BlackRock Smaller Companies Trust PLC Regulatory News (BRSC)

BLACKROCK SMALLER COMPANIES TRUST plc

(LEI: 549300MS535KC2WH4082)

Half yearly financial announcement of results in respect of the six months ended 31 August 2023

PERFORMANCE RECORD

1 Without dividends reinvested.

2 Total return basis with dividends reinvested.

3 The change in equity shareholders’ funds represents the portfolio movements during the year and dividends paid.

4 Alternative Performance Measures, see Glossary contained within the Half Yearly Financial Report. Full details setting out how calculations with dividends reinvested are performed are set out in the Glossary contained within the Half Yearly Financial Report.

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

CHAIRMAN’S STATEMENT FOR THE SIX MONTHS ENDED 31 AUGUST 2023

Dear Shareholder

I am pleased to present to shareholders the half yearly financial report for the six months ended 31 August 2023.

PERFORMANCEThe first six months of the Company’s financial year have been characterised by powerful, sometimes contradictory and volatile, macroeconomic drivers. High inflation coupled with the threat of contagion from the US banking crisis acted to exacerbate an already nervous UK market despite a surprisingly robust consumer environment. Stubborn inflation and persistent wage growth data saw the Bank of England (BoE) implement a 50-basis point rise in the base interest rate in June raising interest rates to 5.0%, the highest level since 2008. As the BoE wrestled with the conundrum of bringing down inflation whilst avoiding an economic recession, the negative sentiment towards UK assets continued to weigh heavily on our asset class.

Against this challenging backdrop, the Company’s net asset value (NAV) fell by 7.3%1,2,3 over the period under review, to 1,460.02p per share, underperforming the Company’s benchmark, the Numis Smaller Companies plus AIM (excluding Investment Companies) Index, which fell by 6.9%1,3 over the same period. The Company’s share price fell by 6.3%1,3 to 1,268.00p per share over the same period. Performance relative to the benchmark was driven mainly by stock selection, with a number of our stronger conviction stocks underperforming despite trading well and delivering positively against their long-term strategies. Further details, and some examples of such stocks, are given in the Investment Manager's Report below. Looking at the broader market environment the FTSE 100 Index fell by 3.0%1 over the period, the FTSE 250 Index fell by 4.6%1 and the FTSE All Share Index fell by 3.2%1. The performance of both the NAV and share price over the longer term are illustrated in the table below.  

1 Percentages in Sterling terms with dividends reinvested.

2 Debt at fair value.

3 Alternative Performance Measure, see Glossary contained within the Half Yearly Financial Report.

RETURNS AND DIVIDENDSDividend revenue from portfolio companies increased this year, with the Company’s revenue return per share for the six months ended 31 August 2023 up by 0.2% to 25.11p per share (compared to 25.07p revenue return per share for the six months to 31 August 2022). After adjusting for the impact of special dividends received, which amounted to 2.02p per share (31 August 2022: 1.90p per share), regular dividend income from portfolio companies decreased by 0.4% compared to 2022 levels.

1 All calculations are in Sterling terms with dividends reinvested. Full details of how these calculations are performed are set out in the Glossary contained within the Half Yearly Financial Report.

2 Debt at fair value.

The Board is mindful of the importance of our dividend to shareholders. This is particularly true in the current environment as inflation and a challenging global economic backdrop erodes the value of the pound in consumers’ pockets. The Board is also cognisant of the benefits of the Company’s investment trust structure which enables it to retain up to 15% of total revenue each year to build up reserves which may be carried forward and used to pay dividends during leaner times. The Company has substantial distributable reserves (£617.1 million as at 31 August 2023, including revenue reserves of £18.4 million). To put this into context, the annual dividend distribution based on dividends declared in respect of the year ended 28 February 2023 amounted to £19.5 million. Accordingly, the Board is pleased to declare an interim dividend of 15.00p per share (2022: 14.50p per share) representing an increase of 3.4% over the previous interim dividend. The interim dividend will be paid on 4 December 2023 to shareholders on the Company’s register on 3 November 2023. The Board continues to monitor the Company's income levels and projected future dividend income streams closely as the year proceeds and will make an assessment in respect of the final dividend in due course, noting that it has the ability to utilise revenue reserves should it deem this appropriate.

