Schroder UK Mid - Half-year Report
27/06/2024 07:00
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RNS Number : 0375U Schroder UK Mid Cap Fund PLC 27 June 2024
27 June 2024
SCHRODER UK MID CAP FUND PLC
(the "Company")
HALF YEAR RESULTS FOR THE SIX MONTHS ENDED 31 MARCH 2024
Schroder UK Mid Cap Fund plc announces its half year results for the six
months ended 31 March 2024.
· The Company's NAV achieved a positive return of 9.3% during the
period, however this was below the 11.4% return for the Benchmark. Over the
long term the Company's performance has outperformed the Benchmark over the
last 5 and 10 years.
· UK Mid-cap indices outperformed the broader UK market and were
spurred by improving fundamentals as well as continued merger and acquisition
activity in the sector.
· Relative performance over the period was impacted by a sharp and
fast rotation within the Mid-cap universe away from long term growth
businesses towards more interest rate sensitive businesses linked to the
interest rate cycle.
· The Board is pleased to announce an increased interim dividend of
6 pence per share for the financial year ending 30 September 2024.
Robert Talbut, Chairman of Schroder UK Mid Cap, commented:
"From a valuation perspective the UK stock market represents one of the
cheapest regional equity markets in the world, with the UK mid-cap sector
looking particularly attractive. We continue to remain optimistic about the
outlook for UK Mid-caps and the Company's portfolio holdings which are largely
focused upon longer term growth businesses and the Portfolio Managers proven
ability to find attractive investment opportunities".
The Half Year Report is also being published in hard copy format and an
electronic copy of that document will shortly be available to download from
the Company's webpage www.schroders.co.uk/ukmidcap
(http://www.schroders.co.uk/ukmidcap) .
The Company has submitted a pdf of the hard copy format of the Half Year
Report to the National Storage Mechanism and it will shortly be available for
inspection at: https://data.fca.org.uk/#/nsm/nationalstoragemechanism
(https://data.fca.org.uk/#/nsm/nationalstoragemechanism) .
Enquiries:
Katherine Fyfe 020 7658 6000
Company Secretary
Andy Pearce 020 7658 6000
Public Relations
Half Year Report and Interim Financial Statements for the six month period
ended 31 March 2024
CHAIRMAN'S STATEMENT
Investment and share price performance
During the six-month period to 31 March 2024, while the Company's net asset
value ("NAV") rose by 9.3%, this was less than the 11.4% return of the
Company's Benchmark. Across virtually all of the investment trust sector,
discounts to NAV widened and in the case of the Company, this meant that the
share total return price only rose by 5.8% over the period. More detailed
commentary on the performance of your Company's portfolio can be found in the
Investment Manager's Review.
UK equities rose over the period under review, in tandem with other equity
markets, amid a drop in interest rate expectations for later this year.
UK mid-cap indices outperformed the broader market and were spurred by
improving fundamentals as well as continued merger and acquisition activity in
the sector, given the very attractive valuations on offer and increased
capital discipline with corporates buying back their own shares.
Relative performance was impacted by a sharp and fast rotation within the
mid-cap universe away from long-term growth businesses towards more interest
rate sensitive businesses linked to the interest rate cycle which typically
have more stretched balance sheets and challenged business models. The
strategy of our Investment Manager has always been to focus upon the former
longer-term growth businesses while understanding that there will be
shorter-term periods where the latter type of businesses perform better. Given
this sharp rotation, the Company unsurprisingly suffered relatively against
the Benchmark in Q1 by 4.4% but recovered by 1.7% in Q2. However, it is
important to put this in the context of the Company's long-term performance,
which has consistently outperformed the Company's Benchmark over the last five
and ten years. We retain the view that focusing upon quality will continue to
deliver over time.
Dividend
As portfolio income continues to recover reflecting the strength of the
underlying company holdings, the Board is pleased to announce an increased
interim dividend of 6 pence per share for the financial year ending 30
September 2024, a 9.1% increase on the prior year. This will be payable on 9
August 2024 to shareholders registered at the close of business on 12 July
2024.
Discount management
While the discount of the Company's share price to NAV widened to 15.2% at the
end of March, this was broadly in line with the Company's peers. We believe
that this reflects selling pressure which was in evidence across the whole of
the investment trust universe. It is pleasing to note, that post the period
end the discount has started to narrow. Our expectation is that this has
further to go. The Board regularly monitors the discount and will continue to
consider share repurchases should it move to a level at which the Board
believes buy-backs are in shareholders' best long-term interests. During the
six-month period to 31 March 2024, the Company did not buy back any shares.
Gearing
Net gearing as at 31 March 2024 was 8.2% versus 6.8% at the beginning of the
period with £20 million of the Company's revolving credit facilities
deployed. Having such gearing in place is an attractive feature of the
investment trust structure and it is expected that the Investment Manager will
continue to use this gearing to take advantage of attractive new investment
opportunities and to participate in capital raisings by portfolio companies.
