong, inflation is falling, consumer confidence is improving, Purchasing Manager’s Index whilst generally still negative are improving and for the much maligned UK have tipped back into positive territory ahead of those of most other major European economies. This backdrop gives confidence that the earnings outlook for our businesses is broadly supportive for an earnings recovery.

The largest positive contributor to performance was 4imprint Group. This is not the first time we have discussed the merits of the 4Imprint Group investment case, it has been a significant contributor to performance over a number of years, and acts as a case study to our investment philosophy; find a well invested market leader in a growth market, that converts profits into cash, continues to invest in both their product and people to maintain market leadership and pricing power, whilst increasing the dividends paid to shareholders.

The second largest contributor was recently listed Ashtead Technology, the Aberdeen based equipment rental business focused on the Oil and Gas industry. Management have done a commendable job of positioning the group towards growth markets, whilst deploying the balance sheet towards accretive mergers and acquisitions (“M&A”).

The third largest contribution has come from our holding in bowling operator Ten Entertainment Group, which received a bid from private equity. This was not the only bid we were on the receiving end of during the financial year, we also saw Ergomed, City Pub Company, and Numis leave us. Whilst takeover activity is obviously a positive to overall performance, it is often a bittersweet moment as we lose businesses we believe could contribute to the NAV growth of the Company over a number of years, and have to find suitable replacements.

No year is perfect, there are always companies that weigh on performance. These loosely split into two camps; the ones where there has been a change in the earnings outlook, and those where shares have de-rated for other reasons but the outlook for the investment case is unchanged. Watches of Switzerland sadly sits in the first category, as the shares reacted negatively to the news that Rolex has purchased luxury watch retailer Bucherer, raising concerns Rolex will direct allocation to Bucherer over other retailers. We have to acknowledge the potential impact this has on the Watches of Switzerland investment case and have reduced the position to reflect what is now a wider range of potential outcomes. CAB Payments listed on the London market in July 2023, the first significant initial public offering (“IPO”) on the London market in some time. We recognised at the time the revenue model was inherently unpredictable, and likely to be buffeted by the vagaries of emerging market currencies. What we had not anticipated was the sudden change in market conditions in a number of their currency markets, which facilitated a significant decline in revenue and earnings expectations. Coming so soon after the IPO this raised serious questions about the controls within the group, and we exited the position. Finally, we need to address computer games developer Team17, which revealed a profit warning in November. The gaming industry had a tough year in 2023, with the demand for “triple A” games disappointing generally, and a number of revenue related disappointments across the industry. We spent a lot of time looking at Team17, analysing the best seller lists to gain comfort that volumes would not disappoint. Sadly, volumes were not the issue, and revenue forecasts were achieved, however management appear to temporarily have lost control of the cost base leading to a warning on profitability. We have reduced the position but have maintained a small holding in the belief a cost problem can be fixed more easily when there isn’t a revenue issue.

There is a third category of shares that can weigh on relative performance; those that are a significant weight in the benchmark that we choose not to own. 2023 saw an unusually large number of “fallen angels” enter the top end of our benchmark. Accounting for 25% of the Numis Smaller Companies Index, the 2023 cohort of fallen angels is the third largest on record. Two of these, Burford and Carnival performed strongly in the year, rising 80% and 62% respectively. Typically, the “fallen angels” fail to meet our investment criteria. In the case of these two examples Burford’s revenue model is too unpredictable, and Carnival’s market cap was simply too large for a portfolio focused on small and medium sized companies.

THE HEALTH OF THE UK MARKET
Given the amount of press coverage it has received in the last year, it would be amiss of us not to address the health of the UK stock market. The overwhelming narrative has suggested the market is in a death spiral, deprived of the vital lifeblood of new issues and fundraisings, haemorrhaging companies to private equity, and seeing FTSE100 blue bloods seeking the Elysian Fields of a US listing. We can’t sit here and pretend none of this is true, but perhaps some context is also required. The number of UK listed companies has been falling for decades, this is not some new phenomenon, what has changed in the last two years is the dearth of new issues to replace those companies we lose through M&A, re-listing or sadly insolvency. Capital markets activity has been light, companies have not sought new funds in any volume, but perhaps we should look at this from another angle. In 2009/2010 there were huge sums of fresh equity raised, but often this was a direct result of weak balance sheets going into a severe downturn. 2022/2023 was not the same, this has been strong balance sheets going into a more shallow decline. London remains an attractive market for new issues; the rule of law is unchanged, the breadth of capability and experience is undiminished, what is required is confidence and indeed the end of the significant outflows from the UK market. The entrepreneurial spirit is still alive in the UK, owners will still want to see their businesses listed to provide them with access to capital, and it remains my view that London will remain an active market for UK small and medium sized businesses once confidence returns.

POSITIONING AND OUTLOOK
Any discussion about the outlook for UK small and medium sized companies essentially revolves around three broad sectors, as consumer, industrials and financials form the vast bulk of the investment universe. If we once again circle back to the outlook discussed this time last year, we felt the risks of a significant recession were being overplayed, and there were opportunities in both the consumer and industrial markets. We see little reason to change our view at this point. As evidenced by the Asda Income Tracker, available household cashflow is finally starting to grow after nearly two years of pressure. At the same time food and fuel inflation is falling, increasing the amount of household cash available to direct to more discretionary purposes. With interest rates looking like they have peaked, and mortgage rates starting to fall, support for the structurally undersupplied housing market should also return. Our view on industrials also remains positive. 2023 has been a year of inventory unwind, as firms run through the stock built up to manage the post-COVID-19 supply chain disruptions. Much of this rightsizing has now happened, suggesting end market demand should be much more closely correlated to industrial company revenues. More importantly, going forward we still see many of the positive structural drivers of near shoring and supply chain duplication providing a multi-year tailwind for industrial companies. In summary we retain a broadly pro-cyclical outlook, with a view that the coming year could well see an earnings inflexion colliding with attractive valuations, typically a mix that leads to share price appreciation.

ROLAND ARNOLD

BLACKROCK INVESTMENT MANAGEMENT (UK) LIMITED

13 May 2024

TEN LARGEST INVESTMENTS AS AT 29 FEBRUARY 2024

Together, the ten largest investments represent 21.3% of the Company’s portfolio as at 29 February 2024 (2023: 20.5%).

