Schroder Inc Growth - Half-year Report
28/04/2023 07:00
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RNS Number : 7845X Schroder Income Growth Fund PLC 28 April 2023
HALF YEAR REPORT
Schroder Income Growth Fund plc (the "Company") hereby submits its Half Year
Report for the period ended 28 February 2023 as required by the Financial
Conduct Authority's Disclosure Guidance and Transparency Rule 4.2.
The Half Year Report is also being published in hard copy format and an
electronic copy of that document will shortly be available to download from
the Company's webpages www.schroders.co.uk/incomegrowth
(http://www.schroders.co.uk/incomegrowth) .
The Company has submitted its Half Year Report to the National Storage
Mechanism, and it will shortly be available for inspection at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
(https://data.fca.org.uk/#/nsm/nationalstoragemechanism) .
Enquiries:
Shilla Pindoria
Schroder Investment Management Limited
Tel: 020 7658 6000
Half Year Report and Accounts for the six months ended. 28 February 2023
Interim Management Report - Chairman's Statement
Directorate
This is my first report to you as Chairman, having taken over from Bridget
Guerin in December 2022. I would like to take this opportunity of
unreservedly thanking her for her service as a Director since 2012 and Chair
from 2019 to 2022. Her wisdom and stamina have been great assets for your
Company.
We were fortunate enough to recruit June Aitken to join the Board as a new
Director from 1 January 2023. June has over 30 years of investment experience
she brings to bear along with a highly successful career as a board member of
a wide range of investment companies. Your Board has a diversity of experience
and backgrounds, which it applies to representing your interests.
Performance
I am pleased to report for the six-month period to 28 February 2023, the
Company's net asset value total return ("NAV") was 10.7%, compared to 8.7% for
the FTSE All-Share Index. Share price performance was slightly higher than
NAV, returning 11.4% as a result of the discount narrowing from 2.1% to 1.5%
over the period.
Details of the reasons for this strong performance are contained in the
Portfolio Manager's review.
Post 28 February 2023 to 25 April 2023 the NAV and share price have delivered
total returns of -0.4% and -0.8% respectively, versus the return on the FTSE
All-Share Index of +0.4%.
Revenue and dividends
During the period, the Company declared two interim dividends for the year
ending 31 August 2023, amounting to 5.00 pence per share (2022: 5.00 pence per
share), drawing £1,450,000 from revenue reserves. This leaves £6,513,000 of
revenue reserve to be carried forward, or 9.4 pence per share.
The income received by the Company during the first half of the year has
fallen by 14% compared to the same period last year. This is as a result of
deliberate stock picking decisions made by your Manager, which have led to the
receipt of income being more heavily weighted to the second half of the
financial year. Therefore, investors should not be unduly concerned with the
decrease during the period given the greater prospects for income for the
remainder of the financial year.
Your Company has revenue reserves of 9.4 pence per share after paying the
second interim dividend, (equivalent to 71% of the dividends paid last year).
Such reserves are available to support the dividend considerations over time.
This level of revenue reserves is extremely competitive when compared to
comparable investment trusts in the peer group. The Board has considered its
proportion of expenses allocated to income and capital and concluded that the
expenses allocated to capital be increased given a greater proportion of the
Company's long-term investment returns are expected to derive from capital.
Further details are provided in note 2(b) to the accounts.
We are pleased that we were able to deliver an increased dividend for the 27th
consecutive year for the year ended 31 August 2022, ensuring our continuing
AIC 'Dividend Hero' status. We remain committed to delivering portfolio income
supported when necessary by the use of revenue reserves to provide growing
income for our shareholders.
Gearing
Your Company has in place a £32.5 million revolving credit facility with SMBC
Bank International plc ("SMBC"), expiring on 23 September 2023. Average
gearing during the period was 12.3%. This made a positive contribution to your
Company's income. As at 25 April 2023, gearing was 10.9%.
Outlook
Whilst it is pleasing that your Company delivered competitive investment
returns for the period, in excess of the broader UK equity market,
shareholders are naturally more interested in longer-term returns.
