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EXCLUSIVE: Ascent Resources ask shareholders for ability to raise funds


Regulatory News


Final Results

Fri, 9th Nov 2018 07:00


RNS Number : 8407G
Schroder Income Growth Fund PLC
09 November 2018

9 November 2018

ANNUAL REPORT AND ACCOUNTS

Schroder Income Growth Fund plc (the "Company") hereby submits its annual report for the year ended 31 August 2018 as required by the UK Listing Authority's Disclosure Guidance and Transparency Rule 4.1.

The annual report is also being published in hard copy format and an electronic copy will shortly be available to download from the Company's webpages http://www.schroders.co.uk/incomegrowth. Please click on the following link to view the document:

http://www.rns-pdf.londonstockexchange.com/rns/8407G_1-2018-11-8.pdf

The Company has submitted the annual 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

Chairman's Statement

Revenue, dividends and performance

Your Company's record of declaring a rising dividend each year since launch remained unbroken in the year ended 31 August 2018, with a total distribution of 11.80 pence per share, representing a rise of 5.4% over the previous year. This increase is twice that of the 2.7% achieved by the Consumer Prices Index over the same period, and has helped the Company to continue meeting one of its primary objectives: to provide real growth of income, being growth of income in excess of the rate of inflation.

Over the 10 years to 31 August 2018, the annual dividend has increased by 36%, versus a 25% rise in inflation, and the revenue reserve available to supplement future dividends, if needed, has increased from 4.1 million to 7.4 million.

The revenue return per share fell by 3.8% this year, partly reflecting receipt of fewer special dividends than last year, but also from a large proportion of dollar-denominated dividends having been received during the first half of the year while the dollar was weak. The board had anticipated the likelihood of this when setting last year's dividend, and with your Company's revenue reserves remaining strong, the increase in dividend remains well covered by this year's income.

The Company's net asset value ("NAV") rose by 4.0% in total return terms, marginally behind the FTSE All-Share Index. The reasons behind this are discussed in the Manager's Review, which includes detailed commentary on the portfolio and its performance during the year.

Share price discount and buy backs

At the same time, your Company's share price rose 3.0% more than the underlying NAV in total return terms, reflecting a narrowing in the share price discount to NAV, from 6.9% to 4.6%, a level close to today's. Although the average discount over the whole year was a higher 8.0%, and greater than the board would prefer, it is encouraging to see that an improving trend set in during the latter part of the year, arising from increased investor interest in the Company's shares.

The board continues to closely monitor the level of the discount relative to its peer group and to consider whether it would be appropriate to buy back shares, while taking into account prevailing market conditions. In the event, no shares were bought back (or issued) during the year. However, your board continues to believe that retaining the ability to do so is a valuable potential tool in reducing the volatility of the share price relative to NAV. It will therefore be seeking to renew the existing authority through the resolutions set out in the Notice of Annual General Meeting.

Gearing

Your Manager continues to utilise the gearing facility and, following a review of the structure of the Company's borrowings, the board agreed to extend the 20 million revolving credit facility with Scotiabank Europe plc for a further year, to August 2019. At the start of the year, gearing stood at 5.8%, increasing to 8.3% as at 31 August 2018.

Management fee

I am pleased to report that the board has negotiated a reduction in the Company's management fee from a flat 0.75% per annum on the value of the Company's assets under management, net of current liabilities other than short-term borrowings, less any cash up to the level of borrowings ("chargeable assets"), to a reduced, tiered fee. The new fee will be charged at the rate of 0.65% per annum on the first 200 million and 0.55% per annum on subsequent amounts, taking effect from 1 September 2018. Based on the Company's NAV as at 31 August 2018, this new arrangement would reduce the annual fee from 1,733,000 to 1,471,000. This represents a material reduction in costs of 262,000 per annum had the new fee arrangements been applied to the Company's year-end chargeable assets, which will increase the income available for distribution to shareholders and/or will be allocated to reserves to increase the dividend cover.

