Schroder UK Mid - Final Results
13/12/2023 07:00
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RNS Number : 5582W Schroder UK Mid Cap Fund PLC 13 December 2023
ANNUAL REPORT AND ACCOUNTS
Schroder UK Mid Cap Fund plc (the "Company") hereby submits its Annual
Report and Accounts for the year ended 30 September 2023 (the "Annual
Report"), as required by the Financial Conduct Authority's Disclosure Guidance
and Transparency Rule 4.1.
The Annual Report will also be published in hard copy format and an electronic
copy will shortly be available to download from the Company's
website www.schroders.co.uk/ukmidcap (http://www.schroders.co.uk/ukmidcap)
The Annual Report, containing the notice of annual general meeting, and the
form of proxy will shortly be uploaded to the Financial Conduct Authority's
National Storage Mechanism, and a separate announcement will be released once
this has taken place.
Please click on the following link to view the document:
http://www.rns-pdf.londonstockexchange.com/rns/5582W_1-2023-12-12.pdf
(http://www.rns-pdf.londonstockexchange.com/rns/5582W_1-2023-12-12.pdf)
Page numbers and cross references in the following announcement refer to page
numbers and cross references in the Annual Report and Accounts for the year
ended 30 September 2023.
Enquiries:
Katherine Fyfe
Schroder Investment Management Limited
Tel: 02076583136
Schroder UK Mid Cap Fund plc
Report and Accounts for the year ended 30 September 2023
Introduction
Key highlights
Net asset value ("NAV") per share total return*
17.6%
(2022: -30.0%)
Share price total return*
17.4%
(2022: -32.5%)
Benchmark total return
13.6%
(2022: -26.8%)
Net revenues after taxation
£7.842 million
(2022: £7.823 million)
Revenue return per share
22.68 pence
(2022: 22.43 pence)
Dividends per share
20.5 pence
(2022: 19.00 pence)
Key messages
- A high conviction portfolio targeting around 40-50 holdings,
with the goal of delivering a return in excess of the FTSE 250 ex Investment
Trusts Index (the "Benchmark"), offering exposure to a wide spectrum of
investment sectors and themes, and both UK and overseas earnings.
- The Manager seeks out resilient companies that are capable of
delivering high risk-adjusted returns with rising cash flows and earnings.
They can be disruptors, which challenge the status quo within the marketplace,
or established companies which can grow sustainably as they reinvent
themselves in response to the disruption. Resilience comes from clear
strategic direction, strong finances, and leading sustainability practices.
- The investment process is proven and repeatable, having
generated a NAV return* of 12.20% p.a. versus 10.29% p.a. for the Benchmark
since Schroders became the Manager in 2003(1).
(1)Source: Schroders, Morningstar, 1 May 2003 to 30 September 2023. Net asset
value total return compared to the benchmark of the FTSE All-Share ex
Investment Trusts ex FTSE 100 TR Index until 2011, and subsequently the FTSE
250 ex Investment Trusts Index. Past performance is not a guide to future
performance and may not be repeated.
Share price
544 pence
(2022: 480 pence)
Share price discount to NAV per share*
12.0%
(2022: 11.4%)
Net Gearing*
6.8%
(2022: 10.8%)
Ongoing charges ratio*
0.97%
(2022: 0.89%)
Chairman's Statement
"Dear Shareholder
Investment and share price performance
The Company's net asset value ("NAV") total return for the year was 17.6%,
outperforming the Company's Benchmark (the FTSE 250 ex Investment Trusts
Index), which produced a total return of 13.6% over the year. The share price
total return was 17.4% due to a very small widening of the discount of the
share price to NAV. Given the very challenging equity market and economic
environment over the last twelve months the Board takes the view that this is
a very encouraging level of outperformance. Combined with the fact that the
NAV of the trust has outperformed its Benchmark in four of the last five years
this provides good evidence in support of the quality of the investment
process that is used.
Revenue and dividends
In June 2023, the Board was pleased to announce an increased interim dividend
of 5.5 pence per share which represented a 10% increase on the interim
dividend paid in 2022. We have declared a final dividend of 15 pence per share
for the year ended 30 September 2023. The proposed final dividend brings total
dividends for the year to 20.5 pence per share, a level which is covered by
current year earnings, and an increase of 7.9% on dividends declared in
respect of the previous financial year. At the current share price of 538
pence at 7 December, this represents a dividend yield of 3.7%.
A resolution to approve the payment of the final dividend for the year ended
30 September 2023 will be proposed at the forthcoming Annual General Meeting
("AGM"). If the resolution is passed, the dividend will be paid on 15 March
2024 to shareholders on the register on 16 February 2024.
Gearing
At the year end, net gearing stood at 6.8% (2022: 10.8%). The Board takes the
view that utilising some structural gearing over the medium term is beneficial
to shareholders. The Manager will continue to use this gearing to take
advantage of attractive new investment opportunities and to participate in
capital raisings by portfolio companies.
Discount management
During the year under review the Company's discount to NAV slightly widened
from 11.4% to 12.0% at period end. Over the last 12 months discounts across
the investment trust universe have widened, in many cases significantly, as UK
interest rates have risen and global uncertainties have increased. The Board
continues to monitor the discount level and proposes that the Company's share
buy-back authorities be renewed at the forthcoming AGM to enable future share
buybacks should they be considered appropriate and in shareholders' interests.
Any shares so purchased will be cancelled or held in treasury for potential
reissue at a premium to NAV.
Board changes
The Company was pleased to announce the appointment of Harry Morley as an
independent non-‑executive director of the Company, effective from 1
September 2023. Harry brings extensive experience of the UK Mid Cap sector to
our board as a non-executive director of JD Wetherspoon plc and TheWorks.co.uk
plc, and having previously co-founded and served as CFO of Tragus Holdings
Ltd. A resolution to elect Harry as a director of the Company will be
proposed at the upcoming AGM.
Andrew Page will be retiring as a director of the Company at the next AGM in
accordance with the Board's succession policy. Andrew has served on the Board
for nine years, the majority of which have been as the Chair of the Audit and
Risk Committee. Andrew's experienced oversight of financial and internal
controls matters, as well as his commitment and dedication to the Company's
success has been invaluable to the Board during this time, and we wish him
well. He will be succeeded as Chair of the Audit and Risk Committee by Helen
Galbraith, as Chair of the Remuneration Committee by Harry Morley, and as
Senior Independent Director by Wendy Colquhoun.
"The Company's NAV total return for the year was 17.6%, outperforming the
Company's Benchmark (the FTSE 250 ex Investment Trusts Index)
AGM and Results Webinar
Our portfolio managers will be giving presentations at an investor webinar on
22 January 2024 at 2.00 p.m. to discuss the Company's results (which can be
signed up to via the following link: https://www.schroders.events/SCP23).
The Company's AGM will be held at 12.00 noon on Friday, 8 March 2023. We
encourage shareholders to attend in person and, if unable to do so, to cast
their votes by proxy. The AGM will include a presentation by the Manager on
the prospects for the UK market and the Company's investment strategy and will
provide an opportunity for shareholders to ask questions of the Board and the
Manager. The meeting will be held at the Manager's office at 1 London Wall
Place, London EC2Y 5AU. If shareholders are unable to attend the AGM in
person, they can view a livestream of the Manager's presentation and 'Q&A'
by signing up at:
https://schroders.zoom.us/webinar/register/WN_IWa5BSGZRruLlzK9DGyxbg.
Outlook
It is interesting to contrast the many negative headlines in the media with
the fact that mid cap UK equities have delivered strong returns over the year
under review. Overall, economic growth has been better than expected and the
recovery post COVID has been at least as good as many other countries. This is
not to downplay the challenges that are being faced by investors with
inflation and interest rates much higher than the recent past, geopolitical
tensions increasing and uncertainties as to how to return the economy to more
acceptable rates of growth. However, we are now seeing inflation falling
rapidly, bringing the prospect of lower interest rates at some stage in 2024
which should improve the outlook for economic growth.
Our Manager continues to identify the relatively low valuations that apply to
UK equities despite the strong medium and long-term returns that have been
delivered. 2022 saw a significant upturn in corporate and financial buyers of
UK companies and there are signs that this activity is starting again as the
opportunities to acquire good businesses at attractive valuations continues to
persist. These factors should give encouragement to actual and prospective
investors in UK mid-cap equities that this remains a very attractive area of
equity investment.
Notwithstanding the strong total return during the year under review, both in
absolute and relative terms and the challenges that always seem to confront
equity investors, our Manager continues to identify many stock specific
opportunities in UK mid cap companies. Its continued focus remains on looking
for companies which can deliver high risk-adjusted returns with rising cash
flows and earnings and with conservatively financed balance sheets. This
should help to continue to deliver sustainable returns to our shareholders in
the future.
Overall we agree with our Manager's conclusion that for those patient
investors willing to look beyond any shorter-term uncertainties, the UK mid
cap market offers compelling investment opportunities.
Robert Talbut
Chairman
12 December 2023
Investment Manager's Review
The NAV per share total return in the 12 months to 30th September 2023 was
17.6%. This compares to 13.6% from the FTSE Mid 250 Total Return Index. The
share price total return was 17.4%.
(Source: Schroders/Morningstar, cum income NAV to NAV return/price return).
Performance is net of fees. Cumulative performance is set out in the table
below.
Long-term trend of outperformance
Performance % 1 year 3 years 5 years 10 years Since launch
Schroder UK Mid Cap Fund plc NAV cum income(1) 17.6 16.2 9.2 71.6 949.8
FTSE 250 ex. Investment Trusts index 13.6 17.2 -0.5 52.6 575.1
Relative(2) +4.0 -1.0 +9.7 +19.0 +374.7
Schroder UK Mid Cap Fund plc share price 17.4 28.8 17.2 66.8 1,096.2
Best performing UK equity investment trust in the AIC UK All Companies sector
since launch in 2003, as at 30 September 2023.
The above measures are on a total return basis.
(1)This is an alternative performance measure. Definitions of alternative
performance measures, and other terms used in this report, are given on page
64, together with supporting calculations where appropriate.
(2)Performance of the stock in the index relative to the FTSE 250 (ex. ITs)
Index return.
Market background
UK equities rose over the period as the country emerged from a market crisis
precipitated by the Truss/Kwarteng "mini-budget" in September 2022. The
announcement of significant fiscal stimulus, without the usual checks and
balances, prompted a spike in UK government bond yields, together with a sharp
rise in market interest rates and mortgage rates. This put pressure on the UK
pensions and fixed income market (LDI), prompting an intervention by the Bank
of England. The market recovered as many of the policies announced were
reversed, and the new chancellor Jeremy Hunt used his Autumn Statement to
promise that the country would tighten its belt in the future.
While last year's market turmoil in the UK was, to some extent,
self-inflicted, other countries have since seen their government bond yields
rise sharply and experienced their own crises. This has occurred against the
backdrop of persistent global inflationary pressures, expectations of higher
for longer policy interest rates and concerns around the sustainability of
government budgets. Rising bond yields, for instance, have exposed management
issues at US regional banks and forced the rescue of the investment bank
Credit Suisse by rival UBS, in a deal facilitated by the Swiss authorities. It
would seem as though change is afoot, in terms of the economic regime we have
now entered, compared with the "lowflation" years following the 2007/08 GFC
and, indeed, the three decade period of moderating inflation and rates
starting in the 1990s.
Against this backdrop, equity markets and domestically focused sectors, in
particular, have been sentiment driven and consequently very volatile.
Valuations have fluctuated depending on whether macro-economic data indicated
whether policy rates might be close to a peak for this cycle, or not. In this
regard, the recovery in UK small and mid-caps over the period lost some
momentum following the initial rebound from the lows of September 2022. More
positively, towards the period end, market interest rates were relatively
stable as the sell-off in UK government bonds moderated (while it accelerated
in other territories, and in particular the US amid political disagreement
over levels of government borrowing) and mortgage rates fell. This reflected
hopes that near-term inflation pressures may be moderating, and UK base
interest rates may have peaked for now, with the Bank of England's chief
economist Huw Pill, guiding the market to a "Table Mountain" rather than,
previously, a "Matterhorn" shape for interest rates.
Portfolio performance
Your Investment Managers are pleased, as shareholders ourselves in Schroder UK
Mid Cap Fund plc, to report outperformance of the benchmark index, via an
inflation-beating return of 17.6%, in the 12 months ending 30 September 2023.
Stocks held - significant positive and negative contributions versus the
benchmark
Positive contributor Portfolio weight(1) Weight relative to index Relative performance(2) Impact(3)
(%) (%) (%) (%)
Games Workshop 3.7 +2.4 78.4 +1.5
4Imprint 3.5 +2.9 52.3 +1.3
Dunelm 3.7 +3.2 41.6 +1.1
Cranswick 3.0 +2.3 22.2 +0.5
Computacenter 2.9 +2.2 21.1 +0.5
Negative contributor Portfolio weight(1) Weight relative to index Relative performance(2) (%) Impact(3)
(%) (%) (%)
NCC 0.7 +0.5 -65.6 -0.8
Victrex 2.7 +2.1 -26.5 -0.7
Ecora Resources 1.0 +1.0 -38.1 -0.6
Future 1.4 +0.8 -46.1 -0.5
Telecom Plus 2.8 +2.2 -23.8 -0.5
Source: Schroders, Factset, close 30 September 2022 to close 30 September
2023.
(1)Weights are averages.
(2)Performance of the stock in the index relative to the FTSE 250 (ex. ITs)
Index return.
(3)Impact is the contribution to performance relative to the FTSE 250 (ex.
ITs) Index.
Strong stock picks in consumer facing companies Games Workshop (the company
behind the Warhammer franchise), Dunelm (the leader in UK homeware retail) and
Cranswick (food manufacturer specialising in pork and chicken) underpinned
this outperformance. This is not the first year that Dunelm and Games Workshop
have appeared in the top contributors' table, and this is a testament to the
strong "operational grip" - as Dunelm management would put it - exercised at
both companies.
Games Workshop performed very well on the back of news it had struck an
agreement in principle with Amazon to develop its intellectual property into
film and TV productions. We have long seen scope for the company to
selectively licence its intellectual property to grow the fan base and create
a truly global franchise. The Amazon deal has brought this potential to the
attention of the wider market.
Dunelm has bounced back, somewhat, from its oversold position at the end of
September 2022, when concern around consumer-focused stocks was at peak
levels. It has continued to trade strongly, driven by volume, and taking
market share in both its core homewares sector and in furniture. The company
is continuing to benefit from people spending increased time in their homes,
partly driven by more home‑working, and also, presumably, because of a
desire to save money, where the price points sit very close to those of IKEA,
for example. The announced 40p special dividend demonstrates the cash
generative nature of the business model.
4Imprint, the promotional products business with over 98% of revenues coming
from North America, continues to enjoy rapid post-pandemic growth, and appears
in our top five contributors table for the second year in a row. 2022 results
revealed 45% revenue growth and record operating profit. With just 6% market
share of an industry that is transitioning online, 4Imprint's leading digital
and TV marketing skills position it well for further market share gains.
Similar to what was reported at the time of the interim results, the most
significant detractor to performance was cyber security business, NCC. In the
second half of its financial year 2023, NCC experienced softening demand for
its services, as large US West Coast technology customers deferred buying
decisions. Margins were also being squeezed from cheaper overseas competition,
and although the resilience of NCC's profitable escrow business could be
expected to mitigate some of the pressure, on balance, we decided to exit this
small position. We retain exposure to the exciting structural growth market of
cybersecurity via our holdings in defence stocks QinetiQ and Chemring, for
example.
High performance polymer business Victrex also underperformed. The company saw
substantial inflation in raw material and energy costs, which it was only able
to pass through at a lag. We continue to think the business is well-placed,
with a 50% capacity share of the niche, high margin polyetheretherketone
("PEEK") market, reflected in high gross margins (of 54%). It has a strong
balance sheet and an attractive valuation, relative to its history and the
broader market.
Mining royalties business Ecora Resources, also detracted from performance.
The returns from its steelmaking coal exposure began to decline, as expected,
and commodity prices weakened. In the last two years, the business has begun
to move away from being a predominantly steelmaking coal business, using the
supernormal profits from this commodity to successfully pivot towards
commodities that will enable the energy transition. Meanwhile, the stock
trades at a significant discount to its net asset value per share.
Stocks not held - significant positive and negative contributions versus the
benchmark
Positive contributor Portfolio weight(1) Weight relative to index Relative performance(2) (%) Impact(3)
(%) (%) (%)
Tui - -1.0 -41.7 +0.8
Spirent Comms - -0.6 -59.1 +0.5
Drax - -1.1 -37.9 +0.5
Pennon - -0.9 -35.0 +0.4
LXI Reit - -0.7 -35.8 +0.3
Negative contributor Portfolio weight(1) Weight relative to index Relative performance(2) Impact(3)
(%) (%) (%) (%)
Marks & Spencer - -1.3 109.0 -1.0
Howden Joinery - -1.5 38.7 -0.5
IMI - -1.2 35.6 -0.5
Hikma Pharma - -1.2 41.8 -0.4
Intermediate Capital - -1.3 11.7 -0.4
Source: Schroders, Factset, close 30 September 2022 to close 30 September
2023.
(1)Weights are averages.
(2)Performance of the stock in the index relative to the FTSE 250 (ex. ITs)
Index return.
(3)Impact is the contribution to performance relative to the FTSE 250 (ex.
ITs) Index.
We had a significant positive contribution from our underweight to the travel
and leisure sector, demonstrated most clearly by not owning travel company
TUI. Not owning shares in telecommunications testing and assurance equipment
company Spirent Communications, which disappointed the market several times
during the year, as an expected bounce back in capital expenditure spend from
its telecoms customers failed to materialise, was also helpful for
performance, as was not owning renewable energy company Drax. The National
Audit Office announced that they would produce a report in response to the
Government's Biomass Strategy which dented the share price, given Drax's
reliance on biomass.
Not holding Marks & Spencer (we focussed our attention elsewhere in the
general retail sector, broadly successfully) and Hikma Pharmaceuticals, both
of which were promoted to the FTSE 100, detracted from our performance.
Neither did we hold trade kitchen supplier company Howden Joinery, which is
one of the larger companies in the benchmark, and which outperformed. We
prefer to hold Grafton Group, whose shares we see as attractively priced. It
is exposed to broadly similar verticals (building materials and home
improvement), and is well diversified, with around half its operations in the
UK and half in other European countries.
Portfolio activity
Our portfolio consists of a combination of attractively priced structural
growth opportunities (unique companies) in market niches (see Outlook),
together with "flex" stocks, which can be in more cyclical areas, or might be
at a strategic crossroads of some sort.
We established a new holding in Babcock International, where we see growing
demand for the company's defence and nuclear services, combined with an
improved balance sheet, following several disposals.
We added a holding in Britvic, the international soft drinks business with
brands such as Robinsons, Tango and J2O. The company also acts as a bottling
partner for PepsiCo in Great Britain, signing a 20-year agreement on
carbonated brands in 2020. The soft drinks industry is attractive, with
companies able to pass through price increases ahead of inflation to customers
desiring an affordable treat. Britvic has successfully managed the recent
spike in inflation, delivering operating margin improvements in financial
years 2021 and 2022. We expect the business to continue to be resilient.
We also added speciality chemicals company Elementis to the portfolio,
following the disposal of its chromium business, which should improve the
company's balance sheet and sustainability profile.
We established a new holding in Israeli gas company, Energean, on the
expectation of a near doubling of its gas production by the end of 2024, and a
return of value to shareholders of at least $1bn by the end of 2025. Post
period end, heightened geopolitical risk has impacted the shares, causing a
steep fall in value, followed by a subsequent recovery (as at 11 December
2023) to 13.4% below their value at 30 September 2023, and we continue to
monitor the situation. Energean has long-term fixed price contracts with
independent power producers that have over 10 years left to run.
Following the disposals of its cigarette filters and packaging businesses,
Essentra has emerged as a focused business concentrated on the attractive
industrial components space. With a strengthened balance sheet, the business
should be able to make value enhancing acquisitions to consolidate a
fragmented sector, while continuing to grow organically. It has already made
one such acquisition, even as management continues to buy back shares in line
with its £60m buyback commitment. Although recent trading has been weak, in
line with the broader industrials sector, it is reasonable to expect the
reported numbers to improve as annual comparisons begin to ease. Management
has recently confirmed that this year's profit will be within the range of
expectations.
We bought shares in specialty chemicals company Johnson Matthey, which
manufactures catalysts for emission controls systems, and which is also,
excitingly, heavily involved in the energy transition, through its Hydrogen
Technologies businesses.
We purchased a stake in Senior, the specialist fluid conveyance and thermal
management engineering company, which, we expect, will benefit from recovery
and structural growth in the commercial aerospace sector, and continue to win
share in the heavy truck market. An improved balance sheet provides additional
comfort.
We bought shares in challenger bank Virgin Money, where we expect significant
improvement in its net interest income in the medium term. It is in the
process of returning a significant amount of capital (£175m, just under 10%
of its market capitalisation at the time of writing) to shareholders via share
buybacks, and we see the shares as attractively priced.
Our new holding in WH Smith is our main exposure to the Travel sector. WH
Smith's airport concessions are well placed to benefit from improving trends
in this sub sector. The company has been successful in winning new locations
in US airports, and has a large backlog of stores won but not opened that will
drive growth in the future.
We sold our holdings in specialist mining engineer Weir and distributor
Diploma on their promotion to the FTSE 100, in line with our stated policy.