Out-performance of an index will fluctuate during specific time periods,
however, since the current portfolio management team took the helm on 1 July
2011, cumulative outperformance of the FTSE All Share Index has been 1.2% per
annum. This impressive and competitive track record, spanning 11.8 years and
accompanied by continuing growth in dividend per share, is clearly no flash in
the pan. In general terms, short-term investment returns tell you nothing
about persistence and may owe a lot to fashion and luck. Longer-term returns
cannot rely on those passing and often fickle factors. As your Board, we are
not complacent about future returns and engage in a continuing dialogue with
your Manager to help protect your interests.
Returning to the reporting period, the positive performance of UK equities
masked a volatile economic backdrop for UK corporates and households.
Inflation remained elevated, peaking at 11.1% in October and ending the period
slightly lower at 10.4% driven by stubbornly high energy and fuel prices,
increased food costs and rising wages. The Bank of England continued to
respond to this challenge with rate increases, with the official bank rate
sitting at 4.25% following the latest hike in March 2023. This is the highest
nominal level since the Global Financial Crisis. The era in which companies
and individuals could borrow cheaply to invest or spend is now a distant
memory. New realities pose very different challenges for investors. The LDI
crisis of last September and more recent problems of poorly managed financial
institutions in Europe and the United States are stark reminders of this fact.
The longer-term challenges of record debt levels and an investment world
addicted to unstinting monetary and fiscal support for asset values and
depositor guarantees should not be forgotten. In this context it is worth
noting that governments and Central Banks are acutely sensitive to financial
stability risks, moving rapidly to support banks and depositors through
regulatory and fiscal actions.
Despite the challenges, there seems to be a growing consensus that we may be
approaching the peak of the UK rate cycle, with inflation expected to drop,
albeit slowly. Global energy prices have declined as many countries have
adapted their energy strategies to wean themselves off Russian imports.
It is with this backdrop that your Company seeks to continue to deliver its
investment objective of growing dividends in real terms and delivering capital
growth. While delivering real dividend growth year on year will be challenging
in the near term, both your Manager and your Board are keenly focused on
positioning the portfolio to optimise income. Your Manager has made
significant changes to the portfolio in response to the changing environment
and the ongoing oversight and experience of Sue Noffke, and her team, should
give investors a degree of comfort.
Your Company has now paid an increased nominal dividend for the last 27 years,
throughout multiple cycles. It has been able to do this through portfolio
manager skill and by carefully managing its reserves. This prudent management
has enabled it to deliver these annual increases in income regardless of the
economic backdrop. While there may still be a degree of uncertainty in the
economic outlook, your Company's 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 are
nominal rather than real for now, given elevated and volatile inflation.
Ewen Cameron Watt
Chairman
27 April 2023
Interim Management Report - Manager's Review
The net asset value total return in the 6 months to 28 February 2023 was
10.7%. This compares to 8.7% from the FTSE All Share Total Return Index. The
share price return was 11.4%.
Total income for the Company fell by 14.1% compared to the same period last
year, when income rose by 49.5%. The most significant contribution to the
Company's income fall was due to the Company's reduced exposure to the mining
sector, the mix of holdings within this sector and changes to dividend payment
dates. As a result, the Company's full year income has become more weighted
than usual to the second half of the year. While disruption to companies'
dividend payments from Covid has normalised, comparisons remain distorted by
the year-on-year comparisons, particularly those in the leisure and property
sectors.
In the prior period, mining holding BHP Billiton, paid both its final and
interim dividends in the first half year period. Commodity prices, profits and
cash flow were at peak levels and the company paid particularly high ordinary
and special dividends - these accounted for one quarter of the Company's first
half year income in 2022. Due to a combination of changes in the mining
holdings in the portfolio and changes to the payment dates of BHP Billiton's
interim dividend, the Company received no income from miners in its first half
year period to February 2023. This more than accounts for all the decline in
the Company's investment income in 2023. However, there were other factors
weighing on income in the period. GlaxoSmithKline split into two businesses
with GSK, the biopharma company, rebasing its dividend one third lower to free
up funds for investment in research and development. A reduced holding in GSK,
compared to the prior period, saw income half that of the prior period.
Gambling company 888 did not pay a dividend in the period as the company
prioritised balance sheet leverage resulting from the purchase of William
Hill's UK assets. Additionally, movements in dividend dates impacted two of
the other holdings which last year paid income in the first half year period -
medical devices company Convatec where income falls this year in early March
rather than late February, and student accommodation provider Empiric which
has switched to quarterly payments but where the second interim has fallen
into the Company's second half year period compared to a final dividend in the
prior period.