Your Company has increased its annual dividend every year since 2003 and, in 2023, gained the AIC accolade of “Dividend Hero” for its’ consistent 20-year growth in dividends.

GEARINGThe Company has significant borrowing facilities in place: long-term fixed rate funding in the form of a £25 million senior unsecured fixed rate private placement notes issued in May 2017 at a coupon of 2.74% with a 20 year maturity, £20 million senior unsecured fixed rate private placement notes issued in December 2019 at a coupon of 2.41% with a 25 year maturity and £25 million senior unsecured fixed rate private placement notes issued in September 2021 at a coupon of 2.47% with a 25 year maturity. Shorter-term variable rate funding consisted of an uncommitted overdraft facility of £60 million with The Bank of New York Mellon (International) Limited with interest charged at SONIA plus 100 basis points.

It continues to be the Board’s intention that net gearing will not exceed 15% of the net assets of the Company at the time of the drawdown of the relevant borrowings. Under normal operating conditions it is envisaged that gearing will be within a range of 0%-15% of net assets. The Company’s net gearing stands at 10.5% of net assets as at 23 October 2023, well within our target range.

SHARE BUYBACKSDuring the period, the Company’s shares traded at an average discount to NAV (with debt at fair value) of 13.1%. The discount ranged between 11.3% and 14.3% and ended the period at 13.2%. As at 23 October 2023, the Company’s shares were trading at a discount of 14.1% to NAV (with debt at fair value) as at close of business on 23 October 2023. During the period the Company bought back a total of 247,500 ordinary shares into treasury for a total consideration of £3,295,000. The entire investment trust sector has seen an expansion of the average discount to net asset values as investor confidence and interest in UK risk assets has diminished. In such circumstances, we have undertaken a more aggressive discount management posture.

The Board believes that the share buyback activity undertaken has helped reduce the volatility in our share rating, which currently stands at 14.1% compared to an AIC UK Smaller Companies sector average of 14.8%. As we navigate these more volatile and uncertain markets, your Board will continue to monitor the Company’s share rating and may deploy its powers to buy back the Company’s shares where it believes that it is in shareholders’ long-term best interests to do so. Shares are only bought back at a discount to NAV which ensures that these transactions are accretive to the NAV per share and enhance NAV returns for shareholders.

Since the period end and as at the date of this report, the Company has bought back 330,000 shares to be held in treasury for a total consideration of £4,092,000 at an average discount of 13.5%. Collectively, this share buyback activity undertaken in 2023 contributed 0.13% to the NAV per share return over this period.

BOARD COMPOSITION, IMPLEMENTATION OF POLICY ON TENURE AND DIVERSITYIn previous Chairman’s Statements, I have noted that the Board has adopted a policy of limiting directors’ tenure to nine years (or twelve years in the case of the Chairman in certain circumstances). The Board remains focused on high standards of governance and is cognisant that the Parker Review in respect of board diversity and the recent changes to the FCA’s Listing Rules set new diversity targets and associated disclosure requirements for UK companies listed on the premium and standard segment of the London Stock Exchange. Your Board recognises the benefits of diversity at Board level and believes that Directors should have a mix of different skills, experience, backgrounds, ethnicity, gender and other characteristics.

The Board appointed an external agency to undertake a search and selection process in 2023 with the aim of further enhancing Board diversity. A broad range of factors were taken into account in setting the appointment brief and during the search and selection process. These will be underpinned by our conviction that all Board appointments must be made on merit, in the context of the skills, experience, independence and knowledge which the Board as a whole requires to be effective.

As previously announced, the Board has appointed a new Director, Ms Dunke Afe, as a non-executive Director with effect from 1 January 2024. Ms Afe is an accomplished global marketing executive with extensive experience in raising brand and product awareness, as a marketing expert the Board expects this to be helpful for the Company in the future. She has previously worked with top blue chip multinationals including Unilever, Kimberly-Clark and Estee Lauder companies. She is also a non-Executive Director of CT UK Capital and Income Investment Trust plc. We look forward to benefitting from her outstanding marketing knowledge and insights as we navigate an increasingly competitive environment for investor attention.

