Schroder Inc Growth - Final Results
12/11/2024 07:00
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RNS Number : 7820L Schroder Income Growth Fund PLC 12 November 2024
LONDON STOCK EXCHANGE ANNOUNCEMENT
SCHRODER INCOME GROWTH FUND PLC
ANNUAL REPORT AND FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 AUGUST 2024
Schroder Income Growth Fund plc ("the Company") hereby submits its annual
report and financial statements for the year ended 31 August 2024 as required
by the Financial Conduct Authority's Disclosure Guidance and Transparency Rule
4.1.
Ewen Cameron Watt, Chairman of the Company, commented:
"Your Company has now raised its dividend for an unbroken 29 years, throughout
multiple market cycles. It has been able to do this through stock selection
and careful management of its reserves."
Key highlights
· The NAV total return in the 12 months to 31 August 2024 was 19%.
This compares to 17% from the FTSE All-Share Total Return Index. The share
price return was 17.7%.
· Since the current investment team took the helm on 1 July 2011,
share price total return has risen by 166.5% and the NAV total return by
174.1%. Both are well ahead of the FTSE All-Share Index Total Return of
138.1%.
· Dividends per share for the year of 14.20p represent a 2.9%
increase on the previous year. This is the 29(th) year running that dividends
have increased and the Company continues to enjoy AIC "Dividend Hero" status.
· Outperformance was the result of stock selection in the
financials and consumer staples sectors, as well as favourable stock selection
and positioning in the energy sector.
· Total income for the Company fell by 7.2% compared to the same
period last year. Despite this, the Company has continued to fulfil its
primary goal of "real growth of income" above the levels of inflation over the
longer term.
· The Company's share price discount to NAV averaged 9.6% during
the year and ended the financial year at 10.4%. As at the year end, and for
the first time since 2008, the Company repurchased 38,000 ordinary shares to
be held in treasury.
The Company's annual report and financial statements for the year ended 31
August 2024 is being published in hard copy format and an electronic copy will
shortly be available to download from the Company's web pages
www.schroders.com/incomegrowth (http://www.schroders.com/incomegrowth)
The Company's annual report and financial statements, including the Notice of
Annual General Meeting, will shortly be uploaded to the Financial Conduct
Authority's National Storage Mechanism and will be available for inspection
at: https://data.fca.org.uk/#/nsm/nationalstoragemechanism
(https://data.fca.org.uk/#/nsm/nationalstoragemechanism) . A separate
announcement will be released once this has taken place.
Enquiries:
Schroder Investment Management Limited
Kirsty Preston (PR) 020 7658 6000
Natalia de Sousa 020 7658 6000
Pinakin Patel 020 7658 6000
Chairman's Statement
"Your Company has now raised its dividend for an unbroken 29 years, throughout
multiple market cycles. It has been able to do this through stock selection
and careful management of its reserves."
I am pleased to present the annual results of Schroder Income Growth Fund plc
for the year ended 31 August 2024. Despite significant volatility, UK equities
rose over the period. An improving inflationary outlook, positive corporate
earnings and a more favourable interest rate environment lay behind this
outcome. It is a particular pleasure to note that the NAV and share price
exceeded the FTSE All-Share Index over the period. Your Company's NAV rose by
19%, the share price by 17.7% and the FTSE All-Share Index by 17% over the
period.
Revenue and dividends
Your Company was able to increase its dividend for the 29th year running and
continues to enjoy AIC "Dividend Hero" status. Dividends per share for the
year of 14.20p represent a 2.9% increase on the previous year, in accordance
with your Company's aim to increase the payment in line with inflation over
the longer term. In this respect, we define the medium term as five years and
the longer term as ten years.
Earnings per share fell by 11.5% to 11.64p. The dividend of 14.20p was 82%
covered by earnings. After payment of the fourth interim dividend on 31
October 2024, the revenue reserve will be £5.7 million, representing 8.25p
per ordinary share or seven months of the annual dividend. Investment trusts
hold an advantage over open-ended funds in their ability to smooth dividend
payments through careful management of reserves.
Income earned by the Company came under pressure during the year for two main
reasons. Firstly, the mining sector's contribution to income has continued to
decline, with profits and dividends significantly lower than in previous
years. Secondly, and more importantly, companies are increasingly allocating
capital towards share buy backs instead of dividend distributions. This shift
is seen across a broader range of companies and sectors compared to the prior
year, which was dominated by mining, banking, and oil companies. Last year, 17
of the portfolio's holdings (approx. 38% of the Company) undertook share buy
backs, that number rose to 29 holdings (approx. 60% of the Company) this
year. While this has reduced the portfolio's income, the decision to
prioritise share buy backs over dividends is a reflection of favourable stock
valuations and the potential to enhance future per share returns.
Your Company was able to increase the dividend in real terms this year by
drawing on revenue reserves. While this is the second year in a row where your
Company has experienced lower earnings, such outcomes have arisen from time to
time in the last 29 years of your Company's history. Your Company has
continued to fulfil its primary goal of "real growth of income" above the
levels of inflation over the longer term.
Your Board remains committed to raising the level of dividends you receive at
a rate that exceeds inflation. We also want to provide you with a total
return, defined as capital plus income, which is competitive when compared to
the FTSE All-Share Index. This cannot be achieved by simply buying the highest
yielding stocks in the market since history proves such investments are
generally disappointing, not least because they often take unsustainable risks
simply to maintain dividend levels. Your Investment Manager feels very
strongly that this would not be in shareholders' interests and your Board
wholeheartedly agrees with this view.
The obvious consequences of these dividend ambitions are that revenue reserves
are likely to be further drawn down. This should not be of particular concern
to shareholders as there are ample capital reserves to support dividend growth
over the longer term. It also seems logical if companies choose to focus on
total returns, that is capital plus dividends, that we take a similar
approach. In adopting a total return mentality, we are simply aligning with
what pension funds, insurers and charities have done for decades. Your Board
would stress that this does not amount to any dilution of its primary aim,
which is increasing dividends paid to shareholders above the rate of inflation
over the longer term.
Performance
During the year under review, your Company returned 19% in NAV total returns.
Share price total returns over the period were 17.7% which compares to 17% for
the FTSE All-Share Total Return Index. The bias towards mid and small-sized
companies has proved beneficial, as their returns have surpassed those of the
FTSE 100 Index. The outperformance during the period was a result of stock
selection in two sectors, namely financials and consumer staples.
The current investment team took the helm on 1 July 2011, since then the share
price has risen by 166.5% and NAV by 174.1%, both well ahead of the FTSE
All-Share Index total return of 138.1%.
For more details on the drivers of performance please refer to the Investment
Manager's Review.
Discount management
Your Company's share price discount to NAV averaged 9.6% during the year and
ended the financial year at 10.4%. Your Board continues to monitor the
discount of the share price to NAV and when appropriate buys back shares.
During the year under review, and for the first time since 2008, your Company
repurchased 38,000 ordinary shares to be held in treasury. Since the year end,
your Company repurchased a further 8,000 ordinary shares to be held in
treasury. We will continue to buy back shares where such action materially
enhances asset value per share.
For some time now, the investment trust industry has suffered from an
inability on behalf of regulators to address the contradictions arising from
the application of packaged retail and insurance-based investment products
("PRIIPs") and Consumer Duty regulation. The UK adopted a seemingly unique
application of European-wide regulation in counting investment trusts as
PRIIPs. In practice this means that the costs of listed companies should be
accounted in the total costs disclosed by your Company. Yet such costs are
obviously incorporated into the price at which the shares in your portfolio
are bought and sold, in other words there is clear double counting involved.
In turn, and via cost disclosure, investment trusts appear to be very
expensive vehicles (open-ended funds do not adopt the same practice). This may
be reasonable in dealing with unlisted companies where valuations are smoothed
over time but is clearly wrong for regularly priced assets.
Your Board is therefore pleased to see the post-election introduction of an
interim exemption from the PRIIPs cost disclosure regime. We look forward to
working with stakeholders to help design a more relevant disclosure regime.
Gearing
Your Company has put in place a £30 million revolving credit facility with
The Bank of Nova Scotia, London Branch for a year, effective from 20 September
2024. The average gearing level over the year was 13.5% and at the end of your
Company's financial year the level of gearing was 12.2%. Even during a period
of higher interest rates in 2023/4, gearing has enhanced returns by 2.6%.
Continuation vote in 2025
Shareholders will have the opportunity to vote on the continuation of the
Company at the Annual General Meeting ("AGM") in 2025 and every five years
thereafter.
AGM
Your Company's 2024 AGM will be held at 12.30pm on Wednesday, 11 December
2024 at Schroders' office at 1 London Wall Place, London, EC2Y 5AU. Your Board
strongly encourages shareholders to attend and participate in the meeting.
Shareholders will also have the opportunity to listen to a presentation from
the Investment Manager and light refreshments will be served.
Please note that all voting will be by poll, and we encourage all
shareholders to exercise their votes by means of registering them with the
Company's registrar ahead of the meeting, online or by completing paper proxy
forms, and to appoint the Chairman of the meeting as their proxy. Information
on voting can be found in the Notice of Meeting in the full annual report and
financial statements. In the event that shareholders have a question for their
Board, please email amcompanysecretary@schroders.com in advance of the AGM.
For regular news about your Company, shareholders are also encouraged to sign
up to the Manager's investment trusts update, which can be found at
http://www.schroders.com/trust-updates/
(http://www.schroders.com/trust-updates/) .
