Schroder UK Mid Cap Fund plc (the "Company") hereby submits its Half-Year Report for the period ended 31 March 2013 as required by the UK Listing Authority's Disclosure and Transparency Rule 4.2.
The Half-Year Report is also being published in hard copy format and an electronic copy of that document will shortly be available to download from the Company's website www.schroderukmidcapfund.com. Please click on the following link to view the document:
http://www.rns-pdf.londonstockexchange.com/rns/0744G_-2013-5-31.pdf
The Company has submitted a pdf of the hard copy format of its Half-Year Report to the National Storage Mechanism and it will shortly be available for inspection at www.morningstar.co.uk/uk/NSM.
Enquiries:
Louise Richard
Schroder Investment Management Limited Tel: 020 7658 6501
31 May 2013
Financial Highlights
|
|
|
For the six |
|
|
|
months ended |
Total returns (including dividends reinvested) |
|
|
31 March 2013 |
Net asset value per share1 |
|
|
26.3% |
Share price total return1 |
|
|
29.4% |
Benchmark total return2 |
|
|
20.8% |
|
|
|
|
|
31 March 2013 |
30 September 2012 |
% Change |
Shareholders' funds (£'000) |
147,603 |
118,942 |
+24.1 |
Shares in issue |
36,143,690 |
36,143,690 |
+0.0 |
Net asset value per share |
408.38p |
329.08p |
+24.1 |
Share price |
350.50p |
277.00p |
+26.5 |
Share price discount |
14.2% |
15.8% |
|
1Source: Morningstar.
2Source: Thomson Financial Datastream. The Company's benchmark is the FTSE Mid 250 (ex-Investment Companies) Total Return Index.
Ten Largest Investments
As at 31 March 2013
|
Market value |
% of equity |
|
of holding |
Shareholders' |
Company and Activities |
£'000 |
funds |
Ashtead |
5,572 |
3.77 |
Provider of rental plant and equipment |
|
|
Daily Mail & General Trust |
3,899 |
2.64 |
International media company with interests in newspapers and related digital operations, local media and radio |
|
|
|
|
|
Berkeley |
3,776 |
2.56 |
House builder |
|
|
Elementis |
3,519 |
2.38 |
Manufacturer and seller of chromium chemicals, pigments and other chemicals |
|
|
TalkTalk Telecom |
3,404 |
2.31 |
Fixed line voice and broadband telecommunications provider |
|
|
Dignity |
3,389 |
2.30 |
Provider of funeral related services |
|
|
Dechra Pharmaceuticals |
3,366 |
2.28 |
Manufacturer of pharmaceutical products and equipment for the veterinary industry |
|
|
SIG |
3,294 |
2.23 |
Leading European distributor of insulation materials |
|
|
Travis Perkins |
3,267 |
2.21 |
Builder's merchant |
|
|
Computacenter |
3,240 |
2.20 |
Provider of IT infrastructure services |
|
|
Total |
36,726 |
24.88 |
At 30 September 2012, the ten largest investments represented 24.15% of Shareholders' funds
Interim Management Report
Chairman's Statement
Performance
I am pleased to report on another very positive half-year for your Company, a period during which UK mid and small-cap equities have been one of the best performing asset classes in the world.
During the six month period ended 31 March 2013, the Company's net asset value produced a total return of 26.3%, comparing favourably to a total return of 20.8% produced by the Company's benchmark Index, the FTSE Mid 250 (ex-Investment Companies) Index.
Over the same period the share price produced a total return of 29.4%, as the discount to net asset value narrowed slightly from 15.8% to 14.2%.
Full details of investment performance, as well as portfolio activity, policy and outlook, may be found in the Investment Manager's Review.
Interim Dividend
The Board has declared the payment of an interim dividend of 2.25p per share for the year ending 30 September 2013 to be paid on 31 July 2013 to shareholders on the register on 7 June 2013.
