Interim Results
Schroder UK Growth Fund PLC
31 December 2007
Directors Alan Clifton
(Chairman)
Keith Niven
Ian Phillips
Stella Pirie
David Ritchie
Advisers Investment Manager Auditors
Schroder Investment Management Limited PricewaterhouseCoopers LLP
31 Gresham Street, Hay's Galleria,
London EC2V 7QA 1 Hay's Lane, London SE1 2RD
Secretary and Registered Office Stockbrokers
Schroder Investment Management Limited Dresdner Kleinwort
31 Gresham Street, London EC2V 7QA 30 Gresham Street
Telephone: 020 7658 3206 London EC2P 2XY
Registrar Solicitors
Equiniti Registrars Slaughter and May
(formerly Lloyds TSB Registrars One Bunhill Row,
Scotland) London EC1Y 8YY
PO Box 28448,
Finance House, Custodian
Orchard Brae, JPMorgan Chase Bank,
Edinburgh EH4 1WQ 1 Chaseside,
Shareholder Helpline: 0870 601 5366 Bournemouth
Dorset BH7 7DA
Bankers
Schroder & Co Limited
31 Gresham Street,
London EC2V 7QA
ING Bank NV
60 London Wall,
London
EC2M 5TQ
Financial Highlights
31 October 2007 30 April 2007 Change
Net asset value per ordinary share 164.19p 155.36p 5.7%
Net asset value per ordinary share 162.16p 152.83p 6.1%
(excluding undistributed current year revenue)
Share price 158.25p 143.75p 10.1%
Share price discount 2.4% 5.9%
Total assets (£'000) 297,163 279,496 6.3%
Loans (see note 6) (£'000) 40,000 35,000 14.3%
Shareholders' Funds (£'000) 257,163 244,496 5.2%
Shares in issue (excluding shares held in 156,627 157,377 (0.5)%
treasury) ('000)
Shares held in treasury ('000) 6,549 5,799 12.9%
Market Capitalisation (excluding shares held 247,862 226,229 9.6%
in treasury) (£'000)
Total expense ratio (TER)* 0.63% 0.69%
Six months ended Six months ended
31 October 2007 31 October 2006
Dividend per share 1.65p 1.50p
Net Asset Value total return** 7.0% 2.6%
Share price total return** 11.5% 8.2%
FTSE All-Share Index total return*** 4.6% 3.7%
* Calculated in accordance with AIC guidance. Based on operating costs, excluding performance fee and finance
costs, and expressed as a percentage of average monthly net assets.
** Source: Fundamental Data.
** Source: Thomson Financial Datastream.
*
Chairman's Statement
Performance
During the six-month period ended 31 October 2007 the Company's net asset value
achieved a total return of 7.0% compared with a return of 4.6% produced by the
Company's benchmark Index, the FTSE All-Share. The share price performed even
better in relative terms registering a total return of 11.5% over the period, as
the shares were re-rated by the market.
Dividends
The Directors are pleased to declare a first interim dividend of 1.65p per share
for the year ending 30 April 2008, an increase of 10.0% on the first interim dividend
paid in respect of the previous year.
I would, however, repeat my previous observation that income from investee
companies may be somewhat more volatile after the change in investment policy
adopted in November 2006. Notwithstanding this, the Directors would be
disappointed if the second interim dividend in respect of the current year did
not at least match that paid in respect of last year.
Gearing Policy
During the period the Company maintained a £45 million facility, of which £35
million was drawn down at the beginning of the period and £40 million at the end.
The effective net gearing level (which takes account not only of the borrowings
but also of any cash held by the Investment Manager) at the beginning of the
period was 14.0% and had decreased slightly to 12.9% by the end of the period.
The Company's gearing continues to operate within pre-agreed limits so that
actual gearing does not represent more than 20% of shareholders' funds.
