Annual Financial Report

RNS Number : 5660X

Schroder UK Mid Cap Fund PLC

20 December 2019

 

20 December 2019

ANNUAL REPORT AND ACCOUNTS

Schroder UK Mid Cap Fund plc (the "Company") hereby submits its annual report for the year ended 30 September 2019 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 September 2019 are also being published in hard copy format and an electronic copy will shortly be available to download from the Company's webpages www.schroders.co.uk/ukmidcap.  Please click on the following link to view the document:

http://www.rns-pdf.londonstockexchange.com/rns/5660X_1-2019-12-19.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:

Matthew Riley

Schroder Investment Management Limited                      

Tel: [phone]

Chairman's Statement

Performance

For the year ended 30 September 2019, the Company's NAV produced a positive total return of 1.8% and its share price a total return of 4.0% against the Benchmark's total return of 0.2%. The Company's long-term performance record remains strong, with both 10 year NAV and share price annualised total returns in excess of 12%, again outperforming the Benchmark. Between the year end and 18 December 2019, the Company's portfolio of liquid, listed equities, benefiting from the UK election result, delivered a positive performance; the Company's NAV rose by 12.8% and its share price was up 19.6% to 646p, both ahead of the Benchmark, which increased by 10.3% in the period.

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

Revenue and dividend

Revenue return per share increased by 21.8% (2018: 20.2%), largely due to strong cash flows from investee companies and highlighting one of the key tenets of the Manager's investment selection process. As a result of this and in line with the Company's policy of paying out substantially all its revenue, the directors recommend the payment of a final dividend of 14.7p  per share for the year ended 30 September 2019.

The proposed final dividend, combined with the interim dividend of 3.8p per share paid during the year, brings total dividends for the year to 18.5p per share, an increase of 15.6% over dividends declared in respect of the previous financial year. At the current share price of 646p (as at 18 December 2019) this represents a yield of 2.9%.

A resolution approving the payment of the final dividend for the year ended 30 September 2019 will be proposed at the forthcoming Annual General Meeting ("AGM"). If the resolution is passed, the dividend will be paid on 3 February 2020 to shareholders on the register on 3 January 2020.

Management fees

During the year under review, the board agreed with the Manager to reduce the fees paid to the Manager to 0.65% of net assets for the first £250 million of assets, reducing to 0.6% for net assets over £250 million. The change took effect from 29 November 2018.

Gearing

During the year, the Company renewed its revolving credit facility with Scotiabank Europe Plc, taking the opportunity to increase the maximum amount the Company can borrow under the facility from £15 million to £25 million. The Manager made tactical use of the facility during the year, drawing down up to £15 million to exploit investment opportunities, thereby boosting returns for shareholders and repaid the facility upon realising investments. At the year end the gearing was 4.3%. Parameters for the use of gearing are reviewed regularly by the board.

Discount management

The Company's share price discount to NAV per share narrowed from 16.0% to 14.8% during the year. The average discount for the year was 15.3% and it ranged between 9.5% and 18.8%. At 18 December 2019, the discount was 9.6%. The board monitored the discount throughout the year and received input from the Company's broker and the Manager.

Your board believes that the best way to close the share price discount is to increase demand for the Company's shares using effective marketing, and a continuation of the Company's strong longer-term performance. In addition, the board commenced a series of share buybacks on 17 September 2019 when the share price discount to NAV was 15.7% and 490,000 shares have been repurchased since then. These buybacks have been accretive to remaining shareholders and have provided additional useful liquidity.

Following the UK general election result on 13 December 2019, the share price discount to NAV has closed materially, suggesting that the discount had been driven by sentiment about the UK mid cap sector in which the Company invests. Whilst this material closing of the discount is welcome, the board continues to actively monitor the discount levels and currently intends to continue to use the Company's buyback programme as appropriate.

At the Company's last AGM, the Company was given the authority to purchase up to 14.99% of its issued share capital. We propose that share buyback authorities be renewed at the forthcoming AGM and that any shares so purchased be cancelled or held in treasury for potential reissue at a premium to NAV.

Board succession and governance code

The board undertook its annual review of its composition. In accordance with best practice, it has determined a policy for board and Chairman succession. All members of the board, including the Chairman, will normally retire no later than the AGM following the 9^th anniversary of joining the board although this can vary to take account of specific circumstances, for example, to avoid two directors retiring at the same time.