On the positive side, there were a diverse set of holdings paying
significantly increased dividends. Employment company SThree, digital payment
company Paypoint, Asian banking group Standard Chartered and student property
provider Unite all increased their underlying dividends by more than 50% as
they caught up from Covid impacts. Meanwhile, luxury goods company Burberry,
private assets companies Intermediate Capital and 3i, food retailer Tesco and
integrated oil company Shell increased their dividends by 20% or more.
Renewable energy company SSE, infrastructure investor and construction
business Balfour Beatty and financial services infrastructure provider TP ICAP
all increased their dividends in double digits. Elsewhere, more stable
companies, consumer goods company Unilever, distributor Bunzl, utility company
National Grid, GP patient practice group business Assura, defence services
business QinetiQ and retailer Pets at Home continued to increase their
shareholder payments by mid-single digits. There was a welcome return to
paying dividends by international leisure operator - Hollywood Bowl, which
paid both an ordinary and a special dividend and budget hotel operator
Whitbread - as these businesses emerged from the Covid lockdowns in stronger
competitive positions.
Investment decisions over the past year have again led to a greater portion of
total income being earned in the Company's second half of the year. Proceeds
of the reduction in the mining exposure were mainly reinvested in banks where
all constituents, except Standard Chartered, pay all their income in the
Company's second half year period. Additionally changes of preference within
the mining sector led to holding positions which are paying all their income
in the Company's second half of the year. Gearing levels, the Manager's
flexibility to borrow money to purchase investments, has been broadly
consistent compared to the same period last year.
Market background
Several economic and political events have influenced markets in the period.
In September 2022 UK gilts suffered an especially sharp decline, along with
sterling which led to stresses in the pensions and fixed income market (LDI)
driven by the Truss/Kwarteng 'mini budget', which resulted in Bank of England
intervention, criticism from outside authorities including the US government
and the IMF, and another change in the UK's Prime Minister and Chancellor.
Towards the end of 2022, UK equities rose, helped in part by greater calm in
the UK bond and stock market. Many of the policies announced at the mini
budget were subsequently reversed. Further afield, Beijing loosened its
pandemic restrictions, with a boost to economic activity both in China and the
rest of the world, with associated risks to maintaining inflationary pressures
at higher levels. Central Banks around the world continued to raise interest
rates in attempts to combat persistent inflation, although the pace of hikes
has moderated more recently. Data indicates that the policy measures are
acting to cool inflation and expectations rose that the hiking cycle is coming
to an end.
UK equities rose over the period. The consumer discretionary sector
outperformed. Many domestically focused areas of the UK equity market bounced
back as it transpired the UK economy had proved more resilient than forecast.
Portfolio performance
The NAV total return outperformed the FTSE All-Share Index, with stock
selection the main driver of positive relative returns. The Company generated
a total return of 10.7% over the 6-month period against 8.7% for the FTSE
All-Share Index.
Five top/bottom relative performers
Portfolio Weight Relative Impact
performance
Weight relative
(%)(3)
(%)(1)
(%)(2)
to index
(%)(1)
Burberry 2.7 2.3 33.5 +0.7
Hollywood Bowl 2.1 2.0 38.8 +0.6
Diageo 0.0 -3.6 -15.0 +0.6
British American Tobacco 0.0 -3.2 -14.6 +0.5
Reckitt Benckiser 0.0 -3.2 -22.1 +0.4
Portfolio Weight Relative Impact
performance
Weight relative
(%)(3)
(%)(1)
(%)(2)
to index
(%)(1)
Assura 2.0 1.9 -28.0 -0.6
BP 0.2 -3.6 18.5 -0.6
Empiric Student Properties 2.5 2.5 -18.4 -0.5
BT 2.5 2.1 -14.4 -0.4
888 0.6 0.5 -51.5 -0.4
Source: Schroders, FactSet, for Schroder Income Growth investment portfolio, 6
months to end February 2023.
(1) Average weights over the period.
(2) Total return of the stock relative to the FTSE All-Share TR over the
period.
(3) Contribution to performance relative to the FTSE All-Share TR. The
securities shown above are for illustrative purposes only and are not to be
considered a recommendation to buy or sell.
