TIDMSCF
RNS Number : 8407G
Schroder Income Growth Fund PLC
09 November 2018
9 November 2018
ANNUAL REPORT AND ACCOUNTS
Schroder Income Growth Fund plc (the "Company") hereby submits
its annual report for the year ended 31 August 2018 as required by
the UK Listing Authority's Disclosure Guidance and Transparency
Rule 4.1.
The annual report is also being published in hard copy format
and an electronic copy will shortly be available to download from
the Company's webpages http://www.schroders.co.uk/incomegrowth.
Please click on the following link to view the document:
http://www.rns-pdf.londonstockexchange.com/rns/8407G_1-2018-11-8.pdf
The Company has submitted the annual report to the National
Storage Mechanism and it will shortly be available for inspection
at www.morningstar.co.uk/uk/NSM.
Enquiries:
Louise Richard
Schroder Investment Management Limited
Tel: 020 7658 6501
Chairman's Statement
Revenue, dividends and performance
Your Company's record of declaring a rising dividend each year
since launch remained unbroken in the year ended 31 August 2018,
with a total distribution of 11.80 pence per share, representing a
rise of 5.4% over the previous year. This increase is twice that of
the 2.7% achieved by the Consumer Prices Index over the same
period, and has helped the Company to continue meeting one of its
primary objectives: to provide real growth of income, being growth
of income in excess of the rate of inflation.
Over the 10 years to 31 August 2018, the annual dividend has
increased by 36%, versus a 25% rise in inflation, and the revenue
reserve available to supplement future dividends, if needed, has
increased from GBP4.1 million to GBP7.4 million.
The revenue return per share fell by 3.8% this year, partly
reflecting receipt of fewer special dividends than last year, but
also from a large proportion of dollar-denominated dividends having
been received during the first half of the year while the dollar
was weak. The board had anticipated the likelihood of this when
setting last year's dividend, and with your Company's revenue
reserves remaining strong, the increase in dividend remains well
covered by this year's income.
The Company's net asset value ("NAV") rose by 4.0% in total
return terms, marginally behind the FTSE All-Share Index. The
reasons behind this are discussed in the Manager's Review, which
includes detailed commentary on the portfolio and its performance
during the year.
Share price discount and buy backs
At the same time, your Company's share price rose 3.0% more than
the underlying NAV in total return terms, reflecting a narrowing in
the share price discount to NAV, from 6.9% to 4.6%, a level close
to today's. Although the average discount over the whole year was a
higher 8.0%, and greater than the board would prefer, it is
encouraging to see that an improving trend set in during the latter
part of the year, arising from increased investor interest in the
Company's shares.
The board continues to closely monitor the level of the discount
relative to its peer group and to consider whether it would be
appropriate to buy back shares, while taking into account
prevailing market conditions. In the event, no shares were bought
back (or issued) during the year. However, your board continues to
believe that retaining the ability to do so is a valuable potential
tool in reducing the volatility of the share price relative to NAV.
It will therefore be seeking to renew the existing authority
through the resolutions set out in the Notice of Annual General
Meeting.
Gearing
Your Manager continues to utilise the gearing facility and,
following a review of the structure of the Company's borrowings,
the board agreed to extend the GBP20 million revolving credit
facility with Scotiabank Europe plc for a further year, to August
2019. At the start of the year, gearing stood at 5.8%, increasing
to 8.3% as at 31 August 2018.
Management fee
I am pleased to report that the board has negotiated a reduction
in the Company's management fee from a flat 0.75% per annum on the
value of the Company's assets under management, net of current
liabilities other than short-term borrowings, less any cash up to
the level of borrowings ("chargeable assets"), to a reduced, tiered
fee. The new fee will be charged at the rate of 0.65% per annum on
the first GBP200 million and 0.55% per annum on subsequent amounts,
taking effect from 1 September 2018. Based on the Company's NAV as
at 31 August 2018, this new arrangement would reduce the annual fee
from GBP1,733,000 to GBP1,471,000. This represents a material
reduction in costs of GBP262,000 per annum had the new fee
arrangements been applied to the Company's year-end chargeable
assets, which will increase the income available for distribution
to shareholders and/or will be allocated to reserves to increase
the dividend cover.
