Blackrock Smaller Companies Trust Plc

BlackRock Smaller Companies Trust plc

Annual Report and Financial Statements 28 February 2019 BlackRock Smaller Companies Trust plc

Corporate summary

The Company The Company is an investment trust and its shares are listed on the London Stock Exchange. The Company aims to attract long term private and institutional investors wanting to benefit from the growth prospects of smaller companies.

Investment objective To achieve long term capital growth for shareholders through investment mainly in smaller UK quoted companies. Full details are given on page 19.

Benchmark index Numis Smaller Companies plus AIM (excluding Investment Companies) Index.

Alternative Investment Fund BlackRock Fund Managers Limited (“The Manager” or “AIFM”). Manager

Investment Manager BlackRock Investment Management (UK) Limited (“BIM (UK)”) – Portfolio Managers: Mike Prentis and Roland Arnold.

Board The Company has an independent Board of Directors which is responsible for the governance of the Company, monitors its performance and keeps the investment strategy under review.

Website Information about the Company can be found on the website blackrock.co.uk/brsc

AIC The Company is a member of the Association of Investment Companies.

Financial Calendar May 2019 Announcement of results for year ending 28 February 2019 June 2019 Annual General Meeting June 2019 P ayment of final dividend on ordinary shares October/ Announcement of results for six months ending November 2019 31 August 2019 November 2019 P ayment of interim dividend on ordinary shares

Depositary, Custodian and The Bank of New York Mellon (International) Limited (“BNYM”) Fund Accountant

BLACKROCK SMALLER COMPANIES TRUST PLC Overview and performance Governance Financial statements Additional information ondon E6 6LA L 1 : 020 7055 6600 F

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T: 0207 055 6500 T: Park Communications Ltd Communications Park Black Line Level: 9 Black Line Level: Further information Further the including the Company, details about Further factsheets and interim reports, annual and latest on the available are announcements, stock exchange and Shareholders blackrock.co.uk/brsc. website at of copies who wish to receive parties other interested and other significant matters monthly announcements should send their email put into the public domain to [email protected]. address per annum. 1 . 2 ANNUAL REPORT AND FINANCIAL STATEMENTS 28 FEBRUARY 2019 28 FEBRUARY STATEMENTS AND FINANCIAL REPORT ANNUAL consecutive financial years. consecutive financial years. 2 – The Company offers investors exposure to UK smaller companies, an asset class that has asset class that an smaller companies, to UK investors exposure offers Company The – Proof Event: 22 Event: Proof Annual Rpt 2019 Smaller Companies Title: Project – The UK small and mid-cap universe contains many industry leaders often operating operating often universe contains many industry leaders small and mid-cap UK The tfolio – – The Company has the ability to borrow up to 15% of net assets, offering offering up to 15% of has the ability to borrow net assets, Company The – leverage through xposure – Due to the high standards of governance, strong accounting standards and consistent rule and accounting standards strong oftunities – Due to the high standards governance, – Closed end funds do not have to deal with daily liquidity requirements that that daily liquidity requirements with a closed ended vehicle – Closed end funds do not have to deal – The BlackRock team has team BlackRock The – process investment with a robust small and mid-cap team xperienced UK

– There are at least 1,500 small and mid-cap companies listed on the UK listed on the UK 1,500 small and mid-cap companies least at are There tunities for active managers – researched area of the market thereby presenting great opportunities to generate good returns for investors good returns generate to opportunities great presenting of thereby the market area researched ‑ – Investing in high quality, cash generative businesses has enabled the Company businesses has enabled the Company cash generative of source income – Investing in high quality, ferentiated Why BlackRock BlackRock Why Smaller Companies plc? Trust – The Company has a proven strategy with an impressive and consistent track record, record, and consistent track with an impressive strategy has a proven Company The – performance record trong S outperforming its benchmark for 16 Benefits of smaller companies that in exciting freely can invest more the Company As a result, come with open ended funds. cap scale or less liquid. down the market might be further Additional e investors the ability to increase exposure to high quality businesses, potentially enhancing returns over the longer returns potentially enhancing to high quality businesses, exposure investors the ability to increase term. excellent access to company managements and undertakes about 700 company meetings each year. The team looks looks team The year. about 700 company meetings each and undertakes access to company managements excellent When selecting companies with the potential to become much larger. to find hidden gems and invest in growth able to are that management teams companies with strong cash generative for high quality, looks the team stocks of the wider economic environment. regardless own growth their generate Globally diversified por Highly e 50% around Currently of to construct a portfolio global businesses. allows BlackRock This and selling globally. Outperforming asset class Oppor historically outperformed larger companies by circa +4% companies by circa historically outperformed larger that believes BlackRock of range sectors and geographies. a broad diversified across well are that stock market and in an inefficient since these companies operate hunting ground an attractive of presents the market this area under over the long term. portfolio’s revenues are generated from overseas. from generated are revenues portfolio’s Dif IPO Oppor within the significant IPO opportunities often are There an IPO. for companies seeking is attractive London of law, contributors to strong IPO have been extremely at purchased and many companies smaller companies sector, UK performance. to increase its dividend every year for 16 years. Since 2006, dividend growth has substantially outperformed the dividend growth Since 2006, for 16 years. its dividend every year to increase ofdividend growth the median Equity Income Fund Source: Datastream. For the period 1955 to 2019. Numis Smaller Companies Index +AIM ex ITs Total Return Index (previously known as Hoare known as Hoare (previously Index Return Total ITs +AIM ex Index Numis Smaller Companies the period 1955 to 2019. For Datastream. Source: 2019). 2007 to February (January Return Total All-Share FTSE 2006). (December 1955 to December Return Total Equity Barclays Govett). Sour

ce: BlackRock.

A member of the Association of member ofAssociation A Companies Investment the Details about the Company are available on the website at blackrock.co.uk/brsc at available on the website are Details about the Company Past performance is not a reliable indicator of current or future results and should not be the sole consideration when sole consideration and should not be the results of indicator or future performance is not a reliable current Past value of them can fall as well as rise and is not The investments and the income from or strategy. selecting a product the amount originally invested. investor may not get back The guaranteed. • • • 2 1 • Reasons to invest Reasons • • • • • Job No: 38091 Customer: BlackRock Contents

Overview and performance Performance record 3 Chairman’s statement 4 • Investment manager’s report 8 Ten largest investments 12 Fifty largest investments 14 Portfolio holdings in excess of 3% of issued share capital 16 Distribution of investments 17 Strategic report 19

Governance Governance structure 26 • Directors’ biographies 28 Directors’ report 31 Directors’ remuneration report 37 Corporate governance statement 42 Report of the Audit Committee 47 Statement of Directors’ Responsibilities in respect of the Annual Report and Financial Statements 51

Financial statements Independent Auditor’s report 52 • Income statement 58 Statement of changes in equity 59 Balance sheet 60 Statement of cash flows 61 Notes to the financial statements 62

Additional information Historical performance record 81 • Analysis of ordinary shareholders 82 Shareholder information 83 Management & other service providers 86 AIFMD disclosures 87 Information to be disclosed in accordance with Listing Rule 9.8.4 88 Notice of annual general meeting 89 Glossary 93 Share fraud warning 96

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T: 0207 055 6500 T: Feb 17 Feb 9.8% 2.0% 0.7% 1.0% 26.00p 16.00p 10.00p 29.30p Park Communications Ltd Communications Park 721,442 796,112 5,700.84 1,325.00p 1,506.78p 1,487.48p 1,500.04p Year ended Year 28 February 2018 28 February Numis Smaller Companies plus AIM plus Numis Smaller Companies Index Investment Companies) (ex (without income reinvested)

N/A 4.9% 15 Feb 2.3% 0.7% 31.20p 19.20p 12.00p 33.67p Black Line Level: 9 Black Line Level: 674,089 716,287 5,231.98 1,330.00p 1,407.88p 1,386.21p 1,400.57p Year ended Year 28 February 2019 28 February 28 February 201928 February 2018 28 February 2

1, ANNUAL REPORT AND FINANCIAL STATEMENTS 28 FEBRUARY 2019 28 FEBRUARY STATEMENTS AND FINANCIAL REPORT ANNUAL Feb 13 Feb 5 3

NAV performance NAV without income reinvested) par, (debt at 1 1,

) is calculated without income for the year to 28 February 2019 and 28 February 2018 respectively, net of 2018 respectively, 2019 and 28 February to 28 February for the year without income ) is calculated Feb 11 Feb 22 Event: Proof Annual Rpt 2019 Smaller Companies Title: Project 4 1 ges ratio calculated as a percentage of average shareholders’ funds and using operating expenses, excluding performance fees, performance fees, excluding expenses, funds and using operating of shareholders’ as a percentage average calculated ges ratio

Share price performance Share (without income reinvested) Feb 09 Feb finance costs, transaction costs and taxation, in accordance with AIC guidelines. with in accordance costs and taxation, transaction finance costs, see note 4 of details of Please for further the financial statements the change. charged. T Ongoing char With ef Ex T dividends paid in respect of the relevant financial years. More detail is given in the Glossary. More of financial years. dividends paid in respect the relevant

Ongoing charges ratio Ongoing charges Equity shareholders’ funds (£’000) Equity shareholders’ Assets liabilities (£’000) assets less current Total Total dividends paid and payable Total Proposed final dividend per share Proposed Gearing Gearing Performance par value) (debt at Net asset value per share Interim dividend per share Ongoing charges ratio (including performance fees) ratio Ongoing charges Dividend yield Net asset value per share (debt at par value, capital only) par value, (debt at Net asset value per share fair value) (debt at Net asset value per share Investment AIM (excluding plus Numis Smaller Companies Index Companies) price share Ordinary Revenue and dividends Revenue per share return Revenue Sources: BlackRock and Datastream. BlackRock Sources: to 100. and Benchmark rebased NAV price, Share he basisof forthefairvalueof calculation of thedebtisdisclosedinnote13 andintheGlossary. thefinancialstatements aperformancefeewas 2018, ended28February theyear For aperformancefeeisnolongercharged. 2018, 1March fect from cludes incomereinvested. he capitalonlynetassetvalue(NAV 950 900 850 800 750 700 650 600 550 500 450 400 350 300 250 200 150 100 BlackRock Smaller Companies Trust plc – Performance from 1 March 2009 to 28 February 2019 2009 to 28 February 1 March from plc – Performance Trust Smaller Companies BlackRock 3 4 5 1 2 Performance record Performance Sources: BlackRock and Datastream. BlackRock Sources: Job No: 38091 Customer: BlackRock Chairman’s statement

Your Company has a remarkable record. For sixteen consecutive years it has outperformed its benchmark and increased its dividend. Over that period, the NAV has increased nearly twelve- fold whereas the benchmark has increased less than four-fold (all calculations with income reinvested). The compound annual increase in dividends paid over the past ten years has been 20% per annum. Nicholas Fry

Performance It has been a challenging year and it is disappointing that Since the financial year end the Company’s NAV as at the Company’s Net Asset Value per share fell by 6.6%1. 30 April 2019 has increased by 9.3%1, against an increase However, the Company outperformed its benchmark, in the benchmark of 4.0%1, and the share price has risen the Numis Smaller Companies plus AIM (excluding by 9.6%1. Investment Companies) Index, which decreased by 8.2%1. During the financial year, your Company’s share price The chart below and the table on page 5 demonstrate increased by 0.4%1 to 1,330.00p per share. your Company’s consistent outperformance over its benchmark during the last sixteen years. The year was characterised by an increase in volatility with significant declines in global markets at the start 16 Consecutive Years of Outperformance of the year offset by a rebound in April 2018. This was 35 followed by further significant market falls in October and November 2018, driven by geopolitical concerns over 30 the impact of US interest rate rises, uncertainty over trade 25 disputes and increasing fears of a US recession. Higher quality growth stocks were the most severely affected 20 which impacted the portfolio’s relative performance. In the % UK, concerns over Brexit and a weaker currency resulted 15 in markets lagging behind other global indices, with UK 10 small and mid-capitalisation companies underperforming their larger peers. The FTSE AIM All‑Share Index fell by 5 12.4%1 compared with the FTSE 250 Index which fell by 0 2.6%1 and the FTSE 100 Index which fell by 2.2%1. Feb 12 Feb 13 Feb Feb 11 Feb Feb 14 Feb 16 Feb 17 Feb Feb 10 Feb Feb 15 Feb Feb 19 Feb Feb 05 Feb 07 Feb 09 Feb Feb 04 Feb Feb 18 Feb Feb 08 Feb Feb 06 Feb The relative outperformance of the Company’s NAV over BlackRock assumed management on 31 December 2004. the year was largely attributable to good stock selection. Source: BlackRock. The best individual stock performances came from Outperformance percentages above are based on NAV (debt at par) performance compared to benchmark performance both with companies with exposure to the oil price as well as those income reinvested. Prior to 31 August 2007 the Company’s benchmark engaged in financial services, manufacturing and data was the FTSE SmallCap Index (excluding Investment Companies); analytics. The largest detractors from relative performance after this date the Company adopted the Numis Smaller Companies plus AIM (excluding Investment Companies) Index as its benchmark. came mainly from companies in the retail sector which struggled in increasingly tough trading conditions. More details of the contributors to performance can be found in the Investment Manager’s Report.

1 P ercentages in sterling without income reinvested.

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Overview and performance Governance Financial statements Additional information 110 ondon E6 6LA L

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that £1,000 invested in thethat 15 Dec

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to 28 February 2019, whereas whereas 2019, terms to 28 February 2015 15 Mar

Dec 14 Dec

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in NAV 14 Jun 2014

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Black Line Level: 9 Black Line Level: 354% 13 Sep

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UK Income Sector Median with income reinvested BRSC – NAV with income reinvested (debt at par) Returns and dividends Returns for the year per share return revenue Company’s The by 14.9% to 33.67 2019 increased ended 28 February for with 29.30 pence per share compared pence per share year. the previous by companies rose portfolio dividends from Regular 50.7% were dividends received while special 11.1%, year. higher than in the previous 12 Sep in a competitive yield on cost when compared with equity on cost when compared in a competitive yield income funds. shows this chart Specifically, d in have increase 2006 would on 31 March Company value by Income median open-ended UK £1,000 invested in the also chart The by just 105%. would have increased Fund while the yield that demonstrates over timebeginning of the was much lower at the period, a much faster rate at dividend has grown the Company’s the a result, As sector. than open ended competitors in that cost ofyield on the purchase an investment in the Company on the m than that would now be more Fund.

2012 Jun 12 Jun Mar 12 Mar

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ANNUAL REPORT AND FINANCIAL STATEMENTS 28 FEBRUARY 2019 28 FEBRUARY STATEMENTS AND FINANCIAL REPORT ANNUAL 11 Sep Years

2011 change 11 Jun Mar 11 Mar

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Proof Event: 22 Event: Proof Annual Rpt 2019 Smaller Companies Title: Project 2008

change 08 Jun Mar 08 Mar

1 BRSC dividend UK Income sector median distribution

2.4 63.5 60.6 800.4 1,542.7 07 Dec 0.4 54.1 46.5 651.4 1,111.8

-6.6-8.2 41.9 19.7 42.9 519.1 4.6 897.9 196.3 191.0 -4.8 49.4 55.0 624.2 1,189.8 -5.7 29.4 19.5 282.2 336.9 Year Sep 07 Sep

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1 2006 1 Jun 06 Jun Mar 06 Mar P Debt a 500 1000 5500 4500 4000 Source: BlackRock. Source: 1500 5000 3500 Portfolio return £ (with income reinvested) NAV per share NAV Benchmark price Share Benchmark (with income reinvested) NAV per share NAV Share price Share (with income reinvested) Performance to Performance 2019 28 February 3000 2500 insterlingtermswithoutincomereinvested. ercentages t par. 2000 Capital and Income Growth and Income Capital 1 2 In addition to capital returns, the Company has also the Company In addition to capital returns, in income. growth very impressive provided the over the scope to build up, illustrates below chart The an investment annual income from an attractive long term, in the Company point of purchase has been unremarkable, the strong the strong point of has been unremarkable, purchase can result in dividends over the years underlying growth Job No: 38091 Customer: BlackRock 1000

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In October 2018 the Board declared an interim dividend Annual General Meeting (AGM) of 12.00p per share (2018: 10.00p per share). The The AGM of the Company will be held at the offices of Directors are pleased to recommend the payment of BlackRock at 12 Throgmorton Avenue, London EC2N a final dividend of 19.20p per share (2018: 16.00p per 2DL on Tuesday, 4 June 2019 at 2.00 p.m. Mike Prentis share), making a total for the year of 31.20p, an increase and Roland Arnold, the Portfolio Managers, will be of 20.0% over the total dividends of 26.00p paid in the making a presentation to shareholders on the Company’s previous year. Subject to shareholder approval, the final performance and the outlook for equity markets. The dividend will be paid on 12 June 2019 to shareholders Directors and representatives of the Manager look forward on the register on 17 May 2019; the ex-dividend date is to meeting shareholders informally after the meeting and 16 May 2019. I hope that as many shareholders as possible will choose to attend. The compound annual increase in dividends paid over the past ten years has been 20% per annum. Change in Chairman and Board composition Your Company has now increased its dividends every year As previously announced, I will not be seeking re-election for each of the last sixteen years. at the Company’s next AGM and will be stepping down from the Board with effect from the close of the AGM on 4 June 2019. Gearing and sources of finance It has been a privilege to chair the Company for the past The Company has a range of borrowings and facilities in seven years. I would like to thank all shareholders for their place to provide balance between longer term and short support; and to thank my Board colleagues and the team term maturities and between fixed and floating rates of at BlackRock for helping make my tenure as Chairman as interest. Fixed rate funding consists of the Company’s rewarding and enjoyable as it undoubtedly has been. existing £15 million debenture, which matures in 2022, and £25 million senior unsecured fixed rate private Having carefully considered the composition of the Board placement notes issued in May 2017 at a coupon of 2.74% and the need to ensure that a suitable balance of skills, with a 20 year bullet maturity. knowledge, experience, independence and diversity was maintained, the Board recently undertook a search and Shorter term variable rate funding consists of a £35 million selection process to identify a new Director. As a result, I three-year revolving loan facility with Scotiabank (Ireland) am delighted to welcome Mr Ronald Gould to the Board. Limited and an uncommitted overdraft facility of Mr Gould joined with effect from 1 April 2019 and will be £10 million. appointed Chairman following the AGM. He also serves It is the Board’s intention that gearing will not exceed as a member of the Company’s Audit1, Nomination and 15% of the net assets of the Company at the time of the Management Engagement Committees. Ron has a wealth drawdown of the relevant borrowings. Under normal of experience in the financial sector and is currently a non- operating conditions it is envisaged that gearing will be executive director of ONE Re Ltd and Chairman of Think within a range of 0%-15% of net assets. Gearing levels Alliance Asia and Compliance Science Limited. He was and sources of funding are reviewed regularly and the previously Managing Director and head of the Promontory Board continues to believe that moderate gearing is in the Financial Group in China, CEO of Chi-X Asia Pacific, Senior long term interests of shareholders. At the year end, the Adviser to the UK Financial Services Authority, CEO of Company’s gearing was 4.9% of net assets (2018: 9.8%). investment bank ABG Sundal Collier and Vice Chairman of Barclays Bank’s asset management activities. Discount Further details of Mr Gould’s background can be found During the year the share price traded at an average on page 30. Information on the recruitment and selection discount of 7.9% to NAV. The discount ranged between process undertaken and details of the Board’s policy on 1.1% and 12.3% and ended the year at 5.0% (all measured the re-election of directors, director tenure and succession against NAV with debt at fair value). The discount has planning can be found in the Directors’ Report on pages since narrowed to 4.8% as at 30 April 2019. 33 and 34.

1 In accordance with best corporate governance practice, Mr Gould will step down from the Audit Committee when he becomes Chairman on 4 June 2019.

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T: 0207 055 6500 T: Park Communications Ltd Communications Park Black Line Level: 9 Black Line Level: The Company’s portfolio is well diversified by sector portfolio Company’s The of a significant portion with revenues and geography, overseas through companies generated portfolio from Managers focus on well capitalised Portfolio The exposure. good are that teams management companies with strong well placed for the therefore and are cash generators the that is confident Board Your environment. current rewarding continue to produce is constructed to portfolio for shareholders. results contact the Chairman to If like would shareholders Smaller Companies write to BlackRock personally please Street, 1 Semple Place One, Exchange plc, Trust of for the attention the marked EH3 8BL Edinburgh Chairman. NICHOLAS FRY Chairman 2 May 2019 ANNUAL REPORT AND FINANCIAL STATEMENTS 28 FEBRUARY 2019 28 FEBRUARY STATEMENTS AND FINANCIAL REPORT ANNUAL Proof Event: 22 Event: Proof Annual Rpt 2019 Smaller Companies Title: Project of which the last 14 years were , of were the last 14 years which has worked closely with Mike for closely with Mike has worked Outlook to remain likely are markets to 2019, start Despite a strong the In the UK, persists. as economic uncertainty volatile by wrought damage to investor and consumer confidence economy the UK that means process out Brexit the drawn economies. may well lag behind other major developed the despite Managers believe that our Portfolio However, term in many countries, slowdown being faced in the near of and to be a year global recession 2019 is not likely in the major economies will continue to grow most that medium term. Portfolio Manager Succession Portfolio as an career 32 year a long and successful After investment manager with BlackRock, Mike Prentis has announced his decision has announced Prentis Mike with BlackRock, to take would like Board The the industry. from to retire major contribution for the to thank Mike the opportunity success of he has made to the that the Company investment him on an exceptional and congratulate of the 16 consecutive financial years notably record, in managing the BlackRock outperformance achieved best for all the wish Mike We plc. Smaller Trust Companies the future. who Arnold, Roland and was appointed co-manager of14 years the Company will be named as sole April 2018, alongside him in the at retirement manager of upon Mike’s the portfolio managing UK record track has an impressive Roland AGM. by since 2006 and is supported small & mid-cap portfolios Team of Small & Mid Cap the UK resources the extensive platform. and the wider BlackRock Job No: 38091 Customer: BlackRock Investment manager’s report for the year ended 28 February 2019

for the sell-off, there were many factors at play: concerns around the pace of US interest rate rises, uncertainty over trade disputes, and fears about the strength of the US and Chinese economies.

Performance review The Company’s NAV per share (debt at par) fell by 6.6% which compares to a fall in the benchmark index of 8.2% Mike Prentis Roland Arnold and the FTSE 100 Index which decreased by 2.2%. (All percentages stated without income reinvested).

Despite the challenging environment for our strategy Market review and overall investment during the financial year, positive stock selection performance enabled the Company to deliver its 16th consecutive year of outperformance relative to the benchmark. The UK equity market has seen an increase in volatility Key contributors to performance during the year were from the extreme low levels witnessed in recent years. The IntegraFin, YouGov, Faroe Petroleum, Gulf Keystone early months of 2018 saw significant declines in markets Petroleum and AB Dynamics, with each contributing globally, followed by a sharp rebound at the beginning of between 0.4% and 0.6% to relative performance. the second quarter. IntegraFin, the UK savings platform for financial advisers, October and November saw a pronounced market was the largest contributor to performance during the sell-off, with the most severe falls saved for year. Since purchasing the shares at the IPO last year the highly rated/higher momentum growth shares. This was company has delivered good results, with the platform a headwind to our growth biased investment style. Whilst seeing continued strong net inflows despite the increased the rising US 10 year bond yield may have been a catalyst

Gulf Keystone Petroleum Shaikan oil field

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T: 0207 055 6500 T: Zotefoams Park Communications Ltd Communications Park Black Line Level: 9 Black Line Level: automotive research and development spend from which from and development spend automotive research placed to benefit. AB Dynamics is well caught up in the falls were that those shares Aside from were which in our portfolio ofof quarter 2018, the fourth in earlier gains from simply erased that shares frequently contributors during some of negative the largest the year, to the challenging exposed have been businesses the year brand Fashion retailers. facing UK environment trading the company issued fell after for example, Superdry, Some a number ofwarnings during the year. profit the East” beyond from the “Beast were such as elements, also system issues were however there their control, margins. impacted gross activity that in clearance resulting we With a lack of to these issues, clarity on the solution the UK’s Gear4Music, sold the position during the year. supplier ofleading musical instruments and accessories, for the 2019 earnings the company warned that fell after to be “slightly below the 2018 expected are financial year sales growth strong company delivered The financial year”. came share however the focus on gaining market of 41%, In addition capacity issues cost of the margins. at gross and between Black Friday distribution centre York in its the company failed to meet demand, where Christmas, sales growth. held back further ANNUAL REPORT AND FINANCIAL STATEMENTS 28 FEBRUARY 2019 28 FEBRUARY STATEMENTS AND FINANCIAL REPORT ANNUAL Proof Event: 22 Event: Proof Annual Rpt 2019 Smaller Companies Title: Project levels of volatility in the market. YouGov continues to YouGov levels of in the market. volatility with margins and improving growth organic deliver strong company has The of significantly ahead consensus. profits of on its strategy been successfully delivering expanding for specialised products analytics and developing data business. research market sectors beyond its traditional for growth. opportunity a large believe this offers We a hostile following soared Petroleum in Faroe Shares its largest from successful, which was ultimately bid, Shares and gas firm DNO. Norwegian oil shareholder, oil as its Shaikan rallied Petroleum in Gulf Keystone above production with average field is performing well, 2018 the upper end of company’s guidance for the an investment plan company agreed The financial year. 12-18 over the next production the field’s to increase the construction work now underway, and with months, targets to meet production on track business remains full year record reported AB Dynamics 2020. by early 51% by increased which and adjusted profits, revenue and management on year, year and 78% respectively the new financial commented on the positive outlook for ofAB Dynamics is involved in the manufacture year. where for the global automotive industry, testing products autonomous vehicle technologies the move to more in an increase will continue to drive, and has driven, Job No: 38091 Customer: BlackRock Investment manager’s report continued

Activity to the US, and YouGov which is adapting its business to As stated at the half-year, we had been increasing the changing customer demands opening up future channels concentration of the portfolio by selling a number for growth. Our engineering holdings include Bodycote, of holdings where our conviction had weakened. Trifast and AB Dynamics. These are all very internationally We continued to do so through the second half of the focused businesses with strong market positions that are financial year and the number of holdings is now 122, exposed to attractive end markets. down from 156 this time last year. We remain underweight in travel & leisure companies, During the later stages of 2018, we reduced the food producers, general retailers; many of these Company’s level of gearing in response to the elevated companies are much more UK focused. We are also levels of market volatility, however more recently we have underweight software and computer services businesses started to reinvest the cash that we raised back into the as ongoing uncertainty could continue to impact business market. investment decisions, such as IT spend.

We purchased a new holding via a placing in Diversified We have maintained a high exposure to international Gas & Oil, an owner and operator of onshore US oil and companies, with around half of the revenues of our gas producing assets. The company is focused on growth portfolio originating from overseas. We remain cautious both organically and through acquisitions of mature, low on the outlook for the UK. Our UK exposure is very risk wells, enhancing operations and driving efficiencies to deliberate, either exposed to more defensive businesses, increase profitability. or to those benefiting from positive structural or cyclical trends which can benefit from the current environment, Another recent purchase is IG Design Group, the such as Big Yellow, Workspace Group and Breedon. largest gift packaging group in the world. The company has generated excellent sales growth across all Market Capitalisation of our Portfolio Companies regions globally, whilst also benefiting from efficiency as at 28 February 2019 improvements. 60

We purchased a new holding in Future, the specialist 50 media publisher. The company has reported strong earnings in recent market updates, while its best in class 40 technology platform should support future organic growth

in its attractive end markets. % 30

We have continued adding to our position in IntegraFin, after the IPO. We believe that the company is benefiting 20 from an attractive industry backdrop; its differentiated business model and proprietary technology provides an 10 attractive long term growth opportunity. 0 £0m to £200m £200m to £600m £600m £1,500m + Portfolio positioning to £1,500m Portfolio positioning is very much a result of stock Source: BlackRock. selection. Sector positioning relative to the benchmark remains broadly unchanged from previous reports, which we feel reflects the conviction that we have in our core Outlook holdings. Relative to our benchmark we are overweight The increased volatility during the year was certainly a financial services companies, media companies and challenge, in particular during the final quarter of 2018, industrial engineers. Within the financial services sector given the sell-off in quality and growth shares. Markets our holdings have more of a focus on equities and have made a strong start to 2019, however we continue to outsourcing services. Holdings include IntegraFin, Premier believe that elevated levels of volatility may persist. Asset Management Group, Liontrust Asset Management, Whilst this has been a long cycle there are few of the Polar Capital Holdings and XPS Pensions Group. Our traditional signs we would expect ahead of a global media companies include 4imprint Group and Next recession. Despite moderating expectations for real Fifteen Communications which are both heavily exposed GDP growth, the global economy remains robust overall.

10 BLACKROCK SMALLER COMPANIES TRUST PLC

Way Alpine

T: 0207 055 6500 T: Park Communications Ltd Communications Park Black Line Level: 9 Black Line Level: Message from Mike Prentis, retiring Portfolio Portfolio retiring Prentis, Mike Message from Manager having served as June, in AGM the after I will be retiring a It has been 16 years. than more Manager for Portfolio have I had and rarely enjoyable experience, thoroughly our investment that indeed fortunate are We a dull day. truly included many fast growing, universe has always run by highly impressive companies often differentiated us the challenge For teams. and dynamic management an and start meet these teams has always been to success over Our investment position in the Company. has been built on the success ofthe years these great I am very grateful companies and their managements. on a has been a privilege to meet them to them; it really the emerging spotting universe, In a large basis. regular but many sell-side brokers winners is not always easy, and meet the and analysts have helped us to identify to too have been key They companies. most exciting members over Board performance. the Company’s to me have invariably been very supportive the years unfailingly of Nick’s appreciative and I am particularly for the loyalty I am also grateful constructive chairmanship. of I have always enjoyed meeting them on shareholders; At AGM. and of the course at the UK, my visits around of to be part a closely knit I have been fortunate BlackRock which all of approach investment us are with a clear team, closely this period I have worked Throughout bought into. the best of and I wish Roly success Arnold, with Roland I will Manager of the Company. as Portfolio in the future and will be maintaining a keen shareholder a remain progress. in interest MIKE PRENTIS 2 May 2019 ANNUAL REPORT AND FINANCIAL STATEMENTS 28 FEBRUARY 2019 28 FEBRUARY STATEMENTS AND FINANCIAL REPORT ANNUAL We therefore therefore We Proof Event: 22 Event: Proof Annual Rpt 2019 Smaller Companies Title: Project e US, which has been leading the charge in fuelling the in fuelling the charge which has been leading e US, Th of ahead remains a number ofglobal economy for years, most other major economies. to other major relative cautious on the UK remain We along the Brexit As we ‘progress’ developed economies. uncertain. remains timeline the outlook see the possibility of economic growth below trend time. continuing for some for confident in the outlook do however remain We to given our exposure the companies in our portfolio operating which are global businesses, leading market management and run by strong markets end in attractive of has become unforgiving those market The teams. important It is therefore fail to deliver. companies that the investment thesis for each for us to be confident that in comfort also take We of intact. our holdings remains the over the merits of investment process our proven One of our key conditions. all market long term through so should investment criteria is balance sheet strength, stages of as we move to the later and persist, uncertainty investors to shelter we would expect the economic cycle, businesses: the type ofin financially strong businesses of consists. predominantly which our portfolio MIKE PRENTIS and ROLAND ARNOLD Investment Management (UK) Limited BlackRock 2 May 2019 Job No: 38091 Customer: BlackRock Ten largest investments as at 28 February 2019

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12 BLACKROCK SMALLER COMPANIES TRUST PLC

Job No: 38091 Proof Event: 22 Black Line Level: 8 Park Communications Ltd Alpine Way London E6 6LA Customer: BlackRock Project Title: Smaller Companies Annual Rpt 2019 T: 0207 055 6500 F: 020 7055 6600 Overview and performance 1 2 4imprint Group IntegraFin Marketing Financial Services Portfolio value £ 16,555,000 Portfolio value £ 14,919,000 Percentage of portfolio % 2.3 Percentage of portfolio % 2.1

A leading supplier of promotional products Provider of a leading investment platform, operating almost wholly in the US market. called Transact, to UK financial advisers and It sells an extensive range of products to their clients through proprietary technology, businesses and organisations of all sizes, premium service, a wide range of tax wrappers typically personalised with the customers’ and an extensive choice of assets. brand or logo. Its growth is underpinned by a range of data-driven traditional and online marketing. 3 4 5 YouGov Central Asia Metals Big Yellow Governance Data analytics Diversified mining company Self storage Portfolio value £ 14,805,000 Portfolio value £ 13,820,000 Portfolio value £ 13,663,000 Percentage of portfolio % 2.1 Percentage of portfolio % 2.0 Percentage of portfolio % 1.9

An international provider of survey data A base metals producer with copper assets Provider of self-storage solutions for both and specialist data analytics. The company in Kazakhstan and zinc and lead assets in individuals and businesses, in highly visible and was recently named one of the world’s top North Macedonia. The company is one of the accessible locations. It is focused on London 25 research companies. lowest cost producers in the industry, and the and the South East. The company has a market strong balance sheet and cash generation leading brand, protected by high barriers to has seen the group historically return cash to entry in terms of limited land availability and shareholders. planning restrictions, and has generated strong operating cash flows over the long term.