Results webinar
Please join the Investment Manager for a webinar in which they will report on
the year ended 31 August 2024 and outline their thoughts on the future
direction of your Company's portfolio. The presentation will be followed by a
live Q&A session. The webinar will take place on Wednesday, 27 November
2024 at 2.00pm. Register for the event at https://www.schroders.events/SCF24
(https://www.schroders.events/SCF24)
Outlook
Global equity markets have been performing well, with indices reaching
all-time highs. There is an increasing belief in a soft economic landing, as
consumer demand remains resilient, inflation has fallen, and central banks
have started to implement rate cuts. However, challenges persist, such as
geopolitical events in the Middle East and Ukraine, as well as the highly
divisive US election campaign.
The outlook for the UK equity market is cautiously optimistic despite
ongoing challenges. Interest rates are expected to fall further. However,
inflation remains a concern, though there is an expectation that it will
moderate, especially if energy prices remain stable. It is early days to
assess the full impact of the recent UK Budget. Whilst projections from the
Office of Budget Responsibility and Institute of Fiscal Studies do not suggest
a step change in UK growth, such growth has limited relationship to share
price performance for a globally diversified corporate sector. Corporate
responses and the cost of capital in general tend to be more important in
determining share prices. Your Investment Manager believes more than ever that
resilient business models and strong balance sheets selling at attractive
values are the best routes to inflation beating share price returns. As a
Board we agree.
The UK equity market continues to offer attractive value to investors,
particularly given its lower valuations compared to global peers. The market's
dividend yield, currently around 3.5%, and many companies with geographically
diversified revenues make it appealing for investors. This is reflected in bid
activity which has reached its highest level since 2018, indicating increased
interest and investment. Furthermore, a broader range of UK companies are also
engaging in share buy backs and there have been successful capital raisings,
signalling confidence and potential growth. With inflation moderating from the
peak of a few years ago, small and mid-sized companies ("SMEs") are expected
to benefit. There has been a deliberate increase in exposure to SMEs in your
portfolio, and we expect their improved performance in recent quarters has
further to go.
The US Presidential Election and its aftermath are much in mind as I write
this statement. US stock market returns and a strong dollar have dominated the
portfolio investment landscape since inflation peaked in late 2021. Any
prolonged threat to the apparent attractiveness of the US and stability of her
institutional framework could clearly dent confidence. I can only repeat that
the choices made by corporations, their balance sheet strength, and the cost
of capital are central to your Investment Manager's choice of investments.
It is against this backdrop that your Company seeks to continue to deliver its
investment objective of growing dividends and providing capital growth. While
delivering real dividend growth to you purely from income received over the
year will be challenging, both your Investment Manager and your Board are
keenly focused on positioning the portfolio to optimise total returns. Your
Investment Manager has made significant changes to the portfolio in response
to the evolving environment and the ongoing oversight and experience of the
team should give investors some comfort.
Your Company has now raised its dividend for an unbroken 29 years, throughout
multiple market cycles. It has been able to do this through stock selection
and careful management of its reserves. This has enabled the delivery of
increases in income regardless of the economic backdrop. While there may still
be some challenges that lie ahead, your Company's total reserves remain
healthy. Your Board will not hesitate to use these reserves if necessary to
continue to deliver on your Company's investment mandate of raising dividends,
even if such increases lag the growth rate of inflation in the short-term.
Ewen Cameron Watt
Chairman
11 November 2024
Investment Manager's Review
"We see decisions by Boards to favour share buy backs over dividends as
a general acknowledgment of the favourable valuations at which their shares
trade. All other things being equal, a share buy back enhances a company's
future earnings and dividends per share as profits and income are spread over
a reduced number of shares."
The NAV total return in the 12 months to 31 August 2024 was 19%. This compares
to 17% from the FTSE All-Share Total Return Index. The share price return was
17.7%. Total income for the Company fell by 7.2% compared to the same period
last year. Gearing was a positive contributor, net of costs, over the 12-month
period(1).
Revenue after tax for your Company decreased by 11.5% versus the same period
last year. Investment income declined by 7.7% compared to the same period last
year. There are two material factors behind the fall.
Firstly, there was a decline in income received from the mining sector. The
portfolio had lower aggregate exposure to this area in the current year
compared to the prior one. However, the ongoing unwind in commodity prices,
from the peak levels experienced in the Company's 2022 year, has led to
reduced profits and dividends, both ordinary and special, from mining
companies. Portfolio income from this sector fell by two thirds this year
compared to the prior year, and in absolute terms, income from this sector is
only one eighth of the peak 2022 level. Increased allocations to financial
companies, including banks, made up for some, but not all, of the shortfall
from the mining sector.
Secondly, there has been a further shift in capital allocation by companies to
reward shareholders through share buy backs rather than dividend
distributions. This year some 29 of the Company's holdings, representing over
60% of the portfolio constituents, conducted share buy backs. This compares
with 17 of the portfolio's holdings in the prior year. This is a significant,
70% increase, and encompasses a broader range of companies across a wide range
of sectors and all sizes, compared to the prior year which was dominated by
mining, banks and oil companies. From one perspective it could be considered
disappointing that this shift of capital allocation by corporates has reduced
the portfolio's income from what it might otherwise have been. However, your
Investment Manager takes the view that the companies held in the portfolio
have the resources, strong profitability and balance sheets, and the
inclination, to reward shareholders. Your Investment Manager views decisions
by boards to favour share buy backs over dividends as a general acknowledgment
of the favourable valuations at which their shares trade. All other things
being equal, a share buy back enhances a company's future earnings and
dividends per share as profits and income are spread over a reduced number of
shares. Share buy backs offer attractive returns when benchmarked against
other uses of capital, such as investment in projects, research and
development, staff, facilities or acquisitions. A share buy back also offers
an enhancement to capital returns for shareholders.
Holdings with the strongest dividend growth, of 15% or more, include oil
company, Shell, investment company, 3i, financial services infrastructure
business, TP ICAP, financial services provider, XPS Pensions, banks including
Standard Chartered and Lloyds, insurance company, Prudential, and budget
hotels group, Whitbread. Holdings delivering high single digit dividend growth
include construction and infrastructure company Balfour Beatty, distributor
Bunzl, healthcare company GSK, Asian focused bank HSBC, defence services
business QinetiQ and data and information services business RELX. Several, but
not all, of these holdings combined strong dividend growth with a share buy
back; a greater number of holdings than in the past.
A wider selection of sectors grew their dividends by low single digits or
maintained their dividends. Some companies are in a growth phase, including
healthcare providers AstraZeneca, and Convatec, or have embarked on capital
expansion or development programmes such as telecoms company BT, and property
company Assura. However, several others opted to combine modest or no dividend
growth with a share buy back programme. These included private assets
investor Intermediate Capital Group (now called ICG), media company ITV,
speciality chemicals company Johnson Matthey, insurance providers Legal and
General, retailer and veterinary practice group Pets at Home, and consumer
products company Unilever.
Holdings which experienced weaker trading maintained their dividends, luxury
goods company Burberry, and specialty chemical business Victrex. SSE, a power
utility company, reduced its dividend by over one third as it seeks to balance
income to shareholders with the capital required to take advantage of the many
investment opportunities afforded by the energy transition whilst maintaining
a strong balance sheet.
(1)For more information on gearing please refer to the Alternative Performance
Measures section of the accounts.
Any reference to regions/countries/sectors/stocks/securities is for
illustrative purposes only and not a recommendation to buy or sell any
financial instruments or adopt a specific investment strategy.
Market background
Global economic activity generally surprised to the upside in 2024 despite
central banks maintaining tight monetary policy over most of the period.
Across most developed markets inflation pressures moderated sufficiently for
central banks to pause their interest rate tightening cycle which had started
in late 2021 and early 2022. Bond and equity markets have throughout the year
looked for signs that inflation is under sufficient control for central banks
to move to cutting interest rates. Whilst markets got ahead of themselves on
that score, as central banks only began to cut interest rates in June for
Europe, August for the UK, and September for the USA, the growth and inflation
trade-off for much of the period proved conducive to a favourable economic
environment - where growth slows but there is no recession. This has enabled
most equity markets to make a series of new highs, and bond yields to decline.
Some market volatility over the summer months in response to data from the US
indicating a sharper than expected slowdown in the labour market and forward
indicators of demand, caused bond yields to fall sharply and a rotation within
equity markets globally favouring defensive sectors, such as consumer staples
and utilities, rather than cyclical sectors such as industrials and
commodities.
Whilst US stock market returns have continued to be strongest globally,
powered by a heady cocktail of fiscal stimulus supporting economic growth and
investor enthusiasm for technology and Artificial Intelligence ("AI"), UK
equities have over this 12-month period broadly kept pace with the returns
from other global equity markets. Sterling has strengthened against both the
US dollar and the Euro over the period. In sterling terms US Equities
(S&P500) have delivered total returns of 22.1% over the period, the world
equity index (FTSE All World), which has a large weight in US equities,
returned 19.5% and UK Equities (FTSE All-Share Index) returned 17%.
Within the UK market, small and mid-sized companies delivered improved
relative performance to larger companies, outperforming by 1.7%, over the 12
months. This contrasts with the prior three years where mid-sized companies
had lagged the returns from larger companies by a cumulative 19%. This
improved performance is the result of increased levels of bid interest across
this area of the market from private equity, overseas and domestic companies
looking to acquire attractively priced, unique, or complementary, assets at
discount prices. The levels of activity in this area of the market have
increased to historically high levels(2).