Board composition and succession planning
Your board recognises the increasing governance focus on
succession planning and board diversity, with heightened investor
interest and emphasis on these matters. Having reviewed the board's
composition, balance and diversity, I confirm that the board is
prioritising its succession planning to ensure progressive
refreshment and the appropriate blend of skills in the best
interests of shareholders. Notwithstanding the length of service of
Mr Causer and myself, the board considers each director remains
independent in character and judgement.
Annual general meeting
The Company's annual general meeting will be held on Tuesday, 18
December 2018 at 12:00 noon. I would highlight that it will be held
at a different location this year, being the Company's new
registered office address at 1 London Wall Place, London EC2Y 5AU.
As in previous years, the meeting will include a presentation by
the Manager on the Company's investment strategy and market
prospects, and shareholders are encouraged to attend.
Outlook
Surveys suggest that the UK stock market has rarely been so
unpopular with international investors as it is now. It is easy to
see why - it is equally rare for the political backdrop to be as
unclear - nevertheless the market has continued to provide
opportunities to meet our long-term goal. This has been another
year when the NAV total return was above UK inflation, and another
year - its 23rd - of the Company increasing its dividend.
Can this continue? While the Manager's Review highlights the
short-term challenges to the continuing growth of the Company's
income, any share like yours with a rising dividend and a yield
higher than the rate of inflation remains relevant to investors in
today's low interest rate environment. The ongoing, successful
identification of portfolio investments that can provide this gives
us cause to remain optimistic for the Company's prospects.
Ian Barby
Chairman
8 November 2018
Manager's Review
The Company's net asset value ("NAV") total return in the 12
months to 31 August 2018 was 4.0%. This compares to 4.7% from the
FTSE All-Share Index and 3.8% from the peer group median fund.
Meanwhile, the share price total return was 7.0% (source:
Morningstar).
Income from investments fell 4.3% from last year's level. There
were two factors, of broadly equal weight, behind the reduction.
Firstly, the contribution from special dividends fell sharply to
around half the level received in the prior year, and one third of
the peak level of dividends in the year to end August 2016. This
reduction was not unexpected as we have cautioned for some time
that the level of special dividends within the market and the
portfolio had been at unsustainable levels and was likely to fall
back. The special dividends received by the Company over the year
came from Taylor Wimpey, John Laing and Hollywood Bowl. Secondly,
exchange rate movements over the course of the year were
detrimental to income, in contrast to the prior year when they were
favourable. The US dollar weakened against sterling from the start
of the period through to the spring of 2018 before strengthening
over the course of the summer months. This impacted the sterling
receipts of income from companies that declare their income in
dollars (AstraZeneca, BP, HSBC and Royal Dutch Shell) as most of
this dividend income for the year was translated at less favourable
exchange rates. These factors more than outweighed strong dividend
growth from miner Rio Tinto, UK house builders Bellway and Taylor
Wimpey, property companies Assura and Unite and insurance company
Aviva.
Market background
The FTSE All-Share Index rose by 4.7% against a backdrop of
ongoing growth in the world economy, although tightening global
monetary conditions intermittently dampened risk appetite and the
demand for equities. The "Goldilocks" scenario of low and stable
growth and inflation was put to the test amid fears around the pace
of policy tightening by the Federal Reserve, which increased base
rates by 75 basis points over the 12 months under review, taking
its target rate to 1.75-2.00%. At end of the period these fears
expressed themselves as worries around the negative impact a
resurgent dollar might have on the growth prospects of emerging
markets. In addition, deteriorating US-China trade relations raised
questions around the longer-term growth outlook of both
countries.
The Bank of England increased interest rates by a total of 0.5%
over the period, to 0.75% (raising base borrowing costs for the
first time since November 2007), having judged the slowdown in the
UK economy in the first quarter of 2018 to have been temporary and
related to the very cold weather at the beginning of the year. This
subsequently transpired to be the case, with preliminary GDP data
from the Office for National Statistics revealing growth had
bounced back in Q2, albeit, in part, helped by the very warm summer
and World Cup. Higher-frequency indicators suggest that the
positive momentum has continued into Q3. Sterling was volatile over
the period amid political noise related to the Brexit
negotiations.
Portfolio performance
The Company's outperformance against the Index reflected the
twin benefits of positive sector allocation and the use of gearing
in a rising market, offset to some degree by negative stock
selection.
