Half Yearly Report (Replacement)

RNS Number : 0777C

Schroder Income Growth Fund PLC

25 April 2012

Half-Yearly Report

Schroder Income Growth Fund plc (the "Company") hereby submits its Half-Yearly Report for the period ended 29 February 2012 as required by the UK Listing Authority's Disclosure and Transparency Rule 4.2.

The Half Yearly Report is also being published in hard copy format and an electronic copy of that document will shortly be available to download from the Company's website http://www.schroderincomegrowthfund.com.

Please click on the following link to view the document:

http://www.rns-pdf.londonstockexchange.com/rns/0777C_1-2012-4-25.pdf

The Company has submitted a pdf of the hard copy format of its Half-Yearly Report to the National Storage Mechanism and it will shortly be available for inspection at www.Hemscott.com/nsm.do.

Enquiries:

Louise Richard

Schroder Investment Management Limited Tel: 020 7658 6501

25 April 2012

Schroder Income Growth Fund plc

Financial Highlights

29 February 2012 31 August 2011 % Change

――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――――

Net asset value ("NAV") per ordinary share 206.42p 196.23p 5.2

Share price 196.00p 187.75p 4.4

Share price discount 5.0% 4.3%

Shareholders' funds (£'000) 141,789 134,787 5.2

Shares in issue ('000) 68,688 68,688 -

Six months ended Six months ended

29 February 2012 28 February 2011 % Change

Net revenue return per ordinary share 3.76p 2.71p 38.7

Dividends per share declared in respect of the period 4.00p 3.20p -

Total return per ordinary share 16.69p 26.63p

NAV total return* 10.1% 13.0%

FTSE All-Share Index total return** 10.3% 16.5%

FTSE 350 Higher Yield Index total return** 9.5% 15.2%

Share price total return* 8.1% 8.4%

*Source: Morningstar (www.morningstar.co.uk).

**Source: Thomson Financial Datastream.

Interim Management Report

Chairman's Statement

Investment Performance

During the six month period ended 29 February 2012, the Company earned net revenue of 3.76 pence per share, a 1.05 pence (38.7%) increase on the 2.71 pence per share earned in the six months ended 28 February 2011.

0.61 pence of this revenue increase was the result of the increase in the income from special dividends (2012: 0.71 pence; 2011: 0.10 pence). The changes to the Company's investment policy as adopted at the 2010 Annual General Meeting, and the introduction of modest levels of gearing, added to the underlying growth in income from the portfolio's holdings to generate an increase in net revenue for the period which, excluding the increase in special dividends, grew by 0.44 pence (16.2%).

The Company's net asset value produced a total return of 10.1%* which outperformed the FTSE 350 Higher Yield Index, which achieved a total return of 9.5%** during the period, and was slightly below the FTSE All-Share Index, which produced a total return of 10.3%**.

The share price total return for the six months under review was 8.1%*. The share price discount to net asset value widened very slightly from 4.3% at 31 August 2011 to 5.0% at 29 February 2012.

Dividends

The Company paid a first interim dividend for the year ending 31 August 2012 of 2.00 pence per share (2011: 1.60 pence per share) on 31 January 2012. The Board has since declared the payment of a second interim dividend for the current financial year of 2.00 pence per share (2011: 1.60 pence per share), which will be paid on 30 April 2012 to shareholders who were on the register at the close of business on 10 April 2012.

The increase in the rate of the first and second interim dividends compared to those in the previous financial year follows a decision by the Board that the difference between the first three and the fourth interim dividends should be reduced. While the Board remains committed to increasing the total annual dividend level over time, this increase in the rate of the first and second interim dividends should not be considered indicative of an increase or decrease in the total annual dividend level for the current financial year.

Gearing Facility

During the period, the Company entered into a £7 million unsecured revolving credit facility with Scotiabank Europe PLC. As at 29 February 2012, £4.5 million of the facility had been drawn and net effective gearing (which takes into account cash held in the portfolio as well as borrowings) was 2.2%. The Company's gearing policy is reviewed regularly by the Board.

