Annual Financial Report

RNS Number : 3794K

Schroder UK Growth Fund PLC

07 July 2017

 

7 July 2017

ANNUAL REPORT AND ACCOUNTS

Schroder UK Growth Fund plc (the "Company") hereby submits its Annual Report for the year ended 30 April 2017 as required by the UK Listing Authority's Disclosure Guidance and Transparency Rule 4.1. 

The Company's Annual Report and Accounts for the year ended 30 April 2017 are also being published in hard copy format and an electronic copy will shortly be available to download from the Company's website http://www.schroders.co.uk/ukgrowth.  Please click on the following link to view the document:

http://www.rns-pdf.londonstockexchange.com/rns/3794K_-2017-7-6.pdf

The Company has submitted its Annual Report and Accounts to the National Storage Mechanism and it will shortly be available for inspection at www.morningstar.co.uk/uk/NSM.

Enquiries:

Andrea Davidson

Schroder Investment Management Limited                      

Tel: [phone]

Chairman's Statement

Performance

I am pleased to present my first annual Statement since succeeding Alan Clifton as Chairman on 4 August 2016.

This was a good period to be a shareholder in a UK focused investment trust as overall returns were considerably higher than average. However, it was a difficult period for active stock pickers to outperform the index as unpredictable political developments heavily influenced individual stock performance and our Company's performance did not match that of the market.

During the year to 30 April 2017, our Company's net asset value ("NAV") produced a total return of 17.5%, while the share price produced a total return of 13.9%. This compares to a total return of 20.1% for the benchmark, the FTSE All-Share Index, over the same period.

Further comment on performance and investment policy can be found in the Manager's Review.

Earnings and dividends

The Directors have declared a second interim dividend of 2.70 pence per share, bringing total dividends for the year to 5.40 pence per share, an increase of 3.8% over total dividends of 5.20 pence per share paid in respect of the previous year. The second interim dividend will be payable on 31 July 2017 to shareholders on the register on 14 July 2017.

The first interim and the proposed second interim together will take the income yield on our Company's shares to 3.1%, using 172.25 pence, the share price at 30 June 2017.

Gearing

During the year, the Company maintained its total borrowing facilities at £35 million, equally divided between a revolving one year credit facility and an overdraft facility. The gearing facilities have remained undrawn throughout the year, and, at the end of the year, the net cash position was 0.6%. The Manager will utilise the Company's borrowing facility when suitable investment opportunities arise. The Board sets internal guidelines for the Manager's use of gearing which are altered from time to time but are subject to net effective gearing not representing more than 20% of shareholders' funds.

Share buy-backs

The share buy-back policy seeks to operate in the best interests of shareholders by taking into account the relative level of the Company's share price discount when compared with peer group trusts, the absolute level of discount, volatility in the level of discount and the impact from share buy-back activity on the long-term liquidity of the Company's issued shares.

Shares have been purchased for holding in treasury during most weeks from September 2016 and a total of 4,786,000 ordinary shares (3.0% of the shares outstanding at 30 April 2016) were purchased in total during the year ended 30 April 2017.

Discounts for investment trusts specialising in investing in the shares of UK companies remain at the widest they have been for the last five years partly on uncertainty about the impact on the UK economy of the UK's decision to leave the EU. The buy-back programme has been modestly accretive to NAV and the Board believes it has helped reduce the volatility in our discount.

Investment policy

The Manager is currently seeing a number of attractive investment opportunities across the UK stock market and, in order to allow the Manager to exploit these opportunities, the Board decided in June 2017 to make two minor changes to the Company's investment policy. The previous policy was "The stocks are predominantly constituents of the FTSE 350 Index but the Company may invest up to 5% of net assets at the time of investment in each of smaller capitalisation stocks and AIM". The current policy has deleted the restriction of 5% of net assets in each of smaller capitalisation stocks and AIM stocks. In addition, the Company previously had a restriction that no holding should exceed 2% of the issued share capital of any company.  That has been replaced with a restriction that no holding should exceed 5% of the issued share capital of any company.

