Final Results

RNS Number : 5950D

Schroder UK Growth Fund PLC

07 July 2016

 

7 July 2016

ANNUAL REPORT AND ACCOUNTS

Schroder UK Growth Fund plc (the "Company") hereby submits its Annual Report for the year ended 30 April 2016 as required by the UK Listing Authority's Disclosure and Transparency Rule 4.1. 

The Company's Annual Report and Accounts for the year ended 30 April 2016 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.schroderukgrowthfund.com.  Please click on the following link to view the document:

The Company has submitted its Annual Report and Accounts to the National Storage Mechanism and it will shortly be available for inspection at www.hemscott.com/nsm.do.

http://www.rns-pdf.londonstockexchange.com/rns/5950D_-2016-7-7.pdf

Enquiries:

John Spedding

Schroder Investment Management Limited               

Tel: [phone]

Chairman's Statement

Performance

The year to 30 April 2016 has been volatile for UK markets, initially caused by concerns in relation to global growth and subsequently compounded by the uncertainties surrounding the Referendum on the UK's membership of the European Union. During the year to 30 April 2016, the Company's NAV returned -4.4%, while the share price returned -4.9%. This compares with an equivalent return of -5.7% by the FTSE All-Share Index over the same period.

Further comment on performance and investment policy may be found in the Manager's review.

Earnings and Dividends

The Directors have declared a second interim dividend of 2.60p per share, making a total of 5.20p per share for the year, an increase of 4.0% over total ordinary dividends of 5.00p per share paid in respect of the previous year. The second interim dividend will be payable on 29 July 2016 to shareholders on the register on 15 July 2016.

Gearing Policy

During the year, the Company maintained its total borrowing facilities at £35 million, although half of the total borrowings were shifted to a more cost efficient overdraft facility. The gearing facilities have remained undrawn throughout the year and, at the end of the year, the net cash position was 2.0%. Our Manager has the freedom to utilise the Company's borrowing facility when suitable investment opportunities arise.

The Company's gearing continues to operate within pre-agreed limits so that net effective gearing does not represent more than 20% of shareholders' funds.

Discount Management Policy

The average discount to net asset value at which the shares have traded over the Company's past financial year was 8.8%. This is a higher figure than for the previous twelve months and reflects both the present lack of strong demand for the shares and a general widening of discount levels throughout the investment trust sector, reflecting underlying market concerns. Inevitably, UK focused investment funds have been particularly affected by the considerable uncertainties surrounding the recent EU Referendum and our peer group of funds has also seen a significant broadening of discounts. A total of 542,000 ordinary shares were purchased to be held in Treasury during the year under review and a further 142,000 ordinary shares have been purchased since the end of the year.

As shareholders will be aware, the Board has a policy of seeking to restrict the discount level to around 5% over the long term. As outlined in the circular dated 23 October 2006, this target will be reviewed and, if appropriate, amended from time to time to reflect prevailing market conditions. Against the background of negative market sentiment, your Board has been reluctant to commit the substantial shareholders' resources to defend, in the short term, a stated long term target of 5% which, it has been advised, is not presently attainable. The Board remains mindful of its obligations towards all shareholders, in seeking to address the issue of its current higher than target discount level.

Board Composition

The Board continues to review its composition and to consider its succession and refreshment polices and I am retiring at the Annual General Meeting and will not seek re-election. Carolan Dobson will take over as Chairman from the conclusion of the Annual General Meeting and I wish Carolan and her colleagues all the best for the future.

In addition, further changes to the Board will be made in the year ahead and a process is currently underway, being led by the Nomination Committee, to recruit an additional Director. One of the long-serving Directors will retire once this appointment has been made and a period of time has been allowed for to allow for suitable continuity.

Outlook

We suspect UK equity investment will remain challenging. The result of the EU Referendum has created one more major immediate uncertainty for company managements and investors and there is still a structural lack of growth in many economies worldwide.

While these issues are undeniable, they also provide an opportunity. At a corporate level the weakness of sterling after the Referendum has made UK companies more competitive internationally, and increases the value of their overseas profits. For the Company, a world of low nominal growth makes outperformance of a benchmark more appealing to investors, while high market volatility makes consistency of that outperformance even more appealing. There will always be a sustained future for any investment trust that can supply both.