VAT on Management Fees
Until now, UK investment trusts have had to pay UK value added tax (VAT) on the
investment management fees paid to their investment managers.As the result of a
legal action brought against HM Revenue & Customers (HMRC) it has recently been
resolved by the European Court that investment management fees paid to investment
managers by investment trust companies should be exempt from VAT, thereby
bringing them into line with unit trusts, open ended investment companies (OEICs)
and similar investment funds.
Following HMRC's acceptance of this decision, new UK legislation is expected to
be introduced, specifically exempting UK investment trusts from paying VAT on
management fees, thereby allowing your company to reclaim VAT previously paid.As
yet it is too soon to quantify the likely financial outcome and impact on your
Company, but your Board will continue to monitor the situation.
Discount Management Policy
During the period ended 31 October 2007, the Company purchased 850,000 shares to
be held in treasury. However, following the re-rating of the Company's shares,
the Board was able to re- issue 350,000 shares during October and November being
held in treasury at a premium to net asset value.
Electronic Communications
At the Annual General Meeting in August, revised Articles of Association which
allow the Company to send certain information relating to the Company (e.g.
notices, proxy forms and accounts) by electronic means or by placing this
information on a Website, were adopted by the Company. Shareholders will receive
a letter with this Interim Report, offering them three options;
1. to view shareholder communications on the Company's Website; or,
2. to have notifications sent by email by registering online at
www.shareview.co.uk; or,
3. to continue to receive hard copies of shareholder communications by post. To
receive shareholder communications in this way, you must complete and return
the form by 5.00 p.m. on 31 January 2008.
We believe that this more flexible approach to communication with shareholders is
not only cheaper, but also environmentally more friendly.
Alan Clifton
Chairman
20 December 2007
Investment Manager's Review
Performance
The UK equity market has endured a turbulent period over the past six months
with a high degree of volatility returning to the market. The period started
with the Bank of England raising base rates for the third time in 2007,
reflecting the strong momentum of the UK economy together with concerns over
underlying inflationary pressures. Turmoil hit the markets in July and August,
as fears escalated about the potential fallout from the deteriorating US housing
market. Rising defaults on sub prime mortgages and the potential impact on banks
and investors in mortgage backed securities led to a crisis of confidence in the
financial sector and a 'credit crunch' as banks became wary of lending to each
other. Investor confidence slowly started to show signs of returning in
September, as UK companies continued to report healthy profits growth and good
dividend increases acted as a valuable prop for the market. A sharp pick-up in
bid talk in the autumn after a quiet summer, along with the likelihood of
interest rate cuts by the Bank of England in the coming months following the US
Federal Reserve's lead, has ensured that UK equities spent more time on the up
than down as the period ended.
During the six months to 31 October 2007 the Company's share price achieved a
total return of 11.5% and the Company's net asset value produced a total return
of 7.0%, compared to a return of 4.6% by the FTSE All-Share Index. Reuters was
the largest contributor to performance, making strong gains on the back of an
agreed merger. We have long been enthusiastic about Reuters and have stuck with
the position given there still appears to be a lot from which to benefit. Oil
and mining holdings were among the strongest contributors to performance as
commodity prices rallied. There was a double-digit gain from oil services
company Wood Group, plus solid gains from Xstrata, and Dana Petroleum. We remain
confident that all of these companies can continue to perform well in the year
ahead. Northern Rock was the largest detractor from performance.
Outlook
The ongoing troubles in the US housing market and the fact that investors' mood
is somewhat gloomier may actually be fairly encouraging for equities going
forwards. It is our belief, for instance, that the Fed will continue to cut US
interest rates over the coming year (despite current inflationary concerns),
which will, in turn, provide further stimulus for the already robust global
economy. Concerns about the UK economy should also begin to subside in this
environment, as a modest easing of UK interest rates over the next six months
should help to prolong a gradual slowdown in the UK housing market and assuage
fears of an imminent recession. We also believe that the corporate profits cycle
has further to run in this environment and that should mean strong growth in
companies which are beneficiaries of corporate spending.