The Board, having taken advice, does not consider these two changes, individually or when taken together, to amount to a material change in the Company's investment policy.

Full details of the Company's investment objective and policy are set out on the inside front cover of this Report.

Board composition and succession planning

The Board continues to review its composition and consider its succession and refreshment policies.

I am pleased to welcome Andrew Westenberger to the Board following his appointment on 5 May 2017. Mr Westenberger's biographical details can be found on page 15 of the 2017 Annual Report. Mr Westenberger brings significant financial expertise and experience to the Board. In accordance with the Company's Articles of Association, a resolution to elect him as a Director of the Company will be proposed at the forthcoming Annual General Meeting.

Stella Pirie will retire at the Annual General Meeting and will not seek re-election.  I would like to take this opportunity to thank Mrs Pirie for her invaluable contribution during her 15 year tenure and in particular for her work as Chairman of the Audit Committee. Mr Westenberger will succeed Mrs Pirie as Chairman of the Audit Committee.

Outlook

Perhaps the most surprising feature of the UK stock market over the last year is how well it has performed despite the wrenching changes in the political environment at home and abroad. Companies with international businesses have clearly benefited from sterling's fall and the rise in the stock market has been concentrated into certain areas.

Looking forward there are many uncertainties both political and economic in the UK and overall market returns may be less than over previous years. Our Manager continues to focus on finding companies with good earnings prospects that are under-appreciated by the market.

Annual General Meeting

The Annual General Meeting will be held at 12.00 noon on Wednesday 2 August 2017. Shareholders are warmly invited to attend. As in previous years, the meeting will include a presentation by the Manager on the prospects for the UK market and the Company's investment strategy.

Carolan Dobson

Chairman

6 July 2017

Manager's Review

Over the year to 30 April 2017 the total return of the net asset value was 17.5%, compared to the total return from the FTSE All-Share Index of 20.1%.

Market background

The UK equity market performed strongly over the 12 months as the outlook for global economic growth improved and sterling fell.

Government response since the financial crisis has been to keep interest rates at ultra low levels whilst using quantitative easing to encourage growth. Austerity, weak economic growth, and low growth of real wages have contributed to a rise of political populism centred on the view that policy has led to an uneven distribution of the benefits of globalisation. The election of Donald Trump, the Brexit referendum and the recent UK general election have reflected these concerns.

The changed economic sentiment has been reflected in a different sector leadership within the stock market. Over the last five years investors have been conditioned to falling profits expectations so have given reliable growth businesses ever higher ratings. This reversed last summer with the expectation of significant profits growth in the short-term, partly because of weak sterling after the Brexit referendum but also reflecting the improvement in global growth. As a result, there was a rotation away from sectors with stable businesses ("defensives") towards sectors that benefit more from rising growth ("cyclicals"), such as financials, resources and industrials.

Portfolio performance

This divergence between cyclical and defensive sectors was matched, in a period of sharply falling sterling, by a divergence between businesses with international earnings and those more dependent on domestic sources. This can all be seen in the performance of commodity sectors (Mining +46%, Oil & Gas +23%) as well as Construction (+39%), Industrial Engineering (+59%) and Banks (+33.5%). Conversely, domestic companies performed relatively poorly, e.g. Food Retail (+9.9%) and General Retail (+0.2%). In addition, more defensive sectors underperformed, e.g. Electricity (-2.0%), Gas & Water (+3.8%) and Healthcare & Pharmaceuticals (+14.0%).

The net effect on the portfolio relative to the index came through more at a stock than a sector level. As an example, the underweight position in HSBC hurt performance, with the bank a beneficiary of many of the trends above, particularly the improving outlook for emerging market growth and the translation of its international earnings into sterling. The portfolio was also impacted by its underweight to mining shares, after economic stimulus by the Chinese authorities coupled with rationalisation of supply boosted commodity prices. Finally, the portfolio was impacted by profit warnings in two stocks where there had been accounting misstatements, IT company Redcentric and BT.

