# Blackrock Smaller Companies Trust NAV per share rose by 27.7%, significantly outperforming the benchmark index

- Link: https://www.directorstalkinterviews.com/blackrock-smaller-companies-trust-nav-per-share-rose-by-27.7-significantly-outperforming-the-benchmark-index/4121031593
- Published: 2021-11-05T07:28:23+00:00
- Author: Amilia Stone

**Blackrock Smaller Companies Trust plc** ([LON:BRSC](https://www.directorstalkinterviews.com/company/blackrock-smaller-companies-trust-plc/brsc.l))
has announced its half yearly financial results in respect of the six months ended
31 August 2021.

**PERFORMANCE RECORD**

| 
  | Six months ended 31 August 2021  | Six months ended 31 August 2020  | Year ended 28 February 2021  | 
| **Performance** |  |  |  | 
| **Net asset value per share (debt at par value)^(1,2)** | 2,278.01p  | 1,435.96p  | 1,784.35p  | 
| Movement^(1) | +27.7%  | -8.7%  | +13.5%  | 
| **Net asset value per share (debt at par value, capital only)^(1,2)** | 2,257.97p  | 1,431.39p  | 1,777.63p  | 
| Movement^(1) | +27.0%  | -7.6%  | +14.8%  | 
| **Net asset value per share (debt at fair value)^(1,2,3)** | 2,266.31p  | 1,418.95p  | 1,774.71p  | 
| Movement^(1,3) | +27.7%  | -8.8%  | +14.0%  | 
| **Numis Smaller Companies plus AIM (excluding Investment Companies) Index^(1)** | 7,326.65  | 5,045.05  | 6,350.94  | 
| Movement^(1) | +15.4%  | -2.2%  | +23.1%  | 
| **Ordinary share price^(1)** | 2,150.00p  | 1,230.00p  | 1,698.00p  | 
| Movement^(1) | +26.6%  | -17.1%  | +14.4%  | 
|  | —————  | —————  | —————  | 
| **Revenue and dividends** |  |  |  | 
| Revenue return per share | 20.05p  | 4.57p  | 13.36p  | 
| Interim dividend per share | 13.00p  | 12.80p  | 12.80p  | 
| Final dividend per share |  |  | 20.50p  | 
| Change in interim dividend | +1.6%  | –  | –  | 
| Change in total dividends |  |  | +2.5%  | 
|  | —————  | —————  | —————  | 
| **Assets** |  |  |  | 
| Total assets less current liabilities (£’000) | 1,191,983  | 770,761  | 960,900  | 
| Equity shareholders’ funds (£’000) | 1,112,349  | 701,174  | 871,296  | 
| Ongoing charges ratio^(2,4) | 0.8%  | 0.7%  | 0.8%  | 
| Dividend yield^(2) | 1.6%  | 2.6%  | 2.0%  | 
| Gearing^(2) | 6.9%  | 4.1%  | 8.9%  |

^(1)     Without income reinvested.
^(2)     Alternative performance measures, see
Glossary contained within the Half Yearly Financial Report.^(3 )     The basis of
calculation for the fair value of the debt is disclosed in note 9 below and the 
calculation of net asset value per share (debt at fair value) is included in the
Glossary contained within the Half Yearly Financial Report.^(4 )     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.

**To learn more about the BlackRock Smaller Companies Trust plc please follow this
link: [blackrock.com/uk/brsc](https://www.blackrock.com/uk/individual/products/investment-trusts/our-range/blackrock-smaller-companies-investment-trust/trust-information?siteEntryPassthrough=true&cid=aff:investmenttrusts2020:brsc:directorstalk:link)**

**CHAIRMAN’S STATEMENT FOR THE SIX MONTHS ENDED 31 AUGUST 2021**

Dear Shareholder

I am pleased to present to shareholders the half yearly report for the six months
ended 31 August 2021.