We disposed of our residual holdings in gaming company, 888, and events, media
and marketing company Ascential, following a period of share price recovery.
We also sold our small holding in housebuilder Crest Nicholson, and our
remaining position in cyber security and escrow business NCC, as described
above. With the investment case having played out, we exited Investec and
reinvested some of the proceeds in Virgin Money, also as described above. We
exited our residual position in Ted Baker, following its acquisition by the US
private company American Brands Group.
We disposed of our holding in oil services company Petrofac following news of
the CEO's departure. We exited our residual position in PZ Cussons and
reinvested the proceeds into drinks manufacturer and Irn Bru owner AG Barr,
which made an interesting entry into the growing energy drinks market via its
acquisition of energy, sports and protein drinks manufacturer Boost Drinks.
Finally, we sold our position in speciality chemicals company Synthomer,
following a recovery in the share price, seeing stronger balance sheets
elsewhere in the sector.
Outlook and strategy
The year ended September 2023 yielded a welcome return to the long-term trend
of outperformance for your Company, with a positive, inflation-beating total
return. We have analysed the stock specific reasons for this above.
That the UK market, particularly Mid-Caps, has had a difficult time, driven
partly by bad PR (including incorrect GDP data from the ONS, which had masked
the economy's complete recovery from the COVID pandemic, corrected only in
September), and partly by more stubborn than expected inflation and a return
to interest rates last seen around the time of the Global Financial Crisis, is
unlikely to be a topic of hot debate. Geopolitical risk has increased since we
wrote our mid-year outlook, but this fact does not seem to have put much of a
dent in the market's confidence in the "Magnificent Seven", which have
streaked ahead on a cloud of AI (recall that by the end of the film, only
three of the seven were still alive).
We see opportunity in the fact that UK mid cap aggregate valuations are now
sitting at a discount to where they started in autumn 2022. Most strikingly,
they are on a discount to UK large caps, and the yield of the dividend payers
in the Mid 250 index is now at an aggregate 5.3% for the 12 months ahead, vs
4.6% for the FTSE 100(1). Inflation is slowly, but mechanically, easing, and
although interest rates are higher than we might have hoped a year ago, the
Bank of England would appear to be showing a more dovish stance at this point.
Our response, in this environment, is to stick to our strategy of choosing
resilient businesses which can deliver high risk-adjusted returns with rising
cash flows and earnings. We have maintained our focus on two categories of
investment. First, those unique assets with scarcity value and franchise power
that allow management teams to raise prices without noticeably impacting
demand. We can logically expect to be able to buy more of these types of
assets if the current indiscriminatory selloff continues. The other category
(flex) takes in more cyclical businesses or industries that are undergoing
some sort of change, or that might be at some form of a strategic crossroads.
This could be industry consolidation, management change or supply retreating
out of the market. As a result of this change, we believe these companies will
deliver better returns on capital in the future, rewarding shareholders.
Additionally, portfolio companies tend to be net cash, or to have low levels
of debt. This is important as refinancing costs have increased sharply,
hurting profitability, and increasing risks for equity holders.
Our cautious approach has meant that, in aggregate, around 80% of our
portfolio holdings are geared at 1.0x net debt: EBITDA or less(2), which means
that they are far less indebted than the aggregate of the underlying index.
This also means that they are in a position to invest for growth, organic or
acquired, to pay dividends (ordinary or special - we have had five portfolio
companies pay special dividends this year) and/or to carry out share buybacks,
where appropriate. Provided this activity can be done generating a return
which beats the company's opportunity cost of capital, shareholders will
benefit. This year, fifteen of our fifty-two portfolio companies have carried
out a share buyback programme and twelve programmes are ongoing at the time of
writing. Companies such as asset manager Man Group ($1bn of shares bought back
over 5 years) are typical of the cash generative business models which we
favour in our portfolios.
(1)Source: Peel Hunt
(2)Excluding financials and real estate holdings.
And what of M&A? It would seem that the prospect of more settled credit
markets, together with eye catching valuations, has spurred acquirors into
action post a summer lull, particularly in the small cap arena, with recent
bids for property listings company On The Market, media company Kin &
Carta and The Restaurant Group, the owner of Wagamama. After a protracted
negotiation period, media mid cap Ascential has announced the disposal of two
of its three business divisions, one to private equity and one to a US
corporate. It seems logical to us that, if so many UK Mid Caps continue to be
priced below their intrinsic value, we will see more bid approaches.
We would like to remind readers that we are fishing in an attractive pond. In
terms of the long-term potential of UK equities, we suggest that investors
willing to look beyond the ongoing negative headlines will find the UK punches
above its weight. This can be seen in terms of multi-baggers relative to the
US. (See our recent article "30-baggers": why the UK has more than its fair
share, and our podcast on the topic, both available on the Company's web
pages), and this is why the Benchmark has beaten the S&P 500 return over
the 25 years to 30 September 2023, when measured in local currency. In US
dollar terms, it has very nearly matched the popular US index. The Mid 250 is
populated by multiple "unique" companies, with strong growth prospects,
generating cash and delivering attractive returns on capital.
As stock pickers, we are confident that the collective strength of our
holdings' balance sheets will continue to provide resilience in a challenging
economic environment. We are sticking to our sell discipline, avoiding
companies whose business models are in danger of being disrupted while seeking
out companies which have the ability to reinvent themselves, or which might be
the next mid cap disruptor.
Ten largest overweight positions
Description Market Value % Benchmark Absolute Active FTSE Industry
Market Value
Market Value
% %
4imprint Group plc 4.20% 0.70% 3.50% Consumer Discretionary
Dunelm Group plc 4.00% 0.60% 3.50% Consumer Discretionary
Computacenter plc 3.80% 0.80% 2.90% Technology
Oxford Instruments plc 3.50% 0.60% 2.90% Industrials
Cranswick plc 3.80% 0.90% 2.90% Consumer Staples
Man Group plc 4.10% 1.30% 2.80% Financials
Inchcape plc 4.10% 1.30% 2.80% Industrials
Spectris plc 4.40% 1.70% 2.70% Industrials
Telecom Plus plc 3.10% 0.50% 2.60% Telecommunications
Games Workshop Group plc 4.00% 1.60% 2.40% Consumer Discretionary
Schroder Investment Management Limited
12 December 2023
Past Performance is not a guide to future performance. The value of
investments and the income from them may go down as well as up and investors
may not get back the amounts originally invested.
This information is not an offer, solicitation or recommendation to buy or
sell any financial instrument or to adopt any investment strategy.
Investment Portfolio as at 30 September 2023
Stocks in bold are the 20 largest investments, which by value account for
59.4% (30 September 2022: 61.4%) of total investments. Investment are all
equities.
£'000 %
Industrials
Spectris 9,503 4.1
Oxford Instruments 7,448 3.3
QinetiQ 6,376 2.8
Grafton 5,424 2.4
Redrow 4,651 2.0
Babcock 4,465 2.0
Tyman 4,046 1.8
Redde Northgate 3,887 1.7
Chemring 3,843 1.7
Bodycote International 3,589 1.6
Senior 2,722 1.2
Clarkson 2,708 1.2
Keller 2,704 1.2
Paypoint 2,616 1.1
International Workplace 1,981 0.9
Essentra 1,780 0.8
XP Power 1,770 0.8
James Fisher 507 0.2
Total Industrials 70,020 30.8
Consumer Services
4Imprint 8,925 3.9
Inchcape 8,874 3.9
Dunelm 8,602 3.7
WH Smith 5,779 2.5
Pets At Home 4,015 1.8
Watches of Switzerland 3,257 1.4
Future 2,667 1.2
Total Consumer Services 42,120 18.4
Financials
Man Group 8,713 3.8
Safestore 5,296 2.3
Paragon 4,920 2.2
IG Group 4,919 2.2
Savills 3,979 1.7
Just Group 2,948 1.3
OSB 2,848 1.2
Londonmetric Property 2,683 1.2
Virgin Money 1,991 0.9
Sirius 1,981 0.9
Bridgepoint 1,310 0.6
Total Financials 41,588 18.3
Consumer Goods
Games Workshop 8,659 3.8
Cranswick 8,170 3.6
Vistry 4,104 1.8
A.G. Barr 3,683 1.6
Photo-Me 3,629 1.6
Britvic 1,875 0.8
Total Consumer Goods 30,120 13.2
Basic Materials
Victrex 5,901 2.6
Johnson Matthey 3,175 1.4
Elementis 2,198 1.0
Anglo Pacific 2,044 0.9
Total Basic Materials 13,318 5.9
Technology
Computacenter 8,096 3.5
IP Group 3,214 1.4
Total Technology 11,310 4.9
Healthcare
Spire Healthcare 4,273 1.9
Genus 4,188 1.8
Total Healthcare 8,461 3.7
Telecommunications
Telecom Plus 6,556 2.8
Total Telecommunications 6,556 2.8
Oil & Gas
Energean Oil and Gas 4,458 2.0
Total Oil & Gas 4,458 2.0
Total investments 227,950 100.0
Ten Year Financial Record
Definitions of terms and Alternative Performance Measures are provided on page
64.
At 30 September 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Shareholders' funds (£'000) 161,739 173,327 184,260 192,718 226,577 229,734 226,424 199,524 277,569 187,393 213,823
NAV per share (pence) 447.5 479.6 509.8 533.2 632.0 640.8 633.5 569.0 791.6 541.9 618.3
Share price (pence) 420.0 448.9 462.5 435.4 524.5 538.0 540.0 458.5 730.0 480.0 544.0
Share price discount to NAV per share* (%) 6.1 6.4 9.3 18.3 17.0 16.0 14.8 19.4 7.8 11.4 12.0
Gearing/(net cash)* (%) 2.0 (4.4) (6.1) 1.5 (0.5) (3.0) 4.3 5.3 7.7 10.8 6.8
For the year ended 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
30 September
Net revenue return after taxation (£'000) 3,096 3,506 3,549 4,455 5,031 6,015 7,325 3,155 5,322 7,823 7,842
Revenue return per share (pence) 8.57 9.70 9.82 12.33 13.96 16.78 20.43 8.92 15.18 22.43 22.68
Dividends per share (pence) 7.70 8.50 9.20 11.25 13.10 16.00 18.50 13.30 14.80 19.00 20.5
Ongoing Charges* (%) 1.01 0.94 0.93 0.95 0.92 0.90 0.90 0.90 0.90 0.89 0.97
Performance(1) 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
NAV total return* 100.0 108.9 117.8 125.5 151.9 157.1 160.0 147.7 209.5 146.7 172.5
Share price total return* 100.0 108.8 114.2 109.6 135.5 142.4 148.1 129.6 210.7 142.1 166.8
Benchmark 100.0 105.3 118.7 129.0 147.2 153.4 153.7 130.2 183.4 134.3 152.6
(1)Source: Morningstar/Thomson Reuters. Rebased to 100 at 30 September 2013.
*Alternative performance measures.
Business Review
Business model
The Company is a listed investment trust, that has outsourced its operations
to third party service providers.
The Board has appointed the Manager, Schroder Unit Trusts Limited, to
implement the investment strategy and to manage the Company's assets in line
with the appropriate restrictions placed on it by the Board, including limits
on the type and relative size of holdings which may be held in the portfolio
and on the use of gearing, cash, derivatives and other financial instruments
as appropriate.
The terms of the appointment are described more completely in the Directors'
Report including delegation to the portfolio managers and their team. The
Manager also promotes the Company using its sales and marketing teams. The
Board and Manager work together to deliver the Company's investment objective,
as demonstrated in the diagram above.
Investment objective
The Company's investment objective is to invest in mid cap equities with the
aim of providing a total return in excess of the FTSE 250 ex Investment Trusts
Index.
Investment policy
The Manager applies a high conviction approach, managing a focused portfolio
of resilient companies that are all capable of delivering excess risk-adjusted
returns with rising cash flows and earnings. Fundamental research forms the
basis of each investment decision taken by the Manager. The Company will
predominantly invest in companies from the FTSE 250 Index, but may hold up to
20% of its portfolio in equities and collective investment vehicles outside
the benchmark index. The Company may also invest in other collective
investment vehicles where desirable, for example to provide exposure to
specialist areas within the universe. The Company has the ability to use
gearing for investment purposes up to 25% of total assets.
Status
The Company is domiciled in the UK and is an investment company within the
meaning of section 833 of the Companies Act 2006.
The Company carries on business as an investment trust. Its shares are listed
and admitted to trading on the premium segment of the main market of the
London Stock Exchange. It has been approved by HM Revenue & Customs as an
investment trust in accordance with section 1158 of the Corporation Tax Act
2010, by way of a one-off application and it is intended that the Company will
continue to conduct its affairs in a manner which will enable it to retain
this status.
The Company is not a "close" company for taxation purposes.
Purpose, values and culture
The Company's purpose is to create long-term shareholder value, in line with
the investment objective.
The Company's culture is driven by its values: transparency, engagement and
rigour, with collegiate behaviour and constructive, robust challenge. The
values are all centred on achieving returns for shareholders in line with the
Company's investment objective. The Board also promotes the effective
management or mitigation of the risks faced by the Company and, to the extent
it does not conflict with the investment objective, aims for the Company's
operations to be structured taking into account all its stakeholders and their
impact on the environment and community.
Acting with high standards of integrity and transparency, the Board is
committed to encouraging a culture that is responsive to the views of
shareholders and its wider stakeholders.
As the Company has no employees and acts through its service providers, its
culture is represented by the values and behaviour of the Board and third
parties to which it delegates. The Board aims to encourage a culture of
constructive challenge with the key suppliers and openness with all
stakeholders. The Board is responsible for embedding the Company's culture in
the Company's operations. The Board recognises the Company's responsibilities
with respect to corporate and social responsibility and engages with its
outsourced service providers to safeguard the Company's interests. As part of
this ongoing monitoring, the Board receives reporting from its service
providers with respect to their anti-bribery and corruption policies; Modern
Slavery Act 2015 statements; diversity policies; and greenhouse gas and energy
usage reporting. The Company is required to obtain the prior approval of the
Ordinary Shareholders to any material change to its published investment
policy.
Key performance indicators ("KPIs")
The investment objective
The Board measures the development and success of the Company's business
through achievement of the Company's investment objective, which is considered
to be the most significant key performance indicator for the Company.
Commentary on performance against the investment objective can be found in the
Chairman's Statement.
At each meeting, the Board considers a number of performance indicators to
assess the Company's success in achieving its investment objective. These are
as follows: NAV total return; share price total return; share price
discount/premium to NAV per share and ongoing charges. These are classed as
Alternative Performance Measures ("APMs") and their calculations are explained
in more detail on pages 64 and 65.
Performance against these indicators is reported on page 11.
NAV and share price total return
At each meeting, the Board reviews the performance of the portfolio in detail
and discusses the views of the portfolio managers with them.
Share price discount/premium to NAV per share
The Board reviews the level of share price discount to NAV at each Board
meeting and buys back shares where appropriate, taking account of the
interests of all shareholders.
Share issuance is also considered, where relevant, and at a premium to NAV, in
order to improve liquidity where this is in shareholders' interests.
Ongoing charges
The Board reviews the Company's ongoing charges to ensure that the total costs
incurred by shareholders in the running of the Company remain competitive when
measured against peer group funds. An analysis of the Company's costs,
including management fees, directors' fees and general expenses, is submitted
to each Board meeting. Management and any performance fees payable are
reviewed at least annually.
Revenue and dividends
The Board considers the payment of an interim and final dividend annually,
taking into account revenue generated during the year. The net revenue return
for the year, after finance costs and taxation, was £7,842,000
(2022:£7,823,000), equivalent to a revenue return per share of 22.68 pence
(2022: 22.43 pence). The Board was pleased to announce on 28 June 2023 an
interim dividend of 5.5pence per share for the year ending 30 September 2023.
The directors have recommended the payment of a final dividend for the year of
15.0 pence per share (2022: 14.0 pence) payable on 15 March 2024. The dividend
will be payable to shareholders on the register on 16 February 2024 and the
ex-dividend date will be 15 February 2024.
Risk factors
In addition to the performance indicators set out above, the Board monitors
risk factors relating to investment performance on a quarterly basis.
Stock selection and portfolio construction
Investment process
In order to meet the investment objective, the Manager applies a high
conviction approach, managing a focused portfolio of high quality companies
that are all capable of delivering excess risk-adjusted returns with rising
cash flows and earnings. These returns can come from "disruptors", which
change the status quo within the marketplace, or from established companies
which can grow sustainably by reinventing themselves in response to the
disruption.
High conviction: We only invest where we believe there is a very strong case
to do so. We don't carry any stocks where we are not convinced that they will
make a positive impact on performance. This is reflected in a high active
share.
Resilient: resilience goes hand in hand with sustainability. When we say
resilience, we mean the ability of a business to thrive for many years into
the future. It is a driver of investment returns and an approach for reducing
risk. With that in mind, we seek well-managed companies, where management has
a long-term vision, so that the business is capable of generating risk
adjusted returns in excess of cost of capital. We are aiming for good quality
longer-term returns rather than risking money on a short-‑term anomaly.
Challenging the status quo: Whether it be a service or a product, or the
delivery of this, the company is "doing it a different way". An example of
this in the portfolio is fund management company Man Group, which uses
quantitative methods to deliver novel investment ideas.
Growing sustainably: Sustainability in investment has multiple facets. We seek
out companies which are exposed to a structural growth market and have a
strong or potentially strong position in this market. The company could also
be creating a new market (a "disruptor"). While the Company does not
automatically exclude sectors or particular companies based on specific ESG
metrics, ESG factors are incorporated into the Managers' investment decision
making process. Another form of sustainability comes from acting responsibly,
ethically and in an environmentally sound way and Schroders' proprietary
Sustainability tools, SustainEx and Context, assist us in examining whether
companies are targeting the correct behaviours. Examples in the portfolio
which tick both boxes include Victrex and Oxford Instruments.
Reinvent: Established companies which do not continually reinvent themselves
are exposed to an existential threat in the Manager's view. Examples of
companies which are avoiding this threat in the portfolio include Grafton,
which has moved away from commodity products and into high value niche
markets, and Inchcape, which is assisting its suppliers (the original
equipment manufacturers), using its technology and vast store of data, thus
helping to modernise the car distribution industry.
Sustainable growth is key to the investment strategy
As Manager of the Company, we are stewards of capital, focusing on the
long-term prospects of the assets in which we invest. We analyse each
investment's ability to create, sustain and protect value to ensure that it
can deliver returns in line with our shareholders' objectives. Sustainability
is key and that is reflected in our approach to investing. Sustainable
companies can continue for an extended period or without interruption. They
will possess many, if not all, of the following characteristics:
• Capable of compound growth, often due to exposure to a
structural growth market, or gaining significant share in a static or
declining market
• Possessing a unique or rare business model, relative to the
investment universe
• Led by a proven, strong, management team, or one where we
see potential for this
• With business practices which are transparent, clearly laid
out and explained
• Having accounting practices which are of a high standard
• Generating cash which allows the business to grow
• Underpinned by a strong or strengthening (thanks to cash
conversion) balance sheet
• Management will not destroy value, e.g. by making frequent
or unsuitable acquisitions or over gearing the balance sheet
ESG and sustainability benchmarking
Internal accreditation
• Sustainability is a building block of the investment process
and can be clearly evidenced
• The investment process applied by the portfolio managers of
Schroder UK Mid Cap Fund plc is ESG "integrated"
In 2019 Schroders rolled out an internal ESG accreditation process. As part of
this, the portfolio's integration process has been reviewed and approved every
year since 2020. This means that sustainability is a building block of the
investment process and can be clearly evidenced.
External benchmarking
The Manager is pleased to report that the Company has been given a Morningstar
Sustainability Rating ("Globe" rating) of 5, out of a maximum of 5. This means
that it is in the top 10% of Morningstar's UK Equity Mid/Small Cap global
category.
This fund-level rating evaluates how much ESG risk is embedded in a fund
relative to its Morningstar peer group, i.e. the risk of something going wrong
in an ESG context. Under the widely accepted premise that the world is
transitioning to a more sustainable economy, Morningstar's view is that a
risk-based evaluation is the best available technique to assess the ESG
characteristics of a fund.
Morningstar Sustainability Rating
If we look specifically at carbon intensity, one measure of this, which we
source from MSCI data, indicates that the Company's carbon intensity is around
half that of the benchmark. For this we use Scope 1+2 Carbon Intensity - which
is the average carbon intensity (tonnes CO2e/$ million of revenues) of
portfolio companies, weighted by position size.
Extensive engagement with portfolio companies
The Manager believes that, as external research on mid cap companies is
limited in scope and often in quality, this provides an opportunity to deliver
excess returns to shareholders. Detailed analysis of company reports and
accounts, company meetings and visits, ESG analysis and engagements and the
use of industry experts are all a vital part of the Manager's research
process. It is the application of experience to these varied inputs, coupled
with an extensive global in-house analytical resource that the Board believes
gives the team the potential to deliver attractive returns.
As part of our process, we meet with company management teams in advance of
investing, as well as meeting with the management of all portfolio companies
at least once a year. In many cases, we meet with them more often than this,
as well as engaging with board members. In addition, we will attend meetings
with most management teams of companies in this dynamic Benchmark over the
course of a year as we regularly review the investment cases of companies not
held in the portfolio. We believe it is just as important to understand why
you don't hold something as it is to know why you do.
Dedicated team of ESG specialists
We have always taken pride in our level of engagement with companies. Our
brand, as well as extensive analytical resource, affords us the ability to
regularly engage with companies on all aspects of corporate strategy,
including specific ESG/sustainability matters.