Board composition and succession planning

Your board recognises the increasing governance focus on succession planning and board diversity, with heightened investor interest and emphasis on these matters. Having reviewed the board's composition, balance and diversity, I confirm that the board is prioritising its succession planning to ensure progressive refreshment and the appropriate blend of skills in the best interests of shareholders. Notwithstanding the length of service of Mr Causer and myself, the board considers each director remains independent in character and judgement.

Annual general meeting

The Company's annual general meeting will be held on Tuesday, 18 December 2018 at 12:00 noon. I would highlight that it will be held at a different location this year, being the Company's new registered office address at 1 London Wall Place, London EC2Y 5AU. As in previous years, the meeting will include a presentation by the Manager on the Company's investment strategy and market prospects, and shareholders are encouraged to attend.

Outlook

Surveys suggest that the UK stock market has rarely been so unpopular with international investors as it is now. It is easy to see why - it is equally rare for the political backdrop to be as unclear - nevertheless the market has continued to provide opportunities to meet our long-term goal. This has been another year when the NAV total return was above UK inflation, and another year - its 23rd - of the Company increasing its dividend.

Can this continue? While the Manager's Review highlights the short-term challenges to the continuing growth of the Company's income, any share like yours with a rising dividend and a yield higher than the rate of inflation remains relevant to investors in today's low interest rate environment. The ongoing, successful identification of portfolio investments that can provide this gives us cause to remain optimistic for the Company's prospects.

Ian Barby
Chairman

8 November 2018

Manager's Review

The Company's net asset value ("NAV") total return in the 12 months to 31 August 2018 was 4.0%. This compares to 4.7% from the FTSE All-Share Index and 3.8% from the peer group median fund. Meanwhile, the share price total return was 7.0% (source: Morningstar).

Income from investments fell 4.3% from last year's level. There were two factors, of broadly equal weight, behind the reduction. Firstly, the contribution from special dividends fell sharply to around half the level received in the prior year, and one third of the peak level of dividends in the year to end August 2016. This reduction was not unexpected as we have cautioned for some time that the level of special dividends within the market and the portfolio had been at unsustainable levels and was likely to fall back. The special dividends received by the Company over the year came from Taylor Wimpey, John Laing and Hollywood Bowl. Secondly, exchange rate movements over the course of the year were detrimental to income, in contrast to the prior year when they were favourable. The US dollar weakened against sterling from the start of the period through to the spring of 2018 before strengthening over the course of the summer months. This impacted the sterling receipts of income from companies that declare their income in dollars (AstraZeneca, BP, HSBC and Royal Dutch Shell) as most of this dividend income for the year was translated at less favourable exchange rates. These factors more than outweighed strong dividend growth from miner Rio Tinto, UK house builders Bellway and Taylor Wimpey, property companies Assura and Unite and insurance company Aviva.

Market background

The FTSE All-Share Index rose by 4.7% against a backdrop of ongoing growth in the world economy, although tightening global monetary conditions intermittently dampened risk appetite and the demand for equities. The "Goldilocks" scenario of low and stable growth and inflation was put to the test amid fears around the pace of policy tightening by the Federal Reserve, which increased base rates by 75 basis points over the 12 months under review, taking its target rate to 1.75-2.00%. At end of the period these fears expressed themselves as worries around the negative impact a resurgent dollar might have on the growth prospects of emerging markets. In addition, deteriorating US-China trade relations raised questions around the longer-term growth outlook of both countries.

The Bank of England increased interest rates by a total of 0.5% over the period, to 0.75% (raising base borrowing costs for the first time since November 2007), having judged the slowdown in the UK economy in the first quarter of 2018 to have been temporary and related to the very cold weather at the beginning of the year. This subsequently transpired to be the case, with preliminary GDP data from the Office for National Statistics revealing growth had bounced back in Q2, albeit, in part, helped by the very warm summer and World Cup. Higher-frequency indicators suggest that the positive momentum has continued into Q3. Sterling was volatile over the period amid political noise related to the Brexit negotiations.

Portfolio performance

The Company's outperformance against the Index reflected the twin benefits of positive sector allocation and the use of gearing in a rising market, offset to some degree by negative stock selection.