Pursuant to this policy, Robert Rickman will retire immediately following the AGM in January having completed nine years' service on the board. Robert has made an excellent contribution at our meetings and I would like to take this opportunity to thank him for all he has done for the Company.  The Nomination Committee with the support of external consultants interviewed a number of strong candidates in December 2019. We are pleased to announce that following this process, Wendy Colquhoun has agreed to join the board of directors effective 1 January 2020.

Wendy is a qualified solicitor who has extensive experience and a thorough understanding of investment trusts and the regulatory and other challenges they face. Wendy is a non-executive director of Henderson Opportunities Trust plc and is a director and chair of the risk and governance committee of Scottish Financial Enterprise.

In accordance with this policy it is my intention to retire following the 2021 AGM and arrangements will be made during 2020 to select my successor.

A new AIC Code of Corporate Governance was issued in the course of the year and will take effect from the next accounting period. The board has decided to adopt this Code which is specifically designed for investment trusts in preference to the Financial Reporting Council's Code.

Outlook

Our Company has faced two conflicting themes for at least three years. On the one hand, most of the companies in the portfolio have fully lived up to our expectations, reflected in investment income that has risen by more than half since 2016. On the other hand, uncertainty about the UK's prospects - as reflected in the debate over Brexit, sterling volatility, and who might next be in government - has left UK mid-caps bordering on being a friendless asset class. This combination led to the Company's shares being on a dividend yield well above official UK interest rates and inflation, and, over the reporting period, at a larger discount to NAV than we would like, albeit narrowing most recently for reasons discussed above and below.

Investors in domestic stocks have responded very positively to the recent decisive Conservative victory in the UK general election, with this being reflected in both the share prices of companies in which the Company invests, and the Company's share price. We hope that this new found optimism about domestic stocks will continue, but our confidence in the future remains primarily in the quality of the holdings. Their ability to keep growing cannot be completely independent of the broader issues and potentially more difficult economic conditions worldwide next year, but if our manager can keep on choosing the right companies the growth in our investment income will continue to be reflected in the share price. It is welcome news that the share price is up 19.6% since the year end after the bounce in sterling and confidence in the election result. This situation is dynamic, but if our holdings keep on doing well so will we.

Annual General Meeting

The Company's AGM will be held at 12.00 noon on Tuesday, 28 January 2020 and shareholders are encouraged to attend. The meeting will include a presentation by the Manager on the prospects for the UK market and the Company's investment strategy.

Eric Sanderson

Chairman

19 December 2019

Manager's Review

Market review

UK mid caps struggled to make progress in what was a mixed period for global stock markets. The Benchmark rose 0.2%, compared to a 3.2% gain in the FTSE 100 index (source: Morningstar).

The final quarter of 2018 was one of the worst quarters for global equities in many years as fears over the outlook for the world economy came to a head against a backdrop of tightening monetary conditions, US-China trade tensions and European political uncertainty. Global equities bounced back sharply in Q1 2019 in response to dovish commentary from central banks, with the US Federal Reserve ("Fed") and European Central Bank ("ECB") tempering expectations for tighter monetary policy. Expectations for monetary policy then shifted materially over Q2 2019, notably so in the US where the market began to speculate that the Fed could cut interest rates.

The Fed subsequently did cut rates, the first reductions since 2008. This spurred other central banks to also loosen monetary policy, including the ECB which cut rates and announced it would be re-starting quantitative easing. Data published towards the end of the period confirmed that growth in the world's major economies had decelerated in 2019. Forward-looking indicators pointed to a further softening in the economic and inflation outlook, with manufacturing particularly weak.

Brexit and domestic political uncertainty remained elevated, but the UK equity market became slightly less negative about these towards the end of the 12 month period. At 13 December 2019 the Benchmark is 9.6% up on the end of September.

Portfolio performance

The Company's NAV outperformed the Benchmark by 1.6% during the period (source: Morningstar, 30 September 2019) due to the stock selection.

