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 Payment of final dividend on ordinary shares October/ Announcement of results for six months ending November 2019 31 August 2019 November 2019 Payment 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 Further information Further details about the Company, including the Why BlackRock latest annual and interim reports, factsheets and stock exchange announcements, are available on the Overview and performance website at blackrock.co.uk/brsc. Shareholders and Smaller other interested parties who wish to receive copies of monthly announcements and other significant matters put into the public domain should send their email Companies address to [email protected]. Trust plc? Reasons to invest • Outperforming asset class – The Company offers investors exposure to UK smaller companies, an asset class that has historically outperformed larger companies by circa +4%1 per annum. • Opportunities for active managers – There are at least 1,500 small and mid-cap companies listed on the UK stock market that are well diversified across a broad range of sectors and geographies. BlackRock believes that this area of the market presents an attractive hunting ground since these companies operate in an inefficient and under-researched area of the market thereby presenting great opportunities to generate good returns for investors Governance over the long term. • Highly experienced UK small and mid-cap team with a robust investment process – The BlackRock team has excellent access to company managements and undertakes about 700 company meetings each year. The team looks to find hidden gems and invest in growth companies with the potential to become much larger. When selecting stocks the team looks for high quality, cash generative companies with strong management teams that are able to generate their own growth regardless of the wider economic environment. • Globally diversified portfolio – The UK small and mid-cap universe contains many industry leaders often operating and selling globally. This allows BlackRock to construct a portfolio of global businesses. Currently around 50%2 of the portfolio’s revenues are generated from overseas. • IPO Opportunities – Due to the high standards of governance, strong accounting standards and consistent rule of law, London is attractive for companies seeking an IPO. There are often significant IPO opportunities within the Financial statements Financial UK smaller companies sector, and many companies purchased at IPO have been extremely strong contributors to performance. • Differentiated source of income – Investing in high quality, cash generative businesses has enabled the Company to increase its dividend every year for 16 years. Since 2006, dividend growth has substantially outperformed the dividend growth of the median Equity Income Fund2. • Additional exposure through leverage – The Company has the ability to borrow up to 15% of net assets, offering investors the ability to increase exposure to high quality businesses, potentially enhancing returns over the longer term. • Benefits of a closed ended vehicle – Closed end funds do not have to deal with daily liquidity requirements that come with open ended funds. As a result, the Company can invest more freely in exciting smaller companies that might be further down the market cap scale or less liquid. • Strong performance record – The Company has a proven strategy with an impressive and consistent track record, Additional information outperforming its benchmark for 162 consecutive financial years. Past performance is not a reliable indicator of current or future results and should not be the sole consideration when selecting a product or strategy. The value of investments and the income from them can fall as well as rise and is not guaranteed. The investor may not get back the amount originally invested. 1 Source: Datastream. For the period 1955 to 2019. Numis Smaller Companies Index +AIM ex ITs Total Return Index (previously known as Hoare Govett). Barclays Equity Total Return (December 1955 to December 2006). FTSE All-Share Total Return (January 2007 to February 2019). 2 Source: BlackRock. A member of the Association of Investment Companies Details about the Company are available on the website at blackrock.co.uk/brsc ANNUAL REPORT AND FINANCIAL STATEMENTS 28 FEBRUARY 2019 1 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 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 2 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 Performance record Overview and performance 28 February 2019 28 February 2018 Change % Performance Net asset value per share (debt at par value)1 1,407.88p 1,506.78p -6.6 Net asset value per share (debt at par value, capital only)1, 2 1,386.21p 1,487.48p -6.8 Net asset value per share (debt at fair value)1, 3 1,400.57p 1,500.04p -6.6 Numis Smaller Companies plus AIM (excluding Investment Companies) Index1 5,231.98 5,700.84 -8.2 Ordinary share price 1,330.00p 1,325.00p +0.4 Year ended Year ended 28 February 2019 28 February 2018 Change % Revenue and dividends Revenue return per share 33.67p 29.30p +14.9 Interim dividend per share 12.00p 10.00p +20.0 Governance Proposed final dividend per share 19.20p 16.00p +20.0 Total dividends paid and payable 31.20p 26.00p +20.0 Assets Total assets less current liabilities (£’000) 716,287 796,112 -10.0 Equity shareholders’ funds (£’000) 674,089 721,442 -6.6 Ongoing charges ratio4 0.7% 0.7% – Ongoing charges ratio (including performance fees)5 N/A 1.0% N/A Dividend yield 2.3% 2.0% Gearing 4.9% 9.8% 1 Excludes income reinvested. 2 The capital only net asset value (NAV) is calculated without income for the year to 28 February 2019 and 28 February 2018 respectively, net of dividends paid in respect of the relevant financial years. More detail is given in the Glossary. statements Financial 3 The basis of calculation for the fair value of the debt is disclosed in note 13 of the financial statements and in the Glossary. 4 Ongoing charges ratio calculated as a percentage of average shareholders’ funds and using operating expenses, excluding performance fees, finance costs, transaction costs and taxation, in accordance with AIC guidelines. 5 With effect from 1 March 2018, a performance fee is no longer charged. For the year ended 28 February 2018, a performance fee was charged. Please see note 4 of the financial statements for further details of the change. Sources: BlackRock and Datastream. BlackRock Smaller Companies Trust plc – Performance from 1 March 2009 to 28 February 2019 950 900 850 800 750 700 650 600 550 500 Additional information 450 400 350 300 250 200 150 100 Feb 11 Feb 13 Feb 15 Feb 17 Feb 19 Feb Feb 09 Feb Share price performance NAV performance Numis Smaller Companies plus AIM (without income reinvested) (debt at par, without income reinvested) (ex Investment Companies) Index (without income reinvested) Sources: BlackRock and Datastream. Share price, NAV and Benchmark rebased to 100. ANNUAL REPORT AND FINANCIAL STATEMENTS 28 FEBRUARY 2019 3 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 Chairman’s statement Your Company has a remarkable record.