1 Gamma Communications
Mobile Telecommunications
Portfolio value £20,662,000

Percentage of portfolio 2.7%

A leading provider of Unified Communications as a Service (UCaaS) into the UK and European business markets, supplying communication solutions via their extensive network of trusted channel partners and also directly.

2 4imprint Group
Media
Portfolio value   £19,129,000

Percentage of portfolio 2.5%

A UK-listed but US-centric direct marketing business of promotional goods. Despite a relatively small market share, they are the market leader in the US by some distance which reflects just how fragmented the market is.

3 Bloomsbury Publishing
Media
Portfolio value   £16,606,000

Percentage of portfolio 2.2%

The company is a leading independent publisher which aims to inform, educate, entertain and inspire readers of all ages. The company is focused on investing in high value intellectual property, with a focus on publishing quality content. The company has been diversifying the portfolio across consumer and non-consumer, and geographically has expanded it’s digital offering through mergers and acquisitions, further increasing the quality of its revenues and earnings.

4 Hill & Smith
Industrial Engineering
Portfolio value £16,476,000

Percentage of portfolio 2.2%

Hill & Smith is a leading UK-based infrastructure and construction products company that specializes in the design, manufacture, and supply of vehicle restraint systems, road safety barriers, and other infrastructure solutions for the highways and construction sectors.

5 Chemring Group
Aerospace & Defence
Portfolio value £16,152,000

Percentage of portfolio 2.1%

Chemring Group PLC is a UK-based technology solutions company that operates in the aerospace and defence industry. The company has two main business segments: Sensors & Information, and Countermeasures.

6 Workspace Group
Real Estate Investment Trusts
Portfolio value £15,931,000

Percentage of portfolio 2.1%

Workspace Group is a leading UK-based REIT that owns and manages a portfolio of flexible, sustainable commercial properties, primarily catering to SMEs in the Greater London area through its comprehensive workspace solutions and services.

7 Breedon
Construction & Materials
Portfolio value £15,293,000
Percentage of portfolio 2.0%

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

8 YouGov
Media
Portfolio value £14,568,000

Percentage of portfolio 1.9%

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

9 Tatton Asset Management
Financial Services
Portfolio value £14,114,000

Percentage of portfolio 1.8%

Tatton Asset Management is a leading UK financial services company that provides a range of investment management, compliance, and support services to independent financial advisers, with a focus on discretionary fund management and portfolio solutions.

10 CVS Group
General Retailers
Portfolio value £13,786,000
Percentage of portfolio 1.8%

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

FIFTY LARGEST INVESTMENTS AS AT 29 FEBRUARY 2024

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 29 February 2024, 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:

DISTRIBUTION OF INVESTMENTS AS AT 29 FEBRUARY 2024

PORTFOLIO ANALYSIS AS AT 29 FEBRUARY 2024

Analysis of portfolio value by sector

Sources: BlackRock and Datastream.

Investment size as at 29 February 2024

Source: BlackRock.

Market capitalisation of our portfolio companies as at 29 February 2024

Source: BlackRock.

STRATEGIC REPORT

The Directors present the Strategic Report of the Company for the year ended 29 February 2024. The aim of the Strategic Report is to provide shareholders with the information to assess how the Directors have performed their duty to promote the success of the Company for the collective benefit of shareholders.

The Chairman’s Statement together with the Investment Manager’s Report and the Directors’ Statement setting out how they promote the success of the Company contained within the Annual Report and Financial Statements form part of the Strategic Report. The Strategic Report was approved by the Board at its meeting on 13 May 2024.

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

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

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

To achieve its investment objective the Company invests predominantly in UK smaller companies with securities admitted to trading on the Main Market of the London Stock Exchange or on the AIM. The Company may also invest in securities which are listed overseas but have a secondary UK quotation. Although investments are primarily in companies with securities admitted to trading on recognised stock exchanges or on the AIM, the Investment Manager may also invest in less liquid unquoted securities with the prior approval of the Board. The Manager has adopted a consistent investment process, focusing on good quality growth companies; stock selection is the primary focus, but consideration is also given to sector weightings and underlying themes. Whilst there are no set limits on individual sector exposures against the Company’s benchmark, a schedule of sector weightings is presented at each Board meeting for review. In applying the investment objective, the Investment Manager expects the Company to be substantially fully invested and to borrow as and when appropriate. The Company seeks to achieve an appropriate spread of investment risk by investing in a number of holdings across a range of sectors. The Company may not hold more than 7% of the share capital of any company in which it has an investment. No single portfolio holding (excluding holdings in cash fund investments held for cash management purposes) will, on the date such holding is acquired by the Company, exceed 5% of the Company’s net asset value. Notwithstanding the foregoing, the general aim is that no single portfolio holding (excluding cash fund investments held for cash management purposes) will, on the date such holding is acquired by the Company, exceed 3% of the Company’s net asset value. In addition, while the Company may hold shares in other listed investment companies (including investment trusts), the Board has agreed that the Company will not invest more than 15% of its total assets in other UK listed investment companies. The Investment Manager will not deal in derivatives without prior approval of the Board.

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

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

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

Other service providers include the Depositary (also BNYM) and the Registrar, Computershare Investor Services PLC. The Depositary has sub-delegated the provision of custody services to the Asset Servicing division of BNYM. Details of the contractual terms with the Manager and the Depositary and more details of the sub-delegation arrangements in place governing custody services are set out in the Directors’ Report.

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

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

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

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

PORTFOLIO ANALYSIS
A detailed analysis of the portfolio has been provided within the Annual Report and Financial Statements.

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

RESULTS AND DIVIDENDS
The results for the Company are set out in the Income Statement in the Financial Statements. The total net loss for the year, after taxation, was £32,701,000 (2023: loss of £140,726,000) of which the revenue return amounted to a profit of £19,691,000 (2023: profit of £19,980,000) and the capital loss amounted to £52,392,000 (2023: loss of £160,706,000).

The Company’s revenue return amounted to 40.70p per share (2023: 40.92p). The Directors have declared a final dividend of 27.00p per share as set out in the Chairman’s Statement.

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

SOCIAL, COMMUNITY AND HUMAN RIGHTS ISSUES
As an investment trust, the Company has no direct social or community responsibilities or impact on the environment, and the Company has not adopted an ESG investment strategy or exclusionary screens. However, the Directors believe that it is in shareholders’ interests to consider human rights issues, environmental, social and governance matters when selecting and retaining investments. Details of the Board’s approach to ESG and socially responsible investment is set out within the Annual Report and Financial Statements. Details of the Manager’s approach to ESG integration are set out within the Annual Report and Financial Statements.