6 7 8 Financial statements Robert Walters Advanced Medical Fuller Smith & Turner Recruitment Solutions Pub and hotel operator Portfolio value £ 13,244,000 Manufacturing Portfolio value1 £ 11,355,000 Percentage of portfolio % 1.9 Portfolio value £ 12,220,000 Percentage of portfolio % 1.6

A global specialist professional recruitment Percentage of portfolio % 1.7 A pub and hotel operator that owns and consultancy. The company operates across operates over 380 pubs, inns and hotels across 30 countries and employs over 4,100 people, A leading developer and manufacturer of London and South East England. providing services across permanent, interim innovative and technologically advanced and contract work placements. The company is products for the global advanced wound seeing good growth in most territories with over care, surgical and wound closure markets. 70% of net fee income derived from outside the It manufactures a wide range of products UK. including those marketed under the brands ActivHeal®, LiquiBand® and RESORBA®. 1 A Shares.

All percentages reflect the value of the holding as a percentage of total investments. Together, Additional information 9 10 the ten largest investments represent 18.8% of total investments (ten largest investments as at Morgan Sindall Workspace Group 28 February 2018: 16.5%). All holdings are in Construction Commercial property Ordinary Shares unless otherwise stated. Portfolio value £ 11,349,000 Portfolio value £ 11,321,000 Percentage of portfolio % 1.6 Percentage of portfolio % 1.6

A construction and regeneration group Workspace is a FTSE 250 Real Estate employing over 6,600 people, whose activities Investment Trust providing flexible work spaces. range from interior fit out and refurbishment The company owns 65 properties across projects to major urban regeneration schemes. 3.8m sq. ft. in London.

ANNUAL REPORT AND FINANCIAL STATEMENTS 28 FEBRUARY 2019 13

Market % of total Company Business activity value portfolio £'000 4imprint Group Supply of promotional merchandise in the US 16,555 2.3 IntegraFin Provision of an investment platform for financial advisers 14,919 2.1 YouGov Provision of survey data specialist data analytics 14,805 2.1 Central Asia Metals Production of base metals with operations in Kazakhstan 13,820 2.0 and North Macedonia Big Yellow Provision of self-storage facilities 13,663 1.9 Robert Walters Provision of specialist professional recruitment services 13,244 1.9 Advanced Medical Solutions Development and supply of products for the global 12,220 1.7 wound care and wound closure markets Fuller Smith & Turner – A Shares Ownership of and management of pubs in the London 11,355 1.6 area and South East England Morgan Sindall Supply of office fit out, construction and urban 11,349 1.6 regeneration services Workspace Group Supply of flexible workspace to businesses in London 11,321 1.6 Liontrust Asset Management Provision of asset management 11,319 1.6 Zotefoams Manufacture of lightweight cross-linked polyolefin block 11,070 1.6 foams and microcellular materials technology Bodycote Provision of thermal processing services 10,757 1.5 Polar Capital Holdings Specialist asset management 10,676 1.5 Next Fifteen Communications Provision of digital communications services 10,624 1.5 Dechra Pharmaceuticals Development and supply of pharmaceutical and other 10,570 1.5 products focused on the veterinary market Premier Asset Management Group Retail asset management 10,389 1.5 Diversified Gas & Oil Ownership and operation of onshore US oil and gas 10,359 1.5 producing assets Stock Spirits Group Development and manufacture of branded spirits 9,790 1.4 mainly in Eastern Europe Avon Rubber Production of safety masks and dairy related products 9,770 1.4 Johnson Service Group Provision of textile rental and related services 9,692 1.4 Savills Provision of property services 9,689 1.4 Trifast Manufacture and distribution of industrial fastenings 9,455 1.3 RWS Holdings Provision of translation and localisation, intellectual 9,254 1.3 property support solutions and life sciences language services Vesuvius Provision of metal flow engineering services and 9,115 1.3 solutions to the steel and foundry industries Future Supply of content for the technology, entertainment, 8,955 1.3 creative arts, home interest and education sectors using a proprietary technology platform Hill & Smith Production of infrastructure products and supply of 8,773 1.2 galvanising services Ibstock Manufacture of clay bricks and concrete products 8,679 1.2 GB Group Provision of identity verification software and solutions 8,421 1.2

14 BLACKROCK SMALLER COMPANIES TRUST PLC

Market % of total Company Business activity value portfolio £'000 Gulf Keystone Petroleum Operation of oil producing assets in the Kurdistan 8,361 1.2 region of Iraq Oxford Instruments Design and manufacture of tools and systems for 8,296 1.2 industry and research Alliance Pharma Distribution of pharmaceutical and healthcare products 8,162 1.2 Treatt Development and manufacture of ingredients for the 8,108 1.2 flavour and fragrance industry Ocean Wilsons Ownership and management of ports and related 8,094 1.1 vessels in Brazil DiscoverIE Design and manufacture of specialist components for 7,879 1.1 electronics applications Governance IG Design Group Design and supply of greetings products 7,876 1.1 Coats Group Manufacture of industrial thread 7,349 1.0 Breedon Supply of construction materials 7,252 1.0 Tarsus Organisation of exhibitions, conferences, education, 7,180 1.0 publishing and online media AB Dynamics Development and supply of specialist automotive 7,069 1.0 testing systems XPS Pensions Group Pension consulting and administration 7,068 1.0 ECO Animal Health Development, registration and marketing of 6,995 1.0 pharmaceutical products for global animal health markets Clarkson Provision of shipping services 6,833 1.0 Financial statements St. Modwen Properties Investment in, and development of property 6,710 1.0 Young & Co’s Brewery – Non-Voting 4,369 Ownership of pubs in the London area 0.9 Young & Co’s Brewery – A Shares 2,148 } James Fisher and Sons Provision of innovative marine solutions and specialised 6,414 0.9 engineering services Mattioli Woods Provision of wealth management services 5,868 0.8 Huntsworth Supply of marketing and research services principally to 5,837 0.8 the pharmaceuticals sector Grafton Operation of builders merchants in the UK, Ireland and 5,779 0.8 Netherlands

Eland Oil & Gas Production of oil in onshore Nigeria 5,688 0.8 Additional information

50 largest investments 469,943 66.5

Remaining investments 237,207 33.5

Total 707,150 100.0

A complete listing of all the Company’s most up-to-date portfolio holdings is given at the Company’s website at the following link: blackrock.com/uk/individual/literature/policies/brsct-portfolio-disclosure.pdf.

ANNUAL REPORT AND FINANCIAL STATEMENTS 28 FEBRUARY 2019 15

At 28 February 2019, 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:

Security Description % of Shares Held Gear4Music (Holdings) 4.99

Premier Asset Management Group 4.86

Cloudcall Group 4.71

Filta Group Holdings 4.67

Northbridge Industrial Services 4.67

Capital Drilling 4.57

Castleton Technology 4.56

Tatton Asset Management 4.50

Quartix Holdings 4.36

WLL London 4.32

Nexus Infrastructure 4.32

ULS Technology 4.31

Trifast 4.29

City of London Investment Group 4.21

Miton Group 4.17

Zotefoams 3.84

Liontrust Asset Management 3.74

TheWorks.co.uk 3.65

Anpario 3.61

MaxCyte 3.49

Fuller Smith and Turner 3.41

Robert Walters 3.24

Curtis Banks Group 3.20

Duke Royalty 3.19

Angling Direct 3.14

Central Asia Metals 3.13

Treatt 3.13

Ten Entertainment Group 3.11

YouGov 3.00

16 BLACKROCK SMALLER COMPANIES TRUST PLC

% of Sector portfolio Oil & Gas Producers 4.5 Oil Equipment, Services & Distribution 0.5 Oil & Gas 5.0

Chemicals 2.7 Mining 3.7 Basic Materials 6.4

Construction & Materials 5.6 Aerospace & Defence 2.6 Electronic & Electrical Equipment 2.5 General Industrials 2.3 Governance Industrial Engineering 5.8 Industrial Transportation 3.0 Support Services 9.1 Industrials 30.9

Beverages 1.4 Household Goods & Home Construction 1.8 Personal Goods 0.5 Leisure Goods 2.3 Consumer Goods 6.0

Health Care Equipment & Services 3.3 Financial statements Pharmaceuticals & Biotechnology 4.4 Health Care 7.7

General Retailers 1.6 Media 9.6 Travel & Leisure 3.9 Consumer Services 15.1

Financial Services 16.3 Real Estate Investment & Services 3.6 Real Estate Investment Trusts 4.0

Financials 23.9 Additional information

Software & Computer Services 4.6

Technology 4.6

Gas, Water & Multiutilities 0.4

Utilities 0.4

Total 100.0

ANNUAL REPORT AND FINANCIAL STATEMENTS 28 FEBRUARY 2019 17

Analysis of Portfolio Value by Sector

5.0 Oil & Gas 6.3

Basic Materials 6.4 6.9

30.9 Industrials 21.1 6.0 Consumer Goods 10.2 7.7 Health Care 5.0 15.1 Consumer Services 18.1

Financials 23.9 21.0 4.6 Technology 8.8 0.4 Utilities 0.8 0 Telecommunications 1.8 0 5 10 15 20 25 30 35

Company Benchmark (Numis Smaller Companies, plus AIM (ex Investment Companies) Index) Source: BlackRock.

Investment size 25

£0m to £1m to £2m to £3m to £4m to £5m to £6m to £7m to £8m to £9m to £10m to £11m to £12m to £13m to £14m to £16m to £1m £2m £3m £4m £5m £6m £7m £8m £9m £10m £11m £12m £13m £14m £15m £17m

Number of investments Market value of investments as % of portfolio Source: BlackRock.

18 BLACKROCK SMALLER COMPANIES TRUST PLC

Way Alpine

T: 0207 055 6500 T: Park Communications Ltd Communications Park Black Line Level: 9 Black Line Level: Change to Threshold Limit Threshold Change to than 5% could not hold more the Company Previously, of capital of the share any company in which it has an a change to this has approved Board The investment. The to 6%. this limit will be increased whereby restriction manager for the change is to give the portfolio rationale when investing in the margin at additional flexibility in the the limit can result where Offerings, Initial Public being undersubscribed for popular offerings Company amendment As the scaled back. are when applications change in investment policy does not constitute a material a general of at (inter alia) approval shareholders requiring effect. immediate it will take meeting of the Company, in other may hold shares while the Company In addition, listed investment companies (including investment will not the Company that has agreed trusts) the Board than 15% of listed invest more its total assets in other UK Investment Manager will not The investment companies. responsibility for the decisions relating to the day-to-day to the day-to-day relating for the decisions responsibility running of and is accountable to the Board the Company of performance financial and operating for the investment, the Company. services to fund accounting delegates Company The services to these which in turn sub-delegates BIM (UK), include the Depositary Other service providers BNYM. Investor Computershare Registrar, (also BNYM) and the the entity 2017, to 1 November Prior Services PLC. Depositary was BNY appointed as the Company’s & Depositary (UK) Limited (BNYMTD). Trust Mellon of the provision has sub-delegated Depositary The Asset Servicing division ofcustody services to the BNYM. Details of Manager and terms with the the contractual details of the Depositary and more the sub-delegation set are in place governing custody services arrangements Report. out in the Directors’ Investment policy has adopted a consistent investment Manager The companies focusing on good quality growth process, well; stock selection is the primary focus trading are that is also given to sector weightings but consideration set limits no are Whilst there and underlying themes. against the Company’s on individual sector exposures of a schedule sector weightings is presented benchmark, In applying the for review. meeting Board each at the Investment Manager expects investment objective, as and to be fully invested and to borrow the Company to achieve an seeks Company The when appropriate. of investment risk by investing in a spread appropriate ofnumber of a range sectors. holdings across ANNUAL REPORT AND FINANCIAL STATEMENTS 28 FEBRUARY 2019 28 FEBRUARY STATEMENTS AND FINANCIAL REPORT ANNUAL Proof Event: 22 Event: Proof Annual Rpt 2019 Smaller Companies Title: Project The Directors present the Strategic Report of the Report the Strategic present Directors The aim The 2019. 28 February ended for the year Company the with shareholders is to provide Report of the Strategic have performed the Directors to assess how information of the success for the their duty to promote the Company collective benefit of shareholders. Business model of business model follows that an Company’s The the Therefore, managed investment trust. externally does not have any employees and outsources Company including service providers party its activities to third who is the principal service provider. the Manager, management of the and The the investment portfolio of have been contractually administration the Company to the Manager who in turn (with the delegated permission of certain has delegated the Company) investment management and other ancillary services operating Manager, The to the Investment Manager. has direct under guidelines determined by the Board, Strategy, business model and investment Strategy, policy invests its investment objective the Company achieve To listed which are Smaller Companies in UK predominantly Alternative or on the Exchange Stock on the London with a limit on the level of (AIM), Investment Market may be held within the portfolio AIM investments that may Company The of 50% ofvalue. by the portfolio but listed overseas also invest in securities which are Although investments quotation. have a secondary UK stock primarily in companies listed on recognised are the Investment Manager may also invest in exchanges, ofunquoted securities with the prior approval the Board. did not hold any 2019 the Company At 28 February unquoted investments in its portfolio. The Company’s prime objective is to achieve long term prime objective is to achieve Company’s The investment mainly through for shareholders capital growth quoted companies. in smaller UK change will be made to the Company’s No material approval. investment objective without shareholder Objective Principal activity Principal as an investment trust carries on business Company The Investment investment. is portfolio and its principal activity pooled investment are unit trusts and OEICs, like trusts, to a diversified range vehicles which allow exposure thus spreading, of a single investment, assets through investment risk. although not eliminating Strategic report Strategic Job No: 38091 Customer: BlackRock Strategic report continued

deal in derivatives without the prior approval of the Board Valuation is a key consideration; it is important not andmost derivative of opportunities, instruments, the Investment such as Manageroptions andwill gradually futures Theto Investmentoverpay for Manager new holdings. believes However, that consistent investment add to the portfolio holding. Where initial expectations are outperformance can be achieved by employing a combination contracts, have not been used during the year. fundamentals are also important and the Investment disappointed, the holding will be sold. The anticipation is that of bottom-up and top-down analysis, based upon strong Manager may be prepared to pay what seems like a high Performanceeach holding will is measured develop into against a core holdingan appropriate over time; one fundamental research. that meets the Investment Manager’s criteria for high quality price if it believes that long term growth prospects are benchmark, the Numis Smaller Companies plus AIM growth companies. These criteria are shown in the ‘steering Invery building strong. a robust Generally, portfolio a companythe Investment will be Manager held within will also (excluding Investment Companies) Index. wheel’ diagram below. considerthe portfolio the macro-economic if it meets the background, criteria for coreworking holdings; with in strategists,respect of economists recent investments, and other teams the Investment internally and Manager externallywill consider to understand whether thisthey better. have Itthe also potential works closely to meet with BlackRock’sthese criteria. risk teamHoldings to assess will be the sold risks if in there the structure are concerns of thethat portfolio. the investment Any necessary case adjustments has changed will in be a negativemade to the portfolioway. Holdings to ensure will that be it reducedis structured where in an the appropriate position sizeway frombecomes a macro too and large risk point and raisesof view. concerns about risk and diversification. The general aim is for portfolio holdings GEARING POLICY Thenot Board to exceed believes 3% that of gearingthe Company’s can add value net assets over the (excluding long term.cash In fund May investments2017, the Company held forissued cash £25 management million senior unsecuredpurposes). fixed As therate investmentsprivate placement within notes the portfolio(the “Notes”) become at a largercoupon over of 2.74% time, with the a Portfolio 20 year bullet Manager maturity. will Thiscontinue is in additionto assess to the growth Company’s prospects £15 million in comparison debenture to maturing smaller in 2022.businesses Variable operating rate financing within available similar to markets. the Company New holdings consistsmust have of a £35a market million cap three-year beneath revolving £2bn, howeverloan facility holdings with Scotiathat moveBank (Ireland) above that Limited level and will an be uncommitted maintained overdraft providing facilitythe investment of £10 million adheres with The to Bankthe original of New Yorkthesis, Mellon and remains (International) Limited. the most attractive opportunity that can be found amongst a comparable peer group. In accordance with the The benefits of gearing are discussed and the effective level agreedguidelines, with the the Manager Portfolio regularly. Manager It is willintended sell any that stock gearing that willenters not exceed the FTSE 15% 100 of the within net assets thirty daysof the of Company entry. at the Investment philosophy time of the drawdown of the relevant borrowings and at the CRITERIA FOR HIGH QUALITY GROWTH COMPANIES The Investment Manager believes that consistent The Investment Manager seeks to identify companies balance sheet date gearing stood at 9.8% of net assets (with Valuation is a key consideration; it is important not to overpay debtoutperformance at par). Under normal can be operating achieved circumstances, by employing it ais which it believes have superior long-term growth for new holdings. However, investment fundamentals are also envisagedcombination that gearing of bottom-up will be within and top-down a range between analysis, based prospects and the management in place to take important and the Investment Manager may be prepared to 0%-15%upon strong of net assets.fundamental research. advantagepay what seems of these like a prospects. high price if This it believes is done that through long term monitoringgrowth prospects market are newsflow very strong. carefully, Generally, looking a company for signs will be of PORTFOLIOIn building aANALYSIS robust portfolio the Investment Manager will outperformance,held within the portfolio and by if it working meets the closely criteria with for BlackRock’score A alsodetailed consider analysis the of macro the portfolio‑economic has been background, provided on working pages networkholdings; ofin respectbrokers. of Initially, recent investments, if the Investment the Investment Manager is 10with to 13. strategists, economists and other teams internally sufficientlyManager will impressed consider whether with a company’sthey have the prospects, potential to it meetwill and externally to understand this better. It also works these criteria. Holdings will be sold if there are concerns that look to take a small position, usually 0.25% to 0.50% of the PERFORMANCEclosely with BlackRock’s risk team to assess the risks in the the investment case has changed in a negative way. Holdings Details of the Company’s performance including the dividend Company’s net assets, in a new holding. These holdings structure of the portfolio. Any necessary adjustments will will be reduced where the position size becomes too large and are set out in the Chairman’s Statement on pages 4 to 6. The will be closely monitored, and members of the portfolio be made to the portfolio to ensure that it is structured in raises concerns about risk and diversification. The general aim Chairman’s Statement on pages 4 to 6 and the Investment management team will meet with management on a is for portfolio holdings not to exceed 3% of the Company’s net Manager’san appropriate Report onway pages from 7 aand macro 8 form and part risk of pointthis Strategic of view. regular basis. If these companies continue to prosper and assets (excluding cash fund investments held for cash Report and include a review of the main developments during makemanagement the most purposes). of opportunities, the Investment Manager theGearing year, together policy with information on investment activity will gradually add to the portfolio holding. Where initial withinThe Boardthe Company’s believes portfolio. that gearing can add value over expectationsINVESTMENT are PHILOSOPHY disappointed, the holding will be sold. the long term. In May 2017, the Company issued £25 The anticipation is that each holding will develop into a RESULTSmillion senior AND unsecuredDIVIDENDS fixed rate private placement core holding over time; one that meets the Investment Thenotes results (the for “Notes”) the Company at a coupon are set out of 2.74%in the Income with a 20 year Manager’s criteria for high quality growth companies. Statementbullet maturity. on page This 46. Theis in total addition net profit to the for Company’s the year, after taxation, was £135,381,000 (2017: £130,875,000) of which the These criteria are shown in the ‘steering wheel’ diagram £15 million debenture maturing in 2022. Variable rate revenue return amounted to £14,029,000 (2017: profit of on this page. financing available to the Company consists of a £35 Experienced Focus on high Impact of Quantitative and £10,759,000), and the capital return amounted to investment team quality growth macro-economic practical methods million three-year revolving loan facility with Scotiabank with access to an companies using background to control portfolio £121,352,000 (2017: £120,116,000). extensive research ‘steering wheel’ factored in risk (Ireland) Limited and an uncommitted overdraft facility network criteria The Company’s revenue return amounted to 29.30p per share (2017: 22.47p). The Directors recommend the payment of a

ANNUAL REPORT AND FINANCIAL STATEMENTS 28 FEBRUARY 2018 [15] 20 BLACKROCK SMALLER COMPANIES TRUST PLC

Job No: 33379 Proof Event: 31 Black Line Level: 6 Park Communications Ltd Alpine Way London E6 6LA Customer: BlackRock Project Title: BRSCT Annual Report T: 0207 055 6500 F: 020 7055 6600

Way 2018 Alpine

Year ended Year 28 February 28 February T: 0207 055 6500 T: n/a 1.0% 0.7% 0.7% 0.4% 25.0% 7.9% 13.0% 2019 -6.6%-6.6% 20.8% -6.8% 21.2% 20.7% -8.2% 8.3% -4.9% 23.2% ended 33.67p 29.30p Year 28 February 28 February Park Communications Ltd Communications Park 3

2, 3 1 1 einvested. Black Line Level: 9 Black Line Level: 1 1 Without income r C finance performance fees, excluding expenses, using operating AIC with in accordance costs and taxation transaction costs, guidelines. With ef new fee basis is The changed. and performance fee arrangements and the performance set out in note 4 of Statements, the Financial fee was removed.

(including performance fees) Ongoing charges ratio Ongoing charges NAV per share (debt at fair (debt at per share NAV value) par (debt at per share NAV capital only) value, total return per share NAV fair performance (debt at value) price Share Benchmark return with discount to NAV Average fair value debt at per share return Revenue ratio Ongoing charges NAV per share (debt at par (debt at per share NAV value) Key Performance Indicators Performance Key fundsand of shareholders’ asapercentage average alculated managementfee 2018theCompany’s 1March fect from Key performance indicators Key consider a number the Directors meeting, Board At each to assess the Company’s of measures performance performance key The its objectives. success in achieving and the progress measure (KPIs) used to indicators performance of over time and which are the Company trusts by other investment to those reported comparable set out below. are 1 2 3 Sources: BlackRock and Datastream. BlackRock Sources: ANNUAL REPORT AND FINANCIAL STATEMENTS 28 FEBRUARY 2019 28 FEBRUARY STATEMENTS AND FINANCIAL REPORT ANNUAL Proof Event: 22 Event: Proof Annual Rpt 2019 Smaller Companies Title: Project Results and dividends Results out in the Income set are for the Company results The total net loss The Statements. in the Financial Statement £33,946,000 (2018: profit was taxation, after for the year, amounted £135,381,000) of return which the revenue and the ofto £16,123,000 (2018: profit £14,029,000), (2018: profit capital loss amounted to £50,069,000 £121,352,000). amounted to 33.67p return revenue Company’s The the recommend Directors The (2018: 29.30p). per share payment of a final dividend of as set out 19.20p per share Statement. in the Chairman’s Performance performance including the Details of the Company’s Statement set out in the Chairman’s dividend are and the Statement Chairman’s The on pages 4 to 7. of form part this Strategic Report Investment Manager’s of and include a review the main developments Report on investment together with information during the year, portfolio. activity within the Company’s Portfolio analysis Portfolio on analysis of detailed has been provided A the portfolio pages 13 to 18. of £10 million with The Bank of New York Mellon York Bank ofThe of New with £10 million Limited. (International) and the effective discussed benefits of are The gearing It is intended regularly. with the Manager level agreed 15% of will not exceed gearing the net assets ofthat the the time of at of Company the drawdown the relevant stood gearing date the balance sheet and at borrowings Under normal at 4.9% of par). assets (with debt at net will gearing it is envisaged that circumstances, operating 0%-15% of between be within a range net assets. Job No: 38091 Customer: BlackRock Strategic report continued

Additionally, the Board regularly reviews many indices and Company’s risk register which identifies the risks facing ratios to understand the impact on the Company’s relative the Company, the likelihood and potential impact of each performance of the various components such as asset risk and the controls established for mitigation. A residual allocation and stock selection. The Board also reviews risk rating is calculated for each risk. the performance and ongoing charges of the Company against a peer group of UK smaller companies trusts and The risk register, its method of preparation and the open-ended funds. operation of key controls in BlackRock’s and third-party service providers’ systems of internal control are reviewed The Directors recognise that it is in the long-term interests on a regular basis by the Audit Committee. In order to of shareholders that shares do not trade at a significant gain a more comprehensive understanding of BlackRock’s discount to their prevailing net asset value. During the and other third-party service providers’ risk management year the shares traded between a discount of 1.1% and a processes and how these apply to the Company’s discount of 12.3%, ending the year at 5.0% (based on NAV business, BlackRock’s internal audit department provides with debt at fair value). an annual presentation to the Audit Committee Chairman setting out the results of testing performed in relation The Board believes that the best way of addressing the to BlackRock’s internal control processes. The Audit discount over the long term is to create demand for the Committee also periodically receives presentations from shares in the secondary market. To this end the Investment BlackRock’s Risk & Quantitative Analysis team and reviews Manager is devoting considerable effort to broadening Service Organisation Control (SOC 1) reports from the the awareness of the Company’s outstanding attractions, Company’s service providers. The current risk register particularly to wealth managers and to the wider retail categorises the Company’s main areas of risk as follows: shareholder market. Over the last eight years, the number of shares held by retail shareholders has increased from • Investment performance risk; 29.5% (as at 28 February 2011) to 62.3% at 28 February • Market risk; 2019. • Income/dividend risk; • Legal & compliance risk; Principal risks • Operational risk; • Financial risk; and The Company is exposed to a variety of risks and • Marketing risk. uncertainties. As required by the UK Corporate Governance Code (the UK Code) the Board has in The principal risks and uncertainties faced by the place a robust ongoing process to assess and monitor Company during the financial year, together with the the principal risks of the Company including those that potential effects, controls and mitigating factors, are set would threaten its business model, future performance, out in the following table. solvency or liquidity. A core element of this process is the

Principal Risk Mitigation/Control Investment performance risk To manage this risk the Board: Returns achieved are reliant primarily upon the performance • regularly reviews the Company’s investment mandate and of the portfolio. long term strategy; The Board is responsible for: • has set investment restrictions and guidelines which the Investment Manager monitors and regularly reports on; • deciding the investment strategy to fulfil the Company’s • receives from the Investment Manager a regular objective; and explanation of stock selection decisions, portfolio exposure, • monitoring the performance of the Investment Manager gearing and any changes in gearing and the rationale for and the implementation of the investment strategy. the composition of the investment portfolio; • monitors the maintenance of an adequate spread of An inappropriate investment strategy may lead to: investments in order to minimise the risks associated • poor performance compared to the Benchmark Index and with factors specific to particular sectors, based on the the Company’s peer group; diversification requirements inherent in the investment • a loss of capital; and policy; and • dissatisfied shareholders. • receives reports showing the Company’s performance against the benchmark.

22 BLACKROCK SMALLER COMPANIES TRUST PLC

Way Alpine

T: 0207 055 6500 T: Park Communications Ltd Communications Park Black Line Level: 9 Black Line Level: Mitigation/Control selection and stock considers asset allocation, Board The basis and has set investment levels of on a regular gearing and reported monitored and guidelines which are restrictions Manager. on by the Investment of and results the monitors the implementation Board The with the Investment Manager. investment process of the receipt detailed monitors this risk through Board The and considers the level of each income forecasts income at meeting. Board which can be reserves has substantial revenue Company The utilised. The Investment Manager monitors investment movements The the that and the amount of dividends to ensure proposed Act Tax 24 of the Corporation ofprovisions Chapter 4 of Part to the Board reported are results The not breached. 2010 are meeting. each at investment with the accounting rules affecting Compliance monitored. and regularly trusts is also carefully professional and the Company’s Secretary Company The of in respect to the Board reports regular advisers provide regulations. compliance with all applicable rules and ANNUAL REPORT AND FINANCIAL STATEMENTS 28 FEBRUARY 2019 28 FEBRUARY STATEMENTS AND FINANCIAL REPORT ANNUAL Proof Event: 22 Event: Proof Annual Rpt 2019 Smaller Companies Title: Project Market risk Market in the prices of volatility the arises from risk Market rate interest investments influenced by currency, Company’s loss the the potential It represents or other price movements. positions in holding market through might suffer Company in the face offinancial instruments movements. market includes the potential impact of risk Market events which are control. outside the scope of the Company’s Income/dividend risk will amount of dividend growth The dividends and future underlying depend on the performance of the Company’s of the tax treatment any change in the In addition, portfolio. may reduce Company by the received dividends or interest the level of by shareholders. dividends received risk & Compliance Legal & by HM Revenue has been approved Company The to continuing to subject Customs as an investment trust, as an eligibility conditions and operates meet the relevant 24 with Chapter 4 ofinvestment trust in accordance Part is the Company such, As Act 2010. Tax of the Corporation the from realised capital gains tax on the profits from exempt sale of its investments. of conditions could lead eligibility the relevant Any breach and being losing investment trust status to the Company within the tax on capital gains realised subject to corporation of the investment returns In such event portfolio. Company’s may be adversely affected. the Company and/or the in the Company could result Any serious breach being fined or the subject of Directors criminal proceedings which would in shares or the suspension of the Company’s 2010. Act Tax of the Corporation to a breach turn lead the Company laws and regulations, Amongst other relevant of to comply with the provisions the Companies is required Managers’ Investment Fund Alternative the Act 2006, Guidance and Disclosure and Listing Rules the UK Directive, Abuse Regulation. and the Market Rules Transparency Principal Risk Principal Job No: 38091 Customer: BlackRock Strategic report continued

Principal Risk Mitigation/Control Operational risk Due diligence is undertaken before contracts are entered into In common with most other investment trust companies, with third party service providers. Thereafter, the performance the Company has no employees. The Company therefore of the provider is subject to regular review and reported to the relies on the services provided by third parties. Accordingly, Board. it is dependent on the control systems of the Manager, the Depositary and the Fund Accountant who maintain the The Board reviews on a regular basis an assessment of the Company’s assets, dealing procedures and accounting fraud risks that the Company could potentially be exposed records. to, and also a summary of the controls put in place by the Manager, the Depositary, the Custodian, the Fund Accountant The security of the Company’s assets, dealing procedures, and the Registrar designed specifically to mitigate these risks. accounting records and adherence to regulatory and legal requirements and the prevention of fraud depend on the Most third-party service providers produce Service effective operation of the systems of these other third party Organisation Control (SOC 1) reports to provide assurance service providers. regarding the effective operation of internal controls as reported on by their reporting accountants. These reports are Failure by any service provider to carry out its obligations provided to the Audit Committee. to the Company could have a material adverse effect on the Company’s performance. Disruption to the accounting, The Company’s assets are subject to a strict liability regime payment systems or custody records could prevent the and in the event of a loss of financial assets held in custody, accurate reporting and monitoring of the Company’s financial the Depositary must return assets of an identical type or the position. corresponding amount, unless able to demonstrate the loss was a result of an event beyond its reasonable control.

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

The Board also considers the business continuity arrangements of the Company’s key service providers.

Financial risk Details of these risks are disclosed in note 16 to the financial The Company’s investment activities expose it to a variety of statements, together with a summary of the policies for financial risks that include interest rate, credit and liquidity risk. managing these risks.

Further details are disclosed on pages 72 to 80, together with a summary of the policies for managing these risks.