Share Purchases

The Board continued to monitor the share price discount to net asset value during the period under review. No shares were purchased for cancellation or holding in treasury during the period. The Directors continue to consider share buy-backs as one of a number of tools that may be used to enhance shareholder value.

Board composition

In my statement in the 2011 Annual Report, I reported that the Board hoped to refresh its composition during 2012. We expect to make an appointment later this year.

Outlook

Even allowing for the factors that boosted income during the period under review, it is reassuring to see the general rise in dividends from the holdings in the Company's portfolio. It is a reminder that, difficult as it is to assess what is going to happen in the Eurozone and to global growth, many leading UK companies are performing well and have a financial strength that allows larger distributions to shareholders.

The macro-economic uncertainty is likely to continue but the priority of the Company remains finding those companies that can continue to increase their dividends on a sustainable basis. More growth such as that of the last 18 months, helped by option premiums and modest levels of gearing, would allow your Company to continue to increase its dividends.

Sir Paul Judge

Chairman

25 April 2012

* Source: Morningstar.

** Source: Thomson Financial Datastream.

Investment Manager's Review

In the six months to the end of February the Company's net asset value had a total return of 10.1%*. This compares to a 10.3%** total return from the FTSE All-Share Index and a 9.5%** total return from the FTSE 350 Higher Yield Index.

Market Background

After a weak September, the UK market recovered to the levels of June/July. The immediate cause has been the improvement in sentiment after the ECB's major injection of funds into the Eurozone's banking systems. For the time being this has not only met the stated goal of adding liquidity to Europe's financial system but has also reassured markets about Eurozone sovereign bonds and about the Euro. This in its turn has allowed stock market investors to regain some confidence about the future, not least as economic data from the US has been relatively good.

This improvement in sentiment led to a change in the shares that performed well. At the start of the period the more defensively-positioned companies such as telecoms and pharmaceuticals did well, but they subsequently lagged the market recovery that was led by cyclical shares such as financials. The portfolio's concentration in well-financed and higher-yielding companies has given it a bias towards the former, and this was reflected in better relative performance during the early weakness of the market. This relative performance reversed in the recovery. In aggregate the performance over the six months was broadly in line with the main relevant indices with individual stock selection (eg Imperial Tobacco and Legal & General) offsetting a sector stance that was always unlikely to outperform a strongly rising index.

Other holdings that did well over the period were Tate & Lyle and BT, while the disappointments included RSA and KPN. Purchases were primarily new holdings in cyclical companies such as easyJet, Smiths Group, Daily Mail and Yule Catto. These were funded from trimming some of the more defensive holdings that had performed well in the uncertainty of recent years, such as BT, Imperial Tobacco and Unilever.

The other feature in this period was a 35% increase in the portfolio's income before expenses. This included special dividends paid by Vodafone, easyJet and Admiral, totalling £488,000, which compared to a total of £68,000 of special dividends received during the first half of 2011. At the same time, the continued writing of covered call options and the first deployment of a small amount of bank borrowing also boosted income. While the resulting increase in total income overstates the portfolio's yield on a recurring basis, there was continuing evidence of most holdings' willingness and ability to pay higher dividends. Excluding the special dividends and the call premiums, investment income was 8% higher than in the same period last year. The call premiums earned during the period were £189,000, 6% of total revenue.

Outlook

For all of the global uncertainty and volatility in share prices over the last 12 months, the UK stock market and the Company's net assets today are about the same level as a year ago. The portfolio has gradually increased its potential to generate higher income in a more diversified fashion through an increase in the number of holdings (including a small number of overseas stocks), by writing call options where appropriate, and more recently by using bank debt to add holdings where the dividend yield is above the interest cost (even if it is lower than the portfolio average).