Policy
The persistence and reach of the ongoing credit crisis will be dependent upon
the extent of bank losses and the speed at which credit markets can become more
liquid. As the market has already priced in the likelihood of a recession in the
US, our focus is on the policy response.We believe that the central banks will
act to ease the crisis and thus there is the possibility of further interest
rate cuts in the US and UK. Any interest rate cuts will be reflationary which in
turn will be positive for UK equities over the next twelve to eighteen months.
On the balance of probability it is likely that a recession will be avoided. We
are therefore confident in the prospects for companies like Charter, which is
selling in to the fast-growing Asian economies. We also believe that the
corporate profits cycle has further to run in this environment and that should
mean strong growth in companies like British Airways, Reuters and advertising
company WPP, which are all beneficiaries of corporate spending.
Schroder Investment Management Limited
20 December 2007
Ten Largest Investments
As at 31 October 2007
Company and Activity Market Percentage of
value of shareholders'
holding funds
£'000
BP 15,714 6.11
Integrated oil company.
BG Group 15,116 5.88
Oil and gas exploration and production company.
Xstrata 14,083 5.48
Global diversified mining group.
Standard Chartered 14,071 5.47
Banking and financial services group.
Barclays 13,145 5.11
Banking and financial services group.
Royal Bank of Scotland 12,608 4.90
Banking and financial services group.
Reuters Group 11,804 4.59
News and financial information provider.
BHP Billiton 11,301 4.40
Diversified resources company.
Invensys 10,780 4.19
Rail, engineering and process control company.
Resolution Group 10,194 3.96
Consolidator of closed life funds.
Total 128,816 50.09
As at 30 April 2007, the ten largest investments represented 51.17% of Shareholders' Funds.
Income Statement
(Unaudited) (Unaudited) (Audited)
For the six months For the six months ended For the year ended
ended
31 October 2007 31 October 2006 30 April 2007
Notes Revenue Capital Total Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Gains on investments held at fair - 15,064 15,064 - 3,372 3,372 - 25,426 25,426
value
Income 2 3,913 - 3,913 4,187 - 4,187 7,559 - 7,559
Investment management fee (185) (431) (616) (167) (389) (556) (352) (821) (1,173)
Administrative expenses (177) - (177) (167) (21) (188) (345) (21) (366)
Net return before finance costs and 3,551 14,633 18,184 3,853 2,962 6,815 6,862 24,584 31,446
taxation
Interest payable and similar charges (381) (879) (1,260) (227) (530) (757) (479) (1,115) (1,594)
Net return on ordinary activities 3,170 13,754 16,924 3,626 2,432 6,058 6,383 23,469 29,852
before taxation
Taxation on ordinary activities - - - - - - - - -
Net return after taxation 3 170 13,754 16,924 3,626 2,432 6,058 6,383 23,469 29,852
attributable to equity shareholders
Net return per ordinary share 4 2.02p 8.78p 10.80p 2.22p 1.49p 3.71p 3.94p 14.49p 18.43p
The Total column of this statement is the profit and loss account of the Company. The Revenue and Capital columns
are both provided in accordance with guidance issued by the Association of Investment Companies. The Company has no
recognised gains or losses other than those disclosed in the Income Statement and the Reconciliation of Movements in
Shareholders' Funds. Accordingly no Statement of Total Recognised Gains and Losses is presented.
All revenue and capital items in the above statement derive from continuing operations. No operations were acquired
or discontinued in the period.
