BlackRock

Smaller Companies

Trust plc

Annual Report and Financial Statements for the year ended

29 February 2024

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Further information about the Company can be found on our website at

www.blackrock.com/uk/brsc

.

General enquiries about the Company should be directed to the Company

Secretary at:

cosec@blackrock.com

.

Register here to watch this year’s Annual General Meeting

For the benefit of shareholders who are unable to attend this year’s AGM in

person, we have arranged for the proceedings to be viewed via a webinar. You can

register to watch the AGM by scanning the QR code opposite or by visiting our

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www.blackrock.com/uk/brsc

and clicking the registration banner.

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attendance at the AGM. Shareholders wishing to exercise their right to attend, speak and vote at the AGM should either

attend in person or exercise their right to appoint a proxy to do so on their behalf. For further details please see page

130 of

the Annual Report.

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Corporate

summary

Section 1: Overview and performance

1

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 31.

Benchmark index

Deutsche Numis Smaller Companies plus AIM

(excluding Investment Companies) Index.

Alternative Investment

Fund Manager

BlackRock Fund Managers Limited (The Manager or

AIFM).

Investment Manager

BlackRock Investment Management (UK) Limited

(BIM (UK)) – Portfolio Manager: 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

www.blackrock.com/uk/brsc

.

AIC

The Company is a member of the Association of

Investment Companies.

Financial calendar

May 2024

Announcement of results for year

ending 29 February 2024

June 2024

Payment of final dividend on

ordinary shares

June 2024

Annual General Meeting

October/

Announcement of results for six

November 2024

months ending 31 August 2024

November 2024

Payment of interim dividend on

ordinary shares

Depositary, Custodian

and Fund Accountant

The Bank of New York Mellon (International) Limited

(BNYM).

Industrials was the largest overweight positioning in the Company

at year end. The cover photograph shows one of thermal processing

specialist Bodycote’s High Velocity Oxygen Fuel robots spray coating

an industrial gas turbine component.

PHOTO COURTESY OF BODYCOTE PLC

2

BlackRock Smaller Companies Trust plc

l

Annual Report and Financial Statements 29 February 2024

Why BlackRock Smaller

Companies Trust plc?

Further information

Further details about the Company, including the latest annual and interim reports, factsheets and stock

exchange announcements, are available on the website at

www.blackrock.com/uk/brsc

.

Reasons to invest

A member of the Association of Investment Companies

Details about the Company are available on the website at

www.blackrock.com/uk/brsc

.

1

2

3

4

Section 1: Overview and performance

3

Contents

Section 1: Overview and performance

Corporate summary

1

Why BlackRock Smaller Companies Trust plc?

2

Performance record

4

Chairman’s Statement

5

Investment Manager’s Report

11

Section 2: Portfolio

Ten largest investments

17

Fifty largest investments

19

Portfolio holdings in excess of 3% of issued share capital

21

Distribution of investments

22

Portfolio analysis

23

Section 3: Governance

Governance structure

28

Directors’ biographies

29

Strategic Report

31

Directors’ Report

48

Directors’ Remuneration Report

56

Directors’ Remuneration Policy

60

Corporate Governance Statement

62

Report of the Audit Committee

69

Statement of Directors’ Responsibilities in respect of the Annual

Report and Financial Statements

73

Section 4: Financial statements

Independent Auditors’ Report

78

Income Statement

84

Statement of Changes in Equity

85

Balance Sheet

86

Statement of Cash Flows

87

Notes to the Financial Statements

88

Section 5: Additional information

Shareholder information

110

Analysis of ordinary shareholders

113

Historical record

114

Management and other service providers

115

AIFMD report on remuneration

116

Other AIFMD disclosures (unaudited)

117

Information to be disclosed in accordance with Listing Rule 9.8.4

118

Depositary report

119

Glossary

120

Section 6: Notice of annual general meeting

Notice of annual general meeting

128

Share fraud warning

132

4

BlackRock Smaller Companies Trust plc

l

Annual Report and Financial Statements 29 February 2024

Performance record

As at

29 February

2024

As at

28 February

2023

Net asset value per ordinary share (debt at par value) (pence)

1

1,450.15

1,553.41

Net asset value per ordinary share (debt at fair value) (pence)

1

1,502.25

1,601.42

Ordinary share price (mid-market) (pence)

1

1,326.00

1,380.00

Deutsche Numis Smaller Companies plus AIM (excluding Investment

Companies) Index

2

15,173.40

16,108.12

Assets

Total assets less current liabilities (£’000)

755,721

828,033

Equity shareholders’ funds (£’000)

3

686,206

758,529

Ongoing charges ratio

4,5

0.8%

0.7%

Dividend yield

4

3.2%

2.9%

Gearing

4

11.5%

6.3%

For the

year ended

29 February

2024

For the

year ended

28 February

2023

Performance (with dividends reinvested)

Net asset value per ordinary share (debt at par value)

2,4

-4.0%

-15.4%

Net asset value per ordinary share (debt at fair value)

2,4

-3.6%

-13.0%

Ordinary share price (mid-market)

2,4

-0.8%

-15.9%

Deutsche Numis Smaller Companies plus AIM (excluding Investment

Companies) Index

2,4

-5.8%

-7.5%

For the

year ended

29 February

2024

For the

year ended

28 February

2023

Change

%

Revenue and dividends

Revenue return per ordinary share

40.70p

40.92p

-0.5

Interim dividend per ordinary share

15.00p

14.50p

+3.4

Final dividend per ordinary share

27.00p

25.50p

+5.9

Total dividends payable and paid

42.00p

40.00p

+5.0

1

Without dividends reinvested.

2

Total return basis with dividends reinvested.

3

The change in equity shareholders’ funds represents the portfolio movements, shares repurchased into treasury and dividends paid during

the year.

4

Alternative Performance Measure, see Glossary on pages 120 to 124. Full details setting out how calculations with dividends reinvested are

performed are set out in the Glossary on page 122.

5

Ongoing charges ratio calculated as a percentage of average daily net assets and using the management fee and all other operating

expenses, excluding finance costs, direct transaction costs, custody transaction charges, VAT recovered, taxation, prior year expenses written

back and certain non-recurring items in accordance with AIC guidelines.

Section 1: Overview and performance

5

Dear

Shareholder

Market overview

In my Half-Yearly statement in October, I described how the first six months

of our financial year had been characterised by powerful geo-political and

macroeconomic drivers. As the year progressed, rising tensions in the Middle East

led to increasing concern around the inflationary impact of disruption to major

shipping routes in the Red Sea and an escalation into a wider conflict in the region.

Market concerns in the second half of the year continued to focus on persistent

inflation and high interest rates, with the Bank of England (BoE) implementing

a 25-basis point rise in the base interest rate in August, raising interest rates to

5.25%, the highest level since 2008. The BoE continued its policy of monetary

tightening throughout most of the year with the Monetary Policy Committee

(MPC) voting to hold the base rate at 5.25% in September 2023 (ending a run of

fourteen consecutive rate increases since December 2021). The high interest rate

environment continues to weigh on the valuations of the type of long-duration,

higher growth shares favoured in our portfolio. As a result, UK small and mid-

caps have continued to underperform large caps in what amounts to the longest

cycle of underperformance in recent history (including that seen in the Global

Financial Crisis of 2008, COVID-19, Brexit, the Tech sell

-off or Black Monday). The

fourth quarter of 2023 saw markets reflect the expectation of rate cuts in 2024

in response to easing inflation data, but as we entered 2024, a shift in market

sentiment has seen a volatile start to the year in equity markets.

Despite this challenging backdrop, it is comforting to note that many of our

portfolio holdings continue to deliver against their objectives. Your Board also

notes that the UK equity market continues to look cheap on a range of valuation

metrics. One should also be mindful that historically, periods of heightened

volatility have been followed by strong returns for the strategy and presented

excellent investment opportunities.

Performance

In the year under review, the Company’s net asset value (NAV) per share

outperformed the benchmark index (the Deutsche Numis Smaller Companies

plus AIM (excluding Investment Companies) Index) by 2.2%, falling by 3.6%

1,2,3

,

in comparison to the decline in the benchmark of 5.8%

1,3

. Over the same period

your Company’s share price on a total return basis with dividends reinvested was

broadly flat, falling marginally by 0.8%

1,3

compared with the FTSE AIM All-Share

Index which fell by -2.

3%

1

, the FTSE 250 Index which fell by -1.3%

1

and the

Chairman’s Statement

Ronald Gould

Chairman

6

BlackRock Smaller Companies Trust plc

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Annual Report and Financial Statements 29 February 2024

FTSE 100 Index which rose by 0.8%

1

. The wide disparity between index returns

reflected changing investor sentiment about large versus smaller cap companies

during a period of great market uncertainty over future prospects.

More detail on the significant contributors to and detractors from performance

during the year are given in the Investment Manager’s Report on pages 12 and 13.

The Company’s longer-term performance is set out in the table below. More

information is also given in the chart on page 7 which illustrates how long-term

investors have had an opportunity to build up an attractive annual income from

an investment in the Company. Even if the initial dividend yield at the point of

purchase has been unremarkable, the strong underlying growth in dividends over

the years has resulted in a competitive yield on cost when compared with equity

income funds in general. To illustrate this investment and income success, the

chart on page 7 shows that £1,000 invested in the Company on 28 February 2006

would have increased in value by 421.5%

1

in NAV terms to 29 February 2024,

whereas £1,000 invested in the UK open-ended income sector median would have

increased by just 150.7%

1

. The chart also demonstrates that while the yield on the

Company’s shares was much lower at the beginning of the period, over time the

Company’s dividend has grown at a much faster rate than open-ended UK income

fund competitors.

Returns and dividends

Your Company’s total revenues per year are a reflection of the dividends we

receive from portfolio companies. Total revenue return for the year was 40.70

pence per share (2023: 40.92 pence per share). The Board continues its policy

to ensure the sustainability of dividends and their future growth through

investment in companies with strong balance sheets, solid management and

sustainable business growth models. We remain mindful of the importance of

yield to shareholders. The Board is also cognisant of the benefits of the Company’s

investment trust structure which enables it to retain up to 15% of total revenue

each year to build up reserves which may be carried forward and used to pay

dividends during leaner times. The Company has substantial distributable reserves

(£619.7 million as at 29 February 2024, including revenue reserves of £18.6

million). Taking note of your Company’s current reserves, the Board has decided

to declare a final dividend of 27.00 pence per share. Combined with the interim

dividend of 15.00 pence per share, this represents total dividends declared of

42.00 pence per share for the year to 29 February 2024, an increase of 5% over

total dividends declared for the year to 28 February 2023. The dividend will be paid

on 27 June 2024 to shareholders on the Company’s register as at 24 May 2024.

The Board has also taken this decision recognising that many portfolio companies

are demonstrating strong earnings forecasts, allowing us to take a more optimistic

view of future prospects. Your Company has now increased its annual dividend

every year since 2003.

The annualised increase in dividends paid since this date equates to 10.9% and

your Company has received the AIC accolade of ‘Dividend Hero’ for its’ consistent

growth in dividends for a period in excess of 20 years.

Gearing and sources of finance

The Company has traditionally maintained a range of borrowings and facilities to

provide balance between longer-term and short-term maturities and between fixed

and floating rates of interest. Over the past few years the Board has taken steps to

Performance to 29 February 2024

1 Year

change

%

3 Years

change

%

5 Years

change

%

10 Years

change

%

15 Years

change

%

NAV per share

1,2,3

-3.6

-9.6

19.7

97.1

763.1

Benchmark

1,3

-5.8

-11.6

11.9

33.7

327.8

Share price

1,3

-0.8

-15.8

12.5

6.1

912.7

1

Percentages in Sterling terms with dividends reinvested.

2

NAV with debt at fair value.

3

Alternative Performance Measure, see Glossary on pages 120 to 124.

Section 1: Overview and performance

7

lock in borrowing at what we considered to be very attractive interest rates, and the Company currently has in place a range of

longer-term fixed rate funding consisting of £25 million 2.74% senior unsecured fixed rate private placement notes maturing

in 2037, £20 million 2.41% senior unsecured notes maturing in 2044 and £25 million 2.47% senior unsecured notes maturing

in 2046. The logic of the Board’s decision to capture these lower interest rates for funding has been borne out by economic

developments over the past few years; by way of illustration, interest on an equivalent level of £70 million of funding through a

bank overdraft would attract interest at SONIA plus 1% (currently c. 6.25%), amounting to interest of c. £4.4 million, compared

to the current cost of debt of just £1.9 million per annum. The Company also has in place variable rate funding consisting of a

£60 million uncommitted overdraft facility with The Bank of New York Mellon (International) Limited.

It is the Board’s intention that net gearing will not exceed 15% of the net assets of the Company at the time of the drawdown of

the relevant borrowings. Under normal operating conditions it is envisaged that gearing will be within a range of 0%-15% of

net assets. At the year end, the Company’s net gearing was 11.5%

1

of net assets (2023: 6.3%).

Management of share rating

The Board monitors the Company’s share rating closely, and recognises the importance to shareholders that the price of the

Company’s shares do not trade at either a significant premium or discount to the underlying NAV. Therefore, where deemed

to be in shareholders’ long-term interests, it may exercise its powers to issue shares or buy back shares with the objective

of ensuring that an excessive premium or discount does not arise. As market volatility persisted through the year, discounts

across the closed-end funds sector remained wide and the Company’s shares traded at a discount to NAV ranging from 7.8%

to 15.1% over the period. As the discount widened, the Board took action to address this, buying back 1.5 million shares during

the year under review for a total cost of £20.0 million. All shares were bought back at a discount to NAV, delivering an uplift

to the NAV per share of 0.3% for continuing shareholders for the year under review. The Board believes that the action it has

taken has helped to minimise discount volatility, with the Company’s shares trading at an average discount to NAV (with debt

Capital and income growth

Portfolio return £

BRSC – NAV – Total Return

UK Income Sector Median – Total Return

UK Income Sector Median Distribution

BRSC dividend

•

8

BlackRock Smaller Companies Trust plc

l

Annual Report and Financial Statements 29 February 2024

at fair value) over the full year of 12.4%, compared to an average discount of 13.9% for the year to 28 February 2023. To put

this in context, the average discount for companies in the AIC UK Smaller Companies sector for the same period was 11.9%.

Since the year end, and up to the date of this report, the Company has bought back 220,000 shares for costs of £2,946,000 (at

an average discount to NAV of 13.0%). The Company’s discount currently stands at 11.1% compared to a sector average of

11.7%.

Board composition, implementation of policy on tenure and diversity

In previous Chairman’s Statements, I have noted that the Board has adopted a policy of limiting directors’ tenure to nine

years (or twelve years in the case of the Chairman in certain circumstances). The Board remains focused on high standards of

governance and is cognisant that the Parker Review in respect of board diversity and the recent changes to the FCA’s Listing

Rules set new diversity targets and associated disclosure requirements for UK companies listed on the premium and standard

segment of the London Stock Exchange. Your Board recognises the benefits of diversity at Board level and believes that

Directors should have a mix of different skills, experience, backgrounds, ethnicity, gender and other characteristics.

The Board appointed an external agency to undertake a search and selection process in 2023 with the aim of further

enhancing Board diversity. A broad range of factors were taken into account in setting the appointment brief and during the

search and selection process. These were underpinned by our conviction that all Board appointments must be made on merit,

in the context of the skills, experience, independence and knowledge which the Board as a whole requires to be effective.

As a result of the search, the Board announced the appointment of Ms Dunke Afe as a non-executive Director with effect from

1 January 2024. Ms Afe is an accomplished global marketing executive with extensive experience in raising brand and product

awareness. As a marketing expert the Board expects this to be helpful for the Company in the future. She has previously

worked with top blue chip multinationals including Unilever, Kimberly-Clark and Estee Lauder companies. She is also a non

-

executive Director of CT UK Capital and Income Investment Trust plc. We look forward to benefitting from her outstanding

marketing knowledge and insights as we navigate an increasingly competitive environment for investor attention. Further

information on Board composition can be found in the Corporate Governance Statement on page 63.

Annual general meeting

The Company’s Annual General Meeting (AGM) will be held in person at the offices of BlackRock at 12 Throgmorton Avenue,

London EC2N 2DL on Thursday 20 June 2024 at 11.30 a.m. Details of the business of the meeting are set out in the Notice of

Annual General Meeting on pages 128 and 129. Shareholders are also invited to join Directors for a hot buffet lunch after the

formal business of the meeting has concluded. Prior to the formal business of the meeting, our Investment Manager will make

a presentation to shareholders. This will be followed by a question and answer session. Shareholders who are unable to attend

the meeting in person but who wish to view the portfolio manager’s presentation can do so via a live webinar this year. Details

on how to register, together with access details, will be available shortly on the Company’s website at:

www.blackrock.com/uk/

brsc

or by contacting the Company Secretary at

cosec@blackrock.com

. It is not possible to speak or vote via this medium and

it is solely intended to provide shareholders with the ability to watch the portfolio manager’s presentation. Additionally, if you

are unable to attend you can exercise your right to vote by proxy or appoint a proxy to attend in your place. Details of how to

do this are included on the AGM Proxy Card provided to shareholders with the Annual Report. If you hold your shares through

a platform or a nominee company, you will need to contact them directly and ask them to appoint you as a proxy in respect of

your shares in order to attend, speak and vote at the AGM. Further information on the business of this year’s AGM can be found

in the Notice of the AGM on pages 128 and 129.

The Company’s portfolio is weighted towards companies with well

capitalised balance sheets and entrepreneurial management teams

that are able to rapidly adapt their businesses to the shifting market

dynamics.

Section 1: Overview and performance

9

Outlook

Since the financial year end, the Company’s NAV (as at 8 May 2024) has increased by 8.0%

1,2

, against an increase in the

benchmark of 7.8%

1

, and the share price has risen by 8.7%

1

. These results should be seen in the context of continued and

significant market volatility, which persists in an ongoing high interest rate environment, fuelled by heightened geo-political

risk, with the ongoing conflict in Ukraine and tensions escalating in the Middle East. Looking forward, there are also several

significant elections in 2024, notably in the UK, US and Europe, with a range of outcomes, all of which could impact market

volatility and sentiment.

Against this turbulent backdrop, the Company’s portfolio is weighted towards companies with well capitalised balance sheets

and entrepreneurial management teams that are able to rapidly adapt their businesses to the shifting market dynamics. As

such we believe your Company is well-positioned and prepared to take advantage of the investment opportunities that lie

ahead despite the uncertain market conditions. If shareholders would like to contact me, please write to BlackRock Smaller

Companies Trust plc, Exchange Place One, 1 Semple Street, Edinburgh EH3 8BL marked for the attention of the Chairman.

RONALD GOULD

Chairman

13 May 2024

1

Percentages in Sterling terms with dividends reinvested.

2

NAV with debt at fair value.

Section 1: Overview and performance

11

Investment

Manager’s

Report

Market review

As ever when I sit and write these annual reviews, the first point of reference is

always my previous manager report; what did I write this time last year, what was

my outlook for the coming twelve months, how far off the mark was I, and what

unexpected events were thrown at us? Last year’s review highlighted the almost

schizophrenic behaviour of the markets, flitting between rising and falling bond

yields, inflation expectations, commodity and asset prices, whilst the outlook

suggested inflation expectations would moderate, we would avoid a hard landing,

and the low valuation of the UK market would see an increase in corporate activity.

I fear this year’s review will not veer too much from this narrative. Many of the

drivers of uncertainty and volatility remain; will major economies avoid a hard

landing, what is the impact of geo-political conflict, will inflation fall enough to

gift central banks the freedom to reduce interest rates? Underlying these macro

factors is the one unescapable truth, the valuation of UK small and medium sized

companies remains incredibly attractive. Overlay valuations below their historic

range with corporate balance sheets as well capitalised as I can remember in my

career, and you could have a very attractive opportunity to create long-term value.

Performance review

For the second half of the financial year the Company’s NAV outperformed the

benchmark by 3.4%, producing a positive return of 4.6% against our benchmark

return of 1.2%. This takes the Company’s NAV return to -3.4% for the financial

year, and although it is disappointing to be reporting another year of negative asset

value, it outperformed our benchmark return of -5.8%.

Roland Arnold

The largest positive contributor to performance was pro-

motional goods specialist 4imprint.

PHOTO COURTESY OF 4IMPRINT GROUP

12

BlackRock Smaller Companies Trust plc

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Annual Report and Financial Statements 29 February 2024

In my interim report I asked “what’s the catalyst?” to seeing a change in market sentiment, and an end to the persistent

outflows we have seen in small and mid cap equities. Sadly my conclusion was I don’t know, that history tells us there will be

one, but typically we only see the catalyst in the rear view mirror. What is clear to me is the current valuation of the UK market,

and in particular UK small and mid-cap, is attractive. In addition, the second half of the financial year has given significant

cause for optimism. Unemployment remains low, balance sheets remain strong, inflation is falling, consumer confidence

is improving, Purchasing Manager’s Index whilst generally still negative are improving and for the much maligned UK have

tipped back into positive territory ahead of those of most other major European economies. This backdrop gives confidence

that the earnings outlook for our businesses is broadly supportive for an earnings recovery.

The largest positive contributor to performance was

4imprint Group

. This is not the first time we have discussed the merits of

the 4Imprint Group investment case, it has been a significant contributor to performance over a number of years, and acts as a

case study to our investment philosophy; find a well invested market leader in a growth market, that converts profits into cash,

continues to invest in both their product and people to maintain market leadership and pricing power, whilst increasing the

dividends paid to shareholders.

The second largest contributor was recently listed

Ashtead Technology

, the Aberdeen based equipment rental business

focused on the Oil and Gas industry. Management have done a commendable job of positioning the group towards growth

markets, whilst deploying the balance sheet towards accretive mergers and acquisitions (“M&A”).

The third largest contribution has come from our holding in bowling operator

Ten Entertainment Group

, which received a bid

from private equity. This was not the only bid we were on the receiving end of during the financial year, we also saw

Ergomed

,

City Pub Company

, and

Numis

leave us. Whilst takeover activity is obviously a positive to overall performance, it is often a

bittersweet moment as we lose businesses we believe could contribute to the NAV growth of the Company over a number of

years, and have to find suitable replacements.

No year is perfect, there are always companies that weigh on performance. These loosely split into two camps; the ones where

there has been a change in the earnings outlook, and those where shares have de-rated for other reasons but the outlook for

the investment case is unchanged.

Watches of Switzerland

sadly sits in the first category, as the shares reacted negatively

to the news that Rolex has purchased luxury watch retailer Bucherer, raising concerns Rolex will direct allocation to Bucherer

over other retailers. We have to acknowledge the potential impact this has on the Watches of Switzerland investment case and

have reduced the position to reflect what is now a wider range of potential outcomes.

CAB Payments

listed on the London

Pharmaceutical services provider and long-term holding Ergomed was the subject of a private equity bid during the year.

Section 1: Overview and performance

13

market in July 2023, the first significant initial public offering (“IPO”) on the London market in some time. We recognised

at the time the revenue model was inherently unpredictable, and likely to be buffeted by the vagaries of emerging market

currencies. What we had not anticipated was the sudden change in market conditions in a number of their currency markets,

which facilitated a significant decline in revenue and earnings expectations. Coming so soon after the IPO this raised serious

questions about the controls within the group, and we exited the position. Finally, we need to address computer games

developer

Team17

, which revealed a profit warning in November. The gaming industry had a tough year in 2023, with the

demand for “triple A” games disappointing generally, and a number of revenue related disappointments across the industry.

We spent a lot of time looking at Team17, analysing the best seller lists to gain comfort that volumes would not disappoint.

Sadly, volumes were not the issue, and revenue forecasts were achieved, however management appear to temporarily have

lost control of the cost base leading to a warning on profitability. We have reduced the position but have maintained a small

holding in the belief a cost problem can be fixed more easily when there isn’t a revenue issue.

There is a third category of shares that can weigh on relative performance; those that are a significant weight in the

benchmark that we choose not to own. 2023 saw an unusually large number of “fallen angels” enter the top end of our

benchmark. Accounting for 25% of the Numis Smaller Companies Index, the 2023 cohort of fallen angels is the third largest

on record. Two of these,

Burford

and

Carnival

performed strongly in the year, rising 80% and 62% respectively. Typically,

the “fallen angels” fail to meet our investment criteria. In the case of these two examples Burford’s revenue model is too

unpredictable, and Carnival’s market cap was simply too large for a portfolio focused on small and medium sized companies.

The health of the UK market

Given the amount of press coverage it has received in the last year, it would be amiss of us not to address the health of the

UK stock market. The overwhelming narrative has suggested the market is in a death spiral, deprived of the vital lifeblood

of new issues and fundraisings, haemorrhaging companies to private equity, and seeing FTSE100 blue bloods seeking the

Elysian Fields of a US listing. We can’t sit here and pretend none of this is true, but perhaps some context is also required. The

number of UK listed companies has been falling for decades, this is not some new phenomenon, what has changed in the last

two years is the dearth of new issues to replace those companies we lose through M&A, re-listing or sadly insolvency. Capital

markets activity has been light, companies have not sought new funds in any volume, but perhaps we should look at this from

another angle. In 2009/2010 there were huge sums of fresh equity raised, but often this was a direct result of weak balance

sheets going into a severe downturn. 2022/2023 was not the same, this has been strong balance sheets going into a more

shallow decline. London remains an attractive market for new issues; the rule of law is unchanged, the breadth of capability

and experience is undiminished, what is required is confidence and indeed the end of the significant outflows from the UK

market. The entrepreneurial spirit is still alive in the UK, owners will still want to see their businesses listed to provide them with

access to capital, and it remains my view that London will remain an active market for UK small and medium sized businesses

once confidence returns.

Positioning and outlook

Any discussion about the outlook for UK small and medium sized companies essentially revolves around three broad

sectors, as consumer, industrials and financials form the vast bulk of the investment universe. If we once again circle back

to the outlook discussed this time last year, we felt the risks of a significant recession were being overplayed, and there were

opportunities in both the consumer and industrial markets. We see little reason to change our view at this point. As evidenced

by the Asda Income Tracker, available household cash flow is finally starting to grow after nearly two years of pressure. At the

same time food and fuel inflation is falling, increasing the amount of household cash available to direct to more discretionary

purposes. With interest rates looking like they have peaked, and mortgage rates starting to fall, support for the structurally

undersupplied housing market should also return. Our view on industrials also remains positive. 2023 has been a year of

inventory unwind, as firms run through the stock built up to manage the post-COVID-19 supply chain disruptions. Much of

this rightsizing has now happened, suggesting end market demand should be much more closely correlated to industrial

company revenues. More importantly, going forward we still see many of the positive structural drivers of near shoring and

supply chain duplication providing a multi-year tailwind for industrial companies. In summary we retain a broadly pro-cyclical

outlook, with a view that the coming year could well see an earnings inflexion colliding with attractive valuations, typically a

mix that leads to share price appreciation.

ROLAND ARNOLD

BlackRock Investment Management (UK) Limited

13 May 2024

Section 2: Portfolio

15

Portfolio

Business communications company Gamma Communications

was once again the portfolio’s largest holding at year end.

16

BlackRock Smaller Companies Trust plc

l

Annual Report and Financial Statements 29 February 2024

10

7

4

1

9

6

3

8

5

2

PHOTOS COURTESY OF 4IMPRINT GROUP, BLOOMSBURY PUBLISHING, HILL & SMITH/COLLEEN MURRAY, WORKSPACE GROUP, BREEDON, CVS GROUP.

Section 2: Portfolio

17

Ten largest

investments

as at 29 February 2024

1

Gamma Communications

Mobile Telecommunications

Portfolio value

£20,662,000

Percentage of portfolio

2.7%

A leading provider of Unified Communications as a Service (UCaaS) into the UK and European business markets, supplying communication

solutions via their extensive network of trusted channel partners and also directly.

2

4imprint Group

Media

Portfolio value

£19,129,000

Percentage of portfolio

2.5%

A UK-listed but US-centric direct marketing business of promotional goods. Despite a relatively small market share, they are the market leader

in the US by some distance which reflects just how fragmented the market is.

