BlackRock Smaller Companies Trust PLC Regulatory News (BRSC)

BlackRock Smaller Companies Trust Plc - Half-year Report

PR Newswire

London, November 4

BLACKROCK SMALLER COMPANIES TRUST plc

(LEI: 549300MS535KC2WH4082)

Half yearly financial announcement of results in respect of the six months ended 31 August 2020

PERFORMANCE RECORD

1 Without income reinvested.2 Alternative performance measures, see Glossary on pages 31 to 34 of the Half Yearly Financial Report.3 The basis of calculation for the fair value of the debt is disclosed in note 9 to the financial statements below and the calculation of net asset value per share (debt at fair value) is included in the Glossary on page 33 of the Half Yearly Financial Report.4 AIC methodology is based on annual ongoing charges; the ongoing charges ratio shown for the six month period to 31 August is based on estimated full year expenses at the half year end date and is subject to change to the extent that actual operating expenses incurred in the full year vary from these estimates.

Sources: BlackRock and Datastream.

CHAIRMAN’S STATEMENT FOR THE SIX MONTHS ENDED 31 AUGUST 2020

Dear Shareholder

I am pleased to present to shareholders the half yearly report for the six months ended 31 August 2020. The report presents both the facts and our analysis of events over the past six months as well as our expectations and hopes for the balance of the Company’s financial year. The pandemic has presented a special challenge to investors and despite our firm and focused investment approach, we have clearly been impacted by volatile markets reacting to short-term fears and longer-term concerns. While this is not surprising nor likely to disappear soon, it is also a period in which opportunities are emerging for the future and for which our investment manager is well positioned and prepared. It is against that backdrop that I encourage our shareholders to consider this report with an eye to a more positive future.

PERFORMANCEThe past six months have proved extremely challenging, with the UK equity market reaching near-historic highs in February 2020 only to collapse as the COVID-19 pandemic escalated. The crisis prompted countries around the world to adopt varying degrees of social distancing, self-quarantine and lockdown measures which severely curtailed economic activity in most economies and resulted in an unprecedented near-term contraction. The UK government’s policy response, with significant fiscal and monetary stimulus, helped the economy to partially recover. But with a potential ‘hard’ Brexit looming, and a second wave of the COVID-19 pandemic now underway, market volatility is expected to continue for some time. Over the period under review the Company’s net asset value (NAV) fell by 8.7%1,2 to 1,435.96p per share, underperforming the Company’s benchmark (the Numis Smaller Companies plus AIM (excluding Investment Companies) Index) by 6.5%. The Company’s share price fell by 17.1%1 to 1,230.00p per share over the same period. Performance relative to the benchmark was driven mainly by stock selection, details of which are given in the Investment Manager’s report below.

The FTSE 100 Index fell by 9.4%1 over the period, the FTSE 250 Index fell by 8.0%1 and the FTSE AIM All Share Index rose by 12.5%1. The Company’s benchmark fell by 2.2%1.

Since the period end, and up until the close of business on 3 November 2020, the Company’s NAV per share fell by 0.6%1,2 and the share price increased by 5.7%1, whilst the benchmark rose by 0.4%1.

The performance of both the NAV and share price over the longer-term are illustrated in the table below.

RETURNS AND DIVIDENDSThe COVID-19 pandemic and associated lockdown measures have wrought havoc on significant sectors of the global economy, impacting dividend yields both in the UK and throughout the world.

As at 31 August 2020, a substantial portion of companies in the portfolio had reduced or cancelled dividends in response to the impact of the pandemic. This resulted in a fall in the Company’s revenue return per share for the six months ended 31 August 2020 to just 4.57p per share (a 79% decrease compared with 22.20p for the corresponding period in the previous year). After adjusting to remove special dividends (which fell to virtually nil compared to 2.00p per share for the six months ended 31 August 2019) regular dividend income from portfolio companies decreased by 68%.

Whilst the Board is mindful of the importance of financial prudence and has, to date, ensured that dividend payments have been covered by portfolio income, it is also aware of the importance of yield to shareholders. This is particularly the case in the current situation where a low interest rate environment is likely to persist for some time and investors are struggling to maintain income levels. The Board is also cognisant of the benefits of the Company’s investment trust structure which enables it to retain up to 15% of total revenue each year to build up reserves which may be carried forward and used to pay dividends during leaner times. The Company has substantial distributable reserves (£634.7 million as at 31 August 2020, including revenue reserves of £17.5 million). After extensive deliberations and taking note of your Company’s current reserves, the Board has decided to declare a dividend of 12.80p per share as an interim dividend, maintaining our payout at the same level as in 2019. The interim dividend will be paid on 2 December 2020 to shareholders on the Company’s register as at 13 November 2020.

In the current uncertain environment, the Board is monitoring the Company’s income levels and projected future dividend income streams closely as the year proceeds. To the extent that income levels continue to be depressed as the COVID-19 pandemic evolves and economic recovery is delayed, the Board may need to re-assess the level of the final dividend in due course.

PORTFOLIO LIQUIDITYPortfolio liquidity and concerns over unquoted and illiquid holdings have continued to be an area of focus for investors during our first half as the COVID-19 pandemic has forced many REITs and property funds to restrict redemptions. This will compound concerns over the limitations of open-ended funds as vehicles for accessing illiquid assets that first emerged with the high profile suspension of the Woodford Equity Income Fund. The closed-end structure of an investment trust provides portfolio managers with a much longer investment horizon and mitigates the pressure for a fire sale of assets in turbulent markets as investors can access liquidity in their shares intra-day through the stock exchange. While closed-end funds face other challenges such as the level of discount, which may widen if there is increased selling pressure in the market, their structure provides far more resilience during periods of market illiquidity and exceptional market volatility as experienced during the pandemic.