Burberry was the single largest contributor to performance over the period. It
benefitted from being a significant US dollar earner as the dollar continued
to strengthen, and from China moving away from zero Covid. China's opening
brightens the prospect for Burberry sales in the country and from Chinese
tourists travelling to other countries and spending on such luxury items.
Additionally, the company appointed a new chief creative officer who was well
received by the market.
Hollywood Bowl was the second biggest contributor after reporting a strong
recovery in sales and profits after Covid closures. The company provides
customers with an attractive and affordable leisure treat in tough times, has
a strong balance sheet to finance avenues for growth in the UK and Canada, an
excellent track record of operational delivery and a history of rewarding
shareholders with both ordinary and special dividends.
Owning less than the index in the consumer staples sector was beneficial for
relative performance. With risk appetite returning to equity markets, cyclical
businesses performed more strongly than many consumer staples companies. The
underweight positions in alcoholic beverage company Diageo, tobacco and
nicotine business British American Tobacco and consumer goods company Reckitt
Benckiser all contributed to relative performance.
Property companies suffered the ructions of bond markets in the autumn of 2022
as yields rose sharply in response to the UK's unfunded government spending
plans, which were subsequently curtailed. Specialist property companies
Assura, which owns GP patient practices in the UK, and Empiric Student
Property, which owns purpose-built student accommodation, suffered as bond
yields rose and discounts to asset values widened as the market fretted about
the likely higher costs of refinancing debt. Both Assura and Empiric have
modest levels of gearing, reasonable debt maturity profiles and sufficient
existing facilities. Assura has a strong balance sheet with no near-term
refinancing requirements, a secure covenant, with the UK Government. Robust
earnings growth underpins an attractive dividend pay-out and yield. The shares
are trading close to NAV which is unusual since they have typically traded at
a premium to book value. Empiric is seeing demand for its rooms accelerate
after the pandemic together with attractive rental growth. Although the group
has a pipeline of site acquisitions it has acknowledged that the market
environment for disposals of its non-core properties has deteriorated. The
shares trade on a discount to NAV in comparison to other student accommodation
providers which trade at book value.
The Company's exposure to energy and power has been mainly through a large
holding in Shell as well as holdings in energy utilities SSE (a leading
generator of renewable electricity) and Drax (sustainable biomass and
developer of carbon removals technologies). The strength of commodity and
power prices has boosted cash generation at all these companies and enabled
BP, among others, to reward shareholders with dividend growth and share buy
backs. This has led BP's shares to outperform the market. Not owning oil major
BP during much of the period detracted from returns.
BT Group was one of the largest detractors as the market focused on some
shorter-term issues - competitors taking more lines than expected, partly
impacted by strike action. However, BT's fibre rollout is going well and the
long-term returns from superfast broadband look attractive for them
particularly as smaller, less well-financed competitors struggle to survive.
The Manager believes the management team's strategy will add value long-term
and that the company's valuation remains compelling.
The Manager's decision to invest in betting and gaming group company 888 has
proved costly. The shares fell as the cost of the debt associated with the
group's acquisition of William Hill's UK assets climbed. In January they
declined further as the company revealed that Know Your Client processes for
VIP customers in the Middle East region had not been followed. The CEO left
the company immediately following this announcement. The Manager is extremely
disappointed in this outcome and has engaged with the company to understand
both the scale of the compliance issues and the measures in place to prevent
them repeating. The Manager continues to hold the shares as it believes the
William Hill deal has strategic merit in diversifying the business while
delivering significant cost savings. Dividends have been stopped while debt is
brought down.
Portfolio activity
Turnover in the Company's portfolio has continued to be influenced by the
Manager's view of heightened risks associated with enduring inflation and the
associated swift policy moves which it expects to weigh on economic activity
globally, balanced by individual and market valuations which have reflected
much of this negative near-term news. This has led the Manager to continue to
review the Company's portfolio for opportunities to add new investments for
attractive medium term total returns, augment existing holdings at compelling
levels, or exit some positions where share prices are relatively fully valued
or where they do not fully discount the downside risks of weaker economic
activity and a sustained period of higher inflation and interest rates.