Marketing risk The Board focuses significant time on communications with Marketing efforts are inadequate, do not comply with relevant shareholders and reviewing marketing strategy and initiatives. regulatory requirements, and fail to communicate adequately All investment trust marketing documents are subject to with shareholders or reach out to potential new shareholders appropriate review and authorisation. resulting in reduced demand for the Company’s shares and a widening discount.

Viability statement In making this assessment the Board has considered the In accordance with provision C.2.2 of the UK Code, the following factors: Directors have assessed the prospects of the Company • The Company’s principal risks as set out above; over a longer period than the 12 months referred to by • The impact of a significant fall in UK equity markets on the ‘Going Concern’ guidelines. The Board conducted the value of the Company’s investment portfolio; this review for the period up to the AGM in 2024 being a • The ongoing relevance of the Company’s investment five-year period from the date that this Annual Report will objective in the current environment; and be approved by shareholders. This assessment term has • The level of demand for the Company’s ordinary been chosen as it represents a medium-term performance shares. period over which investors in the smaller companies sector generally refer to when making investment decisions.

24 BLACKROCK SMALLER COMPANIES TRUST PLC

Way Alpine

T: 0207 055 6500 T: Park Communications Ltd Communications Park Black Line Level: 9 Black Line Level: By order ofBy order the Board SARAH BEYNSBERGER and on behalf of For Investment Management (UK) Limited BlackRock Secretary Company 2 May 2019 Social, community and human rights issues Social, direct has no the Company As an investment trust, the However, responsibilities. social or community to interests it is in shareholders’ believe that Directors social environmental, issues, consider human rights and retaining when selecting and governance matters policy on socially Details of Company’s the investments. 45. set out on page investment are responsible Modern Slavery Act provide does not As an investment vehicle the Company and ofgoods or services in the normal course business, the Directors Accordingly, does not have customers. any to make is not required the Company consider that under the Modern statement slavery or human trafficking considers the the Board In any event, 2015. Act Slavery with predominantly dealing supply chain, Company’s in the financial advisers and service providers professional to this matter. to be low risk in relation services industry, and gender representation Directors, employees 2019 are of on 28 February Directors the Company The on pages 28 to 30. biographies set out in the Directors’ consists of the Board April 2019 four 1 from With effect from With effect and two female Directors. male Directors the the Board, from will retire 4 June 2019 when Mr Fry and two female consist of will male Directors Board three policy on diversity is set out Company’s The Directors. does not have any executive Company The on page 43. employees. together with the Investment Statement Chairman’s The The Report. of form part the Strategic Report Manager’s its meeting at by the Board was approved Report Strategic on 2 May 2019. ANNUAL REPORT AND FINANCIAL STATEMENTS 28 FEBRUARY 2019 28 FEBRUARY STATEMENTS AND FINANCIAL REPORT ANNUAL Proof Event: 22 Event: Proof Annual Rpt 2019 Smaller Companies Title: Project he liquidity of the Company’s portfolio. he liquidity of the Company’s he level of current and historic ongoing charges he level of historic ongoing charges and current he discount to NAV; he level of by the Company; income generated uture income forecasts; and income forecasts; uture T T T F T incurred by the Company; incurred

The Board’s main focus is to achieve long term capital main focus is to achieve long Board’s The performance of is future the Company The growth. dependent upon the success of the investment strategy of on the performance financial extent, to a large and, twelve in the next outlook for the Company The markets. on Statement months is discussed in the Chairman’s on pages 10 Report page 7 and the Investment Manager’s and 11. Future prospects Future The Company is an investment company with a relatively with a relatively is an investment company Company The the Company 2019, 28 February As at liquid portfolio. ofheld no unquoted investments and 58.5% the realisable readily investments were portfolio Company’s remaining The Exchange. Stock and listed on the London Investment Alternative listed on the were 41.5% that The realisable. be readily to also considered are Market which comprise overheads fixed has largely Company the Therefore, ofa very small percentage net assets. stressed even in exceptionally concluded that, has Board be would comfortably the Company conditions, operating costs as they fall due. able to meet its ongoing operating face other investment companies may However, in size due to as a significant decrease such challenges, has in Company The buy back activity. substantial share ofplace the authority to buy back up to 14.99% issued the Board circumstances but under current capital, share this facility will need to be utilised. does not envisage that has considered In making this assessment the Board performance which has outstripped the the Company’s benchmark for the last sixteen consecutive Company’s price has outperformed the share the Company’s years; 34.4% over by 8.6% over one year, benchmark index (all respectively and 41.9% over five years years three income reinvestment). exclude performance calculations have the Directors ofBased on the results their analysis, will be able the Company that expectation a reasonable fall and meet its liabilities as they to continue in operation due over the period of their assessment. • The Board has also considered a number of has also considered financial Board The including: metrics, • • • • Job No: 38091 Customer: BlackRock Governance structure

Responsibility for good governance lies with the Board. The governance framework of the Company reflects that as an investment company, the Company has no employees, the Directors are all non-executive and the investment management and administration functions are outsourced to the Manager and other service providers.

Six1 non-executive Directors (NEDs), all independent of the Manager The Board Chairman: Nicholas Fry Objectives: • To determine the Company’s strategy including investment policy and investment guidelines; • To provide leadership within a framework of prudent and effective controls which enable risk to be assessed and managed and the Company’s assets to be safeguarded; • To challenge constructively and to scrutinise the performance of all outsourced activities; and • To determine the Company’s remuneration policy.

5 scheduled meetings per annum

Membership3: Michael Peacock, Caroline Burton, Susan Platts-Martin, Audit Committee2 Robert Robertson and Ronald Gould4 Chairman: Michael Peacock Key objectives: • To oversee financial reporting; • To consider the adequacy of the control environment and review the Company’s risk register; • To review the reporting of the auditors, review and form an opinion on 3 scheduled meetings per the effectiveness of the external audit process; and annum • To review the provisions relating to whistleblowing and fraud.

1 T he number of directors reflects a period of transition. Mr Fry has announced his intention to retire as a Director with effect from the AGM on 4 June 2019 whereupon the Board will comprise five Directors. He will be succeeded as Chairman by Mr Gould. 2 T erms of reference for each of the committees are available at blackrock.co.uk/brsc. 3 Nicholas Fry attends by invitation. 4 With effect from 1 April 2019. Mr Gould’s intention is to step down from the Audit Committee when he becomes Chairman of the Company on 4 June 2019 (in line with Corporate Governance best practice).

26 BLACKROCK SMALLER COMPANIES TRUST PLC

Job No: 38091 Proof Event: 22 Black Line Level: 9 Park Communications Ltd Alpine Way London E6 6LA Customer: BlackRock Project Title: Smaller Companies Annual Rpt 2019 T: 0207 055 6500 F: 020 7055 6600 Overview and performance Membership: All NEDs Nomination Chairman: Nicholas Fry5 2 Committee Key objectives: • To regularly review the Board’s structure and composition; • To be responsible for the Board succession planning; and • To make recommendations for any new appointments.

1 scheduled meeting per annum

Membership: All NEDs Management Chairman: Nicholas Fry

Engagement Key objectives: Governance 2 Committee • To ensure that the provisions of the investment management agreement follow industry practice, remain competitive and are in the best interest of shareholders; • To review the performance of the Manager; and • To review other service providers. 1 scheduled meeting per annum Financial statements Additional information

2 T erms of reference for each of the committees are available at blackrock.co.uk/brsc. 5 Mr Fry will not chair the Nomination Committee when the Committee is dealing with the appointment of a successor to the Chairmanship. In these circumstances another independent non-executive director will fulfil this role.

ANNUAL REPORT AND FINANCIAL STATEMENTS 28 FEBRUARY 2019 27

Nicholas Fry Michael Peacock Chairman Audit Committee Chairman

Appointed a Director on 25 January 2005. Mr Fry became Appointed a Director on 1 July 2012. He was previously Chairman on 26 June 2012 and is retiring on 4 June 2019. a non‑executive director and chairman of the audit He is chairman of Pembroke Heritage Fund Limited and committee of Regenersis plc. A qualified chartered was previously a non-executive director of Pochin’s plc. accountant, he has over 19 years’ experience in a number After qualification as a chartered accountant, he spent of senior roles in industry, and was the group finance much of his career in investment banking, for many years director of Victrex plc until his retirement in 2010. He also with S.G. Warburg & Co. Limited (now part of UBS AG). spent a number of years in corporate finance, first at Hill He was a partner of KPMG between 1998 and 2002 Samuel & Co Limited and between 1987 and 1990 at and senior adviser to KPMG Corporate Finance until Barclays de Zoete Wedd Limited. March 2005. He brings to the Board a wide experience of City matters, with particular emphasis on banking and Attendance record: professional services, and experience as a non-executive Board: 5/5 director of listed and unlisted smaller companies since Audit Committee: 3/3 2005. Nomination Committee: 1/1 Management Engagement Committee: 1/1 Attendance record: Board: 5/5 Audit Committee: 3/3 Nomination Committee: 1/1 Management Engagement Committee: 1/1

None of the Directors has a service contract with the Company. The terms of their appointment are detailed in a letter sent to them when they join the Board. These letters are available for inspection at the registered office of the Company and will be available at the Annual General Meeting.

28 BLACKROCK SMALLER COMPANIES TRUST PLC

Robert Robertson Caroline Burton Senior Independent Director Governance

Appointed on 23 April 2008. He is the Chairman of Appointed on 27 July 2011. She was previously a Lowland Investment Company plc and director of non‑executive director of Liverpool Victoria, LVGIG a number of private companies. He was previously Limited and TR Property Investment Trust plc and was also chairman of West China Cement Limited, a director previously a member of the Appointments Committee of Buro Happold Engineers Limited and Metallon of Hermes Property Unit Trust. She has over forty years Corporation plc and chief executive of Tarmac Group of investment experience across a wide range of asset Limited and Anglo American’s Industrial Minerals division. classes and geographies acting with a variety of different His early career was in finance, working in London, Paris, types of investor. She has been involved with investment Johannesburg, New York and Rio de Janeiro. He brings trusts for many years, as well as with insurance companies, Financial statements over forty years’ experience in industry, a considerable wealth managers and pension funds. amount of which being with smaller companies. Attendance record: Attendance record: Board: 4/51 Board: 5/5 Audit Committee: 2/31 Audit Committee: 3/3 Nomination Committee: 1/1 Nomination Committee: 1/1 Management Engagement Committee: 1/1 Management Engagement Committee: 1/1 Additional information

1 Mrs Burton was unable to attend the Board and Audit Committee meetings held on 25 October 2018 owing to jury service.

ANNUAL REPORT AND FINANCIAL STATEMENTS 28 FEBRUARY 2019 29

Ronald Gould Susan Platts-Martin

Appointed on 1 April 2019. He was previously Managing Appointed on 21 April 2016. She is the Chairman of Director and head of the Promontory Financial Group Witan Pacific Investment Trust PLC and sits on the Board in China, CEO of Chi-X Asia Pacific, Senior Adviser to of the Targeted Return Fund. She previously acted as the UK Financial Services Authority, CEO of investment Protector of Power to Change Trust. A qualified chartered bank ABG Sundal Collier and Vice Chairman of Barclays accountant with over 30 years’ experience in financial Bank asset management activities. He is a non-executive services, she was the first head of investment trusts at director of ONE Re Ltd and Chairman of Think Alliance Fidelity International, responsible for establishing and Asia and Compliance Science Limited, and was previously growing a successful investment trust business. She has a non‑executive director of JPMorgan Asian Investment experience of both open and closed ended funds, having Trust plc. Mr Gould will become Chairman on 4 June 2019 also been director of product development and head of following the retirement of Mr Fry. fund accounting at Fidelity.

Attendance record: Attendance record: Mr Gould joined the Board with effect from 1 April 2019 Board: 5/5 and thus did not attend any of the scheduled meetings for Audit Committee: 3/3 the year to 28 February 2019. Nomination Committee: 1/1 Management Engagement Committee: 1/1

30 BLACKROCK SMALLER COMPANIES TRUST PLC

Job No: 38091 Proof Event: 22 Black Line Level: 9 Park Communications Ltd Alpine Way London E6 6LA Customer: BlackRock Project Title: Smaller Companies Annual Rpt 2019 T: 0207 055 6500 F: 020 7055 6600 Directors’ report Overview and performance The Directors present the Annual Report and audited who seek long term capital growth and an attractive total Financial Statements of the Company for the year ended return from quoted securities through investing in smaller 28 February 2019. UK quoted companies and who understand and are willing to accept the risks of exposure to equities. When Status of the company assessing the suitability of the shares, private investors The Company was incorporated in Scotland on 2 May 1906 should consider consulting an independent financial under the registered number 006176 and is domiciled in adviser who specialises in advising on the acquisition the United Kingdom. The Company is registered as a public of shares and other securities before acquiring shares. limited company under the Companies Act 2006 and is an Naturally, investors should also be capable of evaluating investment company under section 833 of the Companies the risks and merits of an investment in the Company and Act 2006 and operates as such. should always have sufficient resources to bear any loss that may result. The Company has been approved by HM Revenue & Customs as an investment trust in accordance with The Common Reporting Standard sections 1158 and 1159 of the Corporation Tax Act 2010, Tax legislation under the Organisation for Economic subject to the Company continuing to meet eligibility Cooperation and Development (OECD) Common conditions. The Directors are of the opinion that the Reporting Standard for Automatic Exchange of Financial Company has conducted its affairs in a manner which will Account Information (the Common Reporting Standard) Governance satisfy the conditions for continued approval. was introduced on 1 January 2016.

As an investment company that is managed and marketed The legislation requires investment trust companies to in the United Kingdom, the Company is an Alternative provide personal information to HMRC about investors Investment Fund (AIF) falling within the scope of, and who purchase shares in investment trusts. The Company subject to the requirements of, the Alternative Investment has to provide information annually to the local tax Fund Managers’ Directive (AIFMD). The Company is authority on the tax residencies of a number of non-UK governed by the provisions of the European Union based certificated shareholders, and corporate entities. Alternative Investment Fund Managers’ Regulations The local tax authority to which the information is initially 2013 (the Regulations) and is required to be authorised passed may in turn exchange the information with the tax by the Financial Conduct Authority (FCA) and must authorities of another country or countries in which the comply with a number of obligations, including the shareholder may be tax resident, where those countries appointment of an Alternative Investment Fund Manager (or tax authorities in those countries) have entered into (AIFM) and a depositary to carry out certain functions. agreements to exchange financial account information. Financial statements The Company must also comply with the Regulations in respect of leverage, outsourcing, conflicts of interest, All new shareholders, excluding those whose shares are risk management, valuation, remuneration and capital held in CREST, entered onto the share register, will be requirements and must also make additional disclosures sent a certification form for the purposes of collecting this to both shareholders and the FCA. Further details are information. set out in the AIFMD disclosures and in the notes to the financial statements. Dividends Details of the dividends paid and payable in respect of The Company’s shares are eligible for inclusion in the the year are set out in the Chairman’s Statement. stocks and shares component of a New Individual Savings Account (“NISA”). Future prospects Facilitating retail investments Commentary on future prospects for the Company is set The Company currently conducts its affairs so that the out in both the Chairman’s Statement and the Investment shares issued by the Company can be recommended Manager’s Report. Additional information by independent financial advisers to ordinary retail investors in accordance with the FCA’s rules in relation Investment management and administration to non‑mainstream pooled investments and intends to BlackRock Fund Managers Limited (BFM, AIFM or continue to do so for the foreseeable future. Manager) was appointed as the Company’s AIFM with effect from 2 July 2014. In the context of the implementation of RDR (Retail Distribution Review) and the growing popularity of BlackRock Investment Management (UK) Limited (BIM investment trusts on platforms, it is worth noting that the (UK) or Investment Manager) acts as the Company’s Company’s shares are designed for private investors in the Investment Manager under a delegation agreement with UK, including retail investors and professionally-advised BFM. BIM (UK) also acted as the Secretary of the Company private clients. It is also attractive to institutional investors throughout the year.

ANNUAL REPORT AND FINANCIAL STATEMENTS 28 FEBRUARY 2019 31

The management contract is terminable by either the end of each quarter. The investment management fee party on six months’ notice. Under the agreement the was allocated 75% to the capital column and 25% to the Board continues to be independent from the AIFM. The revenue column of the income statement. A performance agreement provides the appropriate balance between the fee was previously calculated at the rate of 10% of the Board’s control over the Company, its investment policies annualised excess performance over the benchmark for and compliance with regulatory obligations. The AIFM has the two years preceding the current financial year end, (with the Company’s consent) delegated certain portfolio applied to the Average Assets of the Company. Average and risk management services, and other ancillary Assets were defined as the Fee Asset Amount at the start services, to the Investment Manager. The Investment of the year and at the year end date added together and Manager also acted as the Secretary of the Company divided by two. The fee was payable annually in April throughout the year. and was capped at 0.25% of Average Assets. For the year ended 28 February 2019 no performance fee was No penalty on termination of the investment management payable. contract would be payable by the Company in the event that six months’ written notice is given to the Manager. Appointment of the manager There are no provisions relating to payment of fees in lieu The Board considers the arrangements for the provision of notice. of investment management services to the Company The Company contributes to a focused investment trust on an ongoing basis and a formal review is conducted sales and marketing initiative operated by BlackRock on annually. The Board believes that the continuing behalf of the investment trusts under its management. The appointment of the Manager as AIFM, with investment Company’s contribution to the consortium element of the management services delegated to the Investment initiative, which enables the trusts to achieve efficiencies Manager, on the terms as previously disclosed, is in the by combining certain sales and marketing activities interests of shareholders as a whole. As part of the annual was a fixed amount of £75,000 and this contribution is review the Board considered the quality and continuity matched by the Investment Manager for the year ended of the personnel assigned to handle the Company’s 31 December 2018. In addition, a budget of £35,000 has affairs, the investment process and the results achieved been allocated for Company specific sales and marketing to date. In the Board’s view, the investment remit is best activity also for the year to 31 December 2018. For the served by the BlackRock UK Smaller Companies Team, as year ended 28 February 2019, £113,000 (including VAT) manager of some of the best performing UK equity funds has been charged in respect of these initiatives. The specialising in small and mid cap investments. purpose of the programme overall is to ensure effective communication with existing shareholders and to attract Depositary and custodian new shareholders to the Company. This has the benefit The Company is required under AIFMD to appoint an of improving liquidity in the Company’s shares and helps AIFMD compliant depositary. The Company appointed sustain the stock market rating of the Company. BNY Mellon Trust & Depositary (UK) Limited (the Depositary) in this role with effect from 2 July 2014. The Manager and the Investment Manager are However, with effect from 1 November 2017, the role of subsidiaries of BlackRock, Inc., which is a publicly traded Depositary was transferred, by operation of a novation corporation on the New York Stock Exchange operating as agreement, from BNYMTD to its parent Company, an independent firm. PNC Financial Services Group, Inc. The Bank of New York Mellon (International) Limited has a significant economic interest in BlackRock, Inc. PNC (BNYM or the Depositary). The Depositary’s duties and Financial Services Group, Inc. is a US public company. responsibilities are outlined in the investment fund legislation (as set out in the FCA AIF Rulebook). The main As announced on 17 April 2018, with effect from 1 March role of the Depositary under AIFMD is to monitor the 2018 the Company no longer pays a performance fee operations of the Company, including monitoring cash and the calculation basis of the management fee was flows and ensuring that the Company’s assets are valued changed. For the year ended 28 February 2019, the AIFM appropriately in accordance with the relevant regulations received an investment management fee which was and guidance. The Depositary is also responsible for based on a rate of 0.6% of the first £750 million of the enquiring into the conduct of the AIFM in each annual Company’s assets, reducing to 0.50% above this level. The accounting period. With effect from 1 January 2019 fee rate was applied to an asset amount calculated as total the Depositary receives a fee payable at 0.0095% of assets (excluding current year income) less the current the net assets of the Company (prior to this the fee was liabilities of the Company (the “Fee Asset Amount”). The 0.0115%). The Company has appointed the Depositary in fee was previously calculated at the rate of one quarter of a tripartite agreement, to which the Manager as AIFM is 0.65% of the Fee Asset Amount up to the initial threshold also a signatory. The Depositary is also liable for the loss of of £50 million, and one quarter of the fee rate of 0.50% financial instruments held in custody. multiplied by the Fee Asset Amount in excess thereof at

32 BLACKROCK SMALLER COMPANIES TRUST PLC

Job No: 38091 Proof Event: 22 Black Line Level: 9 Park Communications Ltd Alpine Way London E6 6LA Customer: BlackRock Project Title: Smaller Companies Annual Rpt 2019 T: 0207 055 6500 F: 020 7055 6600 Overview and performance Under the depositary agreement, custody services in During the year under review, the Investment Manager respect of the Company’s assets have been delegated to voted on 1,843 proposals at 145 general meetings on the Asset Servicing division of BNYM. BNYM receives a behalf of the Company. At these meetings the Investment custody fee payable by the Company at rates depending Manager voted in favour of most resolutions, as should be on the number of trades effected and the location of expected when investing in well run companies, but voted securities held. The depositary agreement is subject to 90 against 81 management resolutions and abstained from days’ notice of termination by any party. voting on 22 resolutions. Most of the votes against were in respect of resolutions relating to directors’ remuneration Registrar or to elect or remove directors or to approve the issuance The Company has appointed Computershare Investor of equity, which were deemed by the Investment Manager Services PLC as its Registrar (the Registrar). The principal as not being in the best interest of shareholders. duty of the Registrar is the maintenance of the register of shareholders (including registering transfers). It Principal risks also provides services in relation to corporate actions The key risks faced by the Company are set out in the (including tender offers and the exercise of subscription Strategic Report. shares), dividend administration and shareholder documentation. The Registrar receives a fixed fee plus Going concern

disbursements and VAT per annum. Fees in respect of The Directors, having considered the nature and liquidity Governance corporate actions and other services are negotiated on an of the portfolio, the Company’s investment objective arising basis. and the Company’s projected income and expenditure, Change of control are satisfied that the Company has adequate resources to continue in operational existence for the foreseeable There are no agreements to which the Company is party future and is financially sound. For this reason, they that might be affected by a change of control of the continue to adopt the going concern basis in preparing Company. the financial statements. The Company is able to meet all Exercise of voting rights in investee companies of its liabilities from its assets and income generated from these assets and the ongoing expenses (excluding finance The exercise of voting rights attached to the Company’s costs, transaction costs and taxation) are estimated to be portfolio has been delegated to the Investment Manager, approximately 0.7% following the implementation of the whose voting policy is set out below. BlackRock’s Company’s new management fee arrangements. approach to voting at shareholder meetings, engagement with companies and corporate governance is framed The Company’s longer-term viability is considered in the Financial statements within an investment context. BlackRock believes that Viability Statement. sound corporate governance practices by companies contribute to their long term financial performance and Directors thus to better risk-adjusted returns. The Directors of the Company as at 28 February 2019 and their biographies are set out on pages 28 to 30. Details of BlackRock’s proxy voting process is led by the BlackRock Directors’ interests in the ordinary shares of the Company Investment Stewardship team, located in five offices are set out in the Directors’ Remuneration Report. All around the world. In addition to its own professional of the Directors, other than Mr Ronald Gould who was staff, the BlackRock Investment Stewardship team draws appointed on 1 April 2019, held office throughout the upon the expertise of BlackRock’s portfolio managers, year under review. researchers and other internal and external resources globally. BlackRock’s global corporate governance and The Company’s Articles of Association provide that engagement principles are published on the website at one third of Directors retire by rotation each year blackrock.com/corporate/en-us/about-us/investment- and that each Director shall retire and offer himself/ stewardship. The principles set out BlackRock’s views herself for re‑election at intervals of no more than three Additional information on the overarching features of corporate governance years. However, in accordance with best practice and that apply in all markets. For each region, BlackRock also developing Corporate Governance, the Board has agreed publishes market-specific policies, which are updated that all Directors, with the exception of Mr Fry, will retire every year to ensure they remain relevant. The voting and, being eligible, offer themselves for re-election at guidelines are principles based and not prescriptive the forthcoming Annual General Meeting (AGM) to be because BlackRock believes that each voting situation held on 4 June 2019. As previously announced, Mr Fry needs to be assessed on its merits. Voting decisions are has advised that he will not be standing for re-election taken to support the outcome that BlackRock believes (in at the AGM and will therefore cease to be a Director its professional judgement) will best protect the economic of the Company from its conclusion. Mr Ronald Gould, interests of its clients. having being appointed a Director by the Board since the date of the last AGM, will be standing for election by

ANNUAL REPORT AND FINANCIAL STATEMENTS 28 FEBRUARY 2019 33

shareholders at this year’s AGM. As set out in more detail reviewed by the Board and duly authorised. Directors in the Chairman's Statement, Mr Gould will succeed Mr were also made aware that there remains a continuing Fry as Chairman. obligation to notify the Company Secretary of any new situation that may arise, or any change to a situation The Board’s policy on tenure is that length of service previously notified. It is the Board’s intention to continue does not necessarily compromise the independence or to review all notified situations on an annual basis. contribution of directors of an investment trust company, where continuity and experience can add significantly Global greenhouse gas emissions for the to the strength of the Board. After due consideration period 1 March 2018 to 28 February 2019 and further to the annual evaluation process, the Board has concluded that both Nicholas Fry and Robert The Company has no greenhouse gas emissions to report Robertson, who have each served as a Director for over from its operations, nor does it have responsibility for any nine years, continue to be independent in both character other emissions producing sources under the Companies and judgement and that there are no relationships or Act 2006 (Strategic Report and Directors’ Reports) circumstances which are likely to affect the judgement Regulations 2013. of any Director. The Board has considered the position of the Directors, as part of the evaluation process, and Articles of Association believes that it would be in the Company’s best interests Any amendments to the Company’s Articles of Association for all of the Directors to be proposed for election or must be made by special resolution. re‑election, given their material level of contribution (with the exception of Mr Fry who will retire at the AGM). Details Remuneration Report of the evaluation process are set out in the Corporate The Directors’ Remuneration Report is set out on pages Governance Statement. 37 to 41. An ordinary resolution to approve this report will be put to shareholders at the forthcoming Annual General There were no contracts subsisting during or at the end Meeting. of the year in which a Director of the Company is or was materially interested and which is or was significant Notifiable interest in the Company’s voting in relation to the Company’s business. None of the Directors are entitled to compensation for loss of office rights on the takeover of the Company. None of the Directors As at 28 February 2019, the following investors had has a service contract with the Company. The Directors’ declared a notifiable interest in the Company’s voting attendance record is shown in the table on page 35. rights:

Directors’ indemnity and Directors’ liability Holding % insurance BlackRock, Inc.* 6,131,654 12.8 The Company has maintained appropriate Directors’ Liability Insurance cover throughout the year. In addition Rathbone Bros 3,248,027 6.8 to Directors’ and Officers’ Liability Insurance cover, the Investec Wealth & Company’s Articles of Association provide, subject to the Management 3,017,859 6.3 provisions of applicable UK legislation, an indemnity for Directors in respect of costs incurred in the defence of Royal London Asset any proceedings brought against them by third parties Management 1,712,596 3.6 arising out of their positions as Directors, in which they are acquitted or judgement is given in their favour. The * Including 3,210,709 shares held by BlackRock Institutional Jersey Funds (The Dynamic Diversified Growth Fund) representing 6.7% Company has entered into Deeds of Indemnity with of the Company’s issued share capital. The remainder of BlackRock Directors individually which are available for inspection at Inc.’s holding represents shareholdings of investment vehicles the registered office of the Company and will be available managed by members of the BlackRock Group and discretionary at the Annual General Meeting. managed money, none of which exceed 3% of the Company’s issued share capital on an individual fund basis. Conflicts of interest The Board has put in place a framework for Directors to report conflicts of interest or potential conflicts of interest which it believes has worked effectively during the year. All Directors notified the Company Secretary of any situations where they considered that they had a direct or indirect interest, or duty that conflicted or possibly conflicted, with the interests of the Company. All such situations were

34 BLACKROCK SMALLER COMPANIES TRUST PLC

Job No: 38091 Proof Event: 22 Black Line Level: 9 Park Communications Ltd Alpine Way London E6 6LA Customer: BlackRock Project Title: Smaller Companies Annual Rpt 2019 T: 0207 055 6500 F: 020 7055 6600 Overview and performance As at 30 April 2019, the following investors had declared a shares from treasury, be renewed at the forthcoming notifiable interest in the Company’s voting rights: Annual General Meeting.

Treasury shares Holding % The Board has determined that up to 10% of the BlackRock, Inc.* 6,131,654 12.8 Company’s issued shares may be held in treasury and may Rathbone Bros 3,248,027 6.8 be subsequently cancelled or sold for cash in the market. This would give the Company the ability to reissue shares Investec Wealth & quickly and cost effectively, thereby improving liquidity Management 3,017,859 6.3 and providing the Company with additional flexibility in the management of its capital base. The Board currently Royal London Asset intends only to authorise the sale of shares from treasury Management 1,712,596 3.6 at or above the prevailing net asset value per share (plus * Including 3,210,709 shares held by BlackRock Institutional Jersey costs of the relevant sale). This should result in a positive Funds (The Dynamic Diversified Growth Fund) representing 6.7% overall effect on shareholders if shares are bought back of the Company’s issued share capital. The remainder of BlackRock at a discount and then sold at a price at or above the net Inc.’s holding represents shareholdings of investment vehicles asset value per share (plus costs of the relevant sale). In

managed by members of the BlackRock Group and discretionary Governance managed money, none of which exceed 3% of the Company’s the interests of all shareholders, the Board will continue to issued share capital on an individual fund basis. keep the matter of treasury shares under review.

Share capital Annual General Meeting Full details of the Company’s share capital are given in The following information to be discussed at the note 14 of the Financial Statements. Details of the voting forthcoming Annual General Meeting is important and rights in the Company’s shares as at the date of this report requires your immediate attention. If you are in any are given in note 16 to the Notice of Annual General doubt about the action you should take, you should Meeting. There are no restrictions on the voting rights of seek advice from your stockbroker, bank manager, the shares or on the transfer of shares, and there are no solicitor, accountant or other financial adviser authorised shares that carry specific rights with regard to the control under the Financial Services and Markets Act 2000 (as of the Company. At 28 February 2019, the Company’s amended). If you have sold or transferred all of your issued share capital was 47,879,792 ordinary shares, ordinary shares in the Company, you should pass this excluding 2,113,731 shares held in treasury. document, together with any other accompanying Financial statements documents, including the form of proxy, at once to the Share issues and repurchases purchaser or transferee, or to the stockbroker, bank or other agent through whom the sale or transfer was The Company has the authority to purchase ordinary effected, for onward transmission to the purchaser or shares in the market to be held in treasury or for transferee. cancellation and to issue new ordinary shares for cash. No shares were purchased or issued under either authority Resolutions relating to the following items of special during the year. The current authority to repurchase business will be proposed at the forthcoming Annual ordinary shares was granted to Directors on 5 June 2018 General Meeting. and expires at the conclusion of the Annual General Meeting in 2019. The Directors are proposing that their authority to buy back shares to be held in treasury, or for cancellation, and to issue new ordinary shares or sell Additional information

Total Nicholas Michael Robert Caroline Susan Attendance Record meetings Fry Peacock Robertson Burton Platts-Martin Board 5 5 5 5 41 5

Audit Committee 3 3 3 3 21 3

Management Engagement 1 1 1 1 1 1 Committee

Nomination Committee 1 1 1 1 1 1

1 Mrs Burton was unable to attend the Board and Audit Committee meetings held on 25 October 2018 owing to jury service.

ANNUAL REPORT AND FINANCIAL STATEMENTS 28 FEBRUARY 2019 35

Resolution 11 Authority to allot shares Recommendation The Directors may only allot shares for cash if authorised The Board considers that each of the resolutions is likely to do so by shareholders in general meeting. This to promote the success of the Company and is in the best resolution seeks authority for the Directors to allot interests of the Company and its shareholders as a whole. shares for cash up to an aggregate nominal amount of The Directors unanimously recommend that you vote in £1,196,994 which is equivalent to 4,787,979 ordinary favour of the resolutions as they intend to do in respect of shares of 25p each and represents 10% of the current their own beneficial holdings. issued share capital excluding treasury shares. The Directors will use this authority when it is in the best Corporate governance interests of the Company to issue shares for cash. This Full details are given in the Corporate Governance authority will expire at the conclusion of the Annual Statement. The Corporate Governance Statement forms General Meeting to be held in 2020, unless renewed prior part of this Directors’ Report. to that date at an earlier general meeting.