On the positive side, the portfolio benefited from holding Cobham, Bae Systems and Chemring in an Aerospace & Defence sector that looked cheap on cyclically-adjusted valuations. Indivior, a pharma company treating opioid addiction, was the top contributor, after a court upheld several of its patents. Other positive contributors included financial infrastructure business NEX Group (formerly ICAP) and transport operator FirstGroup.

Portfolio activity

The market movements over the last 12 months lead to us finding an increasing number of value opportunities among domestic cyclicals, as concerns over the outlook for disposable income have been discounted in valuations. As examples, we initiated a position in retailers J Sainsbury, Marks & Spencer, Halfords, and gaming group Ladbrokes Coral. In the financials sector, we increased exposure to Standard Chartered and initiated a holding in HSBC.

We correspondingly sold out of holdings that have performed well where we felt the value opportunity has played out, such as business information group, RELX, pest-control specialist, Rentokil Initial, accountancy software company Sage, cruise company Carnival and tobacco company Imperial Brands.

Investment outlook

Whilst the last year saw strong rotation towards more cyclical shares, there are signs that US growth momentum is beginning to roll over and that Chinese authorities have started to tighten policy. Valuations for the market in aggregate look high while at the same time, heightened uncertainty is likely following the general election and as the Brexit negotiations start. These factors make us reluctant to use the borrowing facility at the moment.

However, the portfolio is full of stocks representing good cyclically-adjusted value, a measure that has worked well for our investment approach in the past . We are finding this value today in four areas: domestic stocks (for example Tesco, Ladbrokes Coral); financials (eg. Standard Chartered, Lloyds) ; recovery stocks (eg Balfour Beatty); and certain commodity sectors (eg Royal Dutch Shell).  We believe that these stocks provide a sound foundation for the future of the portfolio, notwithstanding the political and economic challenges that are likely to continue to impact markets.

Schroder Investment Management Limited,

6 July 2017

Principal Risks and Uncertainties

The Board is responsible for the Company's system of risk management and internal control and for reviewing its effectiveness. The Board has adopted a detailed matrix of principal risks affecting the Company's business as an investment trust and has established associated policies and processes designed to manage and, where possible, mitigate those risks, which are monitored by the Audit Committee on an ongoing basis. This system assists the Board in determining the nature and extent of the risks it is willing to take in achieving its strategic objectives. Both the principal risks and the monitoring system are also subject to robust review at least annually. The last review took place in June 2017.

Although the Board believes that it has a robust framework of internal control in place this can provide only reasonable, and not absolute, assurance against material financial misstatement or loss and is designed to manage, not eliminate, risk.

The principal risks and uncertainties faced by the Company have remained unchanged throughout the year under review, except in respect of cyber risk relating to the Company's service providers, which has now been extended beyond the custodian. Cyber risk relating to all of the Company's key service providers is considered an increased threat in light of the rising propensity and impact of cyber attacks on businesses and institutions. To address the risk, the Board is seeking enhanced reporting on cyber risk mitigation and management from its key service providers to ensure that it is managed and mitigated appropriately.

Actions taken by the Board and, where appropriate, its Committees, to manage and mitigate the Company's principal risks and uncertainties is set out in the table below.