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

DIRECTORS, GENDER REPRESENTATION AND EMPLOYEES
The Directors of the Company on 29 February 2024 are set out in the Directors’ biographies contained within the Annual Report and Financial Statements. With effect from 1 March 2024, the Board consists of three male Directors and three female Directors. The Company does not have any executive employees.

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

1 Total return basis with dividends reinvested.

2 Alternative Performance Measure, see Glossary contained within the Annual Report and Financial Statements.

3 Calculated as a percentage of average daily net assets and using the management fee and all other operating expenses, excluding finance costs, direct transaction costs, custody transaction charges, VAT recovered, taxation, prior year expenses written back and certain non-recurring items in accordance with AIC guidelines.

Sources: BlackRock and Datastream.

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

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

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

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

The Board has undertaken a robust assessment of both the principal and emerging risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity. The risk that unforeseen or unprecedented events including (but not limited to) heightened geo-political tensions such as the war in Ukraine, high inflation and the current cost of living crisis has had a significant impact on global markets. The risks identified by the Board have been described in the table that follows, together with an explanation of how they are managed and mitigated. Emerging risks are considered by the Board as they come into view and are incorporated into the existing review of the Company’s risk register. They were also considered as part of the annual evaluation process.

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

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

INVESTMENT PERFORMANCE 

Principal risk
The returns achieved are reliant primarily upon the performance of the portfolio.

The Board is responsible for:

• deciding the investment strategy to fulfil the Company’s objective; and
• monitoring the performance of the Investment Manager and the implementation of the investment strategy.

An inappropriate investment strategy may lead to:

• poor performance compared to the Benchmark Index and the Company’s peer group;
• a loss of capital; and
• dissatisfied shareholders.

The Board is also cognisant of the long-term risk to performance from inadequate attention to ESG issues, and in particular the impact of climate change. More detail in respect of these risks can be found in the AIFMD Fund Disclosures document available on the Company’s website at www.blackrock.com/uk/individual/literature/policies/itc-disclosure-blackrock-smaller-companies-trust-plc.pdf.

Mitigation/Control
To manage this risk the Board:

• regularly reviews the Company’s investment mandate and long-term strategy;
• has set investment restrictions and guidelines which the Investment Manager monitors and regularly reports on;
• receives from the Investment Manager a regular explanation of stock selection decisions, portfolio exposure, gearing and any changes in gearing and the rationale for the composition of the investment portfolio;
• monitors the maintenance of an adequate spread of investments in order to minimise the risks associated with factors specific to particular sectors, based on the diversification requirements inherent in the investment policy; and
• receives reports showing the Company’s performance against the benchmark.

ESG analysis is integrated into the Manager’s investment process, as set out within the Annual Report and Financial Statements. This is monitored by the Board.

MARKET RISK

Principal risk
Market risk arises from volatility in the prices of the Company’s investments influenced by currency, interest rate or other price movements. It represents the potential loss the Company might suffer through holding market positions in financial instruments in the face of market movements.

Market risk includes the potential impact of events which are outside the Company’s control, including (but not limited to) heightened geo-political tensions and military conflict, a global pandemic and high inflation or stagflation (in particular through increased commodity price volatility driving inflation and impacting trade).

The impact of climate change and new legislation governing climate change and environmental issues have the potential to adversely impact markets and the valuation of companies within the portfolio.

There is the potential for the Company to suffer loss through holding investments in the face of negative market movements.

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

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

The Board also recognises the benefits of a closed-end fund structure in extremely volatile markets such as those experienced during the Russia-Ukraine and Middle East conflicts. Unlike open-ended counterparts, closed-end funds are not obliged to sell down portfolio holdings at low valuations to meet liquidity requirements for redemptions. During times of elevated volatility and market stress, the ability of a closed-end fund structure to remain invested for the long term enables the portfolio manager to adhere to disciplined fundamental analysis from a bottom-up perspective and be ready to respond to dislocations in the market as opportunities present themselves.

The Manager takes into account climate risk within the investment process along with other ESG considerations as set out within the Annual Report and Financial Statements.

INCOME/DIVIDEND RISK

Principal risk
The amount of dividends and future dividend growth will depend on the performance of the Company’s underlying portfolio and may be impacted by events which are outside the Company’s control, such as the Russia-Ukraine and Middle East conflicts. In addition, any change in the tax treatment of the dividends or interest received by the Company may reduce the level of dividends received by shareholders.

Mitigation/Control
The Board monitors this risk through the receipt of detailed income forecasts and considers the level of income at each Board meeting.

The Company has substantial revenue reserves which can be utilised and also has the ability to make distributions by way of dividends from capital reserves if required.

LEGAL & COMPLIANCE RISK

Principal risk
The Company has been approved by HM Revenue & Customs as an investment trust, subject to continuing to meet the relevant eligibility conditions and operates as an investment trust in accordance with Chapter 4 of Part 24 of the Corporation Tax Act 2010. As such, the Company is exempt from capital gains tax on the profits realised from the sale of its investments.

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

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

Amongst other relevant laws and regulations, the Company is required to comply with the provisions of the Companies Act 2006, the Alternative Investment Fund Managers’ Directive, the UK Listing Rules and Disclosure Guidance and Transparency Rules, the Sanctions and Anti-Money Laundering Act 2018 and the Market Abuse Regulation.

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

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

The Company Secretary and the Company’s professional advisers provide regular reports to the Board in respect of compliance with all applicable rules and regulations.

The Company’s Investment Manager, BlackRock, at all times complies with sanctions administered by the UK Office of Financial Sanctions Implementation, the United States Treasury’s Office of Foreign Assets Control, the United Nations, European Union member states and any other applicable regimes. The Company does not invest in companies domiciled in Russia.

OPERATIONAL RISK

Principal risk
In common with most other investment trust companies, the Company has no employees. The Company therefore relies on the services provided by third parties. Accordingly, it is dependent on the control systems of the Manager, the Depositary and the Fund Accountant who maintain the Company’s assets, dealing procedures and accounting records.

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

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

Inadequate succession planning arrangements, particularly of the Manager, could disrupt the level of service provided.