The narrow leadership of US large cap and technology driven parts of the
market dominated for much of the period, but there has been a broadening out
towards the end of the year. Despite ongoing enthusiasm for AI and Magnificent
Seven(3) technology stocks. The Magnificent Seven peaked in July 2024 and
since then it has underperformed the broader Russell 2000 index by 12%.
The exception on economic momentum has been China, with widespread weakness
and deflation stemming from problems in the property sector, demographic
headwinds and high youth unemployment. Stimulus measures had been lacking
until the most recent package announced in September.
Almost half of the world's population will have had the chance to vote in
national elections during 2024. The backdrop of inflation and cost of living
pressures has not favoured incumbents and led to a swing to the right across
many European countries with a knock-on effect of rolling back on green
policies and immigration. An earlier than had been expected election in the UK
returned a large majority for the central left Labour Party, whilst at the
same time seeing a rise in votes from the nationalist Reform Party. Continuing
conflict between Russia and Ukraine and an escalation of tensions in the
Middle East have not to date dented investors' risk appetite for financial
assets.
Portfolio performance
Pleasingly, the NAV total return outperformed the FTSE All-Share Index, with
gearing being the main driver of positive relative returns. The Company
generated a total return of 19% over the 12-month period against 17% for the
FTSE All-Share Index. Stock and sector selection was a modest positive to
relative returns. A bias towards mid and small sized companies was a positive
tailwind as their returns exceeded the returns on the main FTSE 100 Index of
16.9% with returns of 19.6% for the FTSE mid 250 Index (ex-investment trusts)
and 24.1% for the FTSE Smaller Companies (ex-investment trusts) Index.
Outperformance was the result of stock selection in the financials and
consumer staples sectors, as well as favourable stock selection and
positioning in the energy sector. Stock selection in the utilities,
industrials and telecoms sectors also contributed positively. Collectively
this was able to more than offset the negative contribution from disappointing
stock selection principally in the consumer discretionary sector.
The combination of your Company's underweight positioning and stock selection
in the consumer staples area was positive for portfolio performance. Companies
in these areas continued to experience issues associated with an unwind from
the pandemic boost to volumes of household goods and alcohol. Not owning
Reckitt Benckiser, and being underweight in Diageo, was positive for relative
performance. Both companies underperformed in an environment of higher
interest rates, and each experienced operational issues. Diageo had weaker
trading in Latin America as consumers down traded and distributors cut back on
ordering. Reckitt Benckiser was hit with management change and issues with its
infant formula business which is expected to result in a large litigation
settlement in the USA.
Stock selection was also positive in the financial sector, particularly asset
managers. Longstanding positions in ICG and 3i Group continued to deliver
encouraging operational results and strong share price performance. ICG, a
private assets business, traded strongly, particularly in its debt funds,
while returns on the investment company improved. 3i Group, another private
asset company, performed well. 3i Group's largest asset is European discount
retailer Action, which continued to benefit from consumers choosing cheaper
options to offset cost of living pressures and higher mortgage rates. Action
has an attractive pipeline of store roll outs which should further enhance
growth.
Your Company's holding in defence services business, QinetiQ, was a top
performer in the period. The company has reoriented its capital allocation
policy towards organic growth opportunities, away from acquisitions. It has
also allocated capital to share buy backs which are accretive to dividend
growth and earnings per share at the current low share price. Your Investment
Manager is pleased with these moves having engaged extensively with the
company over these issues.
At a sector level the main negative was stock selection in the consumer
discretionary area. Two holdings suffered setbacks, a tougher backdrop in
luxury goods for Burberry and regulatory scrutiny of the veterinary market for
pet care provider Pets at Home. Stock selection was also negative in the basic
materials and real estate sectors.
Burberry was the single biggest detractor to performance. Global luxury sales
weakened after a strong period over the pandemic and initial re-opening.
Additionally, a change in chief designer unsettled customers while strategy
missteps included the pursuit of a brand elevation into a weaker market and a
store refurbishment program. Profits remain under considerable pressure in the
short-term and mean that the dividend is suspended. However, the CEO has been
replaced and your Investment Manager believes the brand is more valuable than
the market is currently implying. Your Investment Manager continues to hold a
position in the shares for the longer term.
(2)Source: Bloomberg, August 2024. There have been 31 proposed, pending, or
completed transactions in the FTSE 250 this year. This represents a 10-year
peak and almost 4x compared to last year, and 29% more than 2019.
(3)The Magnificent Seven stocks are a group of high-performing and influential
companies in the U.S. stock market: Alphabet, Amazon, Apple, Meta Platforms,
Microsoft, NVIDIA, and Tesla.
Also in the retail sector, Pets at Home, the UK's leading pet care business
was the second largest detractor. The shares fell on news of the Competition
and Markets Authority ("CMA") announcing an initial review of the veterinary
sector in September 2023 which focused on transparency of ownership and
pricing dynamics in the veterinary market. In March 2024, the CMA announced
that it will be consulting with a view to launching a full investigation into
the UK veterinary sector noting five areas of potential concern, which could
take 18 months. Your Investment Manager has not seen evidence of abusive
charging practices within the business and do not expect any substantive
adverse outcomes for the group's business from the review.
Your Company did not own the strongest performing company in the industrial
sector, Rolls-Royce, whose share price rose as orderbooks strengthened with a
strong post-Covid recovery in civil and defence aerospace end markets.
Prudential was affected by the same China macroeconomic concerns that caused
your Company's holding in Burberry to underperform, together with investor
disappointment in the company's organic investment in growth which is capital
consumptive compared to allocating capital to shareholders through more in
dividends and share buy backs. This year, Whitbread has lagged the rise in the
market and is one of the portfolio's top detractors to performance in the
period. Last year it was a top contributor. The company has struggled to
better last year's strong trading which was boosted by pent up post-Covid
leisure travel. Whitbread is the market leading budget hotels operator in the
UK with a dominant brand and footprint, and a strong balance sheet which
enables a continued roll out of new sites in the UK and drives the less mature
German business to profitability.
Portfolio activity
During the period your Investment Manager sold out of four positions and added
six new holdings
Exited and trimmed positions
Your Company exited its longstanding holding in Tesco. The shares had
performed strongly during Covid and the subsequent inflationary period, as
well as benefitting from consolidation within the supermarket sector. Whilst
retaining a significant investment in Shell, your Investment Manager reduced
the portfolio's exposure to the oil sector through the complete sale of its
holding in BP. The reduction in oil sector exposure follows share price
strength over the past four years. Proceeds were reallocated to other areas of
the market.
Elsewhere, Paypoint's acquisition of Love2Shop aims to diversify the business
away from the group's slower growing legacy businesses, but your Investment
Manager's view is that this brings greater regulatory scrutiny and risks. As a
result, your Company exited the position. Your Investment Manager also sold
your Company's holding in mid-cap precision instrumentation and controls
company Spectris where conviction in its strategy has waned.
Unusually, your Company bought, then exited, a position in Diageo,
a multinational beverage company, during the period. Over the past three
years, Diageo shares have underperformed due to higher inflation and interest
rates which created headwinds to sales growth and valuation. Your Investment
manager viewed the de-rating of the shares as an opportunity to initiate a
modest position. However, having monitored our investment thesis since buying
it has become clearer that the spirits industry faces greater headwinds to
near term growth from destocking than your Investment Manager had expected.
Your Investment Manager saw better opportunities to deploy capital elsewhere
in the market so exited, although we will continue to review the investment
case for the stock.
Your Investment Manager reduced the portfolio's position size in the
longstanding holding in data and information services business RELX. The
shares had been unsettled early in 2023 from fears that the impact from AI
would be negative on their business and growth, but the market reassessed the
view later in the year to become increasingly convinced that it would be a
positive for its growth. Similarly, the market had re-rated education and
workplace skills company Pearson as new management had sought to reinvigorate
the company with strategic initiatives to spur growth. Your Investment Manager
remains positive for the prospects of both companies for the longer term, but
have allocated some proceeds to other parts of the portfolio. Positions in
leisure operator Hollywood Bowl were trimmed back early in the period after
strong trading and share price performance.
New holdings and additions
Of the six new additions, two are in the domestically focused areas of
commercial property and housebuilding. A new position was added in property
business British Land whose shares trade at a material discount to net asset
value. The company has a well invested portfolio in diverse high quality
business segments including retail and office space that are well located, and
your Investment Manager views good prospects for occupancy and rental growth.
Your Investment Manager expects the shares to benefit as interest rates fall
later in 2024. Your Investment Manager added a position in national
housebuilder, Taylor Wimpey. Recent data suggests that the housing market
appears to have bottomed ahead of expected interest rate cuts which will make
mortgages more affordable. Valuations of housebuilding stocks are low, and a
Labour government offers prospects of an easing in planning which should
support volumes.
Two further new holdings are in the healthcare space, Haleon and Smith &
Nephew, whilst your Investment Manager also added to the longstanding position
in biopharma company GlaxoSmithKline ("GSK") on weakness.
Your Investment Manager took advantage of a placing of part of Pfizer's
holding in Haleon to establish a position in this consumer healthcare
business. The group has been trading strongly since it was spun off from
GlaxoSmithKline and your Investment Manager believes it has good long-term
prospects. The independent business has established its growth credentials to
a greater degree, the balance sheet has strengthened, the shares had cheapened
due to a combination of better growth and weaker share price from the
overhang of the stock held by GSK and Pfizer who wish to exit their positions.