**PERFORMANCE**
The first six months of the Company’s financial year have been characterised
by renewed market optimism as post-lockdown economic performance has gathered pace,
buoyed by the success of vaccination programmes and fiscal stimulus. So-called value
shares broadly outpaced growth during this period but overall results have been 
pleasing for our portfolio. The resolution of many Brexit uncertainties has provided
a boost for some domestic UK businesses. 2021 saw a sharp rise in M&A and IPO activity,
which attracted significant interest from overseas corporates and private equity
investors taking advantage of the attractive UK stock valuations. Over the period
under review the Company’s net asset value (NAV) increased by 27.7%^(1,2) to 2,278.01p
per share, outperforming the Company’s benchmark, the Numis Smaller Companies plus
AIM Index (excluding Investment Companies), which rose by 15.4%^(1) over the same
period. The Company’s share price rose by 26.6%^(1) to 2,150.00p 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.

Looking at the broader market environment, the [FTSE 100](https://www.directorstalkinterviews.com/news/ftse-100)
Index rose by 9.8%^(1) over the period, the [FTSE 250](https://www.directorstalkinterviews.com/news/ftse-250)
Index rose by 15.3%^(1) and the FTSE AIM All Share Index rose by 9.3%^(1).

Since the period end, and up until the close of business on 29 October 2021, the
Company’s NAV per share fell by 4.8%^(1,2) and the share price decreased by 7.5%
^(1), whilst the benchmark fell by 3.3%^(1).

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

| 
Performance to 31 August 2021 | 6 Months change %  | 1 Year change %  | 3 Years change %  | 5 Years change %  | 10 Years change %  | 
| Net asset value per share^(1,2) | +27.7  | +58.6  | +40.3  | +113.0  | +316.0  | 
| Share price^(1) | +26.6  | +74.8  | +44.8  | +140.1  | +351.7  | 
| Benchmark^(1) | +15.4  | +45.2  | +24.8  | +53.1  | +121.5  | 
| Net asset value per share (with income reinvested)^(2) | +29.0  | +61.6  | +49.3  | +134.3  | +393.3  | 
| Share price (with income reinvested) | +28.0  | +78.2  | +54.5  | +166.2  | +445.0  | 
| Benchmark (with income reinvested) | +16.5  | +47.6  | +33.1  | +71.9  | +183.3  |

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

**RETURNS AND DIVIDENDS**
It is reassuring to see the recovery in dividends for 
our portfolio as operating conditions improve and more investee companies resume
dividend payments. The Company’s revenue return per share for the six months ended
31 August 2021 amounted to 20.05p per share compared with a meagre 4.57p per share
for the six months to 31 August 2020 as portfolio companies reduced or cancelled
dividends in response to the impact of the pandemic. To give greater context, the
current period revenue return is only 9.7% behind that for the more comparable ‘
pre-COVID’ six-month period to 31 August 2019 of 22.20p per share. After adjusting
for the impact of special dividends received, which amounted to 2.51p per share (
31 August 2019: 2.00p per share), regular dividend income from portfolio companies
decreased by a modest 6.8% compared to 2019 levels and a marked improvement over
what many had feared might be the case.

The Board is mindful of the importance of yield to shareholders. This is particularly
true in the current environment where low interest rates are 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 (£1,045.9 million as at 31 August 2021, including
revenue reserves of £15.3 million). To put this into context, the current level 
of annual dividend distribution based on dividends declared in respect of the year
ended 28 February 2021 amounts to £16.3 million. Accordingly, the Board is pleased
to declare an interim dividend of 13.00p per share (2020: 12.80p per share) representing
an increase of 1.6% over the previous interim dividend. The interim dividend will
be paid on 2 December 2021 to shareholders on the Company’s register on 12 November
2021.

**CHANGE OF INVESTMENT POLICY**
In June this year shareholders voted by an overwhelming
majority to approve changes to the Company’s investment policy to remove the limit
on the level of AIM investments that could be held in the portfolio. This change
was prompted by the strong performance of the Company’s AIM holdings over recent
years which had resulted in an increase in the portfolio’s aggregate exposure to
AIM to just under the previous limit of 50% of the portfolio by value. The Board
did not consider it to be in the best interests of stakeholders for the Manager 
to be required to dispose of these AIM stocks solely as a result of movements in
market value and was keen to ensure that the Company had access to a full range 
of investment opportunities. More information in respect of the Board’s views and
the rationale for the change can be found on pages 7 and 31 to 32 of the Company’s
Annual Report for the year ended 28 February 2021. As at 31 August 2021, 43.1% of
the Company’s portfolio by value was invested in AIM-listed investments.