Scandinavian bank Nordea was the top stock detractor. Share
price weakness was in part a consequence of overruns in both time
and costs of achieving efficiency savings relating to the company's
digital upgrade and move of headquarters from Stockholm to
Helsinki. The resulting low valuation led to an opportunity for the
holding to be increased.
Software and IT company Micro Focus also weighed on relative
returns with profit disappointment in the first quarter of 2018
resulting from integration issues following the significant
acquisition of HP's software business in mid-2017.
Part of the portfolio's holding had been sold in November last
year, but after the price fall, the shares were bought again in
July.
Stock selection in financial services (NEX Group) was positive
despite exposure to underperforming TP ICAP, which struggled to
achieve its integration synergies. Both these companies were
created after the demerger of long-term holding ICAP in late 2017,
with NEX Group receiving a bid at a substantial premium from CME,
the US exchange group, in the spring of 2018.
The Company benefited from a recovery in educational publisher
Pearson's share price from its lows of autumn 2017, as well as
robust share price performances from luxury retailer Burberry
(appointment of new creative director) and developer and
infrastructure group John Laing (strong operating performance).
Lastly, Smurfit Kappa rebuffed a bid approach from International
Paper in part due to the strength of its operating performance.
Portfolio activity
Over the period a number of financials positions were reduced,
many of which had performed well and were trading at full
valuations, such as London Stock Exchange and HSBC. Our substantial
holding in financial markets services provider NEX Group was sold
following a bid for the company by CME, the US based exchange.
Holdings in life assurance providers Prudential and Aviva were also
reduced. Part of these proceeds were used to establish a new
holding in Deutsche Wohnen, a German residential property company
with a significant position in the attractive Berlin market.
A number of domestic stocks where valuations are attractive were
added to the portfolio. Tesco was purchased in late 2017 as we have
confidence that the company's turnaround is being effectively
executed leading to a profile of recovering earnings, balance sheet
deleveraging and increasing cash flow, which we expect to restore
the dividend to attractive levels. Pets At Home, the UK's number
one pet retailer, was also added, offering an attractive dividend
and whose share price seems not to reflect the long-term value of
the company's in-store vet practices and grooming parlours.
Additionally a position was initiated in Hollywood Bowl, the UK's
leading ten pin bowling operator - a cash generative business that
pays an attractive dividend supplemented with special dividend
payments, and which should have the scope to pay further special
dividends in the future. Bookmaker William Hill was bought. Despite
facing regulatory headwinds in the UK, it has an attractive
opportunity in the US with the liberalisation of the sports betting
market.
Within industrials the holdings in IMI and Laird were sold,
reinvesting proceeds in new holdings G4S, Johnson Matthey, Melrose
and Weir. A holding in chemicals company Johnson Matthey was added
as fears over prospects for its auto catalysts business had led to
an opportunity to buy at an attractive valuation. The firm should
benefit from a tightening of global emissions regulations, whilst
it also has some exciting potential in new battery technology for
electric vehicles. Shares in G4S, the outsourcing company, trade at
a low valuation despite growing sales and earnings. Weir Group, an
engineer supplying the oil, gas and mining sectors, was considered
attractive given its operational leverage to increased capex spend
from resource companies, which is currently below maintenance spend
levels. Melrose is a corporate turnaround specialist which was
purchased after a setback in the shares provided an attractive
entry opportunity.
Elsewhere the preferences in pharmaceuticals were switched,
selling out of Roche and reinvesting proceeds into GlaxoSmithKline
(added on share price weakness over fears it may bid for Pfizer's
consumer healthcare assets), and in tobacco, selling out of
Imperial Brands whilst bolstering the position in British American
Tobacco. In mining, the exposure was diversified by reducing the
position in Rio Tinto and adding a position in BHP Billiton. Rio
Tinto has performed strongly over the past 5 years and the
emergence of an activist investor at BHP Billiton provides an
opportunity for increased urgency in crystallising shareholder
value. The position in Vodafone was substantially reduced because
of a concern over the company's desire to enter into a large deal
at what appears to be an unattractive price. The balance sheet also
has risk which could affect the sustainability of the dividend.
Outlook
The global economy remains relatively robust. However, more
recently there has been a slight tempering in growth expectations.