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

The Board reviews on a regular basis an assessment of the fraud risks that the Company could potentially be exposed to, and also a summary of the controls put in place by the Manager, the Depositary, the Custodian, the Fund Accountant and the Registrar designed specifically to mitigate these risks.

Most third-party service providers produce Service Organisation Control (SOC 1) reports to provide assurance regarding the effective operation of internal controls as reported on by their reporting accountants. These reports are provided to the Audit Committee.

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

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

The Board also considers the business continuity arrangements of the Company’s key service providers on an ongoing basis and reviews these as part of their review of the Company’s risk register. The Board considers the Manager’s succession plans in so far as they affect the services provided to the Company.

FINANCIAL RISK

Principal risk
The Company’s investment activities expose it to a variety of financial risks that include interest rate, credit and liquidity risk.

Mitigation/Control
Details of these risks are disclosed in note 17 to the financial statements, together with a summary of the policies for managing these risks.

MARKETING RISK

Principal risk
Marketing efforts are inadequate, do not comply with relevant regulatory requirements, and fail to communicate adequately with shareholders or reach out to potential new shareholders resulting in reduced demand for the Company’s shares and a widening discount.

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

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

The Board is cognisant of the uncertainty surrounding the potential duration of the conflicts in Russia-Ukraine and the Middle East, its impact on the global economy and the prospects for some of the Company’s portfolio holdings. Notwithstanding these crises, and given the factors stated below, the Board expects the Company to continue for the foreseeable future and has therefore conducted this review for the period up to the AGM in 2029 being a five-year period from the date that this Annual Report will be approved by shareholders. This assessment term has been chosen as it represents a medium-term performance period over which investors in the smaller companies’ sector generally refer to when making investment decisions.

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

• The Company’s principal risks as set out within the Annual Report and Financial Statements;
• The risk that the challenging geo-political backdrop, rising inflation and a sustained high interest rate environment will impact on the ability of portfolio companies to pay dividends, and consequently impact the Company’s portfolio yield and ability to pay dividends;
• The ongoing relevance of the Company’s investment objective in the current environment; and
• The level of demand for the Company’s ordinary shares.

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

• The Board has reviewed portfolio liquidity as at 29 February 2024;
• The Board has reviewed the Company’s revenue and expense forecasts in light of the current economic back drop both in the UK and globally and the anticipated impact on dividend income and market valuations. The Board is confident that the Company’s business model remains viable and that the Company has sufficient resources to meet all liabilities as they fall due for the period under review;
• The Board has reviewed the Company’s borrowing and debt facilities and considers that the Company continues to meet its financial covenants in respect of these facilities and has a wide margin before any relevant thresholds are reached;
• The Board keeps the Company’s principal risks and uncertainties as set out above under review, and is confident that the Company has appropriate controls and processes in place to manage these and to maintain its operating model, even given the global economic challenges posed by the impact of climate change on portfolio companies and the current climate of heightened geo-political risk (notably the invasion of Ukraine and the conflict in the Middle East);
• The operational resilience of the Company and its key service providers (the Manager, Depositary, Custodian, Fund Administrator, Registrar and Broker) and their ability to continue to provide a good level of service for the foreseeable future;
• The level of current and historic ongoing charges incurred by the Company;
• The discount to NAV;
• The level of income generated by the Company; and
• Future income forecasts.

The Company is an investment company with a relatively liquid portfolio. As at 29 February 2024, the Company held no illiquid unquoted investments and 63.3% of the Company’s portfolio investments were readily realisable and listed on the London Stock Exchange. The remaining 36.7% that were listed on the Alternative Investment Market are also considered to be readily realisable. The Company has largely fixed overheads which comprise a very small percentage of net assets. Therefore, the Board has concluded that the Company would comfortably be able to meet its ongoing operating costs as they fall due.

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

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

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

STAKEHOLDERS

Shareholders
Continued shareholder support and engagement are critical to the continued existence of the Company and the successful delivery of its long-term strategy. The Board is focused on fostering good working relationships with shareholders and on understanding the views of shareholders in order to incorporate them into the Board’s strategy and objectives in delivering long-term growth and income.

Manager and Investment Manager
The Board’s main working relationship is with the Manager, who is responsible for the Company’s portfolio management (including asset allocation, stock and sector selection) and risk management, as well as ancillary functions such as administration, secretarial, accounting and marketing services. The Manager has sub-delegated portfolio management to the Investment Manager. Successful management of shareholders’ assets by the Investment Manager is critical for the Company to successfully deliver its investment strategy and meet its objective. The Company is also reliant on the Manager as AIFM to provide support in meeting relevant regulatory obligations under the AIFMD and other relevant legislation.

Other key service providers
In order for the Company to function as an investment trust with a listing on the premium segment of the official list of the FCA and trade on the London Stock Exchange’s (LSE) main market for listed securities, the Board relies on a diverse range of advisors for support in meeting relevant obligations and safeguarding the Company’s assets. For this reason, the Board considers the Company’s Custodian, Depositary, Registrar and Broker to be stakeholders. The Board maintains regular contact with its key external service providers and receives regular reporting from them through the Board and committee meetings, as well as outside of the regular meeting cycle.

Investee companies
Portfolio holdings are ultimately shareholders’ assets, and the Board recognises the importance of good stewardship and communication with investee companies in meeting the Company’s investment objective and strategy. The Board monitors the Manager’s stewardship activities and receives regular feedback from the Manager in respect of meetings with the management of portfolio companies.

MANAGEMENT OF SHARE RATING

Issue
The Board recognises that it is in the long-term interests of shareholders that shares do not trade at a significant discount or premium to their prevailing net asset value. Therefore, where deemed to be in shareholders’ long-term interests, it may exercise its powers to issue shares or buy back shares with the objective of ensuring that an excessive premium or discount does not arise.

Engagement
The Board monitors the Company’s share rating on an ongoing basis and receives regular updates from the Company’s Broker and Manager regarding the level of discount and the drivers behind this. The Manager provides regular performance updates and detailed performance attribution.

The Board believes that the best way of maintaining the share rating at an optimal level over the long term is to create demand for the shares in the secondary market. To this end the Investment Manager is devoting considerable effort to broadening the awareness of the Company, particularly to wealth managers and to the wider retail shareholder market.