Risk	Mitigation and management
Strategic
The Company's investment objectives may become out of line with the requirements of investors, resulting in a wide discount of the share price to underlying net asset value.	Appropriateness of the Company's investment remit periodically reviewed and success of the Company in meeting its stated objectives is monitored. Share price relative to net asset value monitored and use of buy back authorities considered on a regular basis. Marketing and distribution activity is actively reviewed.
Investment management
The Manager's investment strategy, if inappropriate, may result in the Company underperforming the market and/or peer group companies, leading to the Company and its objectives becoming unattractive to investors.	Review of the Manager's compliance with the agreed investment restrictions, investment performance and risk against investment objectives and strategy; relative performance; the portfolio's risk profile; and appropriate strategies employed to mitigate any negative impact of substantial changes in markets. Annual review of the ongoing suitability of the Manager.
Financial and currency
The Company is exposed to the effect of market fluctuations due to the nature of its business. A significant fall in equity markets could have an adverse impact on the market value of the Company's underlying investments. The Company's cost base could become uncompetitive, particularly in light of open-ended alternatives.	Risk profile of the portfolio considered and appropriate strategies to mitigate any negative impact of substantial changes in markets discussed with the Manager, including those originating from political risk. Ongoing competitiveness of all service provider fees subject to periodic benchmarking against competitors. Annual consideration of management fee levels.
Custody
Safe custody of the Company's assets may be compromised through control failures by the Depositary, including cyber hacking.	Depositary reports on safe custody of the Company's assets, including cash, and portfolio holdings are independently reconciled with the Manager's records. Review of audited internal controls reports covering custodial arrangements. Annual report from the Depositary on its activities, including matters arising from custody operations.
Gearing and leverage
The Company utilises credit facilities. These arrangements increase the funds available for investment through borrowing. While this has the potential to enhance investment returns in rising markets, in falling markets the impact could be detrimental to performance.	Gearing is monitored and strict restrictions on borrowings imposed: gearing continues to operate within pre-agreed limits so as not to exceed 20% of shareholders' funds. The Company can also hold up to 20% of shareholders' funds in cash or cash equivalents.
Accounting, legal and regulatory
In order to continue to qualify as an investment trust, the Company must comply with the requirements of Section 1158 of the Corporation Tax Act 2010. Breaches of the UK Listing Rules, the Companies Act or other regulations with which the Company is required to comply, could lead to a number of detrimental outcomes.	Confirmation of compliance with relevant laws and regulations by key service providers. Shareholder documents and announcements, including the Company's published Annual Report, are subject to stringent review processes. Procedures have been established to safeguard against disclosure of inside information.
Service provider
The Company has no employees and has delegated certain functions to a number of service providers, principally the Manager, Depositary and Registrar. Failure of controls, including as a result of cyber hacking, and poor performance of any service provider could lead to disruption, reputational damage or loss.	Service providers appointed subject to due diligence processes and with clearly-documented contractual arrangements detailing service expectations. Regular reporting by key service providers and monitoring of the quality of services provided. Review of annual audited internal controls reports from key service providers, including confirmation of business continuity arrangements and IT controls.

Statement of directors' responsibilities in respect of the Annual Report and Accounts

The directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulation.

Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have prepared the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 102 "The Financial Reporting Standard applicable in the UK and Republic of Ireland", and applicable law). 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 and of the profit or loss of the company for that period. In preparing the financial statements, the directors are required to:

•        select suitable accounting policies and then apply them consistently;

•        state whether applicable United Kingdom Accounting Standards, comprising FRS 102, have been followed, subject to any material departures disclosed and explained in the financial statements;

•        make judgements and accounting estimates that are reasonable and prudent; 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 enable them to ensure that the financial statements and the Directors' Remuneration Report comply with the Companies Act 2006.

The directors 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 responsible for the maintenance and integrity of the company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

The directors consider that the annual report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the company's performance, business model and strategy.

Each of the directors, whose names and functions are listed in the Board of Directors on pages 14 and 15 of the 2017 Annual Report confirm that, to the best of their knowledge:

•        the company financial statements, which have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 102 "The Financial Reporting Standard applicable in the UK and Republic of Ireland", and applicable law), give a true and fair view of the assets, liabilities, financial position and profit of the company; and

•        the Strategic Report 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.

Viability statement

The Directors have assessed the viability of the Company over a five year period, taking into account the Company's position at 30 April 2017 and the potential impacts of the principal risks and uncertainties it faces for the review period.

A period of five years has been chosen for the purposes of the assessment of viability as the Board believes that this reflects a suitable time horizon for strategic planning, taking into account the investment policy, liquidity of investments, potential impact of economic cycles, nature of operating costs, dividends and availability of funding.