The challenges are well-known. The ECB's injections of liquidity are unlikely to be a long-term solution to the Eurozone's (and in particular Greece's) debt problems, while global growth is fragile and could go into reverse if (among other things) oil prices continue to rise. Though we are conscious that the outlook remains uncertain our central view is for modest global growth. Interest rates are set to remain low for an extended period and there is potential for further quantitative easing in the US and the UK should the growth outlook deteriorate.

Whilst we expect continued volatility in markets as the attractions of a low valuation and abundant liquidity compete with this uncertain economic environment, we believe the long-term valuation attractions of UK equities are considerable. We continue to focus on companies with solid balance sheets, attractive dividend yields and internationally diversified earnings.

Schroder Investment Management Limited

25 April 2012

* Source: Morningstar.

** Source: Thomson Financial Datastream.

Principal Risks and Uncertainties

The principal risks and uncertainties associated with the Company's business fall into the following categories: financial risk; strategic risk; and accounting, legal and regulatory risk. A detailed explanation of the risks and uncertainties in each of these categories can be found on page 11 of the Company's published Annual Report and Accounts for the year ended 31 August 2011. These risks and uncertainties have not materially changed during the six months ended 29 February 2012.

Going Concern

The Directors believe, having considered the Company's investment objectives, risk management policies, capital management policies and procedures, the nature of the portfolio and expenditure projections, that the Company has adequate resources, an appropriate financial structure and suitable management arrangements in place to continue in operational existence for the foreseeable future. For these reasons, they consider there is reasonable evidence to continue to adopt the going concern basis in preparing the accounts.

Related Party Transactions

Details of related party transactions can be found on page 37 of the Company's published Annual Report and Accounts for the year ended 31 August 2011. There have been no material transactions with the Company's related parties during the six months ended 29 February 2012.

Directors' Responsibility Statement

The Directors confirm that, to the best of their knowledge, this set of condensed financial statements has been prepared in accordance with United Kingdom Generally Accepted Accounting Practice (UK GAAP) and with the Statement of Recommended Practice: Financial Statements of Investment Companies and Venture Capital Trusts (SORP) issued in January 2009 and the Interim Management Report as set out above includes a fair review of the information required by 4.2.7R and 4.2.8R of the FSA's Disclosure and Transparency Rules.

Ten largest investments

As at 29 February 2012

Market

Value of % of

Holding Shareholders'

Company and Activity £'000 Funds

Vodafone 11,204 7.90

Global mobile telephone provider

Royal Dutch Shell 'B' 9,833 6.93

Integrated oil company

British American Tobacco 9,607 6.78

International cigarette company

GlaxoSmithKline 7,317 5.16

Global pharmaceutical company

BP 6,617 4.67

Integrated oil company

Imperial Tobacco Group 5,909 4.17

International cigarette company

Legal & General 5,808 4.10

UK financial services group

AstraZeneca 5,666 4.00

Global pharmaceutical company

HSBC 5,617 3.96

Banking and financial services group

Unilever 5,544 3.91

International consumer products group

Total 73,122 51.58

At 31 August 2011, the ten largest investments represented 50.76% of shareholders' funds.

Income Statement

(Unaudited) (Unaudited) (Audited)

For the six months For the six months For the year

ended 29 February 2012 ended 28 February 2011 ended 31 August 2011

Revenue Capital Total Revenue Capital Total Revenue Capital Total

Note £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000

Gains on investments

held at fair value - 9,376 9,376 - 16,754 16,754 - 5,346 5,346

Movement on written

options - (187) (187) - - - - - -

Currency (losses)/gains - - - - (7) (7) - 14 14

Income 2 3,041 26 3,067 2,252 - 2,252 6,894 - 6,894

Investment

management fee 3 (287) (287) (574) (254) (254) (508) (555) (555) (1,110)

Performance fee 3 - (38) (38) - (64) (64) - (120) (120)

Administrative

expenses (153) - (153) (135) - (135) (247) - (247)