**GEARING**
The Company has traditionally maintained a range of borrowings and facilities
to provide balance between longer-term and short-term maturities and between fixed
and floating rates of interest. On 16 September 2021 this range was expanded when
the Company issued £25 million in senior unsecured fixed rate private placement 
notes at a coupon of 2.47% maturing in 2046. The net proceeds from the issuance,
as well as being in place to provide refinancing for the £15 million debenture which
is due to expire in 2022, will also be used for additional investment in the market
within the Company’s existing gearing limits and will give the Investment Manager
more scope to take advantage of suitable investment opportunities. The Board considers
that obtaining such Sterling denominated financing on an unsecured basis at this
price level and at a 25-year term to be highly attractive.

The Company now has in place fixed rate funding consisting of the Company’s existing
£15 million debenture, £25 million senior unsecured fixed rate private placement
notes issued in May 2017 at a coupon of 2.74% maturing in 2037, £20 million senior
unsecured fixed rate private placement notes issued in December 2019 at a coupon
of 2.41% maturing in 2044, and the new notes maturing in 2046 as described above.
Shorter-term variable rate funding consists of a £35 million three-year revolving
loan facility with SMBC Bank International plc (formerly Sumitomo Mitsui Banking
Corporation Europe Limited) (expiring in November 2022) and an uncommitted overdraft
facility of £10 million with The Bank of New York Mellon (International) Limited.

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 6.2% of net assets
as at 29 October 2021.

**DISCOUNT**
During the period, the Company’s shares traded at an average discount
to NAV (with debt at fair value) of 4.8%. The discount ranged between 7.0% and 1.6%
and ended the period at 5.1%. The Company’s shares were trading at a discount of
7.8% to NAV (with debt at fair value) as at close of business on 29 October 2021.

**BOARD COMPOSITION**
In previous Chairman’s Statements I have noted that the Board
has adopted a policy of limiting directors’ tenure to nine years (or twelve years
in the case of the Chairman), with a phased implementation over time to ensure an
orderly Board refreshment process. As part of this process and as previously announced,
Mr Peacock (whose tenure would have exceeded nine years in July 2021) retired from
the Board on 11 June 2021. The Board wishes to thank Mr Peacock for his wise counsel
and invaluable contribution to the Company over his tenure as a Director and Chairman
of the Audit Committee. Mr Peacock was replaced as Audit Committee Chairman by Mr
Little who joined the Board in October 2020.

The Board continued its refreshment/recruitment efforts into 2021, and in June 2021
was delighted to announce the appointment of Mr James Barnes as a non-executive 
Director with effect from 31 July 2021 and the appointment of Ms Helen Sinclair 
as a non-executive Director with effect from 1 March 2022. Mr Barnes brings to the
Board a wealth of experience, especially in the UK smaller companies sector. He 
began his career in corporate finance and investment banking. He was formerly a 
director of Dobbies Garden Centres plc and was instrumental in growing the business
and leading its sale to Tesco in 2003. He was also previously a Director and Chairman
of Dunedin Smaller Companies Investment Trust plc (now Standard Life UK Smaller 
Companies plc) and currently holds a number of other non-executive roles in other
businesses. Ms Sinclair began her career in investment banking and spent nearly 
eight years at 3i plc focusing on management buy-outs and growth capital investments.
She later co-founded Matrix Private Equity (now Mobeus Equity Partners) in early
2000 and subsequently became Managing Director of Matrix Private Equity before moving
to take on a number of non-executive director roles.