We are fortunate at Schroders to have access to a dedicated team of over 50
ESG/sustainability specialists. Their role is to research ESG/sustainability
themes within sectors, provide proprietary analytics and tools, as well as to
analyse and engage with individual companies on these issues. We engage with
the output of this team regularly to ensure that these factors inform the
investment process.
The next table shows the number of shareholder resolutions the Company has
voted on in the last year and over three years.
Proxy voting Year ended 3 years to
30 September 2023
30 September 2023
Meetings 63 188
Resolutions 1,087 3,144
Voted against management 1.7% 5.2%
Did not vote 0 0
Source: Schroders
Responsible investment
The Company delegates to its Manager the responsibility for taking ESG issues
into account when assessing the selection, retention and realisation of
investments. The Board expects the Manager to engage with investee companies
on social, environmental and business ethics issues and to promote best
practice. The Board expects the Manager to exercise the Company's voting
rights in consideration of these issues.
Further detail on engagement and stewardship can be found on pages 14 and 15.
In addition to the description of the Manager's integration of ESG into the
investment process and the details in this Business Review, a description of
the Manager's policy on these matters can be found on the Schroders website at
www.schroders.com. The Board notes that Schroders believes that companies with
good ESG management often perform better and deliver superior returns over
time. Engaging with companies to understand how they approach ESG management
is an integral part of the investment process. Schroders has committed to the
UN Global Compact, amongst codes and standards, and information about the
application of Schroders' sustainability and responsible investment policies
can be found at:
https://www.schroders.com/en/sustainability/corporate-responsibility/.
The Board has received reporting from the Manager on the application of its
policy.
Investment restrictions and spread of investment risk
Risk in relation to the Company's investments is spread as a result of the
Manager monitoring the Company's portfolio with a view to ensuring that the
portfolio retains an appropriate balance to meet the Company's investment
objective. The key restrictions imposed on the Manager include:
(a) no more than 15% of the Company's total net assets, at the date of
acquisition, may be invested in any one single company;
(b) no more than 10% of the value of the Company's gross assets may be
invested in other listed investment companies unless such companies have a
stated investment policy not to invest more than 15% of their gross assets in
other listed investment companies;
(c) no more than 15% of the Company's gross assets may be invested in
other listed investment companies (including listed investment trusts);
(d) no more than 15% of the Company's total net assets may be invested
in open-ended funds; and
(e) no holding may represent 20% or more of the equity capital of any
company. No breaches of these investment restrictions took place during the
financial year.
The investment portfolio on page 10 demonstrates that, as at 30 September
2023, the Company held 52 investments spread over a range of industry
sectors. The Board therefore believes that the objective of spreading
investment risk has been achieved and will continue to be achieved as the
Manager moves towards its target focused portfolio of around 40-50
investments.
The Company's financial instruments comprise its investment portfolio, cash
balances, including those held in money market funds, bank borrowings and
debtors and creditors that arise directly from its operations such as sales
and purchases awaiting settlement and accrued income. The financial risk
management objectives and policies arising from its financial instruments and
the exposure of the Company to risk are disclosed in note 20 on pages 54 to
57.
Use of gearing
The Company currently has in place a three year £10 million revolving credit
facility, which expires on 14 February 2025. The Company also has a £20
million 1-year revolving credit facility expiring on 27 February 2024. The
Board of directors is in the process of renewing the revolving credit facility
expiring on 27 February 2024, and intends to do the same with the facility
expiring on 14 February 2025, subject to this being in shareholders' interests
at the time of renewal.
In rising markets the gearing amplifies increases in the NAV and in falling
markets any reduction in NAV would be amplified by the gearing. The Company's
gearing continues to be operated within pre-agreed limits so that it does not
exceed 25% of total assets. The flexibility to utilise gearing remains an
important tool in allowing the Manager to pursue investment opportunities when
appropriate.
Promotion and shareholder relations
The Company promotes its shares to a broad range of investors including
discretionary wealth managers, private investors, financial advisers and
institutions which have the potential to be long-term supporters of the
investment strategy. The Board seeks to achieve this through its Manager and
corporate broker, which promote the shares of the Company through regular
contact with both current and potential shareholders. These activities consist
of investor lunches, one-on-one meetings, webinars, regional road shows and
attendances at conferences. In addition, the Company's shares are supported by
the Manager's wider marketing of investment companies targeted at all types of
investors. This includes maintaining close relationships with adviser and
execution-only platforms, advertising in the trade press, maintaining
relationships with financial journalists and the provision of digital
information on Schroders' website.
Shareholder relations are given high priority by both the Board and the
Manager. The Board also seeks active engagement with investors and meetings
with the Chairman are offered where appropriate. In addition to the engagement
and meetings held during the year the Chairs of the Board and committees, as
well as the other directors, attend the AGM and are available to respond to
queries and concerns from shareholders.
Shareholders are also encouraged to sign up to the Manager's Investment Trusts
update, to receive information on the Company directly.
https://www.schroders.com/en/uk/private-investor/fundcentre/
funds-in-focus/investment-trusts/schroders-investmenttrusts/never-miss-an-update
Further disclosures
Diversity
The below tables set out the gender and ethnic diversity composition of the
Board (as at 30 September 2023 and at the date of this report):
Number of Board members Percentage of Number of
the Board
senior positions
on the Board
(SID and Chair)
White British or other White (including minority-white groups) 5 100% 2
Mixed/multiple ethnic groups - - -
Asian/Asian British - - -
Black/African/Caribbean/Black British - - -
Other ethnic group, including Arab - - -
Not specified/prefer not to say - - -
Number of Board members Percentage of Number of
the Board
senior positions
on the Board
(SID and Chair)
Men 3 60% 2
Women 2 40% 0
Not specified/prefer not to say - - -
Given that the Company is an investment trust with no executive Board members,
the prescribed columns and references regarding executive management have not
been included in the above table.
As at 30 September 2023, the requirements under Listing Rules 9.8.6R(9) and
(11) to disclose compliance with certain targets, have been met in relation to
at least 40% of the Board being female, although the requirements that a
senior position be held by a woman, and that one individual be from an ethnic
group other than a white ethnic group have not been met. Upon Ms Colquhoun
taking on the role of senior independent director in March 2024, the first of
these requirements will have been met. The Board will have regard to the
second requirement when considering future appointments.
Appointments and succession plans will always be based on merit and objective
criteria and, within this context, the Board seeks to promote diversity of
gender, social and ethnic backgrounds, cognitive and personal strengths. The
Board will encourage any recruitment agencies it engages to find a range of
candidates that meet the objective criteria agreed for each appointment.
Candidates for Board vacancies are selected based on their skills and
experience, which are matched against the balance of skills and experience of
the overall Board taking into account the criteria for the role being offered.
The Board also considers the diversity and inclusion policies of its key
service providers.
Financial crime policy
The Company continues to be committed to carrying out its business fairly,
honestly and openly. The Company operates a financial crime policy, covering
bribery and corruption, tax evasion, money laundering, terrorist financing and
sanctions, as well as seeking confirmations that the Company's service
providers' policies are operating soundly.
Greenhouse gas emissions and energy usage
As the Company outsources its operations to third parties, it consumed less
than 40,000 kWh during the year and so has no greenhouse gas emissions, energy
consumption or energy efficiency action to report.
Taskforce for Climate-Related Financial Disclosures
On 30 June 2023, the Company's AIFM produced a product level disclosure
consistent with the Taskforce on Climate-Related Financial Disclosures
("TCFD") for the period 1 January 2022 to 31 December 2022. This can be found
here:
https://mybrand.schroders.com/m/3fc5db9ace2e795d/original/TCFD-Schroder-UK-Mid-Cap-Fund-20221231.pdf
Stakeholder engagement, section 172 of the Companies Act 2006
During the year under review, the Board discharged its duty under section 172
of the Companies Act 2006 to promote the success of the Company for the
benefit of its members as a whole, having regard to the interests of all
stakeholders. As an externally managed investment trust, the Company has no
employees, operations or premises. The Board has identified its key
stakeholders as the Company's shareholders, the Manager, other service
providers, the Investee companies and the Company's Lender.
Fulfilling this duty naturally supports the Company in achieving its
investment objective and helps to ensure that all decisions are made in a
responsible way, taking sustainability into account. In accordance with the
requirements of the Companies (Miscellaneous Reporting) Regulations 2018, the
directors explain below how they have individually and collectively discharged
their duties under section 172 of the Companies Act 2006 over the course of
the reporting period and key decisions made during the period and related
engagement activities.
Stakeholder Stakeholder considerations, engagement and key decisions
Shareholders The Company welcomes attendance and participation from shareholders at the
Annual General Meeting. If attending, shareholders have the opportunity to
meet the directors and ask questions at the AGM. The Board values the feedback
and questions which it receives from shareholders. Shareholder relations are
given high priority by both the Board and the Manager and are detailed further
in 'Promotion and shareholder relations' on page 15.
In addition to the AGM, shareholders may also contact the Board by writing to
the Company Secretary (Company Secretary, Schroder UK Mid Cap Fund plc,
1 London Wall Place, London EC2Y 5AU), or emailing
amcompanysecretary@schroders.com. Shareholders are also encouraged to register
for updates on the Company on the Company's website. To sign up please visit
https://www.schroders.com/engb/uk/individual/nevermiss-an-update/.
The annual and half year results presentations, as well as monthly updates are
available on the Company's website, with results announced via a regulatory
news service. Feedback and/or questions received from shareholders enable the
Company to evolve its reporting which, in turn, helps to deliver transparent
and understandable updates.
The Manager communicates with shareholders periodically. All investors are
offered the opportunity to meet the Chairman and other Board members without
using the Manager or Company Secretary as a conduit, by writing to the
Company's registered office. At Board meetings, the directors receive updates
on the share trading activity, share price performance and any shareholders'
feedback, as well as any publications or comments in the press. The Board also
engages external providers, such as its broker, to obtain a more detailed view
on specific aspects of shareholder communications, such as developing more
effective ways to communicate with investors.
The Board is responsible for discount and premium management and is cognisant
of the prevailing discount to NAV.
For key decisions, the Board took into account feedback from shareholders
either directly or through service providers, including the Manager.
The Manager The Manager aims to continue to achieve consistent, long-term returns in line
with the investment objective and maintains a close and collaborative working
relationship with the Board.
The Board maintains a constructive relationship with the Manager, encouraging
open discussion and recognising that the interests of shareholders and the
Portfolio Managers are well aligned. The Board invites the Manager to attend
all Board meetings and receives regular reports on the performance of the
investments and the implementation of the investment strategy, policy and
objective. The portfolio activities undertaken by the Manager and the impact
of decisions affecting investment performance are set out in the Managers'
Review on pages 6 to 9. The Management Engagement Committee reviews the
performance of the Manager, its remuneration and the discharge of its
contractual obligations at least annually.
Other service The Board maintains regular contact with its key external providers, both
providers through the Board and committee meetings, as well as outside the regular
meeting cycle. Their advice, as well as their needs and views, are routinely
taken into account when considering relevant matters. During the period, the
Management Engagement Committee continued to undertake reviews of the
third-party service providers and agreed that their continued appointment
remained in the best interests of the Company and its shareholders. The
Committee periodically reviews the market rates for services received, to
ensure that the Company continues to receive high quality service at a
competitive cost.
During the year, directors attended a meeting to assess the internal controls
of certain service providers including the Company's Depositary and Custodian,
HSBC, the Company's registrar, Equiniti, and Schroder's Group Internal Audit.
These meetings enable the Board to conduct due diligence on operations and IT
risks amongst service providers; and to receive up to date information about
changes in regulation and market practice in the industry. The Board regularly
considers how it meets various regulatory and statutory obligations and
follows voluntary and best-practice guidance, while being mindful of how any
decisions which it makes can affect its shareholders and wider stakeholders,
in the short and the long-term. The Board receives reports from the Manager,
Corporate Broker and Company Secretary on recent and proposed changes in
regulation and market practice, as well as any likely reputational threats
which, in turn, influence the Board's decision-making process.
Principal risks and uncertainties
The Board is responsible for the Company's system of risk management and
internal control and for reviewing its effectiveness. The Board has adopted a
detailed matrix of principal risks affecting the Company's business as an
investment trust and has established associated policies and processes
designed to manage and, where possible, mitigate those risks, which are
monitored by the Audit and Risk Committee on an ongoing basis. This system
assists the Board in determining the nature and extent of the risks it is
willing to take in achieving the Company's strategic objectives. Both the
principal risks and the monitoring system are also subject to robust review at
least annually.
The Company's principal risks and uncertainties have not changed materially
since the date of the previous Annual Report and are not expected to change
materially for the current financial year.
Although the Board believes that it has a robust framework of internal control
in place this can provide only reasonable, and not absolute, assurance against
material financial misstatement or loss and is designed to manage, not
eliminate, risk.
Actions taken by the Board and, where appropriate, its committees, to manage
and mitigate the Company's principal risks and uncertainties are set out in
the table below.
Risk Mitigation and management Change (post mitigation and management)
Strategic The appropriateness of the Company's investment remit is periodically reviewed çè
and the success of the Company in meeting its stated objectives is monitored.
The requirements of investors change or diverge in such a way as to diverge
from the Company's investment objectives, resulting in a wide discount of the
share price to underlying NAV per share.
The share price relative to NAV per share is monitored and the use of buy back
authorities is considered on a regular basis.
Marketing and distribution activity is actively reviewed.
The Company engages proactively with investors.
The Company's cost base could become uncompetitive, particularly in light of The ongoing competitiveness of all service provider fees is subject to çè
open ended alternatives. periodic benchmarking against their competitors.
Annual consideration of management fee levels is undertaken.
Investment management Review of the Manager's compliance with its agreed investment restrictions, çè
investment performance and risk against investment objectives and strategy;
The Manager's investment strategy, if inappropriate, may result in the Company relative performance; the portfolio's risk profile; and whether appropriate
underperforming the market and/or peer group companies, leading to the Company strategies are employed to mitigate any negative impact of substantial changes
and its objectives becoming unattractive to investors. in markets. The Manager also reports on the Company's portfolio, and the
market generally.
Annual review of the ongoing suitability of the Manager, including resources
and key personnel risk.
Financial and market risk The risk profile of the portfolio is considered and appropriate strategies to çè
mitigate any negative impact of substantial changes in markets are discussed
The Company is exposed to the effect of market fluctuations due to the nature with the Manager. See note 20 of the notes to the accounts.
of its business. A significant fall in equity markets could have an adverse
impact on the market value of the Company's underlying investments.
Custody The depositary reports on the safe custody of the Company's assets, including çè
cash and portfolio holdings which are independently reconciled with the
Safe custody of the Company's assets may be compromised through control Manager's records.
failures by the depositary, including cyber hacking.
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 received.
Gearing and leverage Gearing is monitored and strict restrictions on borrowings are imposed: çè
gearing continues to operate within pre-agreed limits so as not to exceed 25%
The Company utilises credit facilities. These arrangements increase the funds of total assets.
available for investment through borrowing. While this has the potential to
enhance investment returns in rising markets, in falling markets the impact
could be detrimental to performance.
The Manager is currently in discussion with several providers to secure new
borrowing facilities upon expiry of one of the Company's current facilities in
February 2024. If a new loan cannot be arranged with acceptable terms, the
Board is satisfied that this does not represent a significant risk to the
Company since it has sufficient readily realisable assets to repay the loan.
The Board also reviews the cost of gearing.
Accounting, legal and regulatory The confirmation of compliance with relevant laws and regulations by key çè
service providers is reviewed.
In order to continue to qualify as an investment trust, the Company must
comply with the requirements of section 1158 of the Corporation Tax Act 2010.
Shareholder documents and announcements, including the Company's published
annual report are subject to stringent review processes.
Breaches of the UK Listing Rules, the Companies Act or other regulations with
which the Company is required to comply, could lead to a number of detrimental
outcomes.
Procedures are established to safeguard against the disclosure of inside
information.
Service provider Service providers are appointed subject to due diligence processes and with çè
clearly-documented contractual arrangements detailing service expectations.
The Company has no employees and has delegated certain functions to a number
of service providers. Failure of controls, including as a result of cyber
hacking, and poor performance of any service provider, could lead to
disruption, reputational damage or loss. Regular reports are provided by key service providers and the quality of their
services is monitored.
Review of annual audited internal controls reports from key service providers,
including confirmation of business continuity arrangements and IT controls is
undertaken.
Cyber Service providers report on cyber risk mitigation and management at least çè
annually, which includes confirmation of business continuity capability in the
The Company's service providers are all exposed to the risk of cyber attacks. event of a cyber attack.
Cyber attacks could lead to loss of personal or confidential information or
disrupt operations.
Political risk The Board continues to monitor relevant political and geopolitical events to çè
the extent that they apply to the Company, including the war in Ukraine and
This includes trade wars, regional tensions and UK political risks conflict in the Middle East.
specifically.
The Board is also mindful that changes to public policy in the UK could impact
the Company in the future.
Climate change risk The Manager has developed a range of proprietary tools to better understand çè
the impacts of climate change on the portfolio. The investment process applied
A failure to understand the pricing of assets affected by climate change or a by the portfolio managers is ESG "integrated". The Manager monitors the
lower demand for impacted assets could lead to poor investment decisions or emissions of investee companies and can engage with companies to reduce their
more volatile pricing as asset prices adjust to reflect the increasing emissions or aim to invest in companies committed to reaching net zero carbon
regulation of carbon emissions. emissions. The Board receives updates from the Manager at Board meetings and
continues to engage with the Manager and the Schroders sustainability team to
discuss ESG matters, including climate change. The Board has challenged the
Manager regarding the need to carefully consider and monitor sustainability
and environmental and societal impacts when assessing investment
opportunities, in addition to the well founded attention to good corporate
governance principles, which have been in place for many years.
Inflation & Global supply chain risk Rising supplier costs and The Board has, in conjunction with the Manager, considered the risks relating çè
availability of supply. to elevated levels of price inflation, generally, together with the evolution
in the way that supply chains are operating and the concomitant risks of
rising supplier costs and availability of supply. It is the Board's view that
the complexion of these risks has changed over the past year in a way that
requires them now to be assessed as principal risks. The key mitigation to
these risks comes from diligent appraisal and monitoring of investments by the
Manager, including engagement with the management of investee companies,
together with a critical assessment of investee companies' ability to pass on
rising costs to customers as a result of their pricing power and strong market
positions alongside their ability to control costs.
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.
No significant control failings or weaknesses were identified from the Audit
and Risk Committee's ongoing risk assessment which has been in place
throughout the financial year and up to the date of this report. The Board is
satisfied that it has undertaken a detailed review of the risks facing the
Company.
A full analysis of the financial risks facing the Company is set out in note
20 to the accounts on pages 54 to 57.
Viability statement
The directors have assessed the viability of the Company over a five year
period, taking into account the Company's position at 30 September and 12
December 2023 and the potential impact of the principal risks and
uncertainties it faces for the review period. The directors have assessed the
Company's operational resilience and they are satisfied that the Company's
outsourced service providers will continue to operate effectively, following
the implementation of their business continuity plans.
A period of five years has been chosen as the Board believes that this
reflects a suitable time horizon for strategic planning, taking into account
the investment policy, liquidity of investments, potential impact of economic
cycles, nature of operating costs, dividends and availability of funding. This
time period also reflects the average hold period of an investment.
In its assessment of the viability of the Company, the directors have
considered each of the Company's principal risks and uncertainties detailed on
pages 18 to 20 and in particular the impact of a significant fall in regional
equity markets on the value of the Company's investment portfolio. The
directors have also considered the Company's income and expenditure
projections and the fact that the Company's investments comprise readily
realisable securities which can be sold to meet funding requirements if
necessary.
The directors have also considered a stress test which represents a severe but
plausible scenario along with movement in foreign exchange rates. This
scenario assumes a severe stock market collapse and/or exchange rate movements
at the beginning of the five year period, resulting in a 50% fall in the value
of the Company's investments and investment income and no subsequent recovery
in either prices or income in the following five years. It is assumed that the
Company continues to pay an annual dividend in line with current levels and
that the borrowing facility remains available and remains drawn, subject to
the gearing limit.
The Company's investments comprise highly liquid, large, listed companies and
so its assets are readily realisable securities and could be sold to meet
funding requirements or the repayment of the gearing facility should the need
arise. There is no expectation that the nature of the investments held within
the portfolio will be materially different in the future.
One of the Company's two loan facilities is due to expire in February 2024 and
the Company has entered into negotiations with its bankers. If acceptable
terms are available from the existing bankers, or any alternative, the Company
would expect to continue to access an equivalent facility. However, should
these terms not be forthcoming, the outstanding borrowing attributable to this
facility would be repaid through the proceeds of equity sales.
The operating costs of the Company are predictable and modest in comparison
with the assets and there are no capital commitments foreseen which would
alter that position. Furthermore, the Company has no employees and
consequently no redundancy or other employment related liabilities.
The Board reviews the performance of the Company's service providers
regularly, including the Manager, along with internal controls reports to
provide assurance regarding the effective operation of internal controls as
reported on by their reporting accountants. The Board also considers the
business continuity arrangements of the Company's key service providers.
The Board monitors the portfolio risk profile, limits imposed on gearing,
counterparty exposure, liquidity risk and financial controls at its quarterly
meetings.
Although there continue to be regulatory changes which could increase costs or
impact revenue, the directors do not believe that this would be sufficient
to affect its viability.