Outlook
Both the Board and our Investment Manager remain positive on the outlook for
the UK economy, given a combination of low unemployment, rising household
disposable income, and increased business investment. Additionally, there is
an anticipation of the Bank of England ("BoE") starting to cut interest rates
by the end of 2024. The outcome of the General Election has the potential to
positively influence market sentiment towards the UK. The fundamentals in many
other economies that the Company's holdings are exposed to are similarly
sound. From a valuation perspective the UK stock market represents one of the
cheapest regional equity markets in the world, with the UK mid-cap sector
looking particularly attractive. We continue to remain optimistic about the
outlook for UK mid-caps, the Company's portfolio holdings largely focused upon
longer term growth businesses, and the Investment Manager's proven ability to
find attractive investment opportunities with the prospect of long-term
returns for shareholders.
Robert Talbut
Chair
26 June 2024
INVESTMENT MANAGER'S REVIEW
"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 in our ability to find these attractive
investment opportunities."
Market background
UK equities rose over the period. Mid-caps outperformed the broader market and
were spurred on by a pick-up in overseas inbound bids. Consumer discretionary
and real estate companies performed well amid a sharp drop in interest rate
expectations following a more dovish tone from the BoE. Financials and
industrials also outperformed as economically sensitive areas of the market in
general did well amid an improving outlook for the global and UK economy. As
the period progressed, expectations moved to price in a sooner-than-expected
first UK interest rate cut as inflation undershot the BoE's forecasts. The
Office for National Statistics confirmed that annual inflation, as measured by
the Consumer Prices Index, had fallen to 3.4% in February 2024, the lowest
rate of price increases since September 2021, and from a peak of 11.1% in
October 2022. Official data showed that the economy had entered a technical
recession in the second half of 2023. This occurred as the tailwind of
post-pandemic revenge spending came to an end and the headwinds of higher
inflation and interest rates weighed on activity. However, the market was more
focused on signs of recovery, with confidence among both consumers and
manufacturers picking up over the course of the period. The reaction to the
Spring Budget was largely muted.
Portfolio performance
The portfolio NAV achieved a positive return of 9.3% during the period, though
it underperformed the Benchmark by 2.1%. The share price returned 5.8% and the
discount therefore widened, from 12.0% to 15.2% at the period end. Gearing was
a positive factor.
An underweight to the real estate sector and to more highly indebted companies
in the Benchmark more generally, was the main reason for the portfolio's
underperformance. Given a preference for stronger balance sheets, investors in
the strategy should not find this surprising.
Turning to individual holdings, an underweight holding in UK housebuilder
Vistry was the lead detractor over the period. The position was sold too soon,
only halfway into what turned out to be an energetic rally, though some of the
proceeds were reinvested into increasing the holding size in housebuilder
Redrow. Redrow has since become the subject of an offer from larger
housebuilder Barratt Developments at a 27.2% premium to the undisturbed price.
A small position in power convertor business XP Power also detracted from
performance as it warned on profits twice during the period. The warnings were
partly due to a cyclical slowdown in the semiconductor manufacturing equipment
market and were exacerbated by a sub optimal balance sheet, a cogent reminder
of why we prefer to invest primarily in companies with strong balance sheets.
The first warning prompted an equity raising, renegotiation of banking
covenants, a sensible dividend cancellation and an efficiency plan. At this
point, the company also revealed that it had been in receipt of "a small
number of" unsolicited bid approaches. Although this has been a very
disappointing time for the company, we remain positive on the significant
structural growth opportunities in its global end markets which also include
healthcare.
Animal genetics company Genus delivered an unwelcome post valentine's day
present in the form of an unscheduled negative trading update. The company
reported weakness in both their ABS (bovine) and PIC (porcine) businesses,
with China particularly weak. In response, management have begun a strategic
review of R&D activities as part of a "Value Acceleration Programme".
There was further disappointing news around US Food and Drug Administration
approval of the "PRP" - Genus' gene-edited, porcine reproductive and
respiratory syndrome ("PRRS") resistant, pig. FDA approval is now expected to
come in 2025 rather than 2024, though it does now look to be more of a
certainty. Fans of Clarkson's Farm will no doubt be pleased to hear this,
given the huge suffering endured by piglets, that contract the PRRS virus.
Genus is a unique stock, since exposure to this investment theme cannot be
achieved in any other way in the Company's opportunity set.
Other significant detractors included Watches of Switzerland. Continued
weakness in the luxury market drove earnings downgrades weakening the shares.
Ongoing uncertainty caused by the news of the acquisition of luxury watch
retailer Bucherer by Rolex means that the Company has not taken advantage of
the shares' low valuation as yet, instead preferring to wait for further
evidence. The company has since announced the earnings-enhancing acquisition
of a luxury jewellery brand which should give it more "bench strength".
Finally, despite perfectly respectable earnings releases, shares in Inchcape
were weak during the period possibly due to fears around new car sales
volumes. Since the period end, the company has announced the disposal of its
UK retail arm which simplifies the business. A supportive £100 million share
buy-back was announced in tandem with the disposal which has given some relief
to the share price.