The only Director remaining on the Board with tenure in excess of nine years is 
Ms Burton. The Board has requested that she remain as a Director until Ms Sinclair
has joined in early 2022 to provide continuity of experience and knowledge. It is
envisaged that Ms Burton will not seek re-election at the Company’s Annual General
Meeting in 2022, at which point the new tenure policy will have been fully implemented.

**OUTLOOK**
Despite renewed market optimism in 2021 as the impact of COVID-19 recedes
and the world adjusts to living with the virus, the longer term implications of 
social and economic disruption will continue to challenge markets. Logistics problems,
supply chain disconnects, labour shortages and inflation all present economic headwinds
that will create a drag on growth and prosperity for some time to come. Aside from
post-pandemic issues, energy costs are set to rise dramatically as the world attempts
to contain climate change and ESG (Environmental, Social and Governance) policies
continue to drive a shift to green energy supply. The global macro-economic climate
is also subject to significant geo-political uncertainty. Against this backdrop 
it is important to focus on the fact that as the world emerges from COVID-19, many
UK businesses are attractively valued and corporate activity is strong. Our portfolio
management team remains focussed on financially robust, high quality and market-
leading global businesses which are operating in attractive end markets and run 
by experienced management teams. Our portfolio managers are confident that the Company’s
investment strategy of focusing on these quality growth investment opportunities
in smaller companies means that the portfolio is well placed to cope with the diverse
challenges that the coming year is likely to bring.

**RONALD GOULD
Chairman

2 November 2021

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

**INVESTMENT MANAGER’S REPORT FOR THE SIX MONTHS ENDED 31 AUGUST 2021**

**MARKET REVIEW AND OVERALL INVESTMENT PERFORMANCE**
The first six months of the
Company’s financial year could not have been more different from the previous year.
2020 was characterised by the outbreak of the COVID-19 pandemic and lockdowns, while
2021 has been far more upbeat as vaccination programmes and stimulus have buoyed
optimism, overwhelming many concerns around potential setbacks from the COVID-19
virus. But it has not all been plain sailing, with company statements now featuring
commentary regarding component shortages, staffing issues, Brexit confusion and 
the spectre of inflation.

Within the UK, domestic business continued to perform well, helped by the removal
of the Brexit overhang late last year. Meanwhile the combination of brighter prospects
for the UK economy and attractive valuations of UK companies saw a sharp increase
in M&A activity, particularly from overseas corporates and private equity, looking
to take advantage of the relative value of UK plc. After high levels of equity issuance
in 2020, principally for liquidity-related needs, this year the capital markets 
have focused on IPOs as confidence in the market returned.

**PERFORMANCE REVIEW**
The Company’s NAV per share (debt at par) rose by 27.7% during
the first half of our financial year, significantly outperforming the benchmark 
index which rose by 15.4% over the same period. For comparison the large cap FTSE
100 Index rose 9.8% during the period (all percentages stated without income reinvested).

The period started with a rally in value shares, but despite this early headwind,
the Company significantly outperformed, helped by positive earnings across a broad
range of industries. Whether it has been strong contributions from innovative companies
that we have purchased at IPO, nimble retailers that have adapted to new ways of
working, or high-quality businesses leading in structurally growing markets, the
key theme has been that bottom-up company specific drivers have been the key to 
year-to-date outperformance.