Additionally, your Investment Manager has wanted to add to more defensive
earnings in the portfolio. Also new to the portfolio is international med-tech
business Smith and Nephew. The valuation has compressed, relative to the
company's own history and to international peers, while the outlook has
improved. Sales growth has recently accelerated, positive operational leverage
and cost benefits from restructuring programmes should boost margins and
profitability and lead to an improved valuation.
Your Investment Manager initiated a new position in global automotive
distributor Inchcape, which is taking share in the automotive market from
independents who are struggling with debt and increasingly onerous demands
from automotive manufacturers. Inchcape is the leader in their markets,
generates attractive returns on capital, has a long growth runway and your
Investment Manager believes the shares are mispriced because the market
underappreciates the resilience and quality of this business.
A new position was added in Computacenter, a provider of IT 'value added
reseller' services to help large corporates manage their technology
infrastructure. Increasing complexity of technology requirements of businesses
driven by new advances in areas such as AI makes the services of companies
such as Computacenter increasingly valuable to corporates. Your Investment
Manager views attractive organic growth opportunities in the future into new
markets such as the US, which is likely to be supplemented by bolt-on
acquisitions. Your Investment Manager initiated the position following a
de-rating of the shares, which lead us to believe that the long-term growth
prospects are not reflected in today's valuation.
Further portfolio activity saw us adding to existing holdings in Asian and
Emerging Markets focused bank Standard Chartered, power generation company
Drax and defence services business QinetiQ on share price weakness.
The value of investments and the income from them may go down as well as up
and investors may not get back the amount originally invested.
Outlook
In financial markets the mood is buoyant with stocks in the US, Eurozone,
Japan and the UK at record highs. Market optimism is based on an expectation
of a soft economic landing together with monetary easing by central banks as
the perceived risks from inflationary pressures continue to ease. There are of
course risks around this scenario. Markets currently see limited risk of a
resurgence in inflationary pressures and are pricing in significant further
monetary easing over the next 12 to 18 months. Any shortfall to these market
expectations in magnitude or timing could cause disappointment.
Market valuations of UK equities in our view have more cushion to absorb
disappointment than the more highly valued US equity market. Your Investment
Manager does however acknowledge that the US markets set the tone globally. UK
economic data on growth and inflation are no longer outliers. The OECD
recently upgraded UK GDP growth expectations for 2024 to 1.1%, ranking joint
second in the G7. UK CPI inflation in August 2024 was 2.2%, down from
6.7% in August 2023 and 9.9% in August 2022.
Your Investment Manager acknowledges the role of the large fiscal stimulus
that has aided the US economy to grow more robustly than other developed
economies in recent years as well as the role that the US dollar plays in
terms of the world's reserve currency to enable such stimulus at a time that
the fiscal deficit continues to increase. All politicians, in all countries,
face tough choices given the extent of budget deficits and debt near or at
record levels post the huge pandemic surplus stimulus packages. Budget
watchdogs, and the currency markets, have noted countries where spending
pledges are or have been either unfunded or unrealistically costed. The rise
of the price of gold and the decline in the US dollar is a part reflection of
the vulnerability of the global economy to financial shocks given the level of
debt. Additionally, the ongoing conflicts in the Middle East and between
Russia and Ukraine mean that defence and security spending is likely to remain
in focus.
There has been significant attention paid recently to structural reforms that
could revitalise the prospects for the UK equity market. This has concerned
changes to listing rules to create a more attractive environment to be a UK
PLC. There is also focus on whether more UK pension fund capital could be
allocated to UK assets. If implemented effectively both of these policy
initiatives should be positive for the prospect for UK equities. Some of this
improving narrative may be behind the moderation of UK equity outflows and the
improved performance of UK equities over the last 12 months. Despite the
recent uptick, there is still a significant valuation disconnect between UK
equities and other global markets. Your Investment Manager continues to see
incoming M&A interest exploit these valuation inefficiencies. As active
investors, this external interest validates our view that there are a
significant number of mispriced assets on the UK equity market and your
Investment Manager will continue to try and exploit these in the portfolio.
From a shareholder return perspective, your Investment Manager continues to
see the trend of corporates returning surplus cash to shareholders through
share buy backs rather than via faster growth of ordinary dividends or special
dividends. Despite resulting in a more muted outlook for income generation,
this behaviour should be viewed positively as it is an indication that
boardrooms see their own shares as presenting an attractive investment
opportunity. This further underpins our confidence that the future return
prospects for the UK equity market and the portfolio are strong.
During the summer months, UK takeover activity softened from the April peak
when almost 40 UK listed companies were under offer, as strategic acquirers
re-entered the market following a period where private equity had been
dominant. A combination of multiple key economies undergoing elections and
broader ongoing geopolitical uncertainty has contributed to elevated caution
among potential acquirers.
Comments on capital allocation shift
Your Investment Manager observes a capital allocation shift away from
dividends, both ordinary and special, towards a combination of ordinary
dividends and share buy backs which has been steadily increasing over the past
three years. Your Investment Manager views this as more likely a secular
rather than a cyclical trend. UK public companies are in aggregate in
reasonably robust financial health with strong balance sheets combined with
decent levels of profitability and cash generation. Your Investment Manager
notes that aggregate levels of dividend cover have been rebuilt post the Covid
pandemic stresses to levels in excess of that seen in the years following the
global financial crisis.
This capital allocation shift now more closely aligns the UK equity market
with international markets and enables companies to pursue growth projects or
value accretive share buy backs to a greater extent than previously. Across
the whole market, the FTSE All Share, dividend payments are covered more than
twice over by profits, the same level as European markets, albeit behind the
three times dividend cover of the US market, which has favoured share buy
backs over dividend distribution. A shift by the UK equity market to embrace
share buy backs to a similar extent as is prevalent in the US stock market may
prove to be more supportive of future relative capital returns for UK Equities
than for future dividend growth. From an income perspective, UK equities
continue to offer the highest yield of major international equity markets
(3.6% at the end of August 2024), twice covered by profits, and supplemented
by significant share buy backs which take the total shareholder distribution
yield close to 6%, double that of the USA and ahead of that of Europe.
Your Investment Manager is excited about the future total returns, from
capital and dividends, that the portfolio has the potential to offer.
Investment policy
Regardless of external conditions, your Investment Manager's investment
approach remains constant: to construct a diversified portfolio of mispriced
opportunities capable of delivering both real growth of income and attractive
capital returns. The market volatility during the last 12 months has been yet
another reminder of the importance of diversification when constructing
portfolios. Your Investment Manager remains a bottom-up stock picker looking
for idiosyncratic investment opportunities in individual companies. It
continues to see an attractive opportunity set of mispriced assets in the UK
equity market as the market has been, and continues to be, out of favour with
international investors. Subsequently, your Investment Manager will continue
to utilise its ability to use gearing to potentially enhance returns.
Schroder Investment Management Limited
11 November 2024
Principal and emerging risks and uncertainties
The Board, through its delegation to the Audit and Risk Committee, 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.
Risk assessment and internal controls review by the Board
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. The internal
control environment of the Manager, the depositary, and the registrar are
tested annually by independent external auditors. The full reports are
provided to the Audit and Risk Committee alongside abridged summaries.
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. Both the principal risks and the monitoring system are also
subject to robust assessment at least annually. The last assessment took place
in November 2024.
During the year, the Board discussed and monitored a number of risks which
could potentially impact the Company's ability to meet its strategic
objectives. The Board received updates from the Investment Manager, Company
Secretary, and other service providers on emerging risks that could affect the
Company. The Board was mindful of the risks posed by volatile markets,
inflation and corresponding interest rate levels which could affect the asset
class. However, these are not factors which explicitly impacted the Company's
performance. These risks are seen as those that exacerbate existing risks and
have been incorporated in the market risks section in the table below.
No significant control failings or weaknesses were identified from the Audit
and Risk Committee's ongoing risk assessment throughout the financial year and
up to the date of this report. The Board is satisfied that it has undertaken a
detailed review of the risks facing the Company and that the internal control
environment continues to operate effectively.
Actions taken by the Board and, where appropriate, its Committees, to manage
and mitigate the Company's principal and emerging risks and uncertainties are
set out in the table below. The "Change" column on the right highlights at a
glance the Board's assessment of any increases or decreases in risk during the
year after mitigation and management. The arrows show the risks as increased,
decreased, or unchanged.
Risk Mitigation and management Change
Strategy
Strategic Unchanged
The Company's investment objectives may become out of line with the The Board holds a separate annual strategy meeting to consider the Company's
requirements of investors, resulting in a wide discount of the share price to strategy and performance, the appropriateness of the Company's investment
underlying NAV per share. remit together with opportunities and threats to its business. Share price
relative to NAV per share is monitored at quarterly board meetings and the use
of buy back authorities is considered on a regular basis.
The marketing and distribution activity is actively reviewed and there is
proactive engagement with shareholders.
The Company holds a continuation vote every five years on whether the Company
should continue in its current form. Shareholders will have the opportunity to
vote on the continuation of the Company at its AGM in 2025.
Cost base Unchanged
The Company's cost base could become uncompetitive, particularly in light of The ongoing competitiveness of all service provider fees is subject to
open-ended alternatives. periodic benchmarking against its competitors.