3

Bloomsbury Publishing

Media

Portfolio value

£16,606,000

Percentage of portfolio

2.2%

The company is a leading independent publisher which aims to inform, educate, entertain and inspire readers of all ages. The company is

focused on investing in high value intellectual property, with a focus on publishing quality content. The company has been diversifying the

portfolio across consumer and non-consumer, and geographically has expanded it’s digital offering through mergers and acquisitions, further

increasing the quality of its revenues and earnings.

4

Hill & Smith

Industrial Engineering

Portfolio value

£16,476,000

Percentage of portfolio

2.2%

Hill & Smith is a leading UK-based infrastructure and construction products company that specializes in the design, manufacture, and supply

of vehicle restraint systems, road safety barriers, and other infrastructure solutions for the highways and construction sectors.

5

Chemring Group

Aerospace & Defence

Portfolio value

£16,152,000

Percentage of portfolio

2.1%

Chemring Group PLC is a UK-based technology solutions company that operates in the aerospace and defense industry. The company has two

main business segments: Sensors & Information, and Countermeasures.

18

BlackRock Smaller Companies Trust plc

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Annual Report and Financial Statements 29 February 2024

6

Workspace Group

Real Estate Investment Trusts

Portfolio value

£15,931,000

Percentage of portfolio

2.1%

Workspace Group is a leading UK-based REIT that owns and manages a portfolio of flexible, sustainable commercial properties, primarily catering

to SMEs in the Greater London area through its comprehensive workspace solutions and services.

7

Breedon

Construction & Materials

Portfolio value

£15,293,000

Percentage of portfolio

2.0%

A leading construction materials group in Great Britain and Ireland producing cement, aggregates, asphalt, ready-mixed concrete, specialist

concrete and clay products.

8

YouGov

Media

Portfolio value

£14,568,000

Percentage of portfolio

1.9%

An international provider of specialist data analytics and marketing information. The company was recently named one of the world’s top 25

research companies.

9

Tatton Asset Management

Financial Services

Portfolio value

£14,114,000

Percentage of portfolio

1.8%

Tatton Asset Management is a leading UK financial services company that provides a range of investment management, compliance, and

support services to independent financial advisers, with a focus on discretionary fund management and portfolio solutions

.

10

CVS Group

General Retailers

Portfolio value

£13,786,000

Percentage of portfolio

1.8%

CVS Group is one of the largest integrated veterinary services providers in the UK encompassing four main business areas: veterinary practices,

diagnostic laboratories, pet crematoria and e-commerce division.

Ten largest investments

Section 2: Portfolio

19

Fifty largest investments

as at 29 February 2024

Company

Business activity

Market

value

£’000

% of

total

portfolio

Gamma Communications

Provider of communication services to UK businesses

20,662

2.7

4imprint Group

Promotional merchandise in the US

19,129

2.5

Bloomsbury Publishing

Publisher of fiction and non-fiction

16,606

2.2

Hill & Smith

Production of infrastructure products and supply of galvanizing services

16,476

2.2

Chemring Group

Advanced technology products and services for the aerospace, defence

and security markets

16,152

2.1

Workspace Group

Supply of flexible workspace to businesses in London

15,931

2.1

Breedon

UK construction materials

15,293

2.0

YouGov

International online research data and analysis group

14,568

1.9

Tatton Asset Management

Provider of discretionary fund management services to financial advisors

14,114

1.8

CVS Group

Operator of veterinary surgeries

13,786

1.8

IntegraFin

Investment platform for financial advisers

13,191

1.7

SigmaRoc

UK and European construction materials

12,195

1.6

XPS Pensions

Leading independent pensions consultancy and administration firm

12,118

1.6

Baltic Classifieds Group

Operator of online classified businesses in the Baltics

11,908

1.6

Oxford Instruments

Designer and manufacturer of tools and systems for industry and

scientific research

11,649

1.5

Boku

Digital payments company

10,689

1.4

Renew

Engineering services group supporting UK infrastructure

10,276

1.3

Robert Walters

Recruitment services

10,177

1.3

Johnson Service Group

Provider of textile services

9,967

1.3

Next Fifteen

Communications

Digital communication products and services

9,956

1.3

TT Electronics

Global manufacturer of electronic components

9,837

1.3

GlobalData

Data analytics and consulting company

9,820

1.3

Grafton

Builders merchants in the UK, Ireland and Netherlands

9,567

1.3

Moneysupermarket.com

Price comparison website specialising in financial services

9,547

1.3

MJ Gleeson

UK-based low-cost house builder and strategic land promoter

9,479

1.2

Indivior

Leading pharmaceutical company specializing in developing and

commercializing treatments for opioid and substance use disorders

9,375

1.2

Vesuvius

Provider of metal flow engineering services and solutions to the

steel and foundry industries

9,373

1.2

Morgan Sindall

Office fit-out, construction and urban regeneration services

9,208

1.2

Clarkson

Provision of shipping services

8,900

1.2

Serica Energy

Gas and oil exploration and production company

8,887

1.2

Atalaya Mining

Copper miner

8,705

1.1

Sabre Insurance

Insurance company that specializes in providing car insurance products

8,701

1.1

Wilmington

Global provider of data, information, education and training services in

the global Governance, Risk and Compliance (GRC) markets

8,613

1.1

Auction Technology Group

Operator of marketplaces for curated online auctions

8,210

1.1

City Pub Group

UK-based pub company that owns and operates a collection of pubs

across southern England and Wales

8,120

1.1

Hunting

Manufacturer of components, technology systems and precision parts

for the energy industry

7,963

1.0

Central Asia Metals

Mining operations in Kazakhstan and Macedonia

7,616

1.0

Sirius Real Estate

Owner and operator of business parks, offices and industrial complexes

in Germany

7,531

1.0

Lok’n Store Group

Self-storage provider

7,505

1.0

20

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Annual Report and Financial Statements 29 February 2024

Company

Business activity

Market

value

£’000

% of

total

portfolio

Kitwave Group

Wholesale distribution company that specializes in supplying a wide

range of food, drink, and tobacco products

7,351

1.0

Fuller Smith & Turner -

A Shares

Ownership of and management of pubs in the London area and South

East England

7,341

1.0

Porvair

UK-based specialist filtration, laboratory, and environmental technology

group

7,292

1.0

QinetiQ Group

British multi-national defence technology company

7,243

0.9

MacFarlane Group

Packaging company that designs, manufactures, and distributes

protective packaging products and labels

7,231

0.9

Bodycote

Provision of thermal processing services

7,211

0.9

Great Portland Estates

British property development and investment company

7,132

0.9

Alfa Financial Software

Provider of software for customers working in the asset finance industry

7,120

0.9

TP ICAP

Inter-dealer broker and over the counter market data provider

7,026

0.9

Young & Co’s Brewery -

A Shares

UK-based pub and hotel operator

6,979

0.9

Luceco

Designer, supplier, and manufacturer of high-quality and efficient LED

lighting products, as well as electrical wiring accessories

6,922

0.9

50 largest investments

520,648

68.0

Remaining investments

244,530

32.0

Total

765,178

100.0

Details of the full portfolio are available on the Company’s website at

www.blackrock.com/uk/brsc

.

Fifty largest investments

continued

Section 2: Portfolio

21

At 29 February 2024, 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:

Company

% of issued share capital held

City Pub Group

5.6

The Pebble Group

5.0

Tatton Asset Management

4.3

Distribution Finance Capital Holdings

4.2

TT Electronics

4.1

Oxford Metrics

3.7

Bloomsbury Publishing

3.7

MacFarlane Group

3.7

Mercia Asset Management

3.4

Kitwave Group

3.4

Fuller Smith and Turner - A Shares

3.4

Robert Walters

3.3

Luceco

3.1

MJ Gleeson

3.1

Sylvania Platinum

3.1

Portfolio holdings in excess of 3% of

issued share capital

22

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Annual Report and Financial Statements 29 February 2024

Distribution of investments

as at 29 February 2024

Sector

% of portfolio

Oil & Gas Producers

1.2

Oil Equipment, Services & Distribution

0.9

Oil-Field Services

1.0

Energy

3.1

Chemicals

0.9

Mining

3.1

Basic Materials

4.0

Aerospace & Defence

3.6

Construction & Materials

7.9

Electronic & Electrical Equipment

5.4

General Industrials

2.9

Industrial Engineering

4.5

Industrial Support Services

9.9

Industrial Transportation

1.2

Industrials

35.4

Automobiles & Parts

0.7

General Retailers

2.9

Leisure Goods

0.7

Media

11.5

Personal Care, Drug & Grocery Stores

0.2

Personal Goods

1.6

Specialty Retailers

1.1

Travel & Leisure

2.9

Consumer Discretionary

21.6

Pharmaceuticals & Biotechnology

2.0

Health Care

2.0

Beverages

1.2

Food & Drug Retailers

0.9

Household Goods & Home Construction

2.1

Consumer Staples

4.2

Mobile Telecommunications

2.7

Telecommunications Service Providers

0.5

Telecommunications

3.2

Banks

1.0

Finance & Credit Services

0.4

Financial Services

9.4

Investment Banking & Brokerage Services

0.2

Non-life Insurance

1.1

Financials

12.1

Real Estate Investment & Services

2.0

Real Estate Investment Trusts

4.2

Real Estate

6.2

Software & Computer Services

7.8

Technology Hardware & Equipment

0.4

Technology

8.2

Total

100.0

Section 2: Portfolio

23

Analysis of portfolio value by sector

•

Company

•

Benchmark (Deutsche Numis Smaller Companies plus AIM (ex Investment Companies) Index)

Other

Utilities

Technology

Real Estate

Financials

Telecommunications

Consumer Staples

Health Care

Consumer Discretionary

Industrials

Basic Materials

Energy

0.0

3.1

5.1

7.5

0.9

4.0

35.4

22.8

21.6

18.4

2.0

5.4

3.2

2.8

12.1

16.0

6.2

5.7

8.2

9.7

0.0

0.8

4.2

4.9

%

0

5

10

15

20

25

30

35

40

Sources: BlackRock and Datastream.

Portfolio analysis

as at 29 February 2024

24

BlackRock Smaller Companies Trust plc

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Annual Report and Financial Statements 29 February 2024

Investment size as at 29 February 2024

Market value of investments as % of portfolio

Number of investments

0

2

4

6

8

10

12

14

16

Source: BlackRock.

Market capitalisation of our portfolio companies as at 29 February 2024

0

10

20

30

40

50

£1.5bn+

£600m to £1.5bn

£200m to £600m

£0m to £200m

Market capitalisation

Source: BlackRock.

Portfolio analysis

continued

Governance

Another significant contributor to performance was recently-listed Ashtead Technology,

the Aberdeen-based equipment rental business focused on the Oil and Gas industry.

PHOTO COURTESY OF ASHTEAD TECHNOLOGY

Section 3: Governance

27

28

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Annual Report and Financial Statements 29 February 2024

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.

The Board

5 scheduled meetings per annum

Six non-executive Directors (NEDs), all independent of the Manager

Chairman

: Ronald Gould

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.

Audit Committee

1

2 scheduled meetings per annum

Membership

:

Dunke Afe (appointed on 1 January 2024)

Chairman:

Mark Little

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 the

effectiveness of the external audit process; and

•

To review the provisions relating to whistleblowing and fraud.

Nomination and

Remuneration

Committee

1,3

1 scheduled meeting per annum

Membership:

All NEDs

Chairman:

Key objectives:

•

To regularly review the Board’s structure and composition;

•

To be responsible for the Board succession planning;

•

To make recommendations for any new appointments;

•

To be responsible for Directors’ remuneration; and

•

To set the Company’s remuneration policy.

Management

Engagement Committee

1

1 scheduled meeting per annum

Membership:

All NEDs

Chairman:

Ronald Gould

Key objectives:

•

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.

Section 3: Governance

29

Directors’ biographies

Ronald Gould

Chairman

Appointed on 1 April 2019

He was previously Managing Director

and head of the Promontory Financial

Group in China, CEO of Chi-X Asia

Pacific, Senior Adviser to the UK

Financial Services Authority, CEO of

investment bank ABG Sundal Collier

and Vice Chairman of Barclays Bank

asset management activities. He is

Chairman of Think Alliance Asia and

Henderson Far East Income Limited

and previously of Compliance Science

Limited and Credo Capital Partners

AB. He was previously a non-executive

director of JPMorgan Asian Investment

Trust plc. Mr Gould was appointed

Chairman on 4 June 2019.

Attendance record:

Board: 5/5

Audit Committee: n/a

1

Nomination and Remuneration

Committee: 1/1

2

Management Engagement

Committee: 1/1

1

The Chairman is not a member of the Audit Committee but may attend the Committee meetings by invitation.

Prior to 5 May 2023, the Company had in place a Nomination Committee which was responsible for succession planning and making

recommendations for any new appointments as well as reviewing the Board’s structure and composition. There was no separate Remuneration

Committee and the Board itself performed duties in respect of setting Directors’ remuneration and remuneration policy for the Company. On 5

May 2023 the Directors established a combined Nomination and Remuneration Committee to perform these duties on an ongoing basis. This

combined Committee will meet annually in February/March each year, or more frequently as required on an ad hoc basis.

Senior Independent Director and Chair

of the Nomination and Remuneration

Committee

Appointed on 21 April 2016

She was the Chairman of Baillie

Gifford China Growth Trust PLC

(having retired from this Board on 30

April 2024) and formerly sat on the

Advisory Board of the Barings Targeted

Return Fund. Having qualified as a

chartered accountant, she spent 26

years with Fidelity International in a

broad range of roles including several

years as the first head of investment

trusts, responsible for establishing

and growing a successful investment

trust business. Ms Platts-Martin was

appointed Senior Independent Director

on 28 July 2020 and appointed

as Chair of the Nomination and

Remuneration committee with effect

from 5 May 2023.

Attendance record:

Board: 5/5

Audit Committee: 2/2

Nomination and Remuneration

Committee: 1/1

2

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.

Mark Little

Audit Committee Chairman

Appointed on 1 October 2020

He is the Chairman of the Audit

Committee of Majedie Investments

Plc, Abrdn Equity Income Trust plc,

Fidelity Emerging Markets Limited and

Securities Trust of Scotland Plc (due to

retire from this Board on 4 July 2024). He

was also previously Investment Director

at Seven Investment Management and

a non-executive director (and audit

committee chairman) of Sanditon

Investment Trust plc as well as a non-

executive director for the start-up

business UWI Technology and the charity

Winning Scotland Foundation. Mr

Little has a wealth of experience in the

financial services sector and began his

career as a fund manager with Scottish

Widows Investment Management after

qualifying as a chartered accountant

with Price Waterhouse in 1991. He

subsequently worked as Global Head of

Automotive Research for Deutsche Bank

and joined Barclays Wealth in 2005,

where he became Managing Director of

Barclays Wealth (Scotland and Northern

Ireland).

Attendance record:

Board: 5/5

Audit Committee: 2/2

Nomination and Remuneration

Committee: 1/1

2

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.

2

Prior to 5 May 2023, the Company had in place a Nomination Committee which was responsible for succession planning and making

recommendations for any new appointments as well as reviewing the Board’s structure and composition. There was no separate

Remuneration Committee and the Board itself performed duties in respect of setting Directors’ remuneration and remuneration policy for the

Company. On 5 May 2023 the Directors established a combined Nomination and Remuneration Committee to perform these duties on an

ongoing basis. This combined Committee will meet annually in February/March each year, or more frequently as required on an ad hoc basis.

3

Ms Dunke Afe was appointed to the Board on 1 January 2024 and was in attendance at all scheduled Board and Management Engagement

Committees that were held subsequent to her appointment. There were no scheduled Audit Committee meetings held in the financial year

ended 29 February 2024 subsequent to Ms Afe’s appointment. The scheduled Remuneration and Nomination Committee meeting is held in

March each year and Ms Afe was not on the Board at the time this meeting was held for the 2023 financial year.

Directors’ biographies

continued

30

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Annual Report and Financial Statements 29 February 2024

James Barnes

Appointed on 31 July 2021

He began his career in corporate

finance and investment banking.

He was formerly a director of

Dobbies Garden Centres plc and was

instrumental in growing the business

and leading its sale to Tesco in 2003.

He was also previously a director

and Chairman of Dunedin Smaller

Companies Investment Trust plc (now

abrdn UK Smaller Companies plc) and

currently holds a number of other non-

executive roles in other businesses.

Attendance record:

Board: 5/5

Audit Committee: 2/2

Nomination and Remuneration

Committee: 1/1

2

Management Engagement

Committee: 1/1

Helen Sinclair

Appointed on 1 March 2022

She began her career in investment

banking and spent nearly eight years at

3i plc focusing on management buy-

outs and growth capital investments.

She later co-founded Matrix Private

Equity (which became Mobeus

Equity Partners) in early 2000 and

subsequently became Managing

Director of Matrix Private Equity

before moving to take on a number of

non-executive director roles. She is

currently Chairman of Octopus Future

Generations VCT PLC and a non-

executive director of Shires Income plc

and Sherborne Investors (Guernsey) C

Limited.

Attendance record:

Board: 5/5

Audit Committee: 2/2

Nomination and Remuneration

Committee: 1/1

2

Management Engagement

Committee: 1/1

Dunke Afe

Appointed on 1 January 2024

She is an accomplished global

marketing executive with extensive

experience in raising brand awareness,

delivering high-impact portfolio

strategies and omni-channel

marketing campaigns to drive business

growth. She has previously worked with

top blue chip multinationals including

Lauder. Ms Afe is also a non-executive

director of CT UK Capital and Income

Investment Trust plc.

Attendance record:

Board: 1/5

Audit Committee: n/a

Nomination and Remuneration

Committee: n/a

Management Engagement

Committee: 1/1

Section 3: Governance

31

Strategic Report

The Directors present the Strategic Report of the Company for the year ended 29 February 2024. The aim of the Strategic

Report is to provide shareholders with the information to assess how the Directors have performed their duty to promote the

success of the Company for the collective benefit of shareholders.

The Chairman’s Statement together with the Investment Manager’s Report and the Directors’ Statement setting out how they

promote the success of the Company on pages 39 to 47 form part of the Strategic Report. The Strategic Report was approved

by the Board at its meeting on 13 May 2024.

Principal activities

The Company is a public company limited by shares and carries on business as an investment trust and its principal activity is

portfolio investment. Investment trusts, like unit trusts and OEICs, are pooled investment vehicles which allow exposure to a

diversified range of assets through a single investment, thus spreading, although not eliminating investment risk.

Investment objective

The Company’s prime objective is to seek to achieve long-term capital growth for shareholders through investment mainly in

smaller UK quoted companies.

No material change will be made to the Company’s investment objective without shareholder approval.

To achieve its investment objective the Company invests predominantly in UK smaller companies with securities admitted to

trading on the Main Market of the London Stock Exchange or on the AIM. The Company may also invest in securities which are

listed overseas but have a secondary UK quotation. Although investments are primarily in companies with securities admitted

to trading on recognised stock exchanges or on the AIM, the Investment Manager may also invest in less liquid unquoted

securities with the prior approval of the Board. The Manager has adopted a consistent investment process, focusing on good

quality growth companies; stock selection is the primary focus, but consideration is also given to sector weightings and

underlying themes. Whilst there are no set limits on individual sector exposures against the Company’s benchmark, a schedule

of sector weightings is presented at each Board meeting for review. In applying the investment objective, the Investment

Manager expects the Company to be substantially fully invested and to borrow as and when appropriate. The Company

seeks to achieve an appropriate spread of investment risk by investing in a number of holdings across a range of sectors. The

Company may not hold more than 7% of the share capital of any company in which it has an investment. No single portfolio

holding (excluding holdings in cash fund investments held for cash management purposes) will, on the date such holding is

acquired by the Company, exceed 5% of the Company’s net asset value. Notwithstanding the foregoing, the general aim is

that no single portfolio holding (excluding cash fund investments held for cash management purposes) will, on the date such

holding is acquired by the Company, exceed 3% of the Company’s net asset value. In addition, while the Company may hold

shares in other listed investment companies (including investment trusts), the Board has agreed that the Company will not

invest more than 15% of its total assets in other UK listed investment companies. The Investment Manager will not deal in

derivatives without prior approval of the Board.

Benchmark

Performance is measured against an appropriate benchmark, the Deutsche Numis Smaller Companies plus AIM (excluding

Investment Companies) Index.

Gearing policy

It is intended that net gearing will not exceed 15% of the net assets of the Company at the time of the drawdown of the

relevant borrowings. Under normal operating conditions it is envisaged that gearing will be within a range of 0%-15% of net

assets.

Business model

The Company’s business model follows that of an externally managed investment trust. Therefore, the Company does not

have any employees and outsources its activities to third-party service providers including the Manager, who is the principal

service provider. The management of the investment portfolio and the administration of the Company have been contractually

delegated to the Manager who in turn (with the permission of the Company) has delegated certain investment management

and other ancillary services to the Investment Manager. The Manager, operating under guidelines determined by the Board,

has direct responsibility for the decisions relating to the day-to-day running of the Company and is accountable to the Board

for the investment, financial and operating performance of the Company. The Company delegates fund accounting services to

BlackRock Investment Management (UK) Limited (BIM (UK)), which in turn sub-delegates these services to The Bank of New

York Mellon (International) Limited (BNYM).

32

BlackRock Smaller Companies Trust plc

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Annual Report and Financial Statements 29 February 2024

Other service providers include the Depositary (also BNYM) and the Registrar, Computershare Investor Services PLC. The

Depositary has sub-delegated the provision of custody services to the Asset Servicing division of BNYM. Details of the

contractual terms with the Manager and the Depositary and more details of the sub-delegation arrangements in place

governing custody services are set out in the Directors’ Report.

Investment philosophy

The Investment Manager seeks to identify companies which it believes have superior long-term growth prospects and the

management in place to take advantage of these prospects. This is done through internal investment research, company visits

and the careful monitoring of market newsflow and external broker analysis. Initially, if the Investment Manager is sufficiently

impressed with a company’s prospects, it will look to take a small position, usually 0.25% to 0.50% of the Company’s net assets,

in a new holding. These holdings will be closely monitored, and members of the portfolio management team will meet with

management on a regular basis. If these companies continue to prosper and make the most of opportunities, the Investment

Manager will gradually add to the portfolio holding. Where initial expectations are disappointing, the holding will be sold. The

anticipation is that each holding will develop into a core holding over time; one that meets the Investment Manager’s criteria for

high quality growth companies.

Valuation is a key consideration; it is important not to overpay for new holdings. However, investment fundamentals are also

important, and the Investment Manager may be prepared to pay what seems like a high price if it believes that long-term growth

prospects are very strong. Generally, a company will be held within the portfolio if it meets the criteria for core holdings; in respect

of recent investments, the Investment Manager will consider whether they have the potential to meet these criteria. Holdings will

be sold if there are concerns that the investment case has changed in a negative way. Holdings will be reduced where the position

size becomes too large and raises concerns about risk and diversification. The general aim is for portfolio holdings not to exceed

3% of the Company’s net assets (excluding cash fund investments held for cash management purposes). As the investments

within the portfolio become larger over time, the Portfolio Manager will continue to assess growth prospects in comparison to

smaller businesses operating within similar markets. New holdings must have a market cap beneath £2 billion, however holdings

that move above that level will be maintained providing the investment adheres to the original thesis and remains the most

attractive opportunity that can be found amongst a comparable peer group. In accordance with the guidelines, the Portfolio

Manager will sell any stock that enters the FTSE 100 Index within thirty days of entry.

The Investment Manager believes that consistent outperformance can be achieved by employing a combination of bottom-up

and top-down analysis, based upon strong fundamental research.

In building a robust portfolio the Investment Manager will also consider the macro-economic background, working with

strategists, economists and other teams internally and externally to understand the broad environment. It also works closely with

BlackRock’s risk team to assess the risks in the structure of the portfolio. Any necessary adjustments will be made to the portfolio

to ensure that it is structured in an appropriate way from a macro and risk point of view.

Portfolio analysis

A detailed analysis of the portfolio has been provided on pages 23 and 24.

Performance

Details of the Company’s performance including the dividend are set out in the Chairman’s Statement on pages 5 to 9. The

Chairman’s Statement and the Investment Manager’s Report form part of this Strategic Report and include

s

a review of the main

developments during the year, together with information on investment activity within the Company’s portfolio.

Results and dividends

The results for the Company are set out in the Income Statement in the Financial Statements. The total net loss for the year,

after taxation, was £32,701,000 (2023: loss of £140,726,000) of which the revenue return amounted to a profit of £19,691,000

(2023: profit of £19,980,000) and the capital loss amounted to £52,392,000 (2023: loss of £160,706,000).

The Company’s revenue return amounted to 40.70p per share (2023: 40.92p). The Directors have declared a final dividend of

27.00p per share as set out in the Chairman’s Statement.

Future prospects

The Board’s main focus is to achieve long-term capital growth. The future performance of the Company is dependent upon

the success of the investment strategy and, to a large extent, on the performance of financial markets. The outlook for the

Company in the next twelve months is discussed in the Chairman’s Statement on page 9 and the Investment Manager’s Report

on page 13.

Strategic Report

continued

Section 3: Governance

33

Social, community and human rights issues

As an investment trust, the Company has no direct social or community responsibilities or impact on the environment, and

the Company has not adopted an ESG investment strategy or exclusionary screens. However, the Directors believe that it is

in shareholders’ interests to consider human rights issues, environmental, social and governance matters when selecting

and retaining investments. Details of the Board’s approach to ESG and socially responsible investment is set out on page 44.

Details of the Manager’s approach to ESG integration are set out on page 45.

Modern Slavery Act

As an investment vehicle the Company does not provide goods or services in the normal course of business and does not have

customers. Accordingly, the Directors consider that the Company is not required to make any slavery or human trafficking

statement under the Modern Slavery Act 2015. In any event, the Board considers the Company’s supply chain, dealing

predominantly with professional advisers and service providers in the financial services industry, to be low risk in relation to

this matter.

Directors, gender representation and employees

The Directors of the Company on 29 February 2024 are set out in the Directors’ biographies on pages 29 and 30. With effect

from 1 March 2024, the Board consists of three male Directors and three female Directors. The Company does not have any

executive employees.

Key performance indicators

At each Board meeting, the Directors consider a number of performance measures to assess the Company’s success in

achieving its objectives. The key performance indicators (KPIs) used to measure the progress and performance of the

Company over time, and which are comparable to those reported by other investment trusts are set out below. As indicated

in footnote 2 to the table, some of these KPIs fall within the definition of ‘Alternative Performance Measures’ (APMs) under

guidance issued by the European Securities and Markets Authority (ESMA) and additional information explaining how these

are calculated is set out in the Glossary on pages 120 to 124.

Key Performance Indicators

Year ended

29 February

2024

Year ended

28 February

2023

NAV per share (debt at par value)

1,2

-4.0%

-15.4%

NAV per share (debt at fair value)

1,2

-3.6%

-13.0%

Share price total return

1,2

-0.8%

-15.9%

Benchmark return

1

-5.8%

-7.5%

Average discount to NAV with debt at fair value

2

12.4%

13.9%

Revenue return per share

40.70p

40.92p

Ongoing charges ratio

2,3

0.8%

0.7%

Retail ownership

66.5%

66.9%

1

Total return basis with dividends reinvested.

2

Alternative Performance Measure, see Glossary on pages 120 to 124.

3

Calculated as a percentage of average daily net assets and using the management fee and all other operating expenses, excluding finance

costs, direct transaction costs, custody transaction charges, VAT recovered, taxation, prior year expenses written back and certain non-

recurring items in accordance with AIC guidelines.

Sources: BlackRock and Datastream.

Additionally, the Board regularly reviews many indices and ratios to understand the impact on the Company’s relative

performance of the various components such as asset allocation and stock selection. The Board also reviews the performance

and ongoing charges of the Company against a peer group of UK smaller companies trusts and open-ended funds.

Principal risks

The Company is exposed to a variety of risks and uncertainties. As required by the UK Code, the Board has in place a robust

ongoing process to identify, assess and monitor the principal risks and emerging risks facing the Company, including those that

would threaten its business model, future performance, solvency or liquidity. A core element of this process is the Company’s

risk register which identifies the risks facing the Company and assesses the likelihood and potential impact of each risk and the

quality of the controls operating to mitigate it. A residual risk rating is then calculated for each risk based on the outcome of the

assessment.