The Manager continued to add to the Company's position in the banking sector,
believing the low valuations of the sector combined with robust capital
positions is attractive in an environment of higher interest rates which more
than outweighs the headwinds of slowing economic growth. The Manager added
substantially to large, diversified banking business, HSBC, trimmed the
position in Standard Chartered, which had been particularly strong, and topped
up the position in domestic lender Lloyds.
Over the period, the Manager added to, and changed its preferences within the
mining sector. The Manager is attracted to Glencore's asset mix of
forward-facing minerals which are well positioned to benefit as the world
moves to decarbonise energy and industry. The Manager has undertaken extensive
research on the company particularly around ethics, governance, climate and
social risks as well as its commitment to responsible stewardship of its
declining coal business. Additionally, several engagements have been conducted
this year in order to better understand the business strategy and the firm's
commitment to cultural change associated with the settlement of bribery and
corruption fines from the Department of Justice and Senior Fraud Office
authorities. The Manager believes that there is sufficient evidence of culture
change and commitment to further improvements which, taken together with a
highly appealing valuation, justifies a position in the portfolio. The Manager
also re-established a holding in iron ore producer BHP Billiton toward the end
of the period. The Manager reduced its holding in fellow iron ore producer,
Rio Tinto, as the latter company carries greater risks and costs associated
with the development of a new iron ore facility in Simandou, Guinea. The
position in diversified miner Anglo American was also partly reduced.
Within oils, the Manager took the decision to establish a holding in BP
through a part reduction in the Company's large position in fellow oil major
Shell. At its 2022 results, BP signalled its ambition to grow its dividend,
extend share buy backs whilst accelerating investments into both low carbon
energy and fossil fuels, and reduce debt. The Manager believes there is scope
for Shell to follow a similar strategy, likely to be announced at its summer
Capital Markets Day, however the Manager wished to introduce diversity to the
Company's holdings.
The Manager exited its longstanding position in purpose-built student
accommodation (PBSA) provider Unite Group in September, prior to the UK's
autumn statement and the significant rise in gilt yields. The Manager viewed
the valuation of the shares as close to fair value and had a strong preference
for peer, Empiric Student Property, which trades at a discount to NAV and has
further operational improvements to deliver. Subsequently, the Manager topped
up its holding in Assura later in the period based on valuation appeal. The
Manager sold out of private assets investment manager Petershill, reinvesting
the proceeds into increasing the longstanding position in peer, Intermediate
Capital, which it believes is higher quality and attractively valued. The
Manager also sold its allocation to consumer healthcare business Haleon
following its split from GlaxoSmithKline as it was a small holding with a low
dividend yield. The holding in National Express was exited on concerns over
availability and cost inflation pressures of bus drivers, together with a
stretched balance sheet. The Manager sold half of its position in Direct Line
Insurance following a disappointing trading update prior to the company's full
year results, which detailed the impact of adverse weather and significant
claims inflation, together with a hit to the company's capital position from
bond movements, which led the company to forgo paying a dividend.
Positions in well performing dollar earning stocks in the autumn, including
pharmaceutical company AstraZeneca and education company Pearson were reduced.
The Manager also trimmed positions in Tesco and leisure stock Hollywood Bowl.
Proceeds of these sales were used in part to fund a new holding in media group
ITV. The Manager saw potential upside from ITV's strong cash generation and
longer-term digital initiatives, the strength of its studio business, balance
sheet and cash flow. The Manager added a new holding in Victrex, a world
leader in high performance polymer solutions for a range of industrial and
medical device applications. The company has strong pricing power, growth
potential and balance sheet. The shares had de-rated in the prior 18 months
giving an opportunity to establish a position in the portfolio.
Outlook
The market seems optimistic that the global economy will transition to a
recovery phase, however, the Manager is cognisant of risks to this outcome.
Recent banking turmoil, firstly in the US and more recently hitting Credit
Suisse, has added to market volatility and points to how finely balanced the
risks may be. The ramifications of Silicon Valley Bank's collapse, swiftly
followed by Credit Suisse's buyout by UBS, have yet to fully play out. At both
companies there were specific issues, however, this does not stop the question
of who else is vulnerable and the Manager recognises the contagion risk. After
more than a decade of easy money there will undoubtedly be other unforeseen
casualties. At the same time, the Manager believes that global banks' balance
sheets are much better protected today within a regulatory framework designed
post the 2008 global financial crisis explicitly to protect against these
kinds of issues. Indeed, within UK based banks there is no evidence of deposit
flight so far. In the US, where several regional banks have come under
pressure, the US Federal Reserve has acted quickly, putting back two thirds of
the quantitative easing it had taken from the market since its peak point. As
ever, the Manager remains focused on companies' long-term fundamental
prospects. The Manager looks for companies trading on attractive valuations
with strong balance sheets to fund investment and provide protection should
economic conditions deteriorate.