The Board has assumed that the business model of a closed ended investment
company, as well as the Company's investment objective, will continue to be
attractive to investors. The directors also considered the beneficial tax
treatment the Company is eligible for as an investment trust. If changes to
these taxation arrangements were to be made it would affect the viability of
the Company to act as an effective investment vehicle.
Based on the above the directors have concluded that there is a reasonable
expectation that the Company will be able to continue in operation and meet
its liabilities as they fall due over the five year period of their
assessment.
Going concern
The directors have assessed the principal risks, the impact of the emerging
risks and uncertainties and the matters referred to in the viability
statement. Based on the work the directors have performed, they have not
identified any material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the Company's
ability to continue as a going concern for a period of at least 12 months from
the date the financial statements were authorised for issue.
By order of the Board
Schroder Investment Management Limited
Company Secretary
12 December 2023
Governance
Board of Directors
Robert Talbut
Status: Chairman
Length of service: 7 years
Experience: Mr Talbut is Chairman of Shires Income plc and a director of
JPMorgan American Investment Trust plc and Pacific Assets Trust plc. He was
formerly the chief investment officer of Royal London Asset Management and has
over 30 years of experience in the asset management industry. He has
represented the asset management industry through the Chairmanship of both the
ABI Investment Committee and the Asset Management Committee of the Investment
Association. He was also a member of the Financial Conduct Authority's Listing
Advisory Panel.
Committee membership: Audit and Risk Committee, Management Engagement
Committee (Chairman), Nomination Committee (Chairman), Remuneration Committee.
Current remuneration: £42,000 per annum
Shares held: 8,176*
Wendy Colquhoun
Status: Director
Length of service: 3 years
Experience: Ms Colquhoun is Chairman of Henderson Opportunities Trust plc and
a non-executive director of Capital Gearing Trust plc and Murray International
Trust plc. She was formerly a qualified solicitor and a senior corporate
partner at CMS Cameron McKenna Nabarro Olswang LLP where she specialised in
financial services. She has extensive experience of investment trusts having
advised investment trust clients for over 25 years.
Committee membership: Audit and Risk Committee, Management Engagement
Committee, Nomination Committee, Remuneration Committee.
Current remuneration: £28,350 per annum
Shares held: 2,000*
Helen Galbraith
Status: Director
Length of service: 1 year
Experience: Ms Galbraith is Audit Chair of CT UK High Income Trust plc and
Chair of Orwell Housing Association. She was formerly Head of Investor
Relations at Aviva plc, Head of Global Equities at Aviva Investors and has
over 20 years' experience in the insurance and asset management industry. She
is a Chartered Financial Analyst and a passionate advocate of financial
education for children having established an online platform.
Committee membership: Audit and Risk Committee, Management Engagement
Committee, Nomination Committee, Remuneration Committee.
Current remuneration: £28,350 per annum
Shares held: 5,500*
Harry Morley
Status: Director
Length of service: 2 months
Experience: Mr Morley was CEO of Armajaro Asset Management LLP, and was the
co-founder and CFO of Tragus Holdings Ltd, owner of Café Rouge and Bella
Italia restaurant chains. He also worked in the shipping industry for P&O.
He qualified as a chartered accountant with Price Waterhouse. Mr Morley is
currently a non-executive director of JD Wetherspoon plc, and a non-executive
director of TheWorks.co.uk plc.
Committee membership: Audit and Risk Committee, Management Engagement
Committee,Nomination Committee, Remuneration Committee.
Current remuneration: £28,350 per annum
Shares held: 9,000*
Andrew Page
Status: Senior Independent Director
Length of service: 9 years
Experience: Mr Page was, until August 2014, the chief executive officer of The
Restaurant Group plc ("TRG"), a FTSE 250 company which operates 460
restaurants throughout the UK. He has previously served as both Chairman and
senior independent director on several listed and private equity-backed
company boards. He is senior independent director of JP Morgan Emerging
Markets Investment Trust plc. Prior to joining TRG in 2001, Mr Page held a
number of senior positions within the leisure and hospitality sector including
senior vice president with InterContinental Hotels. Before that he spent
six years working in Kleinwort Benson's Corporate Finance department. Mr Page
is a chartered accountant.
Committee membership: Audit and Risk Committee (Chairman), Management
Engagement Committee, Nomination Committee, Remuneration Committee (Chairman).
Current remuneration: £34,125 per annum
Shares held: 23,128*
* Shareholdings are as at 12 December 2023 and include the holdings of
connected persons. Full details of directors' shareholdings are set out in the
Directors' Remuneration Report on page 36.
Directors' report
Directors and officers
Chairman
The Chairman is an independent non-executive director who is responsible for
leadership of the Board and ensuring its effectiveness in all aspects of its
role. The Chairman's other significant commitments are detailed on page 24. He
has no conflicting relationships.
Senior Independent Director ("SID")
The SID is responsible for the evaluation of the Chairman, and also serves as
a secondary point of contact for shareholders.
Company Secretary
Schroder Investment Management Limited provides company secretarial support to
the Board and is responsible for assisting the Chairman with Board meetings
and advising the Board with respect to governance. The Company Secretary also
manages the relationship with some of the Company's service providers.
Shareholders wishing to lodge questions in advance of the AGM are invited to
do so by writing to the Company Secretary at the address given on the outside
back cover.
Role and operation of the Board
The Board is the Company's governing body; it sets the Company's strategy and
is collectively responsible to shareholders for its long-term success. The
Board is responsible for appointing and subsequently monitoring the activities
of the Manager and other service providers to seek to ensure that the
investment objective of the Company continues to be met. The Board also
ensures that the Manager adheres to the investment restrictions set by the
Board and acts within the parameters set by it in respect of any gearing. The
Strategic Report on pages 4 to 21 sets out further detail of how the Board
reviews the Company's strategy, risk management and internal controls,
greenhouse gas emissions, and likely future developments and also includes
other information required for the Directors' Report and is incorporated by
reference. Details of the Company's financial risk management objectives and
exposure to risk can be found in note 20 on pages 54 to 57.
A formal schedule of matters specifically reserved for decision by the Board
has been defined and a procedure adopted for directors, in the furtherance of
their duties, to take independent professional advice at the expense of the
Company.
The Chairman ensures that all directors receive relevant management,
regulatory and financial information in a timely manner and that they are
provided, on a regular basis, with key information on the Company's policies,
regulatory requirements and internal controls.
The Board meets at least quarterly and receives and considers reports
regularly from the Manager and other key advisers and ad hoc reports and
information are supplied to the Board as required.
Four Board meetings are usually scheduled each year to deal with matters
including: the setting and monitoring of investment strategy, approval of
borrowings and/or cash positions, review of investment performance, the level
of discount/premium of the Company's shares to NAV, promotion of the Company,
and services provided by third parties. Additional meetings of the Board are
arranged as required.
The Board has approved a policy on directors' conflicts of interest. Under
this policy, directors are required to disclose all actual and potential
conflicts of interest to the Board as they arise for consideration and
approval. The Board may impose restrictions or refuse to authorise such
conflicts if deemed appropriate. No directors have any connections with the
Manager, shared directorships with other directors or material interests in
any contract which is significant to the Company's business.
Committees
In order to assist the Board in fulfilling its governance responsibilities, it
has delegated certain functions to committees. The roles and responsibilities
of these committees, together with details of work undertaken during the year
under review, is outlined over the next few pages.
The reports of the Audit and Risk, Management Engagement, Nomination, and
Remuneration Committees are incorporated into and form part of the Directors'
Report. Each committee's effectiveness was assessed, and judged to be
satisfactory, as part of the Board's annual review of the Board and its
committees.
Key service providers
The Board has adopted an outsourced business model and has appointed the
following key service providers:
Manager
The Company is an alternative investment fund as defined by the AIFM Directive
and has appointed Schroder Unit Trusts Limited ("SUTL") as the Manager in
accordance with the terms of an alternative investment fund manager ("AIFM")
agreement. The AIFM agreement, which is governed by the laws of England and
Wales, can be terminated by either party on 12 months' notice or on immediate
notice in the event of certain breaches or the insolvency of either party. As
at the date of this report no such notice had been given by either party.
SUTL is authorised and regulated by the FCA and provides portfolio management,
risk management, accounting and company secretarial services to the Company
under the AIFM agreement. Part of the fund accounting and administration
activities are currently performed by HSBC Securities Services (UK) Limited.
The Manager also provides general marketing support for the Company and
manages relationships with key investors, in conjunction with the Chairman,
other Board members or the corporate broker as appropriate. The Manager has
delegated investment management, marketing, administrative, accounting and
company secretarial services to another wholly owned subsidiary of Schroders
plc, Schroder Investment Management Limited. The Manager has in place
appropriate professional indemnity cover.
The Schroders Group manages £724.3 billion (as at 30 September 2023) on
behalf of institutional and retail investors, financial institutions and high
net worth clients from around the world, invested in a broad range of asset
classes across equities, fixed income, multi-asset and alternatives.
For the financial year ended 30 September 2023, the Manager was entitled to a
management fee at a rate of 0.65% per annum of chargeable assets up to £250
million and 0.60% of any amounts in excess of that. Chargeable assets are
defined as total assets less current liabilities other than short-term
borrowings, provided that if there are any short-term borrowings, the value of
cash up to the level of such borrowings is deducted from the calculation of
assets.
The management fee payable in respect of the year ended 30 September 2023
amounted to £1,504,000 (2022: £1,623,000), paid quarterly in arrears.
The Manager is also entitled to receive a fee for providing administrative,
accounting and company secretarial services to the Company. For these
services, for the year ended 30 September 2023 it received a fee of £162,000
(2022: £144,000), including VAT. The fee continues to be subject to annual
adjustment in line with changes in the Retail Prices Index.
Details of all amounts payable to the Manager are set out in note 17 on page
54.
The Board has reviewed the performance of the Manager, and fees paid to it,
during the year under review and continues to consider that it has the
appropriate depth and quality of resource to achieve above-average returns in
the longer term. Thus, the Board considers that the Manager's appointment
under the terms of the AIFM agreement is in the best interests of shareholders
as a whole.
Safekeeping and cashflow monitoring agent
HSBC Bank plc ("HSBC Bank"), which is authorised by the Prudential Regulation
Authority and regulated by the FCA and the Prudential Regulation Authority,
has been appointed to carry out certain duties of a safekeeping and cashflow
monitoring agent specified in the AIFM Directive for the Company, including:
- safekeeping of the assets of the Company which are
entrusted to it;
- cash monitoring; and
- oversight of the Company and the Manager to the extent
described in the AIFM Directive.
HSBC Bank is liable to the Company for losses suffered by it as a result of
any negligence, wilful default, fraud or fraudulent misrepresentation on its
part.
The Company, the Manager and HSBC Bank may terminate the safekeeping and
cashflow monitoring agent services agreement pursuant to which HSBC Bank
provides these services at any time by giving 90 days' notice in writing. HSBC
Bank may only be removed from office when a new safekeeping and cashflow
monitoring agent is appointed by the Company.
Registrar
Equiniti Limited is the Company's registrar. Equiniti's services to the
Company include share register maintenance (including the issuance, transfer
and cancellation of shares as necessary), acting as agent for the payment of
any dividends, management of company meetings (including the registering of
proxy votes and scrutineer services as necessary), handling shareholder
queries and correspondence and processing corporate actions.
Corporate Governance Statement
The Financial Conduct Authority requires all UK listed companies to disclose
how they have applied the principles and complied with the provisions of the
UK Corporate Governance Code 2018 (the "UK Code") issued by the Financial
Reporting Council ("FRC").
The Board of the Company has considered the principles and provisions of the
AIC Code of Corporate Governance (the "AIC Code"). The AIC Code addresses the
Principles and Provisions set out in the UK Code), as well as setting out
additional Provisions on issues that are of specific relevance to the Company.
The Board considers that reporting against the principles and provisions of
the AIC Code, which has been endorsed by the Financial Reporting Council,
provides more relevant information to shareholders.
The AIC Code is available on the AIC website (www.theaic.co.uk). It includes
an explanation of how the AIC Code adopts the principles and provisions set
out in the UK Code to make them relevant for investment companies.
The Board confirms that the Company has complied with the AIC Code, in so far
as it applies to the Company's business, throughout the year under review. As
all of the Company's day-to-day management and administrative functions are
outsourced to third parties, it has no executive directors, employees or
internal operations and therefore has not reported in respect of the following
UK Code Provisions:
• the role of the executive directors and senior
management;
• the need for an internal audit function; and
• executive directors' remuneration.
Share capital and substantial share interests
As at the date of this report, the Company had 36,143,690 ordinary shares of
25p in issue. 1,562,500 shares were held in treasury. Accordingly, the total
number of voting rights in the Company at the date of this report is
34,581,190. Details of changes to the Company's share capital during the year
under review are given in note 14 to the accounts on page 52. All shares in
issue rank equally with respect to voting, dividends and any distribution on
winding up.
There are no restrictions concerning the transfer of securities in the
Company; no special rights with regard to control attached to securities; no
restrictions on voting rights; no agreements between holders of securities
regarding their transfer known to the Company; and no agreements to which the
Company is a party which might change or fall away on a change of control or
trigger any compensatory payments for directors following a successful
takeover bid.
The Company is aware that certain changes to the interests held in the Company
of 3% or more of the voting rights attaching to the Company's issued share
capital have taken place since the last notification made by investors to the
Company. As a result, the following table is based on what the Board believes
to be the most practicable up to date details of interests of 3 percent or
more in the share capital of the Company, using the shareholder analysis
prepared by Richard Davies Investor Relations Limited, which is reviewed at
every Board meeting.
Shares % at 30 September
2023
Hargreaves Lansdown, stockbrokers 4,069,034 11.7
Interactive Investor 3,131,858 9.1
Evelyn Partners (Retail) 2,848,763 8.2
Charles Stanley 2,712,255 7.9
Redmayne Bentley, stockbrokers 1,928,056 5.5
Rathbones 1,399,749 4.1
AJ Bell, stockbrokers 1,350,464 4.0
Allspring Global Investments 1,258,579 3.9
Saba Capital Management 1,227,837 3.6
There have been no notified changes to the above holdings since the year end.
Provision of information to the auditors
The directors at the date of approval of this report confirm that, so far as
each of them is aware, there is no relevant audit information of which the
Company's auditors are unaware; and each director has taken all the steps that
he or she ought to have taken as a director in order to make himself or
herself aware of any relevant audit information and to establish that the
Company's auditors are aware of that information.
Directors' attendance at meetings
The number of scheduled meetings of the Board and its committees held during
the financial year and the attendance of individual directors is shown below.
Whenever possible all directors attend the AGM.
Board Audit Nomination Management
and Risk and Engagement
Committee Remuneration Committee
Committee
Robert Talbut 4/4 2/2 1/1 1/1
Andrew Page 4/4 2/2 1/1 1/1
Wendy Colquhoun 4/4 2/2 1/1 1/1
Helen Galbraith 4/4 2/2 1/1 1/1
Harry Morley 1/1(1) 0/0 1/1 1/1
(1)Mr Morley joined the Board on 1 September 2023.
In addition to the above meetings, the Board met twice on an ad-hoc basis
during the year, once to approve the Company's annual report for the year
ended 30 September 2022 and once to approve the Company's half year report for
the period ended 31 March 2023.
Directors' and officers' liability insurance and indemnities
Directors' and officers' liability insurance cover was in place for the
directors throughout the year. The Company's articles of association provide,
subject to the provisions of UK legislation, an indemnity for directors in
respect of costs which they may incur relating to the defence of any
proceedings brought against them arising out of their positions as directors,
in which they are acquitted or judgment is given in their favour by the court.
This is a qualifying third party indemnity and was in place throughout the
year under review for each director and to the date of this report.
By order of the Board
Robert Talbut
Chairman
12 December 2023
Audit and Risk Committee report
The responsibilities and work carried out by the audit and risk committee
during the year under review are set out in the following report. The duties
and responsibilities of the committee, which include monitoring the integrity
of the Company's financial reporting and internal controls, are set out in
further detail below, and may be found in the terms of reference which are set
out on the Company's web pages, www.schroders.co.uk/midcap.
All directors are members of the committee. Andrew Page is the Chairman of
committee. The Chair of the Board is a member of the Committee, and was
independent on appointment. The Board has satisfied itself that at least one
of the committee's members has recent and relevant financial experience and
that the committee as a whole has competence relevant to the sector in which
the company operates.
Approach
The committee's key roles and responsibilities are set out below.
Risks and internal controls Financial reports and valuation Audit
Principal risks Financial statements Audit results
To establish a process for identifying, assessing, managing and monitoring To monitor the integrity of the financial statements of the Company and any To discuss any matters arising from the audit and recommendations made by the
emerging and principal risks of the Company. formal announcements relating to the Company's financial performance and auditor.
valuation. To review the half year report.
Emerging risks and uncertainties Going concern Auditor appointment, independence and performance
To ensure a robust assessment of the Company's emerging and principal risks To review the position and make recommendations to the Board in relation to To make recommendations to the Board, in relation to the appointment,
and procedures are in place to identify emerging risks, and an explanation of whether it considers it appropriate to adopt the going concern basis of re‑appointment, effectiveness and removal of the external auditor, to review
how these are being managed or mitigated. accounting in preparing its annual and half-yearly financial statements. their independence, and to approve their remuneration and terms of engagement.
Reviewing the audit plan and engagement letter.
The below table sets out how the committee discharged its duties during the
year. The committee met twice during the year. An evaluation of the
committee's effectiveness and review of its terms of reference was completed
during the year.
The committee identified one potentially significant financial reporting risk,
which is unchanged from the prior year, being the valuation and existence of
investments, as well as several other financial reporting risks. Each of the
matters considered during the committee's review are outlined below.
Application during the year
Risks and internal controls Financial reports and Audit
valuation
Service provider controls Recognition of investment income Effectiveness of the independent audit process and auditor performance
Reviewing the operational controls maintained by the Manager, depositary and Considered dividends received against forecast and the allocation of special Evaluated the effectiveness of the independent audit firm and process prior to
registrar. dividends to income or capital. making a recommendation that it should be re-appointed at the forthcoming AGM.
Evaluated the auditor's performance against agreed criteria including:
qualification; knowledge, expertise and resources; independence policies;
effectiveness of audit planning; adherence to auditing standards; and overall
competence was considered, alongside feedback from the Manager on the audit
process. Professional scepticism of the auditor was questioned and the
committee was satisfied with the auditor's replies.
Internal controls and risk management Calculation of the investment management fee and performance fee Auditor independence
Consideration of several key aspects of internal control and risk management Consideration of methodology used to calculate the fees, matched against the The committee last undertook an audit tender process in 2017 when KPMG LLP was
operating within the Manager, criteria appointed as auditor in respect of the financial year ended 30 September 2017.
depositary and registrar, including assurance reports
set out in the AIFM The Company is required to tender the external audit no later than for year
and presentations on these controls.
agreement. ending 30 September 2027. In accordance with professional and regulatory
standards, the senior statutory auditor responsible for the audit is rotated
at least every five years in order to protect independence and objectivity and
to provide fresh challenge to the business. This is the fourth year that the
It is considered that the Company does not require an internal audit function, senior statutory auditor, Gary Fensom, has conducted the audit of the
principally because the Company delegates its day-to-day operations to third Company's financial statements.
parties, which are monitored by the Committee and provide control reports on
their operations annually.
There are no contractual obligations restricting the choice of independent
auditor.
Compliance with the investment trust qualifying rules in S1158 of the Overall accuracy of the annual report and accounts Audit results
Corporation Tax Act 2010
Consideration of the draft annual report and accounts and the letter from the Met with and reviewed a comprehensive report from the auditor which detailed
Consideration of the Manager in support of the letter of representation to the auditor. the results of the audit, compliance with regulatory requirements, safeguards
Manager's report confirming compliance.
that have been established, and on their own internal quality control
procedures.
Principal risks Valuation and existence of holdings Meetings with the auditor
Reviewing the principal risks faced by the Company and the system of internal Quarterly review of portfolio holdings and assurance Met the auditors without representatives of the Manager present.
control.
reports. Representatives of the auditors attended the committee meeting at which the
draft annual report and accounts was considered.
Fair, balanced and understandable Provision of non-audit services by the auditor
Reviewed the annual report and accounts to ensure that it was fair, balanced The committee has reviewed the FRC's Guidance on Audit Committees and has
and understandable. formulated a policy on the provision of non-audit services by the Company's
auditor.
The committee has determined that the Company's appointed auditor will not be
considered for the provision of certain non-audit services, such as
accounting and preparation of the financial statements, internal audit and
custody. The auditor may, if required, provide other permissible non-audit
services which will be judged on a case-by-case basis.
The auditor did not provide any non-audit services to the Company during the
year.
Going concern and viability Consent to continue as auditor
Reviewing the impact of risks on going concern and longer-term viability. KPMG LLP indicated to the committee their willingness to continue to act as
auditor.
Recommendations made to, and approved by, the Board:
As a result of the work performed, the committee has concluded that the annual
report for the year ended 30 September 2023, taken as a whole, is fair,
balanced and understandable and provides the information necessary for
shareholders to assess the Company's position, performance, business model and
strategy, and has reported on these findings to the Board. The Board's
conclusions in this respect are set out in the Statement of Directors'
Responsibilities on page 37.
Having reviewed the performance of the auditors as described above, the
committee considered it appropriate to recommend the firm's re-appointment.
Resolutions to re-appoint KPMG LLP as auditors to the Company, and to
authorise the directors to determine their remuneration will be proposed at
the AGM.
