BlackRock Smaller Companies Trust PLC Regulatory News (BRSC)

BlackRock Smaller Companies Trust Plc - Half-year Report

PR Newswire

London, November 1

BLACKROCK SMALLER COMPANIES TRUST plc(LEI: 549300MS535KC2WH4082)

Half yearly financial announcement of results in respect of the six months ended 31 August 2019

PERFORMANCE RECORDFINANCIAL HIGHLIGHTS

1. Excludes income reinvested.

2. The capital only net asset value (NAV) is calculated without income for the six month periods ended 31 August 2019 and 31 August 2018, and for the year ended 28 February 2019, respectively, net of dividends paid in respect of the relevant financial periods. More detail is given in the Glossary on page 44 of the Half Yearly Financial Report.

3. The basis of calculation for the fair value of the debt is disclosed in note 9.

4. Ongoing charges ratio calculated as a percentage of average shareholders’ funds and using operating expenses, excluding finance costs, transaction costs and taxation, in accordance with AIC guidelines. AIC methodology is based on annual operating charges; the operating 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 TO 31 AUGUST 2019

I am pleased to present to shareholders my first half yearly report to you as Chairman, following the retirement of Nick Fry at the Annual General Meeting in June. Nick stepped down as Chairman and a non-executive Director after serving for more than twelve years, and the Board would like to take this opportunity to thank him for his outstanding contribution. We wish him every happiness and success in the future.

PERFORMANCEThe six months under review have been challenging for the UK equity market, which continues to underperform relative to other global indices. The uncertainties surrounding Brexit have had an impact on the UK economy, together with global concerns over elevated levels of geopolitical risk. An ongoing trade dispute between China and the US, a US Presidential impeachment battle and further tensions in the Middle East have all contributed to increased market uncertainty and volatility. Against this background, the Company’s net asset value (NAV) increased by a creditable 5.2%1,2 to 1,481.39p per share, significantly outperforming the Company’s benchmark (the Numis Smaller Companies plus AIM (excluding Investment Companies) Index) by 6.5%. The Company’s share price increased by 6.0%1 to 1,410.00p per share over the same period. Performance relative to the benchmark was driven mainly by stock selection, details of which are given in the following Investment Manager’s report.

The FTSE 100 Index rose by 1.9%1 over the period, the FTSE 250 Index rose by 1.1%1 and the FTSE AIM All Share Index fell by 4.2%1. The Company’s benchmark fell by 1.3%1.

Since the period end, and up until the close of business on 1 November 2019, the Company’s NAV per share increased by 1.8%1,2 and the share price increased by 5.5%1, whilst the benchmark rose by 2.2%1.

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

1. Percentages in sterling terms without income reinvested.

2. Debt at par.

RETURNS AND DIVIDENDSThe Company’s revenue return per share for the six months ended 31 August 2019 amounted to 22.20p per share compared with 20.80p for the corresponding period in the previous year, an increase of 6.7%. After adjusting for the impact of special dividends received, which amounted to 2.00p per share (31 August 2018: 2.89p per share), regular dividend income from portfolio companies increased by 11.1% over the same period. Accordingly, the Board is pleased to declare an interim dividend of 12.80p per share (2018: 12.00p per share) representing an increase of 6.7% over the previous interim dividend (in line with the overall increase in revenue return per share). The interim dividend will be paid on 3 December 2019 to shareholders on the Company’s register on 15 November 2019.

PORTFOLIO LIQUIDITYPortfolio liquidity and concerns over unquoted and illiquid holdings have been areas of focus for investors over the last year, with the high profile suspension of the Woodford Equity Income Fund (and the subsequent decision to liquidate the Fund entirely) giving a stark reminder to investors of the limitations of open ended funds as vehicles for accessing illiquid assets. 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. Given this backdrop, the Board considers it appropriate to set out BlackRock’s approach to liquidity in managing the Company’s portfolio. Although the Company may invest up to 50% of the 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 0.5% 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) will go on to become core portfolio holdings. 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 2019 (including all AIM stocks) have been classified in the financial statements as ‘level 1’ (see note 12 ), 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 and a £25 million senior unsecured private placement note which matures in 2037. Variable rate financing available to the Company consists of a £35 million three-year revolving loan facility with Scotiabank (Ireland) Limited and an uncommitted overdraft facility of £10 million with The Bank of New York Mellon (International) Limited. The revolving loan facility with Scotiabank matures in May 2020, however the Board are currently reviewing options to extend the facility for a further three years.

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 4.9% of net assets.