34

BlackRock Smaller Companies Trust plc

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Annual Report and Financial Statements 29 February 2024

The risk register, its method of preparation and the operation of key controls in BlackRock’s and third-party service providers’

systems of internal control are reviewed on a regular basis by the Audit Committee. In order to gain a more comprehensive

understanding of BlackRock’s and other third-party service providers’ risk management processes and how these apply to the

Company’s business, BlackRock’s internal audit department provides an annual presentation to the Audit Committee Chairman

setting out the results of testing performed in relation to BlackRock’s internal control processes. The Audit Committee also

periodically receives presentations from BlackRock’s Risk and Quantitative Analysis team and reviews Service Organisation

Control (SOC 1) reports from the Company’s service providers. The current risk register categorises the Company’s main areas of

risk as follows:

•

Investment performance risk;

•

Market risk;

•

Income/dividend risk;

•

Legal & compliance risk;

•

Operational risk;

•

Financial risk; and

•

Marketing risk.

The Board has undertaken a robust assessment of both the principal and emerging risks facing the Company, including those

that would threaten its business model, future performance, solvency or liquidity. The risk that unforeseen or unprecedented

events including (but not limited to) heightened geo-political tensions such as the war in Ukraine, high inflation and the

current cost of living crisis has had a significant impact on global markets. The risks identified by the Board have been

described in the table that follows, together with an explanation of how they are managed and mitigated. Emerging risks are

considered by the Board as they come into view and are incorporated into the existing review of the Company’s risk register.

They were also considered as part of the annual evaluation process.

Additionally, the Manager considers emerging risks in numerous forums and the Risk and Quantitative Analysis team

produces an annual risk survey. Any material risks of relevance to the Company identified through the annual risk survey will

be communicated to the Board.

The Board will continue to assess these risks on an ongoing basis. In relation to the UK Code, the Board is confident that the

procedures that the Company has put in place are sufficient to ensure that the necessary monitoring of risks and controls has

been carried out throughout the reporting period.

Investment performance

Principal risk

The

r

eturns achieved are reliant primarily upon the performance of the portfolio.

The Board is responsible for:

•

deciding the investment strategy to fulfil the Company’s objective; and

•

monitoring the performance of the Investment Manager and the implementation of the investment strategy.

An inappropriate investment strategy may lead to:

•

poor performance compared to the Benchmark Index and the Company’s peer group;

•

a loss of capital; and

•

dissatisfied shareholders.

The Board is also cognisant of the long-term risk to performance from inadequate attention to ESG issues, and in particular the

impact of climate change. More detail in respect of these risks can be found in the AIFMD Fund Disclosures document available on the

Company’s website at

www.blackrock.com/uk/individual/literature/policies/itc-disclosure-blackrock-smaller-companies-trust-plc.

pdf

.

Strategic Report

continued

Section 3: Governance

35

Mitigation/Control

To manage this risk the Board:

•

regularly reviews the Company’s investment mandate and long-term strategy;

•

has set investment restrictions and guidelines which the Investment Manager monitors and regularly reports on;

•

receives from the Investment Manager a regular explanation of stock selection decisions, portfolio exposure, gearing and

any changes in gearing and the rationale for the composition of the investment portfolio;

•

monitors the maintenance of an adequate spread of investments in order to minimise the risks associated with factors

specific to particular sectors, based on the diversification requirements inherent in the investment policy; and

•

receives reports showing the Company’s performance against the benchmark.

ESG analysis is integrated into the Manager’s investment process, as set out on pages 45 to 47. This is monitored by the Board.

Market risk

Principal risk

Market risk arises from volatility in the prices of the Company’s investments influenced by currency, interest rate or other

price movements. It represents the potential loss the Company might suffer through holding market positions in financial

instruments in the face of market movements.

Market risk includes the potential impact of events which are outside the Company’s control, including (but not limited to)

heightened geo-political tensions and military conflict, a global pandemic and high inflation or stagflation (in particular

through increased commodity price volatility driving inflation and impacting trade).

The impact of climate change and new legislation governing climate change and environmental issues have the potential to

adversely impact markets and the valuation of companies within the portfolio.

There is the potential for the Company to suffer loss through holding investments in the face of negative market movements.

Mitigation/Control

The Board considers asset allocation, stock selection and levels of gearing on a regular basis and has set investment

restrictions and guidelines which are monitored and reported on by the Investment Manager.

The Board monitors the implementation and results of the investment process with the Investment Manager.

The Board also recognises the benefits of a closed-end fund structure in extremely volatile markets such as those experienced

during the Russia-Ukraine and Middle East conflicts. Unlike open

-ended counterparts, closed-end funds are not obliged

to sell down portfolio holdings at low valuations to meet liquidity requirements for redemptions. During times of elevated

volatility and market stress, the ability of a closed-end fund structure to remain invested for the long term enables the portfolio

manager to adhere to disciplined fundamental analysis from a bottom-up perspective and be ready to respond to dislocations

in the market as opportunities present themselves.

The Manager takes into account climate risk within the investment process along with other ESG considerations as set out on

page 45.

36

BlackRock Smaller Companies Trust plc

l

Annual Report and Financial Statements 29 February 2024

Income/dividend risk

Principal risk

The amount of dividends and future dividend growth will depend on the performance of the Company’s underlying portfolio

and may be impacted by events which are outside the Company’s control, such as the Russia-Ukraine and Middle East

conflicts. In addition, any change in the tax treatment of the dividends or interest received by the Company may reduce the

level of dividends received by shareholders.

Mitigation/Control

The Board monitors this risk through the receipt of detailed income forecasts and considers the level of income at each Board

meeting.

The Company has substantial revenue reserves which can be utilised and also has the ability to make distributions by way of

dividends from capital reserves if required.

Legal & Compliance risk

Principal risk

The Company has been approved by HM Revenue & Customs as an investment trust, subject to continuing to meet the

relevant eligibility conditions and operates as an investment trust in accordance with Chapter 4 of Part 24 of the Corporation

Tax Act 2010. As such, the Company is exempt from capital gains tax on the profits realised from the sale of its investments.

Any breach of the relevant eligibility conditions could lead to the Company losing investment trust status and being subject to

corporation tax on capital gains realised within the Company’s portfolio. In such event the investment returns of the Company

may be adversely affected.

Any serious breach could result in the Company and/or the Directors being fined or the subject of criminal proceedings or the

suspension of the Company’s shares which would in turn lead to a breach of the Corporation Tax Act 2010.

Amongst other relevant laws and regulations, the Company is required to comply with the provisions of the Companies Act

2006, the Alternative Investment Fund Managers’ Directive, the UK Listing Rules and Disclosure Guidance and Transparency

Rules, the Sanctions and Anti-Money Laundering Act 2018 and the Market Abuse Regulation.

Mitigation/Control

The Investment Manager monitors investment movements and the amount of proposed dividends to ensure that the

provisions of Chapter 4 of Part 24 of the Corporation Tax Act 2010 are not breached. The results are reported to the Board at

each meeting.

Compliance with the accounting rules affecting investment trusts is also carefully and regularly monitored.

The Company Secretary and the Company’s professional advisers provide regular reports to the Board in respect of

compliance with all applicable rules and regulations.

The Company’s Investment Manager, BlackRock, at all times complies with sanctions administered by the UK Office of

Financial Sanctions Implementation, the United States Treasury’s Office of Foreign Assets Control, the United Nations,

European Union member states and any other applicable regimes. The Company does not invest in companies domiciled in

Russia.

Operational risk

Principal risk

In common with most other investment trust companies, the Company has no employees. The Company therefore relies on

the services provided by third parties. Accordingly, it is dependent on the control systems of the Manager, the Depositary and

the Fund Accountant who maintain the Company’s assets, dealing procedures and accounting records.

Strategic Report

continued

Section 3: Governance

37

The security of the Company’s assets, dealing procedures, accounting records and adherence to regulatory and legal

requirements and the prevention of fraud depend on the effective operation of the systems of these other third-party

service providers. There is a risk that a major disaster, such as floods, fire, a global pandemic, or terrorist activity, renders the

Company’s service providers unable to conduct business at normal operating capacity and effectiveness.

Failure by any service provider to carry out its obligations to the Company could have a material adverse effect on the

Company’s performance. Disruption to the accounting, payment systems or custody records could prevent the accurate

reporting and monitoring of the Company’s financial position.

Inadequate succession planning arrangements, particularly of the Manager, could disrupt the level of service provided.

Mitigation/Control

Due diligence is undertaken before contracts are entered into with third-party service providers. Thereafter, the performance

of the provider is subject to regular review and reported to the Board.

The Board reviews on a regular basis an assessment of the fraud risks that the Company could potentially be exposed to, and

also a summary of the controls put in place by the Manager, the Depositary, the Custodian, the Fund Accountant and the

Registrar designed specifically to mitigate these risks.

Most third-party service providers produce Service Organisation Control (SOC 1) reports to provide assurance regarding the

effective operation of internal controls as reported on by their reporting accountants. These reports are provided to the Audit

Committee.

The Company’s financial instruments held in custody are subject to a strict liability regime and in the event of a loss of such

financial instruments held in custody, the Depositary must return assets of an identical type or the 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 on an ongoing basis

and reviews these as part of their review of the Company’s risk register. The Board considers the Manager’s succession plans in

so far as they affect the services provided to the Company.

Financial risk

Principal risk

The Company’s investment activities expose it to a variety of financial risks that include interest rate, credit and liquidity risk.

Mitigation/Control

Details of these risks are disclosed in note 17 to the financial statements, together with a summary of the policies for

managing these risks.

Marketing risk

Principal risk

Marketing efforts are inadequate, do not comply with relevant regulatory requirements, and fail to communicate adequately

with shareholders or reach out to potential new shareholders resulting in reduced demand for the Company’s shares and a

widening discount.

Mitigation/Control

The Board focuses significant time on communications with shareholders and reviewing marketing strategy and initiatives. All

investment trust marketing documents are subject to appropriate review and authorisation.

38

BlackRock Smaller Companies Trust plc

l

Annual Report and Financial Statements 29 February 2024

Viability statement

In accordance with provision 31 of the 2018 UK Corporate Governance Code, the Directors have assessed the prospects of the

Company over a longer period than the 12 months referred to by the ‘Going Concern’ guidelines.

The Board is cognisant of the uncertainty surrounding the potential duration of the conflicts in Russia-Ukraine and

the

Middle

East, its impact on the global economy and the prospects for some of the Company’s portfolio holdings. Notwithstanding

these crises, and given the factors stated below, the Board expects the Company to continue for the foreseeable future and has

therefore conducted this review for the period up to the AGM in 2029 being a five-year period from the date that this Annual

Report will be approved by shareholders. This assessment term has been chosen as it represents a medium-term performance

period over which investors in the smaller companies’ sector generally refer to when making investment decisions.

In making this assessment the Board has considered the following factors:

•

The Company’s principal risks as set out on pages 33 to 37;

•

The risk that the challenging geo-political backdrop, rising inflation and a sustained high interest rate environment will

impact on the ability of portfolio companies to pay dividends, and consequently impact the Company’s portfolio yield and

ability to pay dividends;

•

The ongoing relevance of the Company’s investment objective in the current environment; and

•

The level of demand for the Company’s ordinary shares.

The Board has also considered a number of financial metrics and other factors, including:

•

The Board has reviewed portfolio liquidity as at 29 February 2024;

•

The Board has reviewed the Company’s revenue and expense forecasts in light of the current economic back drop both in

the UK and globally and the anticipated impact on dividend income and market valuations. The Board is confident that the

Company’s business model remains viable and that the Company has sufficient resources to meet all liabilities as they fall

due for the period under review;

•

The Board has reviewed the Company’s borrowing and debt facilities and considers that the Company continues to meet its

financial covenants in respect of these facilities and has a wide margin before any relevant thresholds are reached;

•

The Board keeps the Company’s principal risks and uncertainties as set out above under review, and is confident that the

Company has appropriate controls and processes in place to manage these and to maintain its operating model, even given

the global economic challenges posed by the impact of climate change on portfolio companies and the current climate of

heightened geo-political risk (notably the invasion of Ukraine and the conflict in the Middle East);

•

The operational resilience of the Company and its key service providers (the Manager, Depositary, Custodian, Fund

Administrator, Registrar and Broker) and their ability to continue to provide a good level of service for the foreseeable future;

•

The level of current and historic ongoing charges incurred by the Company;

•

The discount to NAV;

•

The level of income generated by the Company; and

•

Future income forecasts.

The Company is an investment company with a relatively liquid portfolio. As at 29 February 2024, the Company held no illiquid

unquoted investments and 63.3% of the Company’s portfolio investments were readily realisable and listed on the London

Stock Exchange. The remaining 36.7% that were listed on the Alternative Investment Market are also considered to be readily

realisable. The Company has largely fixed overheads which comprise a very small percentage of net assets. Therefore, the

Board has concluded that the Company would comfortably be able to meet its ongoing operating costs as they fall due.

Based on the results of their analysis, the Directors have a reasonable expectation that the Company will be able to continue in

operation and meet its liabilities as they fall due over the period of their assessment.

Strategic Report

continued

Section 3: Governance

39

Section 172 Statement: promoting the success of the Company

The Companies (Miscellaneous Reporting) Regulations 2018 require directors to explain in greater detail how they have

discharged their duties under Section 172(1) of the Companies Act 2006 in promoting the success of their companies for

the benefit of members as a whole. This enhanced disclosure is required under the Companies Act 2006 and the AIC Code

of Corporate Governance and covers how the Board has engaged with and understands the views of stakeholders and how

stakeholders’ needs have been taken into account, the outcome of this engagement and the impact that it has had on the

Board’s decisions.

As the Company is an externally managed investment company and does not have any employees or customers, the

Board considers the main stakeholders in the Company to be the shareholders, key service providers (being the Manager

and Investment Manager, the Custodian, Depositary, Registrar and Broker) and investee companies. The reasons for this

determination, and the Board’s overarching approach to engagement, are set out in the table below.

Stakeholders

Shareholders

Continued shareholder support and engagement are critical to the continued existence of the Company and the successful

delivery of its long-term strategy. The Board is focused on fostering good working relationships with shareholders and on

understanding the views of shareholders in order to incorporate them into the Board’s strategy and objectives in delivering

long-term growth and income.

Manager and Investment Manager

The Board’s main working relationship is with the Manager, who is responsible for the Company’s portfolio management

(including asset allocation, stock and sector selection) and risk management, as well as ancillary functions such as

administration, secretarial, accounting and marketing services. The Manager has sub-delegated portfolio management to the

Investment Manager. Successful management of shareholders’ assets by the Investment Manager is critical for the Company

to successfully deliver its investment strategy and meet its objective. The Company is also reliant on the Manager as AIFM to

provide support in meeting relevant regulatory obligations under the AIFMD and other relevant legislation.

Other key service providers

In order for the Company to function as an investment trust with a listing on the premium segment of the official list of the

FCA and trade on the London Stock Exchange’s (LSE) main market for listed securities, the Board relies on a diverse range

of advisors for support in meeting relevant obligations and safeguarding the Company’s assets. For this reason, the Board

considers the Company’s Custodian, Depositary, Registrar and Broker to be stakeholders. The Board maintains regular contact

with its key external service providers and receives regular reporting from them through the Board and committee meetings,

as well as outside of the regular meeting cycle.

Investee companies

Portfolio holdings are ultimately shareholders’ assets, and the Board recognises the importance of good stewardship and

communication with investee companies in meeting the Company’s investment objective and strategy. The Board monitors

the Manager’s stewardship activities and receives regular feedback from the Manager in respect of meetings with the

management of portfolio companies.

Management of share rating

Issue

The Board recognises that it is in the long-term interests of shareholders that shares do not trade at a significant discount

or premium to their prevailing net asset value. Therefore, where deemed to be in shareholders’ long-term interests, it may

exercise its powers to issue shares or buy back shares with the objective of ensuring that an excessive premium or discount

does not arise.

40

BlackRock Smaller Companies Trust plc

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Annual Report and Financial Statements 29 February 2024

Engagement

The Board monitors the Company’s share rating on an ongoing basis and receives regular updates from the Company’s Broker

and Manager regarding the level of discount and the drivers behind this. The Manager provides regular performance updates

and detailed performance attribution.

The Board believes that the best way of maintaining the share rating at an optimal level over the long term is to create demand

for the shares in the secondary market. To this end the Investment Manager is devoting considerable effort to broadening the

awareness of the Company, particularly to wealth managers and to the wider retail shareholder market.

The Company contributes to a focused investment trust sales and marketing initiative operated by BlackRock on behalf of

the investment trusts under its management. The Company’s contribution to the consortium element of the initiative, which

enables the trusts to achieve efficiencies by combining certain sales and marketing activities was a fixed amount of £67,000

and this contribution is matched by the Investment Manager for the year ended 31 December 2023. The purpose of the

programme overall is to ensure effective communication with existing shareholders and to attract new shareholders to the

Company to improve liquidity in the Company’s shares and to sustain the stock market rating of the Company.

During the year ended 29 February 2024, the Company has repurchased 1,510,000 ordinary shares into treasury at a total

cost of £19,989,000 and at an average discount of 12.6%.

Since the year end and as at the date of this report, the Company has repurchased 220,000 shares for costs of £2,946,000 at

an average discount of 13.0%.

Impact

Over the last five years, the Company’s discount has widened steadily, from an average discount of 7.9% for the year to

28 February 2019 to 12.4% for the year ended 29 February 2024. As at 8 May 2024 the Company’s shares were trading at a

discount of 11.1% to the cum income NAV (with debt at fair value). This compares to an average discount for the Company’s

sector of 11.7% (based on the Association of Investment Companies sector average for the UK Smaller Companies peer

group).

Over the last twelve years, the number of shares held by retail shareholders has increased from 34.1% (as at 29 February

2012) to 66.5% at 29 February 2024.

Investment mandate and objective

Issue

The Board has the responsibility to shareholders to ensure that the Company’s portfolio of assets is invested in line with the

stated investment objective and in a way that ensures an appropriate balance between spread of risk and portfolio returns.

Engagement

The Board works closely with the Investment Manager throughout the year in further developing our investment strategy

and underlying policies, not simply for the purpose of achieving the Company’s investment objective but in the interests of

shareholders and future investors.

Impact

The portfolio activities undertaken by the Investment Manager can be found in the Investment Manager’s Report on pages 11

to 13.

Details regarding the Company’s NAV and share price performance can be found in the Chairman’s Statement on pages 5 and

6 and in the Strategic Report on page 32.

Strategic Report

continued

Section 3: Governance

41

Responsible investing

Issue

More than ever, good governance and consideration of sustainable investment is a key factor in making investment decisions.

Climate change is becoming a defining factor in companies’ long-term prospects across the investment spectrum, with

significant and lasting implications for economic growth and prosperity.

Engagement

The Board believes that responsible investment and sustainability are important to the longer-term delivery of the Company’s

success. The Board works closely with the Investment Manager to regularly review the Company’s performance, investment

strategy and underlying policies to ensure that the Company’s investment objective continues to be met in an effective and

responsible way in the interests of shareholders and future investors.

The Investment Manager’s approach to the consideration of Environmental, Social and Governance (ESG) factors in respect

of the Company’s portfolio, as well as the Investment Manager’s engagement with investee companies, are kept under

review by the Board. The Investment Manager reports to the Board in respect of how consideration of material ESG risks and

opportunities is integrated into the investment process; a summary of BlackRock’s approach to ESG integration is set out on

pages 45 to 47. The Investment Manager’s engagement and voting policy is detailed on pages 44 to 47 and page 50 and on

the BlackRock website.

Impact

The Board and the Investment Manager believe there is a positive correlation between ESG practices and investment

performance. Details of the Company’s performance in the year are given in the Chairman’s Statement on pages 5 and 6 and

the Performance Record on page 4.

The Company does not meet the criteria for Article 8 or 9 products under the EU Sustainable Finance Disclosure Regulation

(SFDR) and the investments underlying this financial product do not take into account the EU criteria for environmentally

sustainable economic activities. The Investment Manager has access to a range of data sources, including principal adverse

indicator (“PAI”) data, when making decisions on the selection of investments. However, whilst BlackRock considers ESG risks

for all portfolios and these risks may coincide with environmental or social themes associated with the PAIs, unless stated

otherwise in the AIFMD Disclosure Document, the Company does not commit to considering PAIs in driving the selection of its

investments.

Gearing and sources of finance

Issue

The Board believes that it is important for the Company to have an appropriate range of borrowings and facilities in place to

provide a balance between longer-term and short-term maturities and between fixed and floating rates of interest.

Engagement

Gearing levels and sources of funding are reviewed regularly by the Board with a view to ensuring that the Company has a

suitable mix of financing at competitive market rates.

As at 29 February 2024, the Company had the following borrowing facilities in place: long-term fixed rate funding in the form

of a £25 million senior unsecured fixed rate private placement notes issued in May 2017 at a coupon of 2.74% with a 20 year

maturity, £20 million senior unsecured fixed rate private placement notes issued in December 2019 at a coupon of 2.41% with

a 25 year maturity and £25 million senior unsecured fixed rate private placement notes issued in September 2021 at a coupon

of 2.47% with a 25 year maturity. Shorter-term variable rate funding consisted of an uncommitted overdraft facility of £60

million with The Bank of New York Mellon (International) Limited (BNYM) with interest charged at SONIA plus 100 basis points

(bps).

It is the Board’s intention that gearing will not exceed 15% of the net assets of the Company at the time of the drawdown of the

relevant borrowings. Under normal operating conditions it is envisaged that gearing will be within a range of 0%-15% of net

assets.

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Annual Report and Financial Statements 29 February 2024

Impact

The Board has been proactive over the last few years in putting in place structural fixed gearing with the issue of £70 million of

private placement notes issued between May 2017 and September 2021 to lock in fixed rate, long dated, Sterling denominated

financing at a highly competitive pricing level. The Board also has in place a bank overdraft with BNYM at a competitive

interest rate (SONIA plus 100 bps) and a lower non-utilisation fee (4 bps).

For the year to 29 February 2024, it is estimated that gearing contributed 0.3% to the NAV per share performance.

At the year end, the Company’s gearing was 11.5% of net assets.

Service levels of third-party providers

Issue

The Board acknowledges the importance of ensuring that the Company’s principal suppliers are providing a suitable level of

service: including the Manager in respect of investment performance and delivering on the Company’s investment mandate;

the Custodian and Depositary in respect of their duties towards safeguarding the Company’s assets; the Registrar in its

maintenance of the Company’s share register and dealing with investor queries and the Company’s Broker in respect of the

provision of advice and acting as a market maker for the Company’s shares.

Engagement

The Manager reports to the Board on the Company’s performance on a regular basis. The Board carries out a robust annual

evaluation of the Manager’s performance, their commitment and available resources.

The Board performs an annual review of the service levels of all third-party service providers and concludes on their suitability

to continue in their role.

The Board receives regular updates from the AIFM, Depositary, Registrar and Broker on an ongoing basis.

The Board works closely with the Manager to gain comfort that relevant business continuity plans are in place and are

operating effectively for all of the Company’s service providers.

Impact

All performance evaluations were performed on a timely basis and the Board concluded that all third-party service providers,

including the Manager were operating effectively and providing a good level of service.

The Board has received updates in respect of business continuity planning from the Company’s Manager, Custodian,

Depositary, Fund Administrator, Broker, Registrar and printers, and is confident that the arrangements in place are

appropriate.

Board composition

Issue

The Board is committed to ensuring that its own composition brings an appropriate balance of knowledge, experience and

skills, and that it is compliant with best corporate governance practice under the UK Code, including guidance on tenure and

the composition of the Board’s committees.

Engagement

The Board engaged an external firm (Stogdale St James) to carry out an independent external evaluation of the Board for

the

prior year. As part of this process the Board also asked Stogdale St James to compile a skills matrix to enable the Board

to identify areas of focus in future succession planning to ensure a diverse Board. The Board used this skills matrix as the

cornerstone for undertaking the search and selection process in 2023 with the aim of further enhancing Board diversity.

Sapphire Partners, an external recruitment agency, was engaged to conduct this exercise and a broad range of factors were

taken into account in setting the appointment brief and during the search and selection process. This was underpinned by the

underlying premise that all Board appointments must be made on merit, in the context of the skills, experience, independence

and knowledge which the Board as a whole requires to be effective.

Strategic Report

continued

Section 3: Governance

43

The results of the external evaluation were satisfactory and it was concluded that the Board, its Committees and the Chairman

were all performing in an effective manner. More details are given on page 51.

All Directors stand for re-election/election by shareholders annually.

Shareholders may attend the AGM and raise any queries in respect of Board composition or individual Directors in person or

may contact the Company Secretary or the Chairman using the details provided on page 115 with any issues.

The Board has implemented a policy of limiting directors’ tenure to nine years. Subject to the constraints of effective

succession planning, it is the Board’s aim that no Director will serve on the Board for more than nine years (or twelve years

in the case of the Chairman). The longer time limit for the Chairman’s tenure is to allow for continuity of leadership in

circumstances where a Chairman is appointed from the ranks of existing Board members after having already served on the

Board for a period of time.

Impact

As at 13 May 2024, the Board had a 50:50 male to female gender ratio, in accordance with relevant regulation and best

practice, and will continue to consider other diversity characteristics, such as age, ethnicity, gender, disability, educational or

professional background when appraising Board composition.

The Parker Review in respect of board diversity and the recent changes to the FCA’s Listing Rules set new diversity targets

and associated disclosure requirements for UK companies listed on the premium and standard segment of the London Stock

Exchange. Listing Rule 9.8.6R (9) requires listed companies to include a statement in their annual reports and accounts in

respect of certain targets on board diversity, or if those new targets have not been met to disclose the reasons for this. This

new requirement applies to accounting periods commencing on or after 1 April 2022 and therefore the Company has reported

against these diversity targets for the current year ending 29 February 2024.

Further information on the composition and diversity of the Board can be found in the Corporate Governance Statement on

page 63.

At the start of the year under review, no Board Director had tenure in excess of nine years.

Details of each Director’s contribution to the success and promotion of the Company are set out in the Directors’ Report on

pages 53 and 54 and details of Directors’ biographies can be found on pages 29 and 30.

The Directors are not aware of any issues that have been raised directly by shareholders in respect of Board composition in the

year under review. Details for the proxy voting results in favour and against individual Directors’ re-election at the 2023 AGM

are given on the Company’s website at

www.blackrock.com/uk/brsc

.

On 5 May 2023, the Directors established a combined Nomination and Remuneration Committee to perform these duties on

an ongoing basis. This combined Committee will meet annually in February/March each year, or more frequently as required

on an ad hoc basis.

Shareholders

Issue

Continued shareholder support and engagement are critical to the continued existence of the Company and the successful

delivery of its long-term strategy.

Engagement

The Board is committed to maintaining open channels of communication and to engage with shareholders and welcomes

and encourages attendance and participation from shareholders at its Annual General Meetings. If shareholders wish to raise

issues or concerns with the Board outside of the AGM, they are welcome to do so at any time. The Chairman is available to

meet directly with shareholders periodically to understand their views on governance and the Company’s performance where

they wish to do so. He may be contacted via the Company Secretary whose details are given on page 115.

44

BlackRock Smaller Companies Trust plc

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Annual Report and Financial Statements 29 February 2024

The Annual Report and Half Yearly Financial Report are available on the Company’s website and are also circulated to

shareholders either in printed copy or via electronic communications. In addition, regular updates on performance, monthly

factsheets, the daily NAV and other information are also published on the website at

www.blackrock.com/uk/brsc

.

The Board also works closely with the Manager to develop the Company’s marketing strategy, with the aim of ensuring

effective communication with shareholders in respect of the investment mandate and objective. Unlike trading companies,

one-to-one shareholder meetings usually take the form of a meeting with the portfolio manager as opposed to members

of the Board. As well as attending regular investor meetings the portfolio managers hold regular discussions with wealth

management desks and offices to build on the case for, and understanding of, long-term investment opportunities in the UK

smaller companies’ sector.

The Manager also coordinates public relations activity, including meetings between the portfolio managers and shareholders

and potential investors to set out their vision for the portfolio strategy and outlook for the region and in the year under review,

the Company held a number of webcasts and virtual conferences as well as meeting with investors by videoconference.