The Manager continues to re-assess the investment case for the Company's
holdings and if the long-term view remains sound it continues to hold. The
Manager continues to be wary of some higher quality companies where valuations
remain, in its view, too high. The Manager maintains focus on constructing a
portfolio that is diversified and consists of the highest conviction stock
picks for the long-term.
The risk appetite which emerged late last year, continued in the new year,
bringing more optimism for recovery than fear of deep recession globally.
However, a banking shock that started in California, has reminded the world
that banks are businesses that critically depend on the confidence of
depositors and investors and that confidence loss can spread, whilst moves by
OPEC+ to restrict oil supply is a reminder of both the importance of energy
security and enduring inflationary risks.
The Manager maintains its focus on constructing a portfolio that is
diversified and consists of the highest conviction stock picks for the
long-term. The Manager cannot predict macro-economic events and outcomes, but
it monitors the risks to the portfolio holdings using its experience gained
over multiple economic cycles. The Manager is aware that banks may tighten
their lending standards which will have transmission effects throughout
economies. The UK equity market is dependent on global growth; however, the
Manager believes that the UK market's relative valuation provides a cushion to
help absorb risk should the US economy hit a harder landing. Globally
inflation is being tackled. Energy and commodity prices have dropped back from
their highs offering the consumer and businesses some relief over the coming
months. It is recognised that food prices will likely remain elevated.
The Manager continues to add to existing holdings on share price weakness
where it has conviction in the investment case upside in line with its
investment process. The Manager knows the portfolio companies well and
monitors them closely, helping it to make timely decisions when market
sentiment impacts their share prices. The Manager ensures the portfolio is
diversified and consists of its highest conviction stock picks.
Investment policy
Regardless of external conditions, the 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 six months has been yet another
reminder of the importance of diversification when constructing portfolios.
The 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, the Manager will continue to utilise its ability to
use gearing to potentially enhance returns.
Interim Management Report
Principal risks and uncertainties
The principal risks and uncertainties with the Company's business fall into
the following risk categories: strategic; investment management; market;
financial and currency; custody; gearing and leverage; accounting, legal and
regulatory; service provider; and cyber. A detailed explanation of the risks
and uncertainties in each of these categories can be found on pages 16 and 17
of the Company's published annual report and accounts for the year ended 31
August 2022.
The Company's principal risks and uncertainties have not materially changed
during the six months ended 28 February 2023.
Going concern
Having assessed the principal risks and uncertainties, and the other matters
discussed in connection with the viability statement as set out on page 18 of
the published annual report and accounts for the year ended 31 August 2022,
the Directors consider it appropriate to adopt the going concern basis in
preparing the accounts.
Related party transactions
There have been no transactions with related parties that have materially
affected the financial position or the performance of the Company during the
six months ended 28 February 2023.
Directors' responsibility statement
The Directors confirm that, to the best of their knowledge, this set of
condensed financial statements has been prepared in accordance with United
Kingdom Generally Accepted Accounting Practice in particular with Financial
Reporting Standard 104 "Interim Financial Reporting" and with the Statement of
Recommended Practice, "Financial Statements of Investment Companies and
Venture Capital Trusts" issued in July 2022 and that this Interim Management
Report includes a fair review of the information required by 4.2.7R and 4.2.8R
of the Financial Conduct Authority's Disclosure Guidance and Transparency
Rules.