The Company contributes to a focused investment trust sales and marketing initiative operated by BlackRock on behalf of the investment trusts under its management. The Company’s contribution to the consortium element of the initiative, which enables the trusts to achieve efficiencies by combining certain sales and marketing activities was a fixed amount of £67,000 and this contribution is matched by the Investment Manager for the year ended 31 December 2023. The purpose of the programme overall is to ensure effective communication with existing shareholders and to attract new shareholders to the Company to improve liquidity in the Company’s shares and to sustain the stock market rating of the Company.

During the year ended 29 February 2024, the Company has repurchased 1,510,000 ordinary shares into treasury at a total cost of £19,989,000 and at an average discount of 12.6%.

Since the year end and as at the date of this report, the Company has repurchased 220,000 shares for costs of £2,946,000 at an average discount of 13.0%.

Impact
Over the last five years, the Company’s discount has widened steadily, from an average discount of 7.9% for the year to 28 February 2019 to 12.4% for the year ended 29 February 2024. As at 8 May 2024 the Company’s shares were trading at a discount of 11.1% to the cum income NAV (with debt at fair value). This compares to an average discount for the Company’s sector of 11.7% (based on the Association of Investment Companies sector average for the UK Smaller Companies peer group).

Over the last twelve years, the number of shares held by retail shareholders has increased from 34.1% (as at 29 February 2012) to 66.5% at 29 February 2024.

INVESTMENT MANDATE AND OBJECTIVE

Issue
The Board has the responsibility to shareholders to ensure that the Company’s portfolio of assets is invested in line with the stated investment objective and in a way that ensures an appropriate balance between spread of risk and portfolio returns.

Engagement
The Board works closely with the Investment Manager throughout the year in further developing our investment strategy and underlying policies, not simply for the purpose of achieving the Company’s investment objective but in the interests of shareholders and future investors.

Impact
The portfolio activities undertaken by the Investment Manager can be found in the Investment Manager’s Report above.

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

RESPONSIBLE INVESTING

Issue
More than ever, good governance and consideration of sustainable investment is a key factor in making investment decisions. Climate change is becoming a defining factor in companies’ long-term prospects across the investment spectrum, with significant and lasting implications for economic growth and prosperity.

Engagement
The Board believes that responsible investment and sustainability are important to the longer-term delivery of the Company’s success. The Board works closely with the Investment Manager to regularly review the Company’s performance, investment strategy and underlying policies to ensure that the Company’s investment objective continues to be met in an effective and responsible way in the interests of shareholders and future investors.

The Investment Manager’s approach to the consideration of Environmental, Social and Governance (ESG) factors in respect of the Company’s portfolio, as well as the Investment Manager’s engagement with investee companies, are kept under review by the Board. The Investment Manager reports to the Board in respect of how consideration of material ESG risks and opportunities is integrated into the investment process; a summary of BlackRock’s approach to ESG integration is set out within the Annual Report and Financial Statements. The Investment Manager’s engagement and voting policy is detailed in the Annual Report and Financial Statements and on the BlackRock website.

Impact
The Board and the Investment Manager believe there is a positive correlation between ESG practices and investment performance. Details of the Company’s performance in the year are given in the Chairman’s Statement above and the Performance Record contained within the Annual Report and Financial Statements.

The Company does not meet the criteria for Article 8 or 9 products under the EU Sustainable Finance Disclosure Regulation (SFDR) and the investments underlying this financial product do not take into account the EU criteria for environmentally sustainable economic activities. The Investment Manager has access to a range of data sources, including principal adverse indicator (“PAI”) data, when making decisions on the selection of investments. However, whilst BlackRock considers ESG risks for all portfolios and these risks may coincide with environmental or social themes associated with the PAIs, unless stated otherwise in the AIFMD Disclosure Document, the Company does not commit to considering PAIs in driving the selection of its investments.

GEARING AND SOURCES OF FINANCE

Issue
The Board believes that it is important for the Company to have an appropriate range of borrowings and facilities in place to provide a balance between longer-term and short-term maturities and between fixed and floating rates of interest.

Engagement
Gearing levels and sources of funding are reviewed regularly by the Board with a view to ensuring that the Company has a suitable mix of financing at competitive market rates.

As at 29 February 2024, the Company had the following 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 (BNYM) with interest charged at SONIA plus 100 basis points (bps).

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

Impact
The Board has been proactive over the last few years in putting in place structural fixed gearing with the issue of £70 million of private placement notes issued between May 2017 and September 2021 to lock in fixed rate, long dated, Sterling denominated financing at a highly competitive pricing level. The Board also has in place a bank overdraft with BNYM at a competitive interest rate (SONIA plus 100 bps) and a lower non-utilisation fee (4 bps).

For the year to 29 February 2024, it is estimated that gearing contributed 0.3% to the NAV per share performance.

At the year end, the Company’s gearing was 11.5% of net assets.

SERVICE LEVELS OF THIRD-PARTY PROVIDERS

Issue
The Board acknowledges the importance of ensuring that the Company’s principal suppliers are providing a suitable level of service: including the Manager in respect of investment performance and delivering on the Company’s investment mandate; the Custodian and Depositary in respect of their duties towards safeguarding the Company’s assets; the Registrar in its maintenance of the Company’s share register and dealing with investor queries and the Company’s Broker in respect of the provision of advice and acting as a market maker for the Company’s shares.

Engagement
The Manager reports to the Board on the Company’s performance on a regular basis. The Board carries out a robust annual evaluation of the Manager’s performance, their commitment and available resources.

The Board performs an annual review of the service levels of all third-party service providers and concludes on their suitability to continue in their role.

The Board receives regular updates from the AIFM, Depositary, Registrar and Broker on an ongoing basis.

The Board works closely with the Manager to gain comfort that relevant business continuity plans are in place and are operating effectively for all of the Company’s service providers.

Impact
All performance evaluations were performed on a timely basis and the Board concluded that all third-party service providers, including the Manager were operating effectively and providing a good level of service.

The Board has received updates in respect of business continuity planning from the Company’s Manager, Custodian, Depositary, Fund Administrator, Broker, Registrar and printers, and is confident that the arrangements in place are appropriate.

BOARD COMPOSITION

Issue
The Board is committed to ensuring that its own composition brings an appropriate balance of knowledge, experience and skills, and that it is compliant with best corporate governance practice under the UK Code, including guidance on tenure and the composition of the Board’s committees.