The Manager releases monthly portfolio updates to the market to ensure that investors are kept up to date in respect of

performance and other portfolio developments and maintains a website on behalf of the Company that contains relevant

information in respect of the Company’s investment mandate and objective.

Impact

The Board values any feedback and questions from shareholders ahead of and during Annual General Meetings in order to

gain an understanding of their views and will take action when and as appropriate. Feedback and questions will also help the

Company evolve its reporting, aiming to make reports more transparent and understandable.

Feedback from all substantive meetings between the Investment Manager and shareholders will be shared with the Board.

The Directors will also receive updates from the Company’s broker on any feedback from shareholders, as well as share trading

activity, share price performance and an update from the Investment Manager.

The portfolio management team attended a number of professional investor meetings (mainly by videoconference) and held

discussions with many different wealth management desks and offices in respect of the Company during the year under

review.

The portfolio manager also presented at virtual events hosted by Boring Money, Investor Meet, Kepler and Citywire. In addition,

the portfolio manager met with a number of investors throughout the year.

Investors gave positive feedback in respect of the portfolio manager, the good long-term track record, clear investment

strategy and low fee. Some investors commented that they liked the fact that (in common with many closed-ended funds

across the sector) the Company’s discount had widened, making the shares excellent value.

Investors expressed concerns over the outlook for UK consumers and the potential for economic data to deteriorate.

Environmental, Social and Governance Issues and Approach

The Board’s approach

Environmental, social and governance (ESG) issues can present both opportunities and risks to long-term investment

performance. Whilst the Company does not exclude investment in stocks purely on ESG criteria, material ESG analytics are

integrated into the investment process when weighing up the risk and reward benefits of investment decisions and the Board

believes that communication and engagement with portfolio companies is important and can lead to better outcomes for

shareholders and the environment than merely excluding investment in certain areas.

More information on BlackRock’s global approach to ESG integration, as well as activity specific to the BlackRock Smaller

Companies Trust plc portfolio, is set out below. BlackRock has defined ESG integration as the practice of incorporating

financially material E, S and/or G data and information and consideration of sustainability risks into investment decisions with

the objective of enhancing risk-adjusted returns. ESG integration does not change the Company’s investment objective. More

information on sustainability risks may be found in the AIFMD Fund Disclosures document of the Company available on the

Company’s website at

www.blackrock.com/uk/individual/literature/policies/itc-disclosure-blackrock-smaller-companies-trust-plc.pdf

.

Strategic Report

continued

Section 3: Governance

45

BlackRock’s approach to ESG integration

BlackRock incorporates into its firmwide processes relevant, financially material information, including financially material

data and information related to ESG. BlackRock’s investment view is that doing so can provide better risk-adjusted returns for

its clients over the long term.

BlackRock’s clients have a wide range of perspectives on a variety of issues and investment themes, including sustainable

and low-carbon transition investing. Given the wide range of unique and varied investment objectives sought by our clients,

BlackRock’s investment teams have a range of approaches to considering financially material E, S, and/or G factors. As with

other investment risks and opportunities, the financial materiality of E, S and/or G considerations may vary by issuer, sector,

product, mandate, and time horizon. Depending on the investment approach, this financially material E, S and/or G data or

information may help inform due diligence, portfolio or index construction, and/or monitoring processes of our portfolios, as

well as our approach to risk management.

BlackRock’s ESG integration framework is built upon our history as a firm founded on the principle of thorough and

thoughtful risk management. Aladdin, our core risk management and investment technology platform, allows investors to

leverage financially material E, S and/or G data or information as well as the combined experience of our investment teams

to effectively identify investment opportunities and investment risks. Our heritage in risk management combined with the

strength of the Aladdin platform enables BlackRock’s approach to ESG integration.

We structure our approach around three main pillars: investment processes, material insights and transparency and we

support them by equipping our employees with investment relevant E, S and/or G data, tools, and education.

More information in respect of BlackRock’s approach to ESG integration can be found at

https://www.blackrock.com/corporate/literature/publication/blk-esg-investment-statement-web.pdf

.

BlackRock Smaller Companies Trust plc – BlackRock Investment Stewardship engagement

with portfolio companies for the year ended 29 February 2024

The BlackRock portfolio management team has excellent access to company management teams and undertakes about 700

company meetings each year to identify high quality, cash generative businesses with strong management teams that are

able to generate growth in a more challenging economic environment. In addition, BlackRock also has a separate Investment

Stewardship (BIS) team that is committed to promoting sound corporate governance through engagement with investee

companies, development of proxy voting policies that support best governance practices and wider engagement with the

stewardship ecosystem. For the year to 29 February 2024, BIS held 48 company engagements on a range of governance

issues with the management teams of 36 companies in the BlackRock Smaller Companies Trust portfolio, representing 34%

of the portfolio holdings at 29 February 2024. Additional information is set out in the table below and the charts on page 46 as

well as the key engagement themes for the meetings held in respect of the Company’s portfolio holdings.

Year ended

29 February

2024

Number of engagements held

1

48

Number of companies met

1

36

% of equity investments covered

2

34

Shareholder meetings voted at

3

128

Number of proposals voted on

3

1,771

Number of votes against management

3

49

% of total votes represented by votes against management

3

2.8

1

Source: BlackRock as at 29 February 2024.

2

Source: BlackRock. As a percentage of total portfolio holdings at 29 February 2024.

3

Source: BlackRock, Institutional Shareholder Services as at 29 February 2024.

46

BlackRock Smaller Companies Trust plc

l

Annual Report and Financial Statements 29 February 2024

0

5

10

15

20

25

30

2

1

26

20

9

7

6

2

1

1

3

2

1

1

Engagement Topics

1

0

10

20

30

40

50

Social

Governance

Environmental

Engagement Themes

1

47

3

4

1

The number of meetings held in respect of the Company’s portfolio holdings; at which a particular topic is discussed. Most engagement

conversations cover multiple topics. More detail about BIS’ engagement priorities can be found here:

www.blackrock.com/corporate/literature/publication/blk-stewardship-priorities-final.pdf

.

Section 3: Governance

47

Regional voting guidelines

BIS’ voting guidelines are intended to help clients and companies understand its thinking on key governance matters. They

are the benchmark against which it assesses a company’s approach to corporate governance and the items on the agenda

to be voted on at a shareholder meeting. BIS applies its guidelines pragmatically, taking into account a company’s unique

circumstances where relevant. BlackRock informs voting decisions through research and engages as necessary. BIS reviews

its voting guidelines annually and updates them as necessary to reflect changes in market standards, evolving governance

practice and insights gained from engagement over the prior year. BIS’ regional voting guidelines are available on its website

at

www.blackrock.com/corporate/about-us/investment-stewardship#stewardship-policies

.

BlackRock is committed to transparency in terms of disclosure of its stewardship activities on behalf of clients. BIS publishes

its stewardship policies – such as the

BIS Global Principles

,

regional voting guidelines

and

engagement priorities

– to help

BlackRock’s clients understand its work to advance their interests as long-term investors in public companies. Additionally,

BIS publishes both annual and quarterly reports detailing its stewardship activities, as well as

vote bulletins

that describe

its rationale for certain votes at high-profile shareholder meetings. More detail in respect of BIS reporting can be found at

www.blackrock.com/corporate/insights/investment-stewardship

.

BlackRock’s reporting and disclosures

In terms of its own reporting, BlackRock believes that the Sustainability Accounting Standards Board provides a clear set

of standards for reporting sustainability information across a wide range of issues, from labour practices to data privacy to

business ethics. For evaluating and reporting climate-related risks, as well as the related governance issues that are essential

to managing them, the Task Force on Climate-related Financial Disclosures (TCFD) provides a valuable framework. BlackRock

recognises that reporting to these standards requires significant time, analysis, and effort. BlackRock’s 2023 TCFD report can

be found at

www.blackrock.com/corporate/literature/continuous-disclosure-and-important-information/tcfd-report

-2023-

blkinc.pdf

.

For and on behalf of the Board

RONALD GOULD

Chairman

13 May 2024

48

BlackRock Smaller Companies Trust plc

l

Annual Report and Financial Statements 29 February 2024

The Directors present the Annual Report and audited Financial Statements of the Company for the year ended 29 February

2024.

Status of the Company

The Company was incorporated in Scotland on 2 May 1906 under the registered number SC006176 and is domiciled in the

United Kingdom. The Company is a public company limited by shares and is also an investment company under Section 833 of

the Companies Act 2006 and operates as such.

The Company has been approved by HM Revenue & Customs as an investment trust in accordance with Sections 1158 and

1159 of the Corporation Tax Act 2010, subject to the Company continuing to meet eligibility conditions. The Directors are of

the opinion that the Company has conducted its affairs in a manner which will satisfy the conditions for continued approval.

As an investment company that is managed and marketed in the United Kingdom, the Company is an Alternative Investment

Fund (AIF) falling within the scope of, and subject to the requirements of, the Alternative Investment Fund Managers’ Directive

(AIFMD) as implemented, retained and onshored in the UK. The Company is governed by the provisions of the UK Alternative

Investment Fund Managers’ Regulations 2013 (the Regulations). The Company must also comply with the Regulations in

respect of leverage, outsourcing, conflicts of interest, risk management, valuation, remuneration and capital requirements and

must also make additional disclosures to both shareholders and the Financial Conduct Authority (FCA). Further details are set

out in the AIFMD disclosures and in the Notes to the Financial Statements.

The Company’s shares are eligible for inclusion in the stocks and shares component of an Individual Savings Account (‘ISA’).

Information to be disclosed in accordance with Listing Rule 9.8.4 (information to be

included in annual report and financial statements)

Disclosures in respect of how the Company has complied with Listing Rule 9.8.4 are set out on page 118.

Facilitating retail investments

The Company currently conducts its affairs so that the shares issued by the Company can be recommended by independent

financial advisers to ordinary retail investors in accordance with the FCA’s rules in relation to non‑mainstream pooled

investments and intends to continue to do so for the foreseeable future.

In the context of the implementation of RDR (Retail Distribution Review) and the growing popularity of investment trusts on

platforms, it is worth noting that the Company’s shares are designed for private investors in the UK, including retail investors

and professionally advised private clients. It is also attractive to institutional investors who seek long‑term capital growth

and an attractive total return from quoted securities through investing in smaller UK quoted companies and who understand

and are willing to accept the risks of exposure to equities. When assessing the suitability of the shares, private investors

should consider consulting an independent financial adviser who specialises in advising on the acquisition of shares and

other securities before acquiring shares. Naturally, investors should also be capable of evaluating the risks and merits of an

investment in the Company and should always have sufficient resources to bear any loss that may result.

The common reporting standard

Tax legislation under the Organisation for Economic Cooperation and Development (OECD) Common Reporting Standard for

Automatic Exchange of Financial Account Information (the Common Reporting Standard) was introduced on 1 January 2016.

The legislation requires investment trust companies to provide personal information to HMRC about investors who purchase

shares in investment trusts. The Company has to provide information annually to the local tax authority on the tax residencies

of a number of non-UK based certificated shareholders, and corporate entities. The local tax authority to which the information

is initially passed may in turn exchange the information with the tax authorities of another country or countries in which the

shareholder may be tax resident, where those countries (or tax authorities in those countries) have entered into agreements to

exchange financial account information.

All new shareholders, excluding those whose shares are held in CREST, entered onto the share register, will be sent a

certification form for the purposes of collecting this information.

Directors’ Report

Section 3: Governance

49

Shareholder Rights Directive II

The Shareholder Rights Directive II took effect from 10 July 2019 with some transitional provisions. It encourages long‑term

shareholder engagement and transparency between companies and shareholders. In substantive terms the changes were

small for investment companies and the majority of requirements apply to the Company’s remuneration policy and disclosure

of processes, as well as related party transactions. There are also additional rules for Alternative Investment Fund Managers

and proxy advisers.

Dividends

Details of the dividends paid and payable in respect of the year are set out in the Chairman’s Statement.

Future prospects

Commentary on future prospects for the Company is set out in both the Chairman’s Statement and the Investment Manager’s

Report.

Investment management and administration

BlackRock Fund Managers Limited (BFM, AIFM or Manager) was appointed as the Company’s AIFM with effect from 2 July

2014.

BlackRock Investment Management (UK) Limited (BIM (UK) or Investment Manager) acts as the Company’s Investment

Manager under a delegation agreement with BFM. BIM (UK) also acted as the Secretary of the Company throughout the year.

The management contract is terminable by either party on six months’ notice. The Board continues to be independent from

the AIFM. The agreement provides the appropriate balance between the Board’s control over the Company, its investment

policies and compliance with regulatory obligations. The AIFM has (with the Company’s consent) delegated certain portfolio

and risk management services, and other ancillary services, to the Investment Manager. The Investment Manager also acted

as the Secretary of the Company throughout the year.

No penalty on termination of the investment management contract would be payable by the Company in the event that six

months’ written notice is given to the Manager. There are no provisions relating to payment of fees in lieu of notice.

The Company contributes to a focused investment trust sales and marketing initiative operated by BlackRock on behalf of the

investment trusts under its management. The Company’s contribution to the consortium element of the initiative, which enables

the trusts to achieve efficiencies by combining certain sales and marketing activities was a fixed amount of £67,000 (excluding

VAT) and this contribution was matched by the Investment Manager for the year ended 31 December 2023. In addition, a budget

of £51,000 (excluding VAT) was allocated for Company specific sales and marketing activity also for the year to 31 December

2023. For the financial year ended 29 February 2024, £174,000 (including VAT) has been charged in respect of these initiatives.

The purpose of the programme overall is to ensure effective communication with existing shareholders and to attract new

shareholders to the Company. This has the benefit of improving liquidity in the Company’s shares and helps sustain the stock

market rating of the Company.

The Manager and the Investment Manager are subsidiaries of BlackRock, Inc., which is a publicly traded corporation on the New

York Stock Exchange, operating as an independent firm.

The AIFM receives an investment management fee which is based on a rate of 0.6% of the first £750 million of the Company’s

assets, reducing to 0.5% above this level. The fee rate was applied to an asset amount calculated as total assets (excluding

current year income) less the current liabilities of the Company (the “Fee Asset Amount”). The investment management fee

is allocated 75% to the capital column and 25% to the revenue column of the Income Statement. The Company has no

performance fee arrangements in place.

Appointment of the manager

The Board considers the arrangements for the provision of investment management services to the Company on an ongoing

basis and a formal review is conducted annually. The Board believes that the continuing appointment of the Manager as

AIFM, with investment management services delegated to the Investment Manager, on the terms as previously disclosed, is

in the interests of shareholders as a whole. As part of the annual review the Board considered the quality and continuity of the

personnel assigned to handle the Company’s affairs, the investment process and the results achieved to date. In the Board’s

view, the investment remit is best served by the BlackRock Emerging Companies Team, as manager of some of the best

performing UK equity funds specialising in small‑ and mid‑cap investments.

50

BlackRock Smaller Companies Trust plc

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Annual Report and Financial Statements 29 February 2024

Depositary and custodian

The Company appointed BNY Mellon Trust & Depositary (UK) Limited (BNYMTD) in this role with effect from 2 July 2014.

However, with effect from 1 November 2017, the role of Depositary was transferred, by operation of a novation agreement,

from BNYMTD to its parent Company, The Bank of New York Mellon (International) Limited (BNYM or the Depositary). The

Depositary’s duties and responsibilities are outlined in the investment fund legislation (as set out in the FCA AIF Rulebook).

The main role of the Depositary under AIFMD is to monitor the operations of the Company, including monitoring cash flows

and ensuring that the value of the Company’s shares is valued appropriately in accordance with the relevant regulations and

guidance. The Depositary is also responsible for enquiring into the conduct of the AIFM in each annual accounting period.

The Company has appointed the Depositary in a tripartite agreement, to which the Manager as AIFM is also a signatory. The

Depositary is also liable for the loss of financial instruments held in custody.

Under the depositary agreement, custody services in respect of the Company’s assets have been delegated to the Asset

Servicing division of BNYM. BNYM receives a custody fee payable by the Company at rates depending on the number of trades

effected and the location of securities held. The depositary agreement is subject to 90 days’ notice of termination by any party.

Registrar

The Company has appointed Computershare Investor Services PLC as its Registrar (the Registrar). The principal duty of

the Registrar is the maintenance of the register of shareholders (including registering transfers). It also provides services in

relation to corporate actions (including tender offers and the exercise of subscription shares), dividend administration and

shareholder documentation. The Registrar receives a fixed fee plus disbursements and VAT per annum. Fees in respect of

corporate actions and other services are negotiated on an arising basis.

Change of control

There are no agreements to which the Company is party that might be affected by a change of control of the Company.

Exercise of voting rights in investee companies

The exercise of voting rights attached to the Company’s portfolio has been delegated to the Investment Manager, whose voting

policy is set out below. BlackRock’s approach to voting at shareholder meetings, engagement with companies and corporate

governance is framed within an investment context. In BlackRock’s view sound corporate governance practices by companies

contribute to their long‑term financial performance and thus to better risk‑adjusted returns.

BlackRock’s proxy voting process is led by the BlackRock Investment Stewardship (BIS) team, located in nine offices around

the world. In addition to its own professional staff, the BIS team draws upon the expertise of BlackRock’s portfolio managers,

researchers and other internal and external resources globally. The

BIS Global Principles

,

regional voting guidelines

, and

engagement priorities

(collectively, the ‘BIS policies’) set out the core elements of corporate governance that guide BIS’ efforts

globally and within each regional market, including when engaging with companies and voting at shareholder meetings when

authorised to do so on behalf of clients.

BlackRock is committed to transparency in terms of disclosure on its stewardship activities on behalf of clients. BIS publishes

its stewardship policies – such as the

BIS Global Principles

,

regional voting guidelines

and

engagement priorities

– to help

BlackRock’s clients understand its work to advance their interests as long‑term investors in public companies.

During the year under review, the Investment Manager voted on 1,771 proposals at 128 general meetings on behalf of the

Company. At these meetings the Investment Manager voted in favour of most resolutions, as should be expected when

investing in well run companies but voted against 49 management resolutions and abstained from voting on 11 resolutions.

Most of the votes against were in respect of resolutions relating to director elections which were deemed by the Investment

Manager as not being in the best interest of shareholders.

Principal risks

The key risks faced by the Company are set out in the Strategic Report.

Going concern

The Financial Statements of the Company have been prepared on a going concern basis. The forecast projections and actual

performance are reviewed on a regular basis throughout the year and the Directors believe that this is the appropriate basis,

and the Company has adequate resources to continue in operational existence for the foreseeable future, being a period of at

least 12 months from the date these Financial Statements were approved, and is financially sound. The Company is able to

meet all of its liabilities from its assets and the 2024 ongoing charges are approximately 0.8% (2023: 0.7%) of the net assets.

Directors’ Report

continued

Section 3: Governance

51

Directors

The Directors of the Company as at 29 February 2024 and their biographies are set out on pages 29 and 30. Details of

Directors’ interests in the ordinary shares of the Company are set out in the Directors’ Remuneration Report. All of the

Directors held office throughout the year under review.

All Directors will retire and being eligible, offer themselves for re‑election or election at the forthcoming Annual General

Meeting (AGM) to be held on 20 June 2024.

Board policy on tenure

The Board’s policy on tenure is that length of service does not necessarily compromise the independence or contribution of

directors of an investment trust company, where continuity and experience can add significantly to the strength of the Board.

However, mindful of the desirability of a combination of continuity and renewal, the Board has adopted a policy of limiting

Directors’ tenure to nine years. Subject to the constraints of effective succession planning, it is the Board’s aim that no Director

will serve on the Board for more than nine years (or twelve years in the case of the Chairman). The longer time limit for the

Chairman’s tenure is to allow for continuity of leadership in circumstances where a Chairman is appointed from the ranks of

existing Board members after having already served on the Board for a period of time.

After due consideration and further to the annual evaluation process, the Board has concluded that all the Directors continue

to be independent in both character and judgement and that there are no relationships or circumstances which are likely to

affect the judgement of any Director. The Board has considered the position of the Directors, as part of the evaluation process,

and believes that it would be in the Company’s best interests for all the Directors to be proposed for re‑election or election,

given their material level of contribution. Details of the evaluation process are set out in the Corporate Governance Statement.

There were no contracts subsisting during or at the end of the year in which a Director of the Company is or was materially

interested and which is or was significant in relation to the Company’s business. None of the Directors is entitled to

compensation for loss of office on the takeover of the Company. None of the Directors has a service contract with the

Company. The Directors’ attendance record is shown in the table on page 54.

Directors’ indemnity and Directors’ liability insurance

The Company has maintained appropriate Directors’ Liability Insurance cover throughout the year. In addition to Directors’

and Officers’ Liability Insurance cover, the Company’s Articles provide, subject to the provisions of applicable UK legislation,

an indemnity for Directors in respect of costs incurred in the defence of any proceedings brought against them by third parties

arising out of their positions as Directors, in which they are acquitted, or judgement is given in their favour. The Company has

entered into Deeds of Indemnity with Directors individually which are available for inspection at the registered office of the

Company and will be available at the Annual General Meeting.

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 reviewed by the Board and duly authorised. Directors were also made aware that there

remains a continuing obligation to notify the Company Secretary of any new situation that may arise, or any change to a

situation previously notified. It is the Board’s intention to continue to review all notified situations on an annual basis.

Streamlined Energy and Carbon Reporting (SECR) statement: greenhouse gas (GHG)

emissions and energy consumption disclosure

As an externally managed investment company, the Company has no greenhouse gas emissions to report from its operations,

nor does it have any responsibility for any other emissions producing sources under the Companies Act (Strategic Report and

Directors’ Reports) Regulations 2013. For the same reason the Company considers itself to be a low energy user under the

SECR regulations and therefore is not required to disclose energy and carbon information.

Articles of association

Any amendments to the Company’s Articles of Association must be made by special resolution.

Remuneration report

The Directors’ Remuneration Report is set out on pages 56 to 59. An ordinary resolution to approve this report will be put to

shareholders at the forthcoming Annual General Meeting.

52

BlackRock Smaller Companies Trust plc

l

Annual Report and Financial Statements 29 February 2024

Remuneration policy

The Remuneration policy is set out on pages 60 and 61. An ordinary resolution to approve this policy will be put to

shareholders at the Annual General Meeting in 2026.

Notifiable interest in the Company’s voting rights

As at 29 February 2024, the following investors had declared a notifiable interest in the Company’s voting rights:

Holding

%

Rathbone Bros

6,891,017

14.5

Saba Capital Management

4,326,631

9.1

BlackRock, Inc.*

3,513,143

7.4

Evelyn Partners

2,005,898

4.2

*

Including 2,413,054 shares held by BlackRock Institutional Jersey Funds (The Dynamic Diversified Growth Fund) representing 5.1% of the

Company’s issued share capital. The remainder of BlackRock Inc.’s holding represents shareholdings of investment vehicles managed by

members of the BlackRock Group and discretionary managed money, none of which exceeds 3% of the Company’s issued share capital on

an individual fund basis.

As at 8 May 2024, the following investors had declared a notifiable interest in the Company’s voting rights:

Holding

%

Rathbone Bros

7,547,594

16.0

Saba Capital Management

4,326,631

9.1

BlackRock, Inc.*

3,513,143

7.4

Evelyn Partners

2,005,898

4.2

*

Including 2,413,054 shares held by BlackRock Institutional Jersey Funds (The Dynamic Diversified Growth Fund) representing 5.1% of the

Company’s issued share capital. The remainder of BlackRock Inc.’s holding represents shareholdings of investment vehicles managed by

members of the BlackRock Group and discretionary managed money, none of which exceeds 3% of the Company’s issued share capital on

an individual fund basis.

Share capital

Full details of the Company’s share capital are given in note 15 of the Financial Statements. Details of the voting rights in

the Company’s shares as at the date of this report are given in note 17 to the Notice of Annual General Meeting. There are no

restrictions on the voting rights of the shares or on the transfer of shares, and there are no shares that carry specific rights

with regard to the control of the Company. At 29 February 2024, the Company’s issued share capital was 47,319,792 ordinary

shares, excluding 2,673,731 shares held in treasury.

Share issues and repurchases

The Company has the authority to purchase ordinary shares in the market to be held in treasury or for cancellation and to

issue new ordinary shares for cash. 1,510,000 ordinary shares were repurchased into treasury for costs of £19,989,000 at an

average discount of 12.6% or issued under either authority during the year. Since the year end and as at the date of this report,

the Company has repurchased 220,000 shares for costs of £2,946,000 at an average discount of 13.0%. No ordinary shares

were issued under the authority during the year. The current authority to repurchase ordinary shares was granted to Directors

on 20 June 2023 and expires at the conclusion of the Annual General Meeting in 2024. 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 shares from

treasury, be renewed at the forthcoming Annual General Meeting.

Treasury shares

The Board has determined that up to 10% of the Company’s issued shares may be held in treasury and may be subsequently

cancelled or sold for cash in the market. This would give the Company the ability to reissue shares quickly and cost effectively,

thereby improving liquidity and providing the Company with additional flexibility in the management of its capital base. The

Board currently intends only to authorise the sale of shares from treasury at or above the prevailing net asset value per share

(plus costs of the relevant sale). This should result in a positive overall effect on shareholders if shares are repurchased at a

discount and then sold at a price at or above the net asset value per share (plus costs of the relevant sale). In the interests of all

shareholders, the Board will continue to keep the matter of treasury shares under review.

Directors’ Report

continued

Section 3: Governance

53

Annual General Meeting

The following information to be discussed at the forthcoming Annual General Meeting is important and requires your immediate

attention. If you are in any doubt about the action you should take, you should seek advice from your stockbroker, bank manager,

solicitor, accountant or other financial adviser authorised under the Financial Services and Markets Act 2000 (as amended). If

you have sold or transferred all of your ordinary shares in the Company, you should pass this document, together with any other

accompanying documents, including the form of proxy, at once to the purchaser or transferee, or to the stockbroker, bank or

other agent through whom the sale or transfer was effected, for onward transmission to the purchaser or transferee.

Resolutions for the election and re-election of Directors

The biographies of the Directors are set out on pages 29 and 30 and are incorporated into this report by reference. The skills

and experience each Director brings to the Board for the long‑term sustainable success of the Company are set out below. All

of the Directors held office throughout the year under review and all of the Directors will stand for re‑election by shareholders

at the meeting in accordance with the requirements of the UK Code.

Resolution 4

Relates to the re‑election of Mr Ronald Gould who was appointed on 1 April 2019. Mr Gould has current and detailed

knowledge of the financial services industry and investment management and investment trusts. He brings leadership skills

and much in‑depth knowledge, expertise and experience of the sector to the Board, having served as Managing Director of the

Promontory Financial Group and acted as Senior Adviser to the UK Financial Services Authority, as well as serving as a non‑

executive director on another investment trust board.

Resolution 5

Relates to the re‑election of Ms Susan Platts-Martin who was appointed on 21 April 2016, and who was appointed Senior

Independent Director on 28 July 2020 and who was appointed as Chair of the Nomination and Remuneration Committee on

5 May 2023. She brings over 30 years financial services experience and an in‑depth knowledge of investment trusts, having

run the investment trust business at Fidelity International for many years and as the former Chairman of another investment

trust. She is a qualified chartered accountant and brings this skill set to her role as a member of the Company’s Audit

Committee.

Resolution 6

Relates to the re‑election of Mr Mark Little who was appointed on 1 October 2020. Mr Little has a wealth of experience in the

financial services sector which he brings to his role on the Board, having begun his career as a fund manager with Scottish

Widows Investment Management after qualifying as a chartered accountant with Price Waterhouse in 1991. He subsequently

worked as Global Head of Automotive Research for Deutsche Bank and joined Barclays Wealth in 2005, where he became

Managing Director of Barclays Wealth (Scotland and Northern Ireland). Mr Little also has audit committee experience, chairing

the audit committees of Majedie Investments Plc, Fidelity Emerging Markets Limited and Securities Trust of Scotland Plc (due

to retire from this board on 4 July 2024); he also previously acted as audit committee chairman of Sanditon Investment Trust

plc.

Resolution 7

Relates to the re‑election of Mr James Barnes who was appointed on 31 July 2021. Mr Barnes brings to the Board a wealth of

experience, especially in the UK smaller companies’ sector. He began his career in corporate finance and investment banking.