In its assessment of the viability of the Company, the Directors have considered each of the Company's principal risks and uncertainties detailed on pages 11 and 12 of the 2017 Annual Report and in particular the impact of a significant fall in UK equity markets on the value of the Company's investment portfolio. The Directors have also considered the Company's income and expenditure projections and the fact that the Company's investments comprise readily realisable securities which can be sold to meet funding requirements if necessary and on that basis consider that five years is an appropriate time period.

Based on the Company's processes for monitoring operating costs, the Board's view that the Manager has the appropriate depth and quality of resource to achieve superior returns in the longer term, the portfolio risk profile, limits imposed on gearing, counterparty exposure, liquidity risk and financial controls, the Directors have concluded that there is a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the period to 30 April 2022.

In reaching this decision, the Board has taken into account the Company's continuation vote, on the presumption that it will be passed in 2019.

Going concern

Having assessed the principal risks and the other matters discussed in connection with the viability statement set out above, and the "Guidance on Risk Management, Internal

Control and Related Financial and Business Reporting" published by the FRC in 2014, the Directors consider it appropriate to adopt the going concern basis in preparing the accounts.

Income Statement for the year ended 30 April 2017

	2017			2016
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Gains/(losses) on investments held at fair value through profit or loss	-	37,665	37,665	-	(22,277)	(22,277)
Income from investments	10,068	-	10,068	9,836	88	9,924
Other interest receivable and similar income	1	-	1	3	-	3
Gross return/(loss)	10,069	37,665	47,734	9,839	(22,189)	(12,350)
Investment management fee	(443)	(1,033)	(1,476)	(151)	(352)	(503)
Administrative expenses	(375)	-	(375)	(430)	-	(430)
Net return/(loss) on ordinary activities before taxation	9,251	36,632	45,883	9,258	(22,541)	(13,283)
Taxation on ordinary activities	(3)	-	(3)	4	-	4
Net return/(loss) on ordinary activities after taxation	9,248	36,632	45,880	9,262	(22,541)	(13,279)
Return/(loss) per share	5.83p	23.09p	28.92p	5.77p	(14.04)p	(8.27)p

Dividends declared in respect of the financial year ended 30 April 2017 amount to 5.40p (2016: 5.20p) per share. Further information on dividends is given in note 7 on pages 36 and 37 of the 2017 Annual Report.

The "Total" column of this statement is the profit and loss account of the Company. The "Revenue" and "Capital" columns represent supplementary information prepared under guidance issued by The Association of Investment Companies. The Company has no other items of other comprehensive income, and therefore the net return on ordinary activities after taxation is also the total comprehensive income for the year.

All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or discontinued in the year.

Statement of Changes in Equity for the year ended 30 April 2017

	Called-up		Capital	Warrant	Share
	share	Share	redemption	exercise	purchase	Capital	Revenue
	capital	premium	reserve	reserve	reserve	reserves	reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 30 April 2015	40,229	9,875	19,759	417	78,071	142,012	8,474	298,837
Net (loss)/return on ordinary activities after taxation	-	-	-	-	-	(22,541)	9,262	(13,279)
Repurchase of the Company's own shares into treasury	-	-	-	-	(880)	-	-	(880)
Dividends paid in the year	-	-	-	-	-	-	(9,798)	(9,798)
At 30 April 2016	40,229	9,875	19,759	417	77,191	119,471	7,938	274,880
Net return on ordinary activities after taxation	-	-	-	-	-	36,632	9,248	45,880
Repurchase of the Company's own shares into treasury	-	-	-	-	(7,955)	-	-	(7,955)
Dividends paid in the year	-	-	-	-	-	-	(8,433)	(8,433)
At 30 April 2017	40,229	9,875	19,759	417	69,236	156,103	8,753	304,372