DISCOUNTDuring the period, the Company’s shares traded at an average discount to NAV (with debt at fair value) of 4.7%. The discount ranged between 1.2% and 10.8% and ended the period at 3.9%. The Company’s shares were trading at a discount of 0.5% as at close of business on 1 November 2019 (based on the NAV with debt at fair value).

OUTLOOKThe outlook for the UK equity market is unclear, with potential for significant volatility as the impact of a UK election and further Brexit negotiations play out in the economy. Globally, growth also looks set to be constrained as geopolitical tensions increase, trade tensions, especially between China and the US continue to rumble and economic data worsens. However, supportive monetary policy, with the ECB and the US Federal Reserve cutting rates, has at least partially mitigated the risk of a global recession in 2019 and our Portfolio Manager expects the global economy to continue to grow albeit at a much slower rate. Against this backdrop, the Company’s portfolio is well diversified by sector and geography, with a significant portion of revenues from portfolio companies generated through overseas exposure. The Portfolio Manager focuses on well capitalised companies with strong management teams that are good cash generators and are therefore well placed to weather difficult economic conditions.

RONALD GOULDChairman5 November 2019

INVESTMENT MANAGER’S REPORT FOR THE SIX MONTHS TO 31 AUGUST 2019

MARKET REVIEWEquity markets rallied through the first half of the Company’s financial year (March – August), shrugging off a host of weak economic data, corporate earnings downgrades and political confusion in the UK. In response to slowing global growth and moderate inflation, central banks dramatically shifted away from restrictive toward more accommodative monetary policies. Notably, the US Federal Reserve lowered interest rates in July 2019, the first rate cut since the financial crisis in 2008. The European Central Bank also changed its outlook by signaling a high likelihood of future rate cuts and the return of its bond purchase programme. Geopolitical risks remained elevated as the trade dispute between China and the US alternated between retaliatory tariffs and the resumption of trade talks, whilst the Brexit debate drove more political uncertainty in Europe as the EU (European Union) granted the UK a six-month extension to its deadline for leaving only for this to highlight the lack of a viable and achievable solution within the UK Parliament.

The UK market continues to be a relative underperformer compared to other global markets, while sterling remained under pressure versus other currencies, touching new lows in early August as the probability of a no deal Brexit continued to rise. Given this dynamic and the continued investor underweight towards the UK market, it was unsurprising to see UK small and mid-caps continue to underperform their larger peers. However, whilst equity investors may struggle to see value in the UK market others are not so shy, leading to bids for a wide variety of UK companies across the market cap spectrum.

PERFORMANCE REVIEWDuring the period under review, the Company’s NAV per share (debt at par) rose by 5.2% which compares to a fall of 1.3% in our benchmark and the FTSE 100 Index which increased by 1.9% (All percentages stated without income reinvested).

Despite the complex market environment, the Company has continued to outperform its benchmark, with our continued focus on bottom up company fundamentals driving performance. In particular our ability to position the portfolio towards UK listed companies with global revenue streams in attractive industries and companies that are able to drive their own growth has been key to outperformance during the period. Key contributors have been 4imprint Group, AB Dynamics, Future, Liontrust Asset Management and YouGov.

4imprint Group, a long-term core holding, has continued to deliver organic top-line growth, as the company’s investment in brand marketing has generated accelerated new customer acquisitions, and increased participation from existing customers. The business generates 97% of its revenues in the US, where it is the market leader despite having a small share of this highly fragmented market, creating a significant opportunity for future growth. AB Dynamics, the designer and manufacturer of testing products for the automotive industry, reported interim results ahead of market expectations, coupled with a positive outlook for the remainder of the year. The move to more autonomous vehicle technologies has driven an increase in research and development spend in the automotive industry which AB Dynamics is well placed to benefit from. Meanwhile the company continues to invest for growth, improving operational efficiencies and expanding its international footprint. Specialist media business, Future, rallied in response to reporting a record breaking start to the year. Acquisitions have been performing well, while organic growth has stayed strong and the company remains focused on increasing scale as a global platform operation driven by leading technology. Liontrust Asset Management has continued to see positive inflows, resulting in assets under management increasing to £14 billion, with market moves also contributing to the rise. The CEO commented that the positive start to the financial year was achieved through both strong investment performance and the quality of sales and marketing, demonstrating the growth strategy is on track. YouGov was once again a top contributor to performance as their data divisions outpace the wider advertising market. This company is a great example of a nimble business that continues to expand its product offering, adapting to changing customer demands and opening up future channels for growth.