UK specialist lender Paragon Banking Group was the lead contributor to
performance over the period. This is not the first time the company's name has
appeared in the top-performers charts: brushing off fears around higher
interest rates and regulation having a dampening effect on the performance of
its specialist buy-to-let mortgage portfolio. The company announced
better-than-expected final results, and a new £50 million share buy-back to
follow on from the £100 million of buy-backs delivered in the 2023 financial
year. The company has bought back 12% of its shares over the past 18 months
thanks to its strong financials.
Our underweight position in Indivior, the opioid-use disorder treatment
specialist, was also a positive as the shares retrenched following prior
significant outperformance. The Company took advantage of share price weakness
part way through the period to initiate a position because we see Indivior as
another example of a unique investment opportunity. The company has since
announced its intention to move its primary listing to the US, news which was
taken positively by the market. Another of our new portfolio entrants which
performed well during the period was Zegona Communications. The Company
participated in a fund raising by the team behind Zegona plc, which has
recently moved from the AIM market to the main market. Zegona Communications
is a company run by a management team with previous successes in the sector
which buys telecoms assets, restructures them, and then sells them. Post the
period end, the company announced that the Spanish Government had approved its
acquisition of the Spanish assets of Vodafone. This was the final regulatory
hurdle for the deal and welcome news.
Other top performing holdings included bulk annuities specialist Just Group
and shipping business Clarkson which both produced strong financial results
during the period.
Stocks held - significant positive and negative contributions versus the
Benchmark
Positive contributors
Weight Relative
Portfolio relative to perfor-
weight(1) index mance(2) Impact(3)
Paragon Banking 2.7 2.1 34.4 +0.7
Indivior 0.5 -0.3 -16.1 +0.5
Just Group 1.8 1.4 34.8 +0.5
Clarkson 1.7 1.3 35.3 +0.4
Zegona 0.8 0.8 48.9 +0.4
Negative contributors
Weight Relative
Portfolio relative to perfor-
weight(1) index mance(2) Impact(3)
Vistry 0.6 -0.9 23.5 -0.7
XP Power 0.4 0.4 -66.3 -0.5
Genus 2.1 1.5 -25.8 -0.4
Inchcape 3.7 2.5 -15.9 -0.4
Watches of Switzerland 1.3 0.8 -44.3 -0.4
Source: Schroders, FactSet, close 30 September 2023 to close 31 March 2024. \
(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. Any reference to regions/countries/sectors/ stocks/ securities is
for illustrative purposes only and not a recommendation to buy or sell any
financial instruments or adopt a specific investment strategy.
Stocks not held - significant positive and negative contributions versus the
Benchmark
Not holding UK merchant bank Close Brothers aided returns over the period, as
the shares tumbled following the FCA's announcement of a review into the motor
finance market, a factor outside the company's control. Of the UK banks, Close
Brothers has the biggest relative exposure to car finance loans and the news
has led the company to cancel any 2024 dividend "given the significant
uncertainty regarding the outcome of the FCA's review of historical motor
finance commissions arrangements and any potential financial impact as a
result".(4)
Other stocks which it was right to avoid during the period included Tate &
Lyle, a food and beverage supplier, which was seen during the period as being
a casualty of the increasing use of weight loss drugs such as Ozempic.
Dowlais, an automotive engineering group, suffered a significant write-down in
its powder metallurgy division as well as softer than expected trading.
The Company did not own shares in housebuilder Persimmon, which was the main
detractor in terms of stocks not held. More positive sentiment towards the
housebuilders as expectations of rate cuts took hold, most notably in early
November 2023, drove the shares up. This assisted its promotion back into the
FTSE 100 following the delisting of Dechra (which, as a reminder, was acquired
by private equity).
Not owning travel company TUI also detracted as the company announced its
plans to simplify its listing structure which caused the shares to bounce back
from a poor position. Easyjet, which the Company also did not own, rallied
strongly in response to favourable demand dynamics that have resulted in
significant price increases (though we note recent commentary from Ryanair
which may indicate that the consumer's ability or willingness to be "gouged"
is starting to wear down somewhat). In common with Persimmon, it was also
promoted to the FTSE 100 during the period. Finally, not owning highly
interest rate sensitive stocks Intermediate Capital, the debt asset manager,
and real estate company British Land also detracted from performance.
Positive contributors
Weight Relative
Portfolio relative to perfor-
weight(1) index mance(2) Impact(3)
(%) (%) (%) (%)
Close Bros - -0.5 -61.4 +0.4
Tate & Lyle - -1.2 -20.4 +0.3
Dowlais group - -0.6 -38.7 +0.3
Abrdn - -1.5 -16.1 +0.2
IDS - -0.8 -23.4 +0.2
Negative contributors
Weight Relative
Portfolio relative to perfor-
weight(1) index mance(2) Impact(3)
(%) (%) (%) (%)
Persimmon - -1.1 25.8 -0.5
TUI - -1.1 33.4 -0.3
Intermediate Capital - -0.8 10.6 -0.3
British Land Co. - -1.6 17.7 -0.2
Easyjet - -1.3 13.6 -0.2
Source: Schroders, FactSet, close 30 September 2023 to close 31 March 2024.