Reconciliation of Movements in Shareholders' Funds
For the six months ended 31 October 2006 (Unaudited)
Called up Capital Share Share Warrant
Share redemption premium purchase exercise Capital Revenue
capital reserve account reserve reserve reserves reserve* Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Balance at 30 April 2006 41,036 16,233 944 95,098 417 70,927 4,476 229,131
Net return from ordinary - - - - - 2,432 3,626 6,058
activities
Purchase of shares for (242) 242 - (1,133) - - - (1,133)
cancellation
Dividend paid in respect of the - - - - - - (3,021) (3,021)
second interim dividend for the
year ended 30 April 2006
At 31 October 2006 40,794 16,475 944 93,965 417 73,359 5,081 231,035
For the six months ended 31 April 2007 (Audited)
Called up Capital Share Share Warrant
Share redemption premium purchase exercise Capital Revenue
capital reserve account reserve reserve reserves reserve* Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Balance at 30 April 2006 41,036 16,233 944 95,098 417 70,927 4,476 229,131
Net return from ordinary - - - - - 23,469 6,383 29,852
activities
Purchase of shares into - - - (7,935) - - - (7,935)
treasury
Purchase of shares for (242) 242 - (1,133) - - - (1,133)
cancellation
Dividend paid in respect of the - - - - - - (3,020) (3,020)
second interim dividend for the
year ended 30 April 2006
Dividend paid in respect of the - - - - - - (2,399) (2,399)
first interim dividend for the
year ended 30 April 2007
At 30 April 2007 40,794 16,475 944 86,030 417 94,396 5,440 244,496
For the six months ended 31 October 2007 (Unudited)
Called up Capital Share Share Warrant
Share redemption premium purchase exercise Capital Revenue
capital reserve account reserve reserve reserves reserve* Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Balance at 30 April 2007 40,794 16,475 944 86,030 417 94,396 5,440 244,496
Net return from ordinary - - - - - 13,754 3,170 16,924
activities
Purchase of shares into - - - (1,280) - - - (1,280)
treasury
Issue of shares from treasury - - 5 149 - - - 154
Dividend paid in respect of the - - - - - - (3,131) (3,131)
second interim dividend for the
year ended 30 April 2007
At 31 October 2007 40,794 16,475 949 84,899 417 108,150 5,479 257,163
* The revenue reserve represents the amount of the Company's reserves distributable by way of dividend.
Balance Sheet
(Unaudited) (Unaudited) (Audited)
At 31 October At 31 October At 30 April
2007 2006 2007
Notes £'000 £'000 £'000
Fixed assets
Investments held at fair value through profit or 291,038 251,814 281,323
loss
291,038 251,814 281,323
Current assets
Debtors 366 669 1,682
Cash at bank and short-term deposits 6,785 10,122 854
7,151 10,791 2,536
Current liabilities
Creditors - amounts falling due within one year 6 (41,026) (31,570) (39,363)
Net current liabilities (33,875) (20,779) (36,827)
Net assets 257,163 231,035 244,496
Capital and reserves
Called-up share capital 40,794 40,794 40,794
Capital redemption reserve 16,475 16,475 16,475
Share premium account 949 944 944
Share purchase reserve 84,899 93,965 86,030
Warrant exercise reserve 417 417 417
Capital reserves 108,150 73,359 94,396
Revenue reserve 5,479 5,081 5,440
Equity shareholders' funds 257,163 231,035 244,496
Net asset value per ordinary share 8 164.19p 141.59p 155.36p
Cash Flow Statement
(Unaudited) (Unaudited) (Audited)
For the six For the six For the year
months months
ended 31 October ended 31 October ended 30 April
2007 2006 2007
£'000 £'000 £'000
Net cash inflow from operating activities 4,432 4,861 6,114
Net cash outflow from servicing of finance (755) (763) (1,567)
Net cash inflow from investment activities 1,555 7,986 3,547
Equity dividends paid (3,131) (3,021) (5,419)
Net cash inflow/(outflow) from financing 3,830 860 (2,020)
Net cash inflow 5,931 9,923 655
Notes to the accounts
1. Accounting Policies and Responsibility Statement
Directors confirm that, to the best of their knowledge, this condensed set of financial statements has been
prepared in accordance with
United Kingdom Generally Accepted Accounting Practice (UK GAAP) and with the Statement of Recommended
Practice: Financial Statements of Investment Companies (SORP) issued in January 2003 and revised in December
2005 and that the Chairman's Statement and Manager's Review herein include a fair review of the information
required by DTR 4.2.7 and 4.2.8.