Given this backdrop, the Board considers it appropriate to remind shareholders of our approach to liquidity in managing the Company’s portfolio. Although the Company may invest up to 50% of its portfolio in AIM holdings, which may be traded in lower volumes or be less liquid than peers listed on the main exchange, the Manager is mindful of liquidity and only invests in companies which it believes have superior long-term growth prospects and the right management team in place to take advantage of these prospects. Only small positions (typically 0.25% to 0.50% of the portfolio) are taken in new investments, which are closely monitored. Those that meet the Investment Manager’s longer-term criteria for high quality growth companies (strong management, strong balance sheets, good growth track record, cash generative and strong market position) may go on to become core portfolio holdings over time. Although the Investment Manager may invest in less liquid unquoted securities with the prior approval of the Board, the Company does not typically invest in this type of stock, and has not done so for a number of years prior to the date of this report. The Company currently holds no illiquid unquoted investments in its portfolio, and all of the Company’s portfolio investments as at 31 August 2020 (including all AIM stocks) have been classified in the financial statements as ‘Level 1’ (see note 13 below), indicating a good level of market liquidity for these stocks.

GEARINGThe Company has a range of borrowing facilities in place to provide a balance between longer-term and short-term maturities and between fixed and floating rates of interest. Fixed rate borrowings comprise a £15 million debenture maturing in 2022, a £25 million senior unsecured private placement note which matures in 2037 and a £20 million senior unsecured private placement note which matures in 2044. Variable rate financing available to the Company consists of a £35 million three-year revolving loan facility with Sumitomo Mitsui Banking Corporation and an uncommitted overdraft facility of £10 million with The Bank of New York Mellon (International) Limited. The revolving loan facility with Sumitomo Bank matures in November 2023.

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. Gearing levels and sources of funding are reviewed regularly and the Board continues to believe that moderate gearing is in the long-term interests of shareholders. At the period end, the Company’s gearing was 4.1% of net assets.

DISCOUNTDuring the period, the Company’s shares traded at an average discount to NAV (with debt at fair value) of 5.2%. The discount ranged between 18.4% and a premium of 2.0% and ended the period at 13.3%. The Company’s shares were trading at a discount of 7.7% to NAV (with debt at fair value) as at close of business on 3 November 2020.

BOARD COMPOSITIONAs announced in June 2020, Mr Robert Robertson, who has served on the Board for more than twelve years, expressed his intention to retire in the forthcoming year, subject to a suitable replacement being recruited. The Board subsequently commenced a recruitment process and were delighted to announce on 17 August 2020 that Mr Mark Little would join the Board as a non-executive Director with effect from 1 October 2020. Mr Little brings to the Board a wealth of experience in the financial services sector. He began his career as a fund manager with Scottish Widows Investment Management after qualifying as a chartered accountant with Price Waterhouse in 1991. He subsequently worked as Global Head of Automotive Research for Deutsche Bank and joined Barclays Wealth in 2005, where he became Managing Director of Barclays Wealth (Scotland and Northern Ireland). Mr Little also chairs the audit committees of the Majedie Investment Trust Plc and Securities Trust of Scotland Plc.

Mr Robertson stepped down from his role as the Company’s Senior Independent Director at the Company’s AGM on 28 July 2020 and Ms Platts-Martin took over the role with effect from this date. Mr Robertson has informed the Board of his decision to retire as a Director with effect from today. The Board wishes to thank Mr Robertson for his wise counsel and invaluable contribution to the Company over his tenure as a Director and as Senior Independent Director.

OUTLOOKThe market outlook for the remainder of 2020 remains highly uncertain, with continuing questions over the scale and duration of the coronavirus pandemic and its impact on the global economy. In the UK, markets are likely to be further hampered by concerns over Brexit negotiations. Despite these headwinds, there are opportunities for well-managed, smaller companies that are able to adapt quickly to market shifts to perform well. As and when global economic activity rebounds and consumer spending recovers, the manager’s strategy of focusing on high quality, dynamic, growth companies, will present some excellent investment opportunities and a return to our history of portfolio growth.

RONALD GOULDChairman5 November 2020

1. Percentages in sterling terms without income reinvested.2. Debt at par value.

INVESTMENT MANAGER’S REPORT FOR THE SIX MONTHS ENDED 31 AUGUST 2020

MARKET REVIEW AND OVERALL INVESTMENT PERFORMANCEThe first six months of the financial year have been almost perfectly aligned with the market turmoil created by the global COVID-19 pandemic which continues to dominate the headlines, stock markets and the day-to-day lives of people and businesses around the world. Equity markets experienced severe declines in the first quarter of 2020 that matched those of 2008. The social lockdowns which were imposed across the majority of the world were soon followed by dramatic levels of fiscal and monetary stimulus. These include lower interest rates and monetary easing as well as direct interventions to cover labour costs and ease business costs in the face of a social shutdown. Since the trough in late March, markets have rebounded despite the inevitable slowdown in global economic activity and sharp rise in unemployment as a result of the lockdowns. Despite showing recent signs of improvement, economic activity remains fragile and the UK market remains depressed compared to the beginning of the reporting period.

The response of corporates in the UK to the pandemic has varied significantly, with some companies accepting all the government support available and others publicly declining financial assistance (or declaring that previously accepted furlough payments will now be returned). We have seen an exceptional level of equity issuance, initially driven by the need to improve short-term liquidity to prepare for an extended period of lower demand. However, there has also been plenty of activity from those wanting (rather than needing) fresh equity to capitalise on opportunities that present themselves as businesses emerge from this crisis.

PERFORMANCE REVIEWThe Company’s NAV per share (debt at par) fell by 8.7% during the first half of the financial year, underperforming our benchmark which fell by 2.2%. For comparison the large cap FTSE 100 index fell by 9.4% (all percentages stated without income reinvested).