This largely reflects concerns over an escalation of the trade war
between the US and China. The US Federal Reserve has hiked rates
another 0.25% based on strong US economic data boosted by the
government's loose fiscal policy. Similarly, the Bank of England
has raised rates against the backdrop of a relatively strong summer
of growth and inflation data, driven by a pick-up in household
spending. In Europe, quantitative easing should be over by the end
of 2018, and it is expected that the European Central Bank will
raise rates twice in 2019. Therefore, on aggregate, whilst the
world economy remains in expansion mode, leading indicators have
weakened and a more difficult period of slowing growth and rising
inflation may lie ahead.
Turning to focus on the domestic economy, the UK has recovered
from the slowdown seen in the first quarter of 2018, with GDP
growth in the second quarter rising to 0.4% quarter-on-quarter.
This pick-up came from a combination of household spending and
investment. Real incomes in the UK have been positive since January
2018, in marked contrast to last year. The UK also saw an increase
in employment in the first half. This has led the Bank of England
to increase interest rates to 0.75%, its highest level since March
2009. It restated its intention for slow and limited interest rate
rises, with three rate hikes in three years broadly expected. These
market expectations are contingent on a Brexit deal being agreed.
However, headline improvement has masked concerns over weak
domestic demand and poor external performance, in addition to
uncertainty over Brexit negotiations.
The most obvious impact of this uncertainty on UK assets will be
on sterling, which may continue to be volatile as news flow swings
back and forth. Sterling has been an effective mechanism for either
expressing confidence or fear in Brexit and the fate of the UK
economy. This is well-illustrated by a poll conducted by our
economists of a mixture of investment banks and economic
consultancies, asking where they thought sterling would trade
against the US dollar when it became apparent which scenario the UK
was heading for: no deal Brexit or a withdrawal agreement. The
majority of those surveyed expect significant downside in a no deal
scenario, the average estimate being around $1.10 to the pound -
equating to downside of approximately 15%. In the event of a
withdrawal agreement, the average estimate is for the pound to
appreciate to approximately $1.40, equalling to upside of
approximately 8% from current levels of around $1.30.
The uncertainty clearly also affects sentiment towards the UK
stock market, with many international investors remaining nervous
about investing in UK companies. Accordingly, the UK remains one of
the most out-of-favour asset classes. However, therein lies the
opportunity. Despite the UK equity market being widely ignored by
the investment community, corporate activity has been strong. This
suggests that there are considerable opportunities in the UK equity
market at present.
Dividend outlook
Income from investments for the year was down 4.3% year-on-year,
while dividend income, excluding special dividends, fell at a lower
rate of 2%, reflecting the impact of US dollar weakness in the
first 7 months of the period. The contribution to total income from
special dividends fell for a second consecutive year to 2.6% (from
4.9% last year and 8.6% in the year to August 2016) - a level which
is likely to be reasonably sustained in future years. The Company's
income will remain sensitive to the timing of exchange rate
movements in either direction - boosted by sterling weakness or
reduced by sterling strength against the US dollar and to a lesser
extent the euro.
The short-term outlook for underlying dividend growth, excluding
both special dividends and exchange rate movements, has improved
due to the strengthened payout ratios resulting from rising
commodity and oil producer profits. However, medium and longer-term
dividend growth remains somewhat more uncertain as the economic
impact of Brexit is unlikely to be felt until 2019 or later and the
impact of trade wars on global activity remains to be seen.
Lastly, given the Company's aim to provide real growth of
income, it is important to consider UK inflation. The Consumer
Prices Index rose by 2.7% in the year to end August 2018. Inflation
and monetary policy are expected to reflect the impact of Brexit
negotiations and of sterling. The Bank of England has restated its
intention for slow and limited interest rate rises but these market
expectations are contingent on a Brexit deal being agreed. In the
event of no deal it is expected that sterling will weaken. The
effect of this would be to increase the inflation rate but also
provide a boost to the Company's income given the extent of
dividends which are declared in US dollars and euros. Conversely,
if a Brexit deal is agreed, leading to sterling strength, the
inflation rate would likely remain stable, interest rates would
rise steadily whilst the Company's dividend income could be
restrained somewhat by exchange rate movements.