The largest positive contributor during the period was Auction Technology Group (
ATG), a business that we purchased at IPO earlier in the year. ATG operates digital
platforms that connect auctioneers and bidders in the traditional art and antique
markets as well as the newer opportunity in industrial equipment. The industry is
shifting rapidly as auctioneers realise that on-line platforms grant access to a
vastly larger pool of bidders and often provide more efficient price discovery for
the items listed. This trend has only been accelerated through COVID-19. We increased
our position materially in a fund-raise as ATG bought LiveAuctioneers, the leading
player in the US Art & Antiques market, a deal with compelling financial and operational
synergies, which further extends ATG’s lead in the sector. Shares in Watches of 
Switzerland, the luxury watch retailer, rose as the company once again delivered
profits ahead of expectations. Their April 2021 numbers encapsulated a period when
UK stores were forced to shut for 26 weeks, the US saw vastly reduced footfall and
the historically lucrative sales in airports were significantly interrupted. Nevertheless,
revenue grew 12%, and operating profit by 70%, comfortably surpassing pre-COVID-
19 expectations. This is testament to the positive dynamics of the market they operate
in and management’s strong execution. It is a perfect illustration of our belief
that great businesses and management teams can react to rapidly changing circumstances
and still deliver growth despite significant challenges. Alongside the full year
results the company announced a strategic plan for the next five years which included
further expansion in its existing markets of the UK and US, as well as the intent
to enter the EU where it sees a similar opportunity to consolidate a fragmented 
and un-sophisticated distribution network. If the company achieves its aims, then
profitability will roughly triple from current levels. Impax Asset Management, which
focuses on sustainable investment strategies, continued to deliver impressive growth
in assets under management. This growth looks well set to continue given the strength
of their franchise, market leading investment performance and the structural growth
in [sustainability](https://www.directorstalkinterviews.com/sustainability-green-stocks-news)
which underpins the company’s investment philosophy.

In addition to positive trading from a number of our holdings during the period,
the Company also benefitted from the surge of M&A activity. Stock Spirits Group,
a premium spirits producer focused on Eastern Europe, accepted a £767 million takeover
approach from a private equity group, whilst video game developer Sumo Group received
an offer from Chinese gaming giant Tencent.

Given the strong outperformance during the period and impressive trading that we
have continued to see across our core holdings, stock specific detractors have been
limited. The largest detractor was Moonpig which reported good financial year results
that were ahead of consensus with upgrades to forecasts, however the shares fell
in response to a lack of upgrades to next year. We believe that guidance seems too
conservative and that the opportunity for Moonpig to grow customers, order frequency
and basket size remains as attractive as ever. Shares in Avon Protection have been
weak as the company has reported delays to expected orders, which it attributed 
to a combination of COVID-19 and supply chain disruptions. While the delays are 
disappointing, our view is that this is a short-term issue and ultimately these 
contracts will come through. We continue to believe in the long-term attractions
of the business and the steps taken through the sale of its dairy business last 
year, to increase focus on the protection markets. Other detractors included pub
operator Fuller Smith & Turner and cinema operator Everyman Media which both underperformed
as the market became concerned about the presence of the Delta variant of COVID-
19 and the impact that this would have on leisure related businesses.

**ACTIVITY**
Over the last six months we have reduced the number of holdings in 
the portfolio from 122 in February, to 116 at the end of August and net gearing 
has been steadily increasing and is now around 107%.

We purchased a holding in fund administration business Sanne. Increasing complexity
of operations and regulatory burden is driving more asset managers to outsource 
back-office operations, and Sanne is well placed to capture this growth. The long-
term nature of its client contracts provides high visibility of earnings whilst 
the increasing regulatory demands, particularly within the alternatives space where
Sanne is focused, provide further revenue growth opportunities from cross-selling
additional services. This view was clearly shared by others, as Sanne subsequently
received competing bids, before finally recommending the offer from industry peer
Apex Group.

We purchased a new holding in construction materials group SigmaRoc, in the equity
raise that accompanied the transformational deal to acquire Nordkalk, a privately
owned Scandinavian business. This strategic and highly accretive acquisition transforms
SigmaRoc by significantly increasing their European footprint whilst diversifying
their end market exposure away from construction. The management team of SigmaRoc
has developed a strong track record in acquiring and improving the financial performance
of UK and European based heavy side material assets, and we see strong potential
for underlying improvements in revenues, profits and cash generation. We are very
excited about the future prospects for this company on an organic and inorganic 
basis.

Having reduced during the pandemic, we have been adding back to our holding in Johnson
Service Group, the supplier of linen to the hospitality and catering industries.
As lockdown restrictions in the UK are eased this is a business that should benefit
from the reopening of both restaurants and hotels, as well as a trend for more staycations
as UK holidaymakers continue to be put off by the challenges with travelling overseas.
We expect demand to resume to levels that will ensure high levels of utilisation,
which will see profits and cashflows for Johnson Service Group recover quickly.