Engagement
The Board engaged an external firm (Stogdale St James) to carry out an independent external evaluation of the Board for the prior year. As part of this process the Board also asked Stogdale St James to compile a skills matrix to enable the Board to identify areas of focus in future succession planning to ensure a diverse Board. The Board used this skills matrix as the cornerstone for undertaking the search and selection process in 2023 with the aim of further enhancing Board diversity. Sapphire Partners, an external recruitment agency, was engaged to conduct this exercise and a broad range of factors were taken into account in setting the appointment brief and during the search and selection process. This was underpinned by the underlying premise 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.

The results of the external evaluation were satisfactory and it was concluded that the Board, its Committees and the Chairman were all performing in an effective manner. More details are given within the Annual Report and Financial Statements.

All Directors stand for re-election/election by shareholders annually.

Shareholders may attend the AGM and raise any queries in respect of Board composition or individual Directors in person or may contact the Company Secretary or the Chairman using the details provided within the Annual Report and Financial Statements with any issues.

The Board has implemented a policy of limiting directors’ tenure to nine years. Subject to the constraints of effective succession planning, it is the Board’s aim that no Director will serve on the Board for more than nine years (or twelve years in the case of the Chairman). The longer time limit for the Chairman’s tenure is to allow for continuity of leadership in circumstances where a Chairman is appointed from the ranks of existing Board members after having already served on the Board for a period of time.

Impact
As at 13 May 2024, the Board had a 50:50 male to female gender ratio, in accordance with relevant regulation and best practice, and will continue to consider other diversity characteristics, such as age, ethnicity, gender, disability, educational or professional background when appraising Board composition.

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. Listing Rule 9.8.6R (9) requires listed companies to include a statement in their annual reports and accounts in respect of certain targets on board diversity, or if those new targets have not been met to disclose the reasons for this. This new requirement applies to accounting periods commencing on or after 1 April 2022 and therefore the Company has reported against these diversity targets for the current year ending 29 February 2024.

Further information on the composition and diversity of the Board can be found in the Corporate Governance Statement contained within the Annual Report and Financial Statements.

At the start of the year under review, no Board Director had tenure in excess of nine years.

Details of each Director’s contribution to the success and promotion of the Company are set out in the Directors’ Report within the Annual Report and Financial Statements and details of Directors’ biographies can be found within the Annual Report and Financial Statements.

The Directors are not aware of any issues that have been raised directly by shareholders in respect of Board composition in the year under review. Details for the proxy voting results in favour and against individual Directors’ re-election at the 2023 AGM are given on the Company’s website at www.blackrock.com/uk/brsc.

On 5 May 2023, the Directors established a combined Nomination and Remuneration Committee to perform these duties on an ongoing basis. This combined Committee will meet annually in February/March each year, or more frequently as required on an ad hoc basis.

SHAREHOLDERS

Issue
Continued shareholder support and engagement are critical to the continued existence of the Company and the successful delivery of its long-term strategy.

Engagement
The Board is committed to maintaining open channels of communication and to engage with shareholders and welcomes and encourages attendance and participation from shareholders at its Annual General Meetings. If shareholders wish to raise issues or concerns with the Board outside of the AGM, they are welcome to do so at any time. The Chairman is available to meet directly with shareholders periodically to understand their views on governance and the Company’s performance where they wish to do so. He may be contacted via the Company Secretary whose details are given within the Annual Report and Financial Statements.

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

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

The Manager also coordinates public relations activity, including meetings between the portfolio managers and shareholders and potential investors to set out their vision for the portfolio strategy and outlook for the region and in the year under review, the Company held a number of webcasts and virtual conferences as well as meeting with investors by videoconference.

The Manager releases monthly portfolio updates to the market to ensure that investors are kept up to date in respect of performance and other portfolio developments and maintains a website on behalf of the Company that contains relevant information in respect of the Company’s investment mandate and objective.

Impact
The Board values any feedback and questions from shareholders ahead of and during Annual General Meetings in order to gain an understanding of their views and will take action when and as appropriate. Feedback and questions will also help the Company evolve its reporting, aiming to make reports more transparent and understandable.

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

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

The portfolio manager also presented at virtual events hosted by Boring Money, Investor Meet, Kepler and Citywire. In addition, the portfolio manager met with a number of investors throughout the year.

Investors gave positive feedback in respect of the portfolio manager, the good long-term track record, clear investment strategy and low fee. Some investors commented that they liked the fact that (in common with many closed-ended funds across the sector) the Company’s discount had widened, making the shares excellent value.

Investors expressed concerns over the outlook for UK consumers and the potential for economic data to deteriorate.

ENVIRONMENTAL, SOCIAL AND GOVERANCE ISSUES AND APPROACH

The Board’s approach
Environmental, social and governance (ESG) issues can present both opportunities and risks to long-term investment performance. Whilst the Company does not exclude investment in stocks purely on ESG criteria, material ESG analytics are integrated into the investment process when weighing up the risk and reward benefits of investment decisions and the Board believes that communication and engagement with portfolio companies is important and can lead to better outcomes for shareholders and the environment than merely excluding investment in certain areas.

More information on BlackRock’s global approach to ESG integration, as well as activity specific to the BlackRock Smaller Companies Trust plc portfolio, is set out below. BlackRock has defined ESG integration as the practice of incorporating financially material E, S and/or G data and information and consideration of sustainability risks into investment decisions with the objective of enhancing risk-adjusted returns. ESG integration does not change the Company’s investment objective. More information on sustainability risks may be found in the AIFMD Fund Disclosures document of the Company available on the Company’s website at www.blackrock.com/uk/individual/literature/policies/itc-disclosure-blackrock-smaller-companies-trust-plc.pdf.

BlackRock’s approach to ESG integration
BlackRock incorporates into its firmwide processes relevant, financially material information, including financially material data and information related to ESG. BlackRock’s investment view is that doing so can provide better risk-adjusted returns for its clients over the long term.

BlackRock’s clients have a wide range of perspectives on a variety of issues and investment themes, including sustainable and low-carbon transition investing. Given the wide range of unique and varied investment objectives sought by our clients, BlackRock’s investment teams have a range of approaches to considering financially material E, S, and/or G factors. As with other investment risks and opportunities, the financial materiality of E, S and/or G considerations may vary by issuer, sector, product, mandate, and time horizon. Depending on the investment approach, this financially material E, S and/or G data or information may help inform due diligence, portfolio or index construction, and/or monitoring processes of our portfolios, as well as our approach to risk management.