Andrew Page
Audit and Risk Committee Chairman
12 December 2023
Management Engagement Committee report
The management engagement committee is responsible for (1) the monitoring and
oversight of the Manager's performance and fees, and confirming the Manager's
ongoing suitability, and (2) reviewing and assessing the Company's other
service providers, including reviewing their fees. All directors are members
of the committee. Robert Talbut is the Chairman of the committee. Its terms of
reference are available on the Company's web pages,
www.schroders.co.uk/ukmidcap.
Approach
The committee's key roles and responsibilities are set out below
Oversight of the Manager Oversight of other service providers
The committee: The committee reviews the performance and pricing competitiveness of the
following service providers on at least an annual basis:
• reviews the Manager's performance, over the short- and long-term,
against the Benchmark, peer group and the market. • Depositary and custodian
• considers the reporting it has received from the Manager throughout • Corporate broker
the year, and the reporting from the Manager to the shareholders.
• Registrar
• assesses management fees on an absolute and relative basis, receiving
input from the Company's broker, including peer group • Lender
and industry figures, as well as the
structure of the fees.
• reviews the appropriateness of the Manager's contract, including terms The committee also receives a report from the Company Secretary on ancillary
such service providers, and considers any recommendations.
as notice period.
• assesses whether the Company receives appropriate administrative,
accounting, company secretarial and marketing support from the Manager.
Application during the year
The committee undertook a detailed review of the Manager's performance and The annual review of each of the other service providers determined that their
agreed that it has the appropriate depth and quality of resource to deliver performance was satisfactory.
superior returns over the longer term.
The committee reviewed the management fee structure and agreed that no changes
would be proposed.
The committee also reviewed the terms of the AIFM agreement and agreed they
remained fit for purpose.
The committee reviewed the other services provided by the Manager and agreed
that they were satisfactory.
Recommendations made to, and approved by, the Board:
• That the ongoing appointment of the Manager on the terms of the
AIFM agreement was in the best interests of shareholders as a whole.
• That the Company's service providers' performance remained
satisfactory.
Nomination Committee report
The nomination committee is responsible for (1) the recruitment, selection and
induction of directors, (2) their assessment during their tenure, and (3) the
Board's succession. All directors are members of the committee. Robert Talbut
is the Chairman of the committee. Its terms of reference are available on the
Company's web pages, www.schroders.co.uk/ukmidcap.
Selection and ongoing assessment of directors
Approach
The committee's key roles and responsibilities are set out below
Selection and induction Board evaluation Succession
• Committee prepares a job specification for each role, which is shared • Committee assesses each director annually and considers whether an • Having considered diversity and the need for regular refreshment the
with an independent recruitment firm. For the Chairman and the Chairs of external evaluation should take place. Board's policy is that directors' tenure, including the Chairman of the Board,
committees, the committee considers current Board members too.
will be for no longer than nine years, except in exceptional circumstances,
• Evaluation focuses on whether each director continues to demonstrate and that each director will be subject to annual re-election at the AGM.
• Job specification outlines the knowledge, professional skills, commitment to their role and provides a valuable contribution to the Board
personal qualities and experience requirements. during the year, taking into account time commitment, independence, conflicts • Committee reviews the Board's current and future needs at least
and training needs. annually. Should any need be identified the committee will initiate the
• Potential candidates assessed against the Company's diversity policy.
selection process.
• Following the evaluation, the committee provides a recommendation to
• Committee discusses the long list, invites a number of candidates for shareholders with respect to the annual re-election of directors at the AGM. • Committee oversees the handover process for retiring directors.
interview and makes a recommendation to the Board.
• All directors retire at the AGM and their election, or re-election, as
• Committee reviews the induction and training of new directors. On appropriate is subject to shareholder approval.
appointment, directors receive a full, formal and tailored induction.
Directors are also regularly provided with key information on the Company's
policies, regulatory and statutory requirements and internal controls. Changes
affecting directors' responsibilities are advised to the Board as they arise.
Directors also regularly participate in relevant training and industry
seminars.
• The terms of directors' letters of appointment are available for
inspection at the Company's registered office address during normal business
hours and during the AGM at the location of such meeting.
Application during the year
Selection and induction Board evaluation and Succession
directors' fees
• The committee commenced its search process for a new director and • The Board and committee evaluation process was undertaken in September • The committee reviewed the Board tenure policy and agreed it was still
engaged Trust Associates, an external search firm with no other connection to 2023 using a comprehensive questionnaire which was completed by all directors. fit for purpose.
the Board or individual directors.
• The evaluation of the Chairman was led by the senior independent • Andrew Page informed the Board that he intended to retire as a
director, who held a subsequent meeting with the Chairman to discuss the director of the Company at the upcoming AGM, due to be held in March 2024.
results.
• Harry Morley was appointed as a director of the company in September
• The committee also reviewed each director's time commitment and 2023 and will be subject to election at the upcoming AGM in accordance with
independence by reviewing a complete list of appointments, including pro bono the Company's Articles of Association.
not for profit roles, to ensure that each director remained free from conflict
and had sufficient time available to discharge each of their duties
effectively. All directors were considered to be independent in character and
judgement.
• The committee considered each director's contributions, and noted that
in addition to extensive experience as professionals and non-executive
directors, each director had valuable skills and experience, as detailed in
their biographies on pages 24 and 25, which was supported by the completion of
a detailed skills matrix by each director.
• Based on its assessment, the committee provided
individual recommendations for each director's election, or re-election, as
appropriate.
Recommendations made to, and approved by, the Board:
• That all directors continue to demonstrate commitment to their
roles, provide a valuable contribution to the deliberations of the Board,
contribute towards the Company's long-term success, and remain free from
conflicts with the Company and its directors, so should all be recommended for
election or re-election* by shareholders at the AGM.
* Mr Page will retire as a director at the forthcoming annual general
meeting.
Remuneration Committee report
The remuneration committee is responsible for making recommendations to the
Board on the remuneration of the directors. All directors are members of the
committee, which is considered appropriate by the directors given that all
members are independent non-executive directors and Andrew Page is the
chairman. Its terms of reference are available on the Company's web pages,
www.schroders.co.uk/ukmidcap.
Introduction
The following remuneration policy is currently in force and is subject to a
binding vote every three years. The next vote will take place at the AGM to be
held in 2026 and the current policy provisions will apply until that date. The
below directors' annual report on remuneration is subject to an annual
advisory vote. An ordinary resolution to approve this report will be put to
shareholders at the forthcoming AGM.
At the AGM held on 21 February 2023 when the policy was last voted on by
shareholders, 97.06% of the votes cast (including votes cast at the Chairman's
discretion) in respect of approval of the directors' remuneration policy were
in favour, while 2.94% were against. 9,568 votes were withheld.
At the AGM held on 21 February 2023, 99.67% of the votes cast (including votes
cast at the Chairman's discretion) in respect of approval of the directors'
remuneration report for the year ended 30 September 2022 were in favour,
while 0.33% were against. 9,568 votes were withheld.
Directors' remuneration policy
The determination of the directors' fees is a matter dealt with by the
Remuneration Committee and the Board.
It is the Remuneration Committee's policy to determine the level of directors'
remuneration having regard to amounts payable to non-executive directors in
the industry generally, the role that individual directors fulfil in respect
of Board and committee responsibilities, and time committed to the Company's
affairs, taking into account the aggregate limit of fees set out in the
Company's articles of incorporation (currently £200,000). Any increase in the
level set out therein requires approval by the Board and the Company's
shareholders.
The Chairman of the Board and the Chair of the Audit and Risk Committee each
receives fees at a higher rate than the other directors to reflect their
additional responsibilities. The fees payable to directors are not performance
related. They are set at a level to recruit and retain individuals of
sufficient calibre, with the level of knowledge, experience and expertise
necessary to promote the success of the Company in reaching its short and
long-term strategic objectives.
The Board and its committees exclusively comprise non-executive directors. No
director past or present has an entitlement to a pension from the Company, and
the Company has not, and does not intend to, operate a share scheme for
directors or to award any share options or long-term performance incentives to
any director. No director has a service contract with the Company, although
directors have a letter of appointment. Directors do not receive exit payments
and are not provided with any compensation for loss of office. No other
payments are made to directors other than the reimbursement of reasonable
out-of-pocket expenses incurred in attending to the Company's business.
Implementation of policy
The Board did not seek the views of shareholders in setting this remuneration
policy. Any comments on the remuneration policy received from shareholders
would be considered on a case-by-case basis.
As the Company does not have any employees, no employee pay and employment
conditions were taken into account when setting this remuneration policy and
no employees were consulted in its construction.
Directors' fees are reviewed annually and take into account research from
third parties on the fee levels of directors of peer group companies, as well
as industry norms and factors affecting the time commitment expected of the
directors. New directors are subject to the provisions set out in this
remuneration policy.
Directors' annual report on remuneration
This report sets out how the remuneration policy was implemented during the
year ended 30 September 2023.
Consideration of matters relating to directors' remuneration
Directors' remuneration was last reviewed by the remuneration committee in
September 2023. Although no external advice was sought in considering the
levels of directors' fees, information on fees paid to directors of other
investment trusts managed by Schroders and peer group companies was provided
by the Manager and corporate broker and was taken into consideration.
Following this review, the remuneration committee recommended that with effect
from 1 October 2023, the Chairman's annual fee be increased to £42,000, the
chairman of the audit and risk committee's annual fee be increased to £34,125
and the annual fee for non-executive directors be increased to £28,350.
Directors' fees were last increased with effect from 1 October 2022.
The terms of Directors' letters of appointment are available for inspection at
the Company's registered office address during normal business hours and
during the AGM at the location of such meeting.
Recommendations made to, and approved by, the Board:
• That directors' fees per annum be increased to the following
levels effective from 1 October 2023: Chairman £42,000, Audit and Risk.
Chair: £34,125 and other directors: £28,350.
Fees paid to directors (audited)
The following amounts were paid by the Company to directors for their services
in respect of the year ended 30 September 2023 and the preceding financial
year. Directors' remuneration is all fixed; they do not receive any variable
remuneration. The performance of the Company over the financial year is
presented on page 2, under the heading "Key highlights".
Fees Taxable benefits(1) Total Change in annual fees payable years ended
30 September
2023 2022 2023 2022 2023 2022 2023 2022 2021
Director £ £ £ £ £ £ % % %
Robert Talbut (Chairman) 40,000 38,500 302 395 40,302 38,895 3.6 18.6 29.0
Wendy Colquhoun 27,000 26,000 1,759 774 28,759 26,774 7.4 7.1 33.3
Clare Dobie(2) - 24,917 - - - 24,917 N/a N/a (0.6)
Helen Galbraith 27,000 12,543 - - 27,000 12,543 115.3 N/a N/a
Andrew Page 32,500 31,250 - - 32,500 31,250 4.0 4.2 (0.3)
Harry Morley(3) 2,250 - 161 - 2,411 - N/a N/a N/a
Total 128,750 133,210 2,222 1,169 130,972 134,379
(1)Comprise amounts reimbursed for expenses incurred in carrying out business
for the Company, and which have been grossed up to include PAYE and NI
contributions.
(2)Retired from the Board on 15 September 2022.
(3)Appointed as a director on 1 September 2023.
Expenditure by the Company on remuneration and distributions to shareholders
The table below compares the remuneration payable to directors to
distributions paid to shareholders during the year under review and the prior
financial year. In considering these figures, shareholders should take into
account the Company's investment objective.
Year ended Year ended Change
30 September 30 September %
2023 2022
£'000 £'000
Remuneration payable to directors 131 134 (2.2)
Distributions paid to shareholders
Dividends 6,743 5,586
Share buybacks - 2,675
Total distributions paid to shareholders 6,743 8,261 (18.4)
Directors' share interests (audited)
The Company's articles of association do not require directors to own shares
in the Company. The interests of directors, including those of connected
persons, at the beginning and end of the financial year under review are set
out below.
30 September 2023 30 September 2022
Wendy Colquhoun 2,000 2,000
Helen Galbraith 5,500 5,500
Harry Morley 9,000 N/A
Andrew Page 23,128 23,128
Robert Talbut 8,176 8,176
There have been no changes since the year end.
Andrew Page
Chairman of the Remuneration Committee
12 December 2023
Statement of Directors' Responsibilities in respect of the Annual Report and
Accounts
The directors are responsible for preparing the Annual Report and financial
statements in accordance with applicable law and regulations.
Company law requires the directors to prepare financial statements for each
financial year. Under that law they have elected to prepare the financial
statements in accordance with UK accounting standards and applicable law (UK
Generally Accepted Accounting Practice), including FRS 102 The Financial
Reporting Standard applicable in the UK and Republic of Ireland.
Under company law the directors must not approve the financial statements
unless they are satisfied that they give a true and fair view of the state of
affairs of the Company and of the profit or loss of the company for that
period. In preparing these financial statements, the directors are required
to:
- select suitable accounting policies and then apply them
consistently;
- make judgements and estimates that are reasonable and prudent;
- state whether applicable UK accounting standards have been
followed, subject to any material departures disclosed and explained in the
financial statements;
- assess the Company's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern; and
- use the going concern basis of accounting unless they either
intend to liquidate the Company or to cease operations or have no realistic
alternative but to do so.
The directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Company's transactions and disclose with
reasonable accuracy at any time the financial position of the Company and
enable them to ensure that the financial statements comply with the Companies
Act 2006. They are responsible for such internal control as they determine is
necessary to enable the preparation of financial statements that are free from
material misstatement, whether due to fraud or error, and have general
responsibility for taking such steps as are reasonably open to them to
safeguard the assets of the Company and to prevent and detect fraud and other
irregularities.
The directors are responsible for the maintenance and integrity of the
corporate and financial information included on the company's website.
Legislation in the UK governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
Directors' Statement
Each of the directors, whose names and functions are listed on pages 24 and
25, confirms that, to the best of their knowledge:
- the financial statements, prepared in accordance with the
applicable set of accounting standards, give a true and fair view of the
assets, liabilities, financial position and profit or loss of the Company; and
- the Strategic Report includes a fair review of the development
and performance of the business and the position of the Company, together with
a description of the principal risks and uncertainties that it faces.
We consider the annual report and accounts, taken as a whole, is fair,
balanced and understandable and provides the information necessary for
shareholders to assess the Company's position and performance, business model
and strategy.
On behalf of the Board
Robert Talbut
Chairman
12 December 2023
Financial
Independent Auditor's Report
1 Our opinion is unmodified
We have audited the financial statements of Schroder UK Mid Cap Fund plc ("the
Company") for the year ended 30 September 2023 which comprise the Income
Statement, Statement of Changes in Equity, Statement of Financial Position,
and the related notes, including the accounting policies in note 1.
In our opinion the financial statements:
- give a true and fair view of the state of the Company's affairs as at
30 September 2023 and of its return for the year then ended;
- have been properly prepared in accordance with UK accounting
standards, including FRS 102 The Financial Reporting Standard applicable in
the UK and Republic of Ireland; and
- have been prepared in accordance with the requirements of the
Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing
(UK) ("ISAs (UK)") and applicable law. Our responsibilities are described
below. We believe that the audit evidence we have obtained is a sufficient and
appropriate basis for our opinion. Our audit opinion is consistent with our
report to the Audit and Risk Committee.
We were first appointed as auditor by the directors on 21 June 2017. The
period of total uninterrupted engagement is for the seven financial years
ended 30 September 2023. We have fulfilled our ethical responsibilities under,
and we remain independent of the Company in accordance with, UK
ethical requirements including the FRC Ethical Standard as applied to listed
public interest entities. No non-audit services prohibited by that standard
were provided.
2 Key audit matters: our assessment of risks of material misstatement
Key audit matters are those matters that, in our professional judgement, were
of most significance in the audit of the financial statements and include the
most significant assessed risks of material misstatement (whether or not due
to fraud) identified by us, including those which had the greatest effect on:
the overall audit strategy; the allocation of resources in the audit; and
directing the efforts of the engagement team. We summarise below the key audit
matter (unchanged from 2022), in arriving at our audit opinion above, together
with our key audit procedures to address this matter and, as required for
public interest entities, our results from those procedures. This matter was
addressed, and our results are based on procedures undertaken, in the context
of, and solely for the purpose of, our audit of the financial statements as a
whole, and in forming our opinion thereon, and consequently are incidental to
that opinion, and we do not provide a separate opinion on this matter.
The risk Our response
Carrying amount of quoted investments Low risk, high value We performed the detailed tests below rather than seeking to rely on any of
the Company's controls, because the nature of the balance is such that we
£228.0m; (2022: £207.3m) The Company's portfolio of quoted investments makes up 96.7% (2022: 97.4%) of would expect to obtain audit evidence primarily through the detailed
the Company's total assets (by value - the residual comprising of debtors and procedures described below.
cash and cash equivalents) and is one of the key drivers of results. We do not
consider these investments to be at a high risk of significant misstatement,
Refer to page 29 (Audit and Risk Committee Report), page 48 (accounting or to be subject to a significant level of judgement because they comprise
policy) and page 51 (financial disclosures). liquid, quoted investments. However, due to their materiality in the context Our procedures included:
of the financial statements as a whole, they are considered to be one of the
areas which had the greatest effect on our overall audit strategy and
allocation of resources in planning and completing our audit.
- Tests of detail: Agreeing the valuation of 100% of the quoted
investments in the portfolio to externally quoted prices; and
- Enquiry of Depositary: Agreeing 100% of quoted investment holdings in
the portfolio to independently received third party confirmations from the
investment depository.
Our results: We found the carrying amount of quoted investments to be
acceptable (2022: acceptable).
3 Our application of materiality and an overview of the scope of our
audit
Materiality for the financial statements as a whole was set at £2.35m (2022:
£2.13m), determined with reference to a benchmark of total assets, of which
it represents 1% (2022: 1%).
In line with our audit methodology, our procedures on individual account
balances and disclosures were performed to a lower threshold, performance
materiality, so as to reduce to an acceptable level the risk that individually
immaterial misstatements in individual account balances add up to a material
amount across the financial statements as a whole.
Performance materiality was set at 75% (2022: 75%) of materiality for the
financial statements as a whole, which equates to £1.76m (2022: £1.59m). We
applied this percentage in our determination of performance materiality
because we did not identify any factors indicating an elevated level of risk.
In addition, we applied materiality of £392k (2022: £390k) and performance
materiality of £294k (2022: £292k) to income (as disclosed in Note 3), for
which we believe misstatements of lesser amounts than materiality for the
financial statements as a whole could reasonably be expected to influence the
Company's members' assessment of the financial performance of the Company.
We agreed to report to the Audit and Risk Committee any corrected or
uncorrected identified misstatements exceeding £117k (2022: £106k), or £19k
in relation to income (2022: £39k) in addition to other identified
misstatements that warranted reporting on qualitative grounds.
Our audit of the Company was undertaken to the materiality level specified
above and was performed by a single audit team.
The scope of the audit work performed was fully substantive as we did not rely
upon the Company's internal control over financial reporting.
4 Going concern
The directors have prepared the financial statements on the going concern
basis as they do not intend to liquidate the Company or to cease its
operations, and as they have concluded that the Company's financial position
means that this is realistic. They have also concluded that there are no
material uncertainties that could have cast significant doubt over its ability
to continue as a going concern for at least a year from the date of approval
of the financial statements ("the going concern period").
We used our knowledge of the Company, its industry, and the general economic
environment to identify the inherent risks to its business model and analysed
how those risks might affect the Company's financial resources or ability to
continue operations over the going concern period. The risks that we
considered most likely to adversely affect the Company's available financial
resources and its ability to operate over this period were:
- The impact of a significant reduction in the valuation of investments
and the implications for the Company's debt covenants;
- The liquidity of the investment portfolio and its ability to meet the
liabilities of the Company as and when they fall due; and
- The operational resilience of key service organisations.
We considered whether these risks could plausibly affect the liquidity or
covenant compliance in the going concern period by assessing the degree of
downside assumption that, individually and collectively, could result in a
liquidity issue, taking into account the Company's current and projected cash
and liquid investment position.
We considered whether the going concern disclosure in Note 1 to the financial
statements gives a full and accurate description of the directors' assessment
of going concern, including the identified risks and related sensitivities.
Our conclusions based on this work:
- we consider that the directors' use of the going concern basis of
accounting in the preparation of the financial statements is appropriate;
- we have not identified, and concur with the directors' assessment that
there is not, a material uncertainty related to events or conditions that,
individually or collectively, may cast significant doubt on the Company's
ability to continue as a going concern for the going concern period;
- we have nothing material to add or draw attention to in relation to
the directors' statement in Note 1 to the financial statements on the use of
the going concern basis of accounting with no material uncertainties that may
cast significant doubt over the Company's use of that basis for the going
concern period, and we found the going concern disclosure in Note 1 to be
acceptable; and
- the related statement under the Listing Rules set out on page 21 is
materially consistent with the financial statements and our audit knowledge.
However, as we cannot predict all future events or conditions and as
subsequent events may result in outcomes that are inconsistent with judgements
that were reasonable at the time they were made, the above conclusions are not
a guarantee that the Company will continue in operation.
5 Fraud and breaches of laws and regulations - ability to detect
To identify risks of material misstatement due to fraud ("fraud risks") we
assessed events or conditions that could indicate an incentive or pressure to
commit fraud or provide an opportunity to commit fraud. Our risk assessment
procedures included:
- Enquiring of directors as to the Company's high-level policies and
procedures to prevent and detect fraud, as well as whether they have knowledge
of any actual, suspected or alleged fraud;
- Assessing the segregation of duties in place between the directors,
the administrator and the Company's Manager; and
- Reading Board and Audit and Risk Committee minutes.