OUTLOOKSince the period end, and up until the close of business on 23 October 2023, the Company’s NAV per share fell by 5.9%1,2 and the share price decreased by 6.9%, whilst the benchmark fell by 8.3%1.

There are indications that we may be reaching the peak of the current interest rate hike cycle, which may be the catalyst for a change in sentiment towards UK risk assets and smaller companies in particular and in turn a potential re-rating of our asset class. The Board believes that this presents a compelling investment opportunity for the medium to long-term investor. Our Portfolio Manager’s focus on financially strong companies with innovative and disruptive business models and market leading offerings should, over time, see a return of the strong and consistent investment performance to which our shareholders have become accustomed. Your Board therefore remains fully supportive of our Portfolio Manager, their investment philosophy and the investment approach.

If shareholders would like to contact me, please write to BlackRock Smaller Companies Trust plc, Exchange Place One, 1 Semple Street, Edinburgh EH3 8BL marked for the attention of the Chairman.

Ronald GouldChairman25 October 2023

1 All calculations are in Sterling terms with dividends reinvested.

2 Debt at fair value.

INVESTMENT MANAGER’S REPORT FOR THE SIX MONTHS ENDED 31 AUGUST 2023

We are now in one of the deepest and longest cycles of UK small and mid-cap underperformance in recent history, and if there is one question I have heard more than any other this year on the lips of every investor and potential investor in UK equities, it is “but what is the catalyst?” The question itself is telling, it suggests most investors accept that most of the prerequisites for investing (valuation, outlook, opportunity) have been accomplished; yet one major impediment remains: the elusive catalyst.

In this report I hope to provide some degree of comfort that our on-going positivity towards the UK Small and Mid-cap market is well founded, that the economic outlook whilst still volatile and uncertain is perhaps not as bad as some fear, that structural changes present opportunity, and that investors from outside the equity market (such as Private Equity firms) are starting to take interest.

Our process has forever been bottom-up, focused on the specifics of each investment case and the opportunity that each individual company brings. Over time this analysis, when correctly placed, will identify companies capable over many years of compounding earnings growth which will eventually and inevitably be reflected in share prices. Unfortunately, there can be periods where earnings and share prices fundamentally disconnect, and we are most certainly in one of those periods. As such, unusually, we will begin this report with a focus on the market environment.

During the final quarter of 2021 the market correctly identified that inflation and therefore rising interest rates were a risk, catalysing a dramatic and prolonged period of Small and Mid-cap underperformance. To put this in context, this cycle of mid-cap underperformance is worse than those experienced during the Global Financial Crisis of 2008, COVID-19, Brexit, the bursting of the Tech bubble and subsequent sell-off of 2001 and the Black Monday stock market crash of 1987. In the face of rapidly accelerating inflation, Central Banks bought a sudden and immediate end to the global low interest rate policy.

In the face of this, the UK has been highlighted by many as a particularly weak economy, with inflation more persistent than other developed nations, a poor recent record of growth, a succession of Prime Ministers, a weakening consumer environment, and a collapsing housing market. All of these factors have been compounded by the on-going disruption caused by Brexit. However, we would question this negative narrative. Starting with inflation (where recent published data has shown a moderation from the high levels previously experienced) we note that higher wage settlements are starting to feed through into the economy. The result is a potential increase in real wages towards the end of the year which (all else being equal) will be supportive for consumer spending. How about mortgage costs? No doubt mortgage costs at the population level are increasing, and will continue to do so, but the transmission mechanism is not as immediate as in previous interest rate cycles, with a higher proportion of mortgages on five-year fixed rate deals, giving time for wage growth to moderate the impact (or indeed for the rate cycle to start to turn). There is no doubt the housing market will continue to face headwinds as potential homeowners either struggle to find willing lenders or hold off purchases in the expectation of a better deal next year, but we believe that the housing market will eventually bounce back perhaps as a reaction to government policy. Finally, we note that unemployment, which tends to have a high correlation to consumer confidence, has remained low.