Scandinavian bank Nordea was the top stock detractor. Share price weakness was in part a consequence of overruns in both time and costs of achieving efficiency savings relating to the company's digital upgrade and move of headquarters from Stockholm to Helsinki. The resulting low valuation led to an opportunity for the holding to be increased.

Software and IT company Micro Focus also weighed on relative returns with profit disappointment in the first quarter of 2018 resulting from integration issues following the significant acquisition of HP's software business in mid-2017.

Part of the portfolio's holding had been sold in November last year, but after the price fall, the shares were bought again in July.

Stock selection in financial services (NEX Group) was positive despite exposure to underperforming TP ICAP, which struggled to achieve its integration synergies. Both these companies were created after the demerger of long-term holding ICAP in late 2017, with NEX Group receiving a bid at a substantial premium from CME, the US exchange group, in the spring of 2018.

The Company benefited from a recovery in educational publisher Pearson's share price from its lows of autumn 2017, as well as robust share price performances from luxury retailer Burberry (appointment of new creative director) and developer and infrastructure group John Laing (strong operating performance). Lastly, Smurfit Kappa rebuffed a bid approach from International Paper in part due to the strength of its operating performance.

Portfolio activity

Over the period a number of financials positions were reduced, many of which had performed well and were trading at full valuations, such as London Stock Exchange and HSBC. Our substantial holding in financial markets services provider NEX Group was sold following a bid for the company by CME, the US based exchange. Holdings in life assurance providers Prudential and Aviva were also reduced. Part of these proceeds were used to establish a new holding in Deutsche Wohnen, a German residential property company with a significant position in the attractive Berlin market.

A number of domestic stocks where valuations are attractive were added to the portfolio. Tesco was purchased in late 2017 as we have confidence that the company's turnaround is being effectively executed leading to a profile of recovering earnings, balance sheet deleveraging and increasing cash flow, which we expect to restore the dividend to attractive levels. Pets At Home, the UK's number one pet retailer, was also added, offering an attractive dividend and whose share price seems not to reflect the long-term value of the company's in-store vet practices and grooming parlours. Additionally a position was initiated in Hollywood Bowl, the UK's leading ten pin bowling operator - a cash generative business that pays an attractive dividend supplemented with special dividend payments, and which should have the scope to pay further special dividends in the future. Bookmaker William Hill was bought. Despite facing regulatory headwinds in the UK, it has an attractive opportunity in the US with the liberalisation of the sports betting market.

Within industrials the holdings in IMI and Laird were sold, reinvesting proceeds in new holdings G4S, Johnson Matthey, Melrose and Weir. A holding in chemicals company Johnson Matthey was added as fears over prospects for its auto catalysts business had led to an opportunity to buy at an attractive valuation. The firm should benefit from a tightening of global emissions regulations, whilst it also has some exciting potential in new battery technology for electric vehicles. Shares in G4S, the outsourcing company, trade at a low valuation despite growing sales and earnings. Weir Group, an engineer supplying the oil, gas and mining sectors, was considered attractive given its operational leverage to increased capex spend from resource companies, which is currently below maintenance spend levels. Melrose is a corporate turnaround specialist which was purchased after a setback in the shares provided an attractive entry opportunity.

Elsewhere the preferences in pharmaceuticals were switched, selling out of Roche and reinvesting proceeds into GlaxoSmithKline (added on share price weakness over fears it may bid for Pfizer's consumer healthcare assets), and in tobacco, selling out of Imperial Brands whilst bolstering the position in British American Tobacco. In mining, the exposure was diversified by reducing the position in Rio Tinto and adding a position in BHP Billiton. Rio Tinto has performed strongly over the past 5 years and the emergence of an activist investor at BHP Billiton provides an opportunity for increased urgency in crystallising shareholder value. The position in Vodafone was substantially reduced because of a concern over the company's desire to enter into a large deal at what appears to be an unattractive price. The balance sheet also has risk which could affect the sustainability of the dividend.