Income Statement
(Unaudited) (Unaudited) (Audited)
For the six months ended For the six months ended For the year ended
28 February 2023 28 February 2022 31 August 2022
Revenue Capital Total Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Gains/(losses) on investments held at fair value through profit or loss - 19,626 19,626 - (5,187) (5,187) - (16,596) (16,596)
Net foreign currency losses - - - - (2) (2) - (1) (1)
Income from investments 2,743 - 2,743 3,193 1,707 4,900 10,954 1,707 12,661
Other interest receivable and similar income - - - - - - 8 - 8
Gross return/(loss) 2,743 19,626 22,369 3,193 (3,482) (289) 10,962 (14,890) (3,928)
Investment management fee (214) (322) (536) (258) (258) (516) (527) (527) (1,054)
Administrative expenses (281) - (281) (251) - (251) (523) - (523)
Net return/(loss) before finance costs and taxation 2,248 19,304 21,552 2,684 (3,740) (1,056) 9,912 (15,417) (5,505)
Finance costs (224) (336) (560) (67) (67) (134) (202) (202) (404)
Net return/(loss) before taxation 2,024 18,968 20,992 2,617 (3,807) (1,190) 9,710 (15,619) (5,909)
Taxation (note 3) - - - - - - (13) - (13)
Net return/(loss) after taxation 2,024 18,968 20,992 2,617 (3,807) (1,190) 9,697 (15,619) (5,922)
Return/(loss) per share (note 4) 2.91p 27.31p 30.22p 3.77p (5.48)p (1.71)p 13.96p (22.49)p (8.53)p
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 period.
All revenue and capital items in the above statement derive from continuing
operations. No operations were acquired or discontinued in the period.
Statement of Changes in Equity
For the six months ended 28 February 2023 (unaudited)
Called-up Share Capital Warrant Share Capital Revenue Total
share premium redemption exercise purchase reserves reserve £'000
capital £'000 reserve reserve reserve £'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 return after taxation - - - - - 18,968 2,024 20,992
Dividends paid in the period (note 5) - - - - - - (5,696) (5,696)
At 28 February 2023 6,946 9,449 2,011 1,596 34,936 157,208 8,250 220,396
For the six months ended 28 February 2022 (unaudited)
Called-up Share Capital Warrant Share Capital Revenue Total
share premium redemption exercise purchase reserves reserve £'000
capital £'000 reserve reserve reserve £'000 £'000
£'000 £'000 £'000 £'000
At 31 August 2021 6,946 9,449 2,011 1,596 34,936 153,859 11,118 219,915
Net (loss)/return after taxation - - - - - (3,807) 2,617 (1,190)
Dividends paid in the period (note 5) - - - - - - (5,418) (5,418)
At 28 February 2022 6,946 9,449 2,011 1,596 34,936 150,052 8,317 213,307
For the year ended 31 August 2022 (audited)
Called-up Share Capital Warrant Share Capital Revenue Total
share premium redemption exercise purchase reserves reserve £'000
capital £'000 reserve reserve reserve £'000 £'000
£'000 £'000 £'000 £'000
At 31 August 2021 6,946 9,449 2,011 1,596 34,936 153,859 11,118 219,915
Net (loss)/return after taxation - - - - - (15,619) 9,697 (5,922)
Dividends paid in the year (note 5) - - - - - - (8,893) (8,893)
At 31 August 2022 6,946 9,449 2,011 1,596 34,936 138,240 11,922 205,100
Statement of Financial Position
(Unaudited) 28 February (Unaudited) 28 February (Audited)
2023 2022 31 August
£'000 £'000 2022
£'000
Fixed assets
Investments held at fair value through profit or loss 247,420 239,260 230,497
Current assets
Debtors 839 980 2,737
Cash at bank and in hand 2,830 3,431 2,305
3,669 4,411 5,042
Current liabilities
Creditors: amounts falling due within one year (30,693) (30,364) (30,439)
Net current liabilities (27,024) (25,953) (25,397)
Total assets less current liabilities 220,396 213,307 205,100
Net assets 220,396 213,307 205,100
Capital and reserves
Called-up share capital (note 6) 6,946 6,946 6,946
Share premium 9,449 9,449 9,449
Capital redemption reserve 2,011 2,011 2,011
Warrant exercise reserve 1,596 1,596 1,596
Share purchase reserve 34,936 34,936 34,936
Capital reserves 157,208 150,052 138,240
Revenue reserve 8,250 8,317 11,922
Total equity shareholders' funds 220,396 213,307 205,100
Net asset value per share (note 7) 317.28p 307.08p 295.26p
Registered in England and Wales as a public company limited by shares.
Company registration number: 03008494
Notes to the Accounts
1. Financial Statements
The information contained within the accounts in this half year report has not
been audited or reviewed by the Company's auditor.