However, the negative narrative has gained traction, bolstered by a political backdrop which gives a perception of a country in turmoil. It is interesting to note the recent changes to GDP statistics show that rather than lagging behind pre-COVID-19 GDP, the UK has in fact recovered all lost ground. But perception matters, and in the case of equity markets, perception manifests in flows, with the UK Small-cap market recording negative flows every month since September 2021. We note the recent statements from the Chancellor with regards to encouraging equity ownership in the UK, and from the London Stock Exchange with regards to reviewing and amending the Listing Rules in an attempt to encourage more companies to list in the UK. We also have to acknowledge the potential for the Labour party to win the next election, a party who are currently projecting a more market friendly set of policies, not least with regards to housing.

If equity investors are unwilling to take advantage of the valuation opportunities that currently exist, there are other forms of capital more than capable of doing so. After a lull around the time of the Truss budget, M&A activity has started to step up again in the UK. The Company has directly benefited from Deutsche Bank’s acquisition of broker Numis, and the recently announced offer for Ergomed. But whilst the Company has had limited participation, there have been a number of bids in the market from cash rich Private Equity firms. Given the huge sums these parties have to invest, and the attractive valuations of UK assets, we would expect this to continue.

Whilst the narrative so far has focused on the UK, we should not forget that the UK market is not the UK economy. UK listed growth companies have significant international exposure and global trends matter. From a global perspective we see a number of opportunities. The significant disruption to supply chains brought about by COVID-19 will see a prolonged period of capital investment. Investment will be made to near shore or “friend shore” essential components, supported by government initiatives such as the Inflation Reduction Act. The increasing cost of labour will lead to a long overdue investment in productivity as firms look to reduce labour content and automate where possible. This brings us on to those two magic letters, “AI” (Artificial Intelligence). AI has hit the headlines at a furious pace this year. Never have we seen a technology so widely adopted so quickly. AI will change business models and industries for years to come, there will be use cases that haven’t been thought of yet. But as with all new waves of technology, the reality is often more nuanced than the rhetoric would suggest, leading to opportunities to invest in businesses where the valuation suggests their business models will be obliterated.

And so we turn to performance. The Company’s NAV (debt at fair value) fell by 7.3% during the first half of the year, broadly in line with the benchmark which fell by 6.9%. Whilst it is disappointing that we didn’t produce a more positive result for the six months, it is comforting to note that the accelerated devaluation of UK growth companies appears to have passed, leaving share prices much more correlated to underlying earnings rather than sentiment.

4imprint Group has once again been the most significant contributor to performance. Long term holders of the Company will have heard this story many times before, indeed it is the consistency of the investment case that is so attractive. 4Imprint Group provides promotional products into the US market, where 6% market share makes them the overwhelming market leader. Management continue to fine tune their advertising strategy, exploring different media and developing the brand, whilst investing in the infrastructure required to fulfil the subsequent demand. Following the disposal of their French galvanising operations, Hill & Smith is now much more exposed to structurally growing US infrastructure expenditure, which itself is supported by a number of initiatives from the US Democratic Party. The recent interim statement demonstrated the benefit of this re-positioning, with 29% revenue growth in the Engineered Solutions division. Veterinary group CVS Group performed strongly in the period under discussion, although it would be remiss not to address the more recent newsflow regarding the CMA’s decision to conduct a market study into the veterinary sector. It would be inappropriate for us to comment on the merits of an investigation or to pre-empt the Competition and Markets Authority’s (CMA) conclusions, we would however note that previous investigations into sectors with far higher margins have proposed behavioural remedies rather than price controls. We accept the CMA provides unwelcome uncertainty to the CVS Group investment case, which is frustrating given the continued operational success and new Australian acquisition strategy. Finally Baltic Classifieds Group has seen a recovery in the share price following the substantial drop that followed the Russian invasion of Ukraine. Trading at Baltic Classifieds Group has remained robust, with continued investment in their brands leading to the already substantial gap to their rivals widening even further.