Outlook

The global economy remains relatively robust. However, more recently there has been a slight tempering in growth expectations. This largely reflects concerns over an escalation of the trade war between the US and China. The US Federal Reserve has hiked rates another 0.25% based on strong US economic data boosted by the government's loose fiscal policy. Similarly, the Bank of England has raised rates against the backdrop of a relatively strong summer of growth and inflation data, driven by a pick-up in household spending. In Europe, quantitative easing should be over by the end of 2018, and it is expected that the European Central Bank will raise rates twice in 2019. Therefore, on aggregate, whilst the world economy remains in expansion mode, leading indicators have weakened and a more difficult period of slowing growth and rising inflation may lie ahead.

Turning to focus on the domestic economy, the UK has recovered from the slowdown seen in the first quarter of 2018, with GDP growth in the second quarter rising to 0.4% quarter-on-quarter. This pick-up came from a combination of household spending and investment. Real incomes in the UK have been positive since January 2018, in marked contrast to last year. The UK also saw an increase in employment in the first half. This has led the Bank of England to increase interest rates to 0.75%, its highest level since March 2009. It restated its intention for slow and limited interest rate rises, with three rate hikes in three years broadly expected. These market expectations are contingent on a Brexit deal being agreed. However, headline improvement has masked concerns over weak domestic demand and poor external performance, in addition to uncertainty over Brexit negotiations.

The most obvious impact of this uncertainty on UK assets will be on sterling, which may continue to be volatile as news flow swings back and forth. Sterling has been an effective mechanism for either expressing confidence or fear in Brexit and the fate of the UK economy. This is well-illustrated by a poll conducted by our economists of a mixture of investment banks and economic consultancies, asking where they thought sterling would trade against the US dollar when it became apparent which scenario the UK was heading for: no deal Brexit or a withdrawal agreement. The majority of those surveyed expect significant downside in a no deal scenario, the average estimate being around $1.10 to the pound - equating to downside of approximately 15%. In the event of a withdrawal agreement, the average estimate is for the pound to appreciate to approximately $1.40, equalling to upside of approximately 8% from current levels of around $1.30.

The uncertainty clearly also affects sentiment towards the UK stock market, with many international investors remaining nervous about investing in UK companies. Accordingly, the UK remains one of the most out-of-favour asset classes. However, therein lies the opportunity. Despite the UK equity market being widely ignored by the investment community, corporate activity has been strong. This suggests that there are considerable opportunities in the UK equity market at present.

Dividend outlook

Income from investments for the year was down 4.3% year-on-year, while dividend income, excluding special dividends, fell at a lower rate of 2%, reflecting the impact of US dollar weakness in the first 7 months of the period. The contribution to total income from special dividends fell for a second consecutive year to 2.6% (from 4.9% last year and 8.6% in the year to August 2016) - a level which is likely to be reasonably sustained in future years. The Company's income will remain sensitive to the timing of exchange rate movements in either direction - boosted by sterling weakness or reduced by sterling strength against the US dollar and to a lesser extent the euro.

The short-term outlook for underlying dividend growth, excluding both special dividends and exchange rate movements, has improved due to the strengthened payout ratios resulting from rising commodity and oil producer profits. However, medium and longer-term dividend growth remains somewhat more uncertain as the economic impact of Brexit is unlikely to be felt until 2019 or later and the impact of trade wars on global activity remains to be seen.

Lastly, given the Company's aim to provide real growth of income, it is important to consider UK inflation. The Consumer Prices Index rose by 2.7% in the year to end August 2018. Inflation and monetary policy are expected to reflect the impact of Brexit negotiations and of sterling. The Bank of England has restated its intention for slow and limited interest rate rises but these market expectations are contingent on a Brexit deal being agreed. In the event of no deal it is expected that sterling will weaken. The effect of this would be to increase the inflation rate but also provide a boost to the Company's income given the extent of dividends which are declared in US dollars and euros. Conversely, if a Brexit deal is agreed, leading to sterling strength, the inflation rate would likely remain stable, interest rates would rise steadily whilst the Company's dividend income could be restrained somewhat by exchange rate movements.

Investment policy

We remain disciplined investors using a long-term fundamental approach and the team's significant investment experience. We are acutely conscious of the need to balance the risks relative to the potential reward from opportunities that can be thrown up in such unpredictable markets. Our investment process focuses on building a diversified portfolio within a risk-controlled framework, aiming to deliver attractive levels of income growth in real terms.