Annual consideration of management fee levels.
Investment
Investment management Unchanged
The Investment Manager's investment strategy, if inappropriate, may result in Review of the Investment Manager's compliance with the agreed investment
the Company underperforming the market and/or peer group companies, leading to restrictions, investment performance and risk against investment objectives
the Company and its objectives becoming unattractive to investors. and strategy; relative performance; the portfolio's risk profile; and
appropriate strategies employed to mitigate any negative impact of substantial
changes in markets.
Annual review of the ongoing suitability of the Manager, including resources
and key personnel risk.
Economic and market Unchanged
The Company is exposed to the effect of market fluctuations due to the nature The risk profile of the portfolio is considered and appropriate strategies to
of its business. A significant fall in equity markets could have an adverse mitigate any negative impact of substantial changes in markets are discussed
impact on the market value of the Company's underlying investments. with the Manager.
The portfolio will normally be fairly fully invested and as such will There are inherent risks involved in stock selection. The Investment Manager
therefore inevitably be exposed to economic and market risk. Changes in is experienced and has a long track record in successfully investing in public
general economic and market conditions, such as currency exchange rates, equity holdings.
interest rates, inflation rates, industry conditions, tax laws, political
events and trends can substantially and adversely affect the value of The Investment Manager monitors the impact of foreign currency movements on
investments. Market risk includes the potential impact of events which are the portfolio and is able to rebalance the portfolio towards stocks which are
outside the Company's control, such as pandemics, civil unrest and wars. less impacted by changes in foreign currency exchange rates if required.
ESG and climate change Unchanged
Failure by the Investment Manager to identify potential ESG issues, including The Investment Manager's ESG policies, including those relating to climate
the impact of climate change, could impact shareholder returns due to change, which have been adopted by the Company, are fully integrated into the
valuation issues in investee companies and the Company's shares becoming less investment process, as set out in the Strategic Report. Investments are valued
attractive to investors. at fair value and reflect market participants' views of ESG and climate change
risk on the Company's portfolio investments. The Investment Manager regularly
reports to the Board on ESG and climate change matters, including engagement
with investee companies. Any investor feedback is also taken into
consideration by the Board.
Gearing Unchanged
The Company utilises a credit facility. This arrangement increases the funds Gearing is monitored and strict restrictions on borrowings are imposed:
available for investment through borrowing. While this has the potential to gearing continues to operate within pre-agreed limits so as not to exceed 25%
enhance investment returns in rising markets, in falling markets the impact of shareholders' funds.
could be detrimental to performance.
Custody Unchanged
Safe custody of the Company's assets may be compromised through control The depositary reports on the safe custody of the Company's assets, including
failures by the depositary. cash and portfolio holdings, which are independently reconciled with the
Manager's records.
The review of audited internal controls reports covering custodial
arrangements is undertaken.
An annual report from the depositary on its activities, including matters
arising from custody operations is reviewed.
Compliance
Accounting, legal and regulatory Unchanged
In order to continue to qualify as an investment trust, the Company must The confirmation of compliance with relevant laws and regulations by key
comply with the requirements of section 1158 of the Corporation Tax Act 2010. service providers.
Breaches of the UK Listing Rules, the Companies Act or other regulations with Shareholder documents and announcements, including the Company's published
which the Company is required to comply, could lead to a number of detrimental annual report are subject to stringent review processes.
outcomes.
Procedures have been established to safeguard against disclosure of inside
information.
Operational
Service provider Unchanged
The Company has no employees and has delegated certain functions to a number Service providers are appointed subject to due diligence processes and with
of service providers, principally the Manager, depositary and registrar. clearly-documented contractual arrangements detailing service expectations.
Failure of controls and poor performance of any service provider could lead to
disruption, reputational damage or loss. Regular reports are provided by key service providers and the quality of
services provided are monitored.
Audited internal controls reports from key service providers, including
confirmation of business continuity arrangements, are reviewed annually.
Cyber Unchanged
The Company's service providers are all exposed to the risk of cyber attacks. Service providers report on cyber risk mitigation and management at least
Cyber attacks could lead to loss of personal or confidential information or annually, which includes confirmation of business continuity capability in the
disrupt operations. event of a cyber attack.
In addition, the Board received presentations from the Manager, the registrar
and the safekeeping agent and custodian on cyber risk.
Statement of Directors' Responsibilities
Directors' responsibilities
The Directors are responsible for preparing the annual report and the
financial statements in accordance with applicable law and regulation.
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;
- state whether applicable UK Accounting Standards have been
followed, subject to any material departures disclosed and explained in the
financial statements;
- make judgements and accounting estimates that are
reasonable and prudent; and
- prepare the financial statements on the 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 Directors'
Remuneration Report comply with the Companies Act 2006.
The Directors are also responsible for safeguarding the assets of the Company
and hence for taking reasonable steps for the prevention and detection of
fraud and other irregularities.
The Manager is responsible for the maintenance and integrity of the Company's
web pages. Legislation in the United Kingdom governing the preparation and
dissemination of financial statements may differ from legislation in other
jurisdictions.
Directors' statement
Each of the Directors, whose names and functions are listed in the full annual
report and financial statements, 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, 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
loss of the Company;
- the annual report and financial statements 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 and emerging risks
and uncertainties that it faces; and
- the annual report and financial statements, 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
Ewen Cameron Watt
Chairman
11 November 2024
Statement of Comprehensive Income
for the year ended 31 August 2024
2024 2023
Revenue Capital Total Revenue Capital Total
Note £'000 £'000 £'000 £'000 £'000 £'000
Gains on investments held at fair value through profit or loss 2 - 30,756 30,756 - 326 326
Net foreign currency gains - 23 23 - - -
Income from investments 3 9,742 275 10,017 10,560 - 10,560
Other interest receivable and similar income 3 142 - 142 90 - 90
Gross return 9,884 31,054 40,938 10,650 326 10,976
Management fee 4 (436) (654) (1,090) (422) (633) (1,055)
Administrative expenses 5 (585) - (585) (552) - (552)
Net return/(loss) before finance costs and taxation 8,863 30,400 39,263 9,676 (307) 9,369
Finance costs 6 (779) (1,168) (1,947) (546) (821) (1,367)
Net return/(loss) before taxation 8,084 29,232 37,316 9,130 (1,128) 8,002
Taxation 7 - - - - - -
Net return/(loss) after taxation 8,084 29,232 37,316 9,130 (1,128) 8,002
Return/(loss) per share (pence) 9 11.64 42.09 53.73 13.14 (1.62) 11.52
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 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.
The notes in the full annual report and financial statements form an integral
part of these financial statements.
Statement of Changes in Equity
for the year ended 31 August 2024
Called-up Capital Warrant Share
share Share redemption exercise purchase Capital Revenue
capital premium reserve reserve reserve reserves reserve Total
Note £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
At 31 August 2022 6,946 9,449 2,011 1,596 34,936 138,240 11,922 205,100
Net (loss)/return after taxation - - - - - (1,128) 9,130 8,002
Dividends paid in the year 8 - - - - - - (9,170) (9,170)
At 31 August 2023 6,946 9,449 2,011 1,596 34,936 137,112 11,882 203,932
Repurchase of ordinary shares into treasury - - - - (102) - - (102)
Net return after taxation - - - - - 29,232 8,084 37,316
Dividends paid in the year 8 - - - - - - (9,585) (9,585)
At 31 August 2024 6,946 9,449 2,011 1,596 34,834 166,344 10,381 231,561
The notes in the full annual report and financial statements form an integral
part of these financial statements.
Statement of Financial Position
at 31 August 2024
2024 2023
Note £'000 £'000
Fixed assets
Investments held at fair value through profit or loss 10 258,409 229,714
Current assets
Debtors 11 1,909 2,557
Cash and cash equivalents 12 1,692 1,560
3,601 4,117
Current liabilities
Creditors: amounts falling due within one year 13 (30,449) (29,899)
Net current liabilities (26,848) (25,782)
Total assets less current liabilities 231,561 203,932
Net assets 231,561 203,932
Capital and reserves
Called-up share capital 14 6,946 6,946
Share premium 15 9,449 9,449
Capital redemption reserve 15 2,011 2,011
Warrant exercise reserve 15 1,596 1,596
Share purchase reserve 15 34,834 34,936
Capital reserves 15 166,344 137,112
Revenue reserve 15 10,381 11,882
Total equity shareholders' funds 231,561 203,932
Net asset value per share (pence) 16 333.54 293.58
These financial statements were approved and authorised for issue by the Board
of Directors on 11 November 2024 and signed on its behalf by:
Ewen Cameron Watt
Chairman
The notes in the full annual report and financial statements form an integral
part of these financial statements.
Registered in England and Wales as a public company limited by shares
Company registration number: 03008494
Notes to the Financial Statements
1. Accounting Policies
(a) Basis of accounting
Schroder Income Growth Fund plc ("the Company") is registered in England and
Wales as a public company limited by shares. The Company's registered office
is 1 London Wall Place, London EC2Y 5AU.
The financial statements 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 July 2022. All of the Company's
operations are of a continuing nature.
The financial statements have been prepared on a going concern basis under the
historical cost convention, with the exception of investments which are
measured at fair value through profit or loss. The Directors believe that the
Company has adequate resources to continue operating until 30 November 2025,
which is at least 12 months from the date of approval of these financial
statements. 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 Directors have considered
the impact of climate change risk and emerging risk and have concluded that
there was no further impact of climate change to be taken into account as the
investments are valued based on market pricing. Further details of Directors'
considerations regarding this are given in the Chairman's Statement,
Investment Manager's Review, Going Concern Statement, Viability Statement and
under the Principal and Emerging Risks and Uncertainties in the Strategic
Report.