Net return before

finance costs and

taxation 2,601 8,889 11,490 1,863 16,429 18,292 6,092 4,685 10,777

Interest payable and

similar charges (4) (4) (8) - - - - - -

Net return on ordinary

activities before taxation 2,597 8,885 11,482 1,863 16,429 18,292 6,092 4,685 10,777

Taxation on ordinary

activities (15) - (15) - - - (27) - (27)

Net return attributable

to equity shareholders 2,582 8,885 11,467 1,863 16,429 18,292 6,065 4,685 10,750

Net return per

ordinary share 4 3.76p 12.93p 16.69p 2.71p 23.92p 26.63p 8.83p 6.82p 15.65p

The Total column of this statement is the profit and loss account of the Company. The Revenue and Capital columns are both provided in accordance with guidance issued by The Association of Investment Companies. The Company has no recognised gains or losses other than those disclosed in the Income Statement and the Reconciliation of Movements in Shareholders' Funds. Accordingly no Statement of Total Recognised Gains and Losses is presented.

All Revenue and Capital items in the above statement derive from continuing operations. No operations were acquired or discontinued in the period.

The notes below form an integral part of these accounts.

Reconciliation of Movements in Shareholders' Funds

For the six months ended 29 February 2012 (Unaudited)

Called-up Capital Share Share Warrant

share redemption premium purchase exercise Capital Revenue

capital reserve account reserve reserve reserve reserve* Total

£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000

Balance at 1 September 2011 6,869 2,011 7,404 34,936 1,596 76,413 5,558 134,787

Net return from ordinary activities - - - - - 8,885 2,582 11,467

Ordinary dividends paid - - - - - - (4,465) (4,465)

At 29 February 2012 6,869 2,011 7,404 34,936 1,596 85,298 3,675 141,789

For the six months ended 28 February 2011 (Unaudited)

Called-up Capital Share Share Warrant

share redemption premium purchase exercise Capital Revenue

capital reserve account reserve reserve reserve reserve* Total

£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000

Balance at 1 September 2010 6,869 2,011 7,404 34,936 1,596 71,728 5,744 130,288

Net return from ordinary activities - - - - - 16,429 1,863 18,292

Ordinary dividends paid - - - - - - (4,053) (4,053)

At 28 February 2011 6,869 2,011 7,404 34,936 1,596 88,157 3,554 144,527

For the year ended 31 August 2011 (Audited)

Called-up Capital Share Share Warrant

share redemption premium purchase exercise Capital Revenue

capital reserve account reserve reserve reserve reserve* Total

£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000

Balance at 1 September 2010 6,869 2,011 7,404 34,936 1,596 71,728 5,744 130,288

Net return from ordinary activities - - - - - 4,685 6,065 10,750

Ordinary dividends paid - - - - - - (6,251) (6,251)

At 31 August 2011 6,869 2,011 7,404 34,936 1,596 76,413 5,558 134,787

* The revenue reserve represents the amount of the Company's reserves distributable by way of dividend.

The notes below form an integral part of these accounts.

Balance Sheet

(Unaudited) (Unaudited) (Audited)

At 29 February At 28 February At 31 August

2012 2011 2011

Note £'000 £'000 £'000

Fixed assets

Investments held at fair value

through profit or loss 144,633 143,797 132,913

144,633 143,797 132,913

Current assets

Debtors 819 582 1,015

Cash at bank and short-term deposits 1,384 482 1,314

2,203 1,064 2,329

Current liabilities

Creditors - amounts falling due within one year 6 (4,846) (334) (445)

Fair value of open derivative contracts

investment liabilities (201) - (10)

(5,047) (334) (455)

Net current (liabilities)/assets (2,844) 730 1,874

Net assets 141,789 144,527 134,787

Capital and reserves

Called-up share capital 6,869 6,869 6,869

Capital redemption reserve 2,011 2,011 2,011

Share premium account 7,404 7,404 7,404

Share purchase reserve 34,936 34,936 34,936

Warrant exercise reserve 1,596 1,596 1,596

Capital reserve 85,298 88,157 76,413

Revenue reserve 3,675 3,554 5,558

Equity shareholders' funds 141,789 144,527 134,787

Net asset value per ordinary share 7 206.42p 210.41p 196.23p

The notes below form an integral part of these accounts.