Resolution 12 Authority to disapply pre-emption rights: Audit information As required by section 418 of the Companies Act 2006 By law, directors require specific authority from the Directors who held office at the date of this report shareholders before allotting new shares or selling shares each confirm that, so far as they are aware, there is no out of treasury for cash without first offering them to relevant audit information of which the Company’s existing shareholders in proportion to their holdings. auditors are unaware and each Director has taken all the Resolution 12 empowers the Directors to allot new shares steps that they ought to have taken as a Director to make for cash or to sell shares which are held by the Company themselves aware of any relevant audit information and in treasury, otherwise than to existing shareholders on to establish that the Company’s auditors are aware of that a pro rata basis, up to an aggregate nominal amount of information. £1,196,994 which is equivalent to 4,787,979 ordinary shares of 25p each and 10% of the Company’s issued Independent auditors ordinary share capital excluding treasury shares. This The auditors, PricewaterhouseCoopers LLP, have indicated authority will expire at the conclusion of the Annual their willingness to continue in office and resolutions General Meeting to be held in 2020, unless renewed prior proposing their reappointment and authorising the to that date at an earlier general meeting. Audit Committee to determine their remuneration for the ensuing year will be submitted at the Annual General Resolution 13 Authority to buy back shares Meeting. The resolution to be proposed will seek to renew the authority granted to the Directors enabling the Company The Directors’ Report was approved by the Board at its to purchase its own shares. The Directors will only meeting on 2 May 2019. consider repurchasing shares in the market if they believe it to be in shareholders’ interests and as a means of By order of the Board correcting any imbalance between supply and demand SARAH BEYNSBERGER for the Company’s shares. Under the Listing Rules of the For and on behalf of FCA, the maximum price which can be paid is the higher BlackRock Investment Management (UK) Limited of (i) 5% above the average market value of the ordinary Company Secretary shares for the five business days immediately preceding 2 May 2019 the date on which the purchase is made and (ii) the higher of the price quoted for (a) the last independent trade of, and (b) the highest current independent bid for, any number of ordinary shares on the trading venue where the purchase is carried out. In making purchases, the Company will deal only with member firms of the London Stock Exchange. The Directors are seeking authority to purchase up to 7,177,180 ordinary shares (being 14.99% of the issued share capital excluding treasury shares). This authority will expire at the conclusion of the Annual General Meeting to be held in 2020, unless renewed prior to that date at an earlier general meeting.

36 BLACKROCK SMALLER COMPANIES TRUST PLC

Job No: 38091 Proof Event: 22 Black Line Level: 9 Park Communications Ltd Alpine Way London E6 6LA Customer: BlackRock Project Title: Smaller Companies Annual Rpt 2019 T: 0207 055 6500 F: 020 7055 6600 Directors’ remuneration report Overview and performance Introduction As well as this usual business, Directors also spend The Board presents the Directors’ Remuneration Report additional time as and when required in ad hoc meetings for the year ended 28 February 2019 which has been to address other issues as they arise. Investment trusts are prepared in accordance with the requirements of sections subject to a large number of regulatory and disclosure 420-422 of the Companies Act 2006. requirements, including the requirements of the UK Code, UKLA Listing Rules, and Investment Trust Company The Remuneration Report comprises a remuneration tax regulations. The regulatory burden has increased policy report, which is subject to a triennial binding significantly in recent years, with the implementation of shareholder vote, and a remuneration policy AIFMD, FATCA and the Common Reporting Standard implementation report, which is subject to an annual requiring considerable additional time to be spent by the advisory vote. Board to ensure that new depositary and management agreements complied with best industry practice. There The law requires the Company’s independent auditors are yet more new regulatory obligations that will become to audit certain parts of the disclosures provided. Where applicable to the Company over the next few years, all of disclosures have been audited, they are indicated as such. which are expected to generate an increased workload for The auditors’ opinion is included in their report on pages Directors, and the Board will continue to be mindful of this 52 to 57. in setting remuneration levels. Governance Statement of the Chairman For the year ended 28 February 2019, the Chairman received an annual fee of £40,000, the Audit Committee The Board’s policy on remuneration is set out in the policy Chairman received £30,000 per annum and the other table on page 39. A key element is that fees payable Directors received £26,750 per annum. Following a review to Directors should be sufficient to attract and retain on 26 March 2019, and with effect from 1 March 2019, the individuals with suitable knowledge and experience, Chairman will receive an annual fee of £42,500, the Audit and that consideration is given to the value and amount Committee Chairman will receive £32,500 per annum of time committed. The Board’s focus is on setting the and the other Directors will each receive £28,500 per strategy for the successful progression of the Company annum. Directors’ fees were last increased with effect from and monitoring performance against the strategic 1 March 2017. Additional information regarding the basis objectives set. In order to do this effectively, Directors for determining Directors’ remuneration is set out in the spend a substantial amount of time preparing for the five policy report below. Board meetings and three Audit Committee meetings held each year. At these meetings, the Directors review Remuneration committee Financial statements the Company’s portfolio, monitor investment performance and review compliance with investment guidelines. The Board as a whole fulfils the function of the Remuneration Committee and considers any change The Board also reviews and monitors the Company’s in the Directors’ remuneration policy. The Board is of ongoing operating costs to ensure that these represent the opinion that a Remuneration Committee is not optimal value and are in line with agreed budgets. In appropriate for a Company of this size and nature and a addition, the Board sets the marketing strategy of the separate Committee has therefore not been established. Company and contributes to a sales and marketing No advice or services were provided by any external initiative operated by BlackRock; the Board has set key agencies or third parties. performance indicators to monitor progress and reviews these on a regular basis to monitor and assess the Policy report effectiveness of this initiative. In determining Directors’ fees, a number of factors are considered, including the time commitment required, The Chairman makes himself available to meet directly the level of skills and appropriate experience required, with shareholders when required and the Board monitors and the need for Directors to maintain on an ongoing Additional information the Company’s share rating closely and is responsible for basis an appropriate level of knowledge of regulatory determining the appropriate action to be taken to manage and compliance requirements in an industry environment this where necessary. Directors are also responsible for of increasing complexity. The Board also considers the establishing and maintaining the Company’s control average rate of inflation during the period since the systems to manage risk effectively, and a register of these last fee increase, and reviews the level of remuneration controls and the risks facing the Company are reviewed at in comparison with other investment trusts of a similar each Audit Committee meeting, along with control reports size and/or mandate as well as taking account of any from external auditors. Directors also receive an annual data published by the AIC to ensure that fees are in line update from BlackRock’s internal audit department. with industry practice. This comparison, together with

ANNUAL REPORT AND FINANCIAL STATEMENTS 28 FEBRUARY 2019 37

consideration of any alteration in non-executive Directors’ responsibilities, is used to review whether any change in remuneration is necessary. The review is performed on an annual basis.

The Company has no executive employees and consequently no consideration is required to be given to employment conditions elsewhere in setting Directors’ fees.

No element of the Directors’ remuneration is performance related. The Company has not awarded any share options or long-term performance incentives to any of the Directors. None of the Directors has a service contract with the Company or receives any non-cash benefits or pension entitlements. The terms of their appointment are detailed in a letter sent to them when they join the Board. These letters are available for inspection at BlackRock’s offices at 12 Throgmorton Avenue, London EC2N 2DL.

Consideration of shareholders’ views An ordinary resolution to approve the remuneration report is put to members at each Annual General Meeting, and shareholders have the opportunity to express their views and raise any queries in respect of remuneration policy at this meeting. To date, no shareholders have commented in respect of the remuneration policy. In accordance with the Companies Act 2006, the Company obtained shareholder approval for its remuneration policy at the Annual General Meeting in 2017. 99.48% of the votes cast were in favour of the resolution to approve the Directors’ remuneration policy and 0.52% of votes were cast against. The remuneration policy is subject to a triennial binding shareholder vote and will be put to shareholders for approval at an AGM in 2020.

At the Company’s Annual General Meeting held on 5 June 2018, the resolution to approve the Directors’ remuneration report was approved by 99.52% of votes cast in favour of the resolution and 0.48% votes cast against.

38 BLACKROCK SMALLER COMPANIES TRUST PLC

Fees payable to Directors should be sufficient to attract and retain individuals of high calibre with suitable knowledge and experience. Those chairing the Board and key Purpose and link to strategy Committees should be paid higher fees than other Directors in recognition of their more demanding roles. Fees should reflect the time spent by Directors on the Company’s affairs and the level of complexity of responsibilities borne by the Directors.

Current levels of fixed annual fee:

Chairman – £40,000 (£42,500 with effect from 1 March 2019)

Description Audit Committee Chairman – £30,000 (£32,500 with effect from 1 March 2019) Directors – £26,750 (£28,500 with effect from 1 March 2019)

All reasonable expenses to be reimbursed.

Remuneration consists of a fixed fee each year, set in accordance with the stated policies

and as such there is no set maximum threshold; however, any increase granted must be Governance in line with the stated policies.

Maximum levels The Company’s Articles of Association set a limit of £200,000 per annum in respect of the total fees that may be paid to Directors in any financial year. In addition, the Directors propose a limit of £50,000 per annum in relation to the maximum that may be paid in respect of taxable benefits. These ceilings have been set at a level to provide flexibility in respect of the recruitment of additional Board members and inflation.

The Board reviews the quantum of Directors’ fees each year to ensure that this is appropriate in view of the time commitment required, the level of skills and appropriate experience required, and the need for Directors to maintain on an ongoing basis an appropriate level of knowledge of regulatory and compliance requirements in an industry Fixed fee element environment of increasing complexity. The average rate of inflation during the period since the last fee increase will also be considered as well as the level of remuneration in comparison with other investment trusts of a similar size and/or mandate. There is no Financial statements compensation for loss of office.

The Company’s Articles authorise the payment of discretionary fees to Directors for any additional work undertaken on behalf of the Company which is outside of their normal duties. Any such extra work undertaken is subject to the prior approval of the Chairman or, in the case of the Chairman undertaking the extra work, subject to the prior Discretionary payments approval of the Chairman of the Audit Committee. The level of discretionary fees shall Operation be determined by the Directors and will be subject to a maximum of £25,000 per annum per Director. Any discretionary fees paid will be disclosed in the Directors’ remuneration implementation report within the Annual Report.

Taxable benefits comprise travel and subsistence expenses incurred by the Directors in the course of travel to attend Board and Committee meetings which are held at BlackRock’s offices in London, and which are reimbursed by the Company and therefore Taxable benefits treated as a benefit in kind and are subject to tax and national insurance. The Company’s

policy in respect of this element of remuneration is that all reasonable costs of this nature Additional information will be reimbursed as they are incurred.

ANNUAL REPORT AND FINANCIAL STATEMENTS 28 FEBRUARY 2019 39

Remuneration implementation report (audited) A single figure for the total remuneration of each Director is set out in the table below for the years ended 28 February 2019 and 28 February 2018:

28 February 2019 28 February 2018 Taxable Taxable Fees benefits1 Total Fees benefits1 Total Directors £ £ £ £ £ £ Nicholas Fry (Chairman) 40,000 2,814 42,814 40,000 297 40,297 Caroline Burton 26,750 – 26,750 26,750 – 26,750 Michael Peacock2 30,000 1,509 31,509 30,000 3,143 33,143 Susan Platts-Martin 26,750 219 26,969 26,750 409 27,159 Robert Robertson3 26,750 464 27,214 26,750 486 27,236

Total 150,250 5,006 155,256 150,250 4,335 154,585

1 Taxable benefits relate to travel and subsistence costs. 2 Audit Committee Chairman. 3 Senior Independent Director.

The information in the above table has been audited. The Performance amounts paid by the Company to the Directors were for The line graph which follows compares the Company’s net services as non-executive Directors. As at 28 February asset value (with income reinvested) and share price total 2019, an amount of £13,000 was outstanding to Directors return with the total return on an equivalent investment in respect of their annual fees (28 February 2018: in the Numis Smaller Companies plus AIM (excluding £13,000). Investment Companies) Index. This composite index As the Company has no employees, the table above was selected for comparison purposes, as it was the also comprises the total remuneration costs and benefits Company’s benchmark used for investment performance paid by the Company. To enable shareholders to assess measurement purposes. the relative importance of spend on pay, this has been shown in the table below compared with the Company’s Total Shareholder return from 1 March 2009 to dividend distributions, total revenue and any share buy 28 February 2019 backs. 900 800 Relative importance of spend on remuneration 700 2019 2018 Change 600 £’000 £’000 £’000 500 Directors’ total 400 remuneration 155 155 – 300 Total dividends paid and 200 payable 14,939 12,449 +2,490 100 Income from investments 18,434 16,235 +2,199 Feb 09 Feb 10 Feb 11 Feb 12 Feb 13 Feb 14 Feb 15 Feb 16 Feb 17 Feb 18 Feb 19 Feb No payments were made in the period to any past Share price performance NAV performance Directors (2018: nil). (with income reinvested) (with income reinvested) Numis Smaller Companies plus AIM (excluding Investment Companies) Index (with income reinvested) Data rebased to 100, with income reinvested. Sources: BlackRock and Datastream.

40 BLACKROCK SMALLER COMPANIES TRUST PLC

Job No: 38091 Proof Event: 22 Black Line Level: 9 Park Communications Ltd Alpine Way London E6 6LA Customer: BlackRock Project Title: Smaller Companies Annual Rpt 2019 T: 0207 055 6500 F: 020 7055 6600 Overview and performance Shareholdings (audited) The Board has not adopted a policy that Directors are required to own shares in the Company.

The interests of the Directors in the ordinary shares of the Company are set out in the table below. The Company does not have a share option scheme therefore none of the Directors has an interest in share options. All of the Directors held office throughout the year under review.

28 February 28 February 2019 2018 Nicholas Fry (Chairman) 40,000 40,000 Caroline Burton 5,500 5,500 Michael Peacock 1,000 1,000

Susan Platts-Martin 2,000 2,000 Governance Robert Robertson 91,062 91,062

All of the holdings of the Directors are beneficial. No changes to these holdings had been notified up to the date of this report. Mr Ronald Gould was appointed a Director on 1 April 2019 and held no shares in the Company as at that date.

Retirement of Directors The Company’s Articles of Association provide that one third of Directors retire by rotation each year and that each Director shall retire and offer himself/herself for re‑election

at intervals of no more than three years. However, in Financial statements accordance with best practice and developing Corporate Governance, the Board has agreed that on an on-going basis all Directors will retire and, being eligible, offer themselves for re-election at each AGM. Details of the Directors standing for re-election at the AGM on 4 June 2019 are given in the Directors’ Report on page 33.

By order of the Board NICHOLAS FRY Chairman 2 May 2019 Additional information

ANNUAL REPORT AND FINANCIAL STATEMENTS 28 FEBRUARY 2019 41

Chairman’s introduction an externally managed investment company with no Corporate Governance is the process by which the Board executive employees and, in relation to the internal audit seeks to look after shareholders’ interests and protect function, in view of BlackRock having an internal audit and enhance shareholder value. Shareholders hold the function. Directors responsible for the stewardship of the Company, Information on how the Company has applied the delegating authority and responsibility to the Directors to principles of the AIC Code and the UK Code is set out manage the Company on their behalf and holding them below. accountable for its performance. The UK Code is available from the Financial Reporting The Board is ultimately responsible for framing and Council’s website at frc.org.uk. The AIC Code is available executing the Company’s strategy and for closely from the Association of Investment Companies at monitoring risks. We aim to run the Company in a manner theaic.co.uk. which is responsible and consistent with our belief in honesty, transparency and accountability. In our view, The Board good governance means managing our business well and engaging effectively with investors. We consider the The Board currently consists of six non-executive practice of good governance to be an integral part of Directors, all of whom are considered to be independent the way we manage the Company and we are committed of the Manager. This is a higher number than usual, to maintaining high standards of financial reporting, and reflects a period of transition. As announced in the transparency and business integrity. Company’s interim report published in October 2018, your Chairman has decided to step down from the Board As a UK-listed investment trust company our principal and will not be seeking re-election at the AGM in June reporting obligation is driven by the UK Code. However, 2019. Consequently, the Board undertook a search and as listed investment trust companies differ in many selection process to identify a new Director, and the ways from other listed companies, the Association of preferred candidate, Mr Ronald Gould, was appointed Investment Companies has drawn up its own set of to the Board with effect from 1 April 2019. Mr Gould will guidelines, the AIC Code of Corporate Governance stand for election at the forthcoming AGM and further (the AIC Code), which addresses the governance issues details of his background and the biographies of the relevant to investment companies and meets the approval Directors can be found on pages 28 to 30. Mr Gould will of the Financial Reporting Council. also succeed Mr Fry as Chairman of the Company with effect from the close of the AGM in June. The provision This report, which forms part of the Directors’ Report, of the UK Code (A.2.1) which relates to the combination explains how the Board deals with its responsibility, of the roles of the chairman and chief executive does authority and accountability. not apply as the Company has no executive directors. The Board’s primary purpose is to direct the Company Compliance to maximise shareholder value within a framework of The Board has made the appropriate disclosures in this proper controls and in accordance with the Company’s report to ensure that the Company meets its continuing investment objective. obligations. It should be noted that, as an investment trust, most of the Company’s day-to-day responsibilities are Board structure and management delegated to third party service providers. The Company Details of the Board’s structure, roles and responsibilities has no executive employees and the Directors are all and management are set out in the summary of non-executives, therefore not all the provisions are directly governance structure and Directors’ biographies on pages applicable to the Company. The Board considers that the 26 to 30. The Company does not have a chief executive Company has complied with the recommendations of as day-to-day management of the Company’s affairs the AIC Code and the provisions contained within the UK is delegated to the Manager as AIFM, with investment Code that are relevant to the Company throughout this management and other ancillary services delegated accounting period, except for the provisions relating to: to the Investment Manager. Representatives of the Manager and the Company Secretary attend each Board • the role of the chief executive; meeting. The Board, the AIFM, the Investment Manager • executive directors’ remuneration; and and the Company Secretary operate in a supportive and • the need for an internal audit function as set out on co‑operative manner. page 44. Board independence and tenure For the reasons set out in the AIC Code, and as explained Details of the Board’s policy on tenure and independence in the UK Code, the Board considers that these provisions are set out on page 34. are not relevant to the position of the Company, being

42 BLACKROCK SMALLER COMPANIES TRUST PLC

Job No: 38091 Proof Event: 22 Black Line Level: 9 Park Communications Ltd Alpine Way London E6 6LA Customer: BlackRock Project Title: Smaller Companies Annual Rpt 2019 T: 0207 055 6500 F: 020 7055 6600 Overview and performance Diversity a timely manner with information in a form and of a quality The Board’s policy on diversity, including gender, is to take appropriate to enable it to discharge its duties. Strategic this into account during the recruitment and appointment issues and all operational matters of a material nature are process. However, the Board is committed to appointing determined by the Board. The Board has responsibility for the most appropriate candidate, regardless of gender ensuring that the Company keeps adequate accounting or other forms of diversity and therefore no targets have records which disclose with reasonable accuracy at been set against which to report. any time the financial position of the Company and which enable it to ensure that the financial statements Directors’ appointment, retirement and succession comply with the Companies Act 2006. It is the Board’s The rules concerning the appointment, retirement and responsibility to present a balanced and understandable rotation of Directors are set out in the Directors’ Report on assessment, which extends to interim and other price- page 33. sensitive public reports.

The Board believes that it has a reasonable balance of The Board is also responsible for safeguarding the assets skills and experience. The Board recognises the value of of the Company and for taking reasonable steps for the progressive refreshing of, and succession planning for, prevention and detection of fraud and other irregularities. company boards. None of the Directors considers length of service as an impediment to independence or good Meetings and performance appraisal Governance judgement but each Director believes that continuity and The Board meets at least five times each year to review experience can add significantly to the strength of the investment performance, financial reports and other Board. reports of a strategic nature. Board or Board committee meetings are also held on an ad hoc basis to consider The Board has established a procedure whereby particular issues as they arise. The attendance record for Directors, wishing to do so in the furtherance of their each meeting is set out on page 35. duties, may take independent professional advice at the Company’s expense. Key representatives of the Investment Manager attend each meeting. Details of the Directors’ other significant Directors’ induction, training and development time commitments can also be found on pages 28 to 30. When a new Director is appointed to the Board, he or she is provided with all relevant information regarding Performance evaluation the Company and their duties and responsibilities as In order to review the effectiveness of the Board, the a Director. In addition, a new Director will also spend Committees and the individual Directors, the Board carries Financial statements some time with representatives of the Investment out an annual appraisal process. This encompasses both Manager whereby he or she will become familiar with quantitative and qualitative measures of performance in the various processes which the Investment Manager respect of the Board and its Committees, implemented considers necessary for the performance of its duties and by way of the completion of an evaluation survey and a responsibilities to the Company. subsequent review of the findings. The appraisal of the Chairman follows the same process and is carried out by The Company’s policy is to encourage Directors to the Board as a whole under the leadership of the Senior keep up to date and attend training courses on matters Independent Director without the Chairman present. which are directly relevant to their involvement with the Company. The Directors also receive regular briefings The appraisal process is considered by the Board to be from, amongst others, the auditors, representatives of constructive in terms of identifying areas for improving the Manager and the Company Secretary regarding any the functioning and performance of the Board and its proposed developments or changes in laws or regulations Committees and the contribution of individual Directors, that could affect the Company and/or the Directors. as well as building on and developing individual and Additional information Directors’ training and development needs are reviewed collective strengths. There were no significant actions by the Chairman on an annual basis. arising from the evaluation process.

Board’s responsibilities Following the formal evaluation the Chairman is pleased The Board is responsible to shareholders for the overall to confirm that each of the Directors continues to be management of the Company. It decides upon matters effective and to demonstrate commitment to the role relating to the Company’s investment objective, policy (including time for Board and Committee meetings and strategy and monitors the Company’s performance and any other duties). Robert Robertson, as Senior towards achieving that objective through its agreed policy Independent Director, is pleased to confirm that, following and strategy. The Board has also adopted a schedule of the formal evaluation, the Chairman also continues to matters reserved for its decision. The Board is supplied in be effective and to demonstrate commitment to the role

ANNUAL REPORT AND FINANCIAL STATEMENTS 28 FEBRUARY 2019 43

(including time for Board and Committee meetings and Management Engagement Committee any other duties). Details of the Committee’s membership and responsibilities are set out on page 27. Delegation of responsibilities Management and Administration Internal controls Details on the arrangements for the management of The Board is responsible for establishing and maintaining the investment portfolio and the administration of the the Company’s internal control systems and for reviewing Company are given on pages 31 and 32 of the Directors’ their effectiveness, for ensuring that financial information Report. published or used within the business is reliable, and for regularly monitoring compliance with regulations Details of the Manager’s approach to voting at governing the operation of investment trusts. shareholder meetings are set out on page 33. The Board, through the Audit Committee, regularly The review of the Manager’s performance is an ongoing reviews the effectiveness of the internal control systems to duty and responsibility of the Board which is carried out identify, evaluate and manage the Company’s significant at every Board meeting. In addition, a formal review is risks. If any significant failings or weaknesses are identified, undertaken annually, details of which are set out in the the Manager and the Board ensure that necessary action Directors’ Report on page 32. is taken to remedy the failings. The Board is not aware of any significant failings or weaknesses arising in the year The Company Secretary under review. The Board has direct access to company secretarial advice and services of the Manager which, through its nominated Control of the risks identified, covering financial, representative, is responsible for ensuring that Board and operational, compliance and risk management, is Committee procedures are followed, and that applicable embedded in the operations of the Company. There is a regulations are complied with. The appointment and monitoring and reporting process to review these controls removal of the Company Secretary is a matter for the which has been in place throughout the year under review whole Board. and up to the date of this report. This accords with the FRC’s “Guidance on Risk Management, Internal Control Committees of the Board and Related Financial and Business Reporting”. The Board has appointed a number of Committees as set The Company’s Risk Register sets out risks relevant to out below. the Company and describes, where relevant, the internal Audit Committee controls that are in place at the AIFM, the Investment Manager and other third party service providers to Details of the Committee’s membership and mitigate these risks. The Audit Committee formally reviews responsibilities are set out on page 26. Further details are this register on a semi-annual basis and the Manager as provided in the Report of the Audit Committee on pages the Company’s AIFM reports on any significant issues 47 to 50. that have been identified in the period. In addition, BlackRock’s internal audit department reports on a Remuneration Committee semi-annual basis on the results of testing performed in Under the UK Listing Rules, where an investment trust relation to BlackRock’s internal control processes. The company has no executive directors, the Code provisions Depositary also reviews the control processes in place at relating to directors’ remuneration do not apply. The the Custodian, the Fund Accountant and the AIFM and remuneration of the Chairman and the Directors is reports formally to the Audit Committee twice yearly. determined by the Board. Details of the Directors’ fees are Both the AIFM and the Depositary will escalate issues and given in the Directors’ Remuneration Report. report to the Audit Committee outside of these meetings on an ad hoc basis to the extent that this is required. Nomination Committee The Audit Committee also receives annual and quarterly Details of the Committee’s membership and SOC 1 reports respectively, from BlackRock and BNYM as responsibilities are set out on page 27, along with Custodian and Fund Accountant on the internal controls details of the number of scheduled meetings each of their respective operations, together with the opinion year. Appointments of new Directors will be made on of their reporting accountants. a formalised basis, with the Committee agreeing the selection criteria and the method of selection, recruitment The Company does not have its own internal audit and appointment. The services of an external search function as all the administration is delegated to consultant may be used to identify potential candidates. BlackRock and other third party service providers. This matter is kept under review.

44 BLACKROCK SMALLER COMPANIES TRUST PLC

Job No: 38091 Proof Event: 22 Black Line Level: 9 Park Communications Ltd Alpine Way London E6 6LA Customer: BlackRock Project Title: Smaller Companies Annual Rpt 2019 T: 0207 055 6500 F: 020 7055 6600 Overview and performance The Board has overall responsibility for the control systems and, where necessary, contractual changes are made to in respect of the Company; as part of that responsibility existing agreements in respect of anti-bribery provisions. the Board conducts a review of those controls, although it relies on the controls at the third party service providers. Criminal Finances Act 2017 The Board recognises that these control systems can only The Company has a commitment to zero tolerance be designed to manage rather than to eliminate the risk towards the criminal facilitation of tax evasion. of failure to achieve business objectives, and to provide reasonable, but not absolute, assurance against material GDPR misstatement or loss, and relies on the operating controls Data protection rights were harmonised across the established by BlackRock and BNYM in its capacity as European Union following the implementation of the Depositary, Custodian and Fund Accountant. General Data Protection Regulation (GDPR) on 25 May The Manager prepares revenue forecasts and 2018. The Board has sought and received assurances management accounts which allow the Board to assess from its third party service providers that they have taken the Company’s activities and review its performance. appropriate steps to ensure compliance with the new The Board and the Investment Manager acting under regulation. The Company’s ‘Data Privacy Policy’ can be delegation from the Manager have agreed clearly found on the Company’s website at www.blackrock.co.uk/ brsc. defined investment criteria, specified levels of authority Governance and exposure limits. Reports on these issues, including performance statistics and investment valuations, are Communication with shareholders submitted to the Board at each meeting. All shareholders have the opportunity to attend and vote at the Annual General Meeting. The Notice of Financial reporting Annual General Meeting, which is sent out at least 20 The Statement of Directors’ Responsibilities is set out on working days in advance of the meeting, sets out the page 51, the Independent Auditor’s Report on pages 52 business of the meeting and any item not of an entirely to 57, and the Statement of Going Concern on page 33. routine nature is explained in the Directors’ Report. Separate resolutions are proposed for substantive issues. Socially responsible investment Shareholders are updated on performance through the publication of the interim and annual reports and the The Company invests mainly in smaller UK quoted Portfolio Manager reviews the Company’s activities at companies. The Board aims to be a socially responsible the Annual General Meeting, where the Chairman of the investor and believes that it is important to invest in Board and the Chairman of the Audit Committee and Financial statements companies whose boards act responsibly in respect of representatives of the Manager are available to answer environmental, ethical and social issues. BlackRock’s shareholders’ queries. Proxy voting figures are announced evaluation procedure and financial analysis of the to shareholders at the Annual General Meeting and will companies within the portfolio includes research and be made available on the Manager’s website shortly after appraisal of such matters, and also takes into account the meeting. The Investment Manager on behalf of the environmental policies and other business issues. Company also carries out programmes of institutional BlackRock’s policies on socially responsible investment presentations in conjunction with BlackRock, following the and Corporate Governance are detailed on the website release of each set of Company results. blackrock.com/corporate/en-gb/about-us/responsible- The Manager and the Investment Manager provide investment/responsible-investment-reports. The Manager both Investment Management and Company Secretarial is supportive of the UK Stewardship Code, which is services; however the Board is confident that there are voluntary and operates on a “comply or explain basis”. comprehensive controls and procedures in place to ensure that conflicts of interest do not arise and that

Bribery prevention policy the Company Secretarial function is independently Additional information The provision of bribes of any nature to third parties in maintained. The Board discusses with BlackRock at order to gain a commercial advantage is prohibited and each Board meeting any feedback from meetings is a criminal offence. The Board has a zero-tolerance with shareholders, and it also receives reports from policy towards bribery and a commitment to carry out its corporate broker, and has the opportunity to meet business fairly, honestly and openly. The Board takes independently with the broker without the Manager or its responsibility to prevent bribery by the Company’s Secretary present. The Company’s broker interacts with Manager and Investment Manager on its behalf very investors on a regular basis with regard to all investor seriously and BlackRock has anti-bribery policies and issues, and will conduct shareholder meetings with the procedures in place which are high level, proportionate Company when requested by investors and brief the and risk based. The Company’s service providers have Board on shareholder views. The brokers also attend the been contacted in respect of their anti-bribery policies Annual General Meeting (alongside investors) and will

ANNUAL REPORT AND FINANCIAL STATEMENTS 28 FEBRUARY 2019 45

alert investors to the results (final and interim) as well Disclosure Guidance and Transparency Rules as other newsflow that they believe to be relevant to Other information required to be disclosed pursuant to investors in the Company. If shareholders want to contact the Disclosure Guidance and Transparency Rules has been the Chairman they may either speak to the Company placed in the Directors’ Report on pages 31 to 36 because Secretary or the corporate broker. As such, investors it is information which refers to events that have taken have an entirely alternative route to the Manager or place during the course of the year. Investment Manager to contact the Chairman if required. The Chairman is also available to meet directly with For and on behalf of the Board shareholders from time to time, as and when required, and on a regular basis will write directly to the Company’s NICHOLAS FRY largest shareholders to offer the opportunity to meet at Chairman their convenience. 2 May 2019

There is a section within the Annual Report and Financial Statements entitled “Shareholder Information”, which provides an overview of useful information available to shareholders. The Company’s Annual Report and Financial Statements, the Half Yearly Report, regular factsheets and other information are also published on blackrock. co.uk/brsc which is the website maintained by the Manager. The work undertaken by the auditors does not involve consideration of the maintenance and integrity of the website and, accordingly, the auditors accept no responsibility for any changes that have occurred to the accounts since they were initially presented on the website. Visitors to the website need to be aware that legislation in the United Kingdom governing the preparation and dissemination of the accounts may differ from legislation in their jurisdiction.

Packaged Retail & Insurance-Based Investment Products (PRIIPs) Regulation (‘the Regulation’) With effect from 1 January 2018, the European Union’s PRIIPs Regulation came into force and requires that anyone manufacturing, advising on, or selling a PRIIP to a retail investor in the EEA must comply with the Regulation. Shares issued by investment trusts fall into scope of the Regulation. Investors should be aware that the PRIIPs Regulation requires the AIFM, as PRIIPs manufacturer, to prepare a key information document (‘KID’) in respect of the Company. This KID must be made available, free of charge, to EEA retail investors prior to them making any investment decision and is published on BlackRock’s website. The Company is not responsible for the information contained in the KID and investors should note that the procedures for calculating the risks, costs and potential returns are prescribed by law. The figures in the KID may not reflect the expected returns for the Company and anticipated performance returns cannot be guaranteed.