He was formerly a director of Dobbies Garden Centres plc and was instrumental in growing the business and leading its sale

to Tesco in 2003. He was also previously a Director and Chairman of Dunedin Smaller Companies Investment Trust plc (now

Standard Life UK Smaller Companies plc) and currently holds a number of other non‑executive roles in other businesses.

Resolution 8

Relates to the re‑election of Ms Helen Sinclair who was appointed on 1 March 2022. Ms Sinclair began her career in

investment banking and spent nearly eight years at 3i plc focusing on management buy‑outs and growth capital investments.

She later co‑founded Matrix Private Equity (which became Mobeus Equity Partners) in early 2000 and subsequently became

Managing Director of Matrix Private Equity before moving to take on a number of non‑executive director roles.

54

BlackRock Smaller Companies Trust plc

l

Annual Report and Financial Statements 29 February 2024

Resolution 9

Relates to the election of Ms Dunke Afe who was appointed on 1 January 2024. Ms Afe is an accomplished global marketing

executive with extensive experience in raising brand awareness, delivering high‑impact portfolio strategies and omni‑channel

marketing campaigns to drive business growth. She has previously worked with top blue chip multinationals including

Unilever, Kimberly-Clark and Estee Lauder. Ms Afe is also serving as a non‑executive director on another investment trust

board.

Attendance Record

Total

scheduled

meetings

Ronald

Gould

1

Susan

Platts-

Martin

Mark

Little

James

Barnes

Helen

Sinclair

Dunke

Afe

3

Board

5

5

5

5

5

5

1

Audit Committee

2

n/a

2

2

2

2

n/a

Management Engagement Committee

1

1

1

1

1

1

1

Remuneration and Nomination

Committee

2

1

1

1

1

1

1

n/a

1

Mr Gould is not a member of the Audit Committee but may attend by invitation. He was in attendance at all three Audit Committee meetings

held for the year ended 29 February 2024.

2

Prior to 5 May 2023, the Company had in place a Nomination Committee which was responsible for succession planning and making

recommendations for any new appointments as well as reviewing the Board’s structure and composition. There was no separate

Remuneration Committee and the Board itself performed duties in respect of setting Directors’ remuneration and remuneration policy for the

Company. On 5 May 2023 the Directors established a combined Nomination and Remuneration Committee to perform these duties on an

ongoing basis. This combined Committee will meet annually in February/March each year, or more frequently as required on an ad hoc basis.

3

Ms Dunke Afe was appointed to the Board on 1 January 2024 and was in attendance at all scheduled Board and Management Engagement

Committees that were held subsequent to her appointment. There were no scheduled Audit Committee meetings held in the financial year

ended 29 February 2024 subsequent to Ms Afe's appointment. The scheduled Remuneration and Nomination Committee meeting is held in

March each year and Ms Afe was not on the Board at the time this meeting was held for the 2023 financial year.

Special business

Ordinary resolutions

Resolutions relating to the following items of special business will be proposed at the forthcoming Annual General Meeting.

Resolution 12 Authority to allot shares

The Directors may only allot shares for cash if authorised to do so by shareholders in general meeting. This resolution seeks

authority for the Directors to allot shares for cash up to an aggregate nominal amount of £1,177,494.80 which is equivalent

to 4,709,979 ordinary shares of 25p each and represents 10% of the current issued share capital excluding treasury shares.

The Directors will use this authority when it is in the best interests of the Company to issue shares for cash. This authority

will expire at the conclusion of the Annual General Meeting to be held in 2025, unless renewed prior to that date at an earlier

general meeting.

Special resolutions

Resolution 13 Authority to disapply pre-emption rights

By law, directors require specific authority from shareholders before allotting new shares or selling shares out of treasury for

cash without first offering them to existing shareholders in proportion to their holdings.

Resolution 13 empowers the Directors to allot new shares for cash or to sell shares which are held by the Company in treasury,

otherwise than to existing shareholders on a pro rata basis, up to an aggregate nominal amount of £1,177,494.80 which

is equivalent to 4,709,979 ordinary shares of 25p each and 10% of the Company’s issued ordinary share capital excluding

treasury shares. This authority will expire at the conclusion of the Annual General Meeting to be held in 2025, unless renewed

prior to that date at an earlier general meeting.

Resolution 14 Authority to buy back shares

The resolution to be proposed will seek to renew the authority granted to the Directors enabling the Company to purchase its

own shares. The Directors will only consider repurchasing shares in the market if they believe it to be in shareholders’ interests

and as a means of correcting any imbalance between supply and demand for the Company’s shares. Under the Listing Rules

of the FCA, the maximum price which can be paid is the higher of (i) 5% above the average market value of the ordinary shares

for the five business days immediately preceding 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

Directors’ Report

Section 3: Governance

55

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 7,060,258 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 2025, unless renewed prior to that date at an earlier general meeting.

Recommendation

The Board considers that each of the resolutions is likely to promote the success of the Company and is in the best interests

of the Company and its shareholders as a whole. The Directors unanimously recommend that you vote in favour of the

resolutions as they intend to do in respect of their own beneficial holdings.

As mentioned in the Chairman’s Statement, if you are unable to attend the meeting in person you can cast your vote by proxy,

either by appointing the Chairman as your proxy or alternatively a third party. Details on how to do so are included on the

Proxy Card provided. If you hold your shares through a Nominee or Platform you will need to contact them directly to instruct

them on how you wish to vote or to request that they appoint you as a proxy in respect of your shareholding should you wish to

attend the meeting. It may also be possible to vote electronically via the platform. If you are able to do so we would encourage

shareholders to exercise your vote.

Corporate governance

Full details are given in the Corporate Governance Statement. The Corporate Governance Statement forms part of this

Directors’ Report.

Audit information

As required by Section 418 of the Companies Act 2006 the Directors who held office at the date of this report each confirm

that, so far as they are aware, there is no relevant audit information of which the Company’s auditors are unaware and each

Director has taken all the steps that they ought to have taken as a Director to make themselves aware of any relevant audit

information and to establish that the Company’s auditors are aware of that information.

Independent auditors

The auditors, PricewaterhouseCoopers LLP, have indicated their willingness to continue in office and resolutions proposing

their reappointment and authorising the Audit Committee to determine their remuneration for the ensuing year will be

submitted at the Annual General Meeting.

The Directors’ Report was approved by the Board at its meeting on 13 May 2024.

For and on behalf of the Board

RONALD GOULD

Chairman

13 May 2024

56

BlackRock Smaller Companies Trust plc

l

Annual Report and Financial Statements 29 February 2024

Introduction

On behalf of the Board, the Nomination and Remuneration Committee presents the Directors’ Remuneration Report for the

year ended 29 February 2024 which has been prepared in accordance with the requirements of Sections 420-422 of the

Companies Act 2006.

The Remuneration Report comprises a remuneration policy report and a remuneration policy implementation report. The

remuneration policy report is subject to a triennial binding shareholder vote and will be put to shareholders for approval at

the AGM in 2026. The remuneration policy implementation report is subject to an annual advisory vote. The law requires the

Company’s independent auditors to audit certain parts of the disclosures provided. Where disclosures have been audited, they

are indicated as such. The auditors’ opinion is included in their report on pages 78 to 83.

Nomination and Remuneration Committee

At its meeting on 5 May 2023, the Board expanded the responsibilities of the Company’s Nomination Committee and put in

place a new combined Nomination and Remuneration Committee. As well as responsibility for succession planning and Board

composition, this newly formed Committee has delegated responsibility for determining the policy for directors’ remuneration

and setting remuneration for the Company’s Chair, Audit Committee Chair, Senior Independent Director and independent non‑

executive Directors in accordance with the principles and provisions of the UK Code. The Committee’s responsibilities include

reporting and making recommendations to the Board on all matters of remuneration.

Statement by the Chairman of the Nomination and Remuneration Committee

The Company’s policy on remuneration is set out on pages 60 and 61. A key element is that fees payable to Directors should

be sufficient to attract and retain individuals with suitable knowledge and experience, and that consideration is given to the

value and amount of time committed. The Committee’s focus is on setting the strategy for the successful progression of the

Company and monitoring performance against the strategic objectives set. In order to do this effectively, Directors spend a

substantial amount of time preparing for the five scheduled Board meetings and two Audit Committee meetings held each

year. At these meetings, the Directors review the Company’s portfolio, monitor investment performance and review compliance

with investment guidelines. The Board also reviews and monitors the Company’s ongoing operating costs to ensure that these

represent optimal value and are in line with agreed budgets. In addition, the Board sets the marketing strategy of the Company

and contributes to a sales and marketing initiative operated by BlackRock; the Board has set key performance indicators to

monitor progress and reviews these on a regular basis to monitor and assess the effectiveness of this initiative.

The Chairman makes himself available to meet directly with shareholders when required and the Board monitors the

Company’s share rating closely and is responsible for determining the appropriate action to be taken to manage this where

necessary. Directors are also responsible for establishing and maintaining the Company’s control systems to manage risk

effectively, and a register of these controls and the risks facing the Company are reviewed at each Audit Committee meeting,

along with control reports from external auditors. Directors also receive an annual update from BlackRock’s internal audit

department. As well as this usual business, Directors also spend additional time as and when required in ad hoc meetings

to address other issues as they arise, including the Board’s response to emerging risks. Investment trusts are subject to a

large number of regulatory and disclosure requirements, including the requirements of the UK Code, UKLA Listing Rules,

and Investment Trust Company tax regulations. The regulatory burden has increased significantly in recent years, with the

implementation of AIFMD, GDPR, FATCA and the Common Reporting Standard requiring considerable additional time to be

spent by the Board to ensure that new depositary and management agreements comply with best industry practice. There

are yet more new regulatory obligations that will become applicable to the Company over the next few years, all of which

are expected to generate an increased workload for Directors, and the Board will continue to be mindful of this in setting

remuneration levels.

For the year ended 29 February 2024, the Chairman received an annual fee of £46,735, the Audit Committee Chairman

received £35,700 per annum and the other Directors received £31,500 per annum. The Senior Independent Director received

an additional fee of £1,050. Following a review on 6 March 2024, and with effect from 1 March 2024, the Chairman will receive

an annual fee of £50,000, the Audit Committee Chairman will receive £38,000 per annum and the other Directors will each

receive £33,000 per annum. The Senior Independent Director who is also the Chair of the Nomination and Remuneration

Committee will receive an additional £2,000 per annum. The Board has considered the average rate of inflation during the

period since the last fee increase and reviews the level of remuneration in comparison with other investment trusts of a similar

size and/or mandate as well as taking account of any data published by the AIC and other third parties to ensure that fees

are in line with industry practice. This comparison, together with consideration of any alteration in non‑executive Directors’

responsibilities, including but not limited to the Audit Committee Minimum Standard and Consumer Duty regulations, has

been used in considering the level of increase in remuneration. The basis for determining the level of any increase in Directors’

remuneration is set out in the Directors’ Remuneration Policy on pages 60 and 61.

Directors’ Remuneration Report

Section 3: Governance

57

No discretionary fees have been paid to the Directors during the year or previous year and the payment of such fees is

expected to be a rare occurrence, only necessary in exceptional circumstances, for example a major corporate restructuring of

the Company, which would require significant additional time to be spent. Any discretionary fees paid to the Directors will be

clearly disclosed in the Directors’ Remuneration Report accompanied by an explanation of the work undertaken and any it was

deemed necessary to pay such additional remuneration.

Remuneration limits contained within Articles of Association

The maximum remuneration of the Directors is determined within the limits of the Company’s Articles and currently amounts

in aggregate to £250,000 per annum. No element of the Directors’ remuneration is performance related.

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 29 February 2024

and 28 February 2023:

29 February 2024

28 February 2023

Directors

Fees

Taxable

benefits

8

Total

Fees

Taxable

benefits

8

Total

£

£

£

£

£

£

Ronald Gould

1

(Chairman)

46,735

4,740

51,475

44,500

–

44,500

Mark Little

2

35,700

5,022

40,722

34,000

4,625

38,625

Susan Platts-Martin

3

32,550

2,004

34,554

31,000

866

31,866

Helen Sinclair

4

31,500

591

32,091

30,000

74

30,074

James Barnes

5

31,500

4,060

35,560

30,000

4,566

34,566

Caroline Burton

6

n/a

n/a

n/a

8,301

–

8,301

Dunke Afe

7

5,178

954

6,132

n/a

n/a

n/a

Total

183,163

17,371

200,534

177,801

10,131

187,932

1

Mr Gould joined the Board on 1 April 2019 and became Chairman on 4 June 2019.

2

Mr Little joined the Board on 1 October 2020 and was appointed Audit Committee Chairman on 11 June 2021.

3

Ms Platts-Martin became Senior Independent Director on 28 July 2020 and was appointed the Nomination and Remuneration Chair on

5 May 2023.

4

Mrs Sinclair joined the Board on 1 March 2022.

5

Mr Barnes joined the Board on 31 July 2021.

6

Mrs Burton retired as a Director on 9 June 2022.

7

Ms Afe joined the Board on 1 January 2024.

8

Taxable benefits relate to travel and subsistence costs which have been grossed up to include PAYE and NI contributions.

The information in the above table has been audited. The amounts paid by the Company to the Directors were for services

as non‑executive Directors. As at 29 February 2024, an amount of £17,000 was outstanding to Directors in respect of their

annual fees (28 February 2023: £14,000).

As the Company has no employees, the table above also comprises the total remuneration costs and benefits paid by the

Company.

58

BlackRock Smaller Companies Trust plc

l

Annual Report and Financial Statements 29 February 2024

Directors’ Remuneration Report

continued

Relative importance of spend on remuneration

To enable shareholders to assess the relative importance of spend on remuneration, this has been shown in the table below

compared with the Company’s total income, total profit/(loss) and dividend distributions.

2024

2023

Change

£’000

£’000

£’000

Directors’ total remuneration

183

188

-5

Total dividends paid and payable

19,955

19,475

+480

Income from investments

21,884

21,468

+416

Net loss on ordinary activities after taxation

(32,701)

(140,726)

+108,025

Buyback of ordinary shares

19,989

–

+19,989

No payments were made in the period to any past Directors (2023: nil).

Annual percentage change in Directors’ remuneration

The following table sets out the annual percentage changes in Directors’ fees over the past five years.

29 February

2024

28 February

2023

28 February

2022

28 February

2021

29 February

2020

Ronald Gould

1

5.0%

4.1%

0.6%

0.0%

0.0%

Mark Little

2

5.0%

7.5%

10.9%

0.0%

N/a

Susan Platts-Martin

3

5.0%

4.2%

4.4%

0.0%

6.5%

James Barnes

4

5.0%

4.3%

0.0%

N/a

N/a

Helen Sinclair

5

5.0%

0.0%

N/a

N/a

N/a

Dunke Afe

6

N/a

N/a

N/a

N/a

N/a

1

Mr Gould was appointed to the board on 1 April 2019 and became Chairman on 4 June 2019. The percentage change in his annual fixed fee

has been annualised for 2020.

2

Mr Little joined the Board on 1 October 2020 and the percentage change in his annual fixed fee has been annualised for 2021. Appointed as

Audit Committee Chairman on 11 June 2021 which accounted for the percentage increase in 2022.

3

Ms Platts-Martin was appointed Senior Independent Director on 28 July 2020 and appointed as Chair of the Nomination and Remuneration

committee with effect from 5 May 2023.

4

Mr Barnes was appointed on 31 July 2021 and the percentage change in his annual fixed fee has been annualised for 2022.

5

Mrs Sinclair was appointed on 1 March 2022.

6

Ms Dunke Afe was appointed on 1 January 2024.

As previously noted, the Company does not have any employees and hence no comparisons are given in respect of the

comparison between Directors’ and employees’ pay increases.

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, with the exception

of Ms Afe, held office throughout the year under review.

29 February

2024

28 February

2023

Ronald Gould

3,544

2,544

Mark Little

491

491

Susan Platts-Martin

2,800

2,800

James Barnes

2,500

2,500

Helen Sinclair

988

988

Dunke Afe

–

n/a

All of the holdings of the Directors are beneficial. No changes to these holdings had been notified up to the date of this report.

Section 3: Governance

59

Performance

The line graph which follows compares the Company’s net asset value (with dividends reinvested) and share price total return

with the total return on an equivalent investment in the Deutsche Numis Smaller Companies plus AIM (excluding Investment

Companies) Index. This composite index was selected for comparison purposes, as it was the Company’s benchmark used for

investment performance measurement purposes.

Total Shareholder Return from 1 March 2014 to 29 February 2024

Implementation of the Remuneration Policy in the 2024 financial year

The Directors intend that the Remuneration Policy, which forms part of this report, will be implemented as set out on pages

60 and 61. The Directors do not receive any performance related remuneration or incentives. Discretionary payments are

permitted under the policy; however, such discretionary payments would only be considered in exceptional circumstances.

Retirement of Directors

Details are given in the Directors’ Report on page 51.

For and on behalf of the Board

SUSAN PLATTS-MARTIN

Chair

Nomination and Remuneration Committee

13 May 2024

60

BlackRock Smaller Companies Trust plc

l

Annual Report and Financial Statements 29 February 2024

Directors’ Remuneration Policy

In determining Directors’ fees, a number of factors are considered, including 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 environment of increasing complexity. More details

of the work carried out by the Board, the regulatory framework that it must ensure the Company complies with and the time

commitments of Directors are set out in the Statement of the Chairman on pages 56 and 57. The Board also considers the

average rate of inflation during the period since the last fee increase and reviews the level of remuneration in comparison with

other investment trusts of a similar size and/or mandate as well as taking account of any data published by the AIC to ensure

that fees are in line with industry practice. This comparison, together with 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 Board is cognisant of the need to avoid any potential conflicts of interest and has therefore agreed a

mechanism by which no Director is present when his or her own pay is being considered. 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. The remuneration policy would be applied when agreeing the remuneration package of any new

Director. Directors’ appointments do not have a fixed duration, but they can be terminated by the Company in writing at any

time without obligation to pay compensation. On termination of the appointment, Directors shall only be entitled to accrued

fees as at the date of termination together with reimbursement of any expenses properly incurred prior to that date. No

payments for loss of office are made. Directors are subject to annual re‑election.

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 the event that there was a

substantial vote against any resolution proposed at the Company’s AGM, the reasons for any such vote would be sought and

appropriate action taken. Should the votes be against resolutions in relation to the Directors’ remuneration, further details will

be provided in future Directors’ Remuneration Reports. In accordance with the Companies Act 2006, the Company is required

to seek shareholder approval of its remuneration policy on a triennial basis. An ordinary resolution for the approval of the

remuneration policy was approved by shareholders at the Annual General Meeting in 2023. 99.78% of the votes cast were in

favour of the resolution to approve the Directors’ remuneration policy and 0.22% of votes were cast against. The remuneration

policy will next be put to shareholders for approval at the forthcoming AGM in 2026.

At the Company’s Annual General Meeting held on 20 June 2023, the resolution to approve the Directors’ Remuneration

Report was approved by 99.87% of votes cast in favour of the resolution and 0.13% votes cast against. Any discretionary fees

paid to the Directors will be clearly disclosed in the Directors’ Remuneration Report accompanied by an explanation of the

work undertaken.

Directors’ Remuneration Policy

Section 3: Governance

61

Policy table

Purpose and link to

strategy

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 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.

Description

Levels of fixed annual fee with effect from 1 March 2024:

Chairman – £50,000

Audit Committee Chairman – £38,000

Senior Independent Director who is also the Chair of the Nomination and Remuneration

Committee – £35,000

Directors – £33,000

All reasonable expenses to be reimbursed.

Maximum levels

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 in line with the stated

policies.

The Company’s Articles set a limit of £250,000 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.

Policy on share

ownership

Directors are not required to own shares in the Company.

Fixed fee element

The Board reviews the quantum of Directors’ pay each year to ensure that this is in line with

the level of Directors’ remuneration for other investment trusts of a similar size. When making

recommendations for any changes in pay, the Board will consider wider factors such as the

average rate of inflation over the period since the previous review, and the level and any change

in complexity of the Directors’ responsibilities (including additional time commitments as a result

of increased regulatory or corporate governance requirements). Directors are not eligible to be

compensated for loss of office, nor are they eligible for bonuses, pension benefits, share options or

other incentives or benefits. Directors do not have service contracts but are appointed under letters

of appointment.

Discretionary

Payments

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 approval of the Chairman of the Audit Committee.

The level of discretionary fees shall 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

Some expenses incurred by Directors are required to be treated as taxable benefits. Taxable benefits

include (but are not limited to) travel expenses incurred by the Directors in the course of travel to

attend Board and Committee meetings which are held at the Manager’s registered office in London,

and which are reimbursed by the Company and therefore 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 will be reimbursed as they are incurred, including the tax and national insurance costs

incurred by the Director on such expenses.

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Annual Report and Financial Statements 29 February 2024

Chairman’s introduction

Corporate Governance is the process by which the Board seeks to look after shareholders’ interests and protect and enhance

shareholder value. Shareholders hold the Directors responsible for the stewardship of the Company, delegating authority and

responsibility to the Directors to manage the Company on their behalf and holding them accountable for its performance.

The Board is ultimately responsible for framing and executing the Company’s strategy and for closely monitoring risks.

We aim to run the Company in a manner which is responsible and consistent with our belief in honesty, transparency and

accountability. In our view, good governance means managing our business well and engaging effectively with investors. We

consider the practice of good governance to be an integral part of the way we manage the Company, and we are committed to

maintaining high standards of financial reporting, transparency and business integrity.

As a UK‑listed investment trust company our principal reporting obligation is driven by the UK Corporate Governance Code

(the UK Code) issued by the Financial Reporting Council in July 2018. However, as listed investment trust companies differ in

many ways from other listed companies, the Association of Investment Companies has drawn up its own set of guidelines, the

AIC Code of Corporate Governance (the AIC Code) issued in February 2019, which addresses the governance issues relevant to

investment companies and meets the approval of the Financial Reporting Council.

The Board has determined that it has complied with the recommendations of the AIC Code. This in most material respects is

the same as the UK Code, save that there is greater flexibility regarding the tenure of office of the Chairman and membership

of the Audit Committee.

This report, which forms part of the Directors’ Report, explains how the Board deals with its responsibility, authority and

accountability.

Compliance

The Board has made the appropriate disclosures in this report to ensure that the Company meets its continuing obligations.

It should be noted that, as an investment trust, most of the Company’s day‑to‑day responsibilities are delegated to third

party service providers, the Company has no executive employees and the Directors are all non‑executives, therefore not

all the provisions are directly applicable to the Company. The Board considers that the Company has complied with the

recommendations of the AIC Code and the provisions contained within the UK Code that are relevant to the Company

throughout this accounting period, except for the provisions relating to:

•

the role of the chief executive;

•

executive directors’ remuneration; and

•

the need for an internal audit function.

For the reasons set out in the AIC Code, and as explained in the UK Code, the Board considers that these provisions are not

relevant to the position of the Company, being an externally managed investment company with no executive employees and,

in relation to the internal audit function, in view of BlackRock having an internal audit function. Further explanation is provided

below.

Information on how the Company has applied the principles of the AIC Code and the UK Code is set out below. The UK Code

is available from the Financial Reporting Council’s website at

frc.org.uk

. The AIC Code is available from the Association of

Investment Companies at

theaic.co.uk

.

The Board

The Board currently consists of six non‑executive Directors, all of whom are considered to be independent of the Manager.

Provision 9 of the UK Code which relates to the combination of the roles of the chairman and chief executive does not apply as

the Company has no executive directors.

The Board’s primary purpose is to direct the Company to maximise shareholder value within a framework of proper controls

and in accordance with the Company’s investment objective.

Corporate Governance Statement

Section 3: Governance

63

Board structure and management

Details of the Board’s structure, roles and responsibilities and management are set out in the summary of governance

structure on page 28. The Directors’ biographies on pages 29 and 30 demonstrate a breadth of investment, commercial

accounting, financial and professional experience which enables them to provide effective strategic leadership and proper

governance of the Company. Details of the Chairman’s other significant time commitments can be found on page 29.

The Company does not have a chief executive as day‑to‑day management of the Company’s affairs is delegated to the

Manager as AIFM, with investment management and other ancillary services delegated to the Investment Manager.

Representatives of the Manager and the Company Secretary attend each Board meeting. The Board, the AIFM, the Investment

Manager and the Company Secretary operate in a supportive and co‑operative manner.

Board independence and tenure

The Board’s individual independence, including that of the Chairman, has been considered and confirmed, and this

independence allows all of the Directors to sit on the Company’s various Committees. In accordance with changes to the

UK Code, the Chairman of the Board does not act as a member of the Audit Committee. None of the Directors has a service

contract with the Company. The terms of their appointment are detailed to them when they join the Board. Copies of these

letters are available on request from the Company’s registered office and will be available at the Annual General Meeting.

Board Diversity

While the Board does not have a formal policy on diversity, it recognises the benefits at Board level and believes that Directors

should have a mix of different skills, experience, backgrounds, ethnicity, gender and other characteristics. It is therefore

actively taking steps to comply with best practice and applicable regulation in respect of diversity, including gender and

ethnicity. These steps included the engagement in the year of an external firm (Stogdale St James) to carry out an independent

evaluation of the Board and as part of this process to compile a skills matrix to enable the Board to identify areas of focus in

future succession planning to ensure a diverse Board.

Directors’ recruitment

The Nomination and Remuneration Committee, which comprises all the Directors, reviews Board structure, size and

composition, the balance of knowledge, experience and skills to consider succession planning and tenure policy.

Appointments of new Directors are made on a formalised basis, with the Committee agreeing the selection criteria and the

method of selection, recruitment and appointment. Board diversity, including gender, are taken into account in establishing

the criteria. The services of an external search consultant may be used to identify suitable candidates and assist with the

selection process. The Committee meets at least once a year and more regularly if required.

As at 29 February 2024, the Board had a 50:50 male to female gender ratio, in accordance with relevant regulation and best

practice, and will continue to consider other diversity characteristics, such as age, ethnicity, gender, disability, educational or

professional background when appraising Board composition.

The Parker Review in respect of board diversity and the recent changes to the FCA’s Listing Rules set new diversity targets

and associated disclosure requirements for UK companies listed on the premium and standard segment of the London Stock

Exchange. Listing Rule 9.8.6R (9) requires listed companies to include a statement in their annual reports and accounts in

respect of certain targets on board diversity, or if those new targets have not been met to disclose the reasons for this. This

new requirement applies to accounting periods commencing on or after 1 April 2022 and therefore the Company has reported

against these diversity targets for the year ending 29 February 2024.

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Annual Report and Financial Statements 29 February 2024

Corporate Governance Statement

continued

Further information on the composition and diversity of the Board can be found in the disclosure table which follows below:

Gender

Number

of Board

Members

Percentage

of Board

Number of

senior roles

held

1

Men

3

50%

2

Women

3

50%

1

Ethnicity

2

White British (or any other white background)

5

83%

3

Black/African/Caribbean/Black British

1

17%

0

1

A senior position is defined as the role of Chairman, Audit Committee Chairman or Senior Independent Director.

2

Categorisation of ethnicity is stated in accordance with the Office of National Statistics classification.

The rules concerning the appointment, retirement and rotation of Directors are set out in the Directors’ Report on page 51.

When a new Director is appointed to the Board, he or she is provided with all relevant information regarding the Company

and their duties and responsibilities as a Director. In addition, a new Director will also spend some time with representatives

of the Investment Manager whereby he or she will become familiar with the various processes which the Investment Manager

considers necessary for the performance of its duties and responsibilities to the Company.

The Company’s policy is to encourage Directors to keep up to date and attend training courses on matters which are directly

relevant to their involvement with the Company. The Directors also receive regular briefings from, amongst others, the

auditors, representatives of the Manager and the Company Secretary regarding any proposed developments or changes

in laws or regulations that could affect the Company and/or the Directors. Directors’ training and development needs are

reviewed by the Chairman on an annual basis.

The Company has maintained appropriate Directors’ Liability Insurance cover throughout the year.

The Board is responsible to shareholders for the overall management of the Company. It decides upon matters relating to

the Company’s investment objective, policy and strategy and monitors the Company’s performance towards achieving that

objective through its agreed policy and strategy. The Board has also adopted a schedule of matters reserved for its decision.

The Board is supplied in a timely manner with information in a form and of a quality appropriate to enable it to discharge its

duties.