In the face of the sell-off and elevated levels of volatility, it is unsurprising that the Company’s NAV performance has ended the period in negative territory. The extent of the underperformance relative to our benchmark is disappointing but it is important to note that the period under review was one of exceptional volatility with the small cap market collapsing by almost 24% in March alone in the eye of the ‘coronavirus storm’. On a longer-term view, the Company’s NAV underperformed the benchmark by 0.8% for the year to 31 August 2020, and outperformed the benchmark by 11.7% over the three years ended 31 August 2020 (all calculations without income reinvested). We would always encourage investors to judge our results, both good and bad, over the long-term. In our opinion the opportunity set is as attractive as ever, with the recent market volatility creating some compelling entry points.

Turning to the drivers to performance, we must first address the factors that have detracted during the period. To hold ourselves to account; with hindsight we came into the year with too much exposure to the UK domestic economy, through both consumer and travel & leisure companies. We felt that the significant Conservative majority in parliament would finally lift the cloud that had been hanging over the UK by increasing the likelihood of progress with Brexit negotiations. With the perceived anti-business policies of the Labour Party no longer a risk, we finally had the catalyst for investors to reappraise the compelling investment case and value proposition offered by UK plc. However, as the COVID-19 virus began to spread across the world, these sectors were amongst the worst impacted by lockdown restrictions given their exposure to discretionary spending. Several of the companies that we owned were mandated to suspend operations with revenues falling to zero, or close to zero, as a result. The issue has been compounded by the re-emergence of Brexit concerns, with investors once again shying away from the UK domestic economy, and this has disproportionately impacted some of the less liquid portfolio positions with exposure to UK consumer spending (for example Fuller Smith & Turner and Youngs). We highlight the pubs as a particular example of this; in our mind these businesses have dealt with the challenges of the pandemic well, having raised money, strengthened balance sheets, cut costs, and are now performing well since reopening, generating cash and covering expenses. We believe that well-managed businesses such as these will see their competitive positions enhanced once the coronavirus crisis is over. However, the shares are clearly not reflecting this long-term opportunity as investors are preoccupied with the near-term lockdown risk. We continue to believe that many of these shares are overplaying the downside risks and are confident that there is long-term value. For example, the market capitalisation of Fuller Smith & Turner is below the value of its freehold property, and we remain convinced that it is only a matter of time before the market appreciates this.

This theme of mandated closures has been apparent when looking at the largest detractors to performance. Among them was Vistry Group, the UK house builder. The sector has been weak during the year with house builders subject to both site closures and a freeze on housing market activity during the peak of the pandemic, not to mention the potential for both house prices and volumes to fall significantly given the uncertain outlook facing the economy. Despite these short-term challenges, the company was able to take steps to control costs during the period (including a temporary suspension of the dividend) and recent trading updates have confirmed that production volumes are approaching normal levels (although costs, notably labour, have been on the rise). Longer-term, the sector remains well supported by strong tailwinds of a housing shortage in the UK, Government support to build more homes and the low interest rate environment increasing mortgage affordability. Shares in flexible office space provider Workspace Group, have been weak as the business has seen a significant slowdown in enquiries and rents received as a result of the COVID-19 pandemic. Short-term this is a business that has undoubtedly felt the pain from mandated lockdowns; however longer-term we believe the company will be well positioned to benefit from an acceleration in the structural shift to flexible working as companies adjust to new ways of working. Exhibitions business, Hyve Group, has seen its share price fall due to travel restrictions and lockdown measures resulting in major disruption to a number of the company’s scheduled events for 2020. We continue to maintain a small holding in the belief that once attendees are allowed to return to conferences, they will choose the leading show in each sector, driving share to premium providers such as Hyve Group.

Finally, we would highlight the negative impact to performance from our underweight position in the mining sector. Rising commodity prices, in particular gold, have resulted in the outperformance of this area of the market, which has therefore acted as a relative detractor. This is a sector where we often struggle to find companies that meet our stringent investment criteria, business models are often pre-revenue and rely on significant further equity raises, all of which puts pressure on further share price appreciation.

Now turning to positives. Despite the sector and market factors that have driven performance during the period, it is pleasing to see that a number of our holdings have been able to successfully navigate the challenges that have been posed by COVID-19, and in many cases thrive. YouGov has featured as a top contributor to performance for a number of years, continuously delivering strong organic growth and improving margins with profits significantly ahead of consensus, with continued upgrades to guidance. Most recently the business has continued to perform well with its model proving resilient through the pandemic. Games Workshop, which is best known as the creator of the Warhammer miniatures game, has been a standout performer during 2020. Since the new management team took steps to reinvigorate the business, making some key changes to broaden the target market, the company has reported strong sales growth significantly ahead of expectations. More importantly, despite having to cease operations for a short period when its stores were required to close, the business successfully transitioned to online sales, and the strength of demand more than offset the lost sales in its physical stores. Shares in Avon Rubber performed well, with management not allowing COVID-19 to prevent them announcing the sale of its dairy business, the proceeds of which will be used for value enhancing acquisitions within the protection division. Video game developer Team17 has been another key contributor to performance, benefitting from the trend of more people spending time at home, and therefore spending more time and money playing video games.

ACTIVITYThe portfolio currently holds 110 positions. The number of holdings has come down during the past six months as a result of our ongoing assessment of all holdings within the portfolio, and removing positions where we have felt the investment case in the current environment is no longer intact. We have also taken steps to flatten the risk within the portfolio due to the heightened levels of uncertainty.

Sales during the period included Dechra Pharmaceuticals (an undoubted success for the portfolio, but at a £3.5bn valuation we felt the capital could be recycled into smaller opportunities). We also exited positions in Forterra and Ibstock, both brick manufacturers which we sold to reduce exposure to a slowdown in the UK. The portfolio holding in Trainline was sold as we believe that the business will struggle with a volume recovery given ongoing uncertainty around rail travel whether for business or leisure.