Unsurprisingly given the outperformance during the period, detractors to performance were limited. Out of the top five largest detractors to relative performance, only two were stocks that we have actually owned (Central Asia Metals and XPS Pensions); the rest were companies that do not meet our stringent investment criteria but which were included in the benchmark index and performed well. Central Asia Metals reported full year results showing positive growth in revenues and pre-tax profits, helped by a strong performance at the recently acquired Sasa facility. The shares are however linked to the performance of the underlying commodity prices of Copper and Zinc, which have been weak in the period and this detracted from performance. Shares in XPS Pensions fell after the company highlighted that additional costs relating to exiting a transitional service agreement with Punter Southall Group would impact profit growth over the next twelve months before returning to mid-single digit growth in 2020.

ACTIVITYRecognising the strong performance in a number of our holdings year to date, we have recently been reducing exposures in stocks where we have felt there has been a slight disconnect between the share prices and the earnings. Our investment thesis on many of these companies remains intact, however we felt that it was a prudent measure to take some profits off the back of extremely strong share price moves.

We took part in the IPO of Watches of Switzerland, the retailer of luxury watches operating in the UK and USA. The company has built a leading position in both markets, where there is little competition from online or on the high street and a large opportunity to expand their store footprint. Close relationships with key brands allows the business to offer an unrivalled product range, which has enabled it to grow sales despite the headwinds currently facing many other retailers.

We have purchased a new holding in Serco Group. We have followed the company’s progress carefully over recent years as the management has unpicked a raft of legacy, loss-making contracts. It had identified the US Navy as a client with which it wanted to grow given future spending patterns so we were not surprised to see the announcement of a deal to acquire the Naval Systems Business Unit, a leading supplier of ship design and engineering services to that sector.

Investor disenchantment with UK equities, in particular domestically focused businesses, has resulted in a number of companies being oversold and looking attractively valued. We have therefore taken the opportunity to add to our exposure to the UK building sector through investment in Bovis Homes, Grafton Group plc and Grainger plc.

PORTFOLIO POSITIONINGPortfolio positioning results principally from individual stock selection and therefore sector positioning relative to the benchmark remains broadly unchanged from previous reports, which reflects the conviction we have in our core holdings. Relative to our benchmark we are overweight financial services companies, media companies and industrial engineers. Within the financial services sector our holdings have more of a focus on equities and outsourcing services. Holdings include IntegraFin, Premier Asset Management Group, Liontrust Asset Management and Polar Capital Holdings. Our media companies include 4imprint Group and Next Fifteen Communications (which are both heavily exposed to the US), Future (which is investing to diversify its revenue streams and increase its global footprint), and YouGov (which is adapting its business to changing customer demands opening up future channels for growth). Our engineering holdings include Bodycote, Trifast and AB Dynamics. These are all very internationally diversified companies with strong market positions that are exposed to attractive end markets.

Our portfolio exposure to travel & leisure companies, food producers and general retailers remains underweight. Whilst many of these companies are more UK focused, we are more concerned about some of the structural issues the industries are facing rather than their domestic nature. We are also underweight in exposure to software and computer services businesses as ongoing uncertainty could continue to impact investment decisions, such as IT spend.

Our investment universe remains well diversified by sector and geography, allowing us to build a portfolio of market leading globally exposed businesses. We have maintained a high exposure to international companies, with over half of the revenues of our portfolio companies originating from overseas. Our UK exposure is very deliberate, either focussed on more defensive sectors or on companies supported by positive structural or cyclical trends.

OUTLOOKEquity markets globally have continued to grind higher during the first half of the Company’s financial year, shrugging off ongoing geopolitical uncertainty and softening economic data, and instead receiving support from easing monetary policy. Despite the market strength that we have witnessed year to date, we continue to recognise that at this point in the cycle, there is potential for sudden spikes in volatility and large swings in sentiment as economic uncertainty increases and the range of possible outcomes remains wide. As we progress through 2019 our key considerations will be around the outlook for global economic growth and, importantly, the implications for the UK equity market.

Whilst this has been a long cycle, there are few of the traditional signs we would expect ahead of a global recession. Despite moderating expectations for real GDP1 growth, the global economy continues to grow. The US, which has been leading the charge in fuelling the global economy for a number of years, is beginning to slow, but remains ahead of most other major economies. It is also clear that policy makers are prepared to mitigate the risks to economic growth in the near term. Most notably, the Fed has pivoted to a more dovish stance, lowering rates in July 2019, (the first rate cut since the financial crisis in 2008) with two further 25 basis point rate cuts since. Therefore, while the risks of a recession in the US inevitably rises as the cycle continues, we see the likelihood of this happening in 2019 as relatively low, a view that is echoed by observers including the BlackRock Investment Institute.