Strategic issues and all operational matters of a material nature are determined by the Board. The Board has responsibility

for ensuring that the Company keeps adequate accounting records which disclose with reasonable accuracy at any time the

financial position of the Company and which enable it to ensure that the financial statements comply with the Companies

Act 2006. It is the Board’s responsibility to present a balanced and understandable assessment, which extends to interim and

other price‑sensitive public reports. The Board is also responsible for safeguarding the assets of the Company and for taking

reasonable steps for the prevention and detection of fraud and other irregularities.

The Board has established a procedure whereby Directors wishing to do so in the furtherance of their duties, may take

independent advice at the Company’s expense.

The Board meets at least five times each year to review investment performance, financial reports and other reports of a

strategic nature. Board or Board committee meetings are also held on an ad hoc basis to consider particular issues as they

arise. The attendance record for each meeting is set out on page 54.

Key representatives of the Investment Manager attend each meeting. Details of the Directors’ other significant time

commitments can also be found on pages 29 and 30. In addition to regular scheduled Board meetings, the Directors met

additionally in the year ended 29 February 2024 to receive performance updates from the portfolio manager and to review and

monitor income forecasts in periods of market volatility.

Section 3: Governance

65

Performance evaluation

In order to review the effectiveness of the Board, its Committees and the individual Directors, the Board carries out an annual

appraisal process. This encompasses both quantitative and qualitative measures of performance in respect of the Board and

its Committees, implemented by way of the completion of an evaluation survey and a subsequent review of the findings. The

appraisal of the Chairman follows the same process and is carried out by the Board as a whole under the leadership of the

Senior Independent Director without the Chairman present.

The appraisal process is considered by the Board to be constructive in terms of identifying areas for improving the functioning

and performance of the Board and its Committees and the contribution of individual Directors, as well as building on and

developing individual and collective strengths. There were no significant actions arising from the evaluation process.

Following the conclusion of the evaluation, the Chairman is pleased to confirm that each of the Directors continues to be

effective and to demonstrate commitment to the role (including time for Board and Committee meetings and any other duties).

Susan Platts-Martin, as Senior Independent Director, is pleased to confirm that, following the evaluation, the Chairman also

continues to be effective and to demonstrate commitment to the role (including time for Board and Committee meetings and

any other duties).

Delegation of responsibilities

Management and administration

Details on the arrangements for the management of the investment portfolio and the administration of the Company are given

on page 49 of the Directors’ Report.

Details of the Manager’s approach to voting at shareholder meetings are set out on page 50.

The review of the Manager’s performance is an ongoing duty and responsibility of the Board which is carried out at every

Board meeting. In addition, a formal review is undertaken annually, details of which are set out in the Directors’ Report on page

49.

The Company Secretary

The Board has direct access to company secretarial advice and services of the Manager which, through its nominated

representative, is responsible for ensuring that Board and Committee procedures are followed, and that applicable regulations

are complied with. The appointment and removal of the Company Secretary is a matter for the whole Board.

Committees of the Board

The Board has appointed a number of Committees as set out below.

Audit Committee

Details of the Committee’s membership and responsibilities are set out on page 28. Further details are provided in the Report

of the Audit Committee on pages 69 to 72.

Nomination and Remuneration Committee

Details of the Committee’s membership and responsibilities are set out on page 28, along with details of the number of

scheduled meetings each year.

Management Engagement Committee

Details of the Committee’s membership and responsibilities are set out on page 28.

Internal controls

The Board is responsible for establishing and maintaining the Company’s internal control systems and for reviewing their

effectiveness, for ensuring that financial information published or used within the business is reliable, and for regularly

monitoring compliance with regulations governing the operation of investment trusts.

The Board, through the Audit Committee, regularly reviews the effectiveness of the internal control systems to identify,

evaluate and manage the Company’s significant risks. If any significant failings or weaknesses are identified, the Manager and

the Board ensure that necessary action is taken to remedy the failings. The Board is not aware of any significant failings or

weaknesses arising in the year under review.

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Annual Report and Financial Statements 29 February 2024

Corporate Governance Statement

continued

Control of the risks identified, covering financial, operational, compliance and risk management, is embedded in the

operations of the Company. There is a monitoring and reporting process to review these controls which has been in

place throughout the year under review and up to the date of this report. This accords with the FRC’s “Guidance on Risk

Management, Internal Control and Related Financial and Business Reporting”.

The Company’s Risk Register sets out risks relevant to the Company and describes, where relevant, the internal controls that

are in place at the AIFM, the Investment Manager and other third‑party service providers to mitigate these risks. The Audit

Committee formally reviews this register on a semi‑annual basis and the Manager as the Company’s AIFM reports on any

significant issues that have been identified in the period. In addition, BlackRock’s internal audit department reports on a semi‑

annual basis on the results of testing performed in relation to BlackRock’s internal control processes. The Depositary also reviews

the control processes in place at the Custodian, the Fund Accountant and the AIFM and reports formally to the Audit Committee

twice yearly. Both the AIFM and the Depositary will escalate issues and report to the Audit Committee outside of these meetings

on an ad hoc basis to the extent that this is required. The Audit Committee also receives periodic SOC 1 reports respectively, from

BlackRock and BNYM as Custodian and Fund Accountant on the internal controls of their respective operations, together with

the opinion of their reporting accountants.

The Company does not have its own internal audit function as all the administration is delegated to BlackRock and other third‑

party service providers. This matter is kept under review.

The Board has overall responsibility for the control systems in respect of the Company; as part of that responsibility the Board

reviews those controls as set out above, although it relies on the controls at the third‑party service providers. The Board

recognises that these control systems can only be designed to manage rather than to eliminate the risk of failure to achieve

business objectives, and to provide reasonable, but not absolute, assurance against material misstatement or loss, and relies

on the operating controls established by BlackRock and BNYM in its capacity as Depositary, Custodian and Fund Accountant.

The Manager prepares revenue forecasts and management accounts which allow the Board to assess the Company’s activities

and review its performance. The Board and the Investment Manager acting under delegation from the Manager have agreed

clearly defined investment criteria, specified levels of authority and exposure limits. Reports on these issues, including

performance statistics and investment valuations, are submitted to the Board at each meeting.

Financial reporting

The Statement of Directors’ Responsibilities is set out on pages 73 and 74, the Independent Auditors’ Report on pages 78 to

83, and the Statement of Going Concern on page 50.

Socially responsible investment

The Company invests mainly in smaller UK quoted companies. The Board aims to be a socially responsible investor and

believes that it is important to invest in companies whose boards act responsibly in respect of environmental, ethical and

social issues. BlackRock’s evaluation procedure and financial analysis of the companies within the portfolio includes research

and appraisal of such matters, and also takes into account environmental policies and other business issues.

BlackRock’s policies on socially responsible investment and Corporate Governance are detailed on the website

www.blackrock.com/corporate/en‑gb/about‑us/responsible‑investment/responsible‑investment‑reports

. The Manager is

supportive of the UK Stewardship Code, which is voluntary and operates on a “comply or explain basis”.

Bribery prevention policy

The provision of bribes of any nature to third parties in order to gain a commercial advantage is prohibited and is a criminal

offence. The Board has a zero‑tolerance policy towards bribery and a commitment to carry out business fairly, honestly

and openly. The Board takes its responsibility to prevent bribery by the Company’s Manager and Investment Manager very

seriously and BlackRock has anti‑bribery policies and procedures in place which are high level, proportionate and risk

based. The Company’s service providers have been contacted in respect of their anti‑bribery policies and, where necessary,

contractual changes are made to existing agreements in respect of anti‑bribery provisions.

Criminal Finances Act 2017

The Company has a commitment to zero‑tolerance towards the criminal facilitation of tax evasion.

Section 3: Governance

67

GDPR

Data protection rights were harmonised across the European Union following the implementation of the General Data

Protection Regulation (GDPR) on 25 May 2018, since retained in the UK by the European Union (Withdrawal) Act 2018. The

Board has sought and received assurances from its third‑party service providers that they have taken appropriate steps to

ensure compliance with the regulation.

Communication with shareholders

Under normal operating conditions, all shareholders have the opportunity to attend and vote at the Annual General Meeting.

The Notice of Annual General Meeting, which is sent out at least 20 working days in advance of the meeting, sets out

the business of the meeting and any item not of an entirely routine nature is explained in the Directors’ Report. Separate

resolutions are proposed for substantive issues. Shareholders are updated on performance through the publication of the

interim and annual reports and the Portfolio Manager reviews the Company’s activities at the Annual General Meeting, where

the Chairman of the Board and the Chairman of the Audit Committee and representatives of the Manager are available to

answer shareholders’ queries. Proxy voting figures are announced to shareholders at the Annual General Meeting and will be

made available on the Manager’s website shortly after the meeting. The Investment Manager on behalf of the Company also

normally carries out programmes of institutional presentations in conjunction with BlackRock, following the release of each

set of Company results.

The Manager and the Investment Manager provide both Investment Management and Company Secretarial services; however,

the Board is confident that there are comprehensive controls and procedures in place to ensure that conflicts of interest do

not arise and that the Company Secretarial function is independently maintained. The Board discusses with BlackRock at

each Board meeting any feedback from meetings with shareholders, and it also receives reports from its corporate broker, and

has the opportunity to meet independently with the broker without the Manager or Secretary present. The Company’s broker

interacts with investors on a regular basis with regard to all investor issues and will conduct shareholder meetings with the

Company when requested by investors and brief the Board on shareholder views. The Broker also attends the Annual General

Meeting (alongside investors) and will alert investors to the results (final and interim) as well as other newsflow that they

believe to be relevant to investors in the Company. If shareholders want to contact the Chairman, they may either speak to the

Company Secretary or the corporate broker. As such, investors have an entirely alternative route to the Manager or Investment

Manager to contact the Chairman if required. The Chairman is also available to meet directly with shareholders from time

to time, as and when required, and on a regular basis will write directly to the Company’s largest shareholders to offer the

opportunity to meet at their convenience.

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

www.blackrock.com/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

financial statements 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 financial statements may differ from legislation in

their jurisdiction.

Packaged Retail & Insurance-Based Investment Products (PRIIPs) Regulation (‘the

Regulation’)

The Regulation (as onshored in the UK and amended) requires that anyone manufacturing, advising on, or selling a PRIIP to a

retail investor in the UK 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 UK 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 the Regulation. 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.com/uk/brsc

.

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Annual Report and Financial Statements 29 February 2024

Disclosure guidance and transparency rules

Information required to be disclosed pursuant to the Disclosure Guidance and Transparency Rules has been placed in the

Directors’ Report on pages 48 to 55 because it is information which refers to events that have taken place during the course of

the year.

For and on behalf of the Board

RONALD GOULD

Chairman

13 May 2024

Corporate Governance Statement

continued

Section 3: Governance

69

Role and responsibilities

The Company has a separately chaired Audit Committee whose duties include considering and recommending to the Board

for approval the contents of the half yearly and annual financial statements and providing an opinion as to whether the

Annual Report and Financial Statements, taken as a whole, are fair, balanced and understandable and provide the information

necessary for shareholders to assess the Company’s performance, business model and strategy. The Committee also reviews

the external auditors’ report on the annual financial statements and is responsible for reviewing and forming an opinion

on the effectiveness of the external audit process and audit quality. Other duties include reviewing the appropriateness of

the Company’s accounting policies and the adequacy of the internal control systems and standards. The Audit Committee

operates within written terms of reference detailing its scope and duties and these are available on the website at

www.blackrock.com/uk/brsc

.

The Audit Committee met three times in the year under review. Two of the planned meetings were held prior to the Board

meetings to approve the half yearly and annual results. The third meeting focused on the audit plan, internal controls and

assessment of fraud. The Audit Committee receives information from BlackRock’s internal audit and compliance departments

on a regular basis.

Composition

The Audit Committee comprises all the Directors excluding the Chairman of the Company, who attends by invitation. All

Committee members, including the Chairman of the Committee, have recent and relevant financial experience from their

senior management roles. The biographies of the Directors may be found on pages 29 and 30.

Responsibilities and review of the external audit

During the year the principal activities of the Audit Committee included:

•

considering and recommending to the Board for approval the contents of the half yearly and annual financial statements

and reviewing the external auditors’ report thereon;

•

reviewing the scope, execution, results, cost effectiveness, independence and objectivity of the external auditors;

•

reviewing and recommending to the Board for approval the audit and non‑audit fees payable to the external auditors and

the terms of their engagement;

•

reviewing and approving the external auditors’ plan for the financial year, with a focus on the identification of areas of audit

risk, and consideration of the appropriateness of the level of audit materiality adopted;

•

reviewing the role of the Board, the Manager and third‑party service providers in an effective audit process;

•

reviewing the efficiency of the external audit process and the quality of the audit engagement partner and the audit team,

and making a recommendation to the Board with respect to the reappointment of the auditors;

•

considering the quality of the formal audit report to shareholders;

•

reviewing the appropriateness of the Company’s accounting policies; and

•

reviewing the Company’s internal control systems and standards and evaluating the need for an internal audit function as

set out in the Corporate Governance Statement on pages 65 and 66.

The fees paid to the external auditors are set out in note 5 of the Financial Statements.

The Committee has also reviewed and accepted the ‘whistleblowing’ policy that has been put in place by BlackRock under

which its staff, in confidence, can raise concerns about possible improprieties in matters of financial reporting or other

matters, in so far as they affect the Company.

Significant issues considered regarding the annual report and financial statements

During the year, the Audit Committee considered the significant issues and areas of key audit risk in respect of the Annual

Report and Financial Statements. The Audit Committee reviewed the external audit plan at an early stage and concluded that

the appropriate areas of audit risk relevant to the Company had been identified and that suitable audit procedures had been

put in place to obtain reasonable assurance that the financial statements as a whole would be free of material misstatements.

The table on page 70 sets out the key areas of risk identified and also explains how these were addressed.

Report of the Audit Committee

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Annual Report and Financial Statements 29 February 2024

Significant issue

The accuracy of the valuation of the investment portfolio

How the issue was addressed

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.

Significant issue

The risk of misappropriation of assets and unsecured ownership of investments.

How the issue was addressed

The Audit Committee reviews reports from its service providers 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.

Significant issue

The accuracy of the calculation of the management fee.

How the issue was addressed

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.

Significant issue

The risk that income is overstated, incomplete or inaccurate through failure to recognise proper income entitlements or to

apply the appropriate accounting treatment for recognition of income

How the issue was addressed

The Board reviews income forecasts, including special dividends, and receives explanations from the Manager for any

variations or significant movements from previous forecasts and prior year figures.

As the provision of portfolio valuation, fund accounting and administration services is delegated to the Investment Manager,

which sub‑delegates fund accounting to The Bank of New York Mellon (International) Limited (BNYM) and the provision

of depositary services and custody services are contracted to BNYM, the Audit Committee has also reviewed the Service

Organisation Control (SOC 1) reports prepared by BlackRock and BNYM to ensure that the relevant control procedures are in

place to cover these areas of risk as identified in the table above are adequate and appropriate and have been designated as

operating effectively by the reporting auditors.

Report of the Audit Committee

continued

Section 3: Governance

71

Auditors and audit tenure

The Audit Committee reviews the performance of the auditors on an annual basis, taking into consideration the services

and advice provided to the Company and the fees charged for these services. The last formal tender for audit services was

conducted in December 2015 and following presentations and interviews with a number of audit firms, it was agreed to

replace Scott-Moncrieff with PricewaterhouseCoopers LLP with effect from 13 January 2016. Mrs Gillian Alexander is the

current audit partner and is in her fourth year in this role.

The Committee, in conjunction with the Board, is committed to reviewing this appointment on an annual basis to ensure the

Company is receiving an optimal level of service. In addition to this, even if no change is made to the audit firm appointed, the

audit partner changes at least every five years.

There are no contractual obligations that restrict the Company’s choice of auditors. The regulations on mandatory “firm”

rotation require the appointment of new auditors every ten years, although this can be extended up to an additional ten years if

tenders are carried out at the decade mark or another audit firm is appointed to do a joint audit.

No non‑audit service work was carried out during the year or in the year ended 29 February 2024.

The Committee also considers the risks associated with audit firms withdrawing from the market and the relationship with the

Company’s auditors.

PricewaterhouseCoopers LLP has indicated its willingness to continue in office and resolutions proposing its appointment

and authorising the Audit Committee to determine its remuneration for the ensuing year will be proposed at the forthcoming

Annual General Meeting.

Assessment of the effectiveness of the external audit process

To assess the effectiveness of the external audit, members of the Audit Committee work closely with the Manager to obtain a

good understanding of the progress and efficiency of the audit. The Audit Committee has adopted a framework in its review of

the effectiveness of the external audit process and audit quality. This includes a review of the following areas:

•

The quality of the audit engagement partner and the audit team;

•

The expertise of the audit firm and the resources available to it;

•

Identification of areas of audit risk;

•

Planning, scope and execution of the audit;

•

Consideration of the appropriateness of the level of audit materiality adopted;

•

The role of the Audit Committee, the Manager and third party service providers in an effective audit process;

•

Communications by the auditors with the Audit Committee;

•

How the auditors support the work of the Audit Committee and how the audit continues to add value;

•

A review of independence and objectivity of the audit firm; and

•

The quality of the formal audit report to shareholders.

Feedback in relation to the audit process and the effectiveness of the Manager in performing its role is also sought from

relevant involved parties, notably the audit partner and team. The external auditors attend the Audit Committee meeting

at which the annual financial statements are considered and at which they have the opportunity to meet with the Audit

Committee without representatives of the Manager being present.

The effectiveness of the Board and the Manager in the external audit process is assessed principally in relation to the timely

identification and resolution of any process errors or control breaches that might impact the Company’s net asset values

and accounting records. It is also assessed by reference to how successfully any issues in respect of areas of accounting

judgement are identified and resolved, the quality and timeliness of papers analysing these judgements, the Board and the

Manager’s approach to the value of independent audit and the booking of any audit adjustments arising, and the timely

provision of draft public documents for review by the auditors and the Audit Committee.

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To form a conclusion with regard to the independence of the external auditors, the Audit Committee considers whether

the skills and experience of the auditors make them a suitable supplier of any non‑audit services and whether there are

safeguards in place to ensure that there is no threat to their objectivity and independence in the conduct of the audit resulting

from the provision of any such services. On an annual basis, PricewaterhouseCoopers LLP reviews the independence of

its relationship with the Company and reports to the Audit Committee, providing details of any other relationship with the

Manager. As part of this review, the Audit Committee also receives information about policies and processes for maintaining

independence and monitoring compliance with relevant requirements from the Company’s auditors, including information on

the rotation of audit partners and staff, the level of fees that the Company pays in proportion to the overall fee income of the

firm, the level of related fees, and details of any relationships between the audit firm and its staff and the Company, as well as

an overall confirmation from the auditors of their independence and objectivity.

As a result of their review, the Audit Committee has concluded that the external audit has been conducted effectively and also

that PricewaterhouseCoopers LLP is independent of the Company.

Conclusions in respect of the annual report and financial statements

The production and the audit of the Company’s Annual Report and Financial Statements is a comprehensive process requiring

input from a number of different contributors. In order to reach a conclusion that the Annual Report and Financial Statements

are fair, balanced and understandable, the Board has requested that the Audit Committee advise on whether it considers that

these criteria are satisfied. In so doing, the Audit Committee has given consideration to the following:

•

the comprehensive control framework over the production of the Annual Report and Financial Statements, including the

verification processes in place to deal with the factual content;

•

the extensive levels of review that are undertaken in the production process by the Manager, the Depositary and the Audit

Committee;

•

the controls that are in place at the Manager and third‑party service providers to ensure the completeness and accuracy of

the Company’s financial records and the security of the Company’s assets; and

•

the existence of satisfactory Service Organisation Control reports that have been reviewed and reported on by external

auditors in respect of the effectiveness of the internal controls of BlackRock and BNYM.

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.

MARK LITTLE

Chairman

Audit Committee

13 May 2024

Report of the Audit Committee

continued

Section 3: Governance

73

The Directors are responsible for preparing the Annual Report and Financial Statements in accordance with applicable law and

regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law they

have elected to prepare the financial statements in accordance with applicable law and United Kingdom Accounting Standards

(United Kingdom Generally Accepted Accounting Practice).

Under company law, the Directors must not approve the financial statements unless they are satisfied that they give a true and

fair view of the state of affairs of the Company as at the end of each financial year and of the profit or loss of the Company for

that year.

In preparing those financial statements, the Directors are required to:

•

present fairly the financial position, financial performance and cash flows of the Company;

•

select suitable accounting policies and then apply them consistently;

•

present information, including accounting policies, in a manner that provides relevant, reliable, comparable and

understandable information;

•

make judgements and estimates that are reasonable and prudent;

•

state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and

explained in the financial statements; and

•

prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will

continue in business.

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 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 of financial statements may differ from legislation in other jurisdictions.

Each of the Directors, whose names are listed on pages 29 and 30, confirms that, to the best of their knowledge:

•

the Financial Statements, prepared in accordance with applicable accounting standards, give a true and fair view of the

assets, liabilities, financial position and profit or loss of the Company; and

•

the Strategic Report contained in the Annual Report and Financial Statements includes a fair review of the development

and performance of the business and the position of the Company, together with a description of the principal risks and

uncertainties that it faces.

Statement of Directors’ Responsibilities

in respect of the Annual Report and

Financial Statements

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Annual Report and Financial Statements 29 February 2024

The UK Code also requires Directors to ensure that the Annual Report and Financial Statements are fair, balanced and

understandable. In order to reach a conclusion on this matter, the Board has requested that the Audit Committee advise on

whether it considers that the Annual Report and Financial Statements fulfil these requirements. The process by which the

Committee has reached these conclusions is set out in the Audit Committee’s report on pages 69 to 72. As a result, the Board

has concluded that the Annual Report and Financial Statements for the year ended 29 February 2024, taken as a whole, are

fair, balanced and understandable and provide the information necessary for shareholders to assess the Company’s position,

performance, business model and strategy.

For and on behalf of the Board

RONALD GOULD

Chairman

13 May 2024

Statement of Directors’ Responsibilities

in respect of the Annual Report and

Financial Statements

continued

Financial

statements

Bowling operator Ten Entertainment, which received a bid from private equity,

was another notable contributor to performance.

Section 4: Financial statements

77

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Annual Report and Financial Statements 29 February 2024

Report on the audit of the financial

statements

Opinion

In our opinion, BlackRock Smaller Companies Trust plc’s

financial statements:

•

give a true and fair view of the state of the Company’s

affairs as at 29 February 2024 and of its loss and cash

flows for the year then ended;

•

have been properly prepared in accordance with United

Kingdom Generally Accepted Accounting Practice (United

Kingdom Accounting Standards, including FRS 102 “The

Financial Reporting Standard applicable in the UK and

Republic of Ireland”, and applicable law); and

•

have been prepared in accordance with the requirements

of the Companies Act 2006.

We have audited the financial statements, included within

the Annual Report and Financial Statements for the year

ended 29 February 2024 (the “Annual Report”), which

comprise: the Balance Sheet as at 29 February 2024; the

Income Statement, the Statement of Changes in Equity and

the Statement of Cash Flows for the year then ended; and the

notes to the financial statements, which include a description

of the significant accounting policies.

Our opinion is consistent with our reporting to the Audit

Committee.

Basis for opinion

We conducted our audit in accordance with International

Standards on Auditing (UK) (“ISAs (UK)”) and applicable law.

Our responsibilities under ISAs (UK) are further described

in the Auditors’ responsibilities for the audit of the financial

statements section of our report. We believe that the audit

evidence we have obtained is sufficient and appropriate to

provide a basis for our opinion.

Independence

We remained independent of the Company in accordance

with the ethical requirements that are relevant to our

audit of the financial statements in the UK, which includes

the FRC’s Ethical Standard, as applicable to listed public

interest entities, and we have fulfilled our other ethical

responsibilities in accordance with these requirements.

To the best of our knowledge and belief, we declare that non-

audit services prohibited by the FRC’s Ethical Standard were

not provided.

We have provided no non-audit services to the Company in

the period under audit.

Our audit approach

Context

The Company is a standalone Investment Trust Company and

engages BlackRock Fund Managers Limited (the ‘Manager’)

to manage its assets. The Manager engages Bank of New

York Mellon (International) Limited (the "Fund Accountant")

to provide administrative functions to the Company.

Overview

Audit scope

•

We tailored the scope of our audit taking

into account the types of investments

within the Company, the involvement of

the third parties, the accounting processes

and controls, and the industry in which the

Company operates.

•

We obtained an understanding of the

control environment in place at both

the Manager and the Fund Accountant

and adopted a fully substantive testing

approach using reports obtained from the

Fund Accountant.

Key audit

matters

•

Valuation and existence of investments.

•

Accuracy, occurrence and completeness of

investment income.

Materiality

•

Overall materiality: £6.86 million (2023:

£7.5 million) based on 1% of net assets.

•

Performance materiality: £5.15 million

(2023: £5.68 million).

The scope of our audit

As part of designing our audit, we determined materiality and

assessed the risks of material misstatement in the financial

statements.

Key audit matters

Key audit matters are those matters that, in the auditors’

professional judgement, were of most significance in the

audit of the financial statements of the current period and

include the most significant assessed risks of material

misstatement (whether or not due to fraud) identified by the

auditors, including those which had the greatest effect 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.

The key audit matters below are consistent with last year.

Independent Auditors’ Report

Section 4: Financial statements

79

Key audit matter

How our audit addressed the key audit matter

Valuation and existence of investments

The investment portfolio at the year end comprised of listed

equity investments valued at £765.2 million.

We focused on the valuation and existence of investments

because investments represent the principal element of the

net asset value (NAV) as disclosed on the Balance Sheet in

the Financial Statements.

Our audit work on the valuation and existence of the

investments included the following:

•

We tested the valuation of all investments by agreeing the

valuation to independent third party sources.

•

We tested the existence of all of the investments by agreeing

the Company’s holdings to an independent custodian

confirmation as at 29 February 2024.

We have no matters to report as a result of this testing.

Accuracy, occurrence and completeness of investment

income

Income from investments consists primarily of dividend

income.

Within dividend income there is a risk of incomplete or

inaccurate recognition of revenue through the failure

to recognise proper income entitlements or to apply an

inappropriate accounting treatment.

In addition, the Directors are required to exercise

judgement in determining whether income receivable in the

form of special dividends should be classified as ‘revenue’

or ‘capital’ in the Income Statement.

We responded to this risk by performing the following audit

procedures:

•

We obtained an understanding of the processes and controls

around income recognition and classification of special

dividends by reviewing the internal control reports of the

Fund Accountant.

•

We assessed the appropriateness of the classification of

special dividends as revenue or capital by the Directors with

reference to publicly available information.

For all dividends recorded by the Company, we performed our

audit procedures through the use of our proprietary testing

tool Halo:

•

We tested the accuracy of their receipts by agreeing the

dividend rates from investments to independent market

data.

•

We tested occurrence by examining for each investment

holding, that all dividends recorded in the year had been

declared in the market.

•

To test for completeness, we investigated that the

appropriate dividends had been received in the year by

reference to independent data of dividends declared for all

investment holdings held within the year.

As stipulated by the requirements set out in the AIC SORP,

we tested the allocation and presentation of dividend income

between the revenue and capital return columns of the

Income Statement by determining reasons behind dividend

distributions.

We have no matters to report as a result of this testing.

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How we tailored the audit scope

We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial

statements as a whole, taking into account the structure of the Company, the accounting processes and controls, and the

industry in which it operates.

All audit procedures were conducted by a UK audit team. We tested and examined information using sampling and other

auditing techniques, to the extent we considered necessary to provide a reasonable basis for us to form our own judgements.

The impact of climate risk on our audit

In planning our audit, we made enquiries of the Directors and Investment Manager to understand the extent of the potential

impact of climate change on the Company’s financial statements. The Directors and Investment Manager concluded that

the impact on the measurement and disclosures within the financial statements is not material because the Company's

investment portfolio is made up of level 1 quoted securities which are valued at fair value based on market prices. We found

this to be consistent with our understanding of the Company's investment activities. We also considered the consistency of

the climate change disclosures included in the Strategic Report and Investment Manager Report with the financial statements

and our knowledge from our audit.