The financial information for each of the six month periods ended 31 October 2007 and 31 October 2006
comprises non-statutory accounts within the meaning of Section 240 of the Companies Act 1985. The financial
information for the year ended 30 April 2007 has been extracted from published accounts that have been
delivered to the Registrar of Companies and on which the report of the auditors was unqualified. The interim
accounts have been prepared on the same basis as the annual accounts.
The Company's accounting policies have not varied from those described in the Report and Accounts for the
year to 30 April 2007.
2. Income
(Unaudited) (Unaudited) (Audited)
For the six For the six For the
months ended months ended year ended
31 October 2007 31 October 2006 30 April 2007
£'000 £'000 £'000
UK dividend income 3,808 4,030 7,312
Interest on deposits 103 155 246
Other income 2 2 1
3,913 4,187 7,559
3. Management fees and interest payable
The investment management fee and finance costs on borrowings for investment purposes are apportioned 30% to
the revenue return and 70% to the capital return.
4. Return per ordinary share
(Unaudited) (Unaudited) (Audited)
For the six For the six For the
months ended months ended year ended
31 October 2007 31 October 2006 30 April 2007
£'000 £'000 £'000
Revenue 3,170 3,626 6,383
Capital 13,754 2,432 23,469
Total 16,924 6,058 29,852
Weighted average number of shares 56,720,922 163,396,987 161,955,514
Revenue 2.02p 2.22p 3.94p
Capital 8.78p 1.49p 14.49p
Total 10.80p 3.71p 18.43p
5. Dividends
The first interim dividend for the year ending 30 April 2008 of 1.65 pence per ordinary share will be paid on 31
January 2008 to shareholders on the register at 11 January 2008.
On 31 July 2007 the Company paid a second interim dividend of 2.00 pence per share for the year ended 30 April
2007.
6. Creditors: Amounts falling due within one year
Included within creditors of £41.0m is a loan of £40.0m (31 October 2006: £30.0m, 30 April 2007: £35.0m) drawn
down under the Company's facility with ING Bank N.V.
7. Called up share capital
(Unaudited) (Unaudited) (Audited)
At 31 October At 31 October At 30 April
2007 2006 2007
£'000 £'000 £'000
Authorised:
1,272,500,000 ordinary shares of 25p each 318,125 318,125 318,125
Allotted, Called up and Fully paid:
Opening balance 163,175,900 (31 October 2006 and 30 April
2007:
164,145,900) ordinary shares of 25p each 39,344 41,036 41,036
Transfer to capital redemption reserve on purchase of nil - (242) (242)
(31 October 2006 and 30 April 2007: 970,000) shares for
cancellation
Repurchase of 850,000 (31 October 2006: nil, 30 April 2007: (212) - (1,450)
5,799,000) shares into treasury
Reissue of 100,000 (31 October 2006 & 30 April 2007: nil) 25 - -
shares from treasury
Subtotal 39,157 40,794 39,344
6,549,000 shares (30 April 2007: 5,799,000, 31 October 2006: 1,637 - 1,450
nil) held in treasury
Closing balance 163,175,900 (31 October 2006 and 30 April 40,794 40,794 40,794
2007: same) ordinary shares of 25p each including 6,549,000
(31 October 2006: nil, 30 April 2007: 5,799,000) shares held
in treasury
8. Net asset value per ordinary share
(Unaudited) (Unaudited) (Audited)
31 October 2007 31 October 2006 30 April 2007
£'000 £'000 £'000
Net assets attributable to ordinary shareholders 257,163 231,035 244,496
Ordinary shares in issue at end of period 156,626,900 163,175,900 157,376,900
Net asset value per ordinary share 164.19p 141.59p 155.36p
Company Summary and Shareholder Information
Company status
The Company was established in March 1994 and is an independent investment
trust whose shares are listed on the London Stock Exchange. The Company's
assets have been managed by Schroders since inception.