Annual General Meeting

The Annual General Meeting will be held at 12.00 noon on Thursday, 4 August 2016, and shareholders are encouraged to attend. I hope as many of you as possible will be able to come along. The meeting, as in previous years, will include a presentation by the Manager on the prospects for the UK market and the Company's investment strategy.

Alan Clifton

Chairman

7 July 2016

Manager's Review

Over the year to 30 April 2016 the total return of the net asset value was -4.4%, compared to the total return from the FTSE All Share Index of -5.7% (source Morningstar).

Market background

The past twelve months have been a difficult and volatile period for UK equities as a number of global uncertainties weighed on markets. Initial concerns surrounding negotiations between Greece and its international creditors and a potential exit from the EU (formalised by the Referendum vote after the end of the financial year) were supplemented by fears about emerging markets, the outlook for China and latterly the durability of US growth. This occurred amid uncertainty around the consequences of the US Federal Reserve's decision to increase interest rates by 0.25% in December, the first rise in nearly a decade. The accompanying dollar strength and uncertain global growth outlook weighed heavily on commodities with supply-side factors further negatively impacting crude oil prices. Commodities rebounded at the period end as dollar strength unwound in line with the deferral in expectations for further rises in US rates.

Resource sectors performed poorly against the weak commodity price backdrop, with the mining sector hit particularly hard as the decline in base metal prices called into question the resilience of sector balance sheets and the sustainability of dividends. Financials were another poor performer as fears over the deteriorating economic outlook drew questions over the sustainability of current provisioning levels and net interest margins for the banks, and the potential for rising credit spreads to translate into increased bond defaults for insurers. In addition, uncertainty around the result in the UK Referendum over EU membership led to increased caution towards the sector given its economic sensitivity. Traditionally defensive areas of the market performed relatively well, as did the FTSE 250 Index, where a greater exposure to domestically derived earnings was supported by a relatively benign outlook for the UK consumer. However, the resources sectors staged a recovery at the end of the period as the dollar weakened and commodity prices rebounded following significant Chinese fixed asset stimulus and uncertainty over the likelihood of future US rate rises given poor economic data.

Our overweight in software and computer services was the standout, with Sage, Fidessa, iomart and Computacenter performing particularly well. Accounting and payroll software provider Sage is one year into a significant transformation programme with central costs being reduced, alongside investment into R&D and Sales and Marketing. Robust trading results confirming strong organic revenue growth and stable profit margins reassured the market and increased confidence in the strategy of driving higher, more subscription and cloud-focussed growth.

Trading software provider Fidessa performed well, particularly in Q1 2016 following reassuring full year results. Evidence is emerging that the impact of the difficult trading backdrop for equity customers is transitioning from being a historic headwind (as customers closed their operations) to represent an opportunity, as customers use Fidessa's software to reduce costs. The significant investment in developing a global derivatives trading platform offers significant underappreciated value.

IT infrastructure services group Computacenter performed well, notably in Q4 2016 after announcing robust Q3 results, confirming its status as a resilient cash-generative growth company. A strong net cash balance puts the group in a good position to return cash to shareholders. Cloud Services company iomart delivered strong organic growth supplemented by acquisitions in cloud consultancy and webhosting. With high recurring revenue and a strong balance sheet, the group is well-positioned to succeed in an increasingly complex market as public/hybrid cloud grows.

Our overweight to the tobacco sector, and particularly to Imperial Brands, was another positive. It performed well driven by earnings upgrades from improving organic sales momentum and its acquisition of US brands from Reynolds Tobacco. As confidence grew in its ability to sustain its 10% per annum dividend growth target the shares have been re-rated more in line with their peer group.

Our media holdings performed well. We are attracted to the high return on capital and cash generation that the sector produces. Business information group RELX produced its customary consistent operating performance and the shares broadly tracked the strong, cash backed earnings growth that the market has become used to. Publishing group Informa is undergoing a restructuring plan which is turning around the business faster than expected, particularly in its underperforming Business Intelligence and Knowledge & Networking divisions. Investment to drive growth is paying dividends as the new management have delivered stronger organic growth and cash generation than forecast.

From a sector perspective beverages had the largest negative impact on performance, in particular not owning SABMiller. Companies selling staple goods have rerated strongly in a world of low nominal growth and uncertainty over the economic outlook. We believed that the rating of SABMiller more than reflected the organic growth it was delivering. However, the approach from AB InBev last year detracted from the relative performance of the portfolio.