Statement of Financial Position at 30 April 2017

	2017	2016
	£'000	£'000
Fixed assets
Investments held at fair value through profit or loss	300,204	267,828
Current assets
Debtors	4,357	3,503
Cash at bank and in hand	1,712	5,553
	6,069	9,056
Current liabilities
Creditors: amounts falling due within one year	(1,901)	(2,004)
Net current assets	4,168	7,052
Total assets less current liabilities	304,372	274,880
Net assets	304,372	274,880
Capital and reserves
Called-up share capital	40,229	40,229
Share premium	9,875	9,875
Capital redemption reserve	19,759	19,759
Warrant exercise reserve	417	417
Share purchase reserve	69,236	77,191
Capital reserves	156,103	119,471
Revenue reserve	8,753	7,938
Total equity shareholders' funds	304,372	274,880
Net asset value per share	195.63p	171.40p

Notes to the Accounts

1.       Accounting Policies

The accounts are prepared in accordance with the Companies Act 2006, United Kingdom Generally Accepted Accounting Practice ("UK GAAP"), in particular in accordance with Financial Reporting Standard (FRS) 102 "The Financial Reporting Standard applicable in the UK and Republic of Ireland", and with the Statement of Recommended Practice "Financial Statements of Investment Trust Companies and Venture Capital Trusts" (the "SORP") issued by the Association of Investment Companies in November 2014 and updated in January 2017. All of the Company's operations are of a continuing nature.

The accounts have been prepared on a going concern basis under the historical cost convention, as modified by the revaluation of investments held at fair value through profit or loss.

The accounts are presented in sterling and amounts have been rounded to the nearest thousand.

The accounting policies applied to these accounts are consistent with those applied in the accounts for the year ended 30 April 2016.

2.       Taxation on ordinary activities

	2017	2016
	£'000	£'000
(a)     Analysis of charge in the year:
Irrecoverable overseas tax	3	(4)
Tax charge for the year	3	(4)

(b)     Factors affecting tax charge for the year

The tax assessed for the year is lower (2016: higher) than the Company's applicable rate of corporation tax for the year of 19.92% (2016: 20.00%).

The factors affecting the tax charge for the year are as follows:

	2017			2016
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Net return/(loss) on ordinary activities before taxation	9,251	36,632	45,883	9,258	(22,541)	(13,283)
Net return/(loss) on ordinary activities before taxation multiplied by the Company's applicable rate of corporation tax for the year of 19.92%  (2016: 20.00%)	1,843	7,297	9,140	1,852	(4,508)	(2,656)
Effects of:
Capital returns on investments	-	(7,503)	(7,503)	-	4,455	4,455
Income not chargeable to corporation tax	(1,993)	-	(1,993)	(1,967)	(18)	(1,985)
Unrelieved expenses	150	206	356	115	71	186
Irrecoverable overseas tax	3	-	3	(4)	-	(4)
Tax charge/(credit) for the year	3	-	3	(4)	-	(4)

(c)        Deferred taxation

The Company has an unrecognised deferred tax asset of £7,099,000 (2016: £7,196,000) based on a prospective corporation tax rate of 17% (2016: 18%). The reduction in the standard rate of corporation tax was substantively enacted in September 2016 and is effective from 1 April 2020.

The deferred tax asset has arisen due to the cumulative excess of deductible expenses over taxable income. Given the composition of the Company's portfolio, it is not likely that this asset will be utilised in the foreseeable future and therefore no asset has been recognised in the accounts.

Given the Company's status as an Investment Trust Company, no provision has been made for deferred tax on any capital gains or losses arising from the revaluation or disposal of investments.

3.       Dividends

(a)     Dividends paid and declared

	2017	2016
	£'000	£'000
2016 second interim dividend of 2.60p (2015: 2.50p) paid out of revenue profits1	4,166	4,017
2015 special dividend of 1.00p paid out of revenue profits	-	1,607
2017 first interim dividend of 2.70p (2016: 2.60p) paid out of revenue profits	4,267	4,174
Total dividends paid in the year	8,433	9,798

	2017	2016
	£'000	£'000
2017 second interim dividend declared of 2.70p (2016: 2.60p) to be paid out of revenue profits	4,201	4,170

¹The 2016 second interim dividend amounted to £4,170,000. However the amount actually paid was £4,166,000 as shares were repurchased into treasury after the accounting date but prior to the dividend Record Date.