As required by auditing standards, we perform procedures to address the risk
of management override of controls, in particular to the risk that management
may be in a position to make inappropriate accounting entries. We evaluated
the design and implementation of the relevant controls over journal entries
and other adjustments and made inquiries of the Administrator about
inappropriate or unusual activity relating to the processing of journal
entries and other adjustments. Based on these procedures, we selected journal
entries for testing, which included material post-closing journal entries.
On this audit we do not believe there is fraud risk related to revenue
recognition because the revenue is non-judgemental and straightforward, with
limited opportunity for manipulation. We did not identify any significant
unusual transactions or additional fraud risks.
Identifying and responding to risks of material misstatement due to
non-compliance with laws and regulations
We identified areas of laws and regulations that could reasonably be expected
to have a material effect on the financial statements from our general
commercial and sector experience and through discussion with the directors,
the Manager and the administrator (as required by auditing standards) and
discussed with the directors the policies and procedures regarding compliance
with laws and regulations. As the Company is regulated, our assessment of
risks involved gaining an understanding of the control environment including
the entity's procedures for complying with regulatory requirements.
The potential effect of these laws and regulations on the financial statements
varies considerably.
Firstly, the Company is subject to laws and regulations that directly affect
the financial statements including financial reporting legislation (including
related companies legislation), distributable profits legislation, and its
qualification as an Investment Trust under UK taxation legislation, any breach
of which could lead to the Company losing various deductions and exemptions
from UK corporation tax, and we assessed the extent of compliance with these
laws and regulations as part of our procedures on the related financial
statement items.
We assessed the legality of the distributions made by the Company in the
period based on comparing the dividends paid to the distributable reserves
prior to each distribution.
Secondly, the Company is subject to many other laws and regulations where the
consequences of non‑compliance could have a material effect on amounts or
disclosures in the financial statements, for instance through the imposition
of fines or litigation. We identified the following areas as those most likely
to have such an effect: money laundering, data protection, bribery and
corruption legislation and certain aspects of company legislation recognising
the financial and regulated nature of the Company's activities and its legal
form. Auditing standards limit the required audit procedures to identify
non‑compliance with these laws and regulations to enquiry of the directors
and the administrator and inspection of regulatory and legal correspondence,
if any. Therefore, if a breach of operational regulations is not disclosed to
us or evident from relevant correspondence, an audit will not detect that
breach.
Context of the ability of the audit to detect fraud or breaches of law or
regulation
Owing to the inherent limitations of an audit, there is an unavoidable risk
that we may not have detected some material misstatements in the financial
statements, even though we have properly planned and performed our audit in
accordance with auditing standards. For example, the further removed
non-compliance with laws and regulations is from the events and transactions
reflected in the financial statements, the less likely the inherently limited
procedures required by auditing standards would identify it.
In addition, as with any audit, there remained a higher risk of non-detection
of fraud, as these may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal controls. Our audit procedures
are designed to detect material misstatement. We are not responsible for
preventing non-compliance or fraud and cannot be expected to detect
non-compliance with all laws and regulations.
6 We have nothing to report on the other information in the Annual
Report
The directors are responsible for the other information presented in the
Annual Report together with the financial statements. Our opinion on the
financial statements does not cover the other information and, accordingly, we
do not express an audit opinion or, except as explicitly stated below, any
form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider
whether, based on our financial statements audit work, the information therein
is materially misstated or inconsistent with the financial statements or our
audit knowledge. Based solely on that work we have not identified material
misstatements in the other information.
Strategic report and directors' report
Based solely on our work on the other information:
- we have not identified material misstatements in the strategic report
and the directors' report;
- in our opinion the information given in those reports for the
financial year is consistent with the financial statements; and
- in our opinion those reports have been prepared in accordance with the
Companies Act 2006.
Directors' remuneration report
In our opinion the part of the Directors' Remuneration Report to be audited
has been properly prepared in accordance with the Companies Act 2006.
Disclosures of emerging and principal risks and longer-term viability
We are required to perform procedures to identify whether there is a material
inconsistency between the directors' disclosures in respect of emerging and
principal risks and the viability statement, and the financial statements and
our audit knowledge.
Based on the knowledge we acquired during our financial statements audit, we
have nothing material to add or draw attention to in relation to:
- the directors' confirmation within the viability statement on page 21
that they have carried out a robust assessment of the emerging and principal
risks facing the Company, including those that would threaten its business
model, future performance, solvency and liquidity;
- the principal risk and uncertainties disclosures describing these
risks and how emerging risks are identified, and explaining how they are being
managed and mitigated; and
- the directors' explanation in the viability statement of how they have
assessed the prospects of the Company, over what period they have done so and
why they considered that period to be appropriate, and their statement as to
whether they have a reasonable expectation that the Company will be able to
continue in operation and meet its liabilities as they fall due over the
period of their assessment, including any related disclosures drawing
attention to any necessary qualifications or assumptions.
We are also required to review the viability statement, set out on page 21
under the Listing Rules. Based on the above procedures, we have concluded that
the above disclosures are materially consistent with the financial statements
and our audit knowledge.
Our work is limited to assessing these matters in the context of only the
knowledge acquired during our financial statements audit. As we cannot predict
all future events or conditions and as subsequent events may result in
outcomes that are inconsistent with judgements that were reasonable at the
time they were made, the absence of anything to report on these statements is
not a guarantee as to the Company's longer-term viability.
Corporate governance disclosures
We are required to perform procedures to identify whether there is a material
inconsistency between the directors' corporate governance disclosures and the
financial statements and our audit knowledge.
Based on those procedures, we have concluded that each of the following is
materially consistent with the financial statements and our audit knowledge:
- the directors' statement that they consider that 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;
- the section of the annual report describing the work of the audit and
risk committee, including the significant issues that the audit and risk
committee considered in relation to the financial statements, and how these
issues were addressed; and
- the section of the annual report that describes the review of the
effectiveness of the Company's risk management and internal control systems.
We are required to review the part of the Corporate Governance Statement
relating to the Company's compliance with the provisions of the UK Corporate
Governance Code specified by the Listing Rules for our review. We have nothing
to report in this respect.
7 We have nothing to report on the other matters on which we are
required to report by exception
Under the Companies Act 2006, we are required to report to you if, in our
opinion:
- adequate accounting records have not been kept, or returns adequate
for our audit have not been received from branches not visited by us; or
- the financial statements and the part of the Directors' Remuneration
Report to be audited are not in agreement with the accounting records and
returns; or
- certain disclosures of directors' remuneration specified by law are
not made; or
- we have not received all the information and explanations we require
for our audit.
We have nothing to report in these respects.
8 Respective responsibilities
Directors' responsibilities
As explained more fully in their statement set out on page 37, the directors
are responsible for: the preparation of the financial statements including
being satisfied that they give a true and fair view; such internal control as
they determine is necessary to enable the preparation of financial statements
that are free from material misstatement, whether due to fraud or error;
assessing the Company's ability to continue as a going concern, disclosing, as
applicable, matters related to going concern; and using the going concern
basis of accounting unless they either intend to liquidate the Company or to
cease operations, or have no realistic alternative but to do so.
Auditor's responsibilities
Our objectives are to obtain reasonable assurance about whether the financial
statements as a whole are free from material misstatement, whether due to
fraud or error, and to issue our opinion in an auditor's report. Reasonable
assurance is a high level of assurance, but does not guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in aggregate, they could
reasonably be expected to influence the economic decisions of users taken on
the basis of the financial statements.
A fuller description of our responsibilities is provided on the FRC's website
at www.frc.org.uk/auditorsresponsibilities.
9 The purpose of our audit work and to whom we owe our responsibilities
This report is made solely to the Company's members, as a body, in accordance
with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been
undertaken so that we might state to the Company's members those matters we
are required to state to them in an auditor's report and for no other purpose.
To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company and the Company's members, as
a body, for our audit work, for this report, or for the opinions we have
formed.
Gary Fensom (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
Saltire Court
20 Castle Terrace
Edinburgh
EH1 2EG
12 December 2023
Income Statement for the year ended 30 September 2023
2023 2022
Revenue Capital Total Revenue Capital Total
Note £'000 £'000 £'000 £'000 £'000 £'000
Gains/(losses) on investments held at fair value through profit or loss 2 - 26,716 26,716 - (88,419) (88,419)
Income from investments 3 9,024 298 9,322 8,958 88 9,046
Other interest receivable and similar income 3 140 - 140 10 - 10
Gross return/(loss) 9,164 27,014 36,178 8,968 (88,331) (79,363)
Investment management fee 4 (451) (1,053) (1,504) (487) (1,136) (1,623)
Administrative expenses 5 (601) - (601) (542) - (542)
Net return/(loss) before finance costs and taxation 8,112 25,961 34,073 7,939 (89,467) (81,528)
Finance costs 6 (270) (630) (900) (116) (271) (387)
Net return/(loss) before taxation 7,842 25,331 33,173 7,823 (89,738) (81,915)
Taxation 7 - - - - - -
Net return/(loss) after taxation 7,842 25,331 33,173 7,823 (89,738) (81,915)
Return/(loss) per share 9 22.68p 73.25p 95.93p 22.43p (257.32)p (234.89)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/(loss) after taxation is also the total comprehensive
income/(loss) 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 on pages 48 to 57 form an integral part of these accounts.
Statement of Changes in Equity for the year ended 30 September 2023
Called-up Capital Share
share Share redemption Merger purchase Capital Revenue
capital premium reserve reserve reserve reserves reserve Total
Note £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
At 30 September 2021 9,036 13,971 220 2,184 9,908 235,367 6,883 277,569
Repurchase of the Company's
own shares into treasury - - - - (2,675) - - (2,675)
Net (loss)/return after taxation - - - - - (89,738) 7,823 (81,915)
Dividends paid in the year 8 - - - - - - (5,586) (5,586)
At 30 September 2022 9,036 13,971 220 2,184 7,233 145,629 9,120 187,393
Net return after taxation - - - - - 25,331 7,842 33,173
Dividends paid in the year 8 - - - - - - (6,743) (6,743)
At 30 September 2023 9,036 13,971 220 2,184 7,233 170,960 10,219 213,823
The notes on pages 48 to 57 form an integral part of these accounts.
Statement of Financial Position at 30 September 2023
2023 2022
Note £'000 £'000
Fixed assets
Investments held at fair value through profit or loss 10 227,950 207,289
Current assets
Debtors 11 2,515 853
Cash and cash equivalents 12 5,372 4,786
7,887 5,639
Current liabilities
Creditors: amounts falling due within one year 13 (22,014) (25,535)
Net current liabilities (14,127) (19,896)
Total assets less current liabilities 213,823 187,393
Net assets 213,823 187,393
Capital and reserves
Called-up share capital 14 9,036 9,036
Share premium 15 13,971 13,971
Capital redemption reserve 15 220 220
Merger reserve 15 2,184 2,184
Share purchase reserve 15 7,233 7,233
Capital reserves 15 170,960 145,629
Revenue reserve 15 10,219 9,120
Total equity shareholders' funds 213,823 187,393
Net asset value per share 16 618.32p 541.89p
These accounts were approved and authorised for issue by the Board of
directors on 12 December 2023 and signed on its behalf by:
Robert Talbut
Chairman
The notes on pages 48 to 57 form an integral part of these accounts.
Registered in Scotland as a public company limited by shares
Company registration number: SC082551
Notes to the accounts for the year ended 30 September 2023
1. Accounting Policies
(a) Basis of accounting
Schroder UK Mid Cap Fund plc ("the Company") is registered in Scotland as a
public company limited by shares. The Company's registered office is 9
Haymarket Square, Edinburgh, Scotland EH3 8FY
The accounts are prepared in accordance with the Companies Act 2006, United
Kingdom Generally Accepted Accounting Practice ("UK GAAP"), in particular in
accordance with Financial Reporting Standard (FRS) 102 "The Financial
Reporting Standard applicable in the UK and Republic of Ireland", and with the
Statement of Recommended Practice "Financial Statements of Investment Trust
Companies and Venture Capital Trusts" (the "SORP") issued by the Association
of Investment Companies in July 2022. All of the Company's operations are of a
continuing nature.
The accounts have been prepared on a going concern basis under the historical
cost convention, as modified by the revaluation of investments held at fair
value through profit or loss. The directors believe that the Company has
adequate resources to continue operating for at least 12 months from the date
of approval of these accounts. In forming this opinion, the directors have
taken into consideration: stress testing prepared by the Manager which
modelled a 50% decline in valuation of investments and investment income and
demonstrated the Company's ability to comply with the covenants of its
borrowing agreements and pay its operating expenses; the controls and
monitoring processes in place; the Company's 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. In forming this opinion, the directors have also considered
the loans currently in place which expire on 27 February 2024 and 14 February
2025. Further details of directors' considerations regarding this are given in
the Chairman's Statement, Portfolio Managers' Review, Going Concern Statement,
Viability Statement and under the Principal and Emerging risks and
uncertainties heading on page 18.
The Company has not presented a statement of cash flows, as it is not required
for an investment fund whose investments are highly liquid, carried at market
value and which presents a statement of changes in equity.
The accounts are presented in sterling and amounts have been rounded to the
nearest thousand.
The accounting policies applied to these accounts are consistent with those
applied in the accounts for the year ended 30 September 2022.
Other than the directors' assessment of going concern, no significant
judgements, estimates or assumptions have been required in the preparation of
the accounts for the current or preceding financial year.
(b) Valuation of investments
The Company's business is investing in financial assets with a view to
profiting from their total return in the form of income and capital growth.
This portfolio of financial assets is managed and its performance evaluated on
a fair value basis, in accordance with a documented investment objective and
information is provided internally on that basis to the Company's Board of
directors. Accordingly, upon initial recognition the investments are
designated by the Company as "held at fair value through profit or loss". They
are included initially at fair value which is taken to be their cost,
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.
Any investments that are unlisted or not actively traded would be valued using
a variety of techniques to determine their fair value; any such valuations
would be reviewed by both the AIFM's fair value pricing committee and by the
directors.
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 Income Statement and dealt
with in capital reserves. Increases and decreases in the valuation of
investments held at the year end, are included in the Income Statement and in
capital reserves within "Investment holding gains and losses".
(d) Income
Dividends receivable 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.
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.
(e) Expenses
All expenses are accounted for on an accruals basis. Expenses are allocated
wholly to the revenue column of the Income Statement with the following
exceptions:
- The management fee is allocated 30% to revenue and 70% 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 investments are
written off to capital at the time of the transaction.
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 on page 51.
(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 and in accordance with FRS 102.
Finance costs are allocated 30% to revenue and 70% 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 £4,438,000 (2022:
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 and overdrafts are initially measured at fair value and
subsequently at amortised cost. They are recorded at the proceeds received net
of direct issue costs.
(h) Taxation
Taxation comprises amounts expected to be received or paid.
Deferred tax is provided on all timing differences that have originated but
not reversed by the balance sheet 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.
Tax relief is allocated to expenses charged to the capital column of the
Income Statement on the "marginal basis". On this basis, if taxable income is
capable of being entirely offset by revenue expenses, then no tax relief is
transferred to the capital column.
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) Dividends payable
In accordance with FRS 102, the final dividend is included in the accounts in
the year in which it is approved by shareholders.
(k) Repurchases of shares into treasury and subsequent reissues
The cost of repurchasing shares into treasury, including the related stamp
duty and transaction costs is dealt with in the Statement of Changes in Equity
and charged to "Share purchase reserve". Share repurchase transactions are
accounted for on a trade date basis.
The sales proceeds of treasury shares reissued are treated as a realised
profit up to the amount of the purchase price of those shares and is
transferred to capital reserves. The excess of the sales proceeds over the
purchase price is transferred to "share premium".
2. (Losses)/gains on investments held at fair value through
profit or loss
2023 2022
£'000 £'000
(Losses)/Gains on sales of investments based on historic cost (1,032) 17,274
Amounts recognised in investment holding gains and losses in the previous year 9,922 (12,932)
in respect of investments sold in the year
Gains on sales of investments based on the carrying value at the previous 8,890 4,342
balance sheet date
Net movement in investment holding gains and losses 17,826 (92,761)
Gains/(losses) on investments held at fair value through profit or loss 26,716 (88,419)
3. Income
2023 2022
£'000 £'000
Revenue:
Income from investments:
UK dividends 8,606 8,533
UK property income distributions 418 388
Stock dividends - 37
9,024 8,958
Other interest receivable and similar income:
Deposit interest 140 10
9,164 8,968
Capital:
Special dividends allocated to capital 298 88
4. Investment management fee
2023 2022
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Management fee 451 1,053 1,504 487 1,136 1,623
The bases for calculating the investment management fee and performance fee
are set out in the Directors' Report on page 26 and details of all amounts
payable to the Manager are given in note 17 on page 54.
5. Administrative expenses
2023 2022
£'000 £'000
Other administrative expenses 238 213
Secretarial fee 162 144
Directors' fees 129 134
Auditor's remuneration for audit services(1) 72 51
601 542
(1)Includes £12,000 (2022: £9,000) irrecoverable VAT.
6. Finance costs
2023 2022
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Interest on bank loans and overdrafts 270 630 900 116 271 387
7. Taxation
(a) Analysis of charge in the year:
2023 2022
£'000 £'000
Taxation for the year - -
(b) Factors affecting tax charge for the year
The tax assessed for the year is lower (2022: Higher) than the Company's
applicable rate of corporation tax in for the year of 22% (2022: 19%).
The factors affecting the current tax charge for the year are as follows:
2023 2022
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Net return/(loss) on ordinary activities before taxation 7,842 25,331 33,173 7,823 (89,738) (81,915)
Net return/(loss) on ordinary activities before taxation multiplied by the 1,725 5,573 7,298 1,486 (17,050) (15,564)
Company's applicable rate of
corporation tax for the year of 22% (2021: 19%)
Effects of:
Capital returns on investments - (5,877) (5,877) - 16,800 16,800
Income not chargeable to corporation tax (1,893) (66) (1,959) (1,628) (17) (1,645)
Unrelieved expenses 168 370 538 142 267 409
Taxation for the year - - - - - -
(c) Deferred taxation
At 30 September 2023, the Company had surplus management expenses of
£35,832,000 (2022: £34,176,000) and a non-trade loan relationship deficit of
£4,041,000 (2022: £3,250,000). A deferred tax asset has not been recognised
in respect of these losses because the investment portfolio of the Company is
not expected to generate taxable income in future periods in excess of the
deductible expenses of those future periods and, accordingly, it is unlikely
that the Company will be able to reduce future tax liabilities through the use
of existing tax losses. Accordingly, the deferred tax asset of £9,968,000
(2022: £9,357,000) has not been recognised as at 30 September 2023. The
unrecognised deferred tax asset has been calculated based on the corporation
tax rate in effect from 1 April 2023 of 25%, as enacted by the Finance Act
2021.
Given the Company's intention to meet the conditions required to retain its
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
2023 2022
£'000 £'000
2022 final dividend of 14.0p (2021: 11.0p) paid out of revenue profits 4,841 3,857
Interim dividend of 5.5p (2022: 5.0) paid out of revenue profits 1,902 1,729
Total dividends paid in the year 6,743 5,586
2023 2022
£'000 £'000
2023 final dividend declared of 15.0p (2022: 14.0p) to be paid out of revenue 5,187 4,841
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 £7,842,000
(2022: £7,823,000).
2023 2022
£'000 £'000
Interim dividend of 5.5p (2022: 5.0p) 1,902 1,729
Final dividend of 15.0p (2022: 14.0p) 5,187 4,841
7,089 6,570
9. Return/(loss) per share
2023 2022
£'000 £'000
Revenue return 7,842 7,823
Capital return/(loss) 25,331 (89,738)
Total return/(loss) 33,173 (81,915)
Weighted average number of shares in issue during the year 34,581,190 34,874,738
Revenue return per share 22.68p 22.43p
Capital return/(loss) per share 73.25p (257.32)p
Total return/(loss) per share 95.93p (234.89)p
10. Investments held at fair value through profit or loss
2023 2022
£'000 £'000
Opening book cost 223,047 210,126
Opening investment holding (losses)/gains (15,758) 89,935
Opening fair value 207,289 300,061
Analysis of transactions made during the year
Purchases at cost 57,741 50,360
Sales proceeds (63,796) (54,713)
Gains/(losses) on investments held at fair value 26,716 (88,419)
Closing fair value 227,950 207,289
Closing book cost 215,960 223,047
Closing investment holding gains/(losses) 11,990 (15,758)
Closing fair value 227,950 207,289
Sales proceeds amounting to £63,796,000 (2022: £54,713,000) were receivable
from disposals of investments in the year. The book cost of these investments
when they were purchased was £64,828,000 (2022: £37,439,000). These
investments have been revalued over time and until they were sold any
unrealised gains and losses were included in the fair value of the
investments.
All investments are listed on a recognised stock exchange.