This is the first interim dividend payment by the Company and follows a decision by the Board that henceforth the Company will pay both an interim and a final dividend. This is due to a strong period of dividend growth from the Company's investments over several years and the desire to make more regular distributions to shareholders. The interim dividend will not affect the quantum of the total dividend payable for the year.
Allocation of the Management Fees and Finance Costs to Capital
It remains the Board's determination that the Company's capital return should reflect the indirect costs of earning capital returns, and it continues to monitor the assumptions that underpin the basis of allocation of such costs to the Company's capital and revenue accounts. The Board concluded from its most recent review of the position that a lesser proportion of the Company's long-term investment returns are expected to derive from capital. Therefore, with effect from 1 October 2012, 70% of the Company's management fees and finance costs have been allocated to its capital account and the remaining 30% to its revenue account. Previously, 90% of these expenses had been allocated to the Company's capital account and 10% to its revenue account. Further details of the impact of this change are given in note 2(b) to the accounts on page 11.
Gearing Facility
The Company has a revolving £15 million unsecured credit facility of which £10 million has remained drawn during the period under review. The net effective gearing level (which also takes account of any cash held) was 3.7% at the beginning of the period and had reduced marginally to 3.4% by the end of the period as assets increased. The gearing continues to be utilised in line with the strict parameters established by the Board.
Share Purchases and Discount Management
The Board and Investment Manager continue to monitor the level at which the shares trade against the underlying net asset value both in absolute terms and relative to the peer group.
The Company did not purchase any shares for cancellation or holding in treasury during the period.
Board Refreshment
As previously reported as part of the refreshment of the Board, Mr Chris Jones retired as a Director of the Company at the Annual General Meeting held on 29 January 2013. On behalf of the Board I wish to record our thanks to Chris for his unstinting guidance and wisdom provided throughout the 19 years of his tenure since his appointment in 1994.
The Board will be seeking to appoint a further non-executive Director of the Company in due course.
Outlook
The Company has just completed its first ten years under Schroders' management. That the share price return of 507% over this period has been not only well above that of the broader stock market but also, I suspect, above our own expectations ten years ago is a tribute both to the companies in the portfolio and to our managers' ability to pick them.
The anniversary makes one wonder about the next decade. Mark Twain put it well when saying that "The art of prophecy is very difficult, especially about the future". I take comfort, however, from our managers' confidence in the opportunities open to them when investing in UK mid-cap companies. We continue to rely on the companies and our managers to replicate the success of the last decade.
Peter Timms, CBE
Chairman
31 May 2013
Investment Manager's Review
Performance
Over the six months to 31 March 2013, the Company's net asset value on a total return basis returned 26.3%. This compared with a 20.8% increase in the benchmark (FTSE Mid 250 Index (ex-Investment Companies) Total Return Index), which was adopted from 1 April 2011.*
Over the period from 1 May 2003 (when Schroders took responsibility for the management of the portfolio) to 31 March 2013, the Company's net asset value produced a total return of 466.6% compared to a total return of 302.1% for the benchmark and 507.4% for the Company's share price over the same period.
Performance in the period was stock-specific rather than sector-specific. Several of our investee companies made changes to their span of activities through acquisitions or disinvestments, and these moves were often well received. For example, Daily Mail & General Trust reduced its exposure to UK regional newspapers and coupled this with a share buy-back programme. Dignity added two crematoria and 38 funeral locations to its portfolio via the acquisition of privately-owned Yew Holdings, strengthening its no. 2 market position.
Other good performances came from Keller, exposed to the improving US housing market, and Berkeley Group benefitting from a buoyant London residential market.
The principal detractors in the period included language translation software and services group SDL, which suffered indigestion from earlier acquisitions and has appointed its Chairman as interim CEO, and royalty specialist Anglo Pacific which has suffered from falling metal and mineral prices.