Benchmark
Since inception, the Company has measured its performance against that of the
FTSE All-Share Index.
Duration
It is not intended for the Company to have a limited life. However, the
Directors consider that shareholders should have the opportunity to decide the
future of the Company at appropriate intervals. Accordingly, the Articles of
Association provide for Directors to put forward proposals for the
continuation of the Company at the Annual General Meeting in 2009 and at five
yearly intervals thereafter.
Share Price and Net Asset Value Information
The Company's shares are listed on the London Stock Exchange under the code
SDU.
The Company's ordinary share price is quoted daily in the Financial Times, The
Times and The Daily Telegraph.
The Company releases its net asset value to the market on a daily basis.
Share price information is also available on the Company's website at
www.schroderukgrowthfund.com and on Schroders' website at www.schroders.co.uk/
its.
Association of Investment Companies
The Company is a member of the Association of Investment Companies. Further
information on this association can be found on its website, www.theaic.co.uk.
2008 Financial Calendar
31 January First interim dividend payable
30 April Year end
June Second interim dividend announced
July Annual Report and Accounts published
31 July Second interim dividend payable
August Annual General Meeting
December First interim dividend announced
December Interim report published
Shares in issue
As at 21 December 2007, the Company had 160,275,900 Ordinary shares of 25p
each in issue, of which 3,399,000 shares were held in treasury.
Analysis of Shareholder Register
as at 31 October 2007
Total number of registered holders: 4,271
Investor Category % of issued share
capital
Private Individuals 5.8
Banks/Nominees (excluding Schroder PEP/ISA/Dealing 49.24
Service)
Schroder PEP/ISA Holders 40.0
Schroder Investment Trust Dealing Service Participants 1.3
Others 3.66
100.00
Investing in Schroder UK Growth Fund plc
Schroder Investment Trust Dealing Service
The Schroder Investment Trust Dealing Service provides a convenient and cost
effective means of investing in the ordinary shares of the Company. The
Service offers investors:
- a regular investment option from a minimum of £50 per month
- a lump sum investment option from a minimum of £1,000
- daily dealing
- competitive charges
- the option to reinvest income.
Other investment trusts which are available through this service are Schroder
AsiaPacific Fund plc, Schroder Income Growth Fund plc, Schroder Oriental
Income Fund Limited, Schroder Japan Growth Fund plc, Schroder UK Mid & Small
Cap Fund plc, SVG Capital plc and International Biotechnology Trust plc.
Individual Savings Account - Schroder Maxi ISA Plan
The Schroder ISA offers investors:
- lump sum investments in the ordinary shares of the Company from a
minimum of £1,000 to a maximum of £7,000 in the current tax year
- a regular investment option from a minimum of £50 per month
- competitive charges
- the option to reinvest income
- the option to include other trusts.
If you would like further information about the Schroder Investment Trust
Dealing Service or the Schroder Maxi ISA, please contact the Secretary of the
Company at 31 Gresham Street, London EC2V 7QA or call Schroder Investor
Services on freephone 0800 718 777.
Capital Gains Tax Information
The acquisition costs of the shares for capital gains tax purposes based upon
initial dealings are as follows:
- for the benefit of those shareholders who acquired their holdings in the
original Offer for
Subscription, with initial dealings on 25 April 1994:
Each ordinary share of 25p each 93.30p
- for the benefit of those shareholders who acquired their holdings in the
C share issue,
with initial dealings on 29 April 1996:
Each ordinary share of 25p each 122.65p
For the 2007/2008 tax year, the annual capital gains (after adjusting for
indexation and taper relief of private individuals in excess of £9,200 (2006/
2007: £8,800) are assessed for capital gains tax.
This information is provided by RNS
The company news service from the London Stock Exchange