We continue to actively monitor the holdings and the investment universe to identify mispriced opportunities. We are working closely with our in-house analysts who provide proprietary research to help to identify attractive investment candidates and to assess the validity of the investment case for current holdings. We continue to prioritise balance sheet strength and sustainable dividend yields, and have kept faith in stocks with short-term issues provided we have conviction in the long-term investment case.

Schroder Investment Management Limited

8 November 2018

Principal risks and uncertainties

The board is responsible for the Company's system of risk management and internal control and for reviewing its effectiveness. The board has adopted a detailed matrix of principal risks affecting the Company's business as an investment trust and has established associated policies and processes designed to manage and, where possible, mitigate those risks, which are monitored by the Audit and Risk Committee on an ongoing basis. This system assists the board in determining the nature and extent of the risks it is willing to take in achieving the Company's strategic objectives. Both the principal risks and the monitoring system are also subject to robust review at least annually. The last review took place in October 2018.

Although the board believes that it has a robust framework of internal control in place, this can provide only reasonable, and not absolute, assurance against material financial misstatement or loss and is designed to manage, not eliminate, risk.

The principal risks and uncertainties faced by the Company have remained unchanged throughout the year under review. Cyber risk relating to all of the Company's key service providers is considered an ongoing threat in light of the rising propensity and impact of cyber attacks on businesses and institutions. To address the risk, the board receives reporting on cyber risk mitigation and management from its key service providers to ensure that it is managed and mitigated appropriately.

Actions taken by the board and, where appropriate, its committees, to manage and mitigate these risks and uncertainties, are set out below.

Risk

Strategic

The Company's investment objectives may become out of line with the requirements of investors, resulting in a wide discount of the share price to underlying NAV per share.

Mitigation and management

Appropriateness of the Company's investment remit periodically reviewed and success of the Company in meeting its stated objectives monitored.

Share price relative to NAV per share monitored and use of buy back authorities considered on a regular basis.

Marketing and distribution activity actively reviewed.

The Company's cost base could become uncompetitive, particularly in light of open-ended alternatives.

Ongoing competitiveness of all service provider fees subject to periodic benchmarking against competitors.

Annual consideration of management fee levels.

Investment management

The Manager's investment strategy, if inappropriate, may result in the Company underperforming the market and/or peer group companies, leading to the Company and its objectives becoming unattractive to investors.

Review of: the Manager's compliance with the agreed investment restrictions, investment performance and risk against investment objectives and strategy; relative performance; the portfolio's risk profile; and appropriate strategies employed to mitigate any negative impact of substantial changes in markets.

Annual review of the ongoing suitability of the Manager.

Market

The Company is exposed to the effect of market fluctuations due to the nature of its business. A significant fall in equity markets could have an adverse impact on the market value of the Company's underlying investments.

Risk profile of the portfolio considered and appropriate strategies to mitigate any negative impact of substantial changes in markets discussed with the Manager.

Custody

Safe custody of the Company's assets may be compromised through control failures by the depositary, including cyber hacking.

Depositary reports on safe custody of the Company's assets, including cash and portfolio holdings, independently reconciled with the Manager's records.

Review of audited internal controls reports covering custodial arrangements.

Annual report from the depositary on its activities, including matters arising from custody operations.

Gearing and leverage

The Company utilises a credit facility. These arrangements increase the funds available for investment through borrowing. While this has the potential to enhance investment returns in rising markets, in falling markets the impact could be detrimental to performance.

Gearing monitored and strict restrictions on borrowings imposed: gearing continues to operate within pre-agreed limits so as not to exceed 25% of shareholders' funds.

Accounting, legal and regulatory

In order to continue to qualify as an investment trust, the Company must comply with the requirements of section 1158 of the Corporation Tax Act 2010.

Breaches of the UK Listing Rules, the Companies Act or other regulations with which the Company is required to comply, could lead to a number of detrimental outcomes.

Confirmation of compliance with relevant laws and regulations by key service providers.