The PRIIPs KID in respect of the Company can be found at: www.blackrock.co.uk/brsc.

46 BLACKROCK SMALLER COMPANIES TRUST PLC

Job No: 38091 Proof Event: 22 Black Line Level: 9 Park Communications Ltd Alpine Way London E6 6LA Customer: BlackRock Project Title: Smaller Companies Annual Rpt 2019 T: 0207 055 6500 F: 020 7055 6600 Report of the audit committee Overview and performance Role and responsibilities • reviewing and recommending to the Board for The Company has a separately chaired Audit Committee approval the audit and non-audit fees payable to the whose duties include considering and recommending to external auditors and the terms of their engagement; the Board for approval the contents of the half yearly and • reviewing and approving the external auditors’ plan annual financial statements, and providing an opinion as for the financial year, with a focus on the identification to whether the Annual Report and Financial Statements, of areas of audit risk, and consideration of the taken as a whole, are fair, balanced and understandable appropriateness of the level of audit materiality and provide the information necessary for shareholders adopted; to assess the Company’s performance, business model • reviewing the role of the Board, the Manager and third and strategy. The Committee also reviews the external party service providers in an effective audit process; auditors’ report on the annual financial statements and • reviewing the efficiency of the external audit process is responsible for reviewing and forming an opinion and the quality of the audit engagement partner and on the effectiveness of the external audit process the audit team, and making a recommendation to and audit quality. Other duties include reviewing the the Board with respect to the reappointment of the appropriateness of the Company’s accounting policies auditors; and the adequacy of the internal control systems and • considering the quality of the formal audit report to standards. The Audit Committee operates within written shareholders; terms of reference detailing its scope and duties and • reviewing the appropriateness of the Company’s Governance these are available on the website at blackrock.co.uk/brsc. accounting policies; and • reviewing the Company’s internal control systems The Audit Committee meets at least three times a year. and standards and evaluating the need for an internal Two of the planned meetings are held prior to the Board audit function as set out in the Corporate Governance meetings to approve the half yearly and annual results. Statement on page 44. The third meeting focuses on the audit plan, internal controls and assessment of fraud. The Audit Committee The fees paid to the external auditors are set out in note 5 receives information from BlackRock’s internal audit and of the Financial Statements. compliance departments on a regular basis. The Committee has also reviewed and accepted the ‘whistleblowing’ policy that has been put in place by Composition BlackRock under which its staff, in confidence, can raise The Audit Committee comprises all the Directors concerns about possible improprieties in matters of

excluding the Chairman of the Company, who attends financial reporting or other matters, in so far as they affect Financial statements by invitation. All Committee members, including the the Company. Chairman of the Committee, have recent and relevant financial experience from their senior management roles. Significant issues considered regarding the The biographies of the Directors may be found on pages annual report and financial statements 28 to 30. During the year, the Audit Committee considered the Responsibilities and review of the external significant issues and areas of key audit risk in respect of the Annual Report and Financial Statements. The Audit audit Committee reviewed the external audit plan at an early During the year the principal activities of the Audit stage and concluded that the appropriate areas of audit Committee included: risk relevant to the Company had been identified and that suitable audit procedures had been put in place to obtain • considering and recommending to the Board for reasonable assurance that the financial statements as a approval the contents of the half yearly and annual whole would be free of material misstatements. The table financial statements and reviewing the external on pages 22 to 24 sets out the key areas of risk identified Additional information auditors’ report thereon; and also explains how these were addressed. • reviewing the scope, execution, results, cost effectiveness, independence and objectivity of the external auditors;

ANNUAL REPORT AND FINANCIAL STATEMENTS 28 FEBRUARY 2019 47

Signiﬁcant issue How the issue was addressed The accuracy of the valuation of the investment portfolio Listed investments are valued using stock exchange prices provided by third party pricing vendors. Unquoted or illiquid investments, if any, are valued by the Directors based on recommendations from BlackRock’s Pricing Committee. The Board reviews detailed portfolio valuations at each of its Board meetings and receives confirmation from the Manager that the pricing basis is appropriate, in line with relevant accounting standards as adopted by the Company and that the carrying values are materially correct. The Board also relies on the Manager’s and Fund Accountant’s controls which are documented in a semi-annual internal controls report which is reviewed by the Audit Committee.

The risk of misappropriation of assets and unsecured The Audit Committee reviews reports from its service providers ownership of investments on key controls over the assets of the Company. Any significant issues are reported by the Manager to the Audit Committee. The Manager has put in place procedures to ensure that investments can only be made to the extent that the appropriate contractual and legal arrangements are in place to protect the Company’s assets.

The accuracy of the calculation of the management fee The management fee is calculated in accordance with the contractual terms in the investment management agreement by the Fund Accountant and is reviewed in detail by the Manager and is also subject to an analytical review by the Board.

The risk that income is overstated, incomplete or inaccurate The Board reviews income forecasts, including special through failure to recognise proper income entitlements dividends, and receives explanations from the Manager for any or to apply the appropriate accounting treatment for variations or significant movements from previous forecasts recognition of income and prior year figures.

As the provision of portfolio valuation, fund accounting The Committee, in conjunction with the Board, is and administration services is delegated to the Investment committed to reviewing this appointment on an annual Manager, which sub‑delegates fund accounting to BNYM basis to ensure the Company is receiving an optimal level and the provision of depositary services and custody of service. In addition to this, even if no change is made services are contracted to BNYM, the Audit Committee to the audit firm appointed, the audit partner changes at has also reviewed the Service Organisation Control (SOC least every five years. 1) reports prepared by BlackRock and BNYM to ensure that the relevant control procedures are in place to cover There are no contractual obligations that restrict the these areas of risk as identified in the table above are Company’s choice of auditors. The new EU regulations on adequate and appropriate and have been designated as mandatory “firm” rotation require the appointment of new operating effectively by the reporting auditors. auditors every ten years, although this can be extended up to an additional ten years if tenders are carried out at Auditors and audit tenure the decade mark or another audit firm is appointed to do a joint audit. The Audit Committee reviews the performance of the auditor on an annual basis, taking into consideration the The non-audit service work carried out during the year services and advice provided to the Company and the related to the review of the debenture certificate and a fees charged for these services. The last formal tender review in respect of the impact of the new management for audit services was conducted in December 2015, and fee arrangements. Fees paid to PricewaterhouseCoopers following presentations and interviews with a number of LLP in respect of these services were £5,225 (excluding audit firms, it was agreed to replace Scott-Moncrieff with VAT) (2018: £2,575 related to the review of the debenture PricewaterhouseCoopers LLP with effect from 13 January certificate). 2016. Mr Allan McGrath has been the audit partner since that date. The Committee also considers the risks associated with audit firms withdrawing from the market and the relationship with the Company’s auditors.

48 BLACKROCK SMALLER COMPANIES TRUST PLC

Job No: 38091 Proof Event: 22 Black Line Level: 9 Park Communications Ltd Alpine Way London E6 6LA Customer: BlackRock Project Title: Smaller Companies Annual Rpt 2019 T: 0207 055 6500 F: 020 7055 6600 Overview and performance PricewaterhouseCoopers LLP have indicated their To form a conclusion with regard to the independence willingness to continue in office and resolutions proposing of the external auditors, the Audit Committee considers their appointment and authorising the Audit Committee whether the skills and experience of the auditors to determine their remuneration for the ensuing year will make them a suitable supplier of any non-audit be proposed at the forthcoming Annual General Meeting. services and whether there are safeguards in place to ensure that there is no threat to their objectivity and Assessment of the effectiveness of the external independence in the conduct of the audit resulting from audit process the provision of any such services. On an annual basis, PricewaterhouseCoopers LLP review the independence To assess the effectiveness of the external audit, members of their relationship with the Company and report to of the Audit Committee work closely with the Manager the Audit Committee, providing details of any other to obtain a good understanding of the progress and relationship with the Manager. As part of this review, efficiency of the audit. The Audit Committee has adopted the Audit Committee also receives information about a framework in its review of the effectiveness of the policies and processes for maintaining independence external audit process and audit quality. This includes a and monitoring compliance with relevant requirements review of the following areas: from the Company’s auditors, including information on • The quality of the audit engagement partner and the the rotation of audit partners and staff, the level of fees audit team; that the Company pays in proportion to the overall fee Governance • The expertise of the audit firm and the resources income of the firm, the level of related fees, and details of available to it; any relationships between the audit firm and its staff and • Identification of areas of audit risk; the Company, as well as an overall confirmation from the • Planning, scope and execution of the audit; auditors of their independence and objectivity. • Consideration of the appropriateness of the level of As a result of their review, the Audit Committee has audit materiality adopted; concluded that the external audit has been conducted • The role of the Audit Committee, the Manager and effectively and also that PricewaterhouseCoopers LLP are third party service providers in an effective audit independent of the Company. process; • Communications by the auditors with the Audit Committee; Conclusions in respect of the annual report • How the auditors support the work of the Audit and financial statements Committee and how the audit continues to add value; The production and the audit of the Company’s Annual Financial statements • A review of independence and objectivity of the audit Report and Financial Statements is a comprehensive firm; and process requiring input from a number of different • The quality of the formal audit report to shareholders. contributors. In order to reach a conclusion that the Annual Report and Financial Statements are fair, balanced Feedback in relation to the audit process and the and understandable, the Board has requested that effectiveness of the Manager in performing its role is the Audit Committee advise on whether it considers also sought from relevant involved parties, notably the that these criteria are satisfied. In so doing, the Audit audit partner and team. The external auditors attend the Committee has given consideration to the following: Audit Committee meeting at which the annual financial statements are considered and at which they have the • the comprehensive control framework over the opportunity to meet with the Audit Committee without production of the Annual Report and Financial representatives of the Manager being present. Statements, including the verification processes in place to deal with the factual content; The effectiveness of the Board and the Manager in • the extensive levels of review that are undertaken in the the external audit process is assessed principally in production process by the Manager, the Depositary Additional information relation to the timely identification and resolution of any and the Audit Committee; process errors or control breaches that might impact • the controls that are in place at the Manager and third the Company’s net asset values and accounting records. party service providers to ensure the completeness and It is also assessed by reference to how successfully any accuracy of the Company’s financial records and the issues in respect of areas of accounting judgement are security of the Company’s assets; and identified and resolved, the quality and timeliness of • the existence of satisfactory Service Organisation papers analysing these judgements, the Board and the Control reports that have been reviewed and reported Manager’s approach to the value of independent audit on by external auditors in respect of the effectiveness and the booking of any audit adjustments arising, and the of the internal controls of BlackRock and BNYM. timely provision of draft public documents for review by the auditors and the Audit Committee.

ANNUAL REPORT AND FINANCIAL STATEMENTS 28 FEBRUARY 2019 49

In addition to the work outlined above, the Audit Committee has reviewed the Annual Report and Financial Statements and is satisfied that, taken as a whole, they are fair, balanced and understandable. In reaching this conclusion, the Audit Committee has assumed that the reader of the Annual Report and Financial Statements would have a reasonable level of knowledge of the investment trust industry. The Audit Committee has reported on these findings to the Board who affirm the Committee’s conclusions in the Statement of Directors’ Responsibilities in respect of the Annual Report and Financial Statements.

MICHAEL PEACOCK Chairman Audit Committee 2 May 2019

50 BLACKROCK SMALLER COMPANIES TRUST PLC

Job No: 38091 Proof Event: 22 Black Line Level: 9 Park Communications Ltd Alpine Way London E6 6LA Customer: BlackRock Project Title: Smaller Companies Annual Rpt 2019 T: 0207 055 6500 F: 020 7055 6600 Statement of directors’ responsibilities in respect of the annual report and financial statements Overview and performance The Directors are responsible for preparing the Annual of financial statements may differ from legislation in other Report and Financial Statements in accordance with jurisdictions. applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial Each of the Directors, whose names are listed on pages 28 year. Under that law they have elected to prepare the to 30, confirms that, to the best of their knowledge: financial statements in accordance with applicable law and United Kingdom Accounting Standards (United Kingdom • the Financial Statements, prepared in accordance with Generally Accepted Accounting Practice). applicable accounting standards, give a true and fair view of the assets, liabilities, financial position and profit Under company law the Directors must not approve the or loss of the Company; and financial statements unless they are satisfied that they give • the Strategic Report contained in the Annual Report a true and fair view of the state of affairs of the Company and Financial Statements includes a fair review of the as at the end of each financial year and of the profit or loss development and performance of the business and the of the Company for that year. position of the Company, together with a description of the principal risks and uncertainties that it faces. In preparing those financial statements, the Directors are required to: The UK Code also requires Directors to ensure that the Annual Report and Financial Statements are fair, balanced Governance • present fairly the financial position, financial and understandable. In order to reach a conclusion on this performance and cash flows of the Company; matter, the Board has requested that the Audit Committee • select suitable accounting policies and then apply them advise on whether it considers that the Annual Report and consistently; Financial Statements fulfil these requirements. The process • present information, including accounting policies, in by which the Committee has reached these conclusions a manner that provides relevant, reliable, comparable is set out in the Audit Committee’s report on pages 47 to and understandable information; 50. As a result, the Board has concluded that the Annual • make judgements and estimates that are reasonable Report and Financial Statements for the year ended and prudent; 28 February 2019, taken as a whole, are fair, balanced and • state whether applicable UK Accounting Standards understandable and provide the information necessary have been followed, subject to any material departures for shareholders to assess the Company’s position, disclosed and explained in the financial statements; performance, business model and strategy. and

• prepare the financial statements on the going concern For and on behalf of the Board Financial statements basis unless it is inappropriate to presume that the NICHOLAS FRY Company will continue in business. Chairman 2 May 2019 The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and that enable them to ensure that the Financial Statements and the Directors’ Remuneration Report comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

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

ANNUAL REPORT AND FINANCIAL STATEMENTS 28 FEBRUARY 2019 51

Report on the audit of the Financial Our audit approach Statements Overview Opinion Materiality • Overall materiality: £6.7 million (2018: £7.2 million), based on 1% of net assets. In our opinion, BlackRock Smaller Companies Trust plc’s financial statements: Audit • The Company is a standalone Investment scope Trust Company and engages BlackRock Fund • give a true and fair view of the state of the Company’s Managers Limited (the “Manager”) to manage affairs as at 28 February 2019 and of its loss and cash its assets. flows for the year then ended; • We conducted our audit of the Financial Statements using information from The • have been properly prepared in accordance with Bank of New York Mellon (International) United Kingdom Generally Accepted Accounting Limited (the “Administrator”) to whom Practice (United Kingdom Accounting Standards, the Manager has, with the consent of the comprising FRS 102 “The Financial Reporting Standard Directors, delegated the provision of certain applicable in the UK and Republic of Ireland”, and administrative functions. applicable law); and • We tailored the scope of our audit taking into account the types of investments within the • have been prepared in accordance with the Company, the involvement of the third parties requirements of the Companies Act 2006. referred to above, the accounting processes and controls, and the industry in which the We have audited the Financial Statements, included Company operates. within the Annual Report and Financial Statements (the • We obtained an understanding of the control “Annual Report”), which comprise: the Balance Sheet as at environment in place at both the Manager 28 February 2019; the Income Statement, the Statement and the Administrator, and adopted a fully of Cash Flows, the Statement of Changes in Equity for substantive testing approach using reports the year then ended; and the Notes to the Financial obtained from the Administrator. Statements, which include a description of the significant Key audit • Valuation and existence of investments. accounting policies. matters • Accuracy, occurrence and completeness of dividend income. Our opinion is consistent with our reporting to the Audit Committee. The scope of our audit Basis for opinion As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the We conducted our audit in accordance with International Financial Statements. Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities under ISAs (UK) are further Capability of the audit in detecting irregularities, described in the Auditors’ responsibilities for the audit of including fraud the Financial Statements section of our report. We believe Based on our understanding of the Company and that the audit evidence we have obtained is sufficient and industry, we identified that the principal risks of appropriate to provide a basis for our opinion. non‑compliance with laws and regulations related to Independence breaches of section 1158 of the Corporation Tax Act 2010 (see page 23 of the Annual Report), and we considered We remained independent of the Company in accordance the extent to which non-compliance might have a material with the ethical requirements that are relevant to our audit effect on the Financial Statements. We also considered of the Financial Statements in the UK, which includes those laws and regulations that have a direct impact the FRC’s Ethical Standard, as applicable to listed public on the preparation of the Financial Statements such as interest entities, and we have fulfilled our other ethical the Companies Act 2006. We evaluated management’s responsibilities in accordance with these requirements. incentives and opportunities for fraudulent manipulation To the best of our knowledge and belief, we declare of the Financial Statements (including the risk of override that non-audit services prohibited by the FRC’s Ethical of controls), and determined that the principal risks Standard were not provided to the Company. were related to posting inappropriate journal entries to increase net asset value and management bias in Other than those disclosed in Note 5, we have provided accounting estimates. Audit procedures performed by the no non-audit services to the Company in the period from engagement team included: 1 March 2018 to 28 February 2019.

52 BLACKROCK SMALLER COMPANIES TRUST PLC

Job No: 38091 Proof Event: 22 Black Line Level: 8 Park Communications Ltd Alpine Way London E6 6LA Customer: BlackRock Project Title: Smaller Companies Annual Rpt 2019 T: 0207 055 6500 F: 020 7055 6600 Overview and performance • Enquiries of the Manager and the Audit Committee, There are inherent limitations in the audit procedures including consideration of known or suspected described above and the further removed instances of non-compliance with laws and regulation non‑compliance with laws and regulations is from and fraud; the events and transactions reflected in the Financial • Testing the Company’s compliance with section 1158 Statements, the less likely we would become aware of it. of the Corporation Tax Act 2010 in the current year; Also, the risk of not detecting a material misstatement • Identifying and testing journal entries, specifically all due to fraud is higher than the risk of not detecting one manual journal entries posted by the administrator resulting from error, as fraud may involve deliberate during the preparation of the Financial Statements; concealment by, for example, forgery or intentional • Understanding the operating effectiveness of the misrepresentations, or through collusion. Administrator and Management’s internal controls designed to prevent and detect irregularities; Key audit matters • Reviewing relevant meeting minutes, including those of Key audit matters are those matters that, in the auditors’ the Audit Committee; and, professional judgement, were of most significance in the • Designing audit procedures to incorporate audit of the Financial Statements of the current period unpredictability around the nature, timing or extent of and include the most significant assessed risks of material our testing of immaterial journal entries. misstatement (whether or not due to fraud) identified by

the auditors, including those which had the greatest effect Governance on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. These matters, and any comments we make on the results of our procedures thereon, were addressed in the context of our audit of the Financial Statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. This is not a complete list of all risks identified by our audit.

Key audit matter How our audit addressed the key audit matter Valuation and existence of investments We tested the valuation of the equity investments by agreeing

Refer to page 48 (Report of the Audit Committee), page 63 the prices used in the valuation to independent third party Financial statements (Accounting Policies) and page 70 (Notes to the Financial sources. Statements). We tested the existence of the investment portfolio by The investment portfolio at the year-end comprised listed agreeing investment holdings to an independent custodian equity investments valued at £707.2m. confirmation.

We focused on the valuation and existence of investments No material issues were identified. because investments represent the principal element of the net asset value as disclosed on the Balance Sheet in the Financial Statements. Additional information

ANNUAL REPORT AND FINANCIAL STATEMENTS 28 FEBRUARY 2019 53

Key audit matter How our audit addressed the key audit matter Accuracy, occurrence and completeness of dividend income We assessed the accounting policy for dividend income Refer to page 48 (Report of the Audit Committee), page 62 recognition for compliance with accounting standards and the (Accounting Policies) and page 64 (Notes to the Financial AIC SORP and performed testing to check that income had Statements). been accounted for in accordance with this stated accounting policy. We focused on the accuracy, occurrence and completeness of dividend income recognition as incomplete or inaccurate We tested the accuracy of dividend receipts by agreeing the income could have a material impact on the Company’s net dividend rates from investments to independent market data. asset value and dividend cover. To test for completeness, we tested that for investment We also focused on the accounting policy for income holdings in the portfolio, all dividends recorded in the year recognition and its presentation in the Income Statement as had been declared in the market, and that all dividends set out in the requirements of The Association of Investment declared in the market by investment holdings had been Companies Statement of Recommended Practice (the “AIC recorded. SORP”) as incorrect application could indicate a misstatement in income recognition. To test for occurrence, we confirmed that all dividends recorded had occurred in the market, and audited cash reconciliations to identify any unreconciled dividend cash payments.

We also tested the allocation and presentation of dividend income between the revenue and capital return columns of the Income Statement in line with the requirements set out in the AIC SORP by confirming reasons behind dividend distributions.

No material issues were identified.

How we tailored the audit scope the Manager and the Administrator in accordance with We tailored the scope of our audit to ensure that we generally accepted assurance standards for such work. performed enough work to be able to give an opinion on Following this assessment, we applied professional the Financial Statements as a whole, taking into account judgement to determine the extent of testing required the structure of the Company, the accounting processes over each balance in the Financial Statements. and controls, and the industry in which it operates. Materiality The Company’s accounting is delegated to the The scope of our audit was influenced by our application Administrator who maintains the Company’s accounting of materiality. We set certain quantitative thresholds for records and who has implemented controls over those materiality. These, together with qualitative considerations, accounting records. helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the We obtained our audit evidence from substantive tests. individual financial statement line items and disclosures However as part of our risk assessment, we understood and in evaluating the effect of misstatements, both and assessed the internal controls in place at both the individually and in aggregate on the Financial Statements Manager and the Administrator to the extent relevant as a whole. to our audit. This assessment of the operating and accounting structure in place at both organisations Based on our professional judgement, we determined involved obtaining and analysing the relevant control materiality for the Financial Statements as a whole as reports issued by the independent service auditor of follows:

Overall materiality £6.7 million (2018: £7.2 million).

How we determined it 1% of net assets.

Rationale for benchmark applied We have applied this benchmark, which is a generally accepted auditing practice for investment trust audits.

54 BLACKROCK SMALLER COMPANIES TRUST PLC

Job No: 38091 Proof Event: 22 Black Line Level: 8 Park Communications Ltd Alpine Way London E6 6LA Customer: BlackRock Project Title: Smaller Companies Annual Rpt 2019 T: 0207 055 6500 F: 020 7055 6600 Overview and performance We agreed with the Audit Committee that we would Going concern report to them misstatements identified during our In accordance with ISAs (UK) we report as follows: audit above £337,000 (2018: £360,000) as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons.

Reporting obligation Outcome We are required to report if we have anything material to add We have nothing material to add or to draw attention to. or draw attention to in respect of the Directors’ statement in the Financial Statements about whether the Directors However, because not all future events or conditions can considered it appropriate to adopt the going concern basis be predicted, this statement is not a guarantee as to the of accounting in preparing the Financial Statements and Company’s ability to continue as a going concern. For the Directors’ identification of any material uncertainties to example, the terms on which the United Kingdom may the Company’s ability to continue as a going concern over a withdraw from the European Union are not clear, and it period of at least twelve months from the date of approval of is difficult to evaluate all of the potential implications on the Financial Statements. the Company’s trade, customers, suppliers and the wider economy. Governance We are required to report if the Directors’ statement relating We have nothing to report. to Going Concern in accordance with Listing Rule 9.8.6R(3) is materially inconsistent with our knowledge obtained in the audit.

Reporting on other information Strategic Report and Directors’ Report The other information comprises all of the information in In our opinion, based on the work undertaken in the Annual Report other than the Financial Statements and the course of the audit, the information given in the our auditors’ report thereon. The Directors are responsible Strategic Report and Directors’ Report for the year for the other information. Our opinion on the Financial ended 28 February 2019 is consistent with the Financial Statements does not cover the other information and, Statements and has been prepared in accordance with accordingly, we do not express an audit opinion or, except applicable legal requirements. (CA06) to the extent otherwise explicitly stated in this report, any form of assurance thereon. In light of the knowledge and understanding of the Financial statements Company and its environment obtained in the course of In connection with our audit of the Financial Statements, the audit, we did not identify any material misstatements our responsibility is to read the other information and, in the Strategic Report and Directors’ Report. (CA06) in doing so, consider whether the other information is materially inconsistent with the Financial Statements or our The Directors’ assessment of the prospects of the knowledge obtained in the audit, or otherwise appears to Company and of the principal risks that would threaten be materially misstated. If we identify an apparent material the solvency or liquidity of the Company inconsistency or material misstatement, we are required We have nothing material to add or draw attention to to perform procedures to conclude whether there is a regarding: material misstatement of the Financial Statements or a material misstatement of the other information. If, based • The Directors’ confirmation on page 51 of the Annual on the work we have performed, we conclude that there Report that they have carried out a robust assessment is a material misstatement of this other information, we of the principal risks facing the Company, including are required to report that fact. We have nothing to report those that would threaten its business model, future based on these responsibilities. performance, solvency or liquidity. Additional information • The disclosures in the Annual Report that describe With respect to the Strategic Report and Directors’ Report, those risks and explain how they are being managed or we also considered whether the disclosures required by mitigated. the UK Companies Act 2006 have been included.

Based on the responsibilities described above and our work undertaken in the course of the audit, the Companies Act 2006 (CA06), ISAs (UK) and the Listing Rules of the Financial Conduct Authority (FCA) require us also to report certain opinions and matters as described below (required by ISAs (UK) unless otherwise stated).

ANNUAL REPORT AND FINANCIAL STATEMENTS 28 FEBRUARY 2019 55

• The Directors’ explanation on pages 24 and 25 of Responsibilities for the Financial Statements the Annual Report as to how they have assessed the and the audit prospects of the Company, over what period they Responsibilities of the Directors for the Financial have done so and why they consider that period to be Statements appropriate, and their statement as to whether they have a reasonable expectation that the Company will As explained more fully in the Statement of Directors’ be able to continue in operation and meet its liabilities Responsibilities in respect of the annual report and as they fall due over the period of their assessment, financial statements set out on page 51, the Directors including any related disclosures drawing attention to are responsible for the preparation of the Financial any necessary qualifications or assumptions. Statements in accordance with the applicable framework and for being satisfied that they give a true and fair view. We have nothing to report having performed a review The Directors are also responsible for such internal control of the Directors’ statement that they have carried out as they determine is necessary to enable the preparation a robust assessment of the principal risks facing the of financial statements that are free from material Company and statement in relation to the longer-term misstatement, whether due to fraud or error. viability of the Company. Our review was substantially less in scope than an audit and only consisted of In preparing the Financial Statements, the Directors making inquiries and considering the Directors’ process are responsible for assessing the Company’s ability to supporting their statements; checking that the statements continue as a going concern, disclosing as applicable, are in alignment with the relevant provisions of the matters related to going concern and using the going UK Corporate Governance Code (the “Code”); and concern basis of accounting unless the Directors either considering whether the statements are consistent with intend to liquidate the Company or to cease operations, the knowledge and understanding of the Company or have no realistic alternative but to do so. and its environment obtained in the course of the audit. (Listing Rules) Auditors’ responsibilities for the audit of the Financial Statements Other Code Provisions Our objectives are to obtain reasonable assurance about We have nothing to report in respect of our responsibility whether the Financial Statements as a whole are free from to report when: material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. • The statement given by the Directors, on page 51, that Reasonable assurance is a high level of assurance, but is they consider the Annual Report taken as a whole to not a guarantee that an audit conducted in accordance be fair, balanced and understandable, and provides with ISAs (UK) will always detect a material misstatement the information necessary for the members to assess when it exists. Misstatements can arise from fraud or the Company’s position and performance, business error and are considered material if, individually or in model and strategy is materially inconsistent with our the aggregate, they could reasonably be expected to knowledge of the Company obtained in the course of influence the economic decisions of users taken on the performing our audit. basis of these financial statements. • The section of the Annual Report on pages 47 to 50 describing the work of the Audit Committee does not A further description of our responsibilities for the audit appropriately address matters communicated by us to of the Financial Statements is located on the FRC’s the Audit Committee. website at: www.frc.org.uk/auditorsresponsibilities. This • The Directors’ statement relating to the Company’s description forms part of our auditors’ report. compliance with the Code does not properly disclose a departure from a relevant provision of the Code Use of this report specified, under the Listing Rules, for review by the This report, including the opinions, has been prepared auditors. for and only for the Company’s members as a body in accordance with Chapter 3 of Part 16 of the Companies Directors’ Remuneration Act 2006 and for no other purpose. We do not, in giving In our opinion, the part of the Directors’ Remuneration these opinions, accept or assume responsibility for any Report to be audited has been properly prepared in other purpose or to any other person to whom this report accordance with the Companies Act 2006. (CA06) is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

56 BLACKROCK SMALLER COMPANIES TRUST PLC

Job No: 38091 Proof Event: 22 Black Line Level: 8 Park Communications Ltd Alpine Way London E6 6LA Customer: BlackRock Project Title: Smaller Companies Annual Rpt 2019 T: 0207 055 6500 F: 020 7055 6600 Overview and performance Other required reporting Companies Act 2006 exception reporting Under the Companies Act 2006 we are required to report to you if, in our opinion:

• we have not received all the information and explanations we require for our audit; or • adequate accounting records have not been kept by the Company, or returns adequate for our audit have not been received from branches not visited by us; or • certain disclosures of directors’ remuneration specified by law are not made; or • the Financial Statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the accounting records and returns.

We have no exceptions to report arising from this Governance responsibility.

Appointment Following the recommendation of the Audit Committee, we were appointed by the Directors on 13 January 2016 to audit the Financial Statements for the year ended 29 February 2016 and subsequent financial periods. The period of total uninterrupted engagement is 4 years, covering the years ended 29 February 2016 to 28 February 2019.

Allan McGrath (Senior Statutory Auditor) for and on behalf of PricewaterhouseCoopers LLP

Chartered Accountants and Statutory Auditors Financial statements Edinburgh 2 May 2019 Additional information

ANNUAL REPORT AND FINANCIAL STATEMENTS 28 FEBRUARY 2019 57

2019 2018

Notes Revenue Capital Total Revenue Capital Total £’000 £’000 £’000 £’000 £’000 £’000 (Losses)/gains on investments held at fair value through profit or loss 10 – (44,856) (44,856) – 127,657 127,657 Gains/(losses) on foreign exchange – 16 16 – (8) (8) Income from investments held at fair value through profit or loss 3 18,434 – 18,434 16,235 21 16,256 Other income 3 135 – 135 16 – 16

Total income/(expenses) 18,569 (44,840) (26,271) 16,251 127,670 143,921

Expenses Investment management and performance fees 4 (1,147) (3,443) (4,590) (971) (4,707) (5,678) Operating expenses 5 (650) (29) (679) (625) (22) (647)

Total operating expenses (1,797) (3,472) (5,269) (1,596) (4,729) (6,325)

Net profit/(loss) on ordinary activities before finance costs and taxation 16,772 (48,312) (31,540) 14,655 122,941 137,596 Finance costs 6 (586) (1,757) (2,343) (530) (1,589) (2,119)

Net profit/(loss) on ordinary activities before taxation 16,186 (50,069) (33,883) 14,125 121,352 135,477 Taxation 7 (63) – (63) (96) – (96)

Net profit/(loss) on ordinary activities after taxation 16,123 (50,069) (33,946) 14,029 121,352 135,381

Revenue return/(loss) per ordinary share (pence) 9 33.67 (104.57) (70.90) 29.30 253.45 282.75

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

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

The accompanying notes on pages 62 to 80 form an integral part of these financial statements.

