Half Yearly Report
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:
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
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