Turning to the positions that have detracted from performance it is frustrating to once again be highlighting Watches of Switzerland as the largest detractor. The shares were weak through the period on persistent fears of a slowdown in the luxury watch category. A trading statement in May highlighted some weakness in margins, but this was due to the cost of providing interest free credit, not due to underlying demand. The following statement in July reinforced the demand outlook, and started to generate some positive momentum in the shares. Frustratingly this has been curtailed by Rolex’s acquisition of jeweller Bucherer, which raises the prospect of Rolex diverting volume to their own retail operations, although Rolex have been clear to point out they expect their retail partners to see no impact. As with CVS Group this “black swan” event increases the range of outcomes for the industry but we feel this is captured in the 10x PE that Watches of Switzerland now trades on. One of the peculiarities of the Numis Smaller Companies Benchmark is that the constituents are rebalanced on an annual basis, rather than the quarterly basis that is more common in FTSE or MSCI benchmarks. Typically this isn’t an issue, but following years where market moves have been more extreme it brings the “fallen angels” into the top end of the benchmark. This year we have seen Aston Martin, Burford, Carnival and Alphawave all fall into the benchmark. For a variety of reasons none of these businesses pass our investment criteria, it could be market position, debt levels, or earnings visibility. However this doesn’t mean they don’t meet the criteria for other investors, or indeed look attractive simply because of the scale of the decline in their share prices. Collectively the rally in these shares has cost nearly 2% in relative performance.

The fallen angel phenomenon has presented us with the opportunity to invest in some exciting new opportunities. The first of these is UK defence business Babcock, where the new management team are getting to grips with the business, have reset margin expectations, disposed of non core assets to put the balance sheet into good shape, and most importantly repaired the relationship with the Ministry of Defence. Industry change is an important dynamic, and when we see industry participants change their business models it often presents an opportunity. The food delivery industry has been unattractive to us for a number of years, with unprofitable players battling for market share in a world where cash was easy to come by. However rising rates have changed the rules of the game, leading to a focus on profitability. With this in mind we have initiated a position in Deliveroo.

We have exited a few positions in the period. The most significant has been Alpha Financial Markets Consulting, where we have become worried about budgetary pressure and extended decision making in their client base. We also exited Spirent for similar reasons. On a more positive note we sold our position in Numis post the announcement of the approach from Deutsche Bank.

Inevitably we have to come back to the awkward question posed at the start, “what is the catalyst to end this period of UK Small and Mid-cap underperformance?” Sadly the answer is unsatisfactory. I don’t know. There it is, I simply don’t know. So often the catalyst is something we only see in a rear view mirror, a moment that is only identified from post event analysis, a trough on a Bloomberg chart we look back on and say “that was the bottom, and what an opportunity it was”. I have highlighted the issues (the economic uncertainty, the political uncertainty, the structural flow issues in the UK market, the risk of more pervasive inflation) but also the opportunities (the companies delivering on their ambitions, the potential end of interest rate rises, the significant level of return-hungry outside capital, the industries going through structural change, and the impact government measures can have). At some point investors will decide the balance of probabilities is in favour of the opportunities, that the risks are more than adequately priced in, and that an increased allocation to UK Small and Mid-caps is warranted. In the meantime quality management teams will get on with the day job, manage their businesses, grow their earnings, and wait patiently for the day when share prices reward us all.

Roland ArnoldBlackRock Investment Management (UK) Limited25 October 2023

TWENTY LARGEST INVESTMENTS AS AT 31 AUGUST 2023

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

Portfolio holdings in excess of 3% of issued share capitalAt 31 August 2023, the Company did not hold any equity investments comprising more than 3% of any company’s share capital other than as disclosed in the table below:

INVESTMENT EXPOSURE AS AT 31 AUGUST 2023

Investment 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 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;

· Market;

· Counterparty;

· Income/dividend;

· Legal and regulatory compliance;

· Operational;

· Financial; and

· Marketing.

The Board reported on the principal risks and uncertainties faced by the Company in the Annual Report and Financial Statements for the year ended 28 February 2023. A detailed explanation can be found in the Strategic Report on pages 31 to 34 and note 17 on pages 92 to 99 of the Annual Report and Financial Statements which is available on the website maintained by BlackRock at www.blackrock.com/uk/brsc.