58 BLACKROCK SMALLER COMPANIES TRUST PLC

Way Alpine

T: 0207 055 6500 T: reserve Total Revenue Revenue – (13,407) (13,407) – (11,012) (11,012) Park Communications Ltd Communications Park Capital Capital reserves Capital Capital reserve redemption redemption Black Line Level: 9 Black Line Level: Share Share account premium premium – – – 121,352 14,029 135,381 – – – (50,069) 16,123 (33,946) £’000 £’000 £’000 £’000 £’000 £’000 Called Called capital 12,498 38,952 1,982 525,439 18,202 597,073 12,498 38,952 1,982 596,722 23,935 674,089 12,498 38,952 1,982 646,791 21,219 721,442 12,498 38,952 1,982 646,791 21,219 721,442 up share up share ANNUAL REPORT AND FINANCIAL STATEMENTS 28 FEBRUARY 2019 28 FEBRUARY STATEMENTS AND FINANCIAL REPORT ANNUAL 8 – – 8 – – – – Note Proof Event: 22 Event: Proof Annual Rpt 2019 Smaller Companies Title: Project espect of the year ended 28 February 2019 of on 29 October 2018 and paid on 26 November 12.00p was declared espect of ended 28 February the year 2018 of on 30 October 2017 and paid on 15 December 10.00p was declared espect of ended 28 February the year 2 1 Interim dividend paid in r Interim dividend paid in r 2018. Final dividend paid in respect of the year ended 28 February 2018 of 16.00p was declared on 27 April 2018 and paid on 15 June 2018. and paid on 15 April 2018 2018 of on 27 16.00p was declared of dividend paid in respect ended 28 February year the Final 2018. June 2017. 2017 of on 2 May 2017 and paid on 19 13.00p was declared of dividend paid in respect ended 28 February year the Final 2017. At 28 February 2018 At 28 February Transactions with owners, recorded directly to directly recorded with owners, Transactions equity: Dividends paid Total comprehensive income: comprehensive Total for the year Net profit Transactions with owners, recorded directly to directly recorded with owners, Transactions equity: Dividends paid For the year ended 28 February 2018 ended 28 February the year For 2017 At 28 February Total comprehensive income/(expenses): comprehensive Total for the year Net (loss)/profit At 28 February 2019 At 28 February For the year ended 28 February 2019 ended 28 February the year For 2018 At 28 February

1 2 Statement ofStatement in equity changes 2019 28 February ended for the year The accompanying notes on pages 62 to 80 form an integral part of part statements. accompanying notes on pages 62 to 80 form an integral these financial The Job No: 38091 Customer: BlackRock Balance sheet as at 28 February 2019

Notes 2019 2018 £’000 £’000 Fixed assets Investments held at fair value through profit or loss 10 707,150 792,060 Current assets Debtors 11 2,379 2,680 Cash and cash equivalents 11,719 13,792 14,098 16,472 Creditors – amounts falling due within one year 12 (4,961) (12,420) Net current assets 9,137 4,052 Total assets less current liabilities 716,287 796,112 Creditors – amounts falling due after more than one year 13 (42,198) (74,670) Net assets 674,089 721,442 Capital and reserves Called up share capital 14 12,498 12,498 Share premium account 15 38,952 38,952 Capital redemption reserve 15 1,982 1,982 Capital reserves 15 596,722 646,791 Revenue reserve 15 23,935 21,219

Total shareholders’ funds 674,089 721,442 Net asset value per ordinary share (debt at par value) (pence) 9 1,407.88 1,506.78 Net asset value per ordinary share (debt at fair value) (pence) 9 1,400.57 1,500.04

The financial statements on pages 58 to 80 were approved and authorised for issue by the Board of Directors on 2 May 2019 and signed on its behalf by Nicholas Fry, Chairman and Michael Peacock, Director and Audit Committee Chairman.

BlackRock Smaller Companies Trust plc Registered in Scotland, No. 6176

The accompanying notes on pages 62 to 80 form an integral part of these financial statements.

60 BLACKROCK SMALLER COMPANIES TRUST PLC

(8) 29

Way Alpine

T: 0207 055 6500 T: – – 25,000 (278) 16 (16) (63) (96) (584) (183) 2019 2018 £’000 £’000 2,343 2,119 1,535 3,813 (1,624) 1,486 (2,355) (1,908) (2,089) 13,771 44,856 (127,678) 46,173 1,969 13,792 11,719 13,792 10,184 11,719 9,979 13,792 (33,883) 135,477 (32,500) (13,407)(48,262) (11,012) 11,802 330,276 273,726 (295,132) (282,890) Park Communications Ltd Communications Park Black Line Level: 9 Black Line Level: ANNUAL REPORT AND FINANCIAL STATEMENTS 28 FEBRUARY 2019 28 FEBRUARY STATEMENTS AND FINANCIAL REPORT ANNUAL Proof Event: 22 Event: Proof Annual Rpt 2019 Smaller Companies Title: Project Add back finance costs or loss profit fair value through on investments held at Losses/(gains) exchange Net movement in foreign or loss profit Sales of fair value through investments held at or loss profit of fair value through investments held at Purchases in debtors Increase creditors in (Decrease)/increase on investment income Taxation activities operating from Net cash generated activities Financing loan note issue from Proceeds Issue costs of loan note facility of credit Net repayment Scotiabank revolving Operating activities Operating taxation before Net (loss)/profit Interest paid Interest Dividends paid activities financing from Net cash (used in)/generated in cash and cash equivalents (Decrease)/increase of beginning and cash equivalents at year Cash changes rate of exchange Effect foreign Cash and cash equivalents at end of and cash equivalents at year Cash of: Comprised bank at Cash Fund”) (“Cash Liquidity Fund Series plc – Sterling Institutional Cash BlackRock The accompanying notes on pages 62 to 80 form an integral part of part statements. accompanying notes on pages 62 to 80 form an integral these financial The Statement ofStatement cash flows 2019 28 February ended for the year Job No: 38091 Customer: BlackRock Notes to the financial statements for the year ended 28 February 2019

1. Principal activity received. The return on a debt security is recognised on a The principal activity of the Company is that of an time apportionment basis. investment trust company within the meaning of section Special dividends are recognised on an ex-dividend basis 1158 of the Corporation Tax Act 2010. and are treated as capital or revenue depending on the facts or circumstances of each dividend. 2. Accounting policies The principal accounting policies adopted by the Dividends are accounted for in accordance with Section Company are set out below. 29 of FRS 102 on the basis of income actually receivable. Dividends from overseas companies continue to be (a) Basis of preparation shown gross of withholding tax. The Company presents its results and positions under FRS 102, ‘The Financial Reporting Standard applicable in the Deposit interest receivable is accounted for on an accruals UK and Republic of Ireland’ (FRS 102), which forms part of basis. the revised Generally Accepted Accounting Practice (New UK GAAP) issued by the Financial Reporting Council (FRC) Where the Company has elected to receive its dividends in 2013. in the form of additional shares rather than in cash, the cash equivalent of the dividend foregone is recognised in The financial statements have been prepared on a the revenue column of the Income Statement. Any excess going concern basis in accordance with FRS 102 and in the value of the shares over the amount of the cash the revised Statement of Recommended Practice – dividend is recognised in capital reserves. ‘Financial Statements of Investment Trust Companies and Venture Capital Trusts’ (SORP) issued by the Association (e) Expenses of Investment Companies (AIC) in November 2014 All expenses, including finance costs, are accounted for and updated in January 2017 and the provisions of the on an accruals basis. Expenses have been charged wholly Companies Act 2006. to the revenue column of the Income Statement, except as follows: The principal accounting policies adopted by the Company are set out below. Unless specified otherwise, • expenses which are incidental to the acquisition or the policies have been applied consistently throughout disposal of an investment are treated as capital. Details the year and are consistent with those applied in the of transaction costs on the purchases and sales of preceding year. All of the Company’s operations are of a investments are shown in Note 10; continuing nature. • expenses are treated as capital where a connection with the maintenance or enhancement of the value of The Company’s financial statements are presented in the investments can be demonstrated; sterling, which is the currency of the primary economic • the investment management fee and finance costs have environment in which the Company operates. All values been allocated 75% to the capital column and 25% to are rounded to the nearest thousand pounds (£’000) the revenue column of the Income Statement in line except where otherwise stated. with the Board’s expected long term split of returns, in the form of capital gains and income respectively, from (b) Presentation of Income Statement the investment portfolio. In order to better reflect the activities of an investment trust company and in accordance with guidance issued (f) Taxation by the AIC, supplementary information which analyses The tax expense represents the sum of the tax currently the Income Statement between items of a revenue and payable and deferred tax. The tax currently payable is a capital nature has been presented on the face of the based on the taxable profit for the year. Taxable profit Income Statement. differs from net profit as reported in the Income Statement because it excludes items of income or expenses that are (c) Segmental reporting taxable or deductible in other years and it further excludes The Directors are of the opinion that the Company items that are never taxable or deductible. The Company’s is engaged in a single segment of business being liability for current tax is calculated using tax rates that investment business. were applicable at the balance sheet date.

(d) Income Deferred taxation is recognised in respect of all timing Dividends receivable on equity shares are treated as differences at the financial reporting date, where revenue for the year on an ex-dividend basis. Where no transactions or events that result in an obligation to pay ex-dividend date is available, dividends receivable on or more taxation in the future or right to less taxation in the before the year end are treated as revenue for the year. future have occurred at the balance sheet date. Deferred Provisions are made for dividends not expected to be tax is measured on a non-discounted basis, at the average

62 BLACKROCK SMALLER COMPANIES TRUST PLC

Way Alpine

T: 0207 055 6500 T: Park Communications Ltd Communications Park Black Line Level: 9 Black Line Level: recognised in the financial statements in the period in in the financial statements recognised paid. which they are translation currency (i) Foreign the Company of with Section 30 In accordance FRS 102, the being a functional currency, to nominate is required operates. predominately in which the Company currency reflecting is sterling, currency functional and reporting The in which the Company environment the primary economic translated are currencies in foreign Transactions operates. of ruling on the date the rates exchange into sterling at monetary assets currency Foreign of the transaction. of the rates into sterling at translated and liabilities are and Profits the Balance Sheet date. ruling at exchange in the capital column of recognised the are losses thereon to the capital reserve. and taken Income Statement Treasury (j) and held in repurchased Shares and held in treasury of full cost repurchased The shares are shares treasury Where to capital reserves. is charged to the share any surplus is taken subsequently reissued, account. premium (k) Debtors other debtors settlement, Debtors include sales for future and accrued income in the ordinary and pre-payments Ifcourse of in one year collection is expected business. they are If not, assets. classified as current they are or less, assets. as non-current presented (l) Creditors interest settlement, for future include purchases Creditors buyback costs and accruals in the ordinary share payable, are loans and debentures Creditors, course of business. if – amounts due within one year classified as creditors or less (or in the normal payment is due within one year cycle of they are Ifoperating the business if not, longer). more – amounts falling due after as creditors presented than one year. and cash equivalents (m) Cash comprises cash in hand and on demand deposits Cash Cash demand. on repayable and bank overdrafts highly liquid investments, term, equivalents include short to known amounts of convertible cash and readily are that to an insignificant risk of subject are changes in value. that and judgements (n) Critical accounting estimates and assumptions estimates makes Company The accounting estimates resulting The concerning the future. seldom equal the by definition, and assumptions will, and judgements are Estimates results. actual related based on historical experience and are evaluated regularly of including expectations future and other factors, under believed to be reasonable are events and that any do not believe that Directors The the circumstances. have a significant risk accounting judgements or estimates of adjustment to the carrying amount causing a material of financial year. assets and liabilities within the next ANNUAL REPORT AND FINANCIAL STATEMENTS 28 FEBRUARY 2019 28 FEBRUARY STATEMENTS AND FINANCIAL REPORT ANNUAL Proof Event: 22 Event: Proof Annual Rpt 2019 Smaller Companies Title: Project tax rates that are expected to apply in the periods in to apply in the periods expected are that tax rates to reverse expected are which the timing differences been enacted or have and laws that based on tax rates is This by the balance sheet date. substantively enacted being recognised assets only taxation subject to deferred will be there that than not likely if more it is considered of reversal timing the which the future from suitable profits can be deducted. differences or loss profit value through fair at (g) Investments held fair classified as held at are investments Company’s The 11 with Section or loss in accordance profit value through on a and 12 of managed and evaluated FRS 102 and are with its investment strategy. fair value basis in accordance upon initial recognition designated All investments are of Purchases or loss. profit fair value through as held at Sales basis. date on a trade recognised investments are of date the trade the disposal. at of recognised assets are which will be fair value, at will be measured Proceeds of as the proceeds the sale less any transaction regarded costs. of fair value The the financial investments is based on on the the balance sheet date their quoted bid price at without on which the investment is quoted, exchange selling costs. future deduction for the estimated at valued by the Directors Unquoted investments are Venture Equity and Private fair value using International applies to policy This Guidelines. Valuation Capital asset investments ofand non current the all current Company. Changes in the value of fair value held at investments or loss and gains and losses on disposal are profit through as ‘Gains or losses in the Income Statement recognised or loss’. profit fair value through on investments held at costs in transaction are Also included within this heading or sale of purchase to the investments. relation consists of the following three fair value hierarchy The levels: price for identical instruments in 1 – Quoted market Level active markets techniques using observable inputs Valuation 2 – Level techniques using significant Valuation 3 – Level unobservable inputs (h) Dividends payable Under Section 32 of FRS 102 final dividends should not unless they have be accrued in the financial statements the balance before by shareholders been approved are Dividends payable to equity shareholders sheet date. of in the Statement Changes in Equity when recognised and have by shareholders they have been approved Interim dividends are become a liability of the Company. Job No: 38091 Customer: BlackRock Notes to the financial statements continued

3. Income

2019 2018 £’000 £’000 Investment income: UK listed dividends 14,020 11,654 UK listed scrip dividends 54 144 UK listed special dividends 1,372 591 Property income dividends 777 879 Overseas listed dividends 2,053 2,473 Overseas listed scrip dividends – 70 Overseas listed special dividends 158 424

18,434 16,235

Other income: Bank interest 14 1 Interest from the Cash Fund 121 15

135 16

Total 18,569 16,251

No special dividends have been recognised in capital during the year (2018: £21,000).

Dividends and interest received in cash in the period amounted to £17,762,000 and £128,000 (2018: £15,829,000 and £15,000) respectively.

Comparative figures Interest of £121,000 (2018: £15,000) from the Cash Fund has been reclassified from “Income from investments held at fair value through profit or loss” to “Other income” in the Income Statement. This reclassification had no impact on the revenue return for the respective periods or the net assets as at 28 February 2019.

64 BLACKROCK SMALLER COMPANIES TRUST PLC

Way 2018 Alpine

T: 0207 055 6500 T: Park Communications Ltd Communications Park – 1,794 1,794 – 2019 Black Line Level: 9 Black Line Level: – ANNUAL REPORT AND FINANCIAL STATEMENTS 28 FEBRUARY 2019 28 FEBRUARY STATEMENTS AND FINANCIAL REPORT ANNUAL – 1,147 3,443 4,590 971 4,707 5,678 1,147 3,443 4,590 971 2,913 3,884 £’000 £’000 £’000 £’000 £’000 £’000 Revenue Capital Total Revenue Capital Total Proof Event: 22 Event: Proof Annual Rpt 2019 Smaller Companies Title: Project Total Performance fee Performance Investment management fee Investment management Up until 28 February 2018, the investment management fee was based on a rate of was based on a rate the investment management fee 0.65% of the first £50 million of 2018, the Up until 28 February as total was applied to an asset amount calculated fee rate The to 0.50% above this level. reducing assets, Company’s Amount”). Asset liabilities of (the “Fee income) less the current the Company year current assets (excluding ofto the initial threshold Amount up £50 Asset of of the rate one quarter at of 0.65% calculated fee was the Fee The the end of thereof at Amount in excess each Asset of of quarter and one the fee rate by the Fee 0.50% multiplied million, column of column and 25% to the revenue 75% to the capital management fee was allocated investment The quarter. the income statement. of the rate 10% of at performance over the benchmark for the fee was calculated performance the annualised excess A Assets were Average Assets of the Company. Average applied to the end, financial year the current preceding two years added together and divided by two. of end date the year the start and at Amount at the year Asset defined as the Fee Assets. 0.25% ofAverage April and was capped at payable annually in fee was The was 2018 28 February ended benchmark for the two years performance against the Company’s excess annualised The ended and £1,794,000 was accrued for the year by the 0.25% cap fee was restricted The 2017: 7.0%). 9.0% (28 February 2018. 28 February to the capital column of wholly allocated as the performance was the income statement fees were Performance of capital returns the investment portfolio. through generated predominantly the same date, from a performance fee and, has no longer been charged the Company 2018, 1 March from With effect Amount, ofAsset based on a rate the investment management fee has been 0.6% of £750 million of the first the Fee Amount up Asset of of rate the one quarter at 0.6% of fee is calculated the Fee The to 0.5% above this level. reducing the end of at thereof, in excess Amount Asset of and one quarter of 0.5% ofto the initial threshold £750 million, the Fee column of column and 25% to the revenue 75% to the capital management fee is allocated investment The quarter. each the Income Statement. 4. Investment management and performance fees Investment management and 4. Job No: 38091 Customer: BlackRock Notes to the financial statements continued

5. Operating expenses

2019 2018 £’000 £’000 Taken to revenue: Custody fees 6 5 Depositary fees 98 94 Auditor’s remuneration: – audit services 27 27 – non audit services1 6 3 Registrar’s fee 41 26 Directors’ emoluments 155 155 Marketing fees 113 155 Broker fees 36 36 Stock exchange listings 21 14 Printing and Postage 24 14 Other administrative costs 123 96

650 625

Taken to capital: Custody transaction charges 29 22

679 647

The Company’s ongoing charges - calculated as a percentage of average shareholders’ funds and using operating expenses, excluding performance fees, finance costs, transaction charges and taxation were: 0.7% 0.7%

The Company’s ongoing charges - calculated as a percentage of average shareholders’ funds and using operating expenses, including performance fees2, and excluding finance costs, transaction charges and taxation were: N/A 1.0%

1 F ees for non audit services relate to the debenture compliance work carried out by the Auditors and a review by the Auditors in respect of the impact of the new management fee arrangements (as set out in note 4). 2 With effect from 1 March 2018, a performance fee is no longer charged. At 28 February 2018, a performance fee was charged. Please see note 4 of the financial statements for further details of the change. 6. Finance costs

2019 2018 Revenue Capital Total Revenue Capital Total £’000 £’000 £’000 £’000 £’000 £’000 Interest on 7.75% debenture stock 2022 290 871 1,161 290 871 1,161 Interest on 2.74% loan note 2037 170 511 681 131 392 523 Interest on bank loan 118 353 471 102 305 407 Interest on overdraft – 2 2 – 1 1 Amortised debenture stock issue expenses 4 10 14 4 11 15 Amortised loan note issue expenses 4 10 14 3 9 12

586 1,757 2,343 530 1,589 2,119

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.

66 BLACKROCK SMALLER COMPANIES TRUST PLC

96 96 96 96

Way 2018 2018 Alpine

T: 0207 055 6500 T: – – – – – – 4 2 (4) (2,934) Park Communications Ltd Communications Park – – – (24,360) (24,360) – – 96 96 96 96 5 (1) (3) 63 43 63 63 63 2019 2019 Black Line Level: 9 Black Line Level: – – – – (3,347) (2,930) – – 5 (3) 43 ANNUAL REPORT AND FINANCIAL STATEMENTS 28 FEBRUARY 2019 28 FEBRUARY STATEMENTS AND FINANCIAL REPORT ANNUAL – – –– 8,523 8,523 (1) 63 63 63 63 273 945 1,218 235 1,201 1,436 3,075 (9,513) (6,438) 2,695 23,157 25,852 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 (3,347) 16,186 (50,069) (33,883) 14,125 121,352 135,477 Revenue Capital Total Revenue Capital Total Revenue Capital Total Revenue Capital Total Proof Event: 22 Event: Proof Annual Rpt 2019 Smaller Companies Title: Project

rofit/(loss) on ordinary activities on ordinary rofit/(loss) P tax charge Overseas restriction of interest Effect corporate period in current (note 7(a)) tax charge Total multiplied by standard rate of rate multiplied by standard tax ofcorporation 19.00% (2018: 19.08%) of: Effects tax Income not subject to corporation Disallowed expenses not utilised expenses Excess Expense relief Current tax: Current tax (note 7 (b)) Overseas activities on ordinary Profit/(loss) taxation before Total taxation Total held at on investments Loss/(profit) or loss profit fair value through loss not taxable exchange Foreign (c) Factors that may affect future tax changes future may affect that (c) Factors and a of had net surplus management expenses 2019 the Company £52,851,000 (2018: £48,437,000), At 28 February facility credit revolving loan note, debenture, on the Company’s to interest deficit (relating loan relationship non-trade of in respect tax asset has not been recognised deferred A of £26,874,000 (2018: £24,647,000). and bank overdraft) of in excess the deductible taxable income in the future to generate is not expected these losses as the Company tax liabilities future will be able to reduce the Company it is unlikely accordingly, period and, ofexpenses future that deficits. and loan relationship the use of expenses excess through the existing (b) Factors affecting current taxation charge for the year charge taxation current affecting (b) Factors the Accordingly, April 2017. 1 from 20% to 19% with effect changed from of tax in the UK rate corporation standard The of rate 19.00% (2018: 19.08%). an effective at taxed period are for this accounting profit/(loss) Company’s in the UK: the of taxation rate corporation the standard is higher (2018: lower) than for the year tax assessed The below. explained are differences 7. Taxation 7. Analysis of the year for (a) charge Job No: 38091 Customer: BlackRock Notes to the financial statements continued

8. Dividends

2019 2018 Dividends paid on equity shares: Record date Payment date £’000 £’000 2017 Final of 13.00p 19 May 2017 19 June 2017 – 6,224 2018 Interim of 10.00p 10 November 2017 15 December 2017 – 4,788 2018 Final of 16.00p 18 May 2018 15 June 2018 7,661 – 2019 Interim of 12.00p 9 November 2018 26 November 2018 5,746 –

13,407 11,012

The Directors have proposed a final dividend of 19.20p per share in respect of the year ended 28 February 2019. The proposed dividend will be paid, subject to shareholders’ approval on 12 June 2019, to shareholders on the Company’s register on 17 May 2019. The proposed final dividend has not been included as a liability in these financial statements, as final dividends are only recognised in the financial statements when they have been approved by shareholders.

The total dividends payable in respect of the year which form the basis of determining retained income for the purposes of section 1158 of the Corporation Tax Act 2010 and section 833 of the Companies Act 2006, and the amount proposed for the year ended 28 February 2019 meet the relevant requirements as set out in this legislation.

2019 2018 Dividends paid or proposed on equity shares: £’000 £’000 Interim dividend paid 12.00p (2018: 10.00p) 5,746 4,788 Final dividend proposed of 19.20p per share* (2018: 16.00p) 9,193 7,661

14,939 12,449

* Based upon 47,879,792 ordinary shares (excluding treasury shares) in issue on 2 May 2019.

All dividends paid or payable are distributed from the Company’s distributable reserves.

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Way As at As at 2018 2018 Alpine

Year ended Year 28 February 28 February 28 February 28 February T: 0207 055 6500 T: As at As at 2019 2019 33.67 29.30 (70.90) 282.75 16,123 14,029 (50,069)(33,946) 121,352 135,381 (104.57) 253.45 674,089 721,442 1,407.88 1,400.57 1,506.78 1,386.21 1,500.04 1,330.00 1,487.48 1,325.00 47,879,792 47,879,792 47,879,792 47,879,792 Year ended Year 28 February 28 February 28 February 28 February Park Communications Ltd Communications Park Black Line Level: 9 Black Line Level: ANNUAL REPORT AND FINANCIAL STATEMENTS 28 FEBRUARY 2019 28 FEBRUARY STATEMENTS AND FINANCIAL REPORT ANNUAL Proof Event: 22 Event: Proof Annual Rpt 2019 Smaller Companies Title: Project Revenue return attributable to ordinary shareholders (£’000) shareholders ordinary to attributable return Revenue (£’000) shareholders to ordinary attributable (loss)/return Capital (£’000) shareholders to ordinary attributable (loss)/profit Total funds (£’000) Equity shareholders’ Net asset value per ordinary share (debt at par value) (pence) (debt at share Net asset value per ordinary fair value) (pence) (debt at share Net asset value per ordinary capital only) (pence) par value, (debt at share Net asset value per ordinary (pence) price share Ordinary The weighted average number of ordinary shares in issue during each year on which the return on which the return year in issue during each number of shares weighted average ordinary The was: was calculated share per ordinary the end of in issue at on which the undiluted net year actual number of each shares The ordinary was: asset value was calculated (pence) per share return Revenue (pence) per share return Capital (pence) per share (loss)/return Total 9. Returns/(losses) and net asset value per ordinary share per ordinary and net asset value Returns/(losses) 9. the following: using shown below and have been calculated are per share and capital earnings/(loss) Revenue Job No: 38091 Customer: BlackRock Notes to the financial statements continued

10. Investments held at fair value through profit or loss

2019 2018 £’000 £’000 UK investments held at fair value 413,696 451,863 UK AIM investments held at fair value 293,454 340,197

Valuation of investments at 28 February 707,150 792,060

Valuation brought forward 792,060 647,981 Opening investment holding gains (263,469) (201,430)

Opening cost of investments 528,591 446,551 Additions at cost 289,337 290,801 Disposals at cost (256,181) (208,761)

Cost carried forward 561,747 528,591 Closing investment holding gains 145,403 263,469

Closing valuation of investments 707,150 792,060

Transaction costs of £919,000 (2018: £909,000) were incurred on the acquisition of investments. Costs relating to the disposal of investments during the year amounted to £256,000 (2018: £264,000). All transaction costs have been included within capital reserves.

(Losses)/gains on investments held at fair value through profit or loss

2019 2018 £’000 £’000 Realised gains on sales 73,210 65,618 Movement in investment holding gains (118,066) 62,039

(44,856) 127,657

11. Debtors

2019 2018 £’000 £’000 Sales for future settlement 1,322 2,207 Prepayments and accrued income 982 411 Taxation recoverable 75 62

2,379 2,680

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T: 0207 055 6500 T: (50) (64) 269 309 (252) (266) 2019 2018 2019 2018 2,500 35,000 2,1872,505 7,982 4,961 4,129 12,420 £’000 £’000 £’000 £’000 15,000 15,000 14,950 25,000 14,936 25,000 24,748 24,734 42,198 74,670 Park Communications Ltd Communications Park Black Line Level: 9 Black Line Level: ANNUAL REPORT AND FINANCIAL STATEMENTS 28 FEBRUARY 2019 28 FEBRUARY STATEMENTS AND FINANCIAL REPORT ANNUAL Proof Event: 22 Event: Proof Annual Rpt 2019 Smaller Companies Title: Project 7.75% debenture stock 2022 7.75% debenture expenses stock issue debenture Unamortised 2.74% loan note 2037 loan note issue expenses Unamortised Revolving loan facility - Scotiabank Revolving Total Purchases for future settlement for future Purchases payable Interest Accrued expenditure 13. Creditors – amounts falling due after more than one year more – amounts falling due after Creditors 13. 12. Creditors – amounts falling due within one year – amounts falling due within Creditors 12. The fair value of the 7.75% debenture stock using the last available quoted offer price from the London Stock Exchange Exchange Stock the London price from of fair value the last available quoted offer stock using The the 7.75% debenture fair value The a total of £18,750,000 (2018: £19,050,000). (2018: 127p), 125p per debenture 2019 was 28 February as at and maturity duration Gilts for similar of yield for UK determined based on a comparative the 2.74% loan note has been a total of of to a valuation £24,445,000 2019 equated 97.78p per note (2018: 95.38p), 28 February and as at spreads, (2018: £23,845,000). on the stock is payable in equal half Interest yearly July 1997. stock was issued on 8 £15 million debenture The over the whole of charge the by a first floating stock is secured The year. in each January July and 31 instalments on 31 July 2022. par on 31 at assets of and is redeemable the Company on the note is payable in equal half on instalments Interest yearly £25 million loan note was issued on 24 May 2017. The par on 24 May 2037. at and is redeemable loan note is unsecured The year. 24 May and 24 November in each loan facility with Scotiabank (Ireland) revolving multi-currency year has in place a £35 million three Company The Under the amended £2.5 million of the facility had been utilised (2018: £35 million). 2019, 28 February As at Limited. on Interest of being May 2021. anniversary of date date the termination third this facility is the the effective agreement of the rate 1.68% (2018: 1.47%). at charged months and is currently every three this facility is reset of facility of which £nil had been £10 million with BNYM, overdraft also has available an uncommitted Company The 2019 (2018: £nil). 28 February utilised at Job No: 38091 Customer: BlackRock Notes to the financial statements continued

14. Called up share capital

Ordinary shares Treasury Nominal in issue shares Total shares value number number number £’000 Allotted, called up and fully paid share capital comprised: Ordinary shares of 25p each: At 28 February 2018 47,879,792 2,113,731 49,993,523 12,498

At 28 February 2019 47,879,792 2,113,731 49,993,523 12,498

During the year no ordinary shares were purchased for cancellation or placed in or cancelled out of treasury (2018: nil).

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

15. Reserves

Capital reserve Capital (arising on reserves revaluation Share Capital (arising on of premium redemption investments investments Revenue account reserve sold) held) reserve* £’000 £’000 £’000 £’000 £’000 At 28 February 2018 38,952 1,982 383,322 263,469 21,219 Movement during the year: Gains on realisation of investments – – 73,210 – – Change in investment holding gains – – – (118,066) – Gains on foreign currency transactions – – 16 – – Finance costs and expenses charged to capital – – (5,229) – – Net profit for the year – – – – 16,123 Dividends paid during the year – – – – (13,407) At 28 February 2019 38,952 1,982 451,319 145,403 23,935

* Represents the Company’s distributable reserves.

16. Risk management policies and procedures The Company’s investment activities expose it to various types of risks which are associated with the financial instruments and markets in which it invests. The following information is not intended to be a comprehensive summary of all risks and shareholders should refer to the Alternative Investment Fund Managers’ Directive FUND 3.2.2R Disclosures which can be found at blackrock.co.uk/brsc for a more detailed discussion of the risks inherent in investing in the Company.

Risk management framework The following information refers to the risk management framework of the AIFM; however, as disclosed in the Corporate Governance Statement on pages 42 to 46 and in the Statement of Directors’ Responsibilities on page 51, it is the ultimate responsibility of the Board to ensure that the Company’s risks are appropriately monitored, and to the extent that elements of this are delegated to third party service providers, the Board is responsible for ensuring that the relevant parties are discharging their duties in accordance with the terms of relevant agreements and taking appropriate action to the extent issues are identified.

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Proof Event: 22 Event: Proof Annual Rpt 2019 Smaller Companies Title: Project

he AIFM is responsible for monitoring investment performance, product risk monitoring and oversight and has the risk monitoring and oversight and product investment performance, for monitoring AIFM is responsible he T of directors The Company. risk for the and operational and oversight of for the monitoring responsibility regulatory with assistance management process for the daily risk Risk Manager who has responsibility AIFM have appointed a the members of including Quantitative the Risk and of risk management personnel key the Investment Manager, from RQA management function. which performs an independent risk group a centralised (RQA) which is Analysis Group being actual risk management practices the and monitors investment risk and tracks measures independently identifies, has the ability to determine if RQA down the components of the process, By breaking the Company. deployed across how the management tools employed, the risk captures This in place. are risk management processes the appropriate outcomes. construction and reviewing in portfolio is considered ensuring risk/return levels of controlled, risk are in addition, risk metrics and risk management processes; on key twice yearly Audit Committee to the AIFM reports The Any significant twice yearly. Audit Committee to the ofthe Depositary monitors the performance AIFM and reports the they arise. as to the Board reported issues are Risk exposures set out as follows: of are the Company exposures risk The risk (a) Market interest values of about future financial instruments influenced by currency, uncertainty arises mainly from risk Market market holding through may suffer the potential loss the Company It represents price movements. and other rate face ofpositions in financial instruments in the movements. market and currency which encompasses price, (“VaR”) Value-at-Risk risk is market uses to measure Group metric the RQA key A moves in adverse market loss from the potential portfolio estimates that risk measure is a statistical VaR risk. rate interest a traditional unlike between risk variables, the interdependencies analysis reflects VaR environment. market an ordinary sensitivity analysis. a holding model with a confidence level of simulation based on an adjusted historical 99%, are calculations VaR The number is VaR period of A period of observation one day and a historical (250 business days). one year not less than is that the expectation that means VaR 99% one day A and a specified time horizon. a specified probability defined at Therefore, terms. 99% of will lose less than this number in percentage the time over a one day period the Company namely that methodology has limitations, the use ofVaR that It is noted the higher risk. numbers indicate VaR higher scenarios, events does not encompass all possible future as a basis for estimating the use of data historical market 99%) does not take the use of and that confidence level (e.g. a specified nature of are an extreme those that particularly VaR than the the loss could be greater that is some probability There occur beyond this level. into account losses that losses that can neither guarantee the Company that mean measure ofVaR the and the nature limitations These amounts. frequently. amounts will not occur more ofVaR losses in excess nor that the amounts indicated, VaR the will not exceed 2018 (based on a 99% confidence level) was 2.41% and 2019 and 28 February as of 28 February VaR one-day The respectively. 2.44%, risk currency foreign risk arising from (i) Market risk currency to foreign Exposure investment mainly in smaller UK through for shareholders to achieve capital growth objective is As the Company’s time to time the Company From sterling denominated. assets are substantially all of the Company’s quoted companies, and market, to the UK line ofmay hold an overseas the underlying investment has exposure that to the extent stock in liabilities and income may be denominated assets, of the Company’s any time a very small proportion consequently at its results). in which it reports and that functional currency other than sterling (the Company’s currencies value of investment with a market £3,516,000 (2018: was one non-sterling denominated there 2019, 28 February As at investments). no non-sterling denominated The directors of the AIFM review quarterly investment performance reports and receive semi-annual presentations in semi-annual presentations and receive performance reports investment quarterly ofAIFM review directors the The AIFM The during the year. and risk profile performance covering the Company’s the Investment Manager person from Investment The Manager. to the Investment of administration the day-to-day the investment programme has delegated of is managed within the terms the Company ensuring that for and its investment guidelines Manager is also responsible which can be found at 3.2.2R Disclosures FUND Directive Managers’ Fund Investment Alternative limits set out in the blackrock.co.uk/brsc. Job No: 38091 Customer: BlackRock Notes to the financial statements continued

16. Risk management policies and procedures continued (ii) Market risk arising from interest rate risk Exposure to interest rate risk Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates.