Cash Flow Statement

(Unaudited) (Unaudited) (Audited)

For the six For the six For the

months ended months ended year ended

29 February 2012 28 February 2011 31 August 2011

£'000 £'000 £'000

Net cash inflow from operating activities 2,388 1,831 5,418

Taxation paid (7) - (55)

Net cash (outflow)/inflow from investment activities (2,346) 1,642 1,119

Equity dividends paid (4,465) (4,053) (6,251)

Net cash inflow from financing 4,500 - -

Net cash inflow/(outflow) 70 (580) 231

Reconciliation of net cash flow to movement in net funds

Net cash inflow/(outflow) 70 (580) 231

Net funds at 1 September 1,314 1,069 1,069

Currency (losses)/gains - (7) 14

Net funds at period end 1,384 482 1,314

The notes below form an integral part of these accounts.

Notes to the Accounts

1. Accounting policies

The financial information for each of the six month periods ended 29 February 2012 and 28 February 2011 comprises non-statutory accounts within the meaning of sections 434 - 436 of the Companies Act 2006. The financial information for the year ended 31 August 2011 has been extracted from published accounts that have been delivered to the Registrar of Companies and on which the report of the auditors was unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement under section 498(2) or (3) of the Companies Act 2006.

The Company's accounting policies have not varied from those described in the Report and Accounts for the year ended 31 August 2011.

2. Income

(Unaudited) (Unaudited) (Audited)

For the six For the six For the

months ended months ended year ended

29 February 2012 28 February 2011 31 August 2011

£'000 £'000 £'000

Income from investments:

UK franked dividend income 2,234 2,181 6,296

UK franked Special dividend income 488 68 127

Overseas dividend income 127 - 363

2,849 2,249 6,786

Option premium income 189 - 101

Interest on deposits 3 3 7

3,041 2,252 6,894

Capital:

Special dividends allocated to capital 26 - -

3,067 2,252 6,894

3. Investment management fees and interest payable

The investment management fee is apportioned 50% to revenue and 50% to capital; the performance fee is apportioned 100% capital.

4. Return per ordinary share

(Unaudited) (Unaudited) (Audited)

For the six For the six For the

months ended months ended year ended

29 February 2012 28 February 2011 31 August 2011

Revenue (£'000) 2,582 1,863 6,065

Capital (£'000) 8,885 16,429 4,685

Total (£'000) 11,467 18,292 10,750

Weighted average number of ordinary shares in issue 68,688,343 68,688,343 68,688,343

Revenue 3.76p 2.71p 8.83p

Capital 12.93p 23.92p 6.82p

Total 16.69p 26.63p 15.65p

5. Dividends

The second interim dividend of 2.00 pence per Ordinary share for the year ending 31 August 2012 will be paid on 30 April 2012 to shareholders on the register at 10 April 2012. A first interim dividend of 2.00 pence per Ordinary share was paid on 31 January 2012. In total, dividends of 4.00 pence per share have been declared for the year ending 31 August 2012.

6. Creditors: amounts falling due within one year

The Company has a £7 million revolving credit facility with Scotiabank Europe PLC (unsecured), of which £4.5 million (31 August 2011: nil) was drawn at the period end. This amount is included within creditors of £4.8 million.

7. Net asset value per ordinary share

(Unaudited) (Unaudited) (Audited)

29 February 2012 28 February 2011 31 August 2011

Net assets attributable to ordinary shareholders (£'000) 141,789 144,527 134,787

Ordinary shares in issue at end of period 68,688,343 68,688,343 68,688,343

Net asset value per ordinary share 206.42p 210.41p 196.23p

This information is provided by RNS

The company news service from the London Stock Exchange

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