Market Background
UK mid and small-cap equities have been one of the best performing asset classes in the world in the past six months. This is at least in part due to investors in low-yielding cash and bonds chasing the relatively higher yields offered by equities. Quoted companies are in general financially strong and many in our universe are returning rising levels of cash to shareholders as they remain disciplined and measured on capital spending and M&A. Equity is being withdrawn through share buy-backs, and the supply of new equity remains scarce, with only a handful of recent IPOs in this space. These factors taken together are driving valuations higher.
Portfolio Update
New purchases in the past six months have included Close Brothers (banking, share trading and wealth management), Easyjet (budget airline) and Investec (banking). Easyjet shares were subsequently sold at a significant profit upon promotion to the FTSE 100 Index, along with shares in London Stock Exchange. Other disposals included De La Rue and Filtrona at a profit.
The number of holdings has declined further to 64 at the end of March 2013.
Outlook
Entering the second quarter of 2013, the outlook for both UK government and consumer spending continues to be difficult. The government is only managing to keep the annual borrowing increase below £100 billion through cuts in 'other' expenditure, which is unlikely to be a sustainable factor. Cuts in childcare and housing benefits will progressively bite from April 2013, and this, together with core inflation running ahead of wage increases (2.8% versus 1%) will continue to put the consumer under pressure.
One brighter spot in the UK is the housing market, simply because in the recent budget the government has underwritten higher loan-to-value mortgages to enable more people to get onto the housing ladder. This will be positive for house building volumes and for land sales in the next year or so.
Uncertainties continue overseas, ranging from the likely deflationary impact on manufacturing of the recent quantitative easing in Japan, to growing balance of payments stresses in emerging markets as the US$ strengthens and commodity prices weaken.
Many UK companies have demonstrated over the past year that they are capable of growing in a difficult economic environment. By concentrating on those companies with good market positions and strong balance sheets, we believe that the portfolio should continue to deliver positive returns.
Schroder Investment Management Limited
31 May 2013
*Source: Schroder Investment Management Limited and Morningstar
Principal Risks and Uncertainties
The principal risks and uncertainties associated with the Company's business fall into the following categories: financial risk; gearing; strategic risk; and accounting, legal and regulatory risk. A detailed explanation of the principal risks and uncertainties in each of these categories can be found on page 13 of the Company's published Annual Report and Accounts for the year ended 30 September 2012. These risks and uncertainties have not materially changed during the six months ended 31 March 2013.
Going Concern
The Directors believe, having considered the Company's investment objective, risk management policies, capital management policies and procedures, expenditure projections and the fact that the Company's assets comprise mainly readily realisable securities, which can be sold to meet the funding requirements if necessary; that the Company has adequate resources, an appropriate financial structure and suitable management arrangements in place to continue in operational existence for the foreseeable future. For these reasons, they consider there is reasonable evidence to continue to adopt the going concern basis in preparing the accounts.
Related Party Transactions
Details of related party transactions can be found on page 35 of the Company's published Annual Report and Accounts for the year ended 30 September 2012. There have been no material transactions with the Company's related parties during the six months ended 31 March 2013.
Directors' Responsibility Statement
The Directors confirm that, to the best of their knowledge, this set of condensed financial statements has been prepared in accordance with United Kingdom Generally Accepted Accounting Practice (UK GAAP) and with the Statement of Recommended Practice: Financial Statements of Investment Companies and Venture Capital Trusts (SORP) issued in January 2009 and the Interim Management Report as set out above includes a fair review of the information required by 4.2.7R and 4.2.8R of the Financial Conduct Authority's Disclosure and Transparency Rules.