The outperformance had a very domestic flavour, with three of the top five contributors (homewares retailer Dunelm, pet supplies and veterinary services company Pets At Home and multi-utility supplier Telecom Plus) deriving all of their profits from the UK. UK households continue to increase their spend in certain areas of the market, for example on homewares and on their pets, to the benefit of Dunelm and Pets At Home respectively.

Furthermore, these companies represent prime examples of the long-term growth opportunities we seek out as part of our investment process of selecting dynamic, high-quality companies; those with organic growth, pricing power and strong management teams, with disruptive tendencies. Dunelm has bucked the gloomy retail trend with strong performance driven by the company's willingness to adapt and transition to online. Pets At Home, which posted better-than-expected results, has also been a good example of a retailer giving customers what they want, coping well with the shift online and investing to improve customer experience both online and in-store. Multi-utility supplier Telecom Plus continued its very strong performance of last year into this reporting period. Telecom Plus benefited from the implementation of the energy price cap and published a strong set of results as well as a positive outlook statement.

The increasing amount of money being allocated to private equity at the expense of the stock market continued to benefit Intermediate Capital. This long-term growth opportunity stock saw steady earnings upgrades throughout the period, as investors increased their allocations to private equity.

JD Sports Fashion was another top performer, again bucking the trend in retail thanks to its success in appealing to a young, high-income demographic while diversifying its operations into the US and Europe. In line with our stated strategy, we sold the shares following its promotion to the FTSE 100. The same was true of Hikma Pharmaceuticals and Phoenix.

On the negative side, shares in branded clothing company Superdry were hit by a number of profit warnings. Management in part blamed unseasonably warm weather for poor autumn trading as it materially guided down profit forecasts. The group's founder and most significant shareholder has since returned to the company in order to effect a turnaround, with the support of Peter Williams as chairman (whose retail experience includes Boohoo, ASOS and Selfridges) and a critical mass of shareholders. The company therefore represents an opportunistic idea in the portfolio, with strong Black Friday trading results adding comfort.

Saga rebased its earnings and dividend expectations to reinvest in in the business. The new cruise ships are seeing high levels of bookings and we would expect the shares to recover.

Petrofac shares has been overshadowed by a Serious Fraud Office investigation which has now started to affect orders from markets such as Saudi Arabia. We believe that the shares are pricing in a large fine, something management does not expect to materialise, as evidenced, in our view, by significant management share purchases.

Ground engineering specialist Keller warned on profits due to weakness in its Asia Pacific business. Management has taken steps to address this, and after the period end, a solid outlook statement has helped to buoy the shares. A lower gearing target range set out by the new finance director is a welcome development. The market awaits to see whether the expected orders materialise. A trading statement post the period end confirmed that management expectations for 2019 were unchanged.

Ted Baker was another negative after a profit warning. The warning followed company-specific issues after the departure of the founder CEO and tough trading conditions facing its branded clothes retailing business. Ted Baker remains a strong brand both here in the UK and internationally.

Turning to stocks not held, the Company benefited from not owning challenger bank CYBG (now named Virgin Money UK), which revealed that the likely financial impact of PPI compensation claims would be significantly greater than previously thought. Avoiding the latter's peer, Metro Bank, was also positive for relative performance amid fears around the strength of its capital position.

The Company further benefited from not holding retail property developer Hammerson which is struggling due to its exposure to the wrong kinds of retail property. Sirius Minerals experienced a pronounced decline in its equity value related to funding for a proposed potash mine in Yorkshire.

Lastly, relative returns suffered from not holding pub retailer and brewer Greene King and aerospace and defence supplier Cobham, both bid for by private equity companies. Polymetal and other mining stocks recovered strongly. We prefer to play this sector through Anglo Pacific which provides exposure to the royalties from a commodity and a strongly growing dividend with less mining risk.

GVC fell out of the FTSE 100 and then recovered strongly. We avoided the shares due to large share sales by the Board and concerns over corporate governance of the company. Meanwhile, Greggs performed strongly in the retail sector but we already have significant exposure to this sector through Dunelm and Pets At Home.