Shareholder documents and announcements, including the Company's published annual report, subject to stringent review processes.

Procedures established to safeguard against disclosure of inside information.

Service provider

The Company has no employees and has delegated certain functions to a number of service providers, principally the Manager, depositary and registrar. Failure of controls, including as a result of cyber hacking, and poor performance of any service provider could lead to disruption, reputational damage or loss.

Service providers appointed subject to due diligence processes and with clearly-documented contractual arrangements detailing service expectations.

Regular reporting by key service providers and monitoring of the quality of services provided.

Review of annual audited internal controls reports from key service providers, including confirmation of business continuity arrangements.

Risk assessment and internal controls

Risk assessment includes consideration of the scope and quality of the systems of internal control operating within key service providers, and ensures regular communication of the results of monitoring by such providers to the Audit and Risk Committee, including the incidence of significant control failings or weaknesses that have been identified at any time and the extent to which they have resulted in unforeseen outcomes or contingencies that may have a material impact on the Company's performance or condition. No significant control failings or weaknesses were identified from the Audit and Risk Committee's ongoing risk assessment which has been in place throughout the financial year and up to the date of this report.

A full analysis of the financial risks facing the Company is set out in note 19 on pages 44 to 47 of the 2018 annual report.

Viability statement

The directors have assessed the viability of the Company over a five year period, taking into account the Company's position at 31 August 2018 and the potential impact of the principal risks and uncertainties it faces for the review period.

A period of five years has been chosen as the board believes that this reflects a suitable time horizon for strategic planning, taking into account the investment policy, liquidity of investments, potential impact of economic cycles, nature of operating costs and dividends.

In their assessment the directors have considered each of the Company's principal risks and uncertainties detailed on pages 13 and 14 of the 2018 annual report and in particular the impact of a significant fall in the UK equity market on the value of the Company's investment portfolio. The directors have also considered the Company's income and expenditure projections and the fact that the Company's investments comprise readily realisable securities which can be sold to meet funding requirements if necessary.

Based on the Company's processes for monitoring operating costs, the share price discount, the Manager's compliance with the investment objective, asset allocation, the portfolio risk profile, gearing, counterparty exposure, liquidity risk and financial controls, the directors have concluded that there is a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the five year period to 31 August 2023.

In reaching this decision, the board has taken into account the Company's next continuation vote, to be put forward at the AGM in 2020. The directors have no reason to believe that such a resolution will not be passed by shareholders.

Going concern

Having assessed the principal risks and the other matters discussed in connection with the viability statement set out above, and the "Guidance on Risk Management, Internal Control and Related Financial and Business Reporting" published by the Financial Reporting Council ("FRC") in 2014, the directors consider it appropriate to adopt the going concern basis in preparing the accounts.

Statement of Directors' Responsibilities

The directors are responsible for preparing the Annual Report, Strategic Report, the Directors' Report, the Corporate Governance Statement, the Remuneration Report and the financial statements in accordance with applicable law and regulations.

Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have prepared the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the return or loss of the Company for that period. In preparing these financial statements, the directors are required to:

- select suitable accounting policies and then apply them consistently;

- make judgements and accounting estimates that are reasonable and prudent;

- state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and

- prepare the financial statements on a going concern basis unless it is inappropriate to presume that the Company will continue in business.

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements and the Remuneration Report comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The directors are responsible for the maintenance and integrity of the Company's webpages. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Each of the directors, whose names and functions are listed on pages 16 and 17 of the 2018 annual report, confirm that to the best of their knowledge:

- the financial statements, which have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law), give a true and fair view of the assets, liabilities, financial position and net return of the Company;

- the Strategic Report contained in the Annual Report and Accounts includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces; and

- the Annual Report and Accounts, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company's position and performance, business model and strategy.