(b)     Dividends for the purposes of Section 1158 of the Corporation Tax Act 2010 ("S1158")

The requirements of S1158 are considered on the basis of dividends declared in respect of the financial year as shown below. The revenue available for distribution by way of dividend for the year is £9,248,000. (2016: £9,262,000).

	2017	2016
	£'000	£'000
First interim dividend of 2.70p (2016: 2.60p)	4,267	4,174
Second interim dividend of 2.70p (2016: 2.60p)	4,201	4,170
Total dividends of 5.40p (2016: 5.20p) per share	8,468	8,344

4.       Return/(loss) per share

	2017	2016
Revenue return (£'000)	9,248	9,262
Capital return/loss (£'000)	36,632	(22,541)
Total return/(loss) (£'000)	45,880	(13,279)
Weighted average number of shares in issue during the year	158,643,285	160,591,922
Revenue return per share	5.83p	5.77p
Capital return/loss per share	23.09p	(14.04)p
Total return/(loss) per share	28.92p	(8.27)p

5.       Called-up share capital

	2017	2016
	£'000	£'000
Ordinary shares allotted, called-up and fully paid:
Opening balance of 160,375,184 (2015: 160,917,184) shares of 25p each:	40,094	40,229
Repurchase of 4,786,000 (2016: 542,000) shares into treasury	(1,197)	(135)
Subtotal of 155,589,184 (2016: 160,375,184) shares	38,897	40,094
5,328,000 (2016: 542,000) shares held in treasury	1,332	135
Closing balance1	40,229	40,229

¹Represents 160,917,184 (2016: 160,917,184) shares of 25p each, including 5,328,000 (2016: 542,000) shares held in treasury. During the year, the Company purchased 4,786,000 of its own shares, nominal value £1,196,500 to hold in treasury for a total consideration of £7,955,000 representing 2.97% of the shares outstanding at the beginning of the year. The reason for these share repurchases was to seek to manage the volatility of the share price discount to net asset value per share.

6.       Net asset value per share

	2017	2016
Total equity shareholders funds (£'000)	304,372	274,880
Shares in issue at the year end, excluding shares held in treasury	155,589,184	160,375,184
Net asset value per share	195.63p	171.40p

7.       Disclosures regarding financial instruments measured at fair value

The Company's financial instruments within the scope of FRS 102 that are held at fair value comprise its investment portfolio.

FRS 102 requires financial instruments to be categorised into a hierarchy consisting of the three levels below. Note that the criteria used to categorise investments include an amendment to paragraph 34.22 of FRS 102, issued by the Financial Reporting Council in March 2016, and which the Company has early adopted.

Level 1 - valued using unadjusted quoted prices in active markets for identical assets.

Level 2 - valued using observable inputs other than quoted prices included within Level 1.

Level 3 - valued using inputs that are unobservable.

Details of the valuation techniques used by the Company are given in note 1(b) on page 33 of the 2017 Annual Report.

At 30 April 2017, all investments in the Company's portfolio are categorised as Level 1 (2016: same).

8.       Status of announcement

2016 Financial Information

The figures and financial information for 2016 are extracted from the published Annual Report and Accounts for the year ended 30 April 2016 and do not constitute the statutory accounts for that year. The 2016 Annual Report and Accounts have been delivered to the Registrar of Companies and included the Report of the Independent Auditors which was unqualified and did not contain a statement under either section 498(2) or section 498(3) of the Companies Act 2006.

2017 Financial Information

The figures and financial information for 2017 are extracted from the Annual Report and Accounts for the year ended 30 April 2017 and do not constitute the statutory accounts for the year. The 2017 Annual Report and Accounts include the Report of the Independent Auditors which is unqualified and does not contain a statement under either section 498(2) or section 498(3) of the Companies Act 2006. The 2017 Annual Report and Accounts will be delivered to the Registrar of Companies in due course.

Neither the contents of the Company's webpage nor the contents of any website accessible from hyperlinks on the Company's webpage (or any other website) is incorporated into, or forms part of, this announcement.

 

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