Portfolio activity

Our investment strategy is centred around selecting dynamic, high-quality growth companies - what we would call long-term growth opportunities; those with organic growth, pricing power and strong management teams, with disruptive tendencies. Examples of new holdings meeting these criteria this year included defence technology business QinetiQ. Interim results show the group delivered organic revenue growth of 10% while the order book grew by 30%. Cash conversion remained strong, which helped to further bolster the net cash balance sheet. The strong balance sheet provides downside protection for investors, while the relatively new management team is doing a good job of driving growth, diversifying away from the UK and enhancing revenue visibility.

Another is miniatures manufacturer and hobby retailer Games Workshop, after the share fell over 20% from its September high. This was despite results showing that Q1 trading had been robust against tough comparatives, prompting earnings upgrades against conservatively set expectations. In addition, management declared a dividend at a similar level to the one paid last year, indicating that cashflows had remained strong. Post the period end, strong trading has led to a further upgrade.

Another long-term growth opportunity was US-focussed promotional merchandise specialist 4imprint, which is benefiting from structural growth drivers, and fast-growing media company Future. Future gained entry to the FTSE 250 after upgrading to the Premium Segment of the Main Market of the London Stock Exchange. We established a new holding in technology products and services supplier Oxford Instruments which has exposure to a number of high growth areas including 5G, quantum technologies and electric vehicles. We added property company St Modwen for its exposure to the structural growth area of industrial property. Serviced office space specialist IWG was also added to the portfolio. We believe that its franchising opportunity, demonstrated by a deal in Japan, has been undervalued by the market. Two further franchise deals have followed, underlining our conviction in the investment thesis.

More opportunistic purchases included a position in Premier Oil at a time when the company is rapidly deleveraging alongside strong production. We also initiated a new position in speciality chemicals business Synthomer following its proposed acquisition of US-based peer Omnova Solutions, which we expect should significantly enhance the company's growth profile. Following a recommended bid by private equity, we exited the position in BCA Marketplace, owner of the WeBuyAnyCar.com website.

Other sales included pharmaceuticals company Indivior as the US legal patent backdrop began to affect the investment case, and Talk Talk Telecom as evidence of a more intense price war in the sector began to emerge. We sold the remaining small position in clothing retailer NBrown because of increased and unrelenting competition. We sold out of office and studio space provider Workspace at a profit upon the departure of the CEO. We exited industrial thread manufacturer Coats at a profit, based on concerns around where growth would come from, and UK tour operator Thomas Cook given uncertainties around the balance sheet.

Outlook

Recent surveys indicate that UK consumer confidence remains stable and that UK consumers are more confident about their personal economic situation than about the country's general economic prospects. It is perhaps not that surprising therefore that Brexit uncertainty has yet to have much of an impact on household spending. In fact, household spending (three quarters of all spending in the economy) rose by an estimated £52.5 billion in 2018, following similar rises in prior years (source: Lazarus Economics). Recently released data shows that growth in household spend has continued in 2019 at a similar rate.

It would also appear that this growth is reasonably sustainable, underpinned by a strong jobs market, higher wages and tax changes. The unemployment rate is close to its lowest since the 1970s, and wages are growing at almost the fastest rate in a decade, continuing to outstrip inflation. There has historically been a close correlation between real wage growth and retail sales, and labour market data that the backdrop for wages remains supportive.

In the meantime we are starting to see an increase in corporate activity as private acquirers take advantage of cheap sterling assets. It appears that valuations are such that acquirers are no longer waiting for a resolution to Brexit negotiations. We are also continuing to see companies using the low interest rates to make acquisitions to supplement organic growth, and it seems likely that this interest rate environment can endure.

We will continue to seek companies demonstrating organic growth and pricing power where possible and to avoid companies with too much debt. Disruption continues to be a feature for a lot of companies, putting pressure on earnings for a number of sectors, and we will therefore endeavour to identify and avoid these companies.

The UK political backdrop might be expected to have a positive effect, contrary to what we have seen over the past three years and more. In any case, the evidence from the UK consumer, driven by strong labour market forces, indicates that being underweight UK equities could be wrong. We therefore preserve a focus on what companies do every day, whether their customers still need and value them, and on the nuts and bolts of cash flow and valuation in order to select both our "long-term growth opportunity" and our "opportunistic ideas" stocks. One example of a company operating in segments of structural growth with disruptive qualities is Homeserve, whose Checkatrade business is disrupting the status quo of the trades market. Another is specialty chemicals company Victrex, whose polymer is being used in aircraft, cars and even tooth implants, displacing metal. We continue to seek out the next midcap disruptor, while looking to avoid exposure to the next industry to be disrupted.