The Company has not presented a statement of cash flows, as it is not required
for an investment trust which meets certain conditions; in particular that
substantially all of the Company's investments are highly liquid and carried
at market value.
The financial statements are presented in sterling and amounts have been
rounded to the nearest thousand.
The accounting policies applied to these financial statements are consistent
with those applied in the financial statements for the year ended 31 August
2023.
Other than the Director's assessment of going concern, no significant
judgements, estimates or assumptions have been required in the preparation of
the financial statements for the current or preceding financial year.
(b) Valuation of investments
The Company's investments are classified as fair value through profit and loss
in accordance with FRS 102. Upon initial recognition the investments are
measured at the transaction price, excluding expenses incidental to purchase
which are written off to capital at the time of acquisition. Subsequently the
investments are valued at fair value, which are quoted bid prices for
investments traded in active markets. Fair value gains or losses are
recognised in the capital column of the Statement of Comprehensive Income.
All purchases and sales are accounted for on a trade date basis.
(c) Accounting for reserves
Gains and losses on sales of investments, and the management fee or finance
costs allocated to capital, are included in the Statement of Comprehensive
Income and dealt with in capital reserves within "Gains and losses on sales of
investments". Increases and decreases in the valuation of investments held at
the year end, are included in the Statement of Comprehensive Income and dealt
with in capital reserves within "Investment holding gains and losses".
Foreign exchange gains and losses on cash and deposit balances are included in
the Statement of Comprehensive Income and in capital reserves.
(d) Income
Dividends receivable from equity shares are included in revenue on an
ex-dividend basis except where, in the opinion of the Board, the dividend is
capital in nature, in which case it is included in capital.
Dividends from overseas companies are included gross of any withholding tax.
Where the Company has elected to receive scrip dividends in the form of
additional shares rather than in cash, the amount of the cash dividend
foregone is recognised in revenue. Any excess in the value of the shares
received over the amount of the cash dividend is recognised in capital.
Deposit interest outstanding at the year end is calculated and accrued on a
time apportionment basis using market rates of interest.
(e) Expenses
All expenses are accounted for on an accruals basis. Expenses are allocated
wholly to revenue with the following exceptions:
- The management fee is allocated 40% to revenue and 60% to
capital in line with the Board's expected long-term split of revenue and
capital return from the Company's investment portfolio.
- Expenses incidental to the purchase and sale of an
investment are written off to capital at the time of acquisition or disposal.
These expenses are commonly referred to as transaction costs and comprise
brokerage commission and stamp duty. Details of transaction costs are given in
note 10 in the full annual report and financial statements.
(f) Finance costs
Finance costs, including any premiums payable on settlement or redemption and
direct issue costs, are accounted for on an accruals basis using the effective
interest method in accordance with FRS 102.
Finance costs are allocated 40% to revenue and 60% to capital in line with the
Board's expected long-term split of revenue and capital return from the
Company's investment portfolio.
(g) Financial instruments
Cash at bank and in hand may comprise cash, cash equivalents and demand
deposits which are readily convertible to a known amount of cash and are
subject to insignificant risk of changes in value.
Cash equivalents are short-term maturity of three months or less, highly
liquid investments that are readily convertible to known amounts of cash. The
Company's investment in HSBC's Sterling Liquidity Fund of £944,000 (2023:
Nil) is managed as part of the Company's cash and cash equivalents as defined
under FRS 102: 7.2.
Other debtors and creditors do not carry any interest, are short-term in
nature and are accordingly stated at nominal value, with debtors reduced by
appropriate allowances for estimated irrecoverable amounts.
Bank loans are classified as financial liabilities at amortised cost. They are
initially measured at the proceeds received, net of direct issue costs, and
subsequently measured at amortised cost using the effective interest method.
(h) Taxation
The tax charge for the year is based on amounts expected to be received or
paid.
Deferred tax is accounted for in accordance with FRS 102.
Deferred tax is provided on all timing differences that have originated but
not reversed by the accounting date.
Deferred tax liabilities are recognised for all taxable timing differences but
deferred tax assets are only recognised to the extent that it is probable that
taxable profits will be available against which those timing differences can
be utilised.
Deferred tax is measured at the tax rate which is expected to apply in the
periods in which the timing differences are expected to reverse, based on tax
rates that have been enacted or substantively enacted at the accounting date
and is measured on an undiscounted basis.
(i) Value added tax ("VAT")
Expenses are disclosed inclusive of the related irrecoverable VAT.
(j) Foreign currency
In accordance with FRS 102, the Company is required to determine a functional
currency, being the currency in which the Company predominantly operates. The
Board has determined that sterling is the Company's functional currency and
the presentational currency of the financial statements.
Transactions denominated in foreign currencies are converted at actual
exchange rates as at the date of the transaction. Monetary assets, liabilities
and investments held at fair value, denominated in foreign currencies at the
year end are translated at the rates of exchange prevailing at the year end.
(k) Dividends payable
Dividends on equity shares are recognised as a deduction of equity when the
liability to pay the dividends arises. Consequently, interim dividends are
recognised when paid and final dividends when approved in the general meeting.
2. Gains on investments held at fair value through profit or loss
2024 2023
£'000 £'000
Gains on sales of investments based on historic cost 3,099 1,242
Amounts recognised in investment holding gains and losses in the previous year
in respect of investments
sold in the year (3,014) (2,196)
Gains/(losses) on sales of investments based on the carrying value at the 85 (954)
previous statement of financial position date
Unrealised gain recognised in respect of investments continuing to be held 30,671 1,280
Gains on investments held at fair value through profit or loss 30,756 326
3. Income
2024 2023
£'000 £'000
Income from investments:
UK dividends 8,736 8,763
UK special dividends 51 196
Overseas dividends 839 1,538
Scrip dividends 116 63
9,742 10,560
Other interest receivable and similar income:
Deposit interest 107 90
Other income 35 -
142 90
Capital:
Special dividends allocated to capital 275 -
Total income 10,159 10,650
4. Management fee
2024 2023
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Management fee 436 654 1,090 422 633 1,055
The basis for calculating the management fee is set out in the Directors'
Report in the full annual report and financial statements..
5. Administrative expenses
2024 2023
£'000 £'000
Administration expenses 399 374
Directors' fees 127 122
Auditor's remuneration for the audit of the Company's financial statements(1) 59 56
585 552
(1) Includes £10,000 (2023: £9,000) irrecoverable VAT.
6. Finance costs
2024 2023
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Interest on bank loans and overdrafts 779 1,168 1,947 546 821 1,367
7. Taxation
(a) Analysis of charge in the year
2024 2023
£'000 £'000
Irrecoverable overseas tax - -
Tax charge for the year - -
(b) Factors affecting tax charge for the year
The tax assessed for the year is lower (2023: lower) than the Company's
applicable rate of corporation tax for the year of 25% (2023: 21.5%).
The factors affecting the current tax charge for the year are as follows:
2024 2023
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Net gain/return on ordinary activities before taxation 8,084 29,232 37,316 9,130 (1,128) 8,002
Net gain/return on ordinary activities before taxation multiplied by
the Company's applicable rate of corporation tax for the year
of 25% (2023: 21.5%) 2,021 7,308 9,329 1,962 (243) 1,719
Effects of:
Capital losses on investments - (7,695) (7,695) - (70) (70)
Income not chargeable to corporation tax (2,339) (69) (2,408) (2,181) - (2,181)
Unrelieved expenses 318 456 774 219 313 532
Tax charge for the year - - - - - -
(c) Deferred taxation
The Company has an unrecognised deferred tax asset of £9,979,000 (2023:
£9,207,000) based on a main rate of corporation tax of 25% (2023: 25%). The
main rate of corporation tax increased to 25% for fiscal years beginning on or
after 1 April 2023.
The deferred tax asset has arisen due to the cumulative excess of deductible
expenses over taxable income. Given the composition of the Company's
portfolio, it is not likely that this asset will be utilised in the
foreseeable future and therefore no asset has been recognised in the financial
statements.
Given the Company's status as an Investment Trust Company, no provision has
been made for deferred tax on any capital gains or losses arising on the
revaluation or disposal of investments.
8. Dividends
(a) Dividends paid and declared
2024 2023
£'000 £'000
2023 fourth interim dividend of 6.3p (2022: 5.7p) 4,376 3,959
First interim dividend of 2.5p (2023: 2.5p) 1,737 1,737
Second interim dividend of 2.5p (2023: 2.5p) 1,737 1,737
Third interim dividend of 2.5p (2023: 2.5p) 1,737 1,737
Total dividends paid in the year 9,585 9,170
2024 2023
£'000 £'000
Fourth interim dividend declared of 6.7p (2023: 6.3p) 4,651 4,376
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 £8,084,000
(2023: £9,130,000).