Our exposure to banks was also a notable detractor. Whilst the portfolio benefited from being underweight Standard Chartered and HSBC, our holdings in The Royal Bank of Scotland (RBS) and Barclays more than offset such benefits. While the result of the EU Referendum has added more uncertainty to their future, we continue to believe the sector offers long term value and we are reaching a point where the value leakage from capital and conduct litigation is reaching an endpoint.

RBS endured a tough 12 months of share price performance, as it revealed its eighth consecutive year of losses and cautioned that it would have to delay resuming dividend payments or share buybacks beyond the first quarter of 2017. The decision to delay returning capital was in order to gain clarity over the quantum of its conduct fine relating to US mortgage-backed security mis-selling, as well to complete the disposal of Williams & Glyn. However, we remain positive, given the strength of its capital position and its strong domestic retail and commercial franchises which we believe will become increasingly apparent as the group restructures the underperforming Ulster, Investment and Private Banking divisions.

Barclays published disappointing fourth-quarter results, including a 50% reduction in the dividend over the next two years and the divestment of its African business in order to protect its capital position. The relative weakness of its capital position and exposure to more volatile investment banking business meant we had a preference for Lloyds and RBS.

During the course of the year our concerns towards the mining sector grew. Whilst the sector represents one the cheapest in the market on the basis of price to 10 year average earnings, reduced costs and capex have not resulted in increased profitability. Given the long-term nature of the industry, capacity is still coming on stream while demand, particularly from China, has weakened. Long-term structural headwinds persist as Chinese fixed asset investment looks historically high and debt levels within the economy have risen sharply. We exited Rio Tinto and Glencore to reflect these concerns.

Portfolio activity

We have added to our position in Lloyds Banking Group over the past twelve months, given the strength of its capital position and strong cash generation. The bank announced a significant increase in the ordinary dividend and the declaration of a special dividend. That Lloyds was able to increase shareholder distributions, despite additional provisions for mis-sold payment protection insurance is testament to its strong capital position and supports the view that the period of capital build for UK banks is reaching a conclusion. Despite the negative impact on net interest margins of deferred UK interest rate rises in the UK, the company was able to reassure that this could be mitigated through falling deposit pricing and a benign backdrop for impairments.

Lloyds Banking Group is the template for what RBS and Barclays could achieve once they have worked through their legacy issues. We are more positive on RBS, due to the relative strength of its capital position, especially following its disposal of the remaining stake in Citizens Financial. As a result we increased our position.

We added to Standard Chartered after its rights issue as the low price to book multiple fails to reflect

improvements in risk controls, asset quality and capital undertaken by the new Chief Executive as well as the growth opportunities available to the group over the medium term through is deep emerging market trade network.

Within financials we initiated a position in life insurance company Prudential. Weakness in the sector reflecting widening credit spreads was exacerbated by concerns over capital controls in China impacting its Asian growth engine as well as a Department of Labor ruling affecting its US variable annuity business. We believe the valuation more than reflects these concerns and represented an excellent opportunity to buy this high quality, cash generative growth franchise.

These additions were largely funded by reducing our holdings in HSBC and Barclays.

We added mobile telecoms group Vodafone to the portfolio on share price weakness as market hopes of a merger with Verizon Wireless were dashed. The European operating environment, however, is showing signs of underlying improvement and the investment the group has made into the quality of its network through Project Spring is leading to improved market performance. Improving operating cash flow coupled with reducing levels of elevated capex should see the high dividend yield covered by free cash flow in 2017. There is an added possibility of a future deal with Verizon.

BAE Systems, the global defence company, saw its share price under pressure in the first half of the period over concerns surrounding the strategic defence security review in the UK and a potential Typhoon order from Saudi Arabia given oil price weakness. However, we believe BAE represents good cyclically-adjusted value given the extent to which the revenue backdrop for defence spending has been under pressure for a number of years. The reduction in conflict-related spending coupled with underlying governmental budgetary pressure in the key US and UK markets has seen defence spending fall 40% from its peak. We believe that a floor in these revenue headwinds has been reached and the attractive long-term earnings visibility of the group and its strong through-cycle cash generation have been overlooked. As a result, we initiated a position in the company during the year.