We believe that the holdings are well placed to continue to generate superior long-term returns. Many are enjoying a virtuous circle where a rising stream of earnings is underpinning progressive dividend policies and simultaneously supporting reinvestment into the business to drive future growth. Market attention has come back to these types of companies in recent months, and we look forward to this continuing.

Schroder Investment Management Limited

19 December 2019

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 and risk 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 the Company's 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 September 2019.

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.

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

Emerging risks and uncertainties

During the year, the board also discussed and monitored a number of risks that could potentially impact the Company's ability to meet its strategic objectives. These were political risk and climate change risk. The board has determined they are not currently material for the Company

Political risk includes Brexit. The board continues to monitor developments for the UK's departure from the European Union and to assess the potential consequences for the Company's future activities, but believes that the Company's portfolio of assets positions the Company to be suitably insulated from Brexit related risks. The board is also mindful that changes to public policy in the UK could impact the Company in the future.

Climate change risk includes how climate change could affect the Company's investments, and potentially shareholder returns.

Risk	Mitigation and management
Strategic The requirements of investors change or diverge in such a way as to diverge from the Company's investment objectives, resulting in a wide discount of the share price to underlying NAV per share.	The appropriateness of the Company's investment remit is periodically reviewed and the success of the Company in meeting its stated objectives is monitored. The share price relative to NAV per share is monitored and the use of buy back authorities is considered on a regular basis. Marketing and distribution activity is actively reviewed. The Company engages proactively with investors.
The Company's cost base could become uncompetitive, particularly in light of open ended alternatives.	The ongoing competitiveness of all service provider fees is subject to periodic benchmarking against their competitors. Annual consideration of management fee levels is undertaken.
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 its agreed investment restrictions, investment performance and risk against investment objectives and strategy; relative performance; the portfolio's risk profile; and whether appropriate strategies are employed to mitigate any negative impact of substantial changes in markets. Annual review of the ongoing suitability of the Manager, including resources and key personnel risk.
Financial 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 risk profile of the portfolio is considered and appropriate strategies to mitigate any negative impact of substantial changes in markets are discussed with the Manager.
Custody Safe custody of the Company's assets may be compromised through control failures by the depositary, including cyber hacking.	The depositary reports on the safe custody of the Company's assets, including cash and portfolio holdings which are independently reconciled with the Manager's records. The review of SOC1/ISAE 3402 internal controls reports covering custodial arrangements is undertaken. An annual report from the depositary on its activities, including matters arising from custody operations is received.
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 are imposed: gearing continues to operate within pre-agreed limits so as not to exceed 25% of total assets.
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.	The confirmation of compliance with relevant laws and regulations by key service providers is reviewed. Shareholder documents and announcements, including the Company's published Annual Report are subject to stringent review processes. Procedures are established to safeguard against the disclosure of inside information.
Service provider The Company has no employees and has delegated certain functions to a number of service providers. 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 are appointed subject to due diligence processes and with clearly-documented contractual arrangements detailing service expectations. Regular reports are provided by key service providers and the quality of their services is monitored. Review of annual SOC1/ISAE 3402internal controls reports from key service providers, including confirmation of business continuity arrangements and IT controls is undertaken.
Cyber The Company's service providers are all exposed to the risk of cyber attacks. Cyber attacks could lead to loss of personal or confidential information or disrupt operations.	Service providers report on cyber risk mitigation and management at least annually, which includes confirmation of business continuity capability in the event of a cyber attack.

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 and risk 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 and risk 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 48 of the 2019 Annual Report.

Viability statement

The directors have assessed the viability of the Company over a five year period to 30 September 2024, taking into account the Company's position at 30 September 2019 and the potential impacts of the principal risks and  uncertainties it faces for the review period.

This period has been chosen 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 14 and 15 of the 2019 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.

The directors have considered the Company's one-year £25 million revolving credit facility and know of no reason

why this will not be renewed on expiry. If the revolving credit facility were not to be renewed it would not pose a threat to the Company's viability over the next five years.

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 five year period of their assessment.