We also took the opportunity to add a new holding in Restaurant Group, the owner
of a number of restaurant chains across the UK such as Frankie & Benny’s and Wagamama.
This is an example of where COVID-19 has re-shaped an industry and has led us to
re-assess the investment case. Historically we were significant holders of the company,
but worries over the un-bridled supply growth of the restaurant sector, and the 
liability held in long term property leases resulted in us exiting the position.
What followed was a crippling industry fall out. Post COVID-19 the backdrop is much
more supportive for the company, with industry capacity back to 2012 levels due 
to the bankruptcies and closures brought about by the pandemic. Also, many of the
small players who were driving the growth of fast and casual dining are capital 
constrained, with many months of back rent, lockdown costs and unpaid taxes weighing
on their ability to invest and grow. Restaurant Group on the other hand has transformed
its market position via the acquisition of Wagamama, and has significantly reduced
its total lease liability.

**PORTFOLIO POSITIONING**
For the first time in many years the largest overweight
in the portfolio is in the Retail sector. We have historically maintained an underweight
position as the sector struggled under the ever-present pressure of the internet
on the top line, and structural cost pressures through rent and rates. But COVID-
19 has changed some of this; successful retailers have had to shift to true multi-
channel retailing, and bankruptcy of others has resulted in significant property
vacancies and a seismic shift in property costs. Businesses like Watches of Switzerland
and Pets at Home have shown the impact that entrepreneurial management teams can
have, pivoting operations quickly to counter enforced store closures, making changes
that will endure.

The industrial space has been buffeted by trade wars, Brexit, and now COVID-19. 
Companies are having to reassess supply chains. Shortages in some areas, such as
the very public semi-conductor market, will lead to re-evaluation of inventory requirements,
whilst COVID-19 saw a focus on working capital leading to reduced levels of inventory
that will need to be rebuilt to meet demand. The component constraints mean supply
will fall significantly short of demand in many areas this year; anyone looking 
to buy a car or a Playstation5 will appreciate the disappointment and frustration,
but this also means the recovery will be prolonged. With the prospect of a longer
demand cycle and inventory rebuild, the outlook for the industrial sector in the
medium term is positive. Oxford Instruments, discoverIE, Chemring and Porvair are
all high IP businesses that should benefit from these trends.

Whilst the disruption of COVID-19 has spurred change and innovation in some areas,
it has also wrought havoc in others. We remain underweight to the leisure sector
where so many companies have had to raise equity to support balance sheets, leading
to significant dilution to equity holders. Valuations are generally high, recovery
extended and uncertain, leading to a wide range of possible outcomes. Specific opportunities
exist, the freehold balance sheets of Youngs and City Pub Company, the COVID-19 
beneficiaries of Team17 and Games Workshop, or the market share opportunities of
being last man standing that Restaurant Group will see. But generally, we struggle
with the outlook and valuations in the sector.

**OUTLOOK**
The world is still in a difficult place; vaccines are reducing the impact
of COVID-19, but the second order impacts are going to be here for some time. Logistics,
supply chains, labour shortages, inflation are all front and centre of current investor
discussions, and clearly it is right we address these concerns, many of which are
interlinked. As a summary we expect many of these issues to pass over time. The 
end of the furlough scheme in the UK will lead to unemployment in some areas but
will also bring potential candidates to fill many of the vacancies. Manufacturing
firms will eventually invest to bring increased volume into tight markets. Supply
chains will adapt, HGV drivers will be found, the logistics issues will become a
thing of the past. But it will take time, these are complicated issues that will
not be fixed immediately, however anything that is an issue is also an opportunity
for those prepared to invest. Inflation is a complicated question, with the transient
vs permanent debate seemingly never ending. There is still excess capacity in the
UK, we have not yet recovered to pre-pandemic GDP levels, the ability to serve demand
is there. The labour market is tight and wage inflation in some areas is higher 
than normal, but the labour market has also not returned to “normal” with the distortion
of the highly successful furlough scheme still being felt. Energy costs are clearly
rising, and this may be an on-going issue; we have seen a substantial reduction 
in greenfield energy investment leading to tight oil and gas markets. But renewable
and green energy is becoming a bigger part of supply and will continue to do so.
The geo-political environment continues to see seismic changes; the US presidency
moving from Trump to Biden, Brexit, and changing priorities in China are all driving
sentiment.