(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. Any reference to regions/countries/ sectors/ stocks/ securities is
for illustrative purposes only and not a recommendation to buy or sell any
financial instruments or adopt a specific investment strategy.
(4)Source: Dividends/Close Brothers Group.
Portfolio activity
Purchase and sales
New holdings The opportunity
Harbour Energy Transformational deal to deliver geographic diversity
Hargreaves Lansdown No.1 UK direct to consumer investment platform, with cost saving opportunities
Indivior Growing share in huge opioid disorder treatment market
Money Supermarket New membership club providing efficiencies and lowering search engine fees
Renishaw Exposure to structural growth trends e.g. AI, Quantum; net cash balance sheet
gives options
Zegona Communications Acquisition of leading telecom assets in Spain
Complete sales Rationale
A.G Barr Long-term CEO retired
Bridgepoint Investment thesis played out
Future Investment thesis played out
IWG Investment thesis played out
James Fisher Investment thesis played out
OSB Application of rules
Senior Investment thesis played out
Virgin Money Bid approach
Vistry Valuation
Source: Schroders, 30 September 2023 to 31 March 2024.
For illustrative purposes only and not a recommendation to buy or sell shares.
During the period, the Company sold its position in UK housebuilder Vistry as
discussed above, and reinvested some of the proceedings in peer Redrow, which
has since been bid for.
The Company bought back into Harbour Energy following its transformational
acquisition of BASF's oil and gas portfolio, a deal which also strengthens
Harbour Energy's balance sheet and lengthens the life of its assets.
The Company also bought back into specialist engineer Renishaw, which has been
a top performer for the Company over the years and which we last sold out of
on its promotion into the FTSE 100. The Company was encouraged by signs of a
bottoming out of the machine tooling cycle. This is a unique company exposed
to a number of secular growth trends such as AI and quantum computing and,
crucially, is underpinned by a net cash balance sheet.
The Company initiated a position in UK listed Spanish telecoms group Zegona
Communications which has acquired the Spanish arm of Vodafone's assets.
Another new holding is investment platform Hargreaves Lansdown. The Company
took advantage of share price weakness as regulatory uncertainties weighed on
sentiment towards the sector. The company is the clear leader in its sector
and is expected to benefit from significant efficiency savings in the years
ahead. The company has published a positive trading statement in the interim.
Price comparison website group MoneySupermarket.com also promises to achieve
greater efficiencies and was another new portfolio addition. Its SuperSaveClub
attracted over 300,000 members in its first six months offering
lead-generation cost savings and scope to further enhance already attractive
operating margins at a business generating dependable mid-single digit top
line growth.
The Company added specialty pharmaceuticals business Indivior to the
portfolio, as described above.
Turning back to disposals, we sold our holding in Virgin Money following a bid
approach from Nationwide. The announcement of the retirement of the
long-tenured CEO of soft drinks business A.G. Barr prompted us to sell the
shares, and we used the proceeds to increase our holding in peer Britvic.
The Company sold residual stakes in marine services specialist James Fisher,
special interest online media group Future and defence contractor Senior,
using the proceeds to top up our holdings in Babcock, QinetiQ, and Chemring.
We also sold our residual position in buy-to-let lending specialist OSB and
recycled the profits into increasing our position in higher quality peer
Paragon Banking Group.
Outlook
First, a word on performance. Although it is disappointing to report
a six-month period where performance, although positive in absolute terms,
has fallen behind the Benchmark, six months is a brief period of time in
investment. When looking at performance on a year-to-date or 12-month basis,
your Company's performance is ahead of its Benchmark, as well as in the longer
term (five and ten years).
The last two quarters of the financial year 2023 saw the shallowest UK
recession on record, but a recession, nonetheless. However, a decisive +0.6%
growth in Q1 2024 would seem to underpin a more optimistic view of growth for
the year ahead and is already well ahead of market expectations. For example,
the OECD's (Organisation for Economic Co-operation and Development) estimate
is gross domestic product growth of 0.4% for 2024 as a whole. This is
evidence that the UK economy can grow even at more "normal" interest rate
levels, and counters some of the more bearish structural arguments against
UK equities.
Confidence among both consumers and corporates is picking up. Strong corporate
results also indicate an improved outlook, as do more confident management
teams pushing potential buyers to pay a bit more as bid activity and share
buybacks (for example a new programme announced by our top 20 defence holding,
Qinetiq) continue to underline the UK market's lowly valuation. Post period
end, the latest portfolio company to be bid for is Tyman, at a 35.1% premium
by a strategic US investor.Looking forward to the rest of this election year,
our crystal ball suggests that share buy-backs, and merger and acquisition
factors are likely to continue to drive the UK mid-cap market higher. Balance
sheets are healthy and for the US acquiror in particular it would appear that
UK stocks are irresistibly cheap. The Company notes that the mean premium for
UK listed stocks which were acquired last year was 52%, which compares to a
more usual 30-40%.