10. Investments held at fair value through profit or loss
The following transaction costs, comprising stamp duty and brokerage
commission were incurred during the year:
2023 2022
£'000 £'000
On acquisitions 305 226
On disposals 31 28
336 254
11 Debtors
2023 2022
£'000 £'000
Securities sold awaiting settlement 1,688 45
Dividends and interest receivable 813 793
Other debtors 14 15
2,515 853
12. Cash and cash equivalents
2023 2022
£'000 £'000
Cash at bank 934 4,786
Money market funds 4,438 -
5,372 4,786
As at 30 September 2023, the Company held HSBC Sterling Liquidity fund with a
market value of £4,438,000 (30 September 2022: 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
2023 2022
£'000 £'000
Bank loan 20,000 25,000
Securities purchased awaiting settlement 1,465 -
Other creditors and accruals 549 535
22,014 25,535
The bank loans comprise a £10 million one-year term loan from Bank of Nova
Scotia, London Branch expiring on 27 February 2024, carrying an interest rate
based on the Sterling Overnight Interest Average plus a margin and a £10m
three-year revolving credit facility agreement with Bank of Nova Scotia,
London Branch expiring on 14 February 2025. These loans replaced the
three-year term loan from Scotiabank Europe plc, which expired in February
2022 and a one year revolving credit facility agreement with Scotiabank Europe
plc which expired on 28 February 2022.
The directors consider that the carrying amount of creditors falling due
within one year approximates to their fair value.
14. Called-up share capital
2023 2022
£'000 £'000
Allotted, called-up and fully paid:
Ordinary shares of 25p each:
Opening balance of 34,581,190 (2022: 35,066,190) shares, excluding shares held 8,645 8,766
in treasury
Repurchase of Nil (2022: 485,000) shares into treasury - (121)
Subtotal of 34,581,190 (2022: same) shares 8,645 8,645
1,562,500 (2022: same) shares held in treasury 391 391
Closing balance(1) 9,036 9,036
(1)Represents 36,143,690 (2022: same) shares of 25p each, including 1,562,500
(2022: same) shares held in treasury.
15. Reserves
Year ended 30 September 2023
Capital reserve
Gains and Investment
Capital Share losses on holding
Share redemption Merger purchase sales of gains and Revenue
premium(1) reserve(1) reserve(1) reserve(2) investments(2) losses(3) reserve(4)
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Opening balance 13,971 220 2,184 7,233 161,387 (15,758) 9,120
Gains on sales of investments based on the carrying value at the previous - - - - 8,890 - -
balance sheet date
Net movement in investment holding gains and losses - - - - - 17,826 -
Transfer on disposal of investments - - - - (9,922) 9,922 -
Management fee allocated to capital - - - - (1,053) - -
Special dividend allocated to capital - - - - 298 - -
Finance costs allocated to capital - - - - (630) - -
Dividends paid - - - - - - (6,743)
Retained revenue for the year - - - - - - 7,842
Closing balance 13,971 220 2,184 7,233 158,970 11,990 10,219
Year ended 30 September 2022
Capital reserves
Gains and Investment
Capital Share losses on holding
Share redemption Merger purchase sales of gains and Revenue
premium(1) reserve(1) reserve(1) reserve(2) investments(2) losses(3) reserve(4)
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Opening balance 13,971 220 2,184 9,908 145,432 89,935 6,883
Gains on sales of investments based on the carrying value at the previous - - - - 4,342 - -
balance sheet date
Net movement in investment holding gains and losses - - - - - (92,761) -
Transfer on disposal of investments - - - - 12,932 (12,932) -
Management fee allocated to capital - - - - (1,136) - -
Special dividend allocated to capital - - - - 88 - -
Finance costs allocated to capital - - - - (271) - -
Repurchase of shares into treasury - - - (2,675) - - -
Dividends paid - - - - - - (5,586)
Retained revenue for the year - - - - - - 7,823
Closing balance 13,971 220 2,184 7,233 161,387 (15,758) 9,120
(1)These reserves are not distributable. The "Merger reserve" represents the
premium over the nominal value of shares issued following a merger in 1989.
(2)These are realised (distributable) capital reserves which may be used to
repurchase the Company's own shares or distributed as dividends. The "Share
purchase reserve" is for the purpose of financing share buy-backs and was
created following the cancellation of the "Warrant reserve" in 2003.
(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
2023 2022
Net assets attributable to the Ordinary shareholders (£'000) 213,823 187,393
Shares in issue at the year end, excluding shares held in treasury 34,581,190 34,581,190
Net asset value per share 618.32p 541.89p
17. Transactions with the Manager
Under the terms of the AlFM Agreement, the Manager is entitled to receive a
management fee and a company secretarial fee. Details of the basis of these
calculations are given in the Directors' Report on page 26. 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 management fee
calculation and therefore incur no fee.
The management fee payable in respect of the year ended 30 September 2023
amounted to £1,504,000. (2022: £1,623,000) of which £374,000 (2022:
£340,000) was outstanding at the year end. The secretarial fee payable for
the year amounted to £162,000 (2022: £144,000) including VAT, of which
£41,000 (2022: £36,000) 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 Remuneration
Report on page 35 and details of directors' shareholdings are given in the
Remuneration Report on page 36. Details of transactions with the Manager are
given in note 17 above. There have been no other transactions with related
parties during the year (2022: 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 that financial instruments held at fair value are categorised
into a hierarchy consisting of the three levels below. A fair value
measurement is categorised in its entirety on the basis of the lowest level
input that is significant to the fair value measurement.
Level 1 - valued using unadjusted quoted prices in an active market for
identical assets.
Level 2 - valued using inputs other than quoted prices included within Level
1, that are observable (ie developed using market data).
Level 3 - valued using inputs that are unobservable (ie for which market data
is unavailable).
Details of the Company's valuation policy are given in note 1(b) on page 48.
At 30 September 2023, the Company's investments were all categorised in Level
1 (2022: same).
20. Financial instruments' exposure to risk and risk management
policies
The Company's investment objective is to invest in mid cap equities with the
aim of providing a total return in excess of the FTSE 250 (ex-Investment
Companies) Index. In pursuing this objective, 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 exposure to foreign
exchange risk.
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 are as follows:
- investments in shares which are held in accordance with the Company's
investment objective;
- short-term debtors, creditors and cash and cash equivalents arising
directly from its operations; and
- sterling revolving credit facilities with Scotiabank, 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 any variable rate borrowings when
interest rates are re-set. The Company's one-year term loan carries a fixed
rate of interest and does not give rise to any interest rate risk.
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 and cash
equivalents, expressed as a percentage of net assets.
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:
2023 2022
£'000 £'000
Exposure to floating interest rates:
Cash and cash equivalents 5,372 4,786
Total exposure 5,372 4,786
Cash balances earn interest at a floating rate based on the Sterling Overnight
Index Average.
The Company's 364 day, £20 million revolving credit facility with Scotiabank
Europe plc expires on 27 February 2024. The Company also has a £10 million
three year facililty with Scotiabank Europe plc, which expires on 14 February
2025. The facilities are unsecured but subject to covenants and restrictions
which are customary for a facility of this nature. Interest is payable at a
rate of Sterling Overnight Interest Average (2022 LIBOR), or its replacement
reference rate, as quoted in the market for the loan period, plus a margin,
plus Mandatory Costs, which are the lender's costs of complying with certain
regulatory requirements of the Bank of England. At 30 September 2023, the
Company had drawn down £20 million in February 2024.
The above year end amounts are not representative of the exposure to interest
rates during the year due to fluctuations in the level of cash and cash
equivalents balances. The maximum and minimum exposure during the year was as
follows:
2023 2022
£'000 £'000
Minimum interest rate exposure during the year - net debt (9,957) (13,365)
Maximum interest rate exposure during the year - net debt (20,796) (22,681)
Interest rate sensitivity
The following table illustrates the sensitivity of the return after taxation
for the year and net assets to a 1.0% (2022: 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 accounting date with all other variables held constant.
2023 2022
1.0% increase 1.0% decrease 1.0% increase 1.0% decrease
in rate in rate in rate in rate
£'000 £'000 £'000 £'000
Income statement - return after taxation
Revenue return 54 (54) 48 (48)
Capital return - - - -
Total return after taxation 54 (54) 48 (48)
Net assets 54 (54) 48 (48)
In the opinion of the directors, this sensitivity analysis may not be
representative of the Company's future exposure to interest rate changes due
to fluctuations in the level of cash balances and drawings on the credit
facility.
(ii) Other price risk
Other 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 30 September
comprises the following:
2023 2022
£'000 £'000
Investments held at fair value through profit or loss 227,950 207,289
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 on page 10. The Company's
investments are all listed in the United Kingdom. Accordingly there is a
concentration of exposure to this country. However it should be noted that an
investment may not be entirely exposed to the economic conditions in its
country of listing.
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% (2022: 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 its investments and includes the impact on the management fee, but
assumes that all other variables are held constant.
2023 2022
20% increase 20% decrease 20% increase 20% decrease
in fair value in fair value in fair value in fair value
£'000 £'000 £'000 £'000
Income statement - return after taxation
Revenue return (89) 89 (81) 81
Capital return 45,382 (45,382) 41,269 (41,269)
Total return after taxation and net assets 45,293 (45,293) 41,188 (41,188)
Percentage change in net asset value 21.2 (21.2) 22.0 (22.0)
(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 the 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.
Liquidity risk exposure
Contractual maturities of financial liabilities, based on the earliest date on
which payment can be required are as follows:
2023 2022
Within one Within one
year Total year Total
£'000 £'000 £'000 £'000
Creditors: amounts falling due within one year
Securities purchased awaiting settlement 1,465 1,465 - -
Other creditors and accruals 542 542 502 502
Other payables: drawings on the revolving credit facility (including interest) 20,530 20,530 25,160 25,160
22,537 22,537 25,662 25,662
(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 Aa3 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.
2023 2022
Balance Maximum Balance Maximum
sheet exposure sheet exposure
£'000 £'000 £'000 £'000
Current assets
Debtors - securities sold awaiting settlement, dividends and interest 2,515 2,501 853 838
receivable and other debtors
Cash and cash equivalents 5,372 5,372 4,786 4,786
7,887 7,873 5,639 5,624
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 in the Statement of
Financial Position at fair value or the amount 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:
2023 2022
£'000 £'000
Debt
Bank loan 20,000 25,000
Equity
Called-up share capital 9,036 9,036
Reserves 204,787 178,357
213,823 187,393
Total debt and equity 233,823 212,393
The Company's capital management objectives are to ensure that it will
continue as a going concern and to maximise the capital 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 and cash equivalents,
expressed as a percentage of net assets. If the figure so calculated were to
be negative, this would be shown as a "net cash" position.
2023 2022
£'000 £'000
Borrowings used for investment purposes, less cash and cash equivalents 14,628 20,214
Net assets 213,823 187,393
Gearing 6.8% 10.8%
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 dividends to be paid, in excess of that which is
required to be distributed.
Other Information (unaudited)
Annual General Meeting - Recommendations
The Annual General Meeting ("AGM") of the Company will be held on Friday, 8
March 2024 at 12.00 noon. The formal Notice of Meeting is set out on page 61.
The following information is important and requires your immediate attention.
If you are in any doubt about the action you should take, you should consult
an independent financial adviser, authorised under the Financial Services and
Markets Act 2000. If you have sold or transferred all of your ordinary shares
in the Company, please forward this document with its accompanying form of
proxy at once to the purchaser or transferee, or to the stockbroker, bank or
other agent through whom the sale or transfer was effected for onward
transmission to the purchaser or transferee.
Attendance at the meeting
The meeting will be held at the Manager's office at 1 London Wall Place,
London EC2Y 5AU.
It will also be available to watch online and the details are set out below.
Shareholders watching online will be able to submit questions in writing
during the meeting. Shareholders will also be able to watch the Manager's
presentation. To sign up to watch the meeting and presentation, please click
on this link
https://schroders.zoom.us/webinar/register/WN_IWa5BSGZRruLlzK9DGyxbg. After
registering, you will receive a confirmation email containing information
about how to join.
Ordinary business
Resolutions 1 to 9 are all proposed as ordinary resolutions
Resolution 1 is a required resolution. Resolution 2 invites shareholders to
approve the final dividend. Resolutions 3 concerns the Directors' Remuneration
Report, on pages 34 to 36. Resolutions 4 to 7 invite shareholders to elect or
re-elect each of the directors who have put themselves forward for re-election
for another year, following the recommendations of the Nomination Committee,
set out on page 33 (their biographies are set out on pages 24 and 25).
Resolutions 8 and 9 concern the re-appointment and remuneration of the
Company's auditor, discussed in the Audit and Risk Committee Report on pages
29 and 30.
Special business
Resolution 10: Directors' authority to allot shares (ordinary resolution) and
resolution 11 - power to disapply pre-emption rights (special resolution)
The directors are seeking authority to allot a limited number of unissued
ordinary shares for cash without first offering them to existing shareholders
in accordance with statutory preemption procedures.
Appropriate resolutions will be proposed at the forthcoming AGM and are set
out in full in the Notice of AGM. An ordinary resolution will be proposed to
authorise the directors to allot shares up to a maximum aggregate nominal
amount of £864,529.75 (being 10% of the issued share capital (excluding any
shares held in treasury) as at the date of the Notice of the AGM). A special
resolution will also be proposed to give the directors authority to allot
securities for cash on a non preemptive basis up to a maximum aggregate
nominal amount of £864,529.75 (being 10% of the Company's issued share
capital (excluding any shares held in treasury) as at the date of the Notice
of the AGM). This authority includes shares that the Company sells or
transfers that have been held in treasury. The Board has established
guidelines for treasury shares and will only reissue shares held in treasury
at a price equal to or greater than the Company's NAV (inclusive of current
year income) plus any applicable costs.
The directors do not intend to allot shares pursuant to these authorities
other than to take advantage of opportunities in the market as they arise and
only if they believe it to be advantageous to the Company's existing
shareholders to do so and when it would not result in any dilution of NAV per
share.
If approved, both of these authorities will expire at the conclusion of the
AGM in 2025 unless renewed, varied or revoked earlier.
Resolution 12: Authority to make market purchases of the Company's own shares
(special resolution)
At the AGM held on 21 February 2023, the Company was granted authority to make
market purchases of up to 5,417,939 ordinary shares of 25p each for
cancellation or holding in treasury. No shares have been bought back into
treasury under this authority and the Company therefore has remaining
authority to purchase up to 5,417,939 ordinary shares. This authority will
expire at the forthcoming AGM.
The directors believe it is in the best interests of the Company and its
shareholders to have a general authority for the Company to buy back its
ordinary shares in the market as they keep under review the share price
discount to net asset value and the purchase of ordinary shares. A special
resolution will be proposed at the forthcoming AGM to give the Company
authority to make market purchases of up to 14.99% of the ordinary shares in
issue as at the date of the Notice of the AGM. The directors will exercise
this authority only if the directors consider that any purchase would be for
the benefit of the Company and its shareholders, taking into account relevant
factors and circumstances at the time. Any shares so purchased would be
cancelled or held in treasury for potential reissue. If renewed, the authority
to be given at the 2024 AGM will lapse at the conclusion of the AGM in 2025
unless renewed, varied or revoked earlier.
Resolution 13: Notice period for general meetings (special resolution)
Resolution 13 set out in the Notice of AGM is a special resolution and will,
if passed, allow the Company to hold general meetings (other than annual
general meetings) on a minimum notice period of 14 clear days, rather than 21
clear days as required by the Companies Act 2006. The approval will be
effective until the Company's next AGM to be held in 2024. The Directors will
only call general meetings on 14 clear days' notice when they consider it to
be in the best interests of the Company's shareholders and will only do so if
the Company offers facilities for all shareholders to vote by electronic means
and when the matter needs to be dealt with expediently.
Recommendations
The Board considers that the resolutions relating to the above items of
business are in the best interests of shareholders as a whole. Accordingly,
the Board unanimously recommends to shareholders that they vote in favour of
the resolutions to be proposed at the forthcoming AGM, as they intend to do in
respect of their own beneficial holdings.
Notice of Annual General Meeting
Notice is hereby given that the Annual General Meeting of Schroder UK Mid Cap
Fund plc will be held at 1 London Wall Place, London EC2Y 5AU on Friday, 8
March 2024 at 12.00 noon to consider the following resolutions of which
resolutions 1 to 10 will be proposed as ordinary resolutions and resolutions
11 to 13 will be proposed as special resolutions:
1. To receive the Report of the Directors and the audited
accounts for the year ended 30 September 2023.
2. To approve a final dividend of 15.00 pence per share for
the financial year ended 30 September 2023.
3. To approve the Directors' Remuneration Report for the year
ended 30 September 2023.
4. To elect Harry Morley as a director of the Company.
5. To re-elect Wendy Colquhoun as a director of the Company.
6. To re-elect Helen Galbraith as a director of the Company.
7. To re-elect Robert Talbut as a director of the Company.
8. To re-appoint KPMG LLP as auditor to the Company.
9. To authorise the directors to determine the remuneration of
KPMG LLP as auditor to the Company.
10. To consider, and if thought fit, pass the following resolution
as an ordinary resolution:
"THAT the directors be generally and unconditionally authorised pursuant to
section 551 of the Companies Act 2006 (the "Act") to exercise all the powers
of the Company to allot relevant securities (within the meaning of section 551
of the Act) up to an aggregate nominal amount of £864,529.75 (being 10% of
the issued ordinary share capital at the date of this Notice, excluding shares
held in treasury) for a period expiring (unless previously renewed, varied or
revoked by the Company in general meeting) at the conclusion of the next
Annual General Meeting of the Company, but that the Company may make an offer
or agreement which would or might require relevant securities to be allotted
after expiry of this authority and the Board may allot relevant securities in
pursuance of that offer or agreement."
11. To consider and, if thought fit, to pass the following
resolution as a special resolution:
"THAT, subject to the passing of resolution 10 set out above, the directors be
and are hereby empowered, pursuant to Section 571 of the Act, to allot equity
securities (including any shares held in treasury) (as defined in section
560(1) of the Act) pursuant to the authority given in accordance with section
551 of the Act by the said resolution 10 and/or where such allotment
constitutes an allotment of equity securities by virtue of section 560(2) of
the Act as if Section 561(1) of the Act did not apply to any such allotment,
provided that this power shall be limited to the allotment of equity
securities up to an aggregate nominal amount of £864,529.75 (representing 10%
of the aggregate nominal amount of the share capital in issue at the date of
this Notice, excluding shares held in treasury); and provided that this power
shall expire at the conclusion of the next Annual General Meeting of the
Company but so that this power shall enable the Company to make offers or
agreements before such expiry which would or might require equity securities
to be allotted after such expiry."
12. To consider and, if thought fit, to pass the following
resolution as a special resolution:
"THAT the Company be and is hereby generally and unconditionally authorised in
accordance with Section 701 of the Act to make market purchases (within the
meaning of Section 693 of the Act) of ordinary shares of 25p each in the
capital of the Company ("Shares") at whatever discount the prevailing market
price represents to the prevailing net asset value per Share provided that:
(a) the maximum number of Shares which may be purchased is
5,183,720 representing 14.99% of the Company's issued ordinary share capital
as at the date of this Notice, excluding shares held in treasury;
(b) the maximum price (exclusive of expenses) which may be paid
for a Share shall not exceed the higher of;
i) 105% of the average of the middle market quotations for
the Shares as taken from the London Stock Exchange Daily Official List for the
five business days preceding the date of purchase; and
ii) the higher of the last independent bid and the highest
current independent bid on the London Stock Exchange;
(c) the minimum price (exclusive of expenses) which may be paid
for a Share shall be 25p, being the nominal value per Share;
(d) this authority hereby conferred shall expire at the
conclusion of the next Annual General Meeting of the Company in 2025 (unless
previously renewed, varied or revoked by the Company prior to such date);
(e) the Company may make a contract to purchase Shares under the
authority hereby conferred which will or may be executed wholly or partly
after the expiration of such authority and may make a purchase of Shares
pursuant to any such contract; and
(f) any Shares so purchased will be cancelled or held in
treasury for potential reissue."
13. To consider and, if thought fit, to pass the following
resolution as a special resolution:
"THAT, a general meeting, other than an Annual General Meeting, may be called
on not less than 14 clear days' notice."
By order of the Board
Schroder Investment Management
Limited
Registered office:
Company
Secretary
9 Haymarket Square
Edinburgh
12 December
2023
Scotland EH3 8FY
Registered number: SC082551
Explanatory Notes to the Notice of Meeting
1. Ordinary shareholders are entitled to attend and vote at the
meeting and to appoint one or more proxies, who need not be a shareholder, as
their proxy to exercise all or any of their rights to attend, speak and vote
on their behalf at the meeting.
A proxy form is attached. If you wish to appoint a person other than the
Chairman as your proxy, please insert the name of your chosen proxy holder in
the space provided at the top of the form. If the proxy is being appointed in
relation to less than your full voting entitlement, please enter in the box
next to the proxy holder's name the number of shares in relation to which they
are authorised to act as your proxy. If left blank your proxy will be deemed
to be authorised in respect of your full voting entitlement (or if this proxy
form has been issued in respect of a designated account for a shareholder, the
full voting entitlement for that designated account).
Additional proxy forms can be obtained by contacting the Company's Registrars,
Equiniti Limited, on 0800 032 0641 or +44(0) 121 415 0207 for overseas
callers, or you may photocopy the attached proxy form. Please indicate in the
box next to the proxy holder's name the number of shares in relation to which
they are authorised to act as your proxy. Please also indicate by ticking the
box provided if the proxy instruction is one of multiple instructions being
given. Completion and return of a form of proxy will not preclude a member
from attending the Annual General Meeting and voting in person.
On a vote by show of hands, every ordinary shareholder who is present in
person has one vote and every duly appointed proxy who is present has one
vote. On a poll vote, every ordinary shareholder who is present in person or
by way of a proxy has one vote for every share of which he/she is a holder.
The "Vote Withheld" option on the proxy form is provided to enable you to
abstain on any particular resolution.