BlackRock’s ESG integration framework is built upon our history as a firm founded on the principle of thorough and thoughtful risk management. Aladdin, our core risk management and investment technology platform, allows investors to leverage financially material E, S and/or G data or information as well as the combined experience of our investment teams to effectively identify investment opportunities and investment risks. Our heritage in risk management combined with the strength of the Aladdin platform enables BlackRock’s approach to ESG integration.

We structure our approach around three main pillars: investment processes, material insights and transparency and we support them by equipping our employees with investment relevant E, S and/or G data, tools, and education.

More information in respect of BlackRock’s approach to ESG integration can be found at https://www.blackrock.com/corporate/literature/publication/blk-esg-investment-statement-web.pdf.

BlackRock Smaller Companies Trust plc – BlackRock Investment Stewardship engagement with portfolio companies for the year ended 29 February 2024
The BlackRock portfolio management team has excellent access to company management teams and undertakes about 700 company meetings each year to identify high quality, cash generative businesses with strong management teams that are able to generate growth in a more challenging economic environment. In addition, BlackRock also has a separate Investment Stewardship (BIS) team that is committed to promoting sound corporate governance through engagement with investee companies, development of proxy voting policies that support best governance practices and wider engagement with the stewardship ecosystem . For the year to 29 February 2024, BIS held 48 company engagements on a range of governance issues with the management teams of 36 companies in the BlackRock Smaller Companies Trust portfolio, representing 34% of the portfolio holdings at 29 February 2024. Additional information is set out in the table below and the charts on page 46 as well as the key engagement themes for the meetings held in respect of the Company’s portfolio holdings.

1 Source: BlackRock as at 29 February 2024.
2 Source: BlackRock. As a percentage of total portfolio holdings at 29 February 2024.
3 Source: BlackRock, Institutional Shareholder Services as at 29 February 2024.

Engagement Topics1

Engagement Themes1

1  The number of meetings held in respect of the Company’s portfolio holdings; at which a particular topic is discussed. Most engagement conversations cover multiple topics. More detail about BIS’ engagement priorities can be found here: www.blackrock.com/corporate/literature/publication/blk-stewardship-priorities-final.pdf.

Investment Stewardship
Consistent with BlackRock’s fiduciary duty as an asset manager, BIS seeks to support investee companies in their efforts to deliver long-term financial value on behalf of our clients. These clients include public and private pension plans, governments, insurance companies, endowments, universities, charities and, ultimately, individual investors, among others. BIS serves as a link between BlackRock’s clients and the companies they invest in. Clients depend on BlackRock to help them meet their investment goals; the business and governance decisions that companies make may have a direct impact on BlackRock’s clients’ long-term investment outcomes and financial wellbeing.

Global principles
The BIS Global Principles, regional voting guidelines and engagement priorities (collectively, the ‘BIS policies’) set out the core elements of corporate governance that guide BIS’ efforts globally and within each regional market, including when engaging with companies and voting at shareholder meetings when authorised to do so on behalf of clients. Each year, BIS reviews its policies and updates them as necessary to reflect changes in market standards and regulations, insights gained over the year through third-party and its own research, and feedback from clients and companies. BIS’ Global Principles are available on its website at www.blackrock.com/corporate/literature/fact-sheet/blk-responsible-investment-engprinciples-global.pdf.

Regional voting guidelines
BIS’ voting guidelines are intended to help clients and companies understand its thinking on key governance matters. They are the benchmark against which it assesses a company’s approach to corporate governance and the items on the agenda to be voted on at a shareholder meeting. BIS applies its guidelines pragmatically, taking into account a company’s unique circumstances where relevant. BlackRock informs voting decisions through research and engages as necessary. BIS reviews its voting guidelines annually and updates them as necessary to reflect changes in market standards, evolving governance practice and insights gained from engagement over the prior year. BIS’ regional voting guidelines are available on its website at www.blackrock.com/corporate/about-us/investment-stewardship#stewardship-policies.

BlackRock is committed to transparency in terms of disclosure of its stewardship activities on behalf of clients. BIS publishes its stewardship policies – such as the BIS Global Principles, regional voting guidelines and engagement priorities – to help BlackRock’s clients understand its work to advance their interests as long-term investors in public companies. Additionally, BIS publishes both annual and quarterly reports detailing its stewardship activities, as well as vote bulletins that describe its rationale for certain votes at high-profile shareholder meetings. More detail in respect of BIS reporting can be found at www.blackrock.com/corporate/insights/investment-stewardship.

BlackRock’s reporting and disclosures
In terms of its own reporting, BlackRock believes that the Sustainability Accounting Standards Board provides a clear set of standards for reporting sustainability information across a wide range of issues, from labour practices to data privacy to business ethics. For evaluating and reporting climate-related risks, as well as the related governance issues that are essential to managing them, the Task Force on Climate-related Financial Disclosures (TCFD) provides a valuable framework. BlackRock recognises that reporting to these standards requires significant time, analysis, and effort. BlackRock’s 2023 TCFD report can be found at www.blackrock.com/corporate/literature/continuous-disclosure-and-important-information/tcfd-report-2023-blkinc.pdf.

FOR AND ON BEHALF OF THE BOARD
RONALD GOULD
Chairman
13 May 2024

RELATED PARTY TRANSACTIONS: TRANSACTIONS WITH THE 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 in the Directors’ Report contained within the Annual Report and Financial Statements.

The investment management fee for the year ended 29 February 2024 amounted to £4,437,000 (2023: £4,784,000) as disclosed in note 4 to the Financial Statements above. At the year end, £3,319,000 was outstanding in respect of the management fee (2023: £4,784,000).

In addition to the above services, BIM (UK) provided the Company with marketing services. The total fees paid or payable for these services for the year ended 29 February 2024 amounted to £174,000 including VAT (2023: £170,000). Marketing fees of £137,000 (2023: £137,000) were outstanding at the year end.

During the year, the Manager pays the amounts due to the Directors. These fees are then reimbursed by the Company for the amounts paid on its behalf. As at 29 February 2024, an amount of £210,000 (2023: £105,000) was payable to the Manager in respect of Directors’ fees.

The ultimate holding company of the Manager and the Investment Manager is BlackRock, Inc., a company incorporated in Delaware, USA.