There are some regulatory bright spots on the horizon, with the Spring Budget
announcements of a consultation on a new UK ISA and pension fund disclosure
for defined contribution pension funds. This would require funds to disclose
their percentage allocations towards UK (as opposed to international
equities), albeit by 2027. Not quick fixes by any means, but supportive in an
environment which has hitherto been lacking support.
The Investment Manager 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 that the UK punches above its weight. This can be seen in terms of
multi-baggers relative to the US. See our 2023 article on "30-baggers" why
the UK has more than its fair share", and our podcast on the topic, available
on the Company's web pages:
https://www.schroders.com/en-gb/uk/individual/insights/30-baggers-why-the-uk-has-more-than-its-fair-share/
This is why the Benchmark has beaten the S&P 500 return over the 25 years
to 30 April 2024 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 all manner of economic
environments. The Company is sticking to its 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.
Portfolio Benchmark
weight weight Difference
Sector % % %
4imprint Communication Services 3.7% 0.8% 2.9%
Dunelm Consumer Discretionary 3.3% 0.6% 2.8%
Inchcape Consumer Discretionary 4.0% 1.2% 2.8%
Telecom Plus Utilities 3.2% 0.5% 2.7%
Computacenter Information Technology 3.5% 0.8% 2.6%
Cranswick Consumer Staples 3.3% 1.0% 2.3%
Paragon Banking Financials 2.9% 0.7% 2.3%
Man Group Financials 3.5% 1.4% 2.1%
Qinetiq Industrials 2.9% 0.8% 2.1%
Just Group Financials 2.6% 0.5% 2.1%
Source: Schroders, as at 31 March 2024, for Schroder UK Mid Cap Fund
investment portfolio. Benchmark refers to FTSE 250 ex Investment Companies.
Schroder Investment Management Limited
26 June 2024
Past performance is not a guide to future performance and may not be repeated.
The value of investments and the income from them may go down as well as up
and investors may not get back the amount originally invested. Any references
to securities, sectors, regions and/or countries are for illustrative purposes
only. The Company invests in a smaller number of stocks carrying more risk
than funds spread across a larger number of companies. The Company will invest
solely in the companies of one country or region. This can carry more risk
than investments spread over a number of countries or regions. The Company may
borrow money to invest in further investments, this is known as gearing.
Gearing will increase returns if the value of the investments purchased
increase in value by more than the cost of reduced returns if they fail to do
so. As a result of the fees and finance costs being charged partially to
capital, the distributable income of the Company may be higher, but the
capital value of the trust may be eroded.
INVESTMENT PORTFOLIO
as at 31 March 2024
Stocks in bold are the 20 largest investments, which by value account for
59.0% (31 March 2023: 61.5% and 30 September 2023: 59.4%) of total
investments. Investment are all equities.
£'000 %
Industrials
Spectris 8,268 3.3
QinetiQ 7,300 2.9
Grafton 7,292 2.9
Babcock 6,240 2.5
Oxford Instruments 6,148 2.5
Chemring 5,521 2.2
Clarkson 5,367 2.2
Tyman 4,053 1.6
Bodycote International 3,831 1.5
Redde Northgate 3,429 1.4
Redrow 3,361 1.4
Renishaw 3,143 1.3
Keller 2,824 1.1
Essentra 1,932 0.8
Paypoint 1,748 0.7
XP Power 816 0.3
Total Industrials 71,273 28.6
Financials
Man Group 8,811 3.5
Paragon 7,245 2.9
Just Group 6,346 2.6
IG Group 6,091 2.4
Londonmetric Property 4,527 1.8
Hargreaves Landsdown 4,268 1.7
Sirius 4,144 1.7
Savills 3,464 1.4
Safestore 3,395 1.4
Zegona 3,136 1.2
Total Financials 51,427 20.6
Consumer Services
Inchcape 9,901 4.0
4Imprint 9,193 3.7
Dunelm 8,313 3.3
WH Smith 6,448 2.6
Money Supermarket 4,396 1.8
Pets At Home 3,838 1.5
Watches of Switzerland 2,187 0.9
Total Consumer Services 44,276 17.8
Consumer Goods
Cranswick 8,188 3.3
Games Workshop 7,171 2.9
Britvic 6,412 2.6
Photo-Me 4,513 1.8
Total Consumer Goods 26,284 10.6
Basic Materials
Victrex 5,322 2.1
Johnson Matthey 5,008 2.0
Elementis 2,605 1.0
Ecora resources 1,469 0.6
Total Basic Materials 14,404 5.7
Healthcare
Genus 4,911 2.0
Spire Healthcare 4,478 1.8
Indivior 4,404 1.8
Total Healthcare 13,793 5.6
Technology
Computacenter 8,627 3.5
IP Group 2,892 1.2
Total Technology 11,519 4.7
Telecommunications
Telecom Plus 7,919 3.2
Total Telecommunications 7,919 3.2
Oil & Gas
Energean Oil and Gas 4,711 1.9
Harbour Energy 3,144 1.3
Total Oil & Gas 7,855 3.2
Total investments 248,750 100.0
INTERIM MANAGEMENT STATEMENT
Principal risks and uncertainties
The Directors consider that the principal risks and uncertainties faced by the
Company for the remaining six months of the financial year, which could have a
material impact on performance, remain consistent with those on pages 18 to 20
in the Annual Report and Financial Statements for the year ended 30 September
2023.