The Board and the Investment Manager continue to monitor investment performance in line with the Company’s investment objectives, and the operations of the Company and the publication of net asset values are continuing.

In the view of the Board, there have not been any changes to the fundamental nature of the principal risks and uncertainties since the previous report and these are equally applicable to the remaining six months of the financial year as they were to the six months under review.

Going concernThe Board is mindful of the risk that unforeseen or unprecedented events including (but not limited to) heightened geopolitical tensions such as the war in Ukraine, high inflation and the current cost of living crisis has had a significant impact on global markets. Notwithstanding this significant degree of uncertainty, the Directors, having considered the nature and liquidity of the portfolio, the Company’s investment objective, the Company’s projected income and expenditure, are satisfied that the Company has adequate resources to continue in operational existence for the foreseeable future and is financially sound.

Related party disclosure and transactions with the AIFM and Investment 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 14 below. The related party transactions with the Directors are set out in note 15 below.

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

The Directors confirm to the best of their knowledge and belief that:

· the condensed set of financial statements contained within the Half Yearly Financial Report has been prepared in accordance with the applicable UK Accounting Standard FRS 104 Interim Financial Reporting; and

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

The Half Yearly Financial Report has not been audited or reviewed by the Company’s Auditor.

The Half Yearly Financial Report was approved by the Board on 25 October 2023 and the above Responsibility Statement was signed on its behalf by the Chairman.

Ronald Gouldfor and on behalf of the Board25 October 2023

INCOME STATEMENT FOR THE SIX MONTHS ENDED 31 AUGUST 2023

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

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

STATEMENT OF CHANGES IN EQUITY FOR THE SIX MONTHS ENDED 31 AUGUST 2023

1 Final dividend paid in respect of the year ended 28 February 2023 of 25.50p per share was declared on 9 May 2023 and paid on 27 June 2023.

2 Final dividend paid in respect of the year ended 28 February 2022 of 22.00p was declared on 29 April 2022 and paid on 17 June 2022.

3 Interim dividend paid in respect of the year ended 28 February 2023 of 14.50p was declared on 3 November 2022 and paid on 9 December 2022. Final dividend paid in respect of the year ended 28 February 2022 of 22.00p was declared on 29 April 2022 and paid on 17 June 2022.

For information on the Company’s distributable reserves, please refer to note 12 below.

BALANCE SHEET AS AT 31 AUGUST 2023

STATEMENT OF CASH FLOWS FOR THE SIX MONTHS ENDED 31 AUGUST 2023

* Cash Fund represents funds held on deposit with the BlackRock Institutional Cash Series plc - Sterling Liquid Environmentally Aware Fund.

NOTES TO THE FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 31 AUGUST 2023

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

2. BASIS OF PREPARATION The financial statements of the Company are prepared on a going concern basis in accordance with Financial Reporting Standard 104 Interim Financial Reporting (FRS 104) applicable in the United Kingdom and Republic of Ireland and the revised Statement of Recommended Practice – Financial Statements of Investment Trust Companies and Venture Capital Trusts (SORP) issued by the Association of Investment Companies (AIC) in October 2019, and updated in July 2022, and the provisions of the Companies Act 2006.

The accounting policies and estimation techniques applied for the condensed set of financial statements are as set out in the Company’s Annual Report and Financial Statements for the year ended 28 February 2023.

3. INCOME

1 UK and overseas dividends are disclosed based on the country of domicile of the underlying portfolio company.

Special dividends of £782,000 have been recognised in capital during the period ended 31 August 2023 (six months ended 31 August 2022: £nil; year ended 28 February 2023: £nil).

Dividends and interest received in cash in the period amounted to £12,413,000 and £231,000 (six months ended 31 August 2022: £12,760,000 and £282,000; year ended 28 February 2023: £20,835,000 and £1,174,000).