Income Statement
|
(Unaudited) For the six months ended 31 March 2013 |
(Unaudited) For the six months ended 31 March 2012 |
(Audited) For the year ended 30 September 2012 |
||||||
|
Revenue £'000 |
Capital £'000 |
Total £'000 |
Revenue £'000 |
Capital £'000 |
Total £'000 |
Revenue £'000 |
Capital £'000 |
Total £'000 |
Gains on investments held at fair value through profit or loss |
- |
30,823 |
30,823 |
- |
19,048 |
19,048 |
- |
24,195 |
24,195 |
Income from investments |
1,269 |
132 |
1,401 |
1,156 |
14 |
1,170 |
3,280 |
14 |
3,294 |
Other interest receivable and similar income |
142 |
- |
142 |
15 |
- |
15 |
23 |
- |
23 |
Gross return |
1,411 |
30,955 |
32,366 |
1,171 |
19,062 |
20,233 |
3,303 |
24,209 |
27,512 |
Investment management fee |
(149) |
(348) |
(497) |
(40) |
(359) |
(399) |
(82) |
(736) |
(818) |
VAT recovered on management fee |
106 |
69 |
175 |
|
|
|
|
|
|
Performance fee |
- |
(647) |
(647) |
- |
- |
- |
- |
(159) |
(159) |
Administrative expenses |
(200) |
- |
(200) |
(196) |
- |
(196) |
(411) |
- |
(411) |
Net return before finance costs and taxation |
1,168 |
30,029 |
31,197 |
935 |
18,703 |
19,638 |
2,810 |
23,314 |
26,124 |
Finance costs |
(22) |
(51) |
(73) |
(11) |
(99) |
(110) |
(21) |
(189) |
(210) |
Net return on ordinary activities before taxation |
1,146 |
29,978 |
31,124 |
924 |
18,604 |
19,528 |
2,789 |
23,125 |
25,914 |
Taxation (note 3) |
2 |
- |
2 |
2 |
- |
2 |
- |
- |
- |
Net return on ordinary activities after taxation |
1,148 |
29,978 |
31,126 |
926 |
18,604 |
19,530 |
2,789 |
23,125 |
25,914 |
Return per Ordinary share (note 5) |
3.18p |
82.94p |
86.12p |
2.56p |
51.47p |
54.03p |
7.72p |
63.98p |
71.70p |
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 Total column includes all the information that is required to be disclosed in a Statement of Total Recognised Gains and Losses ("STRGL"). For this reason a STRGL has not been 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 March 2013 (Unaudited) |
|||||||
|
Called-up |
|
Capital |
|
Share |
|
|
|
|
share |
Share |
redemption |
Merger |
purchase |
Capital |
Revenue |
|
|
capital |
premium |
reserve |
reserve |
reserve |
reserves |
reserve |
Total |
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
At 30 September |
|
|
|
|
|
|
|
|
2012 |
9,036 |
13,971 |
220 |
2,184 |
15,477 |
73,912 |
4,142 |
118,942 |
Net return on |
|
|
|
|
|
|
|
|
ordinary activities |
- |
- |
- |
- |
- |
29,978 |
1,148 |
31,126 |
Ordinary dividend |
|
|
|
|
|
|
|
|
paid in the period |
- |
- |
- |
- |
- |
- |
(2,465) |
(2,465) |
At 31 March 2013 |
9,036 |
13,971 |
220 |
2,184 |
15,477 |
103,890 |
2,825 |
147,603 |
|
For the six months ended 31 March 2012 (Unaudited) |
|
|||||||
|
Called-up |
|
Capital |
|
Share |
|
|
|
|
|
share |
Share |
redemption |
Merger |
purchase |
Capital |
Revenue |
|
|
|
capital |
premium |
reserve |
reserve |
reserve |
reserves |
reserve |
Total |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
At 30 September |
|
|
|
|
|
|
|
|
|
2011 |
9,036 |
13,971 |
220 |
2,184 |
15,477 |
50,787 |
3,594 |
95,269 |
|
Net return on |
|
|
|
|
|
|
|
|
|
ordinary activities |
- |
- |
|
- |
- |
18,604 |
926 |
19,530 |
|
Ordinary dividend |
|
|
|
|
|
|
|
|
|
paid in the period |
- |
- |
|
- |
- |
- |
(2,241) |
(2,241) |
|
At 31 March 2012 |
9,036 |
13,971 |
220 |
2,184 |