Going concern

The directors believe that the Company has adequate resources to continue operating for at least 12  months from the date of approval of these accounts. In forming this opinion, the directors have taken into consideration: the controls and monitoring processes in place; the Company's low level of debt and other payables; the low level of operating expenses, comprising largely variable costs which would reduce pro rata in the event of a market downturn; and that the Company's assets comprise cash and readily realisable securities quoted in active markets.

Statement of Directors' Responsibilities in respect of the Annual Report and Accounts

The directors are responsible for preparing the annual report and accounts in accordance with applicable law and regulations.

Company law requires the directors to prepare financial statements for each financial year. Under that law they are required to prepare the financial statements in accordance with UK accounting standards, including FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland.

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 its profit or loss for that period. In preparing these financial statements, the directors are required to:

•           select suitable accounting policies and then apply them consistently;

•           make judgements and accounting estimates that are reasonable and prudent;

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

•           assess the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and

•           use the going concern basis of accounting unless they either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so.

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. They are responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities.

Under applicable law and regulations, the directors are also responsible for preparing a Strategic Report, Directors' Report, Directors' Remuneration Report and Corporate Governance Statement that comply with that law and those regulations.

The directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Responsibility statement of the directors in respect of the annual report and accounts

We confirm that to the best of our 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.

We consider 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.

On behalf of the board

Eric Sanderson

Chairman

19 December 2019

Income Statement for the year ended 30 September 2019

		2019			2018
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
(Losses)/gains on investments held at fair value through profit or loss
	-	(3,615)	(3,615)	-	1,607	1,607
Income from investments	8,260	615	8,875	6,997	1,459	8,456
Other interest receivable and similar income	9	-	9	7	-	7
Gross return/(loss)	8,269	(3,000)	5,269	7,004	3,066	10,070
Investment management fee	(442)	(1,032)	(1,474)	(485)	(1,133)	(1,618)
Administrative expenses	(476)	-	(476)	(482)	-	(482)
Net return/(loss) before finance costs and taxation
	7,351	(4,032)	3,319	6,037	1,933	7,970
Finance costs	(39)	(91)	(130)	(10)	(23)	(33)
Net return/(loss) on ordinary activities before taxation
	7,312	(4,123)	3,189	6,027	1,910	7,937
Taxation on ordinary activities	13	-	13	(12)	-	(12)
Net return/(loss) on ordinary activities after taxation
	7,325	(4,123)	3,202	6,015	1,910	7,925
Return/(loss) per share	20.43p	(11.50)p	8.93p	16.78p	5.33p	22.11p

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 September 2019

	Called-up		Capital		Share
	share	Share	redemption	Merger	purchase	Capital	Revenue
	capital	premium	reserve	reserve	reserve	reserves	reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 30 September 2017	9,036	13,971	220	2,184	13,934	180,277	6,955	226,577
Net return on ordinary activities	-	-	-	-	-	1,910	6,015	7,925
Dividends paid in the year	-	-	-	-	-	-	(4,768)	(4,768)
At 30 September 2018	9,036	13,971	220	2,184	13,934	182,187	8,202	229,734
Repurchase of the Company's own shares into treasury
	-	-	-	-	(597)	-	-	(597)
Net (loss)/return on ordinary activities
	-	-	-	-	-	(4,123)	7,325	3,202
Dividends paid in the year	-	-	-	-	-	-	(5,915)	(5,915)
At 30 September 2019	9,036	13,971	220	2,184	13,337	178,064	9,612	226,424

Statement of Financial Position at 30 September 2019

	2019	2018
	£'000	£'000
Fixed assets
Investments held at fair value through profit or loss	232,621	221,691
Current assets
Debtors	3,990	1,796
Cash at bank and in hand	356	6,781
	4,346	8,577
Current liabilities
Creditors: amounts falling due within one year	(10,543)	(534)
Net current (liabilities)/assets	(6,197)	8,043
Net assets	226,424	229,734
Capital and reserves
Called-up share capital	9,036	9,036
Share premium	13,971	13,971
Capital redemption reserve	220	220
Merger reserve	2,184	2,184
Share purchase reserve	13,337	13,934
Capital reserves	178,064	182,187
Revenue reserve	9,612	8,202
Total equity shareholders' funds	226,424	229,734
Net asset value per share	633.51p	640.80p

These accounts were approved and authorised for issue by the board of directors on 19 December 2019 and signed on its behalf by:

Eric Sanderson

Chairman

Notes to the Accounts

1.             Accounting Policies

Basis of accounting

Schroder UK Mid Cap Fund plc ("the Company") is registered in Scotland as a public company limited by shares. The Company's registered office is 1 Exchange Crescent , Edinburgh, EH3 8UL.