2024 2023
£'000 £'000
First interim dividend of 2.5p (2023: 2.5p) 1,737 1,737
Second interim dividend of 2.5p (2023: 2.5p) 1,737 1,737
Third interim dividend of 2.5p (2023: 2.5p) 1,735 1,737
Fourth interim dividend of 6.7p (2023: 6.3p) 4,651 4,376
Total dividends of 14.2p (2023: 13.8p) per share 9,860 9,587
9. Return/(loss) per share
2024 2023
£'000 £'000
Revenue return 8,084 9,130
Capital return/(loss) 29,232 (1,128)
Total return 37,316 8,002
Weighted average number of ordinary shares in issue during the year 69,449,119 69,463,343
Revenue return per share (pence) 11.64 13.14
Capital return/(loss) per share (pence) 42.09 (1.62)
Total return/gain per share (pence) 53.73 11.52
10. Investments held at fair value through profit or loss
2024 2023
£'000 £'000
Opening book cost 207,268 207,135
Opening investment holding gains 22,446 23,362
Opening fair value 229,714 230,497
Analysis of transactions made during the year
Purchases at cost 25,189 57,193
Sales proceeds (27,250) (58,302)
Gains on investments held at fair value 30,756 326
Closing fair value 258,409 229,714
Closing book cost 208,306 207,268
Closing investment holding gains 50,103 22,446
Closing fair value 258,409 229,714
All investments are listed on a recognised stock exchange.
Sales proceeds amounting to £27,250,000 (2023: £58,302,000) were receivable
from disposal of investments in the year. The book cost of these investments
when they were purchased was £24,151,000 (2023: £57,059,000). These
investments have been revalued over time and until they were sold any
unrealised gains/losses were included in the fair value of the investments.
The following transaction costs, comprising stamp duty and brokerage
commission were incurred during the year:
2024 2023
£'000 £'000
On acquisitions 130 236
On disposals 13 30
143 266
11. Debtors
2024 2023
£'000 £'000
Dividends and interest receivable 1,901 2,537
Taxation recoverable - 5
Other debtors 8 15
1,909 2,557
The Directors consider that the carrying amount of debtors approximates to
their fair value.
12. Cash and cash equivalents
2024 2023
£'000 £'000
Cash at bank 748 1,560
Money market fund 944 -
1,692 1,560
As at 31 August 2024, the Company held shares in the HSBC Sterling Liquidity
fund with a market value of £944,000 (31 August 2023: Nil), which is managed
as part of the Company's cash and cash equivalents as defined under FRS
102:7.2.
13. Creditors: amounts falling due within one year
2024 2023
£'000 £'000
Bank loan 30,000 29,500
Other creditors and accruals 449 399
30,449 29,899
The bank loan comprises £30.0 million (2023: £29.5 million) drawn down on
the Company's revolving credit facility with SMBC Bank International plc. The
facility was not extended, and effective 20 September 2024, the Company
entered into a new loan agreement with The Bank of Nova Scotia, London Branch.
The facility with SMBC Bank International plc was unsecured and subject to
covenants and restrictions which were customary for a facility of this nature,
all of which were complied with during the year. Further details of this
facility are given in note 20(a)(i) in the full annual report and financial
statements.
The new facility is secured and is subject to covenants and restrictions which
are customary to a facility of this nature.
The Directors consider that the carrying amount of creditors falling due
within one year approximates to their fair value.
14. Called-up share capital
2024 2023
£'000 £'000
Ordinary shares allotted, called-up and fully paid:
Ordinary shares of 10p each
Opening balance of 69,463,343 (2023: 69,463,343) shares 6,946 6,946
Repurchase of 38,000 (2023: nil) shares held in treasury (4) -
Subtotal of 69,425,343 (2023: 69,463,343) shares 6,942 6,946
38,000 (2023: nil) shares held in treasury 4 -
Total of 69,425,343 (2023: 69,463,343) shares 6,946 6,946
15. Reserves
Capital reserves
Gains and Investment
Capital Warrant Share losses on holding
Share redemption exercise purchase sales of gains and Revenue
premium(1) reserve(1) reserve(1) reserve(2) investments(2) losses(3) reserve(4)
Year ended 31 August 2024 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Opening balance 9,449 2,011 1,596 34,936 114,666 22,446 11,882
Gains on sales of investments based on the carrying
value at the previous statement of financial position date - - - - 85 - -
Net movement in investment holding gains and losses - - - - - 30,671 -
Transfer on disposal of investments - - - - 3,014 (3,014) -
Realised exchange gains on currency balances - - - - 23 - -
Management fee and finance costs allocated to capital - - - - (1,822) - -
Share repurchase into treasury - - - (102) - - -
Special dividends allocated to capital - - - - 275 - -
Dividends paid - - - - - - (9,585)
Retained revenue for the year - - - - - - 8,084
Closing balance 9,449 2,011 1,596 34,834 116,241 50,103 10,381
Capital reserves
Gains and Investment
Capital Warrant Share losses on holding
Share redemption exercise purchase sales of gains and Revenue
premium(1) reserve(1) reserve(1) reserve(2) investments(2) losses(3) reserve(4)
Year ended 31 August 2023 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Opening balance 9,449 2,011 1,596 34,936 114,878 23,362 11,922
Losses on sales of investments based on the carrying
value at the previous statement of financial position date - - - - (954) - -
Net movement in investment holding gains and losses - - - - - 1,280 -
Transfer on disposal of investments - - - - 2,196 (2,196) -
Management fee and finance costs allocated to capital - - - - (1,454) - -
Dividends paid - - - - - - (9,170)
Retained revenue for the year - - - - - - 9,130
Closing balance 9,449 2,011 1,596 34,936 114,666 22,446 11,882
The Company's Articles of Association permit dividend distributions out of
realised capital profits.
(1)These reserves are not distributable.
(2)These are realised (distributable) capital reserves which may be used to
repurchase the Company's own shares or distributed as dividends.
(3)This reserve comprises holding gains on liquid investments (which may be
deemed to be realised) and other amounts which are unrealised. An analysis has
not been made between those amounts that are realised (and may be distributed
as dividends or used to repurchase the Company's own shares) and those that
are unrealised.
(4)The revenue reserve may be distributed as dividends or used to repurchase
the Company's own shares.
16. Net asset value per share
2024 2023
Net assets attributable to shareholders (£'000) 231,561 203,932
Shares in issue at the year end 69,425,343 69,463,343
Net asset value per share (pence) 333.54 293.58
17. Transactions with the Manager
Under the terms of the AlFM Agreement, the Manager is entitled to receive a
management fee. Details of the basis of the calculation are given in the
Directors' Report in the full annual report and financial statements.Any
investments in funds managed or advised by the Manager or any of its
associated companies are excluded from the assets used for the purpose of the
calculation and therefore incur no fee.
The management fee payable in respect of the year ended 31 August 2024
amounted to £1,090,000 (2023: £1,055,000) of which £291,000 (2023:
£259,000) was outstanding at the year end.
Effective from 1 March 2021, the Manager is entitled to receive a further fee
to cover administration and company secretarial costs.
The secretarial fee payable for the year amounted to £180,000 (2023:
£180,000) including VAT, of which £45,000 (2023: £45,000) was outstanding
at the year end.
No Director of the Company served as a director of any member of the Schroder
Group at any time during the year.
18. Related party transactions
Details of the remuneration payable to Directors are given in the
Directors' Remuneration Report in the full annual report and financial
statements and details of Directors' shareholdings are given in the Directors'
Remuneration Report in the full annual report and financial statements. .
Details of transactions with the Manager are given in note 17 above. There
have been no other transactions with related parties during the year (2023:
nil).
19. 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).
At 31 August 2024, all investments in the Company's portfolio are categorised
as Level 1 (2023: same).
20. Financial instruments' exposure to risk and risk management
policies
The Company's objectives are set out on the inside front cover of this report.
In pursuing these objectives, the Company is exposed to a variety of financial
risks that could result in a reduction in the Company's net assets or a
reduction in the profits available for dividends.
These financial risks include market risk (comprising interest rate risk and
other price risk), liquidity risk and credit risk. The Directors' policy for
managing these risks is set out below. The Board coordinates the Company's
risk management policy. The Company has no significant direct exposure to
foreign exchange risk on monetary items. The objectives, policies and
processes for managing the risks and the methods used to measure the risks
that are set out below, have not changed from those applying in the
comparative year.
The Company's classes of financial instruments may comprise the following:
- investments in equity shares which are held in accordance
with the Company's investment objectives;
- short-term debtors, creditors and cash arising directly
from its operations; and
- loans drawn on a facility, the purpose of which are to
assist with financing the Company's operations.
(a) Market risk
The fair value or future cash flows of a financial instrument held by the
Company may fluctuate because of changes in market prices. This market risk
comprises two elements: interest rate risk and other price risk. Information
to enable an evaluation of the nature and extent of these two elements of
market risk is given in parts (i) and (ii) of this note, together with
sensitivity analyses where appropriate. The Board reviews and agrees policies
for managing these risks and these policies have remained unchanged from those
applying in the comparative year. The Manager assesses the exposure to market
risk when making each investment decision and monitors the overall level of
market risk on the whole of the investment portfolio on an ongoing basis.
(i) Interest rate risk
Interest rate movements may affect the level of income receivable on cash
deposits and the interest payable on variable rate borrowings when interest
rates are re-set.
Management of interest rate risk
Liquidity and borrowings are managed with the aim of increasing returns to
shareholders. The board's policy is to permit gearing up to 25% where gearing
is defined as borrowings used for investment purposes, less cash, expressed as
a percentage of net assets. Any amount drawn on the facility would normally be
for a one month period, at the end of which the drawdown may be rolled over,
adjusted or repaid, and the interest rate is re-set. These amounts have been
included in the analysis below, although the exposure to interest rate changes
is not significant as any drawings can be repaid at the end of the one month
period under the terms of this flexible arrangement.