However it should be noted that a "Vote Withheld" is not a vote in law and
will not be counted in the calculation of the proportion of the votes "For"
and "Against" a resolution.
A proxy form must be signed and dated by the shareholder or his or her
attorney duly authorised in writing. In the case of joint holdings, any one
holder may sign this form. The vote of the senior joint holder who tenders a
vote, whether in person or by proxy, will be accepted to the exclusion of the
votes of the other joint holder and for this purpose seniority will be
determined by the order in which the names appear on the Register of Members
in respect of the joint holding. To be valid, proxy form(s) must be completed
and returned to the Company's Registrars, Equiniti Limited, Aspect House,
Spencer Road, Lancing, West Sussex BN99 6DA, in the enclosed envelope together
with any power of attorney or other authority under which it is signed or a
copy of such authority certified notarially, to arrive no later than 48 hours
before the time fixed for the meeting, or an adjourned meeting, excluding
non-working days. Shareholders may also appoint a proxy to vote on the
resolutions being put to the meeting electronically at www.sharevote.co.uk.
Shareholders who are not registered to vote electronically, will need to enter
the Voting ID, Task ID & Shareholder Reference Number set out in their
personalised proxy form. Alternatively, shareholders who have already
registered with Equiniti's Shareview service can appoint a proxy by logging
onto their portfolio at www.shareview.co.uk and clicking on the link to vote.
The on-screen instructions give details on how to complete the appointment
process. Please note that to be valid, your proxy instructions must be
received by Equiniti no later than 12.00 noon on 6 March 2024. If you have any
difficulties with online voting, you should contact the shareholder helpline
on 0800 032 0641 (or +44(0) 121 415 0207 for overseas callers).
If an ordinary shareholder submits more than one valid proxy appointment, the
appointment received last before the latest time for receipt of proxies will
take precedence.
Shareholders may not use any electronic address provided either in this Notice
of Annual General Meeting or any related documents to communicate with the
Company for any purposes other than expressly stated.
Representatives of shareholders that are corporations will have to produce
evidence of their proper appointment when attending the Annual General
Meeting.
2. Any person to whom this notice is sent who is a person
nominated under section 146 of the Companies Act 2006 to enjoy information
rights (a "Nominated Person") may, under an agreement between him or her and
the shareholder by whom he or she was nominated, have a right to be appointed
(or to have someone else appointed) as a proxy for the Annual General Meeting.
If a Nominated Person has no such proxy appointment right or does not wish to
exercise it, he or she may, under any such agreement, have a right to give
instructions to the shareholder as to the exercise of voting rights.
The statement of the rights of ordinary shareholders in relation to the
appointment of proxies in note 1 above does not apply to Nominated Persons.
The rights described in that note can only be exercised by ordinary
shareholders of the Company.
3. Pursuant to Regulation 41 of the Uncertificated Securities
Regulations 2001, the Company has specified that only those shareholders
registered in the Register of members of the Company at 6.30 p.m. on 6 March
2024, or 6.30 p.m. two days prior to the date of an adjourned meeting,
excluding non-working days, shall be entitled to attend and vote at the
meeting in respect of the number of shares registered in their name at that
time. Changes to the Register of Members after 6.30 p.m. on 6 March 2024
shall be disregarded in determining the right of any person to attend and vote
at the meeting.
4. CREST members who wish to appoint a proxy or proxies through
the CREST electronic proxy appointment service may do so by using the
procedures described in the CREST manual. The CREST manual can be viewed at
www.euroclear.com. A CREST message appointing a proxy (a "CREST proxy
instruction") regardless of whether it constitutes the appointment of a proxy
or an amendment to the instruction previously given to a previously appointed
proxy must, in order to be valid, be transmitted so as to be received by the
issuer's agent (ID RA19) by the latest time for receipt of proxy
appointments.
5. Copies of the terms of appointment of the non-executive
directors and a statement of all transactions of each director and of his
family interests in the shares of the Company, will be available for
inspection by any member of the Company at the registered office of the
Company during normal business hours on any weekday (English public holidays
excepted) and at the Annual General Meeting by any attendee, for at least 15
minutes prior to, and during, the Annual General Meeting. None of the
directors has a contract of service with the Company.
6. The biographies of the directors offering themselves for
election or re-election are set out on pages 24 and 25 of the Company's annual
report and accounts for the year ended 30 September 2023.
7. As at 12 December 2023, 36,143,690 ordinary shares of 25p
each were in issue and 1,562,500 shares were held in treasury. Therefore the
total number of voting rights of the Company as at 12 December 2023 was
34,581,190.
8. A copy of this Notice of Meeting, which includes details of
shareholder voting rights, together with any other information as required
under Section 311A of the Companies Act 2006, is available from the website
dedicated to the Company: www.schroders.co.uk/ukmidcap.
9. Pursuant to Section 319A of the Companies Act 2006, the
Company must cause to be answered at the Annual General Meeting any question
relating to the business being dealt with at the AGM which is put by a member
attending the meeting, except in certain circumstances, including if it is
undesirable in the interests of the Company or the good order of the meeting
that the question be answered or if to do so would involve the disclosure of
confidential information.
10. Members satisfying the thresholds in section 527 of the
Companies Act 2006 can require the Company to publish a statement on its
website setting out any matter relating to: (a) the audit of the Company's
Accounts (including the auditor's report and the conduct of the audit) that
are to be laid before the Meeting; or (b) any circumstance connected with an
auditor of the Company ceasing to hold office since the last AGM, that the
members propose to raise at the Meeting. The Company cannot require the
members requesting the publication to pay its expenses. Any statement placed
on the website must also be sent to the Company's auditors no later than the
time it makes its statement available on the website. The business which may
be dealt with at the meeting includes any statement that the Company has been
required to publish on its website.
11. Members satisfying the thresholds in section 338 of the
Companies Act 2006 may require the Company to give, to members of the Company
entitled to receive notice of the Annual General Meeting, notice of a
resolution which those members intend to move (and which may properly be
moved) at the Annual General Meeting. A resolution may properly be moved at
the Annual General Meeting unless (i) it would, if passed, be ineffective
(whether by reason of any inconsistency with any enactment or the Company's
constitution or otherwise); (ii) it is defamatory of any person; or (iii) it
is frivolous or vexatious. A request made pursuant to this right may be in
hard copy or electronic form, must identify the resolution of which notice is
to be given, must be authenticated by the person(s) making it and must be
received by the Company not later than six weeks before the date of the Annual
General Meeting.
12. Members satisfying the thresholds in section 338A of the
Companies Act 2006 may request the Company to include in the business to be
dealt with at the Annual General Meeting any matter (other than a proposed
resolution) which may properly be included in the business at the Annual
General Meeting. A matter may properly be included in the business at the
Annual General Meeting unless (i) it is defamatory of any person or (ii) it is
frivolous or vexatious. A request made pursuant to this right may be in hard
copy or electronic form, must identify the matter to be included in the
business, must be accompanied by a statement setting out the grounds for the
request, must be authenticated by the person(s) making it and must be received
by the Company not later than six weeks before the date of the Annual General
Meeting.
13. The Company's privacy policy is available on its website.
Shareholders can contact Equiniti for details of how Equiniti processes their
personal information as part of the AGM.
Definitions of Terms and Performance Measures
The terms and performance measures below are those commonly used by investment
companies to assess values, investment performance and operating costs.
Numerical calculations are given where relevant. Some of the financial
measures below are classified Alternative Performance Measures ("APMs") as
defined by the European Securities and Markets Authority. Under this
definition, APMs include a financial measure of historical financial
performance or financial position, other than a financial measure defined or
specified in the applicable financial reporting framework. APMs have been
marked with an asterisk.
Net asset value ("NAV") per share
The NAV per share of 618.32p (2022: 541.89p) represents the net assets
attributable to equity shareholders of £213,823,000 (2022: £187,393,000)
divided by the number of shares in issue, excluding any shares held in
treasury, of 34,581,190 (2022: 34,581,190). The NAV calculation shows
performance, after any management fees or other expenses have been deducted.
The change in the NAV amounted to 14.10% (2022: -30%) over the year. However
this performance measure excludes the positive impact of dividends paid out by
the Company during the year. When these dividends are factored into the
calculation, the resulting performance measure is termed the "total return".
Total return calculations and definitions are given below. The methodology
demonstrated below can also be used to reconcile the 3-, 5- and 10-year total
return performance information shown in the annual report.
Total return*
Total return is the combined effect of any dividends paid, together with the
rise or fall in the NAV per share or share price. Total return statistics
enable the investor to make performance comparisons between investment
companies with different dividend policies. Any dividends received by a
shareholder are assumed to have been reinvested in either the assets of the
Company at its NAV per share at the time the shares were quoted ex-dividend
(to calculate the NAV per share total return) or in additional shares of the
Company (to calculate the share price total return).
The NAV total return for the year ended 30 September 2023 is calculated as
follows:
NAV at 30/9/22 541.89p
NAV at 30/9/23 618.32p
NAV on Cumulative
Dividend XD date XD date Factor factor
14.0p 12/1/2023 652.14p 1.0215 1.0215
5.5p 13/7/2023 610.45p 1.0090 1.0307
NAV total return, being the closing NAV, multiplied by the cumulative factor, 17.6%
expressed as a percentage change in the opening NAV
The NAV total return for the year ended 30 September 2022 is calculated as
follows:
NAV at 30/9/21 791.56p
NAV at 30/9/22 541.89p
Nav on Cumulative
Dividend XD date XD date Factor factor
9.5p 13/1/2022 764.79p 1.0144 1.0144
3.8p 14/7/2022 612.27p 1.0082 1.0227
NAV total return, being the closing NAV, multiplied by the cumulative factor, -30.0%
expressed as a percentage change in the opening NAV
The share price total return for the year ended 30 September 2023 is
calculated as follows:
Share price at 30/9/22 480.00p
Share price at 30/9/23 544.00p
Share price Cumulative
Dividend XD date on XD date Factor factor
14.0p 12/1/2023 560.00p 1.0250 1.0250
5.5p 13/7/2023 524.00p 1.0104 1.0357
Share price total return, being the closing share price, multiplied by the 17.4%
cumulative factor, expressed as a percentage change in the opening share price
The share price total return for the year ended 30 September 2022 is
calculated as follows:
Share price at 30/9/21 730.00p
Share price at 30/9/22 480.00p
Share price Cumulative
Dividend XD date on XD date Factor factor
11.0p 13/1/2022 686.00p 1.0160 1.0160
9.5p 14/7/2022 510.00p 1.0098 1.0260
Share price total return, being the closing share price, multiplied by the -32.5%
cumulative factor, expressed as a percentage change in the opening share price
Annualised total return*
The annualised total return is the compound annual rate of return which
equates to the total return as calculated above, for a period of more than one
year.
Benchmark
A measure against which the performance of an investment company is compared,
or against which it sets its objective. The Company's benchmark is the FTSE
250 (ex-Investment Companies) Index.
Discount/premium*
The amount by which the share price of an investment trust is lower (discount)
or higher (premium) than the NAV per share. If shares are trading at a
discount, investors would be paying less than the value attributable to the
shares by reference to the underlying assets. A premium or discount is
generally the consequence of supply and demand for the shares on the stock
market. The discount or premium is expressed as a percentage of the NAV per
share. The discount at the year end amounted to 12.0% (2022: discount of
11.4%), as the closing share price at 544.00p (2022: 480.00p) was 12.0% (2022:
11.4%) lower than the closing NAV of 618.32p (2022: 541.89p).
Gearing*
The gearing percentage reflects the amount of borrowings (i.e. bank loans or
overdrafts) which the Company has drawn down and invested in the market. This
figure is indicative of the extra amount by which shareholders' funds would
move if the Company's investments were to rise or fall. This represents
borrowings used for investment purposes, less cash, expressed as a percentage
of net assets. If the figure so calculated is negative, this is shown as a
"Net cash" position. The gearing figure at the year end is calculated as
follows:
2023 2022
£'000 £'000
Borrowings used for investment purposes, less cash 14,628 20,214
Net assets 213,823 187,393
Gearing 6.8% 10.8%
Ongoing Charges*
Ongoing Charges is calculated in accordance with the AIC's recommended
methodology and represents the management fee and all other operating expenses
excluding finance costs and transaction costs amounting to £2,105,000
(2022: £2,165,000), expressed as a percentage of the average daily net asset
values during the year of £217,010,000 (2022: £243,523,000).
Leverage*
For the purpose of the Alternative Investment Fund Managers (AIFM)
Regulations, leverage is any method which increases the Company's exposure,
including the borrowing of cash and the use of derivatives. It is expressed as
the ratio of the Company's exposure to its net asset value and is required to
be calculated both on a "Gross" and a "Commitment" method. Under the Gross
method, exposure represents the sum of the absolute values of all positions,
so as to give an indication of overall exposure. Under the Commitment method,
exposure is calculated in a similar way, but after netting off hedges which
satisfy certain strict criteria.
Shareholder Information
Webpages and share price information
The Company has dedicated webpages, which may be found at
www.schroders.co.uk/ukmidcap. The webpages are the Company's primary method of
electronic communication with shareholders. They contain details of the
Company's share price and copies of the annual report and accounts and other
documents published by the Company as well as information on the directors,
terms of reference of committees and other governance arrangements. In
addition, the webpages contain links to announcements made by the Company to
the market and Schroders' website. There is also a section entitled "How to
Invest".
The Company releases its NAV per share on both a cum and ex‑income basis to
the market on a daily basis.
Share price information may also be found in the Financial Times and on the
Company's webpages.
The Manager publishes monthly and quarterly updates on the Company and other
Schroders investment trusts, which may be found under the "Literature" section
on the Company's webpages.
Association of Investment Companies
The Company is a member of the Association of Investment Companies. Further
information on the Association can be found on its website, www.theaic.co.uk.
Individual Savings Account ("ISA") status
The Company's shares are eligible for stocks and shares ISAs.
Non-Mainstream Pooled Investments status
The Company currently conducts its affairs so that its shares can
be recommended by independent financial advisers to ordinary retail
investors in accordance with the FCA's rules in relation to non-mainstream
investment products and intends to continue to do so for the foreseeable
future. The Company's shares are excluded from the FCA's restrictions which
apply to non-mainstream investment products because they are shares in an
investment trust.
Financial calendar
Annual General Meeting March
Final dividend paid March
Half year results announced May/June
Interim dividend paid June
Financial year end 30 September
Annual results announced December
Alternative Investment Fund Managers Regulations ("UK AIFMD") disclosures
The UK AIFMD, as transposed into the FCA Handbook in the UK, requires that
certain pre-investment information be made available to investors in
Alternative Investment Funds (such as the Company) and also that certain
regular and periodic disclosures are made. This information and these
disclosures may be found either below, elsewhere in this annual report, or in
the Company's UK AIFMD information disclosure document published on the
Company's webpages.
Leverage
The Company's leverage policy and details of its leverage ratio calculation
and exposure limits as required by the AIFMD are published on the Company's
webpages and within this report. The Company is also required to periodically
publish its actual leverage exposures. As at 30 September 2023 these were:
Maximum Actual
Leverage exposure ratio ratio
Gross Method 2.00 1.19
Commitment Method 2.00 1.09
Illiquid assets
As at the date of this report, none of the Company's assets are subject to
special arrangements arising from their illiquid nature.
Remuneration disclosures
Quantitative remuneration disclosures to be made in this annual report in
accordance with FCA Handbook rule FUND3.3.5 may be found in the Company"s
AIFMD information disclosure document published on the Company's webpages.
Publication of Key Information Document ("KID") by the AIFM
Pursuant to the Packaged Retail and Insurance Based Investment Products
Regulation, the Manager, as the Company's AIFM, is required to publish a short
KID on the Company. KIDs are designed to provide certain prescribed
information to retail investors, including details of potential returns under
different performance scenarios and a risk/reward indicator. The Company's KID
is available on its webpages.
How to invest
There are a number of ways to easily invest in the Company. The Manager has
set these out at www.schroders.com/invest-in-a-trust/.
Warning to shareholders
Companies are aware that their shareholders have received unsolicited
telephone calls or correspondence concerning investment matters. These are
typically from overseas-based 'brokers' who target UK shareholders, offering
to sell them what often turn out to be worthless or high risk shares or
investments. These operations are commonly known as 'boiler rooms'. These
'brokers' can be very persistent and extremely persuasive. Shareholders are
advised to be wary of any unsolicited advice, offers to buy shares at a
discount or offers of free company reports.
If you receive any unsolicited investment advice:
• Make sure you get the correct name of the person and
organisation
• Check that they are properly authorised by the FCA
before getting involved by visiting register.fca.org.uk
• Report the matter to the FCA by calling 0800 111 6768 or
visiting fca.org.uk/consumers/report-scam-unauthorised-firm
• Do not deal with any firm that you are unsure about
If you deal with an unauthorised firm, you will not be eligible to receive
payment under the Financial Services Compensation Scheme.
The FCA provides a list of unauthorised firms of which it is aware, which can
be accessed at fca.org.uk/consumers/unauthorised-firmsindividualslist.
More detailed information on this or similar activity can be found on the FCA
website at fca.org.uk/consumers/protect-yourself-scams.
Dividends
Paying dividends into a bank or building society account helps reduce the risk
of fraud and will provide you with quicker access to your funds than payment
by cheque. Applications for an electronic mandate can be made by contacting
the Registrar, Equiniti. This is the most secure and efficient method of
payment and ensures that you receive any dividends promptly.
If you do not have a UK bank or building society account, please contact
Equiniti for details of their overseas payment service.
Further information can be found at www.shareview.co.uk, including how to
register with Shareview Portfolio and manage your shareholding online.
Information about the Company
Directors
Robert Talbut (Chairman)
Andrew Page
Harry Morley
Helen Galbraith
Wendy Colquhoun
Advisers
Alternative investment fund manager (the "Manager")
Schroder Unit Trusts Limited
1 London Wall Place
London EC2Y 5AU
Investment Manager and Company Secretary
Schroder Investment Management Limited
1 London Wall Place
London EC2Y 5AU
Telephone: 020 7658 3136
Email: amcompanysecretary@schroders.com
Shareholder enquiries
General enquiries about the Company should be addressed to the Company
Secretary at the address set out above.
Registered office
9 Haymarket Square
Edinburgh
Scotland EH3 8FY
Depositary and custodian
HSBC Bank plc
8 Canada Square
London E14 5HQ
Lending bank
Scotiabank Europe plc
201 Bishopsgate
6th Floor
London EC2M 3NS
Corporate broker
Panmure Gordon & Co
1 New Change
London EC4M 9AF
Independent auditor
KPMG LLP
Saltire Court
20 Castle Terrace
Edinburgh
EH1 2EG
Registrar
Equiniti Limited
Aspect House
Spencer Road
Lancing
West Sussex BN99 6DA
Shareholder Helpline: 0800 032 0641*
Website: www.shareview.co.uk (http://www.shareview.co.uk)
*Calls to this number are free of charge from UK landlines.
Communications with shareholders are mailed to the address held on the
register. Any notifications and enquiries relating to shareholdings, including
a change of address or other amendment should be directed to Equiniti Limited
at the address above.
Dealing Codes
ISIN: GB0006108418
SEDOL: 0610841
Ticker: SCP
Global intermediary identification number (GIIN)
9GN3DU.99999.SL.826
Legal entity identifier (LEI)
549300SOEWCYZTK2SP87
Privacy notice
The Company's privacy notice is available on its webpages
Schroder Investment Management Limited
1 London Wall Place, London EC2Y 5AU, United Kingdom T +44 (0) 20 7658 6000
schroders.com
@schroders
Important information: This document is intended to be for information
purposes only and it is not intended as promotional material in any respect.
The material is not intended as an offer or solicitation for the purchase or
sale of any financial instrument. The material is not intended to provide, and
should not be relied on for, accounting, legal or tax advice, or investment
recommendations. Information herein is believed to be reliable but Schroders
does not warrant its completeness or accuracy. No responsibility can be
accepted for errors of fact or opinion. Reliance should not be placed on the
views and information in the document when taking individual investment and/or
strategic decisions. Past performance is not a reliable indicator of future
results, prices of shares and the income from them may fall as well as rise
and investors may not get back the amount originally invested. Schroders has
expressed its own views in this document and these may change. Issued by
Schroder Investment Management Limited, 1 London Wall Place, London EC2Y 5AU,
which is authorised and regulated by the Financial Conduct Authority. For your
security, communications may be taped or monitored.
Status of announcement
2022 Financial Information
The figures and financial information for 2022 are extracted from the
published Annual Report and Accounts for the period ended 30 September 2022
and do not constitute the statutory accounts for that year. The 2022 Annual
Report and Accounts have been delivered to the Registrar of Companies and
included the Report of the Independent Auditors which was unqualified and did
not contain a statement under either section 498(2) or section 498(3) of the
Companies Act 2006.
2023 Financial Information
The figures and financial information for 2023 are extracted from the Annual
Report and Accounts for the year ended 30 September 2023 and do not constitute
the statutory accounts for the year. The 2023 Annual Report and Accounts
include the Report of the Independent Auditors which is unqualified and does
not contain a statement under either section 498(2) or section 498(3) of the
Companies Act 2006. The 2023 Annual Report and Accounts will be delivered to
the Registrar of Companies in due course.
Neither the contents of the Company's webpages nor the contents of any website
accessible from hyperlinks on the Company's webpages (or any other website) is
incorporated into, or forms part of, this announcement.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
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. END FR GPGMWPUPWGBP