Materiality

The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality.

These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and

extent of our audit procedures on the individual financial statement line items and disclosures and in evaluating the effect of

misstatements, both individually and in aggregate on the financial statements as a whole.

Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:

Overall Company materiality

£6.86 million (2023: £7.5 million).

How we determined it

1% of net assets

Rationale for benchmark

applied

We believe that net assets is the primary measure used by the shareholders in assessing

the performance of the entity, and is a generally accepted auditing benchmark. This

benchmark provides an appropriate and consistent year on year basis for our audit.

We use performance materiality to reduce to an appropriately

low level the probability that the aggregate of uncorrected

and undetected misstatements exceeds overall materiality.

Specifically, we use performance materiality in determining

the scope of our audit and the nature and extent of our

testing of account balances, classes of transactions and

disclosures, for example in determining sample sizes. Our

performance materiality was 75% (2023: 75%) of overall

materiality, amounting to £5.15 million (2023: £5.68 million)

for the Company financial statements.

In determining the performance materiality, we considered

a number of factors - the history of misstatements, risk

assessment and aggregation risk and the effectiveness of

controls - and concluded that an amount at the upper end of

our normal range was appropriate.

We agreed with the Audit Committee that we would report

to them misstatements identified during our audit above

£343,103 (2023: £379,264) as well as misstatements

below that amount that, in our view, warranted reporting for

qualitative reasons.

Conclusions relating to going concern

Our evaluation of the Directors’ assessment of the

Company’s ability to continue to adopt the going concern

basis of accounting included:

•

evaluating the Directors’ updated risk assessment and

considering whether it addressed relevant threats,

including rise of inflation and the wider macroeconomic

uncertainty;

•

evaluating the Directors’ assessment of potential

operational impacts, considering their consistency with

other available information and our understanding of

the business and assessing the potential impact on the

financial statements;

•

reviewing the Directors’ assessment of the Group’s

financial position in the context of its ability to meet future

expected operating expenses, their assessment of liquidity

as well as their review of the operational resilience of the

Group and oversight of key third-party service providers;

and

•

assessing the implication of significant reductions in NAV

as a result of a severe downside but plausible scenario in

the market’s performance on the ongoing ability of the

Group to operate.

Based on the work we have performed, we have not identified

any material uncertainties relating to events or conditions

that, individually or collectively, may cast significant doubt

on the Company’s ability to continue as a going concern for

a period of at least twelve months from when the financial

statements are authorised for issue.

Independent Auditors’ Report

to the members of BlackRock Smaller Companies Trust plc

continued

Section 4: Financial statements

81

In auditing the financial statements, we have concluded that

the Directors’ use of the going concern basis of accounting in

the preparation of the financial statements is appropriate.

However, because not all future events or conditions can

be predicted, this conclusion is not a guarantee as to the

Company's ability to continue as a going concern.

In relation to the Directors’ reporting on how they have

applied the UK Corporate Governance Code, we have

nothing material to add or draw attention to in relation to

the Directors’ statement in the financial statements about

whether the Directors considered it appropriate to adopt the

going concern basis of accounting.

Our responsibilities and the responsibilities of the Directors

with respect to going concern are described in the relevant

sections of this report.

Reporting on other information

The other information comprises all of the information in

the Annual Report other than the financial statements and

our auditors’ report thereon. The Directors are responsible

for the other information. Our opinion on the financial

statements does not cover the other information and,

accordingly, we do not express an audit opinion or, except to

the extent otherwise explicitly stated in this report, any form

of assurance thereon.

In connection with our audit of the financial statements,

our responsibility is to read the other information and,

in doing so, consider whether the other information is

materially inconsistent with the financial statements or our

knowledge obtained in the audit, or otherwise appears to

be materially misstated. If we identify an apparent material

inconsistency or material misstatement, we are required to

perform procedures to conclude whether there is a material

misstatement of the financial statements or a material

misstatement of the other information. If, based on the work

we have performed, we conclude that there is a material

misstatement of this other information, we are required to

report that fact. We have nothing to report based on these

responsibilities.

With respect to the Strategic Report and Director's Report, we

also considered whether the disclosures required by the UK

Companies Act 2006 have been included.

Based on our work undertaken in the course of the audit,

the Companies Act 2006 requires us also to report certain

opinions and matters as described below.

Strategic Report and Director's Report

In our opinion, based on the work undertaken in the course

of the audit, the information given in the Strategic Report

and Director’s Report for the year ended 29 February 2024

is consistent with the financial statements and has been

prepared in accordance with applicable legal requirements.

In light of the knowledge and understanding of the Company

and its environment obtained in the course of the audit, we

did not identify any material misstatements in the Strategic

Report and Director’s Report.

Directors’ Remuneration

In our opinion, the part of the Directors’ Remuneration

Report to be audited has been properly prepared in

accordance with the Companies Act 2006.

Corporate governance statement

The Listing Rules require us to review the Directors’

statements in relation to going concern, longer-term viability

and that part of the corporate governance statement relating

to the Company’s compliance with the provisions of the UK

Corporate Governance Code specified for our review. Our

additional responsibilities with respect to the corporate

governance statement as other information are described in

the Reporting on other information section of this report.

Based on the work undertaken as part of our audit, we

have concluded that each of the following elements of the

corporate governance statement is materially consistent with

the financial statements and our knowledge obtained during

the audit, and we have nothing material to add or draw

attention to in relation to:

•

The Directors’ confirmation that they have carried out a

robust assessment of the emerging and principal risks;

•

The disclosures in the Annual Report that describe those

principal risks, what procedures are in place to identify

emerging risks and an explanation of how these are being

managed or mitigated;

•

The Directors’ statement in the financial statements

about whether they considered it appropriate to adopt

the going concern basis of accounting in preparing them,

and their identification of any material uncertainties to

the Company’s ability to continue to do so over a period

of at least twelve months from the date of approval of the

financial statements;

•

The Directors’ explanation as to their assessment of the

Company’s prospects, the period this assessment covers

and why the period is appropriate; and

•

The Directors’ statement as to whether they have a

reasonable expectation that the Company will be able

to continue in operation and meet its liabilities as they

fall due over the period of its assessment, including any

related disclosures drawing attention to any necessary

qualifications or assumptions.

Our review of the Directors’ statement regarding the longer-

term viability of the Company was substantially less in

scope than an audit and only consisted of making inquiries

and considering the Directors’ process supporting their

statement; checking that the statement is in alignment with

the relevant provisions of the UK Corporate Governance

Code; and considering whether the statement is consistent

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Annual Report and Financial Statements 29 February 2024

with the financial statements and our knowledge and

understanding of the Company and its environment obtained

in the course of the audit.

In addition, based on the work undertaken as part of our

audit, we have concluded that each of the following elements

of the corporate governance statement is materially

consistent with the financial statements and our knowledge

obtained during the audit:

•

The Directors’ statement that they consider the

Annual Report, taken as a whole, is fair, balanced and

understandable, and provides the information necessary

for the members to assess the Company's position,

performance, business model and strategy;

•

The section of the Annual Report that describes the review

of effectiveness of risk management and internal control

systems; and

•

The section of the Annual Report describing the work of the

Audit Committee.

We have nothing to report in respect of our responsibility

to report when the Directors’ statement relating to the

Company’s compliance with the Code does not properly

disclose a departure from a relevant provision of the Code

specified under the Listing Rules for review by the auditors.

Responsibilities for the financial statements

and the audit

Responsibilities of the Directors for the financial

statements

As explained more fully in the Statement of Directors’

Responsibilities in respect of the Annual Report and

Financial Statements, the Directors are responsible for the

preparation of the financial statements in accordance with

the applicable framework and for being satisfied that they

give a true and fair view. The Directors are also responsible

for such internal control as they determine is necessary to

enable the preparation of financial statements that are free

from material misstatement, whether due to fraud or error.

In preparing the financial statements, the Directors are

responsible for assessing the Company’s ability to continue

as a going concern, disclosing, as applicable, matters related

to going concern and using the going concern basis of

accounting unless the Directors either intend to liquidate

the Company or to cease operations, or have no realistic

alternative but to do so.

Auditors’ responsibilities for the audit of the financial

statements

Our objectives are to obtain reasonable assurance about

whether the financial statements as a whole are free from

material misstatement, whether due to fraud or error, and

to issue an auditors’ report that includes our opinion.

Reasonable assurance is a high level of assurance, but is

not a guarantee that an audit conducted in accordance with

ISAs (UK) will always detect a material misstatement when it

exists. Misstatements can arise from fraud or error and are

considered material if, individually or in the aggregate, they

could reasonably be expected to influence the economic

decisions of users taken on the basis of these financial

statements.

Irregularities, including fraud, are instances of non-

compliance with laws and regulations. We design procedures

in line with our responsibilities, outlined above, to detect

material misstatements in respect of irregularities, including

fraud. The extent to which our procedures are capable of

detecting irregularities, including fraud, is detailed below.

Based on our understanding of the Company and industry,

we identified that the principal risks of non-compliance with

laws and regulations related to breaches of Section 1158 of

the Corporation Tax Act 2010, and we considered the extent

to which non-compliance might have a material effect on

the financial statements. We also considered those laws

and regulations that have a direct impact on the financial

statements such as Companies Act 2006. We evaluated

management’s incentives and opportunities for fraudulent

manipulation of the financial statements (including the risk

of override of controls), and determined that the principal

risks were related to posting inappropriate journal entries to

increase the net asset value. Audit procedures performed by

the engagement team included:

•

Discussions with the Manager and the Audit

Committee,including consideration of known or suspected

instances of non-compliance with laws and regulation and

fraud;

•

Understand the controls implemented by the Company

and the Fund Accountant designed to prevent and detect

irregularities;

•

Assessment of the Company’s compliance with the

requirements of Section 1158 of the Corporation Tax Act

2010, including recalculation of numerical aspects of the

eligibility conditions;

•

Identifying and testing journal entries, in particular year

end journal entries posted by the Fund Accountant during

the preparation of the financial statements;

•

Designing audit procedures to incorporate unpredictability

around the nature, timing or extent of our testing for

example, targeting transactions that otherwise would be

immaterial; and

•

Reviewing relevant meeting minutes, including those of the

Audit Committee.

There are inherent limitations in the audit procedures

described above. We are less likely to become aware of

instances of non-compliance with laws and regulations that

Independent Auditors’ Report

to the members of BlackRock Smaller Companies Trust plc

continued

Section 4: Financial statements

83

are not closely related to events and transactions reflected

in the financial statements. Also, the risk of not detecting a

material misstatement due to fraud is higher than the risk of

not detecting one resulting from error, as fraud may involve

deliberate concealment by, for example, forgery or intentional

misrepresentations, or through collusion.

Our audit testing might include testing complete populations

of certain transactions and balances, possibly using data

auditing techniques. However, it typically involves selecting

a limited number of items for testing, rather than testing

complete populations. We will often seek to target particular

items for testing based on their size or risk characteristics. In

other cases, we will use audit sampling to enable us to draw

a conclusion about the population from which the sample is

selected.

A further description of our responsibilities for the audit of

the financial statements is located on the FRC’s website at:

www.frc.org.uk/auditorsresponsibilities

. This description

forms part of our auditors’ report.

Use of this report

This report, including the opinions, has been prepared

for and only for the Company’s members as a body in

accordance with Chapter 3 of Part 16 of the Companies Act

2006 and for no other purpose. We do not, in giving these

opinions, accept or assume responsibility for any other

purpose or to any other person to whom this report is shown

or into whose hands it may come save where expressly

agreed by our prior consent in writing.

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 obtained 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

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 9 years, covering the years

ended 29 February 2016 to 29 February 2024.

Gillian Alexander

(Senior Statutory Auditor)

for and on behalf of PricewaterhouseCoopers LLP

Chartered Accountants and Statutory Auditors

Edinburgh

13 May 2024

84

BlackRock Smaller Companies Trust plc

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Annual Report and Financial Statements 29 February 2024

Income Statement

for the year ended 29 February 2024

2024

2023

Notes

Revenue

Capital

Total

Revenue

Capital

Total

£’000

£’000

£’000

£’000

£’000

£’000

Losses on investments held at fair value through profit

or loss

10

–

(48,408)

(48,408)

–

(155,358)

(155,358)

Losses on foreign exchange

–

(9)

(9)

–

(5)

(5)

Income from investments held at fair value through

profit or loss

3

21,884

782

22,666

21,468

–

21,468

Other income

3

379

–

379

1,237

–

1,237

Total income/(loss)

22,263

(47,635)

(25,372)

22,705

(155,363)

(132,658)

Expenses

Investment management fee

4

(1,109)

(3,328)

(4,437)

(1,196)

(3,588)

(4,784)

Operating expenses

5

(869)

(21)

(890)

(832)

(22)

(854)

Total operating expenses

(1,978)

(3,349)

(5,327)

(2,028)

(3,610)

(5,638)

Net profit/(loss) on ordinary activities before finance

costs and taxation

20,285

(50,984)

(30,699)

20,677

(158,973)

(138,296)

Finance costs

6

(471)

(1,408)

(1,879)

(577)

(1,733)

(2,310)

Net profit/(loss) on ordinary activities before taxation

19,814

(52,392)

(32,578)

20,100

(160,706)

(140,606)

Taxation

7

(123)

–

(123)

(120)

–

(120)

Net profit/(loss) on ordinary activities after taxation

19,691

(52,392)

(32,701)

19,980

(160,706)

(140,726)

Earnings/(loss) per ordinary share (pence) – basic and

diluted

9

40.70

(108.29)

(67.59)

40.92

(329.12)

(288.20)

The total columns of this statement represent the Company’s profit and loss account. The supplementary revenue and capital

accounts are both prepared under guidance published by the Association of Investment Companies (AIC). All items in the

above statement derive from continuing operations. No operations were acquired or discontinued during the 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 notes on pages 88 to 107 form part of these financial statements.

Section 4: Financial statements

85

Statement of Changes in Equity

for the year ended 29 February 2024

Notes

Called

up share

capital

Share

premium

account

Capital

redemption

reserve

Capital

reserves

Revenue

reserve

Total

£’000

£’000

£’000

£’000

£’000

£’000

For the year ended 29 February 2024

At 28 February 2023

12,498

51,980

1,982

673,479

18,590

758,529

Total comprehensive (loss)/income:

Net (loss)/profit for the year

–

–

–

(52,392)

19,691

(32,701)

Transactions with owners, recorded directly to equity:

Ordinary shares repurchased into treasury

15, 16

–

–

–

(19,859)

–

(19,859)

Share buyback costs

15, 16

–

–

–

(130)

–

(130)

Dividends paid

1

8

–

–

–

–

(19,633)

(19,633)

At 29 February 2024

12,498

51,980

1,982

601,098

18,648

686,206

For the year ended 28 February 2023

At 28 February 2022

12,498

51,980

1,982

834,185

16,433

917,078

Total comprehensive (loss)/income:

Net (loss)/profit for the year

–

–

–

(160,706)

19,980

(140,726)

Transactions with owners, recorded directly to equity:

Dividends paid

2

8

–

–

–

–

(17,823)

(17,823)

At 28 February 2023

12,498

51,980

1,982

673,479

18,590

758,529

1

Interim dividend paid in respect of the year ended 29 February 2024 of 15.00p was declared on 26 October 2023 and paid on 4 December

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

2

Interim dividend paid in respect of the year ended 28 February 2023 of 14.50p was declared on 3 November 2022 and paid on 9 December

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

For information on the Company’s distributable reserves, please refer to note 16 on page 98.

The notes on pages 88 to 107 form part of these financial statements.

86

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Annual Report and Financial Statements 29 February 2024

Balance Sheet

as at 29 February 2024

Notes

2024

2023

£’000

£’000

Non current assets

Investments held at fair value through profit or loss

10

765,178

806,088

Current assets

Current tax assets

210

97

Debtors

11

4,667

6,858

Cash and cash equivalents

28

23,536

Total current assets

4,905

30,491

Current liabilities

Bank overdraft

(7,899)

–

Other creditors

12

(6,463)

(8,546)

Net current (liabilities)/assets

(9,457)

21,945

Total assets less current liabilities

755,721

828,033

Non current liabilities

13

(69,515)

(69,504)

Net assets

686,206

758,529

Total equity

Called up share capital

15

12,498

12,498

Share premium account

16

51,980

51,980

Capital redemption reserve

16

1,982

1,982

Capital reserves

16

601,098

673,479

Revenue reserve

16

18,648

18,590

Total shareholders’ funds

9

686,206

758,529

Net asset value per ordinary share (debt at par value) (pence)

9

1,450.15

1,553.41

Net asset value per ordinary share (debt at fair value) (pence)

9

1,502.25

1,601.42

The financial statements on pages 84 to 107 were approved and authorised for issue by the Board of Directors on 13 May

2024 and signed on its behalf by Ronald Gould, Chairman and Mark Little, Director and Audit Committee Chairman.

BlackRock Smaller Companies Trust plc

Registered in Scotland, No. SC006176

The notes on pages 88 to 107 form part of these financial statements.

Section 4: Financial statements

87

Statement of Cash Flows

for the year ended 29 February 2024

2024

2023

£’000

£’000

Operating activities

Net loss on ordinary activities before taxation

(32,578)

(140,606)

Add back finance costs

1,879

2,310

Losses on investments held at fair value through profit or loss

48,408

155,358

Net movement in foreign exchange

9

5

Sale of investments held at fair value through profit or loss

322,366

304,837

Purchase of investments held at fair value through profit or loss

(327,895)

(309,973)

Net amount for capital special dividends received

(782)

–

Decrease/(increase) in debtors

7

(591)

(Decrease)/increase in other creditors

(1,280)

36

Taxation on investment income

(123)

(120)

Net cash generated from operating activities

10,011

11,256

Financing activities

Ordinary shares repurchased into treasury

(19,792)

–

Share buyback costs

(130)

–

Repayment of SMBC Bank International plc revolving credit facility

–

(25,000)

Redemption of 7.75% debenture stock

–

(15,000)

Interest paid

(1,854)

(2,371)

Dividends paid

(19,633)

(17,823)

Net cash used in financing activities

(41,409)

(60,194)

Decrease in cash and cash equivalents

(31,398)

(48,938)

Cash and cash equivalents at beginning of year

23,536

72,479

Effect of foreign exchange rate changes

(9)

(5)

Cash and cash equivalents at end of year

(7,871)

23,536

Comprised of:

Cash Fund

1

28

22,742

Cash at bank

–

794

Bank overdraft

(7,899)

–

(7,871)

23,536

1

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

The notes on pages 88 to 107 form part of these financial statements.

88

BlackRock Smaller Companies Trust plc

l

Annual Report and Financial Statements 29 February 2024

1. Principal activity

The principal activity of the Company is that of an investment trust company within the meaning of Section 1158 of the

Corporation Tax Act 2010.

2. Accounting policies

The principal accounting policies adopted by the Company are set out below.

(a) Basis of preparation

The financial statements have been prepared on a going concern basis in accordance with The Financial Reporting Standard

applicable in the UK and Republic of Ireland (FRS 102) and the revised Statement of Recommended Practice – Financial

Statements of Investment Trust Companies and Venture Capital Trusts (SORP) issued by the Association of Investment

Companies (AIC) in October 2019 and updated in July 2022, and the provisions of the Companies Act 2006.

Substantially, all of the assets of the Company consist of securities that are readily realisable and, accordingly, the Directors are

satisfied that the Company has adequate resources to continue in operational existence for the period to 28 February 2026, being

a period of at least 12 months from the date of approval of the financial statements, and therefore consider the going concern

assumption to be appropriate. The Directors have reviewed compliance with the covenants associated with the debenture, loan

notes and revolving credit facility, income and expense projections and the liquidity of the investment portfolio in making their

assessment.

The Directors have considered the impact of climate change on the value of the investments included in the Financial

Statements and have concluded that there was no further impact of climate change to be considered as the investments are

valued based on market pricing as required by FRS 102.

None of the Company’s other assets and liabilities were considered to be potentially impacted by climate change.

The principal accounting policies adopted by the Company are set out below. Unless specified otherwise, the policies

have been applied consistently throughout the year and are consistent with those applied in the preceding year. All of the

Company’s operations are of a continuing nature.

The Company’s financial statements are presented in Sterling, which is the functional currency of the Company and the

primary economic environment in which the Company operates. All values are rounded to the nearest thousand pounds

(£’000) except where otherwise stated.

(b) Presentation of Income Statement

In order to better reflect the activities of an investment trust company and in accordance with guidance issued by the AIC,

supplementary information which analyses the Income Statement between items of a revenue and a capital nature has been

presented alongside the Income Statement.

(c) Segmental reporting

The Directors are of the opinion that the Company is engaged in a single segment of business being investment business.

(d) Income

Dividends receivable on equity shares are treated as revenue for the year on an ex-dividend basis. Where no ex-dividend

date is available, dividends receivable on or before the year end are treated as revenue for the year. Provisions are made for

dividends not expected to be received. The return on a debt security is recognised on a time apportionment basis.

Special dividends are recognised on an ex-dividend basis and are treated as capital or revenue depending on the facts or

circumstances of each particular dividend.

Dividends are accounted for in accordance with Section 29 of FRS 102 on the basis of income actually receivable, without

adjustment for tax credits attaching to the dividend. Dividends from overseas companies continue to be shown gross of

withholding tax.

Deposit interest receivable is accounted for using the effective interest rate method in accordance with Section 11 of FRS 102.

Where the Company has elected to receive its dividends in the form of additional shares rather than in cash, the cash

equivalent of the dividend foregone is recognised in the revenue account of the Income Statement. Any excess in the value of

Notes to the Financial Statements

for the year ended 29 February 2024

Section 4: Financial statements

89

the shares over the amount of the cash dividend is recognised in capital reserves.

(e) Expenses

All expenses, including finance costs, are accounted for on an accruals basis. Expenses have been charged wholly to the

revenue account of the Income Statement, except as follows:

•

expenses which are incidental to the acquisition or disposal of an investment are treated as capital. Details of transaction

costs on the purchases and sales of investments are shown in note 10 on page 95;

•

expenses are treated as capital where a connection with the maintenance of enhancement of the value of the investments

can be demonstrated; and

•

the investment management fee and finance costs have been allocated 75% to the capital account and 25% to the

revenue account of the Income Statement in line with the Board’s expected long-term split of returns, in the form of capital

gains and income respectively, from the investment portfolio.

(f) Taxation

The tax expense represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on the

taxable profit for the year. Taxable profit differs from net profit as reported in the Income Statement because it excludes items

of income or expenses that are taxable or deductible in other years and it further excludes items that are never taxable or

deductible. The Company’s liability for current tax is calculated using tax rates that were applicable at the balance sheet date.

The current tax effect of different items of expenditure is allocated between capital and revenue on the marginal basis using

the Company’s effective rate of corporation tax for the accounting period.

Deferred taxation is recognised in respect of all timing differences at the financial reporting date, where transactions or

events that result in an obligation to pay more taxation in the future or right to less taxation in the future have occurred at the

balance sheet date. Deferred tax is measured on a non-discounted basis, at the average tax rates that are expected to apply

in the periods in which the timing differences are expected to reverse based on tax rates and laws that have been enacted

or substantively enacted by the balance sheet date. This is subject to deferred taxation assets only being recognised if it is

considered more likely than not that there will be suitable profits from which the future reversal of the timing differences can

be deducted.

(g) Investments held at fair value through profit or loss

The Company’s investments are classified as held at fair value through profit or loss in accordance with Sections 11 and 12 of

FRS 102 and are managed and evaluated on a fair value basis in accordance with its investment strategy.

All investments are classified upon initial recognition as held at fair value through profit or loss. Purchases of investments

are recognised on a trade date basis. Sales of assets are recognised at the trade date of the disposal and the proceeds will be

measured at fair value, which will be regarded as the proceeds of the sale less any transaction costs.

The fair value of the financial investments is based on their quoted bid price at the balance sheet date on the exchange on

which the investment is quoted, without deduction for the estimated future selling costs.

Unquoted investments are valued by the Directors at fair value using International Private Equity and Venture Capital

Valuation Guidelines. This policy applies to all current and non-current asset investments of the Company.

Changes in the value of investments held at fair value through profit or loss and gains and losses on disposal are recognised

in the Income Statement as ‘Gains or losses on investments held at fair value through profit or loss’. Also included within this

heading are transaction costs in relation to the purchase or sale of investments.

The fair value hierarchy consists of the following three levels:

Level 1 – Quoted market price for identical instruments in active markets.

Level 2 – Valuation techniques using observable inputs.

Level 3 – Valuation techniques using significant unobservable inputs.

90

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Annual Report and Financial Statements 29 February 2024

2. Accounting policies

continued

(h) Dividends payable

Under Section 32 of FRS 102, final dividends should not be accrued in the financial statements unless they have been

approved by shareholders before the balance sheet date. Dividends payable to equity shareholders are recognised in the

Statement of Changes in Equity when they have been approved by shareholders and have become a liability of the Company.

Interim dividends are recognised in the financial statements in the period in which they are paid.

(i) Foreign currency translation

In accordance with Section 30 of FRS 102, the Company is required to nominate a functional currency, being the currency

in which the Company predominately operates. The functional and reporting currency is Sterling, reflecting the primary

economic environment in which the Company operates. Transactions in foreign currencies are translated into Sterling at the

rates of exchange ruling on the date of the transaction. Foreign currency monetary assets and liabilities are translated into

Sterling at the rates of exchange ruling at the balance sheet date. Profits and losses thereon are recognised in the capital

account of the Income Statement and taken to the capital reserve.

(j) Share repurchases and re-issues

Shares repurchased and subsequently cancelled – share capital is reduced by the nominal value of the shares repurchased,

and the capital redemption reserve is correspondingly increased in accordance with Section 733 of the Companies Act 2006.

The full cost of the repurchase is charged to the capital reserves.

Shares repurchased and held in treasury – the full cost of the repurchase is charged to the capital reserves.

Where treasury shares are subsequently re-issued:

•

amounts received to the extent of the repurchase price are credited to the capital reserves; and

•

any surplus received in excess of the repurchase price is taken to the share premium account.

Where new shares are issued, the par value is taken to called up share capital and amounts received to the extent of any

surplus received in excess of the par value are taken to the share premium account.

Share issue costs are charged to the share premium account. Costs on share reissues are charged to the capital reserves.

(k) Debtors

Debtors include sales for future settlement, other debtors and prepayments and accrued income in the ordinary course of

business. If collection is expected in one year or less, they are classified as current assets. If not, they are presented as non-

current assets.

(l) Creditors

Creditors include purchases for future settlement, interest payable, share buyback costs and accruals in the ordinary course of

business. Creditors, loans and debentures are classified as creditors – amounts due within one year if payment is due within one

year or less (or in the normal operating cycle of the business if longer). If not, they are presented as creditors – amounts falling due

after more than one year.

(m) Cash and cash equivalents

Cash comprises cash in hand and on demand deposits and bank overdrafts repayable on demand. Cash equivalents include

short-term, highly liquid investments, that are readily convertible to known amounts of cash and that are subject to an

insignificant risk of changes in value.

(n) Critical accounting estimates and judgements

The Company makes estimates and assumptions concerning the future. The resulting accounting estimates and assumptions

will, by definition, seldom equal the related actual results. Estimates and judgements are regularly evaluated and are based

on historical experience and other factors, including expectations of future events and that are believed to be reasonable

under the circumstances. The Directors do not believe that any accounting judgements or estimates have a significant risk of

causing material adjustment to the carrying amount of assets and liabilities within the next financial year.

Notes to the Financial Statements

continued

Section 4: Financial statements

91

3. Income

2024

2023

£’000

£’000

Investment income

1

:

UK dividends

16,538

15,162

UK special dividends

1,230

389

Property income dividends

1,058

851

Overseas dividends

3,058

4,348

Overseas special dividends

–

718

Total investment income

21,884

21,468

Other income:

Bank interest

8

76

Interest from Cash Fund

371

1,161

379

1,237

Total income

22,263

22,705

1

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

Special dividends of £782,000 have been recognised in capital during the year (2023: £nil).

Dividends and interest received in cash during the year amounted to £21,699,000 and £447,000 (2023: £20,835,000 and

£1,174,000).