Investment policy
We remain disciplined investors using a long-term fundamental
approach and the team's significant investment experience. We are
acutely conscious of the need to balance the risks relative to the
potential reward from opportunities that can be thrown up in such
unpredictable markets. Our investment process focuses on building a
diversified portfolio within a risk-controlled framework, aiming to
deliver attractive levels of income growth in real terms.
We continue to actively monitor the holdings and the investment
universe to identify mispriced opportunities. We are working
closely with our in-house analysts who provide proprietary research
to help to identify attractive investment candidates and to assess
the validity of the investment case for current holdings. We
continue to prioritise balance sheet strength and sustainable
dividend yields, and have kept faith in stocks with short-term
issues provided we have conviction in the long-term investment
case.
Schroder Investment Management Limited
8 November 2018
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 October 2018.
Although the board believes that it has a robust framework of
internal control in place, this can provide only reasonable, and
not absolute, assurance against material financial misstatement or
loss and is designed to manage, not eliminate, risk.
The principal risks and uncertainties faced by the Company have
remained unchanged throughout the year under review. Cyber risk
relating to all of the Company's key service providers is
considered an ongoing threat in light of the rising propensity and
impact of cyber attacks on businesses and institutions. To address
the risk, the board receives reporting on cyber risk mitigation and
management from its key service providers to ensure that it is
managed and mitigated appropriately.
Actions taken by the board and, where appropriate, its
committees, to manage and mitigate these risks and uncertainties,
are set out below.
Risk Mitigation and management
Strategic Appropriateness of the Company's
The Company's investment objectives investment remit periodically
may become out of line with the requirements reviewed and success of the Company
of investors, resulting in a wide in meeting its stated objectives
discount of the share price to underlying monitored.
NAV per share. Share price relative to NAV per
share monitored and use of buy
back authorities considered on
a regular basis.
Marketing and distribution activity
actively reviewed.
The Company's cost base could become Ongoing competitiveness of all
uncompetitive, particularly in light service provider fees subject
of open-ended alternatives. to periodic benchmarking against
competitors.
Annual consideration of management
fee levels.
Investment management Review of: the Manager's compliance
The Manager's investment strategy, with the agreed investment restrictions,
if inappropriate, may result in the investment performance and risk
Company underperforming the market against investment objectives
and/or peer group companies, leading and strategy; relative performance;
to the Company and its objectives the portfolio's risk profile;
becoming unattractive to investors. and appropriate strategies employed
to mitigate any negative impact
of substantial changes in markets.
Annual review of the ongoing
suitability of the Manager.
Market Risk profile of the portfolio
The Company is exposed to the effect considered and appropriate strategies
of market fluctuations due to the to mitigate any negative impact
nature of its business. A significant of substantial changes in markets
fall in equity markets could have discussed with the Manager.
an adverse impact on the market value
of the Company's underlying investments.
Custody Depositary reports on safe custody
Safe custody of the Company's assets of the Company's assets, including
may be compromised through control cash and portfolio holdings,
failures by the depositary, including independently reconciled with
cyber hacking. the Manager's records.
Review of audited internal controls
reports covering custodial arrangements.
Annual report from the depositary
on its activities, including
matters arising from custody
operations.
Gearing and leverage Gearing monitored and strict
The Company utilises a credit facility. restrictions on borrowings imposed:
These arrangements increase the funds gearing continues to operate
available for investment through borrowing. within pre-agreed limits so as
While this has the potential to enhance not to exceed 25% of shareholders'
investment returns in rising markets, funds.
in falling markets the impact could
be detrimental to performance.
Accounting, legal and regulatory Confirmation of compliance with
In order to continue to qualify as relevant laws and regulations
an investment trust, the Company must by key service providers.
comply with the requirements of section Shareholder documents and announcements,
1158 of the Corporation Tax Act 2010. including the Company's published
Breaches of the UK Listing Rules, annual report, subject to stringent
the Companies Act or other regulations review processes.
with which the Company is required Procedures established to safeguard
to comply, could lead to a number against disclosure of inside
of detrimental outcomes. information.
Service provider
The Company has no employees and has Service providers appointed subject
delegated certain functions to a number to due diligence processes and
of service providers, principally with clearly-documented contractual
the Manager, depositary and registrar. arrangements detailing service
Failure of controls, including as expectations.
a result of cyber hacking, and poor Regular reporting by key service
performance of any service provider providers and monitoring of the
could lead to disruption, reputational quality of services provided.
damage or loss. Review of annual audited internal
controls reports from key service
providers, including confirmation
of business continuity arrangements.