We have reduced the portfolio’s underweight to the mining sector by purchasing a position in gold miner Hochschild Mining.

We acquired a new holding in speciality insurance provider Lancashire Holdings through a placing which the company made to raise additional cash. We believe that the business has potential to earn attractive returns over the longer-term, buoyed by the hardening rate environment. The company does not have any exposure to coronavirus business interruption insurance and hence we felt that this was a good opportunity to gain exposure to the insurance sector.

We have also used share price volatility to take advantage of some extremely attractive medium-term opportunities, particularly in distressed sectors, such as freehold pubs. We purchased a new holding in City Pub Group, where we believe that the share price significantly undervalues the freehold property estate. We added to the portfolio holding in Youngs and also purchased a new holding in JD Wetherspoons, the low-cost UK pub group.

PORTFOLIO POSITIONINGPortfolio positioning remains determined by stock selection and therefore sector positioning continues to be driven by a number of our core holdings, which we believe are well managed, differentiated businesses that are exposed to strong long-term secular tailwinds that will not be derailed by the current pandemic. Relative to our benchmark we are overweight media companies, financial companies, aerospace & defence companies and leisure goods companies. Our media companies include 4imprint Group, YouGov and Team17. We have discussed 4imprint Group many times in the past and while in the near-term the company might suffer as corporate marketing budgets come under pressure, we believe that longer-term 4imprint Group will continue to gain share within its fragmented end market. YouGov is another business that has featured in many reports in the past, and despite the challenges brought on by COVID-19, this remains a core holding within the portfolio. YouGov’s vast amount of consumer data and market leading analytical tools, make it a key partner for clients that are trying to understand changing industry dynamics in order to adapt ahead of the competition. Team17 is an independent developer and games label, which collaborates with fellow developers around the globe, sharing expertise from creation to launch across PC, console and mobile devices. Our leisure goods holdings include differentiated retailers such as Games Workshop and businesses facing attractive structural tailwinds, such as video game developer Sumo Group, which have a strong market position and benefit from the growth in outsourcing in the gaming industry. We have been positive on long-term industry dynamics within the video gaming sector and this long-term positive outlook is likely to be accelerated by the current crisis; people spending more time at home will spend more time (and money) playing games on-line. Within the financial services sector our holdings have been more focussed on equities, alternatives, sustainable investing or outsourcing services. Holdings include IntegraFin, Impax Asset Management, Liontrust Asset Management, AJ Bell and Tatton Asset Management.

We remain underweight mining, oil & gas and food producers. We also remain underweight travel & leisure, however this underweight has decreased through some of our pub holdings, Fuller Smith & Turner, JD Wetherspoons and Youngs, and also holdings in well capitalised leisure companies such as cinema group Everyman Media, which we are convinced offers great value on a long-term view.

OUTLOOKThe current environment continues to present a number of challenges as the outlook remains highly uncertain and investors vary as to how they are pricing COVID-19 risks. The smaller end of the market remains very narrow and, in our opinion, continues to inconsistently value risk. This can be seen in valuations of the winners which have continued to stretch, while the losers compress. This has also been evident in a number of cases where share prices have become completely detached from fundamentals, and we can point to a number of examples where investment cases are playing out, but the share price is telling a different story. This disconnect cannot last forever. We must all remind ourselves that in the short-term share prices are driven by supply and demand (investor sentiment); however in the long-term it is company earnings that will drive share prices.

Nevertheless we are prepared for the remainder of 2020 to be volatile, fuelled by a number of high profile events that will dominate newsflow, creating a lot of ‘noise’, driving investor sentiment. Brexit negotiations, the US election, Trade, Monetary and Fiscal policy represent just a few of these. In addition updates on the development of a COVID-19 vaccine will have potential to create large market swings, both positive and negative. It is therefore fair to say that the range of outcomes remains wide and so we enter the second half of the year with a more balanced portfolio, as discussed above.

We have said many times in recent months, that we can’t pretend to have the answers to many of the questions that have arisen as a result of the COVID-19 pandemic. The scale and duration of the virus; the impact of a second wave; the scale of the impact on the global economy. These are all questions that are on the minds of investors and individuals alike, with no real answer. One thing that we are sure of though, is that things will get better, and eventually return to normal, or at least settle at the ’new’ normal. In our mind the result of COVID-19 is simply bringing on an acceleration in many of the structural trends that have been happening in various industries over a number of years. Whether it’s the shift to more agile/remote ways of working or falling footfall for bricks and mortar retailing as more people shop online, these changes were happening already, it’s just that now they are happening a lot faster. This environment could be perfect for well-managed smaller companies that have more agile structures that are able to adapt quickly to take advantage of these market shifts.

Global economic activity will eventually rebound, and consumer spending will recover, sadly however, this downturn will force many out of business. We are therefore confident that our strategy of focusing on high quality, dynamic, growth companies, will present some excellent investment opportunities. The types of company that this Company aims to invest in will be those who benefit the most from the rebound. They will survive the crisis with their business unimpaired, come out with competitive positions enhanced, and gain a greater share even if the spend is lower.

We therefore remain confident in our strategy on a medium-term view. Market volatility presents us with a fantastic investment opportunity. The Company's investment strategy is focussed on quality growth investments in smaller companies, a style that has demonstrably worked for the long-term, and historically periods of sudden underperformance, such as this, have proven to be excellent investment opportunities. We thank shareholders for your ongoing support.

ROLAND ARNOLDBlackrock Investment Management (UK) Limited5 November 2020

TWENTY LARGEST INVESTMENTS AS AT 31 AUGUST 2020

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

INVESTMENT EXPOSURE AS AT 31 AUGUST 2020

ANALYSIS OF INVESTMENTS HELD BY MARKET VALUE

Source: BlackRock.