15,477 |
69,391 |
2,279 |
112,558 |
|
|
For the year ended 30 September 2012 (Audited) |
|
||||||||
|
Called-up |
|
Capital |
|
Share |
|
|
|
|
|
|
share |
Share |
redemption |
Merger |
purchase |
Capital |
Revenue |
|
|
|
|
capital |
premium |
reserve |
reserve |
reserve |
reserves |
reserve |
Total |
|
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
At 30 September |
|
|
|
|
|
|
|
|
|
|
2011 |
9,036 |
13,971 |
220 |
2,184 |
15,477 |
50,787 |
3,594 |
95,269 |
|
|
Net return on |
|
|
|
|
|
|
|
|
|
|
ordinary activities |
- |
- |
|
- |
- |
23,125 |
2,789 |
25,914 |
|
|
Ordinary dividend |
|
|
|
|
|
|
|
|
|
|
paid in the year |
- |
- |
|
- |
- |
- |
(2,241) |
(2,241) |
|
|
At 30 September 2012 |
9,036 |
13,971 |
220 |
2,184 |
15,477 |
73,912 |
4,142 |
118,942 |
|
|
Balance Sheet
|
(Unaudited) |
(Unaudited) |
(Audited) |
|
31 March |
31 March |
30 September |
|
2013 |
2012 |
2012 |
|
£'000 |
£'000 |
£'000 |
Fixed assets |
|
|
|
Investments held at fair value through profit or loss |
153,272 |
115,573 |
121,885 |
Current assets |
|
|
|
Debtors |
391 |
721 |
2,430 |
Cash and short-term deposits |
5,041 |
6,973 |
5,636 |
|
5,432 |
7,694 |
8,066 |
Current liabilities |
|
|
|
Creditors: amounts falling due within one year |
(11,101) |
(10,709) |
(11,009) |
Net current liabilities |
(5,669) |
(3,015) |
(2,943) |
Net assets |
147,603 |
112,558 |
118,942 |
Capital and reserves |
|
|
|
Called-up share capital |
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 |
15,477 |
15,477 |
15,477 |
Capital reserves |
103,890 |
69,391 |
73,912 |
Revenue reserve |
2,825 |
2,279 |
4,142 |
Total equity shareholders' funds |
147,603 |
112,558 |
118,942 |
Net asset value per Ordinary share (note 6) |
408.38p |
311.42p |
329.08p |
Cash Flow Statement
|
(Unaudited) |
(Unaudited) |
(Audited) |
|
For the six months |
For the six months |
For the year ended |
|
ended 31 March |
ended 31 March |
30 September |
|
2013 |
2012 |
2012 |
|
£'000 |
£'000 |
£'000 |
Net cash inflow from operating activities (note 7) |
924 |
586 |
1,709 |
Net cash outflow from servicing of finance |
(80) |
(106) |
(217) |
Net cash inflow/(outflow) from investment activities |
1,026 |
1,393 |
(956) |
Dividends paid |
(2,465) |
(2,241) |
(2,241) |
Net cash outflow in the period |
(595) |
(368) |
(1,705) |
Reconciliation of net cash flow to movement in net debt |
|
|
|
Net cash outflow in the period |
(595) |
(368) |
(1,705) |
Net debt at the beginning of the period |
(4,364) |
(2,659) |
(2,659) |
Net debt at the end of the period |
(4,959) |
(3,027) |
(4,364) |
Represesented by: |
|
|
|
Cash and short-term deposits |
5,041 |
6,973 |
5,636 |
Bank loan |
(10,000) |
(10,000) |
(10,000) |
Net debt |
(4,959) |
(3,027) |
(4,364) |
Notes to the Accounts
1. Accounting Policies
The information contained within the accounts in this half-year report has not been audited or reviewed by the Company's auditors.
The figures and financial information for the year ended 30 September 2012 are extracted from the latest published accounts of the Company and do not constitute statutory accounts for that year. Those accounts have been delivered to the Registrar of Companies and included the report of the auditors which was unqualified and did not contain a statement under either section 498(2) or 498(3) of the Companies Act 2006.