Income Statement

for the year ended 31 August 2018

2018

2017

Revenue

Capital

Total

Revenue

Capital

Total

'000

'000

'000

'000

'000

'000

Gains on investments held at fair value through profit or loss

-

752

752

-

19,489

19,489

Net foreign currency losses

-

(24)

(24)

-

(9)

(9)

Income from investments

10,102

-

10,102

10,553

-

10,553

Other interest receivable and similar income

11

-

11

-

-

-

Gross return

10,113

728

10,841

10,553

19,480

30,033

Investment management fee

(853)

(853)

(1,706)

(834)

(834)

(1,668)

Administrative expenses

(318)

-

(318)

(302)

-

(302)

Net return/(loss) before finance costs and taxation

8,942

(125)

8,817

9,417

18,646

28,063

Finance costs

(101)

(101)

(202)

(243)

(243)

(486)

Net return/(loss) on ordinary activities before taxation

8,841

(226)

8,615

9,174

18,403

27,577

Taxation on ordinary activities

(74)

-

(74)

(67)

-

(67)

Net return /(loss) on ordinary activities after taxation

8,767

(226)

8,541

9,107

18,403

27,510

Return/(loss) per share

12.76p

(0.33)p

12.43p

13.26p

26.79p

40.05p

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 on ordinary activities after taxation is also the total comprehensive income for the year.

All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or discontinued in the year.

Statement of Changes in Equity

for the year ended 31 August 2018

Called-up
share
capital
'000

Share
premium
'000

Capital
redemption
reserve
'000

Warrant
exercise
reserve
'000

Share
purchase
reserve
'000

Capital
reserves
'000

Revenue
reserve
'000

Total
'000

At 31 August 2016

6,869

7,404

2,011

1,596

34,936

135,224

8,450

196,490

Net return on ordinary activities

-

-

-

-

-

18,403

9,107

27,510

Dividends paid in the year

-

-

-

-

-

-

(7,282)

(7,282)

At 31 August 2017

6,869

7,404

2,011

1,596

34,936

153,627

10,275

216,718

Net (loss)/return on ordinary activities

-

-

-

-

-

(226)

8,767

8,541

Dividends paid in the year

-

-

-

-

-

-

(8,519)

(8,519)

At 31 August 2018

6,869

7,404

2,011

1,596

34,936

153,401

10,523

216,740

Statement of Financial Position

at 31 August 2018

2018

2017

'000

'000

Fixed assets

Investments held at fair value through profit or loss

233,741

228,315

Current assets

Debtors

1,900

1,982

Cash at bank and in hand

1,978

7,349

3,878

9,331

Current liabilities

Creditors: amounts falling due within one year

(20,879)

(20,928)

Net current liabilities

(17,001)

(11,597)

Total assets less current liabilities

216,740

216,718

Net assets

216,740

216,718

Capital and reserves

Called-up share capital

6,869

6,869

Share premium

7,404

7,404

Capital redemption reserve

2,011

2,011

Warrant exercise reserve

1,596

1,596

Share purchase reserve

34,936

34,936

Capital reserves

153,401

153,627

Revenue reserve

10,523

10,275

Total equity shareholders' funds

216,740

216,718

Net asset value per share

315.54p

315.51p

Notes to the Accounts

for the year ended 31 August 2018

1. Accounting policies

(a) Basis of accounting

The accounts are prepared in accordance with the Companies Act 2006, United Kingdom Generally Accepted Accounting Practice ("UK GAAP"), in particular in accordance with Financial Reporting Standard (FRS) 102 "The Financial Reporting Standard applicable in the UK and Republic of Ireland", and with the Statement of Recommended Practice "Financial Statements of Investment Trust Companies and Venture Capital Trusts" (the "SORP") issued by the Association of Investment Companies in November 2014 and updated in February 2018. All of the Company's operations are of a continuing nature.

The accounts have been prepared on a going concern basis under the historical cost convention, as modified by the revaluation of investments held at fair value through profit or loss.

The accounts are presented in sterling and amounts have been rounded to the nearest thousand.

The accounting policies applied to these accounts are consistent with those applied in the accounts for the year ended 31 August 2017.

No significant judgements, estimates, or assumptions have been required in the preparation of the accounts for the current or preceding financial year.

2. Taxation on ordinary activities

The Company's effective corporation tax rate is nil, as deductible expenses exceed taxable income. Taxation on ordinary activities comprises irrecoverable overseas withholding tax.