The Company is exposed to interest rate risk specifically through its cash holdings and variable rate borrowings. Interest rate movements may affect the level of income receivable from any cash at bank and on deposits and the level of interest payable on variable rate borrowings. The effect of interest rate changes on the earnings of the companies held within the portfolio may have a significant impact on the valuation of the Company’s investments.

Interest rate exposure The Company’s exposure to interest rates at year end was:

• floating interest rates – when the interest rate is due to be re-set; • fixed interest rates – when the financial instrument is due for repayment.

2019 2018 Within one More than Within one More than year one year Total year one year Total £’000 £’000 £’000 £’000 £’000 £’000 Exposure to floating interest rates: Cash and cash equivalents 11,719 – 11,719 13,792 – 13,792 Revolving loan facility – Scotiabank – (2,500) (2,500) – (35,000) (35,000) Exposure to fixed interest rates: 7.75% debenture stock 2022 – (14,950) (14,950) – (14,936) (14,936) 2.74% loan note 2037 – (24,748) (24,748) – (24,734) (24,734)

Total exposure to interest rates 11,719 (42,198) (30,479) 13,792 (74,670) (60,878)

The above year end amounts are not representative of the exposure to interest rates during the year, as the level of exposure changes as investments are made, borrowings are drawn down and repaid, and the mix of borrowings between floating and fixed interest rates change. During the year the Company was exposed to interest rate risk through its cash investments, its overdraft facility and cash deposits with BNYM and the loan with Scotiabank. Borrowing is varied throughout the year as part of a Board endorsed policy. As set out in the table above, as at 28 February 2019, the Company had a net overdraft of £nil as well as a multi-currency revolving loan facility of £35,000,000 of which £2,500,000 was utilised at the year end (2018: overdraft of £nil and loan facility of £35,000,000 all of which was utilised at the year end). The Company also has available an uncommitted overdraft facility of £10 million with BNYM, of which £nil had been utilised at 28 February 2019 (2018: £nil).

Management of interest rate risk The possible effects on fair value and cash flows that could arise as a result of changes in interest rates are taken into account when making investment decisions and borrowing. Derivative contracts are not used to hedge against the exposure to interest rate risk. Interest rate sensitivity risk has been covered by the VaR analysis under the market risk section.

The Company’s debenture stock and loan note accrue interest at a fixed rate of 7.75% and 2.74% per annum respectively. The Company expects to hold these stocks to maturity, therefore it is not exposed to variations in interest rates.

Interest received on cash balances, or paid on the bank overdraft respectively, was on average 0.30% and 0.96% per annum (2018: 0.15% and 1.18%). Interest payable on the £2.5 million utilised multi-currency revolving loan facility is at a rate of 1.68% (2018: £35 million payable at a rate of 1.47%).

74 BLACKROCK SMALLER COMPANIES TRUST PLC

Way Alpine

T: 0207 055 6500 T: Park Communications Ltd Communications Park Black Line Level: 9 Black Line Level: ANNUAL REPORT AND FINANCIAL STATEMENTS 28 FEBRUARY 2019 28 FEBRUARY STATEMENTS AND FINANCIAL REPORT ANNUAL Proof Event: 22 Event: Proof Annual Rpt 2019 Smaller Companies Title: Project (iii) Market risk arising from other price risk other price risk arising from (iii) Market to other price risk Exposure the fair value of cash flows of risk that Other price risk is the because of future a financial instrument will fluctuate whether those changes risk), risk or currency rate interest than those arising from prices (other changes in market similar financial or factors affecting or its issuer, to the individual financial instrument caused by factors specific are in the market. instruments traded in the prices of movements The these equity investments. its from price risk arising to market is exposed Company The in the performance of in movements result equity investments Company. the 2019 on its equity investments was 28 February prices at changes in market to other exposure Company’s The £792,060,000). £707,150,000 (2018: Management of other price risk of into account the strategy the who take Managers, by the Portfolio monitored are to individual stocks Exposures invested in assets may be than 15% of No more Company’s the portfolio. and the need to hold a diversified Company trading coded on BlackRock’s holdings are Limits on individual much smaller. positions are in practice but any one stock, daily. monitored systems and are of of of and various concentration concern. risk metrics identifies areas RQA by sector allocations review Regular of highlighted to and discussed basis and areas concern are on a regular by RQA reviewed are concentrations Portfolio Managers. with the Portfolio price risks to market of exposure Concentration section of this Annual Portfolio is shown in the investments and sector analysis, largest fifty An analysis of the Company’s is a there Accordingly, this shows the majority of companies. value is in UK the investment 2019, At 28 February Report. country of domicile or of an investment’s that listing does although it is recognised to the UK, ofconcentration exposure country. to the economic conditions in that to its exposure not necessarily equate risk credit (b) Counterparty the issuer of it has is the risk that risk commitment that or instrument will fail to fulfil an obligation a financial Credit with the Company. into entered the risk of and will bear with which it trades the parties risk from credit to counterparty is exposed Company The or sell equity to purchase transactions arises from risk to the Company credit Counterparty default. settlement investments. Depositary (S&P long Limited (BNYM or the Depositary) Mellon (International) York Bank ofThe New Depositary is Company’s The All of held within the equity assets and cash of are the Company A). (2018: A 2019: 28 February as at rating term credit Bankruptcy or insolvency of the Depositary the custodial network of the global custodian appointed by the Depositary. The to be delayed or limited. to its investments held by the Depositary with respect rights may cause the Company’s 2019 is the total value of equity investments held with the Depositary and 28 February to this risk at maximum exposure cash and cash equivalents in the Balance Sheet. any agents it that ensure the Depositary will of the depositary agreement, with the requirements In accordance in the Thus, the assets of the assets of the Company. will segregate appoints to assist in safekeeping the Company and this reduces segregated are non-cash assets the Company’s event of insolvency or bankruptcy of the Depositary, risk. credit counterparty Asset Servicing division who act as the Company’s held on its behalf listed investments are by BNYM’s Company’s The Bankruptcy or insolvency of the with the Depositary (also BNYM). agreement Custodian under a sub-delegation the Custodian to be delayed or limited. to securities held by rights with respect custodian may also cause the Company’s cash to the Company’s risk of credit the Depositary in relation to the counterparty will also be exposed Company The as a will be treated the Company In the event of the insolvency or bankruptcy of the Depositary, held by the Depositary. to cash holdings of of creditor the Company. the Depositary in relation general Job No: 38091 Customer: BlackRock Notes to the financial statements continued

16. Risk management policies and procedures continued Counterparties/Brokers All transactions in listed securities are settled/paid for upon delivery using an approved broker. The risk of default is considered minimal, as delivery of securities sold is only made once the broker has made payment. Payment is made on a purchase once the securities have been delivered by the broker. The trade will fail if either party fails to meet its obligation.

Counterparty credit risk also arises on transactions with the broker in relation to transactions awaiting settlement. Risk relating to unsettled transactions is considered small due to the short settlement period involved and the credit quality of the broker used. The Company monitors the credit rating and financial position of the broker used to further mitigate this risk.

Cash held by a counterparty is subject to the credit risk of the counterparty. The following table details the total number of counterparties to which the Company is exposed, the maximum exposure to any one counterparty, any collateral held by the Company against this exposure, the total exposure to all other counterparties and the lowest long term credit rating of any one counterparty (or its ultimate parent if unrated).

Maximum Lowest exposure Total exposure credit rating Total number of to any one Collateral to all other of any one Year counterparties counterparty** held counterparties** counterparty* £’000 £’000 £’000 2019 10 10,184 – 2,857 BBB

2018 11 13,792 – 2,207 BB

* Standard & Poor’s ratings. ** Calculated on a net exposure basis.

Cash is subject to counterparty credit risk as the Company’s access to its cash could be delayed should the counterparties become insolvent or bankrupt.

Debtors Amounts due from debtors are disclosed on the Balance Sheet as Debtors.

The counterparties included in debtors are the same counterparties discussed previously under counterparty credit risk and subject to the same scrutiny by the BlackRock RQA Counterparty & Concentration Risk (RQA CCR) team. The Company monitors the ageing of debtors to mitigate the risk of debtor balances becoming overdue.

In summary, the exposure to credit risk at 28 February 2019 and 28 February 2018 was as follows:

2019 2018 3 months 3 months or less or less £’000 £’000 Cash and cash equivalents 11,719 13,792 Sales for future settlement 1,322 2,207 Other debtors 1,057 473

14,098 16,472

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Proof Event: 22 Event: Proof Annual Rpt 2019 Smaller Companies Title: Project eport from the Depositary, which includes the results of periodic site visits to the Company’s of which includes the results periodic site visits to the Company’s the Depositary, from eport om other receivables as disclosed on the Balance Sheet are subject to the same scrutiny by the as disclosed on the Balance Sheet are om other receivables ’s SOC 1 reports which include a report by the Manager’s auditor. This report sets out any exceptions or sets out any exceptions report This auditor. by the Manager’s which include a report SOC 1 reports ’s the Depositary and the Manager report any significant breaches or issues arising to the Board as soon as or issues arising to the Board any significant breaches the Depositary and the Manager report editworthiness of financial institutions with whom cash is held is reviewed regularly by RQA CCR; by RQA of regularly editworthiness with whom cash is held is reviewed financial institutions ompany’s listed investments are held on its behalf by The Bank of New York Mellon (International) Limited as Mellon (International) York Bank ofThe held on its behalf New listed investments are by ompany’s ansactions in quoted securities are settled on a payment against delivery basis using approved brokers. The The brokers. on a payment against delivery basis using approved settled ansactions in quoted securities are ustodian’s auditor. This This auditor. the Custodian’s by which include a report (SOC 1) reports Control Service Organisation Custodian’s ansactions are entered into with those counterparties approved by RQA CCR, with a formal review carried out for review with a formal CCR, by RQA approved into with those counterparties entered ansactions are in addition, the semi-annual r and tested; reviewed are controls custodian where the processes; control of review of the Custodian’s or issues noted as a result the auditor’s any exceptions sets out report the Manager and processes; control of review of Manager’s the issues noted as a result the auditor’s identified. these are amounts due fr the C the cr all tr has made payment. as delivery of securities sold is only made once the broker risk of minimal, default is considered will fail if trade either party The by the broker. securities have been delivered once the is made on purchase Payment on a periodic brokers of standard the Company’s the credit reviews team CCR RQA The fails to meets its obligation. any one broker; may be due from limits on the amount that and set basis, of monitors the ageing team the debtors to mitigate administration Fund and BlackRock’s team CCR RQA BlackRock risk of balances becoming overdue. tr on the basis of CCR of a number criteria selected by RQA and counterparties risk migration new counterparty each of the Company the risk to default; designed to reduce to rights with respect of Bankruptcy or insolvency the custodian may cause the Company’s custodian. the Company’s the custodian’s risk by reviewing monitors the Company’s Board The securities held by the custodian to be delayed. reports: internal control

• • • engaged with the major counterparties The 2019 (2018: nil). assets as of no past or impaired 28 February were There entities. and regulated all widely recognised are Company (c) Liquidity risk At the with financial liabilities. associated in meeting obligations will encounter difficulty the Company is the risk that This facility of loan revolving multi-currency facility of year £10 million and a three has an overdraft the Company end, year stock also had a £15 million debenture Company The loan facility £35 million). £10 million, £35 million (2018: overdraft July 2022 and a par on 31 over the whole of at charge assets and which is redeemable its by a floating which is secured 24 May 2037. par on at and is redeemable loan note is unsecured This £25 million loan note (2018: £25 million). • • risk by reviewing: counterparty monitors the Company’s Board The • • • Management of counterparty credit risk Management of credit counterparty who Chief Officer Credit by BlackRock’s is headed team The CCR. by RQA and managed Risk is monitored Credit to members and selected team the Chief with Officer authority resides Credit Credit of to the Global Head RQA. reports by the Chief granted may be Credit approvals counterparty As such, has been delegated. authority whom specific credit Chief authority by the Officer. been formally delegated who have Credit Risk Officers Credit or by identified RQA Officer, risk is managed as follows: credit counterparty The • Job No: 38091 Customer: BlackRock Notes to the financial statements continued

16. Risk management policies and procedures continued Liquidity risk exposure The remaining undiscounted gross cash outflows of the financial liabilities as at 28 February 2019 and 28 February 2018, based on the earliest date on which payment can be required, were as follows:

2019 2018 Between Between Within 1 and More than Within 1 and More than 1 year 5 years 5 years 1 year 5 years 5 years £’000 £’000 £’000 £’000 £’000 £’000 Debenture stock 1,163 17,810 – 1,163 18,971 – Loan note 685 2,740 34,065 685 2,740 34,750 Revolving loan facility – Scotiabank – 2,500 – – 35,000 – Purchases for future settlement 2,187 – – 7,982 – – Other creditors 2,774 – – 4,438 – –

6,809 23,050 34,065 14,268 56,711 34,750

Management of liquidity risk Liquidity risk is not significant as the majority of the Company’s assets are investments in quoted equities and other quoted securities that are readily realisable.

The Company’s liquidity risk is managed on a daily basis by the Investment Manager in accordance with established policies and procedures in place. The Portfolio Managers review daily forward-looking cash reports which project cash obligations. These reports allow them to manage their obligations.

The Board of Directors gives guidance to the Investment Manager as to the maximum amount of the Company’s resources that should be invested in any one company. The policy is that the Company should remain fully invested in normal market conditions and that short term borrowings be used to manage short term cash requirements.

For the avoidance of doubt, none of the assets of the Company are subject to special liquidity arrangements.

(d) Valuation of financial instruments Financial assets and financial liabilities are either carried in the Balance Sheet at their fair value (investments) or at an amount which is a reasonable approximation of fair value (due from brokers, dividends and interest receivable, due to brokers, accruals, cash at bank and bank overdrafts). Section 11 of FRS 102 requires the Company to classify fair value measurements using a fair value hierarchy that reflects the significance of inputs used in making the measurements. The valuation techniques used by the Company are explained in the accounting policies note 2 of the Financial Statements.

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 markets A 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 inputs This 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.

78 BLACKROCK SMALLER COMPANIES TRUST PLC

Way

Alpine

T: 0207 055 6500 T: – 707,150 – 792,060 – 707,150 – 792,060 Park Communications Ltd Communications Park – – – – £’000 £’000 £’000£’000 £’000 £’000 £’000 £’000 Level 1Level 2 Level 3 Level 1Level Total 2 Level 3 Level Total Black Line Level: 9 Black Line Level: 707,150 792,060 707,150 792,060 ANNUAL REPORT AND FINANCIAL STATEMENTS 28 FEBRUARY 2019 28 FEBRUARY STATEMENTS AND FINANCIAL REPORT ANNUAL a particular input to the fair value measurement in its entirety requires judgement, judgement, requires in its entirety input to the fair value measurement a particular Proof Event: 22 Event: Proof Annual Rpt 2019 Smaller Companies Title: Project e it will be able to continue as a going concern; and

e long term capital growth primarily through investing in smaller UK quoted companies. investing in smaller UK primarily through e long term capital growth to ensur secur

Total Total Equity investments Equity investments Financial assets at fair value through profit or loss as at or loss as at profit fair value through assets at Financial 2018 28 February Financial assets at fair value through profit or loss as at or loss as at profit fair value through assets at Financial 2019 28 February • intention that It is the Board’s balance of equity capital and gearing. an appropriate is to be achieved through This for managing capital and processes policies objectives, Company’s The 15% of should not exceed gearing net assets. accounting period. the preceding unchanged from remain 2019 was £716,287,000 (2018: £796,112,000) comprising £2,500,000 (2018: 28 February total capital at Company’s The £24,748,000 par value, £14,950,000 (2018: £14,936,000) of stock at debenture facility, £35,000,000) of credit revolving (2018: £24,734,000) of loan note and £674,089,000 (2018: £721,442,000) of capital and other unsecured equity share reserves. There were no transfers between levels for financial assets during the year recorded at fair value as at 28 February 28 February fair value as at at recorded the year between levels for financial assets during no transfers were There or as at the financial year 3 securities throughout did not hold any level Company The 2018. 2019 and 28 February 2019 (2018: nil). 28 February management policies and procedures (e) Capital capital management objectives are: Company’s The • Assessing the significance of or liability. considering factors specific to the asset using FRS 102 fair value hierarchy. below sets out fair value measurements table The Level 3 – Valuation techniques using significant unobservable inputs inputs using significant unobservable techniques Valuation 3 – Level and on observable data technique includes inputs not based valuation the where includes all instruments category This valuation. a significant impact on the instrument’s these inputs could have significant instruments where based on quoted prices for similar valued are that also includes instruments category This between the instruments and differences to reflect required or assumptions are entity determined adjustments market to be that observable data Investment Manager considers The active market. is no there instruments for which by and provided not proprietary, and verifiable, reliable distributed or updated, regularly available, is readily that data market. in the relevant actively involved are that independent sources determined on is its entirety in categorised is measurement value the fair which within hierarchy value fair in the level The the significance of this purpose, For the basis of fair value measurement. is significant to the the lowest level input that observable inputs uses If a fair value measurement its entirety. in measurement an input is assessed against the fair value 3 measurement. is a Level measurement that based on unobservable inputs, significant adjustment require that Job No: 38091 Customer: BlackRock Notes to the financial statements continued

16. Risk management policies and procedures continued The Board with the assistance of the Investment Manager monitors and reviews the broad structure of the Company’s capital on an ongoing basis. This review includes:

• the planned level of gearing, which takes into account the Investment Manager’s view on the market; and • the need to buyback equity shares, either for cancellation or to be held in treasury, which takes account of the difference between the NAV per share and the share price (i.e. the level of share price discount or premium).

The Company’s objectives, policies and processes for managing capital remain unchanged from the preceding accounting period.

The Company is subject to externally imposed capital requirements:

• as a public company, the Company has a minimum share capital of £50,000; and • in order to be able to pay dividends out of profits available for distribution, the Company has to be able to meet one of the two capital restrictions tests imposed on investment companies by law.

During the year the Company complied with the externally imposed capital requirements to which it was subject.

17. Transactions with the manager and the investment manager The 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 on page 65.

The Manager provides management and administration services to the Company under a contract which is terminable on six months’ notice. BFM has (with the Company’s consent) delegated certain portfolio and risk management services, and other ancillary services, to BIM (UK). Further details of the investment management contract are disclosed in the Directors’ Report.

The investment management fee payable for the year ended 28 February 2019 amounted to £4,590,000 (2018: £3,884,000). As set out in note 4, with effect from 1 March 2018 the Company no longer has any performance fee arrangements in place. The performance fees accrued for the year ended 28 February 2018 totalled £1,794,000. At the period end, £2,099,000 was outstanding in respect of the management fee (2018: £1,965,000). There were no amounts outstanding in respect of the performance fee at the period end as this ceased to apply from 1 March 2018. As at 28 February 2018 £1,794,000 was outstanding in respect of the performance fee.

In addition to the above services, BlackRock provided the Company with marketing services. The total fees paid or payable for these services for the year ended 28 February 2019 amounted to £113,000 including VAT (2018: £155,000). Marketing fees of £152,000 (2018: £189,000) were outstanding at year end.

18. Related parties disclosures and transactions with directors Disclosures of the Directors’ interests in the ordinary shares of the Company and fees and expenses payable to the Directors are set out in the Directors’ Remuneration Report. At 28 February 2019, an amount of £13,000 (2018: £13,000) was outstanding in respect of Directors’ fees.

19. Contingent liabilities There were no contingent liabilities at 28 February 2019 (2018: nil).

80 BLACKROCK SMALLER COMPANIES TRUST PLC

Way reinvested Cumulative Alpine with income

return per share per share return 5 T: 0207 055 6500 T: p 450.2251.3 219.1% 428.6 78.1% 203.8% per share per share reinvested with income Net asset value Park Communications Ltd Communications Park 1 2 3 p per share Dividends p returns Black Line Level: 9 Black Line Level: Revenue per share p price Share ANNUAL REPORT AND FINANCIAL STATEMENTS 28 FEBRUARY 2019 28 FEBRUARY STATEMENTS AND FINANCIAL REPORT ANNUAL 4 p value Net asset per share funds £’000 80,070 141.1 109.8 4.32 4.33 141.1 N/A 721,442 1,506.8 1,325.0 29.30 26.00 1,910.9 1,254.5% 597,073 1,247.0 1,060.0 22.47 21.00 1,556.3 1,003.1% 475,055 992.2 863.0 20.57 17.50 1,216.7 762.4% 201,052 414.5 340.0 7.16 4.90 456,936 954.3 812.0 16.93 14.50 1,152.4 716.9% 226,860 453.8 392.8 5.61 4.76 487.9 245.9% 471,843 985.5 908.0 14.59 12.00 1,173.2 731.6% 182,621 361.2 312.0 4.46 4.62 383.7 172.0% 344,934 720.4 626.5 11.53 10.00 845.9 499.6% 145,500 284.4 229.0 4.59 4.52 297.3 110.7% 296,733 619.8 503.0 10.16 8.40 716.1 407.6% 125,891 234.7 183.0 4.32 4.42 240.7 70.4% 110,265182,267297,202 227.4 380.7 620.7 177.0 293.8 542.0 7.21 7.41 8.55 5.05 5.60 7.00 708.5 402.2% 674,089 1,407.9 1,330.0 33.67 31.20 1,819.7 1,189.6% Proof Event: 22 Event: Proof Annual Rpt 2019 Smaller Companies Title: Project Shareholders’ Debt a T has that the total return It is used to calculate the first opportunity. at shares in the Company’s reinvested 2019 were 2003 and 28 February capital growth. out as well as from dividends paid from for shareholders been generated Ex Ex Ex 2018 2017 2016 2008 2015 2007 2014 2006 2013 2005 2012 2004 2009 2010 2011 2003 2019 Year ended Year February between28February dividendspaidtoshareholders basedontheassumptionthat calculated netassetvaluepershare his isatheoretical t parvalue. cludes aspecialdividendof 1.25p. cludes aspecialdividendof 0.70p. cludes aspecialdividendof 0.50p. Historical performance record performance Historical 4 5 1 2 3 Job No: 38091 Customer: BlackRock Analysis of ordinary shareholders as at 28 February 2019

By type of holder

Retail 62.3% Retail 58.5% Mutual Funds 15.8% Mutual Funds 16.0% Pensions 9.7% Pensions 12.4% Insurance 6.2% Insurance 7.4% Fund of Funds 1.7% Fund of Funds 2.8% Charities 2.7% Charities 2.4% 2019 Others 1.5% 2018 Others 0.3% Trading 0.1% Trading 0.2%

By size of holding*

Number of % of total % of total Number of % of total % of total Range shareholders 2019 2018 shares 2019 2018 1 – 10,000 953 81.9 81.0 1,634,935 3.4 3.5 10,001 – 100,000 133 11.5 12.7 4,763,898 9.9 11.5 100,001 – 1,000,000 63 5.4 5.1 19,620,439 41.0 38.1 1,000,001 – 5,000,000 14 1.2 1.2 21,860,520 45.7 46.9 1,163 100.0 100.0 47,879,792 100.0 100.0

* Excludes 2,113,731 shares held in treasury.

82 BLACKROCK SMALLER COMPANIES TRUST PLC

Way BRSC 0643610 BRSC LN Alpine

T: 0207 055 6500 T: GB0006436108 Ordinary shares Ordinary Park Communications Ltd Communications Park Black Line Level: 9 Black Line Level: ISIN SEDOL code Reuters code Bloomberg Share dealing Share in the shares more Investors wishing to purchase of or sell all or part holding may their existing Company this also offer Most banks a stockbroker. do so through shares the Company’s possible to trade It is also service. many of providers. service through the online dealing Investor Services PLC Computershare registrar, the Company’s shareholders, existing For has both internet Investor Services PLC, Computershare access the To services. dealing and telephone share log on to service, dealing internet share dealing telephone share The www.computershare.trade. use these To service is available on 0370 703 0084. reference you will need your shareholder services, To which is detailed on your certificate. number, the Key you must have read this investment, purchase can be executed. the trade Document before Information can email or post this to you. Computershare fee for this service is 1% ofThe the – Internet dealing ofvalue of (subject to a sale or purchase shares each duty of Stamp minimum of 0.5% is payable on £30). purchases. fee for this service will be 1% ofThe – dealing Telephone duty of Stamp 0.5% the value of (plus £35). the transaction is payable on purchases. Share price Share is price share ordinary mid-market Company’s The under “Investment Times Financial The quoted daily in Times and The Companies” and in The Daily Telegraph is also available price share The Trusts”. under “Investment blackrock.co.uk/brsc. website at on the BlackRock numbers ISIN/SEDOL and mnemonic codes for the numbers ISIN/SEDOL The are: shares Company’s reinvestment forms may be obtained from Computershare Computershare obtained from forms may be reinvestment website their secure through Investor Services PLC Shareholders or on 0370 707 1649. investorcentre.co.uk, their dividends opted to have who have already for last date The do not need to reapply. reinvested dividend is the forthcoming for this service for registering 21 May 2019. ANNUAL REPORT AND FINANCIAL STATEMENTS 28 FEBRUARY 2019 28 FEBRUARY STATEMENTS AND FINANCIAL REPORT ANNUAL 16 May 2019 17 May 2019 21 May 2019 12 June 2019 Proof Event: 22 Event: Proof Annual Rpt 2019 Smaller Companies Title: Project Record date (last date for registering for registering (last date date Record the dividend) to receive transfers DRIP registering for Last date instructions Dividend payment date Ex-dividend date (shares transferred transferred (shares date Ex-dividend without the dividend) Dividend Reinvestment Scheme (“DRIP”) Dividend Reinvestment their dividends be used that may request Shareholders Dividend in the Company. shares further to purchase Payment of dividends Payment dividends will be sent by cheque to the first-named Cash Dividends may address. their registered at shareholder bank account into a shareholder’s also be paid direct Service Clearing Automated (Bankers’ via BACSTEL-IP by may be arranged This Internet Protocol). Telecom – Computershare registrar, contacting the Company’s website their secure through Investor Services PLC, or by telephone on 0370 707 1649, investorcentre.co.uk, Instructions section on or by completing the Mandate Confirmation ofthe reverse your dividend counterfoil. their of at dividends paid will be sent to shareholders have been unless other instructions address, registered to arrive on the payment date. given, Dividend – 2019 of ended final dividend in respect the year proposed The 2019 is 19.20p per share. 28 February Shareholder information Shareholder calendar Financial timing of ofThe and publication the announcement in the may normally be expected results the Company’s months shown below: April/May announced. for year and final dividend Annual results April/May published. Statements and Financial Annual Report June Meeting. Annual General June/July paid. dividend Final October August announced and half to 31 Half yearly figures yearly published. financial report November Interim dividend paid. Job No: 38091 Customer: BlackRock Shareholder information continued

CREST Nominee code The Company’s shares may be held in CREST, an Where shares are held in a nominee company name, the electronic system for uncertificated securities trading. Company undertakes:

Private investors can continue to retain their share • to provide the nominee company with multiple certificates and remain outside the CREST system. Private copies of shareholder communications, so long as an investors are able to buy and sell their holdings in the indication of quantities has been provided in advance; same way as they did prior to the introduction of CREST, and although there may be differences in dealing charges. • to allow investors holding shares through a nominee company to attend general meetings, provided Electronic communications the correct authority from the nominee company is We encourage you to play your part in reducing our available; impact on the environment and elect to be notified by email when your shareholder communications become Publication of net asset value/portfolio analysis available online. This means you will receive timely, The NAV per share of the Company is calculated cost‑effective and greener online annual reports, half daily, with details of the Company’s investments and yearly financial reports and other relevant documentation. performance being published monthly. The daily NAV Shareholders who opt for this service will receive an email per share and monthly information are released through from Computershare with a link to the relevant section the London Stock Exchange’s Regulatory News Service of the BlackRock website where the documents can and are available on the BlackRock website at blackrock. be viewed and downloaded. Please submit your email co.uk/brsc and through the Reuters News Service under address by visiting investorcentre.co.uk/ecomms. You will the code “BLRKINDEX”, on page 8800 on Topic 3 (ICV need your shareholder reference number which you will terminals) and under “BLRK” on Bloomberg (monthly find on your share certificate or tax voucher. information only).

You will continue to receive a printed copy of these Online access reports if you have elected to do so. Alternatively, if you Other details about the Company are available on have not submitted your email address nor have elected the BlackRock website at blackrock.co.uk/brsc. The to receive printed reports, we will write and let you know financial statements and other literature are published where you can view these reports online. on the website. Visitors to the website need to be aware that legislation in the United Kingdom governing the Electronic proxy voting preparation and dissemination of the financial statements Shareholders are able to submit their proxy votes may differ from legislation in their jurisdiction. electronically via Computershare’s internet site at eproxyappointment.com using their shareholder Shareholders can also manage their shareholding online reference number, control number and a unique by using Investor Centre, Computershare’s secure website, identification PIN which will be provided with voting at investorcentre.co.uk. To access Computershare’s instructions and the Notice of Annual General Meeting. website you will need your shareholder reference number which can be found on paper or electronic CREST members who wish to appoint one or more proxies communications you have previously received from or give an instruction through the CREST electronic proxy Computershare. Listed below are the most frequently appointment service may do so by using the procedures used features of the website. described in the CREST manual. More details are set out in the notes on the Form of Proxy and the Notice of Annual • Holding enquiry – view balances, values, history, General Meeting. payments and reinvestments. • Payments enquiry – view your dividends and other Risk factors payment types. • Past performance is not necessarily a guide to future • Address change – change your registered address. performance. • Bank details update – choose to receive your dividend • The value of your investment in the Company and payment directly into your bank account instead of by the income from it can fluctuate as the value of the cheque. underlying investments fluctuate. • Outstanding payments – reissue payments using the • The price at which the Company’s shares trade on online replacement service. the London Stock Exchange is not the same as their • Downloadable forms – including dividend mandates, net asset value (NAV) (although they are related) and stock transfer, dividend reinvestment and change of therefore you may realise returns which are lower or address forms. higher than NAV performance.