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 February 2018. All of the Company's operations are of a continuing nature.

The accounts have been prepared on going concern basis under the historical cost convention, as modified by the revaluation of investments held at fair value through profit or loss. The directors believe that the Company has adequate resources to continue operating for at least 12 months from the date of approval of these accounts. In forming this opinion, the directors have taken into consideration: the controls and monitoring processes in place; the Company's  low level of debt and other payables; the low level of operating expenses, comprising largely variable costs which would reduce pro rata in the event of a market downturn; and that the Company's assets comprise cash and readily realisable securities quoted in active markets.

The Company has not presented a statement of cash flows, as it is not required for an investment trust which meets certain conditions.

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 September 2018.

No significant judgements, estimates or assumptions have been required in the preparation of the accounts for the current or preceding financial years.

2.             Taxation on ordinary activities

The Company's effective corporation tax rate is nil, as deductible expenses exceed taxable income. Taxation comprises irrecoverable overseas withholding tax deducted from dividends receivable.

3.             Dividends

Dividends paid and declared

	2019	2018
	£'000	£'000
2018 final dividend of 12.7p (2017: 10.0p) paid out of revenue profits	4,553	3,585
Interim dividend of 3.8p (2018: 3.3p) paid out of revenue profits	1,362	1,183
Total dividends paid in the year	5,915	4,768

	2019	2018
	£'000	£'000
2019 final dividend declared of 14.7p (2018: 12.7p) to be paid out of revenue profits	5,254	4,553

4.             Return per share

	2019	2018
	£'000	£'000
Revenue return	7,325	6,015
Capital (loss)/return	(4,123)	1,910
Total return	3,202	7,925
Weighted average number of shares in issue during the year	35,848,258	35,851,190
Revenue return per share	20.43p	16.78p
Capital (loss)/return per share	(11.50)p	5.33p
Total return per share	8.93p	22.11p

5.             Called up share capital

	2019	2018
	£'000	£'000
Allotted, called up and fully paid: Ordinary shares of 25p each: Opening balance of 35,851,190 (2018: same) shares, excluding shares held in treasury Repurchase of 110,000 (2018: nil) shares into treasury	8963     (28)	8963     -
Subtotal of 35,741,190 (2018: 35,851,190) shares	8,935	8,963
402,500 (2018:292,500) shares held in treasury	101	73
Closing balance	9,036	9,036

6.             Net asset value per share

	2019	2018
Net assets attributable to the Ordinary shareholders (£'000)	226,424	229,734
Shares in issue at the year end	35,741,190	35,851,190
Net asset value per share	633.51p	640.80p

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 that financial instruments held at fair value are categorised into a hierarchy consisting of the three levels below. A fair value measurement is categorised in its entirety on the basis of the lowest level input that is significant to the fair value measurement.

Level 1: valued using unadjusted quoted prices in an active market for identical assets.

Level 2: valued using inputs other than quoted prices included within Level 1, that are observable (ie developed using market data).

Level 3: valued using inputs that are unobservable (ie for which market data is unavailable).

Details of the valuation techniques used by the Company are given in note 1(b) on page 38 of the 2019 annual report.

At 30 September 2019, the Company's investments were all categorised in Level 1 (2018: same).

8.             Status of announcement

2018 Financial Information

The figures and financial information for 2018 are extracted from the published annual report and accounts for the year ended 30 September 2018 and do not constitute the statutory accounts for that year. The 2018 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.

2019 Financial Information

The figures and financial information for 2019 are extracted from the annual report and accounts for the year ended 30 September 2019 and do not constitute the statutory accounts for the year. The 2019 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 2019 annual report and accounts will be delivered to the Registrar of Companies in due course.

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

 

END

 

 

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