3. Dividends

(a) Dividends paid and declared

2018

2017

'000

'000

2017 fourth interim dividend of 5.2p (2017: 4.6p)

3,572

3,160

First interim dividend of 2.4p (2017: 2.0p)

1,649

1,374

Second interim dividend of 2.4p (2017: 2.0p)

1,649

1,374

Third interim dividend of 2.4p (2017: 2.0p)

1,649

1,374

Total dividends paid in the year

8,519

7,282

2018

2017

'000

'000

Fourth interim dividend declared of 4.6p (2017: 5.2p)

3,160

3,572

All dividends paid and declared to date have been paid, or will be paid, out of revenue profits.

(b) Dividends for the purposes of section 1158 of the Corporation Tax Act 2010 ("section 1158")

The requirements of section 1158 are considered on the basis of dividends declared in respect of the financial year as shown below. The revenue available for distribution by way of dividend for the year is 8,767,000 (2017: 9,107,000).

2018

2017

'000

'000

First interim dividend of 2.4p (2017: 2.0p)

1,649

1,374

Second interim dividend of 2.4p (2017: 2.0p)

1,649

1,374

Third interim dividend of 2.4p (2017: 2.0p)

1,649

1,374

Fourth interim dividend of 4.6p (2017: 5.2p)

3,160

3,572

Total dividends of 11.8p (2017: 11.2p) per share

8,107

7,694

4. Return/(loss) per share

2018

2017

'000

'000

Revenue return

8,767

9,107

Capital (loss)/return

(226)

18,403

Total return

8,541

27,510

Weighted average number of ordinary shares in issue during the year

68,688,343

68,688,343

Revenue return per share

12.76p

13.26p

Capital (loss)/return per share

(0.33)p

26.79p

Total return per share

12.43p

40.05p

5. Called-up share capital

2018

2017

'000

'000

Ordinary shares allotted, called-up and fully paid:

68,688,343 (2017: 68,688,343) shares of 10p each

6,869

6,869

6. Net asset value per share

2018

2017

Net assets attributable to the ordinary shareholders ('000)

216,740

216,718

Shares in issue at the year end

68,688,343

68,688,343

Net asset value per share

315.54p

315.51p

7. Related party transactions

Details of the remuneration payable to directors are given in the Directors' Remuneration Report on page 25 of the 2018 annual report and details of directors' shareholdings are given in the Directors' Remuneration Report on page 26 of the 2018 annual report. Details of transactions with the Manager are given in note 16 to the 2018 annual report. There have been no other transactions with related parties during the year (2017: nil).

8. Disclosures regarding financial instruments measured at fair value

The Company's financial instruments within the scope of FRS 102 that are held at fair value comprise its investment portfolio.

FRS 102 requires financial instruments to be categorised into a hierarchy consisting of the three levels below.

Level 1 - valued using unadjusted quoted prices in active markets for identical assets.

Level 2 - valued using observable inputs other than quoted prices included within Level 1.

Level 3 - valued using inputs that are unobservable.

Details of the valuation techniques used by the Company are given in note 1(b) on page 37 of the 2018 annual report.

At 31 August 2018, all investments in the Company's portfolio are categorised as Level 1 (2017: same).

9. Status of announcement

2017 Financial information

The figures and financial information for 2017 are extracted from the published annual report for the year ended 31 August 2017 and does not constitute the statutory accounts for that year. The 2017 annual report has been delivered to the Registrar of Companies and included the Independent Auditor's Report which was unqualified and did not contain a statement under either section 498(2) or section 498(3) of the Companies Act 2006.

2018 Financial information

The figures and financial information for 2018 are extracted from the annual report for the year ended 31 August 2018 and does not constitute the statutory accounts for the year. The 2018 annual report includes the Independent Auditor's Report which is unqualified and does not contain a statement under either section 498(2) or section 498(3) of the Companies Act 2006. The 2018 annual report will be delivered to the Registrar of Companies in due course.

Neither the contents of the Company's webpages nor the contents of any website accessible from hyperlinks on the Company's webpages (or any other website) is incorporated into, or forms part of, this announcement.


This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
END
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