Going concern
Having assessed the principal risks and uncertainties, and the other matters
discussed in connection with the viability statement as set out on page 21 of
the published annual report and financial statements for the year ended 30
September 2023, the Directors consider it appropriate to adopt the going
concern basis in preparing the financial statements.
Related party transactions
There have been no transactions with related parties that have materially
affected the financial position or the performance of the Company during the
six months ended 31 March 2024.
Directors' responsibility statement
In respect of the half year report for the six months ended 31 March 2024, we
confirm that, to the best of our knowledge:
- the condensed set of Financial Statements contained within have been
prepared in accordance with IAS 34 Interim Financial Reporting and give a true
and fair view of the assets, liabilities, financial position and profit and
loss of the Company as at 31 March 2024, as required by the Disclosure
Guidance and Transparency Rule 4.2.4R;
- the half year report includes a fair review as required by the
Disclosure Guidance and Transparency Rule 4.2.7R, of important events that
have occurred during the six months to 31 March 2024, and their impact on the
condensed set of Financial Statements, and a description of the principal and
emerging risks for the remaining six months of the financial year; and
- the half year report includes a fair review of the information
concerning related party transactions as required by the Disclosure Guidance
and Transparency Rule 4.2.8R.
The half year report has not been reviewed or audited by the Company's
auditors.
The half year report for the six months ended 31 March 2024 was approved by
the Board and the above Responsibilities Statement has been signed on its
behalf.
Robert Talbut
Chair
For and on behalf of the Board
26 June 2024
STATEMENT OF COMPREHENSIVE INCOME
For the six months ended 31 March 2024 (unaudited)
(Unaudited) (Unaudited) (Audited)
For the six months For the six months For the year
ended 31 March 2024 ended 31 March 2023 ended 30 September 2023
Revenue Capital Total Revenue Capital Total Revenue Capital Total
Note £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Gains on investments held at fair value through profit or loss - 18,365 18,365 - 32,305 32,305 - 26,716 26,716
Income from investments 3,158 - 3,158 3,553 298 3,851 9,024 298 9,322
Other interest receivable and
similar income - - - - - - 140 - 140
Gross return 3,158 18,365 21,523 3,553 32,603 36,156 9,164 27,014 36,178
Investment management fee (239) (557) (796) (230) (536) (766) (451) (1,053) (1,504)
Administrative expenses (425) - (425) (310) - (310) (601) - (601)
Net return before finance costs and taxation 2,494 17,808 20,302 3,013 32,067 35,080 8,112 25,961 34,073
Finance costs (179) (417) (596) (81) (190) (271) (270) (630) (900)
Net return before taxation 2,315 17,391 19,706 2,932 31,877 34,809 7,842 25,331 33,173
Taxation 3 - - - - - - - - -
Net return after taxation 2,315 17,391 19,706 2,932 31,877 34,809 7,842 25,331 33,173
Return per share (pence) 4 6.69 50.29 56.98 8.48 92.18 100.66 22.68 73.25 95.93
The "Total" column of this statement is the profit and loss account of the
Company. The "Revenue" and "Capital" columns represent supplementary
information prepared under guidance issued by The Association of Investment
Companies. The Company has no other items of other comprehensive income, and
therefore the net return after taxation is also the total comprehensive income
for the period.
All revenue and capital items in the above statement derive from continuing
operations. No operations were acquired or discontinued in the period.
STATEMENT OF CHANGES IN EQUITY
For the six months ended 31 March 2024 (unaudited)
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 2023 9,036 13,971 220 2,184 7,233 170,960 10,219 213,823
Net return after taxation - - - - - 17,391 2,315 19,706
Dividend paid in the period 5 - - - - - - (5,187) (5,187)
At 31 March 2024 9,036 13,971 220 2,184 7,233 188,351 7,347 228,342
For the six months ended 31 March 2023 (unaudited)
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 2022 9,036 13,971 220 2,184 7,233 145,629 9,120 187,393
Net return after taxation - - - - - 31,877 2,932 34,809
Dividend paid in the period 5 - - - - - - (4,841) (4,841)
At 31 March 2023 9,036 13,971 220 2,184 7,233 177,506 7,211 217,361
For the year ended 30 September 2023 (audited)
Called-up Capital Warrant Share
share Share redemption exercise purchase Capital Revenue
capital premium reserve reserve reserve reserves reserve Total
Note £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
At 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
Dividend paid in the period 5 - - - - - - (6,743) (6,743)
At 30 September 2023 9,036 13,971 220 2,184 7,233 170,960 10,219 213,823
STATEMENT OF FINANCIAL POSITION
at 31 March 2024 (unaudited)
(Unaudited) (Unaudited) (Audited)
31 March 31 March 30 September
2024 2023 2023
Note £'000 £'000 £'000
Fixed assets
Investments held at fair value through profit or loss 248,750 235,373 227,950
Current assets
Debtors 893 1,666 2,515
Cash at bank and in hand 1,384 5,854 5,372
2,277 7,520 7,887
Current liabilities
Creditors: amounts falling due within one year 6 (22,685) (25,532) (22,014)
Net current liabilities (20,408) (18,012) (14,127)
Total assets less current liabilities 228,342 217,361 213,823
Net assets 228,342 217,361 213,823
Capital and reserves
Called-up share capital 7 9,036 9,036 9,036
Share premium 13,971 13,971 13,971
Capital redemption reserve 220 220 220
Merger reserve 2,184 2,184 2,184
Share purchase reserve 7,233 7,233 7,233
Capital reserves 188,351 177,506 170,960
Revenue reserve 7,347 7,211 10,219
Total equity shareholders' funds 228,342 217,361 213,823
Net asset value per share (pence) 8 660.31 628.55 618.32
Registered in Scotland as a public company limited by shares
Company registration number: SC082551
NOTES TO THE FINANCIAL STATEMENTS
1. Financial statements
The information contained within the financial statements in this half year
report has not been audited or reviewed by the Company's independent auditor.