We broadened our exposure to the pharmaceuticals sector by initiating new positions in small-cap companies Clinigen, Indivior and Skyepharma. Clinigen supplies third-party medicines to pharmaceutical companies which require comparator drugs for clinical trials, sources unlicensed drugs which, under special circumstances, can be used by patients before final approval, and has its own products business, the latter of which has a niche in acquiring overlooked medicines. We believe the valuation looks compelling given its strong growth outlook. Indivior develops treatments for opiate-based drug addictions. The company faced generic competition to US sales of its patent-protected film version of the heroine substitute Suboxone, which it has won after the year end. In our opinion, the share price had fallen to a level where the risk of a successful patent challenge was factored in. Furthermore, their new once-monthly injectable treatment for opiate addiction has the potential to replace lost Suboxone sales and the patent protection out to 2024 now provides room to transition patients in the meantime. Meanwhile, a strong long-term pipeline prompted us to acquire a new holding in Skyepharma. The business, which is enjoying robust growth in its asthma drug, subsequently reported strong results and revealed plans to merge with Vectura, a rival UK specialist in drugs and inhalers for lung conditions.

We took profits in telecoms company BT as the shares performed strongly reflecting strong operational delivery and the acquisition of EE. We believe the medium term outlook remains positive, but in the short term risks increased in advance of Ofcom's regulatory reviews. In addition, we reduced or exited our positions in a number of stocks which have performed well and the valuation opportunity is less-compelling, such as Melrose, Regus, Smith & Nephew, Taylor Wimpey, St James's Place, London Stock Exchange and Rentokil.

Outlook

We continue to keep the portfolio cautiously positioned as we remain concerned that the valuation for the median stock in the market remains high and that value is concentrated into an increasingly narrow group of sectors. Such high valuations are leading to increasingly nervous markets, made worse by the EU Referendum result, and markets are increasingly sensitive to short term economic data.

Recent levels of market volatility are reminiscent of periods of market fear such as the Eurozone crisis. Historically these have proven good opportunities to increase risk within the portfolio, however, valuation (as measured by the median stock in the market) is not as supportive as on those previous occasions, and some of the sectors that are cheap by historical standards are cyclicals facing an uncertain outlook (for example the domestic banks). Heightened volatility has also provided an opportunity to rotate portfolios in the past, and we continue to find opportunities to invest. As such, currently we have been more active repositioning the portfolio within sectors rather than using the gearing to raise the overall risk of the portfolio.

The result of the EU Referendum guarantees an uncertain immediate future both economically and politically, with the added danger of collateral damage to, for example, European economies. Domestic growth is likely to be lower than expected earlier, although companies' overseas businesses will be boosted by the fall in sterling since the vote. Our priority now is finding value opportunities in the current market volatility, with the goal also of using the gearing facility if and when enough opportunities emerge.

Our investment approach forces a constant re-evaluation of where the best combination of value and quality lies in the market as well as seeking to invest in companies which appear cheap in a cyclical context. We believe this combination produces a portfolio capable of generating decent and sustainable returns on capital and ultimately cash returns to shareholders over the medium term.

Against a backdrop of low nominal growth and weak profits delivery the market has placed certain companies, whose earning streams appear relatively resilient or are able to deliver strong organic growth, on high valuations. This relative outperformance has been exacerbated further by the recent Brexit vote and accompanying uncertainty over the outlook for UK GDP forecasts. We had been reducing exposure to such companies and were hunting for value in areas of the market where earnings are cyclically depressed and which incorporate a self-help component to their investment case. As such, the domestic banks, defence, construction, food retail and media, pharma and oil sectors currently represent sectors where the portfolio is significantly represented. Lloyds, RBS, Standard Chartered, JRP Group, BAE, Chemring, Balfour Beatty, Tesco, Morrison, Spirent and Royal Dutch Shell all demonstrate these characteristics across a range of different sectors. Given the possibility that the UK economy now faces a recession in the face of current political and economic uncertainty, we are paying close attention to the

extent to which profits may fall from here and balance-sheets are positioned to cope with this change.

Schroder Investment Management Limited

7 July 2016

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 2016.

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.

A summary of the principal risks and uncertainties faced by the Company which have remained unchanged throughout the year, and actions taken by the Board and, where appropriate, its Committees, to manage and mitigate these risks and uncertainties, is set out below.