Risk assessment and internal controls
Risk assessment includes consideration of the scope and quality
of the systems of internal control operating within key service
providers, and ensures regular communication of the results of
monitoring by such providers to the Audit 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 44 to 47 of the 2018 annual report.
Viability statement
The directors have assessed the viability of the Company over a
five year period, taking into account the Company's position at 31
August 2018 and the potential impact of the principal risks and
uncertainties it faces for the review period.
A period of five years 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 and dividends.
In their assessment the directors have considered each of the
Company's principal risks and uncertainties detailed on pages 13
and 14 of the 2018 annual report and in particular the impact of a
significant fall in the UK equity market 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.
Based on the Company's processes for monitoring operating costs,
the share price discount, the Manager's compliance with the
investment objective, asset allocation, the portfolio risk profile,
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
to 31 August 2023.
In reaching this decision, the board has taken into account the
Company's next continuation vote, to be put forward at the AGM in
2020. The directors have no reason to believe that such a
resolution will not be passed by shareholders.
Going concern
Having assessed the principal risks and the other matters
discussed in connection with the viability statement set out above,
and the "Guidance on Risk Management, Internal Control and Related
Financial and Business Reporting" published by the Financial
Reporting Council ("FRC") in 2014, the directors consider it
appropriate to adopt the going concern basis in preparing the
accounts.
Statement of Directors' Responsibilities
The directors are responsible for preparing the Annual Report,
Strategic Report, the Directors' Report, the Corporate Governance
Statement, the Remuneration Report and the financial statements in
accordance with applicable law and regulations.
Company law requires the directors to prepare financial
statements for each financial year. Under that law the directors
have prepared the financial statements in accordance with United
Kingdom Generally Accepted Accounting Practice (United Kingdom
Accounting Standards and applicable law). Under company law the
directors must not approve the financial statements unless they are
satisfied that they give a true and fair view of the state of
affairs of the Company and of the return or loss of the Company for
that period. In preparing these financial statements, the directors
are required to:
- select suitable accounting policies and then apply them consistently;
- make judgements and accounting estimates that are reasonable and prudent;
- state whether applicable UK Accounting Standards have been
followed, subject to any material departures disclosed and
explained in the financial statements; and
- prepare the financial statements on a going concern basis
unless it is inappropriate to presume that the Company will
continue in business.
The directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company's
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that
the financial statements and the Remuneration Report comply with
the Companies Act 2006. They are also responsible for safeguarding
the assets of the Company and hence for taking reasonable steps for
the prevention and detection of fraud and other irregularities.
The directors are responsible for the maintenance and integrity
of the Company's webpages. Legislation in the United Kingdom
governing the preparation and dissemination of financial statements
may differ from legislation in other jurisdictions.
Each of the directors, whose names and functions are listed on
pages 16 and 17 of the 2018 annual report, confirm that to the best
of their knowledge:
- the financial statements, which have been prepared in
accordance with United Kingdom Generally Accepted Accounting
Practice (United Kingdom Accounting Standards and applicable law),
give a true and fair view of the assets, liabilities, financial
position and net return of the Company;
- the Strategic Report contained in the Annual Report and
Accounts includes a fair review of the development and performance
of the business and the position of the Company, together with a
description of the principal risks and uncertainties that it faces;
and
- the Annual Report and Accounts, taken as a whole, are fair,
balanced and understandable and provide the information necessary
for shareholders to assess the Company's position and performance,
business model and strategy.