2. Accounting Policies
(a) Basis of accounting
The accounts have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice and with the Statement of Recommend Practice "Financial Statements of Investment Trust Companies and Venture Capital Trusts" issued in January 2009.
All of the Company's operations are of a continuing nature.
The accounting policies applied to these interim accounts are consistent with those applied in the accounts for the year ended 30 September 2012.
(b) Accounting estimates
It remains the Board's determination that the capital return should reflect the indirect costs of earning capital returns. With effect from 1 October 2012 the Company allocates 70% of the management fee and finance costs to capital and the remaining 30% to revenue. It had previously allocated 90% of the management fee and finance costs to capital and 10% to revenue. The Board monitors the assumptions that underpin the basis of allocation. It concluded from its most recent review that a lesser proportion of the Company's long term investment returns are expected to derive from capital. The effect of this change for the six months ended 31 March 2013, is to decrease the net revenue return after taxation by £114,000 and to increase the net capital return by the same amount. Total net return after taxation is unaffected by the change. The comparative figures have not been restated.
3. Taxation
The Company's effective corporation tax rate is nil, as deductible expenses exceed taxable income.
4. Dividends
|
(Unaudited) |
(Unaudited) |
(Audited) |
|
For the six |
For the six |
For the |
|
months ended |
months ended |
year ended |
|
31 March 2013 |
31 March 2012 |
30 September 2012 |
|
£'000 |
£'000 |
£'000 |
Final dividend in respect of the year ended |
|
|
|
30 September 2012 of 6.82p (2011: 6.20p) |
2,465 |
2,241 |
2,241 |
The Board has determined that, henceforth, the Company will pay an interim dividend and that the quantum of the final dividend will reflect this. An interim dividend of 2.25p per share, amounting to £813,000 has been declared payable in respect of the six months ended 31 March 2013.
5. Return per Ordinary share
|
(Unaudited) |
(Unaudited) |
(Audited) |
|
For the six |
For the six |
For the |
|
months ended |
months ended |
year ended |
|
31 March 2013 |
31 March 2012 |
30 September 2012 |
|
£'000 |
£'000 |
£'000 |
Revenue return |
1,148 |
926 |
2,789 |
Capital return |
29,978 |
18,604 |
23,125 |
Total return |
31,126 |
19,530 |
25,914 |
Weighted average number of Ordinary shares |
|
|
|
in issue during the period |
36,143,690 |
36,143,690 |
36,143,690 |
Revenue return per share |
3.18p |
2.56p |
7.72p |
Capital return per share |
82.94p |
51.47p |
63.98p |
Total return per share |
86.12p |
54.03p |
71.70p |
6. Net asset value per Ordinary share
Net asset value per share is calculated by dividing shareholders' funds by the number of shares in issue at 31 March 2013 of 36,143,690 (31 March 2012 and 30 September 2012: same).
7. Reconciliation of total return on ordinary activities before finance costs and taxation
to net cash inflow from operating activities
|
(Unaudited) |
(Unaudited) |
(Audited) |
|
For the six |
For the six |
For the |
|
months ended |
months ended |
year ended |
|
31 March 2013 |
31 March 2012 |
30 September 2012 |
|
£'000 |
£'000 |
£'000 |
Total return on ordinary activities before finance costs and taxation |
31,197 |
19,638 |
26,124 |
Less capital return on ordinary activities |
|
|
|
before finance costs and taxation |
(30,029) |
(18,703) |
(23,314) |
Scrip dividends received as income |
- |
(103) |
(103) |
Decrease in accrued dividends and interest receivable |
117 |
215 |
38 |
Decrease/(increase) in other debtors |
8 |
(8) |
(1) |
Increase in accrued expenses |
69 |
231 |
26 |
Management fee allocated to capital (net of VAT recovered) |
(279) |
(359) |
(736) |
Performance fee paid |
(159) |
(325) |
(325) |
Net cash inflow from operating activities |
924 |
586 |
1,709 |