RELATED PARTY DISCLOSURE: DIRECTORS’ EMOLUMENTS

At the date of this report, the Board consists of six Non-executive Directors, all of whom are considered to be independent of the Manager by the Board. Disclosures of the Directors’ interests in the ordinary shares of the Company and fees and expenses payable to the Directors are set out in the Directors’ Remuneration Report, contained within the Annual Report and Financial Statements. At 29 February 2024, an amount of £17,000 (2023: £14,000) was outstanding in respect of Directors’ fees.

None of the Directors has a service contract with the Company. For the year ended 29 February 2024, the Chairman received an annual fee of £46,735, the Audit Committee Chairman received an annual fee of £35,700, the Senior Independent Director received an annual fee of £32,550 and each other Director received an annual fee of £31,500. With effect from 1 March 2024, the Chairman will receive an annual fee of £50,000, the Audit Committee Chairman will receive an annual fee of £38,000, the Senior Independent Director will receive an annual fee of £35,000 and each other Directors will receive an annual fee of £33,000. 

As at 13 May 2024 all members of the Board held shares in the Company. Ronald Gould held 3,544 ordinary shares, Mark Little 491 ordinary shares, Susan Platts-Martin held 2,800 ordinary shares, James Barnes held 2,500 ordinary shares and Helen Sinclair held 988 ordinary shares. Dunke Afe does not currently hold any shares in the Company.

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

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

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

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

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

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

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

Each of the Directors, whose names are listed within the Annual Report and Financial Statements, confirms that, to the best of their knowledge:

• the Financial Statements, prepared in accordance with applicable accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and
• the Strategic Report contained in the Annual Report and Financial Statements includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces.

The UK Code also requires Directors to ensure that the Annual Report and Financial Statements are fair, balanced and understandable. In order to reach a conclusion on this matter, the Board has requested that the Audit Committee advise on whether it considers that the Annual Report and Financial Statements fulfil these requirements. The process by which the Committee has reached these conclusions is set out in the Audit Committee’s report contained within the Annual Report and Financial Statements. As a result, the Board has concluded that the Annual Report and Financial Statements for the year ended 29 February 2024, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company’s position, performance, business model and strategy.

FOR AND ON BEHALF OF THE BOARD
RONALD GOULD
Chairman
13 May 2024

INCOME STATEMENT FOR THE YEAR ENDED 29 FEBRUARY 2024

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 year. All income is attributable to the equity holders of the Company.

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

STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 29 FEBRUARY 2024

1 Interim dividend paid in respect of the year ended 29 February 2024 of 15.00p was declared on 26 October 2023 and paid on 4 December 2023. Final dividend paid in respect of the year ended 28 February 2023 of 25.50p was declared on 9 May 2023 and paid on 27 June 2023.

2 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.

 
BALANCE SHEET AS AT 29 FEBRUARY 2024

STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 29 FEBRUARY 2024

1 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 YEAR ENDED 29 FEBRUARY 2024

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

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

(a) Basis of preparation
The financial statements have been prepared on a going concern basis in accordance with The Financial Reporting Standard applicable in the UK and Republic of Ireland (FRS 102) and the revised Statement of Recommended Practice – Financial Statements of Investment Trust Companies and Venture Capital Trusts (SORP) issued by the Association of Investment Companies (AIC) in October 2019 and updated in July 2022, and the provisions of the Companies Act 2006.

Substantially, all of the assets of the Company consist of securities that are readily realisable and, accordingly, the Directors are satisfied that the Company has adequate resources to continue in operational existence for the period to 28 February 2026, being a period of at least 12 months from the date of approval of the financial statements, and therefore consider the going concern assumption to be appropriate. The Directors have reviewed compliance with the covenants associated with the debenture, loan notes and revolving credit facility, income and expense projections and the liquidity of the investment portfolio in making their assessment.

The Directors have considered the impact of climate change on the value of the investments included in the Financial Statements and have concluded that there was no further impact of climate change to be considered as the investments are valued based on market pricing as required by FRS 102.

None of the Company’s other assets and liabilities were considered to be potentially impacted by climate change.

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

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

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

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

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

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

Dividends are accounted for in accordance with Section 29 of FRS 102 on the basis of income actually receivable, without adjustment for tax credits attaching to the dividend. Dividends from overseas companies continue to be shown gross of withholding tax.

Deposit interest receivable is accounted for using the effective interest rate method in accordance with Section 11 of FRS 102.

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

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

• expenses which are incidental to the acquisition or disposal of an investment are treated as capital. Details of transaction costs on the purchases and sales of investments are shown in note 10 contained within the Annual Report and Financial Statements;
• expenses are treated as capital where a connection with the maintenance of enhancement of the value of the investments can be demonstrated; and
• the investment management fee and finance costs have been allocated 75% to the capital account and 25% to the revenue account of the Income Statement in line with the Board’s expected long-term split of returns, in the form of capital gains and income respectively, from the investment portfolio.

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

The current tax effect of different items of expenditure is allocated between capital and revenue on the marginal basis using the Company’s effective rate of corporation tax for the accounting period.

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

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

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

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

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

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

The fair value hierarchy consists of the following three levels:

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

Level 2 – Valuation techniques using observable inputs.

Level 3 – Valuation techniques using significant unobservable inputs.

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

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

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

Shares repurchased and held in treasury – the full cost of the repurchase is charged to the capital reserves.

Where treasury shares are subsequently re-issued:

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

Where new shares are issued, the par value is taken to called up share capital and amounts received to the extent of any surplus received in excess of the par value are taken to the share premium account.

Share issue costs are charged to the share premium account. Costs on share reissues are charged to the capital reserves.

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

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

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

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

3. INCOME

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 year (2023: £nil).

Dividends and interest received in cash during the year amounted to £21,699,000 and £447,000 (2023: £20,835,000 and £1,174,000).

4. INVESTMENT MANAGEMENT FEE

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. OTHER OPERATING EXPENSES 

1 Further information on Directors’ emoluments can be found in the Directors’ Remuneration Report contained within the Annual Report and Financial Statements.

2 Relates to miscellaneous fees written back during the year ended 29 February 2024 (2023: legal fees).

3 For the year ended 29 February 2024, expenses of £21,000 (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.

4 Alternative Performance Measure, see Glossary contained within the Annual Report and Financial Statements.

6. DIVIDENDS