So how should we, as bottom-up investors, factor this into our decision-making process?
Our approach is to do this in the same way we have always done, by focusing on identifying
businesses which match our criteria that can seize on these opportunities. We focus
on those businesses with market-leading positions and pricing power, which can pass
on inflation through price increases; businesses at an early stage of their development
cycle where the upside from successfully developing market share opportunities is
much greater than the potential fall out of temporary market dislocations and businesses
with strong balance sheets that can continue to invest in product development rather
than having to cut costs and preserve cash. Ultimately for all the difficulties 
we could focus on, we should not ignore the obvious positives; we are slowly emerging
from COVID-19, consumers and corporates have been spared the worst of the downturn
and are financially strong, the UK is still attractively valued and corporate activity
is high. We remain as confident in the mid-to-long term development of the portfolio
as we ever have been.

**ROLAND ARNOLD
BLACKROCK INVESTMENT MANAGEMENT (UK) LIMITED

2 November 2021

**TWENTY LARGEST INVESTMENTS AS AT 31 AUGUST 2021**

| 
Company | Business activity | Market value £’000  | % of total portfolio  | 
|  |  |  |  | 
| Watches of Switzerland | Retailer of luxury watches | 29,761  | 2.5  | 
| Impax Asset Management | Asset management | 25,445  | 2.1  | 
| Treatt | Development and manufacture of ingredients for the flavour and fragrance industry | 23,320  | 2.0  | 
| CVS Group | Operator of veterinary surgeries | 22,036  | 1.9  | 
| Ergomed | Provider of pharmaceuticals services | 21,915  | 1.8  | 
| Auction Technology Group | Operator of marketplaces for curated online auctions | 21,789  | 1.8  | 
| Stock Spirits Group | Development and manufacture of branded spirits mainly in Eastern Europe | 21,659  | 1.8  | 
| IntegraFin | Investment platform for financial advisers | 21,655  | 1.8  | 
| Oxford Instruments | Designer and manufacturer of tools and systems for industry and research | 21,443  | 1.8  | 
| Gamma Communications | Provider of communication services to UK businesses | 20,565  | 1.7  | 
| Breedon | Construction materials | 20,137  | 1.7  | 
| YouGov | Survey data specialist data analytics | 19,656  | 1.7  | 
| Pets at Home | Pet supplies retailer | 18,644  | 1.6  | 
| Learning Technologies | E-learning services | 18,059  | 1.5  | 
| 4imprint Group | Promotional merchandise in the US | 17,763  | 1.5  | 
| discoverIE | Specialist components for electronics applications | 17,404  | 1.5  | 
| Qinetiq Group | British multi-national defence technology company | 16,626  | 1.4  | 
| Grafton Group | Builders merchants in the UK, Ireland and Netherlands | 16,577  | 1.4  | 
| Liontrust Asset Management | Asset management | 15,946  | 1.4  | 
| Central Asia Metals | Mining operations in Kazakhstan and Macedonia | 15,940  | 1.3  | 
|  |  | —————  | —————  | 
| Twenty largest investments |  | 406,340  | 34.2  | 
|  |  | —————  | —————  | 
| Remaining investments |  | 783,178  | 65.8  | 
|  |  | —————  | —————  | 
| **Total** |  | **1,189,518**  | **100.0**  | 
|  |  | =========  | =========  |