Risk	Mitigation and management
Strategic risk
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 risk
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 risk
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.	Risk profile of the portfolio considered and appropriate strategies to mitigate any negative impact of substantial changes in markets discussed with the Manager.
The Company's cost base could become uncompetitive, particularly in light of open ended alternatives.	Ongoing competitiveness of all service provider fees subject to periodic benchmarking against competitors. Annual consideration of management fee levels.
Custody risk
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 risk
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 in cash or cash equivalents.
Accounting, legal and regulatory risk
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 risk
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 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.

Risk assessment and internal controls

Risk assessment includes consideration of the scope and quality of the systems of internal control operating within key service providers, and ensures regular communication of the results of monitoring by such providers to the Audit Committee, including the incidence of significant control failings or weaknesses that have been identified at any time and the extent to which they have resulted in unforeseen outcomes or contingencies that may have a material impact on the Company's performance or condition. No significant control failings or weaknesses were identified from the Audit Committee's ongoing risk assessment which has been in place throughout the financial year and up to the date of this Report.

A full analysis of the financial risks facing the Company is set out in note 19 on pages 45 to 49 of the 2016 Annual Report.

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.

Statement of Directors' Responsibilities

The Directors are responsible for preparing the Annual Report, Strategic Report, the Report of the Directors, the Corporate Governance Statement, the Remuneration Report and the 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 the Directors have prepared the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards 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 return or loss of the Company for that period. In preparing these financial statements, the Directors are required to:

•        select suitable accounting policies and then apply them consistently;

•        make judgments and accounting 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 a 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 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 Manager is 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.

Each of the Directors, whose names and functions are listed on pages 18 and 19 of the 2016 Annual Report, confirm that to the best of their knowledge:

•        the financial statements, which have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law), give a true and fair view of the assets, liabilities, financial position and net return of the Company;

•        the Strategic Report contained in the Report and Accounts 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; and

•        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 position and performance, business model and strategy.

Income Statement

for the year ended 30 April 2016

		2016			2015
		Revenue	Capital	Total	Revenue	Capital	Total
		£'000	£'000	£'000	£'000	£'000	£'000
Losses on investments held at fair value through profit or loss		-	(22,277)	(22,277)	-	(3,593)	(3,593)
Income from investments		9,836	88	9,924	10,357	-	10,357
Other interest receivable and similar income		3	-	3	15	-	15
Gross return/(loss)		9,839	(22,189)	(12,350)	10,372	(3,593)	6,779
Investment management fee		(151)	(352)	(503)	(258)	(601)	(859)
Administrative expenses		(430)	-	(430)	(572)	-	(572)
Net return/(loss) before finance costs and taxation		9,258	(22,541)	(13,283)	9,542	(4,194)	5,348
Finance costs		-	-	-	(46)	(108)	(154)
Net return/(loss) on ordinary
activities before taxation		9,258	(22,541)	(13,283)	9,496	(4,302)	5,194
Taxation on ordinary activities		4	-	4	(21)	-	(21)
Net return/(loss) on ordinary activities after taxation		9,262	(22,541)	(13,279)	9,475	(4,302)	5,173
Return/(loss) per share		5.77p	(14.04)p	(8.27)p	5.89p	(2.67)p	3. 22p

Dividends declared in respect of the financial year ended 30 April 2016 amount to 5.20p (2015: 6.00p) per share. Further information on dividends is given in note 8 on page 42 of the 2016 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 recognised gains and losses other than those included in the Income Statement and Statement of Changes in Equity.

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

The notes on pages 38 to 49 of the 2016 Annual Report form an integral part of these accounts.

Statement of Changes in Equity

for the year ended 30 April 2016

	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 2014	40,229	9,875	19,759	417	78,071	146,314	8,252	302,917
Net (loss)/return on ordinary activities after taxation	-	-	-	-	-	(4,302)	9,475	5,173
Dividends paid in the year	-	-	-	-	-	-	(9,253)	(9,253)
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

The notes on pages 38 to 49 of the 2016 Annual Report form an integral part of these accounts.

Statement of Financial Position

at 30 April 2016

		2016	2015
		£'000	£'000
Fixed assets
Investments held at fair value through profit or loss		267,828	286,576
Current assets
Debtors		3,503	1,741
Cash at bank and in hand		5,553	10,612
		9,056	12,353
Current liabilities
Creditors: amounts falling due within one year		(2,004)	(92)
Net current assets		7,052	12,261
Total assets less current liabilities		274,880	298,837
Net assets		274,880	298,837
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		77,191	78,071
Capital reserves		119,471	142,012
Revenue reserve		7,938	8,474
Total equity shareholders' funds		274,880	298,837
Net asset value per share		171.40p	185.71p

The notes on pages 38 to 49 of the 2016 Annual Report form an integral part of these accounts.