Income Statement
for the year ended 31 August 2018
2018 2017
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------- ------- ------- ------- ------- ------- -------
Gains on investments held
at fair value through profit
or loss - 752 752 - 19,489 19,489
Net foreign currency losses - (24) (24) - (9) (9)
Income from investments 10,102 - 10,102 10,553 - 10,553
Other interest receivable
and similar income 11 - 11 - - -
---------------------------------- ------- ------- ------- ------- ------- -------
Gross return 10,113 728 10,841 10,553 19,480 30,033
Investment management fee (853) (853) (1,706) (834) (834) (1,668)
Administrative expenses (318) - (318) (302) - (302)
---------------------------------- ------- ------- ------- ------- ------- -------
Net return/(loss) before finance
costs and taxation 8,942 (125) 8,817 9,417 18,646 28,063
Finance costs (101) (101) (202) (243) (243) (486)
---------------------------------- ------- ------- ------- ------- ------- -------
Net return/(loss) on ordinary
activities before taxation 8,841 (226) 8,615 9,174 18,403 27,577
Taxation on ordinary activities (74) - (74) (67) - (67)
---------------------------------- ------- ------- ------- ------- ------- -------
Net return /(loss) on ordinary
activities after taxation 8,767 (226) 8,541 9,107 18,403 27,510
---------------------------------- ------- ------- ------- ------- ------- -------
Return/(loss) per share 12.76p (0.33)p 12.43p 13.26p 26.79p 40.05p
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 31 August 2018
Called-up Capital Warrant Share
share Share redemption exercise purchase Capital Revenue
capital premium reserve reserve reserve reserves reserve Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------- --------- -------- ----------- --------- --------- --------- -------- --------
At 31 August 2016 6,869 7,404 2,011 1,596 34,936 135,224 8,450 196,490
Net return on ordinary
activities - - - - - 18,403 9,107 27,510
Dividends paid in the
year - - - - - - (7,282) (7,282)
------------------------ --------- -------- ----------- --------- --------- --------- -------- --------
At 31 August 2017 6,869 7,404 2,011 1,596 34,936 153,627 10,275 216,718
Net (loss)/return on
ordinary activities - - - - - (226) 8,767 8,541
Dividends paid in the
year - - - - - - (8,519) (8,519)
------------------------ --------- -------- ----------- --------- --------- --------- -------- --------
At 31 August 2018 6,869 7,404 2,011 1,596 34,936 153,401 10,523 216,740
------------------------ --------- -------- ----------- --------- --------- --------- -------- --------
Statement of Financial Position
at 31 August 2018
2018 2017
GBP'000 GBP'000
---------------------------------------------- -------- --------
Fixed assets
Investments held at fair value through profit
or loss 233,741 228,315
Current assets
Debtors 1,900 1,982
Cash at bank and in hand 1,978 7,349
----------------------------------------------- -------- --------
3,878 9,331
---------------------------------------------- -------- --------
Current liabilities
Creditors: amounts falling due within one
year (20,879) (20,928)
----------------------------------------------- -------- --------
Net current liabilities (17,001) (11,597)
----------------------------------------------- -------- --------
Total assets less current liabilities 216,740 216,718
----------------------------------------------- -------- --------
Net assets 216,740 216,718
----------------------------------------------- -------- --------
Capital and reserves
Called-up share capital 6,869 6,869
Share premium 7,404 7,404
Capital redemption reserve 2,011 2,011
Warrant exercise reserve 1,596 1,596
Share purchase reserve 34,936 34,936
Capital reserves 153,401 153,627
Revenue reserve 10,523 10,275
----------------------------------------------- -------- --------
Total equity shareholders' funds 216,740 216,718
----------------------------------------------- -------- --------
Net asset value per share 315.54p 315.51p
Notes to the Accounts
for the year ended 31 August 2018
1. Accounting policies
(a) Basis of accounting
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 a going concern basis under
the historical cost convention, as modified by the revaluation of
investments held at fair value through profit or loss.
The accounts are presented in sterling and amounts have been
rounded to the nearest thousand.
The accounting policies applied to these accounts are consistent
with those applied in the accounts for the year ended 31 August
2017.
No significant judgements, estimates, or assumptions have been
required in the preparation of the accounts for the current or
preceding financial year.
2. Taxation on ordinary activities
The Company's effective corporation tax rate is nil, as
deductible expenses exceed taxable income. Taxation on ordinary
activities comprises irrecoverable overseas withholding tax.
3. Dividends
(a) Dividends paid and declared
2018 2017
GBP'000 GBP'000
------------------------------------------------------ ------- -------
2017 fourth interim dividend of 5.2p (2017: 4.6p) 3,572 3,160
First interim dividend of 2.4p (2017: 2.0p) 1,649 1,374
Second interim dividend of 2.4p (2017: 2.0p) 1,649 1,374
Third interim dividend of 2.4p (2017: 2.0p) 1,649 1,374
------------------------------------------------------ ------- -------
Total dividends paid in the year 8,519 7,282
------------------------------------------------------ ------- -------
2018 2017
GBP'000 GBP'000
------------------------------------------------------ ------- -------
Fourth interim dividend declared of 4.6p (2017: 5.2p) 3,160 3,572
------------------------------------------------------ ------- -------
All dividends paid and declared to date have been paid, or will
be paid, out of revenue profits.