ANALYSIS OF PORTFOLIO VALUE BY SECTOR

Source: BlackRock and Datastream.

INTERIM MANAGEMENT REPORT AND RESPONSIBILITY STATEMENT

The Chairman’s Statement and the Investment Manager’s Report above give details of the important events which have occurred during the period and their impact on the financial statements.

PRINCIPAL RISKS AND UNCERTAINTIESThe principal risks faced by the Company can be divided into various areas as follows:

· Investment performance risk;

· Market risk;

· Income/dividend risk;

· Legal & compliance risk;

· Operational risk;

· Financial risk; and

· Marketing risk.

The Board reported on the principal risks and uncertainties faced by the Company in the Annual Report and Financial Statements for the year ended 29 February 2020. A detailed explanation can be found in the Strategic Report on pages 34 to 36 and note 17 on pages 93 to 100 of the Annual Report and Financial Statements which is available on the website maintained by BlackRock at www.blackrock.com/uk/brsc.

In the 2020 annual report, the Board noted that the outbreak of an infectious respiratory illness caused by a coronavirus known as COVID-19, first detected in China in December 2019 and which had developed into a global pandemic, had caused unprecedented global economic and social upheaval. The coronavirus pandemic resulted in travel restrictions, closed international borders, enhanced health screenings at ports of entry and elsewhere, disruption of and delays in healthcare service preparation and delivery, prolonged quarantines, cancellations, supply chain disruptions, and lower consumer demand, as well as general concern and uncertainty. The impact of COVID-19 has adversely affected the entire global economy, individual issuers and capital markets, and could continue to an extent that cannot necessarily be foreseen. Public health crises caused by the COVID-19 outbreak may exacerbate other pre-existing political, social and economic risks in certain countries or globally. The duration of the COVID-19 outbreak and its effects cannot be determined with certainty.

In the view of the Board, with the exception of the unpredictable nature and duration of the COVID-19 pandemic, there have not been any changes to the fundamental nature of the risks set out in the Annual Report and Financial Statements and these principal risks and uncertainties are equally applicable to the remaining six months of the financial year as they were to the six months under review. The Board recognises the benefits of a closed-end structure in extremely volatile markets such as those experienced during the COVID-19 pandemic. Unlike open-ended counterparts, closed-end funds are not obliged to sell down portfolio holdings at low valuations to meet liquidity requirements for redemptions. During times of elevated volatility and market stress, the ability of the closed-end 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.

GOING CONCERNThe Board is mindful of the uncertainty surrounding the potential duration of the COVID-19 pandemic and its impact on the global economy, the Company’s assets and the potential for the level of revenue derived from the portfolio to reduce versus the prior year. The portfolio manager will continue to review the composition of the Company’s portfolio and to be pro-active in taking investment decisions as necessary. The Directors, having considered the nature and liquidity of the portfolio, the Company’s investment objective and the Company’s projected income and expenditure, are satisfied that the Company has adequate resources to continue in operational existence for the foreseeable future and is financially sound. The Board believes that the Company and its key third party service providers have in place appropriate business continuity plans and these services have continued to be supplied without interruption throughout the COVID-19 pandemic.

The Company has a portfolio of investments which are predominantly readily realisable and is able to meet all of its liabilities from its assets and income generated from these assets. Accounting revenue and expense forecasts are maintained and reported to the Board regularly and it is expected that the Company will be able to meet all its obligations. The Company has in place a range of borrowings and debt facilities (details of which are set out in note 9 below) and despite the market volatility seen over the period under review, the Company has remained compliant with all financial covenants and has maintained ample headroom above the relevant thresholds throughout the period under review. Ongoing charges (excluding finance costs, direct transaction costs, custody transaction charges, non-recurring charges and taxation) for the year ended 29 February 2020 were approximately 0.7% of net assets. Based on the above, the Board is satisfied that it is appropriate to continue to adopt the going concern basis in preparing the financial statements.

RELATED PARTY DISCLOSURE AND TRANSACTIONS WITH THE AIFM AND INVESTMENT MANAGERBlackRock Fund Managers Limited (BFM) was appointed as the Company’s Alternative Investment Fund Manager (AIFM) with effect from 2 July 2014. BFM has (with the Company’s consent) delegated certain portfolio and risk management services, and other ancillary services, to BlackRock Investment Management (UK) Limited (BIM (UK)). Both BFM and BIM (UK) are regarded as related parties under the Listing Rules. Details of the management and marketing fees payable are set out in notes 4 and 5 respectively and note 15 below. The related party transactions with the Directors are set out in note 16 below.

DIRECTORS’ RESPONSIBILITY STATEMENTThe Disclosure and Transparency Rules (DTR) of the UK Listing Authority require the Directors to confirm their responsibilities in relation to the preparation and publication of the Interim Management Report and Financial Statements.

The Directors confirm to the best of their knowledge that:

· the condensed set of financial statements contained within the half yearly financial report has been prepared in accordance with applicable Financial Reporting Council’s Standard, FRS 104 ‘Interim Financial Reporting’; and

· the Interim Management Report together with the Chairman’s Statement and Investment Manager’s Report, include a fair review of the information required by 4.2.7R and 4.2.8R of the FCA’s Disclosure and Transparency Rules.

The half yearly financial report has not been audited or reviewed by the Company’s Auditors.

The half yearly financial report was approved by the Board on 5 November 2020 and the above responsibility statement was signed on its behalf by the Chairman.

RONALD GOULDFor and on behalf of the Board5 November 2020

INCOME STATEMENT FOR THE SIX MONTHS ENDED 31 AUGUST 2020

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

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

STATEMENTS OF CHANGES IN EQUITY FOR THE SIX MONTHS ENDED 31 AUGUST 2020

1 Second interim dividend (in lieu of a final dividend) paid in respect of the year ended 29 February 2020 of 19.70p per share was declared on 3 June 2020 and paid on 29 June 2020.