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") 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 which superseded the SORP issued in January 2009. All of the Company's operations are of a continuing nature.

2. Income

	2016	2015
	£'000	£'000
Income from investments:
UK dividends	9,836	10,176
Property income dividends	-	57
Scrip dividends	-	124
	9,836	10,357
Other interest receivable and similar income
Deposit interest	3	4
Miscellaneous Income	-	6
Underwriting commission	-	5
	3	15
Total income	9,839	10,372
Capital:
Special dividend allocated to capital	88	-

3. Investment management fee

	2016			2015
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Management fee	151	352	503	258	601	859

The basis for calculating the investment management fee is set out in the Report of the Directors on page 21 and details of all amounts payable to the Manager are given in note 16 on page 45 of the 2016 Annual Report.

4. Dividends

	2016	2015
	£'000	£'000
(a) Dividends paid and declared
2015 second interim dividend of 2.50p (2014: 2.25p) paid out of revenue profits1	4,017	3,621
2015 special dividend of 1.00p (2014: 1.00p) paid out of revenue profits1	1,607	1,609
2016 first interim dividend of 2.60p (2015: 2.50p) paid out of revenue profits	4,174	4,023
Total dividends paid in the year	9,798	9,253
	2016	2015
	£'000	£'000
2016 second interim dividend declared of 2.60p (2015: 2.50p) to be paid out of revenue profits	4,170	4,023
2015 special dividend of 1.00p declared and paid out of revenue profits	-	1,609
Total dividends declared	4,170	5,632

¹ The 2015 second interim and special dividends declared amounted to £4,023,000 and £1,609,000 respectively. However the amounts actually paid were £4,017,000 and £1,607,000 respectively, as shares were repurchased and cancelled 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 £9,262,000 (2015: £9,475,000).

	2016	2015
	£'000	£'000
First interim dividend of 2.60p (2015: 2.50p)	4,174	4,023
Second interim dividend of 2.60p (2015: 2.50p)	4,170	4,023
2015 special dividend of 1.00p	-	1,609
Total dividends of 5.20p (2015: 6.00p) per share	8,344	9,655
5. Return/(loss) per share
	2016	2015
Revenue return (£'000)	9,262	9,475
Capital loss (£'000)	(22,541)	(4,302)
Total (loss)/return (£'000)	(13,279)	5,173
Weighted average number of shares in issue during the year	160,591,922	160,917,184
Revenue return per share	5.77p	5.89p
Capital loss per share	(14.04)p	(2.67)p
Total (loss)/return per share	(8.27)p	3.22p

6. Net asset value per share

	2016	2015
Total equity shareholders funds (£'000)	274,880	298,837
Shares in issue at the year end, excluding shares held in Treasury	160,375,184	160,917,184
Net asset value per share	171.40p	185.71p

7. Transactions with the Manager

Under the terms of the Alternative Investment Fund Manager Agreement, the Manager is entitled to receive a management fee. Details of the basis of the calculation are given in the Report of the Directors on page 21 of the 2016 Annual Report. Any investments in funds managed or advised by the Manager or any of its associated companies, are excluded from the assets used for the purpose of the calculation and therefore incur no fee. The fee payable in respect of the year ended 30 April 2016 amounted to £503,000 (2015: £859,000) of which £338,000 (2015: nil) was outstanding at the year end.

Following the departure of the portfolio manager in September 2014, the Manager agreed to bear portfolio transition costs of £1.615 million by way of a management fee waiver with effect from 1 November 2014. This waiver reduced the fee payable for the year ended 30 April 2016 by £892,000 and reduced the fee payable for the preceding year by £723,000.

No Director of the Company served as a director of any member of the Schroder Group at any time during the year.

8. Status of announcement

2015 Financial Information

The figures and financial information for 2015 are extracted from the published Annual Report and Accounts for the year ended 30 April 2015 and do not constitute the statutory accounts for that year. The 2015 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.

2016 Financial Information

The figures and financial information for 2016 are extracted from the Annual Report and Accounts for the year ended 30 April 2016 and do not constitute the statutory accounts for the year. The 2016 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 2016 Annual Report and Accounts will be delivered to the Registrar of Companies in due course.

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

 

END

 

 

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