4. Investment management fee

2024

2023

Revenue

Capital

Total

Revenue

Capital

Total

£’000

£’000

£’000

£’000

£’000

£’000

Investment management fee

1,109

3,328

4,437

1,196

3,588

4,784

Total

1,109

3,328

4,437

1,196

3,588

4,784

The investment management fee is based on a rate of 0.6% of the first £750 million of total assets (excluding current year

income) less the current liabilities of the Company (the “Fee Asset Amount”), reducing to 0.5% above this level. The fee is

calculated at the rate of one quarter of 0.6% of the Fee Asset Amount up to the initial threshold of £750 million, and one

quarter of 0.5% of the Fee Asset Amount in excess thereof, at the end of each quarter. The investment management fee is

allocated 25% to the revenue account and 75% to the capital account of the Income Statement.

92

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Annual Report and Financial Statements 29 February 2024

5. Other operating expenses

2024

2023

£’000

£’000

Allocated to revenue:

Custody fees

10

9

Depositary fees

78

98

Auditor’s remuneration

50

48

Registrar’s fee

42

45

Directors’ emoluments

1

201

188

Director search fees

35

4

Marketing fees

174

170

AIC fees

22

21

Bank charges

28

51

Broker fees

35

40

Stock exchange listings

34

48

Printing and postage fees

37

37

Legal fees

21

–

Prior year expenses written back

2

(1)

(7)

Other administrative costs

103

80

869

832

Allocated to capital:

Custody transaction charges

3

21

22

890

854

2024

2023

The Company’s ongoing charges

4

, calculated as a percentage of average daily net assets and

using the management fee and all other operating expenses, excluding finance costs, direct

transaction costs, custody transaction charges, VAT recovered, taxation, prior year expenses

written back and certain non-recurring items were:

0.8%

0.7%

1

Further information on Directors’ emoluments can be found in the Directors’ Remuneration Report on page 57.

2

Relates to miscellaneous fees written back during the year ended 29 February 2024 (2023: legal fees).

3

For the year ended 29 February 2024, expenses of £21,000 (2023: £22,000) were charged to the capital account of the Income

Statement. These relate to transaction costs charged by the Custodian on sale and purchase trades.

4

Alternative Pe

r

formance Measure, see Glossary on pages 120 to 124.

Notes to the Financial Statements

continued

Section 4: Financial statements

93

6. Finance costs

2024

2023

Revenue

£’000

Capital

£’000

Total

£’000

Revenue

£’000

Capital

£’000

Total

£’000

Interest on 7.75% debenture stock 2022

1

–

–

–

117

355

472

Interest on 2.74% loan note 2037

173

518

691

173

518

691

Interest on 2.41% loan note 2044

121

362

483

121

362

483

Interest on 2.47% loan note 2046

152

456

608

152

456

608

Interest on bank overdraft

17

52

69

6

18

24

7.75% Amortised debenture stock issue expenses

1

–

–

–

–

4

4

2.74% Amortised loan note issue expenses

4

10

14

4

10

14

2.41% Amortised loan note issue expenses

2

5

7

2

5

7

2.47% Amortised loan note issue expenses

2

5

7

2

5

7

471

1,408

1,879

577

1,733

2,310

1

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

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

7. Taxation

(a) Analysis of charge for the year

2024

2023

Revenue

£’000

Capital

£’000

Total

£’000

Revenue

£’000

Capital

£’000

Total

£’000

Current taxation:

Overseas tax

123

–

123

120

–

120

Total taxation charge (note 7(b))

123

–

123

120

–

120

(b) Factors affecting taxation charge for the year

The taxation assessed for the year is higher (2022: higher) than the blended rate of corporation tax used of 24.49% (based

on a rate of 19.00% up to 31 March 2023 and a rate of 25.00% from 1 April 2023) (2022: standard rate of corporation tax of

19.00%). The differences are explained below.

2024

2023

Revenue

£’000

Capital

£’000

Total

£’000

Revenue

£’000

Capital

£’000

Total

£’000

Profit/(loss) on ordinary activities before taxation

19,814

(52,392)

(32,578)

20,100

(160,706)

(140,606)

Profit/(loss) on ordinary activities multiplied by

blended rate of 24.49% (2023: standard rate of

19.00%)

4,852

(12,831)

(7,979)

3,819

(30,534)

(26,715)

Effects of:

Income not subject to corporation tax

(5,100)

(191)

(5,291)

(3,917)

–

(3,917)

Losses on investments held at fair value through

profit or loss

–

11,855

11,855

–

29,518

29,518

Foreign exchange loss not taxable

–

2

2

–

1

1

Disallowed expenses

–

5

5

–

4

4

Management expenses not utilised

219

815

1,034

98

797

895

Overseas tax charge

123

–

123

120

–

120

Non-trade loan relationship deficit not utilised

29

345

374

–

214

214

Total taxation charge (note 7(a))

123

–

123

120

–

120

94

BlackRock Smaller Companies Trust plc

l

Annual Report and Financial Statements 29 February 2024

7. Taxation

continued

(c) Factors that may affect future tax changes

At 29 February 2024, the Company had net surplus management expenses of £77,967,000 (2023: £73,747,000), a non-trade

loan relationship deficit (relating to interest on the Company’s debenture, loan notes, revolving credit facility and bank

overdraft) of £35,199,000 (2023: £33,672,000) and carried forward disallowed interest expenses of £1,815,000 (2023:

£1,815,000).

A deferred tax asset has not been recognised in respect of these losses as the Company is not expected to generate taxable

income in the future in excess of the deductible expenses of that future period and, accordingly, it is unlikely the Company will

be able to reduce future tax liabilities through the use of the existing excess expenses and loan relationship deficits.

8. Dividends

Dividends paid on equity shares:

Record date

Payment date

2024

2023

£’000

£’000

2022 Final of 22.00p

13 May 2022

17 June 2022

–

10,743

2023 Interim of 14.50p

11 November 2022

9 December 2022

–

7,080

2023 Final of 25.50p

19 May 2023

27 June 2023

12,395

–

2024 Interim of 15.00p

3 November 2023

4 December 2023

7,238

–

19,633

17,823

The Directors have proposed a final dividend of 27.00p per share in respect of the year ended 29 February 2024. The final

dividend will be paid, subject to shareholders’ approval, on 27 June 2024 to shareholders on the Company’s register on

24 May 2024. 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 2023 meet the relevant requirements as set out in this legislation.

Dividends paid or proposed on equity shares:

2024

2023

£’000

£’000

Interim dividend paid 15.00p (2023: 14.50p)

7,238

7,080

Final dividend payable of 27.00p per share* (2023: 25.50p)

12,717

12,395

19,955

19,475

*

Based upon 47,099,792 ordinary shares (excluding treasury shares) in issue on 8 May 2024.

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

Notes to the Financial Statements

continued

Section 4: Financial statements

95

9. Returns and net asset value per share

Revenue earnings, capital loss and net asset value per share are shown below and have been calculated using the following:

Year ended

29 February

2024

Year ended

28 February

2023

Revenue return attributable to ordinary shareholders (£'000)

19,691

19,980

Capital loss attributable to ordinary shareholders (£'000)

(52,392)

(160,706)

Total loss attributable to ordinary shareholders (£'000)

(32,701)

(140,726)

Total shareholders’ funds (£’000)

686,206

758,529

The weighted average number of ordinary shares in issue during the year on which the earnings

per ordinary share was calculated was:

48,381,588

48,829,792

The actual number of ordinary shares in issue at the end of each year on which the undiluted

net asset value was calculated was:

47,319,792

48,829,792

Earnings per share

Revenue earnings per share (pence) – basic and diluted

40.70

40.92

Capital loss per share (pence) – basic and diluted

(108.29)

(329.12)

Total loss per share (pence) - basic and diluted

(67.59)

(288.20)

As at

29 February

2024

As at

28 February

2023

Net asset value per ordinary share (debt at par value) (pence)

1,450.15

1,553.41

Net asset value per ordinary share (debt at fair value) (pence)

1,502.25

1,601.42

Ordinary share price (pence)

1,326.00

1,380.00

10. Investments held at fair value through profit or loss

2024

2023

£’000

£’000

UK investments held at fair value

484,303

457,389

UK AIM investments held at fair value

280,875

348,699

Valuation of investments at 29 February

765,178

806,088

Opening book cost of equity investments

753,273

763,884

Investment holding gains

52,815

192,545

Opening fair value

806,088

956,429

Analysis of transactions made during the year:

Purchases at cost

327,012

309,466

Sales proceeds received

(319,514)

(304,449)

Losses on investments

(48,408)

(155,358)

Closing fair value

765,178

806,088

Closing book cost of equity investments

729,573

753,273

Closing investment holding gains

35,605

52,815

Closing fair value

765,178

806,088

The Company received £319,514,000 (2023: £304,449,000) from investments sold in the year. The book cost of these investments

when they were purchased was £350,712,000 (2023: £320,077,000). These investments have been revalued over time and until

they were sold any unrealised gains/losses were included in the fair value of the investments.

Transaction costs of £1,393,000 were incurred on the acquisition of investments (2023: £1,233,000). Costs relating to the disposal

of investments during the year amounted to £249,000 (2023: £243,000). All transaction costs have been included within capital

reserves.

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Annual Report and Financial Statements 29 February 2024

11. Debtors

2024

2023

£’000

£’000

Sales for future settlement

3,577

5,648

Prepayments and accrued income

1,090

1,210

4,667

6,858

12. Creditors – amounts falling due within one year

2024

2023

£’000

£’000

Purchases for future settlement

1,923

2,805

Interest payable

584

571

Share buybacks awaiting settlement

66

–

Accruals

3,890

5,170

6,463

8,546

13. Creditors – amounts falling due after more than one year

2024

2023

£’000

£’000

2.74% loan note 2037

25,000

25,000

Unamortised loan note issue expenses

(182)

(196)

24,818

24,804

2.41% loan note 2044

20,000

20,000

Unamortised loan note issue expenses

(133)

(140)

19,867

19,860

2.47% loan note 2046

25,000

25,000

Unamortised loan note issue expenses

(170)

(160)

24,830

24,840

Total borrowings

69,515

69,504

The fair value of the 2.74% loan note has been determined based on a comparative yield for UK Gilts for similar duration

maturity and spreads, and as at 29 February 2024 equated to a valuation of 74.55p per note (2023: 75.22p), a total of

£18,638,000 (2023: £18,805,000). The fair value of the 2.41% loan note has been determined based on a comparative yield

for UK Gilts for similar duration maturity and spreads, and as at 29 February 2024 equated to a valuation of 60.55p per note

(2023: 62.80p), a total of £12,110,000 (2023: £12,560,000). The fair value of the 2.47% loan note has been determined

based on a comparative yield for UK Gilts for similar duration maturity and spreads, and as at 29 February 2024 equated to a

valuation of 56.44p per note (2023: 58.79p), a total of £14,110,000 (2023: £14,698,000).

The £15 million debenture stock was issued on 8 July 1997. Interest on the stock was payable in equal half yearly instalments

on 31 July and 31 January in each year. The stock was secured by a first floating charge over the whole of the assets of the

Company and was redeemed at par on 31 July 2022.

The £25 million loan note was issued on 24 May 2017. Interest on the note is payable in equal half yearly instalments on

24 May and 24 November in each year. The loan note is unsecured and is redeemable at par on 24 May 2037.

Notes to the Financial Statements

continued

Section 4: Financial statements

97

The £20 million loan note was issued on 3 December 2019. Interest on the note is payable in equal half yearly instalments on

3 December and 3 June in each year. The loan note is unsecured and is redeemable at par on 3 December 2044.

The second £25 million loan note was issued on 16 September 2021. Interest on the note is payable in equal half yearly

instalments on 24 May and 16 September each year. The loan note is unsecured and is redeemable at par on 16 September

2046.

The Company also has available an uncommitted overdraft facility of £60 million with The Bank of New York Mellon

(International) Limited, of which £7,871,000 had been utilised at 29 February 2024 (2023: £nil).

14. Reconciliation of liabilities arising from financing activities

Year ended

29 February

2024

Year ended

28 February

2023

£’000

£’000

Debt arising from financing activities:

Debt arising from financing activities at beginning of the year

69,504

109,454

Cash flows:

Repayment of SMBC Bank International plc revolving credit facility

–

(25,000)

Redemption of 7.75% debenture stock 2022

–

(15,000)

Non-cash flows:

Amortisation of debenture and loan note issue expenses

11

50

Debt arising from financing activities at end of the year

69,515

69,504

15. Called up share capital

Ordinary

shares

number

Treasury

shares

number

Total

shares

number

Nominal

value

£’000

Allotted, called up and fully paid share capital

comprised:

Ordinary shares of 25 pence each

At 28 February 2023

48,829,792

1,163,731

49,993,523

12,498

Ordinary shares repurchased into treasury

(1,510,000)

1,510,000

–

–

At 29 February 2024

47,319,792

2,673,731

49,993,523

12,498

During the year ended 29 February 2024, the Company repurchased 1,510,000 shares into treasury for a total consideration

of £19,989,000 (2023: no shares repurchased).

Since 29 February 2024 and up to the latest practicable date of 8 May 2024, 220,000 ordinary shares have been repurchased

into treasury for a total consideration of £2,946,000.

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.

98

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Annual Report and Financial Statements 29 February 2024

16. Reserves

Distributable reserves

Share

premium

account

Capital

redemption

reserve

Capital

reserve

(arising on

investments

sold)

Capital

reserve

(arising on

revaluation

of

investments

held)

Revenue

reserve

£’000

£’000

£’000

£’000

£’000

At 28 February 2023

51,980

1,982

620,667

52,812

18,590

Movement during the year:

Losses on realisation of investments

–

–

(30,417)

–

–

Change in investment holding gains

–

–

–

(17,209)

–

Losses on foreign currency transactions

–

–

(7)

(2)

–

Finance costs and expenses charged to capital

–

–

(4,757)

–

–

Net profit for the year

–

–

–

–

19,691

Ordinary shares repurchased into treasury

–

–

(19,859)

–

–

Share buyback costs

–

–

(130)

–

–

Dividends paid during the year

–

–

–

–

(19,633)

At 29 February 2024

51,980

1,982

565,497

35,601

18,648

Distributable reserves

Share

premium

account

Capital

redemption

reserve

Capital

reserve

(arising on

investments

sold)

Capital

reserve

(arising on

revaluation

of

investments

held)

Revenue

reserve

£’000

£’000

£’000

£’000

£’000

At 28 February 2022

51,980

1,982

641,658

192,527

16,433

Movement during the year:

Losses on realisation of investments

–

–

(15,627)

–

–

Change in investment holding gains

–

–

–

(139,731)

–

(Losses)/gains on foreign currency transactions

–

–

(21)

16

–

Finance costs and expenses charged to capital

–

–

(5,343)

–

–

Net profit for the year

–

–

–

–

19,980

Dividends paid during the year

–

–

–

–

(17,823)

At 28 February 2023

51,980

1,982

620,667

52,812

18,590

The share premium account and capital redemption reserve are not distributable reserves under the Companies Act 2006. In

accordance with ICAEW Technical Release 02/17BL on Guidance on Realised and Distributable Profits under the Companies

Act 2006, the capital reserve may be used as distributable reserves for all purposes and, in particular, the repurchase by the

Company of its ordinary shares and for payments such as dividends. In accordance with the Company’s Articles of Association,

the capital reserve and the revenue reserve may be distributed by way of dividend. The gain on the capital reserve arising on

the revaluation of investments of £35,601,000 (2023: gain of £52,812,000) is subject to fair value movements and may not be

readily realisable at short notice, as such it may not be entirely distributable. The investments are subject to financial risks; as

such capital reserves (arising on investments sold) and the revenue reserve may not be entirely distributable if a loss occurred

during the realisation of these investments.

Notes to the Financial Statements

continued

Section 4: Financial statements

99

17. 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

www.blackrock.com/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 Alternative Investment Fund Manager (AIFM).

However, as disclosed in the Corporate Governance Statement on pages 62 to 68 and in the Statement of Directors’

Responsibilities on pages 73 and 74, 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.

The Directors of the AIFM review quarterly investment performance reports and receive semi-annual presentations in person

from the Investment Manager covering the Company’s performance and risk profile during the year. The AIFM has delegated

the day-to-day administration of the investment programme to the Investment Manager. The Investment Manager is also

responsible for ensuring that the Company is managed within the terms of its investment guidelines and limits set out in the

Alternative Investment Fund Managers’ Directive FUND 3.2.2R Disclosures which can be found at

www.blackrock.com/uk/brsc

.

The AIFM is responsible for monitoring investment performance, product risk monitoring and oversight and has the

responsibility for the monitoring and oversight of regulatory and operational risk for the Company. The Directors of the AIFM

have appointed a Risk Manager who has responsibility for the daily risk management process with assistance from key risk

management personnel of the Investment Manager, including members of the Risk and Quantitative Analysis Group (RQA)

which is a centralised group which performs an independent risk management function. RQA independently identifies,

measures and monitors investment risk, including climate-related risk, and tracks the actual risk management practices

being deployed across the Company. By breaking down the components of the process, RQA has the ability to determine if the

appropriate risk management processes are in place. This captures the risk management tools employed, how the levels of risk

are controlled, ensuring risk/return is considered in portfolio construction and reviewing outcomes.

The AIFM reports to the Audit Committee twice yearly on key risk metrics and risk management processes; in addition, the

Depositary monitors the performance of the AIFM and reports to the Audit Committee twice yearly. Any significant issues are

reported to the Board as they arise.

Risk exposures

The risk exposures of the Company are set out as follows:

(a) Market risk

Market risk arises mainly from uncertainty about future values of financial instruments influenced by currency, interest rate

and other price movements. It represents the potential loss the Company may suffer through holding market positions in

financial instruments in the face of market movements.

A key metric RQA uses to measure market risk is Value-at

-Risk (VaR) which encompasses price, currency and interest rate risk.

VaR is a statistical risk measure that estimates the potential portfolio loss from adverse market moves in an ordinary market

environment. VaR analysis reflects the interdependencies between risk variables (including other price risk, foreign currency

risk and interest rate risk) unlike a traditional sensitivity analysis.

The VaR calculations are based on a confidence level of 99% with a holding period of not greater than one day and a historical

observation period of not less than one year (250 days). A VaR number is defined at a specified probability and a specified

time horizon. A 99% one day VaR means that the expectation is that 99% of the time over a one day period the Company will

lose less than this number in percentage terms. Therefore, higher VaR numbers indicate higher risk. It is noted that the use of

the VaR methodology has limitations, namely assumptions that risk factor returns are normally distributed and that the use

of historical market data as a basis for estimating future events does not encompass all possible scenarios, particularly those

that are of an extreme nature and that the use of a specified confidence level (e.g. 99%) does not take into account losses

that occur beyond this level. There is some probability that the loss could be greater than the VaR percentage amounts. These

limitations and the nature of the VaR measure mean that the Company can neither guarantee that losses will not exceed the

VaR amounts indicated, nor that losses in excess of the VaR amounts will not occur more frequently.

The one-day VaR as of 29 February 2024 and 28 February 2023 (based on a 99% confidence level) was 1.39% and 3.12%,

respectively.

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Annual Report and Financial Statements 29 February 2024

17. Risk management policies and procedures

continued

(i) Market risk arising from foreign currency risk

Exposure to foreign currency risk

As the Company’s objective is to achieve capital growth for shareholders through investment mainly in smaller UK quoted

companies, substantially all of the Company’s assets are Sterling denominated. From time to time, the Company may hold an

overseas line of stock to the extent that the underlying investment has exposure to the UK market and, consequently, at any

time a very small proportion of the Company’s assets, liabilities and income may be denominated in currencies other than

Sterling (the Company’s functional currency and that in which it reports its results).

As at 29 February 2024, there was one non-Sterling denominated investment (2023: one).

(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 sensitivity risk has been covered by the

VaR analysis under the market risk section.

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; and

•

fixed interest rates – when the financial instrument is due for repayment.

2024

2023

Within

one

year

More

than one

year

Total

Within

one

year

More

than one

year

Total

£’000

£’000

£’000

£’000

£’000

£’000

Exposure to floating interest rates:

Bank overdraft

(7,871)

–

(7,871)

–

–

–

Cash and cash equivalents

–

–

–

23,536

–

23,536

Exposure to fixed interest rates:

2.74% loan note 2037

–

(24,818)

(24,818)

–

(24,804)

(24,804)

2.41% loan note 2044

–

(19,867)

(19,867)

–

(19,860)

(19,860)

2.47% loan note 2046

–

(24,830)

(24,830)

–

(24,840)

(24,840)

Total exposure to interest rates

(7,871)

(69,515)

(77,386)

23,536

(69,504)

(45,968)

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 The Bank of New York Mellon (International) Limited (BNYM) and its loan notes.

Borrowing is varied throughout the year as part of a Board endorsed policy. As set out in the table above, as at 29 February

2024, the Company had an uncommitted overdraft facility of £60 million with BNYM of which £7,871,000 had been utilised

and loan notes of £69,515,000 respectively (2023: £nil and £69,504,000 respectively).

Notes to the Financial Statements

Section 4: Financial statements

101

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 loan notes accrue interest at a fixed rate of 2.74%, 2.41% and 2.47% 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, is approximately 4.52% and 5.94% per annum

(2023: 1.66% and 2.92%).

(iii) Market risk arising from other price risk

Exposure to other price risk

Other price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in

market prices (other than those arising from interest rate risk or currency risk), whether those changes are caused by factors

specific to the individual financial instrument or its issuer, or factors affecting similar financial instruments traded in the

market. Local, regional or global events such as war, acts of terrorism, the spread of infectious illness or other public health

issues, recessions, climate change, or other events could have a significant impact on the Company and market prices of its

investments and could result in increased premiums or discounts to the Company’s net asset value.

The Company is exposed to market price risk arising from its equity investments. The movements in the prices of these equity

investments result in movements in the performance of the Company. Other price risk sensitivity has been covered by VaR

analysis under the market risk section above.

The Company’s exposure to other changes in market prices at 29 February 2024 on its equity investments was £765,178,000

(2023: £806,088,000).

Management of other price risk

Exposures to individual stocks are monitored by the Portfolio Managers, who take into account the strategy of the Company

and the need to hold a diversified portfolio. No more than 15% of the Company’s assets may be invested in any one stock,

but in practice positions are much smaller. Limits on individual holdings are coded on BlackRock’s trading systems and are

monitored daily.

Regular review by RQA of sector allocations and various concentration of risk metrics identifies areas of concern. Portfolio

concentrations are reviewed by RQA on a regular basis and areas of concern are highlighted to and discussed with the

Portfolio Manager.

Concentration of exposure to market price risks

An analysis of the Company’s fifty largest investments and sector analysis, is shown in the Portfolio section of this Annual

Report. At 29 February 2024, this shows the majority of the investment value is in UK companies. Accordingly, there is a

concentration of exposure to the UK, although it is recognised that an investment’s country of domicile or of listing does not

necessarily equate to its exposure to the economic conditions in that country.

(b) Counterparty credit risk

Counterparty credit risk is the risk that the issuer of a financial instrument will fail to fulfil an obligation or commitment that it

has entered into with the Company.

The Company is exposed to counterparty credit risk from the parties with which it trades and will bear the risk of settlement

default. Counterparty credit risk to the Company arises from transactions to purchase or sell equity investments.

The major counterparties engaged with the Company are all widely recognised and regulated entities.

There were no past due or impaired assets as of 29 February 2024 (2023: nil).

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Annual Report and Financial Statements 29 February 2024

17. Risk management policies and procedures

continued

Depositary

The Company’s Depositary is The Bank of New York Mellon (International) Limited (BNYM or the Depositary) (S&P long-term

credit rating as at 29 February 2024: AA- (2023: AA-)). The Company’s listed investments are held on its behalf by The Bank

of New York Mellon (International) Limited (BNYM) as the Company’s Custodian (as sub-delegated by the Depositary). All

of the equity assets and cash of the Company are held within the custodial network of the global custodian appointed by

the Depositary. Bankruptcy or insolvency of the Depositary/Custodian may cause the Company’s rights with respect to its

investments held by the Depositary/Custodian to be delayed or limited. The maximum exposure to this risk at 29 February

2024 is the total value of equity investments held with the Depositary/Custodian and cash and cash equivalents in the

Balance Sheet.

In accordance with the requirements of the depositary agreement, the Depositary will ensure that any agents it appoints to

assist in safekeeping the assets of the Company will segregate the assets of the Company. Thus, in the event of insolvency or

bankruptcy of the Depositary, the Company’s non-cash assets are segregated and this reduces counterparty credit risk. The

Company will, however, be exposed to the counterparty credit risk of the Depositary in relation to the Company’s cash held

by the Depositary. In the event of the insolvency or bankruptcy of the Depositary, the Company will be treated as a general

creditor of the Depositary in relation to cash holdings of the Company.

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 as the Company’s access to its cash could be

delayed should the counterparty become insolvent or bankrupt.

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).

Total number of

counterparties

Maximum

exposure

to any one

counterparty

1

Collateral held

Total exposure

to all other

counterparties

1

Lowest credit

rating of any one

counterparty

2

£’000

£’000

£’000

2024

6

977

–

2,600

BBB+

2023

13

2,671

–

3,770

BBB+

1

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.

Section 4: Financial statements

103

In summary, the exposure to credit risk at 29 February 2024 and 28 February 2023 was as follows:

2024

2023

3 months

or less

3 months

or less

£’000

£’000

Cash and cash equivalents

–

23,536

Sales for future settlement

3,577

5,648

Other debtors

1,090

1,210

4,667

30,394

Management of counterparty credit risk

Credit risk is monitored and managed by RQA CCR. The team is headed by BlackRock’s Chief Credit Officer who reports to the

Global Head of RQA. Credit authority resides with the Chief Credit Officer and selected team members to whom specific credit

authority has been delegated. As such, counterparty approvals may be granted by the Chief Credit Officer, or by identified RQA

Credit Risk Officers who have been formally delegated authority by the Chief Credit Officer.

The counterparty credit risk is managed as follows:

•

transactions are only entered into with those counterparties approved by RQA CCR, with a formal review carried out for each

new counterparty and counterparties selected by RQA CCR on the basis of a number of risk mitigation criteria designed to

reduce the risk to the Company of default;

•

the creditworthiness of financial institutions with whom cash is held is reviewed regularly by RQA CCR; and

•

RQA CCR review the credit standard of the Company’s brokers on a periodic basis and set limits on the amount that may be

due from any one broker.

The Board monitors the Company’s counterparty risk by reviewing:

•

the semi-annual report from the Depositary, which includes the results of periodic site visits to the Company’s Custodian

where controls are reviewed and tested;

•

the Custodian’s Service Organisation Control (SOC 1) reports which include a report by the Custodian’s auditors. This report

sets out any exceptions or issues noted as a result of the auditor’s review of the custodian’s control processes;

•

the Manager’s internal control reports which includes a report by the Manager’s auditors. This report sets out any

exceptions or issues noted as a result of the auditors’ review of the Manager’s control processes; and

•

in addition, the Depositary and the Manager report any significant breaches or issues arising to the Board as soon as these

are identified.

(c) Liquidity risk

This is the risk that the Company will encounter difficulties in meeting obligations associated with financial liabilities. At the

year end, the Company has an overdraft facility of £60 million (2023: overdraft of £60 million). The Company also has a £25

million loan note (2023: £25 million), a second £25 million loan note (2023: £25 million) and a £20 million loan note (2023:

£20 million). These loan notes are unsecured and are redeemable at par on 24 May 2037, 16 September 2046 and 3 December

2044 respectively.

104

BlackRock Smaller Companies Trust plc

l

Annual Report and Financial Statements 29 February 2024

17. Risk management policies and procedures

continued

Liquidity risk exposure

The remaining undiscounted gross cash outflows of the financial liabilities as at 29 February 2024 and 28 February 2023,

based on the earliest date on which payment can be required, were as follows:

2024

2023

Within

1 year

Between

1 and 5 years

More than

5 years

Within

1 year

Between

1 and 5 years

More than

5 years

£’000

£’000

£’000

£’000

£’000

£’000

2.74% loan note 2037

685

2,740

30,640

685

2,740

31,325

2.41% loan note 2044

482

1,928

27,597

482

1,928

28,079

2.47% loan note 2046

618

2,472

35,844

618