2 The prior period comparatives for the capital reserves balance and the revenue reserve balance have been restated to correct a prior period error by reallocating the cost of share buy backs undertaken in prior years (amounting to £1,549,811) from the capital reserves to the revenue reserve. More information is given in note 12 below.

3 Final dividend paid in respect of the year ended 28 February 2019 of 19.20p per share declared on 3 May 2019 and paid on 12 June 2019.

4 First interim dividend paid in respect of the year ended 29 February 2020 of 12.80p per share declared on 5 November 2019 and paid on 3 December 2019.

The transaction costs relating to the acquisition and disposal of investments amounted to £770,000 and £205,000 respectively for the six months ended 31 August 2020 (six months ended 31 August 2019: £309,000 and £71,000; year ended 29 February 2020: £1,117,000 and £217,000).

The share premium account and capital redemption reserve are not distributable profits under the Companies Act 2006. In accordance with the Company’s Articles of Association, net capital reserves may be distributed by way of the repurchase by the Company of its ordinary shares and for payment as dividends.

BALANCE SHEET AS AT 31 AUGUST 2020

1 The prior period comparatives for the capital reserves balance and the revenue reserve balance have been restated to correct a prior period error by reallocating the cost of share buy backs undertaken in prior years (amounting to £1,549,811) from the capital reserves to the revenue reserve. More information is given in note 12 below.

STATEMENT OF CASH FLOWS FOR THE SIX MONTHS ENDED 31 AUGUST 2020

* Cash Funds represent funds held on deposit with the BlackRock Institutional Cash Series plc - Sterling Liquid Environmentally Aware Fund (31 August 2019: BlackRock Institutional Cash Series plc – Sterling Liquidity Fund; 29 February 2020: BlackRock Institutional Cash Series plc - Sterling Liquid Environmentally Aware Fund).

NOTES TO THE FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 31 AUGUST 2020

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

2. BASIS OF PREPARATIONThe Company presents its results and positions under FRS 102, ‘The Financial Reporting Standard applicable in the UK and Republic of Ireland’ (FRS 102), which forms part of the revised Generally Accepted Accounting Practice (New UK GAAP) issued by the Financial Reporting Council (FRC) in 2013 and updated in March 2018.

The condensed set of financial statements has been prepared on a going concern basis in accordance with FRS 102 and FRS 104, ‘Interim Financial Reporting’ issued by the FRC in March 2015 and the revised Statement of Recommended Practice – ‘Financial Statements of Investment Trust Companies and Venture Capital Trusts’ (SORP) issued by the Association of Investment Companies (AIC) in October 2019 and the provisions of the Companies Act 2006.

The accounting policies applied for the condensed set of financial statements are as set out in the Company’s Annual Report and Financial Statements for the year ended 29 February 2020.

3. INCOME

Dividends and interest received in cash in the period amounted to £3,507,000 and £48,000 (six months ending 31 August 2019: £11,558,000 and £34,000; year ended 29 February 2020: £20,020,000 and £153,000) respectively.

No special dividends have been recognised in capital during the period ended 31 August 2020 (six months ended 31 August 2019: £nil; year ended 29 February 2020: £nil).

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 75% to the capital column and 25% to the revenue column of the Income Statement.

BlackRock has agreed to waive management fees payable by the Company up to the value of £69,450 to cover additional audit and legal costs incurred in the period to 31 August 2020 as a result of the mis-allocation of the reserves disclosed in note 12 below. Please see note 5 for further details.

A credit of £69,450 has been applied to the Investment Management fee in the table above and in the revenue column of the Income Statement.

5. OPERATING EXPENSES

1 Additional audit fees of £13,200 including VAT and additional legal fees totalling £56,250 including VAT were incurred in the period ended 31 August 2020 as a result of the work required to correct the Company’s Articles and restate the brought forward reserves following an administrative error as highlighted in note 12 below. These costs will be absorbed by BlackRock by way of a management fee waiver. Please see note 4 for further details.

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

6. FINANCE COSTS

Finance costs have been allocated 75% to the capital column and 25% to the revenue column of the Income Statement in line with the Directors’ expected long-term split of returns from the investment portfolio.

7. DIVIDENDSIn accordance with FRS 102, Section 32 ‘Events After the End of the Reporting Period’, the interim dividend payable on the ordinary shares has not been included as a liability in the financial statements, as interim dividends are only recognised when they have been paid.

The Board has declared an interim dividend of 12.80p per share (2019: 12.80p per share), payable on 2 December 2020 to shareholders on the Company’s register as at 13 November 2020; the ex-dividend date is 12 November 2020. The total cost of this dividend, based on 48,829,792 shares in issue at 3 November 2020, is £6,250,000 (2019: £6,129,000).

8. RETURNS AND NET ASSET VALUE PER SHARERevenue and capital earnings/(loss) per share are shown below and have been calculated using the following:

9. BORROWINGS

The fair value of the 7.75% debenture stock using the last available quoted offer price from the London Stock Exchange as at 31 August 2020 was 121.00p per debenture (31 August 2019: 122.00p; 29 February 2020: 121.00p), a total of £18,150,000 (31 August 2019: £18,300,000; 29 February 2020: £18,150,000). The fair value of the 2.74% loan note has been determined based on a comparative yield for UK Gilts for similar duration maturity and spreads, and as at 31 August 2020 equated to a valuation of 113.20p per note (31 August 2019: 111.61p; 29 February 2020: 112.21p), a total of £28,300,000 (31 August 2019: £27,903,000; 29 February 2020: £28,053,000). The fair value of the 2.41% loan note has been determined based on a comparative yield for UK Gilts for similar duration maturity and spreads, and as at 31 August 2020 equated to a valuation of 107.21p per note (31 August 2019: £nil; 29 February 2020: 106.14p), a total of £21,442,000 (31 August 2019: £nil; 29 February 2020: £21,228,000).