The figures and financial information for the year ended 30 September 2023 are
extracted from the latest published accounts of the Company and do not
constitute statutory accounts for that year. Those financial statements have
been delivered to the Registrar of Companies and included the report of the
auditor which was unqualified and did not contain a statement under either
section 498(2) or 498(3) of the Companies Act 2006.
2. Accounting policies
Basis of accounting
The financial statements have been prepared in accordance with United Kingdom
Generally Accepted Accounting Practice, in particular with Financial Reporting
Standard 104 "Interim Financial Reporting" and with the Statement of
Recommended Practice "Financial Statements of Investment Trust Companies and
Venture Capital Trusts" issued by the Association of Investment Companies in
July 2022.
All of the Company's operations are of a continuing nature.
The accounting policies applied to these financial statements are consistent
with those applied in the financial statements for the year ended
30 September 2023.
3. Taxation
The Company's effective corporation tax rate is nil, as deductible expenses
exceed taxable income.
4. Return/(loss) per share
(Unaudited) (Unaudited) (Audited)
For the For the For the
Six months Six months year
ended ended ended
31 March 31 March 30 September
2024 2023 2023
£'000 £'000 £'000
Revenue return 2,315 2,932 7,842
Capital return 17,391 31,877 25,331
Total return 19,706 34,809 33,173
Weighted average number of shares in issue during the period 34,581,190 34,581,190 34,581,190
Revenue return per share (pence) 6.69 8.48 22.68
Capital return per share (pence) 50.29 92.18 73.25
Total return per share (pence) 56.98 100.66 95.93
5. Dividends
(Unaudited) (Unaudited) (Audited)
For the For the For the
Six months Six months year
ended ended ended
31 March 31 March 30 September
2024 2023 2023
2023 final dividend paid of 15.0p (2022: 14.0p) 5,187 4,841 5,187
Interim dividend of 5.5p - - 1,902
5,187 4,841 7,089
An interim dividend of 6.0p (2023: 5.5p) per share, amounting to £2,075,000
(2023: £1,902,000), has been declared payable in respect of the six months
ended 31 March 2024.
6. Creditors: amounts falling due within one year
(Unaudited) (Unaudited) (Audited)
31 March 31 March 30 September
2024 2023 2023
£'000 £'000 £'000
Bank loan 20,000 25,000 20,000
Securities purchased awaiting settlement 2,150 - 1,465
Other creditors and accruals 535 532 549
22,685 25,532 22,014
The bank loans comprise a £10 million one-year term loan from Bank of Nova
Scotia, London Branch expiring on 27 February 2025, 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.
7. Called-up share capital
Changes in called-up share capital during the period were as follows:
(Unaudited) (Unaudited) (Audited)
Six months Six months Year
ended ended ended
31 March 31 March 30 September
2024 2023 2023
£'000 £'000 £'000
Opening balance of ordinary shares of 25p each, excluding shares held in 8,645 8,645 8,645
treasury
Repurchase of shares into treasury - - -
Subtotal of ordinary shares of 25p each, excluding shares held in treasury 8,645 8,645 8,645
Shares held in treasury 391 391 391
Closing balance of ordinary shares of 25p each, including shares held in 9,036 9,036 9,036
treasury
Changes in the number of shares in issue during the period were as follows:
(Unaudited) (Unaudited) (Audited)
Six months Six months Year
ended ended ended
31 March 31 March 30 September
2024 2023 2023
£'000 £'000 £'000
Changes in the number of shares in issue during the period were as follows:
Ordinary shares of 25p each, allotted, called-up and fully paid
Opening balance of shares in issue, excluding shares held in treasury 34,581,190 34,581,190 34,581,190
Repurchase of shares into treasury - - -
Closing balance of shares in issue, excluding shares held in treasury 34,581,190 34,581,190 34,581,190
Closing balance of shares held in treasury 1,562,500 1,562,500 1,562,500
Closing balance of shares in issue, including shares held in treasury 36,143,690 36,143,690 36,143,690
8. Net asset value per share
Net asset value per share is calculated by dividing shareholders' funds by the
34,581,190 (31 March 2023: 34,581,190 and 30 September 2023: 34,581,190)
shares in issue, excluding shares held in treasury.