84 BLACKROCK SMALLER COMPANIES TRUST PLC

Way Alpine

T: 0207 055 6500 T: Park Communications Ltd Communications Park Black Line Level: 9 Black Line Level: General enquiries General to: should be directed Company Enquiries about the Secretary The plc Trust Smaller Companies BlackRock Avenue 12 Throgmorton EC2N 2DL London 020 7743 3000 Telephone: Email: [email protected] ANNUAL REPORT AND FINANCIAL STATEMENTS 28 FEBRUARY 2019 28 FEBRUARY STATEMENTS AND FINANCIAL REPORT ANNUAL Proof Event: 22 Event: Proof Annual Rpt 2019 Smaller Companies Title: Project New individual savings accounts (“NISA”) New individual savings accounts method of investment and the a tax-efficient NISAs are eligible investments for inclusion are shares Company’s In the 2019/2020 tax year NISA. and shares within a stocks (2018/2019: investors will be able to invest up to £20,000 £20,000) either as cash or shares. Dividend tax allowance allowance on April 2018 the annual tax-free From share entire an individual’s dividend income across is £2,000. portfolio tax on their dividend individuals pay Above this amount, income tax bracket dependent on their a rate income at continues to Company The and personal circumstances. of with a confirmation the shareholders registered provide this should be included with any other dividends paid and and reporting calculating when dividend income received It is the shareholder’s total dividend income received. to include all dividend income when responsibility any tax liability. calculating contact a Financial please If you have any tax queries, Adviser. Shareholder enquiries Shareholder Investor is Computershare registrar Company’s The to your holding can details relating Certain Services PLC. Investor Centre the Computershare through be checked needs specific information As a security check, website. to gain access to an individual’s to be input accurately number, reference includes your shareholder This account. tax voucher certificate, either your share available from received you have previously or other communications of address the Computershare The Computershare. from please Alternatively, website is investorcentre.co.uk. on 0370 707 1649. contact the registrar Changes of must be notified in writing name or address or to the website, Computershare’s either through at: registrar Investor Services PLC Computershare Pavilions The Road Bridgwater Bristol BS99 6ZZ Job No: 38091 Customer: BlackRock Management & other service providers

Registered Ofﬁce Stockbrokers (Registered in Scotland, No. 006176) Canaccord Genuity Limited1 Exchange Place One 88 Wood Street 1 Semple Street London EC2V 7QR Edinburgh EH3 8BL Solicitors Investment Manager and Company Secretary CMS Cameron McKenna Nabarro Olswang LLP BlackRock Investment Management (UK) Limited1 Saltire Court 12 Throgmorton Avenue 20 Castle Terrace London EC2N 2DL Edinburgh EH1 2EN Email: [email protected] Auditors Alternative Investment Fund Manager PricewaterhouseCoopers LLP BlackRock Fund Managers Limited1 Chartered Accountants and Statutory Auditors 12 Throgmorton Avenue 7 More London Riverside London EC2N 2DL London SE1 2RT Telephone: 020 7743 3000

Depositary The Bank of New York Mellon (International) Limited1 One Canada Square London E14 5AL

Registrar Computershare Investor Services PLC1 The Pavilions Bridgwater Road Bristol BS99 6ZZ Telephone: 0370 707 1649

1 Authorised and regulated by the Financial Conduct Authority.

86 BLACKROCK SMALLER COMPANIES TRUST PLC

Way Alpine

T: 0207 055 6500 T: Park Communications Ltd Communications Park Black Line Level: 9 Black Line Level: Pre investment disclosures Pre to be made information certain AIFMD requires The Fund Investment Alternative in available to investors material that and requires they invest before (“AIF”) be disclosed in the annual changes to this information Document, Disclosure An Investor AIF. of each report on the Company’s which sets out information liquidity, risk, leverage, and policies, investment strategy conflicts of and interest fees, management, administration, is available on the website information other shareholder blackrock.co.uk/brsc. at changes (other than those have been no material There to this information in these financial statements) reflected immediate requiring Any information disclosure. requiring AIFMD will be disclosed to the pursuant to the disclosure a primary information through Exchange Stock London provider. and on behalf of the Board For SARAH BEYNSBERGER and on behalf of For Investment Management (UK) Limited BlackRock Secretary Company 2 May 2019 Other risk disclosures to risk framework relating financial risk disclosures The note 16 of set out in and liquidity risk are the notes to the Statements. Financial ANNUAL REPORT AND FINANCIAL STATEMENTS 28 FEBRUARY 2019 28 FEBRUARY STATEMENTS AND FINANCIAL REPORT ANNUAL 1.11 as at as at 2019 28 February 28 February Gross leverage leverage Gross did not hold any 1.12 2019 28 February 28 February Proof Event: 22 Event: Proof Annual Rpt 2019 Smaller Companies Title: Project Commitment Commitment leverage as at as at leverage The The Company L stock 2022 and the 2.74% the 7.75% debenture with Scotiabank, note. £25 million long dated 2019. ended 28 February during the year derivatives

Leverage ratio* Leverage * Facility Credit Revolving theCompany’s arisesfrom everage Leverage cash in and borrow may employ leverage Company The investment policy or investment with its stated accordance with its investment objectives and Consistent strategy. from approval may with the prior the Company policy, of instruments as part utilise derivative its the Board use of may expose The derivatives investment policy. In particular, of to a higher degree risk. the Company and the amount can be highly volatile, contracts derivative to the size small relative of is generally initial margin may be leveraged of transactions so that the contract small market relatively A in terms of exposure. market impact on movement may have a potentially larger underlying bonds or equities. than on standard derivatives the increase positions can therefore derivative Leveraged use of leverage and The borrowings volatility. Company’s circumstances, certain in and can, risks has attendant the adverse impact to which the substantially increase the For may be subject. investment portfolio Company’s is any method by leverage purposes of this disclosure, whether is increased, exposure which the Company’s or leverage cash or securities, borrowing through or by any other for difference embedded in contracts be ratio leverage each that AIFMD requires The means. exposure between a Company’s as the ratio expressed methodologies, two required and prescribes and its NAV, methodology and the commitment the gross 2 Implementation AIFMD Level methodology (as set out in Using the such exposure. for calculating Guidance), the leverage AIFMD, under the methodologies prescribed of is disclosed in the table below: the Company Quantitative remuneration disclosure remuneration Quantitative Article with FUND 3.3.5, in accordance Disclosures of 107 22(2)e and 22(2)fArticle the ofAIFMD and the on the website at disclosed are Regulation Delegated blackrock.co.uk/brsc. AIFMD disclosures AIFMD on remuneration Report (the Managers’ Directive Investment Fund Alternative The to be made with disclosures certain requires AIFMD), AIFM. policy of the Company’s to the remuneration regard are Policy Remuneration AIFM Details of BlackRock the blackrock.co.uk/brsc website at disclosed on the Company’s 2015, January to the Manager on 1 and became applicable ofbeing the beginning of the first financial year BlackRock AIFM. an as authorisation following the Manager’s Job No: 38091 Customer: BlackRock Information to be disclosed in accordance with Listing Rule 9.8.4

The disclosures below are made in compliance with the requirements of Listing Rule 9.8.4.

9.8.4 (1) The Company has not capitalised any interest in the period under review.

9.8.4 (2) The Company has not published any unaudited financial information in a class 1 circular or prospectus or any profit forecast or profit estimate.

9.8.4 (3) This provision has been deleted.

9.8.4 (4) The Company does not have any long term incentive schemes in operation.

9.8.4 (5) and 9.8.4 (6) No Director of the Company has waived or agreed to waive any current or future emoluments from the Company.

9.8.4 (7) The Company has not allotted any equity securities for cash in the period under review.

The Company is a stand-alone entity therefore Listing Rules 9.8.4 (8) and 9.8.4 (9) are not applicable.

9.8.4 (10) There were no contracts of significance subsisting during the period under review to which the Company is a party and in which a Director of the Company is or was materially interested; or between the Company and a controlling shareholder.

9.8.4 (11) This provision is not applicable to the Company.

9.8.4 (12) and 9.8.4 (13) There were no arrangements under which an ordinary shareholder has waived or agreed to waive any dividends or future dividends.

9.8.4 (14) This provision is not applicable to the Company.

For and on behalf of the Board SARAH BEYNSBERGER For and on behalf of BlackRock Investment Management (UK) Limited Company Secretary 2 May 2019

88 BLACKROCK SMALLER COMPANIES TRUST PLC

Way Alpine

T: 0207 055 6500 T: equity securities equity securities Shares hereby authorised authorised hereby Shares Park Communications Ltd Communications Park xclusive ofxclusive which expenses) xclusive ofxclusive which expenses) xpire at the conclusion of the next Annual the conclusion of at the next xpire Black Line Level: 9 Black Line Level: and/or the sale of equity securities held in treasury and/or the sale of held in treasury equity securities nominal amount of for cash up to an aggregate 10% of the aggregate £1,196,994 (representing nominal amount of capital, the issued share of the at the Company shares, treasury excluding of date this notice); and shall be limited to the allotment of of a price at not less than the cum-income net asset fair value). (debt at value per share the maximum number of is 7,177,180 (being the equivalent to be purchased capital, issued share of 14.99% of the Company’s of the date at this shares, treasury excluding notice); the minimum price (e the maximum price (e shall be the higher ofmay be paid for a Share (i) of values of5% above the average the market for the five business days immediately the Shares of as derived the date the purchase preceding List of Stock the Daily Official the London from shall e shall be limited to the allotment of being the shall be 25p, may be paid for a Share share; nominal value per ordinary General Meeting of the Company in 2020, except except Meeting of in 2020, General the Company make such expiry, before may, Company the that which would or might agreements or offers or sold after equity securities to be allotted require the and notwithstanding such expiry such expiry may allot and sell equity securities in Directors pursuance of or agreements; such offers

hat, in substitution for the Company’s existing existing in substitution for the Company’s hat, hat, in substitution for all existing authorities and authorities in substitution for all existing hat, (c) T (a) (b) (c) T (a) (b) of shares purchases ordinary market authority to make be the Company of (Shares), in the Company 25p each with section authorised in accordance and is hereby Act) to make Act 2006 (the 701 of the Companies of of (within the meaning purchases Shares market that: section 693 ofAct) provided the of the Directors ofsubject to the passing 11, resolution pursuant empowered hereby be and are the Company Act 2006 573 ofto sections 570 and the Companies (as defined in section Act) to allot equity securities (the securities held by the and to sell equity 560 ofAct), the 724 (as defined in section shares as treasury Company of pursuant to the authority granted Act) for cash the as if561(1) of section 11, numbered by the resolution such allotments and sales Act did not apply to any the this power: that provided of equity securities,

13. Special resolutions 12. ANNUAL REPORT AND FINANCIAL STATEMENTS 28 FEBRUARY 2019 28 FEBRUARY STATEMENTS AND FINANCIAL REPORT ANNUAL Proof Event: 22 Event: Proof Annual Rpt 2019 Smaller Companies Title: Project hat, in substitution for all existing authorities, the authorities, in substitution for all existing hat, o re-elect Robert Robertson as a Director. Robertson Robert o re-elect Chartered LLP, PricewaterhouseCoopers o re-appoint to determine the Audit Committee o authorise the o re-elect Michael Peacock as a Director. Michael Peacock o re-elect as a Director. Susan Platts-Martin o re-elect o approve the Directors’ Remuneration Report for the for Report Remuneration the Directors’ o approve final dividend of a o declare 19.20p per ordinary Gould as a Director. o elect Ronald as a Director. Burton Caroline o re-elect T until the auditors to the Company as Accountants, Meeting ofAnnual General conclusion of the the next Company. T auditors’ remuneration. hereby of be and they are Directors the Company and unconditionally authorised pursuant generally Act), Act 2006 (the to section 551 of the Companies all the powers of to allot the Company to exercise (as defined in securities in the Company relevant nominal amount of section) up to an aggregate that nominal £1,196,994 (being 10% of the aggregate treasury excluding amount of capital, the issued share of of the date at this notice) the Company shares, the conclusion of at this authority shall expire provided Meeting to be held in 2020 Annual General the next such expiry, before may, the Company but so that which would or might or agreement any offer make pursuant to securities to be allotted relevant require as if or agreement the authority hereby any such offer had not expired. conferred T T T 2019. ended 28 February year T share. T T T T 2019, ended 28 February for the year statements of the auditors thereon. together with the report T

9. 10. Special business resolution Ordinary 11. 7. 8. 3. 4. 5. 6. 1. of andthefinancial theDirectors thereport o receive 2. Ordinary business Ordinary Notice ofNotice meeting general annual Meeting Annual General the given that Notice is hereby plc will be held at Trust of Companies Smaller BlackRock London Avenue, Throgmorton 12 ofthe offices BlackRock, for the 2.00 p.m. June 2019 at 4 Tuesday, on EC2N 2DL passing the ifpurpose of thought fit, considering and, case in the be proposed, (which will following resolutions in the and resolutions, of 11 as ordinary 1 to resolutions as special resolutions). case of 12 and 13, resolutions Job No: 38091 Customer: BlackRock Notice of annual general meeting continued

Exchange and (ii) the higher of the price quoted for (a) the last independent trade of, and (b) the highest current independent bid for, any number of Shares on the trading venue where the purchase is carried out; and

(d) unless renewed, the authority hereby conferred shall expire at the conclusion of the next Annual General Meeting of the Company in 2020, save that the Company may, before such expiry, enter into a contract to purchase Shares which will or may be completed or executed wholly or partly after such expiry.

All Shares purchased pursuant to the above authority shall be either:

(i) held, sold, transferred or otherwise dealt with as treasury shares in accordance with the provisions of the Act; or

(ii) cancelled immediately upon completion of the purchase.

By order of the Board SARAH BEYNSBERGER For and on behalf of BlackRock Investment Management (UK) Limited Company Secretary 2 May 2019

90 BLACKROCK SMALLER COMPANIES TRUST PLC

Way Alpine

T: 0207 055 6500 T: Park Communications Ltd Communications Park elevant to the business of the meeting may be joint holders, the vote of the senior holder joint holders, Black Line Level: 9 Black Line Level: eholders who hold their shares electronically may submit electronically shares eholders who hold their you are a CREST system user (including a CREST personal user (including a CREST system a CREST you are is appointments, of as a result any proxy the Chairman, the at to speak the meeting by anyone permitted at asked submit a question may alternatively shareholder A meeting. Secretary to the Company addressed in advance by a letter of Under section 319A office. registered the Company’s at must answer any the Company Act 2006, the Companies to the business being relating asks question a shareholder unless (i) answering the question the meeting, with at dealt for the meeting unduly with the preparation would interfere of (ii) the or involve the disclosure information; confidential been given on a website in the form of an answer had already or give proxies member) you can appoint one or more CREST by having an appropriate an instruction to a proxy or to proxies appoint one or more To message transmitted. appointed (whether previously give an instruction to a proxy must messages CREST system, or otherwise) via the CREST (ID number 3RA50) not later by Computershare be received the the time appointed for holding than 48 hours before the time of will be taken receipt this purpose, For meeting. generated to be the time (as determined by the timestamp is able to which Computershare from system) by the CREST personal members or other CREST the message. retrieve should contact their CREST members sponsored CREST via CREST. sponsor for assistance with appointing proxies limitations procedures, on CREST information further For The manual. to the CREST refer and system timings please sent by appointment as invalid a proxy may treat Company 35(5)(a) of set out in Regulation in the circumstances CREST 2001. Securities Regulations the Uncertificated If as to how the votes subject ofgiven discretion those proxies of cast and voting rights in respect discretionary those are in the Company’s when added to the interest proxies, in the result held by the Chairman, securities already Chairman holding such number of he has voting rights that Guidance and under the Disclosure a notifiable obligation the necessary the Chairman will make Rules, Transparency Conduct and the Financial Company to the notifications or any member holding 3 per cent. As a result, Authority. the who grants ofmore the voting rights in the Company, of in respect all of some or proxy Chairman a discretionary notification a have otherwise would so and rights voting those Guidance and Transparency the Disclosure under obligation to the Company notification a separate need not make Rules, Authority. Conduct and the Financial Any question r to the register of members after the relevant times shall be of the relevant to the register members after of in determining the rights any person to attend disregarded the meeting. and vote at In the case of shall be in person or by proxy who tenders a vote whether ofaccepted to the exclusion the votes of the other joint determined seniority will be for this purpose, holders and, of stand in the register in which the names by the order of joint members of in respect the relevant the Company holding. Shar and the appropriate by submitting CREST, their votes through by the message so as to be received CREST authenticated of the start than 48 hours before not later registrar Company’s can CREST Instructions on how to vote through the meeting. euroclear.com/ be found by accessing the following website: and the internet CREST advised that are Shareholders CREST. can be the only methods by which completed proxies are electronically. submitted If

10. 11. 7. 8. 9. ANNUAL REPORT AND FINANCIAL STATEMENTS 28 FEBRUARY 2019 28 FEBRUARY STATEMENTS AND FINANCIAL REPORT ANNUAL Proof Event: 22 Event: Proof Annual Rpt 2019 Smaller Companies Title: Project eceiving a copy of as a person this Notice ted persons should also remember that their main that ted persons should also remember ompletion and return of ompletion and return the form of will not prevent proxy ursuant to regulation 41 of 41 Securities the Uncertificated ursuant to regulation o appoint a proxy you may use the form of proxy enclosed form of you may use the proxy o appoint a proxy P in the register registered only shareholders 2001, Regulations two of members of than 6.00 p.m. by not later the Company for the meeting shall be entitled days prior to the time fixed of the meeting in respect the number and vote at to attend If the meeting such time. in their name at of registered shares the time by which a person must be entered is adjourned, of to have on the register members of in order the Company the adjourned meeting is vote at and the right to attend Changes two days prior to the time of adjournment. 6.00 p.m. Nomina point of contact in terms of their investment in the Company Person the Nominated the member who nominated remains rights (or perhaps the custodian to enjoy the information who administers the investment on their behalf). or broker member, should continue to contact that Persons Nominated any regarding (and not the Company) custodian or broker Person’s to the Nominated changes or queries relating any (including in the Company personal details and interest the to this is where only exception The matter). administrative the Nominated from a response requests expressly Company Person. Any person r C the meeting and voting in person. attending a member from the meeting and attend If you have appointed a proxy will be automatically appointment proxy your in person, terminated. rights under to enjoy information by a member nominated (a Nominated Act 2006 section 146 of the Companies in notes 1 and 2 the provisions should note that Person) to or proxies above concerning the appointment of a proxy do not apply to of the meeting in place attend a member, to have the right as only shareholders Person a Nominated may have a Person a Nominated However, appoint a proxy. Person between the Nominated right under an agreement be to and the member by whom he or she was nominated as proxy or to have someone else appointed, appointed, proxy has no such If Person a Nominated for the meeting. he/she may it, appointment right or does not wish to exercise to give instructions to the have a right under such agreement of the meeting. voting rights at member as to the exercise T the form of proxy, be valid, To with this annual report. oftogether with the power or other authority (if attorney or signed or a notarially certified any) under which it is returned must be completed and copy ofoffice the same, with in accordance registrar ofto the office the Company’s as soon as possible and the instructions printed thereon on 31 May 2019. than 2.00 p.m. in any event by not later by electronically you can vote or appoint a proxy Alternatively to enter will be asked You visiting eproxyappointment.com. Number and Reference the Shareholder Number, the Control time for latest The printed on the form ofPIN which are proxy. on is 2.00 p.m. votes electronically the submission of proxy 31 May 2019. A Notice is also entitled to appoint convened by the above all or any of the rights of to exercise proxies one or more A of and vote instead speak him/her. the member to attend, If a member need not be a member of the Company. proxy each the meeting, to attend than one proxy appoints more to a rights attached the must be appointed to exercise proxy held by the member. or shares share different

6. 4. 5. 3. Notes: 1. themeeting andvoteat memberentitledtoattend 2. Job No: 38091 Customer: BlackRock Notice of annual general meeting continued

answer to a question; or (iii) it is undesirable in the interests 15. Further information regarding the meeting which the of the Company or the good order of the meeting that the Company is required by section 311A of the Companies question be answered. Act 2006 to publish on a website in advance of the meeting (including this Notice), can be accessed at 12. Any corporation which is a member can appoint one or more blackrock.co.uk/brsc. corporate representatives who may exercise on its behalf all of its powers as a member provided that, if it is appointing 16. As at the date of this report, the Company’s issued share more than one corporate representative, it does not do so in capital comprised 47,879,792 ordinary shares of 25 pence relation to the same shares. It is therefore no longer necessary each, excluding shares held in treasury. Each ordinary share to nominate a designated corporate representative. carries the right to one vote and therefore the total number of voting rights in the Company on 2 May 2019 is 47,879,792. 13. Under section 527 of the Companies Act 2006, members meeting the threshold requirements set out in that section 17. No service contracts exist between the Company and any of have the right to require the Company to publish on a the Directors, who hold office in accordance with letters of website a statement setting out any matter relating to: appointment and the Articles of Association.

(i) the audit of the Company’s accounts (including the auditors’ report and the conduct of the audit) that are laid before the meeting; or

(ii) any circumstance connected with an auditor of the Company ceasing to hold office since the previous meeting at which annual accounts and reports were laid in accordance with section 437 of the Companies Act 2006.

The Company may not require the members requesting such website publication to pay its expenses in complying with sections 527 or 528 of the Companies Act 2006. Where the Company is required to place a statement on a website under section 527 of the Companies Act 2006, it must forward the statement to the Company’s auditors not later than the time when it makes the statement available on the website. The business which may be dealt with at the meeting includes any statement that the Company has been required under section 527 of the Companies Act 2006 to publish on a website.

14. Under sections 338 and 338A of the Companies Act 2006, members meeting the threshold requirements in those sections have the right to require the Company:

(i) to give, to members of the Company entitled to receive notice of the meeting, notice of a resolution which may properly be moved and is intended to be moved at the meeting; and/or

(ii) to include in the business to be dealt with at the meeting any matter (other than a proposed resolution) which may be properly included in the business.

A resolution may properly be moved or a matter may properly be included in the business unless:

(a) (in the case of a resolution only) it would, if passed, be ineffective (whether by reason of inconsistency with any enactment or the Company’s constitution or otherwise);

(b) it is defamatory of any person; or

Such a request may be in hard copy form or in electronic form, and must identify the resolution of which notice is to be given or the matter to be included in the business, must be authorised by the person or persons making it, and (in the case of a matter to be included in the business only) must be accompanied by a statement setting out the grounds for the request.

92 BLACKROCK SMALLER COMPANIES TRUST PLC

Way 28 28 28 2018 2018 2018 Alpine

February February February February February T: 0207 055 6500 T: 28 28 28 2.4 27.3 (c) (4.8) 22.8 (c) (4.9) 23.2 (c) (2.16) 1.39 (2.18) 1.43 (1.59) 1.63 2019 2019 2019 1,433.72 1,531.17 (a) 1,426.39 1,524.47 (a) 1,356.41 1,349.63 (a) February February February February February Park Communications Ltd Communications Park 3 1,400.57 1,500.04 3 1,506.78 1,247,03 (b) 3 1,500.04 1,237.80 (b) 3 1,325.00 1,060.00 (b) 69 1,407.88 1,506.78 69 1,330.00 1,325.00 Page Black Line Level: 9 Black Line Level: Closing NAV per share per share Closing NAV (pence) Closing NAV per share per share Closing NAV (pence) price Closing share (pence) Add back interim and Add back interim and final dividends (pence) 68 28.00 23.00 Add back interim and final dividends (pence) 68 28.00 23.00 Add back interim and final dividends (pence) 68 28.00 23.00 Adjusted closing NAV Adjusted closing NAV (pence) per Opening NAV (pence) share Effect ofEffect income (pence) reinvestment Adjusted closing NAV Adjusted closing NAV (pence) per Opening NAV (pence) share Adjusted closing share price (pence) price Opening share (pence) Effect ofEffect income (pence) reinvestment ofEffect income (pence) reinvestment NAV total return total return NAV (c = ((a - b)/b)) (%) NAV total return total return NAV (c = ((a - b)/b)) (%) price Share total return (c = ((a - b)/b)) (%) NAV total return NAV value) par (Debt at Page Share price total Share return NAV total return NAV fair value)(Debt at Page ANNUAL REPORT AND FINANCIAL STATEMENTS 28 FEBRUARY 2019 28 FEBRUARY STATEMENTS AND FINANCIAL REPORT ANNUAL Proof Event: 22 Event: Proof Annual Rpt 2019 Smaller Companies Title: Project ”) set out in the tables opposite). ”) This is the theoretical return on shareholders’ funds on shareholders’ return is the theoretical This in the change reflecting price, or share per share price assuming or share per share value of the NAV reinvested were dividends paid to shareholders that also known as is measure The the first opportunity. at enables investors to and this information ‘total return’ performance comparisons between investment make dividend The dividend policies. trusts with different the combined effect measures calculation reinvestment fall in the together with the rise or of any dividends paid, by the movement is calculated This price or NAV. share plus the dividends paid by price or NAV in the share in the reinvested assuming these are the Company see price (please NAV/Share the prevailing at Company on page 3 for the inputs to the the performance record which arecalculations Net asset value and share price return per price return Net asset value and share return (“Total with income reinvested share NAV Net asset value per share – Capital Only – Capital Net asset value per share Only NAV (“Capital assets capital value of is the This the Company’s by taking It is calculated share. to one ordinary attributable the current funds and subtracting the total shareholders’ (net of net revenue the year) dividends paid out for year ofand then dividing by the total number in issue. shares funds shareholders’ 2019, 28 February as at example, For net revenue year current (1,407.88p), £674,089,000 were dividend paid was £16,123,000 (33.67p) and the interim net total The was £5,746,000 (12.00p). out for the year 47,879,792 ordinary were is £663,712,000 and there the held in treasury); shares issue (excluding in shares 1,386.21p per share. was therefore NAV Only Capital by deducting the calculated funds are Shareholders’ and any and long term liabilities current Company’s its total assets. from for liabilities and charges provision for the see note 9 of(Please Statements the Financial audited inputs to the calculation). Glossary (“NAV”) per share Net asset value assets attributable is the value ofThis the Company’s by dividing It is calculated share. to one ordinary number of funds by the total in issue. shareholders’ shares funds shareholders’ 2019, 28 February as at example, For 47,879,792 ordinary were £674,089,000 and there were (as set held in treasury) shares in issue (excluding shares out in note 9 of Statements); the notes to the Financial 1,407.88p per share was therefore per share the NAV fair (debt at per share par value) and 1,400.57p (debt at by deducting calculated funds are Shareholders’ value). liabilities and any and long term current the Company’s its total assets. from for liabilities and charges provision Job No: 38091 Customer: BlackRock Glossary continued

Glossary continued

Net asset value per share with debt at par value The net asset value per share adjusted to include the debenture stock and loan note at fair value rather than at par is as follows:

As at 28 February 2019 As at 28 February 2018

NAV Shareholders’ NAV Shareholders’ per share funds per share funds Page (pence) £’000 (pence) £’000 Net asset value (debt at par value) 3 1,407.88 674,089 1,506.78 721,442 Add back: 7.75% debenture stock 2022 – debt at par 71 31.22 14,950 31.19 14,936

Add back: 2.74% loan note 2037 – debt at par 71 51.69 24,748 51.66 24,734

Add back: revolving loan facility – Scotiabank 71 5.22 2,500 73.10 35,000

Less: 7.75% debenture stock 2022 – debt at fair value 71 (39.17) (18,750) (39.79) (19,050)

Less: 2.74% loan note 2037 – debt at fair value 71 (51.05) (24,445) (49.80) (23,845)

Less: revolving loan facility – Scotiabank 71 (5.22) (2,500) (73.10) (35,000)

Net asset value (debt at fair value) 1,400.57 670,592 1,500.04 718,217

Discount Ongoing charges ratio Investment trust shares can frequently trade at a discount Ongoing charges Ongoing charges for the year to NAV. This occurs when the share price (based on the ratio (%) = mid‑market share price) is less than the NAV (Debt at Average NAV over the year Fair Value) and investors may therefore buy shares at less than the value attributable to them by reference to the underlying assets. This discount is the difference between Ongoing charges are those expenses of a type which are the share price and the NAV, expressed as a percentage likely to recur in the foreseeable future, whether charged of the NAV. For example, if the share price was 100p and to capital or revenue, and which relate to the operation of the NAV 110p, the discount would be 10%. the investment company as a collective fund, excluding the costs of acquisition/disposal of investments, financing Premium charges and gains/losses arising on investments (as set out in note 5 of the notes to the financial statement on A premium occurs when the share price (based on page 66). The inputs that have been used to calculate the the mid‑market share price) is more than the NAV and ongoing charges percentage are set out in the following investors therefore would be paying more than the value table. attributable to the shares by reference to the underlying assets. For example, if the share price was 100p and the NAV 90p, the premium would be 11.1%. Discounts and premiums are mainly the consequence of supply and demand for the shares on the stock market.

94 BLACKROCK SMALLER COMPANIES TRUST PLC

Way 28 2018 Alpine

February February T: 0207 055 6500 T: 28 4.9% 9.8% (g) 2019 9,137 4,052 (f) £’000 £’000 716,287 796,112 (c) February February Park Communications Ltd Communications Park 60 14,09860 16,472 (d) (4,961) (12,420) (e) 6060 674,089 (42,198) 721,442 (a) (74,670) (b) Page t bank and the Company’s investment in BlackRock’s investment in BlackRock’s t bank and the Company’s 1 Black Line Level: 9 Black Line Level: Includes cash a Liquidity Fund. Series plc – Sterling Institutional Cash Current liabilities Current (excluding borrowings) and cash Cash equivalents (d + e) figure Net gearing (g = (c - f -a)/a)) Net assets Borrowings assets (a -b) Total assets Current Net gearing Net gearing calculation

1 can be found in the audited inputs for this calculation The Statements. Balance Sheet in the Financial Gearing and AIC guidelines in line with is calculated Gearing as total assets is defined This net gearing. represents bank liabilities (excluding of less current the Company any cash or cash equivalents held minus less overdrafts), divided by total shareholders’ funds, total shareholders’ AIC defined by the and cash equivalents are Cash funds. (as relevant). liabilities assets or net current as net current liabilities, has net current the Company that the extent To is added back to the total liabilities total the net current in this assets of the numerator to calculate Company the set and the various inputs are calculation The equation. out in the following table. ANNUAL REPORT AND FINANCIAL STATEMENTS 28 FEBRUARY 2019 28 FEBRUARY STATEMENTS AND FINANCIAL REPORT ANNUAL 28 2018 February February 28 N/A 1.0% (f) 2019 £’000 £’000 5,240 4,509 (a) 5,240 6,303 (c) 722,793 676,477 (d) February February Proof Event: 22 Event: Proof Annual Rpt 2019 Smaller Companies Title: Project 3 0.7% 0.7% (e) 66 650 625 Page Management fee 65 4,590 3,884 Other operating Other operating expenses Total management fee Total and other operating expenses feePerformance 65 N/A 1,794 (b) Total management Total and performance fees and other operating expenses net assets in Average the year in Ongoing charges excluding the year performance fees (e = a/d) Ongoing charges in Ongoing charges including the year performance fees (f = c/d) Ongoing charges Ongoing charges calculation As recommended by the AIC in its guidance, ongoing AIC in its guidance, by the As recommended and annualised revenue the Company’s are charges finance performance fees, (excluding capital expenses and taxation charges, transaction refunded, VAT costs, as a percentage items) expressed non-recurring certain of monthly net assets of during the average the Company the year. Job No: 38091 Customer: BlackRock Share fraud warning

Be ScamSmart

Investment scams are designed to look like genuine investments

Spot the warning signs Have you been: • contacted out of the blue • promised tempting returns and told the investment is safe • called repeatedly, or • told the offer is only available for a limited time? If so, you might have been contacted by fraudsters.

Avoid investment fraud Report a scam

1 Reject cold calls If you’ve received unsolicited contact about an investment If you suspect that you have been approached by opportunity, chances are it’s a high risk investment or a fraudsters please tell the FCA using the reporting form at scam. You should treat the call with extreme caution. www.fca.org.uk/consumers. You can also call the The safest thing to do is to hang up. FCA Consumer Helpline on 0800 111 6768 If you have lost money to investment fraud, you should

2 Check the FCA Warning List report it to Action Fraud on 0300 123 2040 or online at The FCA Warning List is a list of firms and individuals we www.actionfraud.police.uk know are operating without our authorisation. Find out more at www.fca.org.uk/scamsmart 3 Get impartial advice you hand over any money. Seek advice from someone Remember: if it sounds too good to be true, it probably is!

SGN001

96 BLACKROCK SMALLER COMPANIES TRUST PLC

Park Communications 38091