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

The £25 million 2.74% loan note was issued on 24 May 2017. Interest on the note is payable in equal half yearly instalments on 24 May and 24 November in each year. The loan note is unsecured and is redeemable at par on 24 May 2037.

The £20 million 2.41% loan note was issued on 3 December 2019. Interest on the note is payable in equal half yearly instalments on 3 December and 3 June in each year. The loan note is unsecured and is redeemable at par on 3 December 2044.

The Company has in place a £35 million three year multi-currency revolving loan facility with Sumitomo Mitsui Banking Corporation Europe Limited. As at 31 August 2020, £10 million of the facility had been utilised (31 August 2019: £nil; 29 February 2020: £20 million). Under the agreement, the termination date of this facility is the third anniversary of the effective date being November 2022. Interest on this facility is reset every three months and is currently charged at a rate of 0.80%.

As at 31 August 2019, the Company had in place a £35 million three year multi-currency revolving loan facility with Scotiabank (Ireland) Limited, of which £10 million had been utilised. Interest on this facility was reset every three months and the interest rate charged as at 31 August 2019 was 1.69%. The Board moved the Company’s £35 million revolving credit facility from Scotiabank (Ireland) Limited to Sumitomo Bank Limited in November 2019.

The Company also has available an uncommitted overdraft facility of £10 million with BNYM, of which £nil had been utilised at 31 August 2020 (31 August 2019: £5,000; 29 February 2020: £nil).

The Company has complied with all covenants during the period related to the loan and borrowings.

10. RECONCILIATION OF LIABILITIES ARISING FROM FINANCING ACTIVITIES

11. CALLED UP SHARE CAPITAL

During the period ended 31 August 2020, the Company issued no shares from treasury (six months ended 31 August 2019: nil; year ended 29 February 2020: 950,000 shares for a total consideration of £16,025,000). As at the date of this report and since the period end, no additional shares have been issued.

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

12. RESERVESThe prior year balances of the Company’s capital reserves and revenue reserve have been restated to reflect an increase of £1,549,811 to the capital reserves and a decrease of the same amount to the revenue reserve. The background to this prior year adjustment is set out below. With effect from 4 June 2008 when the Company’s Articles were updated to reflect changes to the rules on distributions applicable to investment companies under the Companies Act 2006, a provision of the Articles which permitted the Company to make distributions from realised capital profits by way of share buy backs was inadvertently deleted. Between 4 June 2008 and 5 February 2010, the Company bought back 629,916 shares at a total cost of £1,549,811 as part of the Board’s discount management programme. At the time each of the relevant buy backs was implemented, the Company had sufficient distributable revenue reserves to cover the cost of the transaction. However, the cost of the share buy backs was misallocated in the Company’s 2009 and 2010 accounts as a debit from the Company’s capital reserve. To correct this prior period error, the prior year adjustment has been made to reallocate the cost of these distributions by way of buy backs from the capital reserve to the revenue reserve. The impact of this adjustment on the relevant reserves is set out in the table below. There is no impact on the Company’s financial position or net asset value as a result of the reallocation.

13. VALUATION OF FINANCIAL INSTRUMENTSFinancial assets and financial liabilities are either carried in the Balance Sheet at their fair value (investments) or at an amount which is a reasonable approximation of fair value (due from brokers, dividends and interest receivable, due to brokers, accruals, cash at bank and bank overdrafts). Section 11 of FRS 102 requires the Company to classify fair value measurements using a fair value hierarchy that reflects the significance of inputs used in making the measurements. The valuation techniques used by the Company are explained in the accounting policies note on page 84 of the Annual Report and Financial Statements for the year ended 29 February 2020.

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

The fair value hierarchy has the following levels:

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

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

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

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

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

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

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

There were no transfers between levels for financial assets during the period recorded at fair value as at 31 August 2020, 31 August 2019 and 29 February 2020. The Company did not hold any Level 3 securities throughout the six month period or as at 31 August 2020 (31 August 2019: nil; 29 February 2020: nil).

14. FINANCIAL RISKSThe Company’s investment activities expose it to the various types of risk which are associated with the financial instruments and markets in which it invests. The risks are substantially consistent with those disclosed in the previous annual financial statements with the exception of those outlined below.

Market risk arising from price riskPrice risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices (other than those arising from interest rate risk or currency risk), whether those changes are caused by factors specific to the individual financial instrument or its issuer, or factors affecting similar financial instruments traded in the market. Local, regional or global events such as war, acts of terrorism, the spread of infectious illness or other public health issues, recessions, or other events could have a significant impact on the Company and the market price of its investments and could result in increased premiums or discounts to the Company’s net asset value.

An outbreak of an infectious respiratory illness caused by a novel coronavirus known as COVID-19 was first detected in China in December 2019 and has now developed into a global pandemic. This coronavirus has resulted in travel restrictions, closed international borders, enhanced health screenings at ports of entry and elsewhere, disruption of and delays in healthcare service preparation and delivery, prolonged quarantines, cancellations, supply chain disruptions, and lower consumer demand, as well as general concern and uncertainty. The impact of COVID-19 has adversely affected the economies of many nations across the entire global economy, individual issuers and capital markets and could continue to extents that cannot necessarily be foreseen. In addition, the impact of infectious illnesses in emerging market countries may be greater due to generally less established healthcare systems. Public health crises caused by the COVID-19 outbreak may exacerbate other pre-existing political, social and economic risks in certain countries or globally. The duration of the COVID-19 outbreak and its effects cannot be determined with certainty.

A key metric used by the BlackRock Risk and Quantitative Analysis Group to measure risk is Value-at-Risk (“VaR”) which encompasses currency, interest rate and price risk. VaR is a statistical risk measure that estimates the potential portfolio loss from adverse market movements in an ordinary market environment. VaR analysis reflects the interdependencies between risk variables, unlike a traditional sensitivity analysis.