At the time of writing, the outcome of the Brexit process remains uncertain and we are therefore continuing to construct the portfolio based on bottom-up company fundamentals, rather than placing a bet on an unfathomable binary outcome. The risk aversion from the UK market and the relative valuation opportunities arising as a result have driven an increase in mergers and acquisitions activity, particularly from overseas corporates that are prepared to take advantage of such opportunities even if the equity market remains unconvinced. With ongoing sterling weakness and low interest rates, this is a trend that we expect to continue and one which reaffirms our confidence in the value of the UK stockmarket.

Given our exposure to market leading global businesses, which are operating in attractive end markets and run by strong management teams, we look to the future with confidence, although we have to remember that the market has become unforgiving of those companies that are priced for growth but fail to deliver. It is therefore important for us to continually assess whether the investment thesis for each of our holdings remains intact. We also take comfort in the merits of our proven investment process over the long term through all market conditions. One of our key investment criteria is balance sheet strength, so should uncertainty persist, and as we move to the later stages of the economic cycle, we would expect investors to shelter in financially strong businesses; the type of businesses that our portfolio predominantly consists of.

ROLAND ARNOLDBlackRock Investment Management (UK) Limited5 November 2019

1 Gross Domestic Product.

TWENTY LARGEST INVESTMENTS AS AT 31 AUGUST 2019

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

INVESTMENT EXPOSURE AS AT 31 AUGUST 2019INVESTMENT SIZE

Source: BlackRock.

ANALYSIS OF PORTFOLIO VALUE BY SECTOR

Sources: BlackRock and Datastream.

INTERIM MANAGEMENT REPORT AND RESPONSIBILITY STATEMENT

The Chairman’s Statement and the Investment Manager’s Report 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 28 February 2019. A detailed explanation can be found in the Strategic Report on pages 22 to 24, and in note 16 on pages 72 to 80 of the Annual Report and Financial Statements which is available on the website maintained by BlackRock, at blackrock.co.uk/brsc.

In the view of the Board, there have not been any changes to the fundamental nature of these risks since the previous report 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.

GOING CONCERNThe Directors, having considered the nature and liquidity of the portfolio, the Company’s investment objectives 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. For this reason, they continue to adopt the going concern basis in preparing the financial statements. The Company is able to meet all of its liabilities from its assets and income generated from these assets and the ongoing charges (excluding finance costs, transaction charges and taxation) are approximately 0.7% of average net assets.

RELATED PARTY DISCLOSURE AND TRANSACTIONS WITH THE AIFM AND INVESTMENT MANAGERBlackRock Fund Managers Limited (BFM) was appointed as the Company’s 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 fees payable are set out in note 4 and note 13.

The related party transactions with the Directors are set out in note 14.

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 2019 and the above responsibility statement was signed on its behalf by the Chairman.

RONALD GOULDFor and on behalf of the Board5 November 2019

INCOME STATEMENT FOR THE SIX MONTHS ENDED 31 AUGUST 2019

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).

STATEMENT OF CHANGES IN EQUITY FOR THE SIX MONTHS ENDED 31 AUGUST 2019

(a) Final dividend of 19.20p per share for the year ended 28 February 2019, declared on 3 May 2019 and paid on 12 June 2019.

(b) Final dividend of 16.00p per share for the year ended 28 February 2018, declared on 27 April 2018 and paid on 15 June 2018.

(c) Interim dividend paid in respect of the year ended 28 February 2019 of 12.00p, declared on 29 October 2018 and paid on 26 November 2018.

The transaction costs incurred on the acquisition and disposal of investments are included within the capital reserves and amounted to £380,000 for the six months ended 31 August 2019 (six months ended 31 August 2018: £601,000; year ended 28 February 2019: £1,175,000).

BALANCE SHEET AS AT 31 AUGUST 2019

STATEMENT OF CASH FLOWS FOR THE SIX MONTHS ENDED 31 AUGUST 2019

NOTES TO THE FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 31 AUGUST 2019

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 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 November 2014 and updated in February 2018.

The accounting policies applied for the condensed set of financial statements with regard to measurement and classification are as set out in the Company’s Annual Report and Financial Statements for the year ended 28 February 2019. This reflects the Company’s application of Sections 11 and 12 of FRS 102, in relation to financial instruments, in full.

3. INCOME

Dividends and interest received in cash in the period amounted to £11,558,000 and £34,000 (six months ending 31 August 2018: £10,382,000 and £22,000; year ended 28 February 2019: £17,762,000 and £128,000) respectively.

No special dividends have been recognised in capital during the period ended 31 August 2019 (six months ended 31 August 2018: £nil; year ended 28 February 2019: £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.