9. Financial instruments measured at fair value
The Company's financial instruments that are held at fair value comprise its
investment portfolio. At 31 March 2024, all investments in the Company's
portfolio were categorised as Level 1 in accordance with the criteria set out
in paragraph 34.22 (amended) of FRS 102. That is, they are all valued using
unadjusted quoted prices in active markets for identical assets (31 March 2023
and 30 September 2023: same).
10. Events after the interim period that have not been reflected in the
financial statements for the interim period
The Directors have evaluated the period since the interim date and have not
noted any events which have not been reflected in the financial statements.
ALTERNATIVE PERFORMANCE MEASURES ("APMS") AND DEFINITION OF FINANCIAL TERMS
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 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 660.31p (30 September 2023: 618.32p) represents the net
assets attributable to equity shareholders of £228,342,000 (30 September
2023: £213,823,000) divided by the number of shares in issue, excluding any
shares held in treasury, of 34,581,190 (30 September 2023: 34,581,190).
The change in the NAV amounted to 6.79% (year ended 30 September 2023:
14.10%) over the period. 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.
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 period ended 31 March 2024 is calculated as
follows:
NAV at 30/9/23 618.32p
NAV at 31/3/24 660.31p
NAV on Cumulative
Dividend XD date XD date Factor factor
15.00p 15/2/24 625.90p 1.0240 1.0240
NAV total return, being the closing NAV, multiplied by the cumulative factor, 9.3%
expressed as a percentage change in the opening NAV
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
14.00p 12/1/23 652.14p 1.0215 1.0215
5.50p 13/7/23 610.45p 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 share price total return for the period ended 31 March 2024 is calculated
as follows:
Share price at 30/9/23 544.00p
Share price at 31/3/24 560.00p
Share
price on Cumulative
Dividend XD date XD date Factor factor
15.00p 15/2/24 542.00p 1.0277 1.0277
Share price total return, being the closing share price, multiplied by the 5.8%
cumulative factor, expressed as a percentage change in the opening share price
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 on Cumulative
Dividend XD date XD date Factor factor
14.00p 12/1/23 560.00p 1.0250 1.0250
5.50p 13/7/23 524.00p 1.0105 1.0358
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
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 15.2% (30 September 2023:
12.0%), as the closing share price at 560.00p (30 September 2023: 544.00p) was
15.2% (30 September 2023: 12.0%) lower than the closing NAV of 660.31p (30
September 2023: 618.32p).
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. Gearing is define as:
borrowings used for investment purposes, less cash, expressed as a percentage
of net assets. The gearing figure at the relevant period/year end is
calculated as follows:
31 March 30 September
2024 2023
£'000 £'000
Borrowings used for investment purposes, less cash 18,616 14,628
Net assets 228,342 213,823
Gearing 8.2% 6.8%
Leverage*
For the purpose of the Alternative Investment Fund Managers (AIFM) Directive,
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.
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 £2,296,000 (30
September 2023: £2,105,000), expressed as a percentage of the average daily
net asset values during the year of £221,703,000 (30 September 2023:
£217,010,000).
SHAREHOLDER INFORMATION
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
www.fca.org.uk/consumers/unauthorised-firms-individuals#list.
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
www.schroders.co.uk/ukmidcap (http://www.schroders.co.uk/ukmidcap)
Directors
Robert Talbut (Chair)
Wendy Colquhoun
Helen Galbraith
Harry Morley
Registered office
9 Haymarket Square
Edinburgh
Scotland EH3 8FY
Advisers and service providers
Alternative Investment Fund Manager
(the "Manager" or "AIFM")
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
Email: amcompanysecretary@schroders.com
Depositary and Custodian
HSBC Bank plc
8 Canada Square
London E14 5HQ
Lending bank
Scotiabank Europe PLC
201 Bishopsgate
London EC2M 3NS
Corporate broker
Panmure Gordon (UK) Limited
40 Gracechurch Street,
London
EC3V 0BT
Legal advisers
Shepherd and Wedderburn LLP
9 Haymarket Square
Edinburgh
EH3 8FY
Registrar
Equiniti Limited
Aspect House
Spencer Road
Lancing
West Sussex BN99 6DA
Shareholder Helpline: +44 (0) 800 032 0641*
Website: 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 above address and telephone number.
Independent auditor
KPMG LLP
Saltire Court
20 Castle Terrace
Edinburgh EH1 2EG
AIFM Directive disclosures
Certain pre-sale, regular and periodic disclosures required by the Alternative
Investment Fund Managers ("AIFM") Directive may be found on its webpae
required under the AIFM Directive are published on its webpages.
Other information
Company number
SC082551
Dealing codes
ISIN Number: 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 can be found on its web pages.
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. END IR UNUNRSKUNUAR