The VaR calculations are based on an adjusted historical simulation model with a confidence level of 99%, a holding period of one day and a historical observation period of not less than one year (250 business days). A VaR number is defined as a specified probability and a specified time horizon. A 99% one-day VaR means that the expectation is that 99% of the time over a one day period the Company will lose less than this number in percentage terms. Therefore, higher VaR numbers indicate higher risk. It is noted that the use of the VaR methodology has limitations, namely that the use of historical market data as a basis for estimating future events does not encompass all possible scenarios, particularly those that are of an extreme nature and that the use of a specified confidence level (e.g. 99%) does not take into account losses that occur beyond this level. There is some probability that the loss could be greater than the VaR amounts. These limitations and the nature of the VaR measure mean that the Company can neither guarantee that losses will not exceed the VaR amounts indicated, nor that losses in excess of the VaR amounts will not occur more frequently.

The one-day VaR as of 31 August 2020 and 29 February 2020 based on 99% confidence level was 6.63% and 3.37% respectively. The higher VaR number is representative of higher market volatility during the period as a result of the COVID-19 pandemic described above.

15. TRANSACTIONS WITH THE MANAGER AND THE INVESTMENT MANAGERThe Manager was appointed as the Company’s Alternative Investment Fund Manager (AIFM) with effect from 2 July 2014. The Manager has (with the Company’s consent) delegated certain portfolio and risk management services, and other ancillary services, to the Investment Manager. Details of the fees payable to the Manager are set out in note 4. The Manager provides management and administrative services to the Company under a contract which is terminable on six months’ notice. The Manager has (with the Company’s consent) delegated certain portfolio and risk management services, and other ancillary services, to BlackRock Investment Management (UK) Limited (BIM (UK)). Further details of the investment management contract are disclosed in the Directors’ Report in the Annual Report and Financial Statements for the year ended 29 February 2020.

The investment management fee payable for the six months ended 31 August 2020 amounted to £2,202,000 (six months ended 31 August 2019: £2,284,000; year ended 29 February 2020: £4,681,000). At the period end, £2,202,000 was outstanding in respect of the management fee (31 August 2019: £1,104,000; 29 February 2020: £2,383,000).

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 period ended 31 August 2020 amounted to £88,000 including VAT (six months ended 31 August 2019: £66,000; year ended 29 February 2020: £153,000). Marketing fees of £88,000 were outstanding at 31 August 2020 (31 August 2019: £218,000; 29 February 2020: £151,000).

As of 31 August 2020, an amount of £107,000 (31 August 2019: £184,000; 29 February 2020: £190,000) was payable to the Manager in respect of Directors’ fees.

The Company has an investment in the BlackRock Institutional Cash Series plc – Sterling Liquid Environmentally Aware Fund of £42,910,000 as at 31 August 2020 (31 August 2019: £12,935,000 investment in the BlackRock Institutional Cash Series plc - Sterling Liquidity Fund; 29 February 2020: £26,666,000 investment in the BlackRock Institutional Cash Series plc - Sterling Liquid Environmentally Aware Fund).

The ultimate holding company of the Manager and the Investment Manager is BlackRock, Inc. a company incorporated in Delaware, USA. During the period, PNC Financial Services Group, Inc. (“PNC”) was a substantial shareholder in BlackRock, Inc. PNC did not provide any services to the Company during the six months ended 31 August 2020 and the financial year ended 29 February 2020. On 11 May 2020, PNC announced its intent to sell its investment in BlackRock, Inc. through a registered offering and related buyback by BlackRock, Inc.

16. RELATED PARTY DISCLOSURE: DIRECTORS’ EMOLUMENTSAs at 31 August 2020, the Board consisted of five non-executive Directors, all of whom are considered to be independent by the Board. None of the Directors has a service contract with the Company. The Chairman receives an annual fee of £42,500, the Audit Committee Chairman receives an annual fee of £32,500 and each of the other Directors receives an annual fee of £28,500.

As at 31 August 2020, an amount of £13,000 (31 August 2019: £13,000; 29 February 2020: £13,000) was outstanding in respect of Directors’ fees.

At the period end, members of the Board held ordinary shares in the Company as set out below:

17. CONTINGENT LIABILITIESThere were no contingent liabilities at 31 August 2020, 31 August 2019 or 29 February 2020.

18. PUBLICATION OF NON-STATUTORY ACCOUNTSThe financial information contained in this half yearly report does not constitute statutory accounts as defined in Section 435 of the Companies Act 2006. The financial information for the six months ended 31 August 2020 and 31 August 2019 has not been audited, or reviewed, by the Company’s auditors.

The information for the year ended 29 February 2020 has been extracted from the latest published audited financial statements, which have been filed with the Registrar of Companies. The report of the auditor in those financial statements contained no qualification or statement under Sections 498(2) or (3) of the Companies Act 2006.

19. ANNUAL RESULTSThe Board expects to announce the annual results for the year ending 28 February 2021 in late April 2021.

Copies of the results announcement can be obtained from the Secretary on 020 7743 3000 or at cosec@blackrock.com. The Annual Report should be available by the beginning of May 2021 with the Annual General Meeting being held in June 2021.

For further information, please contact:

Melissa Gallagher, Managing Director, Investment Trusts, BlackRock Investment Management (UK) LimitedTel: 020 7743 3893

Roland Arnold, Portfolio Manager, BlackRock Investment Management (UK) LimitedTel: 0207 743 5113

Press enquiries:

Ed Hooper, Lansons Communications – Tel: 0207 294 3620E-mail: edh@lansons.com; BlackRockInvestmentTrusts@lansons.com

5 November 2020

12 Throgmorton AvenueLondon EC2N 2DL

END

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