The figures and financial information for the year ended 31 August 2022 are
extracted from the latest published accounts of the Company and do not
constitute statutory accounts for that year. Those accounts have been
delivered to the Registrar of Companies and included the report of the auditor
which was unqualified and did not contain a statement under either section
498(2) or 498(3) of the Companies Act 2006.
2. Accounting policies
(a) Basis of accounting
The accounts have been prepared in accordance with United Kingdom Generally
Accepted Accounting Practice, in particular with Financial Reporting Standard
104 "Interim Financial Reporting" and with the Statement of Recommended
Practice "Financial Statements of Investment Trust Companies and Venture
Capital Trusts" issued by the Association of Investment Companies in July
2022.
All of the Company's operations are of a continuing nature.
The accounting policies applied to these accounts are consistent with those
applied in the accounts for the year ended 31 August 2022.
(b) Accounting estimates
It remains the Board's determination that the capital return should reflect
the indirect costs of earning capital returns. With effect from 1 September
2022 the Company allocates 60% of the management fee and finance costs to
capital and the remaining 40% to revenue. It had previously allocated 50% of
the management fee and finance costs to capital and 50% to revenue. The Board
monitors the assumptions that underpin the basis of allocation. It concluded
from its most recent review that a greater proportion of the Company's
long-term investment returns are expected to come from capital. The effect of
this change is to increase the net revenue return after taxation by £110,000
and to reduce the net capital return by the same amount. Total net return
after taxation is unaffected by the change. The comparative figures have not
been restated.
3. Taxation
The Company's effective corporation tax rate is nil, as deductible expenses
exceed taxable income. Taxation on ordinary activities comprises irrecoverable
overseas withholding tax.
4. Return/(loss) per share
(Unaudited) Six months (Unaudited) Six months
ended ended (Audited) Year ended 31 August
28 February 28 February 2022
2023 2022 £'000
£'000 £'000
Revenue return 2,024 2,617 9,697
Capital return/(loss) 18,968 (3,807) (15,619)
Total return/(loss) 20,992 (1,190) (5,922)
Weighted average number of shares in issue during the period 69,463,343 69,463,343 69,463,343
Revenue return per share 2.91p 3.77p 13.96p
Capital return/(loss) per share 27.31p (5.48)p (22.49)p
Total return/(loss) per share 30.22p (1.71)p (8.53)p
5. Dividends paid
(Unaudited) Six months (Unaudited) Six months
ended ended (Audited) Year ended 31 August
28 February 28 February 2022
2023 2022 £'000
£'000 £'000
2022 fourth interim dividend of 5.7p (2021: 5.3p) 3,959 3,682 3,682
First interim dividend of 2.5p (2022: 2.5p) 1,737 1,736 1,737
Second interim dividend of 2.5p - - 1,737
Third interim dividend of 2.5p - - 1,737
5,696 5,418 8,893
A second A second interim dividend of 2.5p (2022: 2.5p) per share, amounting
to £1,737,000 (2022: £1,737,000) has been declared payable in respect of the
year ending 31 August 2023.
6. Called-up share capital
(Unaudited) (Unaudited) Six months
Six months ended (Audited) Year ended 31 August
ended 28 February 2021
28 February 2022 £'000
2023 £'000
£'000
69,463,343 ordinary shares of 10p each 6,946 6,946 6,946
There were no changes to called up share capital during the period (period
ended 28 February 2022 and year ended 31 August 2022: nil).
7. Net asset value per share
Net asset value per share is calculated by dividing shareholders' funds by the
number of shares in issue at 28 February 2023 of 69,463,343 (28 February 2022
and 31 August 2022: same).
8. Financial instruments measured at fair value
The Company's financial instruments that are held at fair value comprise its
investment portfolio. At 28 February 2023, all investments in the Company's
portfolio were categorised as Level 1 in accordance with the criteria set out
in paragraph 34.22 (amended) of FRS 102. That is, they are all valued using
unadjusted quoted prices in active markets for identical assets (28 February
2022 and 31 August 2022: same).
9. Events after the interim period that have not been reflected in the
financial statements for the interim period
The Directors have evaluated the period since the interim date and have not
noted any other events which have not been reflected in the financial
statements.
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