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

**INVESTMENT EXPOSURE AS AT 31 AUGUST 2021**

Investment size as at 31 August 2021

|  | 
Number of investments | Market value of investments as % of portfolio | 
|  |  |  | 
| £1m to £2m | 1 | 0.10 | 
| £2m to £3m | 4 | 0.90 | 
| £3m to £4m | 8 | 2.40 | 
| £4m to £5m | 5 | 2.00 | 
| £5m to £6m | 11 | 5.00 | 
| £6m to £7m | 11 | 6.10 | 
| £7m to £8m | 9 | 5.60 | 
| £8m to £9m | 13 | 9.20 | 
| £9m to £10m | 6 | 4.80 | 
| £10m to £11m | 7 | 6.10 | 
| £11m to £12m | 6 | 5.80 | 
| £12m to £13m | 2 | 2.10 | 
| £13m to £14m | 6 | 6.80 | 
| £14m to £15m | 4 | 4.90 | 
| £15m to £16m | 5 | 6.60 | 
| £16m to £17m | 2 | 2.80 | 
| £17m to £18m | 2 | 3.00 | 
| £18m to £19m | 2 | 3.10 | 
| £19m to £20m | 1 | 1.70 | 
| £20m to £21m | 2 | 3.40 | 
| £21m to £22m | 5 | 9.10 | 
| £22m to £23m | 1 | 1.90 | 
| £23m to £24m | 1 | 2.00 | 
| £25m to £26m | 1 | 2.10 | 
| £29m to £30m | 1 | 2.50 |

Source: BlackRock.

Analysis of portfolio value by sector

|  | 
Company% | Benchmark(Numis Smaller Companies, plus AIM(ex Investment Companies) Index)% | 
| Energy | 3.4 | 4.4 | 
| Basic Materials | 5.0 | 6.7 | 
| Industrials | 24.5 | 24.1 | 
| Consumer Staples | 4.3 | 4.4 | 
| Health Care | 4.1 | 7.7 | 
| Consumer Discretionary | 25.4 | 20.1 | 
| Telecommunications | 2.8 | 1.5 | 
| Financials | 12.8 | 13.9 | 
| Technology | 13.3 | 8.8 | 
| Real Estate | 4.4 | 6.1 | 
| Utilities | 0.0 | 2.3 |

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 UNCERTAINTIES**
The 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 2021.
A detailed explanation can be found in the Strategic Report on pages 34 to 37 and
note 17 on pages 94 to 102 of the Annual Report and Financial Statements which is
available on the website maintained by BlackRock at [www.blackrock.com/uk/brsc.](http://www.blackrock.com/uk/brsc)

The infectious respiratory illness caused by a coronavirus known as COVID-19, first
detected in China in December 2019 and which has developed into a global pandemic,
has caused unprecedented global economic and social upheaval. The coronavirus pandemic
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 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. Despite the success of vaccination programmes, new variants of concern
continue to evolve and the duration of the COVID-19 outbreak and its effects cannot
be determined with certainty.

In the view of the Board, 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 CONCERN**
The 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 (the majority
of which are represented by long-term fixed rate debt) 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
28 February 2021 were approximately 0.8% 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 MANAGER**

BlackRock Fund Managers Limited (BFM) was appointed as the Company’s Alternative
Investment Fund Manager (AIFM) with effect from 2 July 2014. BFM has (with the Company’s
consent) delegated certain portfolio and risk management services, and other ancillary
services, to BlackRock Investment Management (UK) Limited (BIM (UK)). Both BFM and
BIM (UK) are regarded as related parties under the Listing Rules. Details of the
management and marketing fees payable are set out in notes 4, 5 and 14 below. The
related party transactions with the Directors are set out in note 15 below.

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

The Directors confirm to the best of their knowledge 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 Guidance 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 2 November 2021 and
the above responsibility statement was signed on its behalf by the Chairman.

**RONALD GOULD
FOR AND ON BEHALF OF THE BOARD

2 November 2021

**To learn more about the BlackRock Smaller Companies Trust plc please follow this
link: [blackrock.com/uk/brsc](https://www.blackrock.com/uk/individual/products/investment-trusts/our-range/blackrock-smaller-companies-investment-trust/trust-information?siteEntryPassthrough=true&cid=aff:investmenttrusts2020:brsc:directorstalk:link)**

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