5. OTHER OPERATING EXPENSES

1. 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. DIVIDENDS

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

The Board has declared an interim dividend of 12.80p per share (2018: 12.00p per share), payable on 3 December 2019 to shareholders on the Company’s register as at 15 November 2019; the ex dividend date is 14 November 2019. The total cost of this dividend, based on 47,879,792 shares in issue at 5 November 2019, is £6,129,000 (2018: £5,746,000).

8. RETURNS AND NET ASSET VALUE PER SHARERevenue, capital returns and net asset value per ordinary 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 2019 was 122.00p per debenture (31 August 2018: 126.50p; 28 February 2019: 125.00p), a total of £18,300,000 (31 August 2018: £18,975,000; 28 February 2019: £18,750,000). 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 2019 equated to a valuation of 111.61p per note (31 August 2018: 97.69p; 28 February 2019: 97.78p), a total of £27,903,000 (31 August 2018: £24,423,000; 28 February 2019: £24,445,000).

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

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

The Company has in place a £35 million three year multi-currency revolving loan facility with Scotiabank (Ireland) Limited. At 31 August 2019, £10 million of the facility had been utilised (31 August 2018: £35 million; 28 February 2019: £2.5 million). Under the amended agreement the termination date of this facility is the third anniversary of the effective date being May 2020. Interest on this facility is reset every three months and is currently charged at the rate of 1.69% (six months ended 31 August 2018: 1.75%, year ended 28 February 2019: 1.68%).

The Company also has available an uncommitted overdraft facility of £10 million with The Bank of New York Mellon, of which £5,000 had been utilised (31 August 2018: £nil, 28 February 2019: £nil).

10. RECONCILIATION OF LIABILITIES ARISING FROM FINANCING ACTIVITIES

11. CALLED UP SHARE CAPITAL

There has been no change in share capital in the six months to 31 August 2019 or up to the date of this report.

12. 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 and cash equivalents and 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 63 of the Annual Report and Financial Statements for the year ended 28 February 2019.

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 observable 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 measurements using the FRS102 fair value hierarchy.

There were no transfers between levels for financial assets and financial liabilities during the period recorded at fair value as at 31 August 2019, 28 February 2019 and 31 August 2018. The Company did not hold any Level 3 securities throughout the six month period or as at 31 August 2019 (31 August 2018: nil; 28 February 2019: nil).

13. 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 investment management fee payable for the six months ended 31 August 2019 amounted to £2,284,000 (six months ended 31 August 2018: £2,478,000; year ended 28 February 2019: £4,590,000). At the period end £1,104,000 was outstanding in respect of the management fee (31 August 2018: £1,238,000; 28 February 2019: £2,099,000).

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 2019 amounted to £66,000, including VAT (six months ended 31 August 2018: £49,000, year ended 28 February 2019: £113,000). Marketing fees of £218,000 were outstanding at 31 August 2019 (31 August 2018: £88,000; 28 February 2019: £152,000).

The Company has an investment in the BlackRock Institutional Cash Series plc – Sterling Liquidity Fund of £12,935,000 as at 31 August 2019 (31 August 2018: £15,572,000; 28 February 2019: £10,184,000).

14. RELATED PARTY DISCLOSUREThe Board consists of five non-executive Directors, all of whom are considered to be independent by the Board. None of the Directors has a service contract with the Company. With effect from 1 March 2019, the remuneration of the Chairman was increased from £40,000 to £42,500, the remuneration of the Chairman of the Audit Committee was increased from £30,000 to £32,500 and for the other Directors the remuneration was increased from £26,750 to £28,500.

At 31 August 2019, an amount of £13,000 (31 August 2018: £13,000; 28 February 2019: £13,000) was outstanding in respect of Director’s fees.

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

15. 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 2019 and 31 August 2018 has not been audited, or reviewed by the Company’s auditors.

The information for the year ended 28 February 2019 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.

16. CONTINGENT LIABILITIESThere were no contingent liabilities at 31 August 2019, 31 August 2018 or 28 February 2019.

17. ANNUAL RESULTSThe Board expects to announce the annual results for the year ending 28 February 2020 in late April 2020. Copies of the annual results announcement can be obtained from the Secretary on 020 7743 3000 and a copy of the Annual Report is available from the Company’s website at blackrock.co.uk/brsc. The Annual Report should be available by the beginning of May 2020 with the Annual General Meeting being held in June 2020.

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:

Lucy Horne, Lansons Communications – Tel: 020 7294 3689E-mail: lucyh@lansons.com

5 November 2019

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.co.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.