4. INVESTMENT MANAGEMENT FEE

The investment management fee is based on a rate of 0.6% of the first £750 million of total assets (excluding current year income) less the current liabilities of the Company (the “Fee Asset Amount”), reducing to 0.5% above this level. The fee is calculated at the rate of one quarter of 0.6% of the Fee Asset Amount up to the initial threshold of £750 million, and one quarter of 0.5% of the Fee Asset Amount in excess thereof, at the end of each quarter. The investment management fee is allocated 25% to the revenue account and 75% to the capital account of the Income Statement.

5. OPERATING EXPENSES

1 Relates to prior year accruals for depositary fees and miscellaneous fees written back during the six month period ended 31 August 2023 (six months ended 31 August 2022: legal fees and Directors’ expenses; year ended 28 February 2023: legal fees).

2 For the six month period ended 31 August 2023, expenses of £14,000 (six months ended 31 August 2022: £12,000; year ended 28 February 2023: £22,000) were charged to the capital account of the Income Statement. These relate to transaction costs charged by the custodian on sale and purchase trades.

The direct transaction costs incurred on the acquisition of investments amounted to £708,000 for the six months ended 31 August 2023 (six months ended 31 August 2022: £427,000; year ended 28 February 2023: £1,233,000). Costs relating to the disposal of investments amounted to £113,000 for the six months ended 31 August 2023 (six months ended 31 August 2022: £142,000; year ended 28 February 2023: £243,000). All direct transaction costs have been included within capital reserves.

6. FINANCE COSTS

1 The £15 million 7.75% debenture stock was redeemed at par on 31 July 2022.

Finance costs have been allocated 25% to the revenue account and 75% to the capital account of the Income Statement.

7. 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 15.00p per share (31 August 2022: 14.50p per share), payable on 4 December 2023 to shareholders on the Company’s register as at 3 November 2023; the ex-dividend date is 2 November 2023. The total cost of this dividend, based on 48,252,292 shares in issue at 23 October 2023, is £7,238,000 (31 August 2022: £7,080,000).

8. RETURNS AND NET ASSET VALUE PER SHARE Revenue earnings, capital loss and net asset value per share are shown below and have been calculated using the following:

9. BORROWINGS

The fair value of the 2.74% loan note has been determined based on a comparative yield for UK Gilts for similar duration maturity and spreads, and as at 31 August 2023 equated to a valuation of 72.24p per note (31 August 2022: 82.80p; 28 February 2023: 75.22p), a total of £18,060,000 (31 August 2022: £20,700,000; 28 February 2023: £18,805,000). The fair value of the 2.41% loan note has been determined based on a comparative yield for UK Gilts for similar duration maturity and spreads, and as at 31 August 2023 equated to a valuation of 59.30p per note (31 August 2022: 72.74p; 28 February 2023: 62.80p), a total of £11,860,000 (31 August 2022: £15,548,000; 28 February 2023: £12,560,000). The fair value of the 2.47% loan note has been determined based on a comparative yield for UK Gilts for similar duration maturity and spreads, and as at 31 August 2023 equated to a valuation of 55.44p per note (31 August 2022: 68.48p; 28 February 2023: 58.79p), a total of £13,860,000 (31 August 2022: £17,120,000; 28 February 2023: £14,698,000).

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

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

The second £25 million loan note was issued on 16 September 2021. Interest on the note is payable in equal half yearly instalments on 16 March and 16 September each year. The loan note is unsecured and is redeemable at par on 16 September 2046.

The Company had in place a £35 million three year multi-currency revolving loan facility with SMBC Bank International plc. This facility was terminated on 25 November 2022 and any loan amounts repaid. As at 31 August 2022, the facility was not utilised. Prior to the termination, interest on the facility was reset every three months and was charged at the Sterling Overnight Index Average rate (SONIA) plus a credit adjustment spread of 0.326% for one month borrowings and 0.1193% for three month borrowings.

The Company also has available an uncommitted overdraft facility of £60 million with The Bank of New York Mellon (International) Limited, of which £nil had been utilised at 31 August 2023 (31 August 2022: £nil; 28 February 2023: £nil).

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

10. RECONCILIATION OF LIABILITIES ARISING FROM FINANCING ACTIVITIES

11. CALLED UP SHARE CAPTIAL