(b) Dividends for the purposes of section 1158 of the
Corporation Tax Act 2010 ("section 1158")
The requirements of section 1158 are considered on the basis of
dividends declared in respect of the financial year as shown below.
The revenue available for distribution by way of dividend for the
year is GBP8,767,000 (2017: GBP9,107,000).
2018 2017
GBP'000 GBP'000
------------------------------------------------- ------- -------
First interim dividend of 2.4p (2017: 2.0p) 1,649 1,374
Second interim dividend of 2.4p (2017: 2.0p) 1,649 1,374
Third interim dividend of 2.4p (2017: 2.0p) 1,649 1,374
Fourth interim dividend of 4.6p (2017: 5.2p) 3,160 3,572
------------------------------------------------- ------- -------
Total dividends of 11.8p (2017: 11.2p) per share 8,107 7,694
------------------------------------------------- ------- -------
4. Return/(loss) per share
2018 2017
GBP'000 GBP'000
---------------------------------------------------- ---------- ----------
Revenue return 8,767 9,107
Capital (loss)/return (226) 18,403
---------------------------------------------------- ---------- ----------
Total return 8,541 27,510
---------------------------------------------------- ---------- ----------
Weighted average number of ordinary shares in issue
during the year 68,688,343 68,688,343
Revenue return per share 12.76p 13.26p
Capital (loss)/return per share (0.33)p 26.79p
---------------------------------------------------- ---------- ----------
Total return per share 12.43p 40.05p
---------------------------------------------------- ---------- ----------
5. Called-up share capital
2018 2017
GBP'000 GBP'000
---------------------------------------------------- ------- -------
Ordinary shares allotted, called-up and fully paid:
68,688,343 (2017: 68,688,343) shares of 10p each 6,869 6,869
---------------------------------------------------- ------- -------
6. Net asset value per share
2018 2017
----------------------------------------------------- ---------- ----------
Net assets attributable to the ordinary shareholders
(GBP'000) 216,740 216,718
Shares in issue at the year end 68,688,343 68,688,343
----------------------------------------------------- ---------- ----------
Net asset value per share 315.54p 315.51p
----------------------------------------------------- ---------- ----------
7. Related party transactions
Details of the remuneration payable to directors are given in
the Directors' Remuneration Report on page 25 of the 2018 annual
report and details of directors' shareholdings are given in the
Directors' Remuneration Report on page 26 of the 2018 annual
report. Details of transactions with the Manager are given in note
16 to the 2018 annual report. There have been no other transactions
with related parties during the year (2017: nil).
8. Disclosures regarding financial instruments measured at fair value
The Company's financial instruments within the scope of FRS 102
that are held at fair value comprise its investment portfolio.
FRS 102 requires financial instruments to be categorised into a
hierarchy consisting of the three levels below.
Level 1 - valued using unadjusted quoted prices in active
markets for identical assets.
Level 2 - valued using observable inputs other than quoted
prices included within Level 1.
Level 3 - valued using inputs that are unobservable.
Details of the valuation techniques used by the Company are
given in note 1(b) on page 37 of the 2018 annual report.
At 31 August 2018, all investments in the Company's portfolio
are categorised as Level 1 (2017: same).
9. Status of announcement
2017 Financial information
The figures and financial information for 2017 are extracted
from the published annual report for the year ended 31 August 2017
and does not constitute the statutory accounts for that year. The
2017 annual report has been delivered to the Registrar of Companies
and included the Independent Auditor's Report which was unqualified
and did not contain a statement under either section 498(2) or
section 498(3) of the Companies Act 2006.
2018 Financial information
The figures and financial information for 2018 are extracted
from the annual report for the year ended 31 August 2018 and does
not constitute the statutory accounts for the year. The 2018 annual
report includes the Independent Auditor's Report which is
unqualified and does not contain a statement under either section
498(2) or section 498(3) of the Companies Act 2006. The 2018 annual
report 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.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR FKFDQOBDDKDK
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