Interest rate exposure
The exposure of financial assets and financial liabilities to floating
interest rates, giving cash flow interest rate risk when rates are re-set, is
shown below:
2024 2023
£'000 £'000
Exposure to floating interest rates:
Cash and cash equivalents 1,692 1,560
Creditors falling due within one year: bank loan (30,000) (29,500)
Total exposure (28,308) (27,940)
Cash balances earn interest at a floating rate based on the Sterling Overnight
Index Average (2023: Sterling Overnight Index Average).
The £30.0 million credit facility with SMBC Bank International plc was not
extended, and effective 20 September 2024, the Company entered into a new
loan agreement with The Bank of Nova Scotia, London Branch. Interest payable
is calculated at the aggregate of the compounded daily Risk Free Rate ("RFR"),
plus a margin. Amounts are normally drawn down on the facility for a one
month period, at the end of which it may be rolled over or adjusted. At 31
August 2024, the Company had drawn down £30.0 million (2023: £29.5 million),
for a one month period at an interest rate of 6.28% (2023: 5.91%) per annum.
The above year end amounts are not representative of the exposure to interest
rates during the current or comparative year as the level of cash balances and
drawings on the facility have fluctuated. The maximum and minimum exposure
during the year was as follows:
2024 2023
£'000 £'000
Minimum debit interest rate exposure during the year - net debt (24,828) (21,727)
Maximum debit interest rate exposure during the year - net debt (29,635) (27,940)
Interest rate sensitivity
The following table illustrates the sensitivity of the return after taxation
for the year and net assets to a 1.0% (2023: 1.0%) increase or decrease in
interest rates in regards to the Company's monetary financial assets and
financial liabilities. This level of change is considered to be a reasonable
illustration based on observation of current market conditions. The
sensitivity analysis is based on the Company's monetary financial instruments
held at the statement of financial position date which are exposed to interest
rate movements, with all other variables held constant.
2024 2023
1.0% increase 1.0% decrease 1.0% increase 1.0% decrease
in rate in rate in rate in rate
£'000 £'000 £'000 £'000
Statement of comprehensive income - return after taxation
Revenue return (103) 103 (102) 102
Capital return (180) 180 (177) 177
Total return after taxation (283) 283 (279) 279
Net assets (283) 283 (279) 279
Due to UK interest rates stabilising over the course of the year, the interest
rate sensitivity has been updated back to 1.0%. The prior year disclosure has
been updated to 1.0% to show a direct comparison in the sensitivity. As
disclosed in the prior year annual report, an increase of 1.5% reduced total
return after taxation by £420,000 (a decrease of 1.5% had an equal and
opposite effect).
In the opinion of the Directors, this sensitivity analysis may not be
representative of the Company's future exposure to interest rate changes as
the level of cash balances and drawings on the facility will fluctuate.
(ii) Other price risk
Market price risk includes changes in market prices, other than those arising
from interest rate risk, which may affect the value of investments.
Management of market price risk
The Board meets on at least four occasions each year to consider the asset
allocation of the portfolio and the risk associated with particular industry
sectors. The investment management team has responsibility for monitoring the
portfolio, which is selected in accordance with the Company's investment
objective and seeks to ensure that individual stocks meet an acceptable
risk/reward profile.
Market price risk exposure
The Company's total exposure to changes in market prices at 31 August
comprised the following:
2024 2023
£'000 £'000
Investments held at fair value through profit or loss 258,409 229,714
The above data is broadly representative of the exposure to market price risk
during the year.
Concentration of exposure to market price risk
An analysis of the Company's investments is given in the full annual report
and financial statements. The portfolio principally comprises securities of
companies listed on the London Stock Exchange and accordingly there is a
concentration of exposure to economic conditions in the UK. However it should
be noted that many of these companies conduct much of their business overseas.
Furthermore, up to 20% of the portfolio may be listed on overseas stock
exchanges.
Market price risk sensitivity
The following table illustrates the sensitivity of the return after taxation
for the year and net assets to an increase or decrease of 20% (2023: 20%) in
the fair values of the Company's investments. This level of change is
considered to be a reasonable illustration based on observation of current
market conditions. The sensitivity analysis is based on the Company's exposure
through equity investments and includes the impact on the management fee but
assumes that all other variables are held constant.
2024 2023
20% increase 20% decrease 20% increase 20% decrease
in fair value in fair value in fair value in fair value
£'000 £'000 £'000 £'000
Statement of comprehensive income - return after taxation
Revenue return (93) 93 (83) 83
Capital return 51,542 (51,542) 45,819 (45,819)
Total return after taxation and net assets 51,449 (51,449) 45,736 (45,736)
Change in net asset value 22.2% (22.2%) 22.4% (22.4%)
(b) Liquidity risk
This is the risk that the Company will encounter difficulty in meeting its
obligations associated with financial liabilities that are settled by
delivering cash or another financial asset.
Management of liquidity risk
Liquidity risk is not significant as the Company's assets comprise mainly
readily realisable securities, which can be sold to meet funding requirements
if necessary. The facility is also available to provide liquidity at short
notice. The Board's policy is for the Company to remain fully invested in
normal market conditions. The facility may be used to manage working capital
requirements and to gear the Company as appropriate.
Liquidity risk exposure
Contractual maturities of financial liabilities, based on the earliest date on
which payment can be required are as follows:
2024 2023
Three months Three months
or less Total or less Total
£'000 £'000 £'000 £'000
Creditors: amounts falling due within one year
Other creditors and accruals 444 444 399 399
Bank loan - including interest 30,157 30,157 29,645 29,645
30,601 30,601 30,044 30,044
(c) Credit risk
Credit risk is the risk that the failure of the counterparty to a transaction
to discharge its obligations under that transaction could result in loss to
the Company.
Management of credit risk
This risk is not significant and is managed as follows:
Portfolio dealing
The Company invests in markets that operate a "Delivery Versus Payment"
settlement process which mitigates the risk of losing the principal of a trade
during settlement. The Manager continuously monitors dealing activity to
ensure best execution, which involves measuring various indicators including
the quality of trade settlement and incidence of failed trades. Counterparties
must be pre-approved by the Manager's credit committee.
Exposure to the custodian
The custodian of the Company's assets is HSBC Bank plc which has long-term
Credit Ratings of AA- with Fitch and A3 with Moody's. The Company's
investments are held in accounts which are segregated from the custodian's own
trading assets. If the custodian were to become insolvent, the Company's right
of ownership of its investments is clear and they are therefore protected.
However the Company's cash balances are all deposited with the custodian as
banker and held on the custodian's balance sheet. Accordingly, in accordance
with usual banking practice, the Company will rank as a general creditor to
the custodian in respect of cash balances.
Credit risk exposure
The following amounts shown in the Statement of Financial Position, represent
the maximum exposure to credit risk at the current and comparative year end.
2024 2023
Balance Maximum Balance Maximum
sheet exposure sheet exposure
£'000 £'000 £'000 £'000
Current assets
Debtors - dividends and interest receivable and other debtors 1,909 1,909 2,557 2,557
Cash and cash equivalents 1,692 1,692 1,560 1,560
3,601 3,601 4,117 4,117
No debtors are past their due date and none have been written down or deemed
to be impaired.
(d) Fair values of financial assets and financial liabilities
All financial assets and liabilities are either carried at fair value or the
amount in the Statement of Financial Position is a reasonable approximation of
fair value.
21. Capital management policies and procedures
The Company's objectives, policies and processes for managing capital are
unchanged from the preceding year.
The Company's debt and capital structure comprises the following:
2024 2023
£'000 £'000
Debt
Bank loan 30,000 29,500
Equity
Called-up share capital 6,946 6,946
Reserves 224,615 196,986
231,561 203,932
Total debt and equity 261,561 233,432
The Company's capital management objectives are to ensure that it will
continue as a going concern and to maximise the return to its equity
shareholders through an appropriate level of gearing.
The Board's policy is to permit gearing up to 25% where gearing is defined as
borrowings used for investment purposes, less cash, expressed as a percentage
of net assets.
2024 2023
£'000 £'000
Borrowings used for investment purposes, less cash 28,308 27,940
Net assets 231,561 203,932
Gearing 12.2% 13.7%
The Board, with the assistance of the Manager, monitors and reviews the broad
structure of the Company's capital on an ongoing basis. This review includes:
- the planned level of gearing, which takes into account the
Manager's views on the market;
- the need to buy back the Company's own shares for
cancellation or to hold in treasury, which takes into account the share price
discount;
- the opportunities for issues of new shares; and
- the amount of dividend to be paid, in excess of that which
is required to be distributed.
Status of results announcement
2024 Financial Information
The figures and financial information for 2024 are extracted from the annual
report and financial statements for the year ended 31 August 2024 and do not
constitute the statutory accounts for that year. The annual report and
financial statements 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 annual report and financial
statements will be delivered to the Registrar of Companies in due course.
2023 Financial Information
The figures and financial information for 2023 are extracted from the
published annual report and financial statements for the year ended 31 August
2023 and do not constitute the statutory accounts for the year. The annual
report and financial statements 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.
Neither the contents of the Company's website nor the contents of any website
accessible from hyperlinks on the Company's website (or any other website) is
incorporated into, or forms part of, this announcement.
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