Schroder Inc Growth SCF Annual Financial Report

  Schroder Inc Growth (SCF) - Annual Financial Report

RNS Number : 8471R
Schroder Income Growth Fund PLC
22 November 2012

                                                              22 November 2012

                          ANNUAL REPORT AND ACCOUNTS

Schroder Income Growth Fund Limited (the "Company") hereby submits its  annual 
financial report for  the year  ended 31  August 2012  as required  by the  UK 
Listing Authority's Disclosure and Transparency Rule 4.1.

The Company's Annual Report and Accounts for the year ended 31 August 2012 are
also being published in hard copy  format and an electronic copy will  shortly 
be    available     to     download     from     the     Company's     website Please click  on the following  link 
to view the document:

The Company  has submitted  its Annual  Report and  Accounts to  the  National 
Storage  Mechanism  and  it  will  shortly  be  available  for  inspection  at


Louise Richard

Schroder Investment Management Limited Tel: 020 7658 6501

Schroder IncomeGrowth Fund plc

Chairman's Statement

Results for the Year and Dividends

During the year under review, the Company's revenue return increased to 10.02
pence per share, representing a rise of 13.5% compared with the 8.83 pence per
share for the previous year. This increase largely represents a rise in
dividends paid by companies in the portfolio, boosted by a higher than usual
amount from special dividends.

The Board has declared total dividends of 9.50 pence per share for the year
ended 31 August 2012, representing a yield of 4.8%. In setting the dividend,
the Board took into account that a higher than usual proportion of income this
year derived from special dividends.

The dividends for the year amount to an increase of 2.2% over the 9.30 pence
per share declared in respect of the year ended 31 August 2011. While this
increase is marginally short of the rise in the Retail Prices Index of 2.9%
over the year, the revenue reserve was increased by £360,000 to £2,827,000,
which amounts to 4.10 pence per share. In the prior year, £323,000 of brought
forward revenue reserve was utilised to fund the dividend.

Investment Performance

During the year under review, the Company produced a net asset value total
return of 12.4%. This compares favourably with the FTSE All-Share Index, which
produced a total return of 10.2% during the year. Detailed comment on
performance may be found in the Investment Manager's Review on page 6 of the
Annual Report.

The discount of the Company's share price to net asset value narrowed during
the year to 4.1% as at 31 August 2012 compared to 4.3% at the start of the
year. The average discount for the year was 5.3%. The share price total return
for the year was 12.5%.

Following the year end, markets have continued to rise. During the two months
ended 31 October 2012, the Company produced a net asset value total return of
2.8% compared with a total return of 2.1% for the FTSE All-Share Index.

The share price at 31 October 2012 was 200.0 pence, representing a discount to
net asset value of 3.7%.

Share Purchases and Treasury Shares

The Company continued to monitor the share price discount to net asset value
during the year. No shares were purchased during this time. The Board
continues to consider share buy-backs as one of a number of tools that may be
used to enhance shareholder value and to reduce the discount volatility. It is
therefore proposed that the authority to purchase up to 14.99% of the
Company's issued share capital for cancellation granted to the Company at the
Company's Annual General Meeting held in December 2011 be renewed at the
forthcoming Annual General Meeting.


During the year under review, the Company entered into a credit facility with
Scotiabank Europe PLC, initially of £7 million and subsequently increased to
£15 million. At the year end gearing stood at 3.8%. The gearing is provided
under a revolving credit facility in order to provide financing flexibility.
The Board has established parameters within which the use of gearing is
operated and the level and use of gearing is reviewed regularly by the Board.

Appointment of a Non-Executive Director and Board Composition

As previously announced, the Board was pleased to appoint Mrs Bridget Guerin
as a non-executive Director of the Company with effect from 1 June 2012. Mrs
Guerin's biographical details can be found on the inside front cover of the
Annual Report.

In accordance with the Company's Articles of Association, a resolution to
elect Mrs Guerin as a Director of the Company will be proposed at the
forthcoming Annual General Meeting.

As part of the planned progressive refreshment of the Board, one of its
longer-serving Directors will be retiring during the current financial year.

Removal of Prohibition on Distributions from Capital

Following a change in legislation earlier this year, investment trusts may now
distribute capital profits. Under the previous legislation, there was a
requirement for the Company's Articles to contain a prohibition on the
distribution of capital profits by way of a dividend or otherwise than by way
of repurchase of the Company's shares. In order to align the Company's
constitution with the new regulations, a special resolution will be proposed
at the forthcoming Annual General Meeting to amend the Company's Articles of
Association by deleting Article 151, which prohibits the distribution of
capital profits.

The Directors do not currently intend to utilise the ability to pay
distributions from capital. However they believe that it is in the best
interests of the Company and its shareholders to make this change to the
Company's Articles of Association, a move which is expected to become standard
practice across the industry.

There are no proposals to change the Company's investment policy.

Annual General Meeting

The Company's Annual General Meeting will be held at 2.30 p.m. on Tuesday, 18
December 2012. As in previous years, the meeting will include a presentation
by the Investment Manager on the Company's investment strategy and market


During the year the investment portfolio has been partly repositioned to a
greater weighting in companies where the Manager expects higher potential for
growth and increased dividends over time. This should put the Company in a
better position to meet the investment objective of providing real growth of
income in the longer term. It remains the Board's intention to return to the
situation in most of the Company's history when the dividend increased
annually faster than inflation.

Sir Paul Judge


21 November 2012

Investment Manager's Review

The Company's net asset value total return in the 12 months to 31 August 2012
was 12.4%, compared to 10.2% from the FTSE All-Share (source: Morningstar and
Thomson Financial Datastream).

Review of the Year

Despite the global economic and political uncertainty, the last 12 months have
been a good time for investing in UK equities, and particularly for income
investing. This has been due to two factors.

Firstly, central banks have continued to support their financial systems, most
notably in the Eurozone last autumn and again this summer. This has - at least
temporarily - calmed some of the concern about the Eurozone, has underpinned
bond markets and kept interest rates close to zero, all of which has offset
the pessimism of a year ago.

Secondly, while the challenges facing UK policymakers remain significant, most
listed UK companies are doing well. Many are diversified geographically, with
a growing presence in emerging economies that have faster growth than the
developed world. Most have strong balance sheets and rationalised cost
structures after the 2008-10 cutbacks; and aggregate profitability is close to
its peak.

One consequence of particular relevance for the Company has been rising
company dividends. The UK domestic economy has barely changed in real terms
for nearly two years, but dividends have grown above the rate of inflation.
The Company's dividend income rose 12% last year, pulling earnings above the
pre-recession peak of 2008. The total was boosted by special dividends from
Vodafone, easyJet and Admiral, but even excluding these the dividend income
rose 7%.


The portfolio is balanced between higher-yielding stocks where we believe the
dividend is secure but where growth will be modest, and companies capable of
growing their dividend through rising earnings or increased pay-outs. The
concentration on companies capable of growing their dividends explains some of
the portfolio's outperformance of the broader market over the last year.
Investors have reacted to low bond yields and macroeconomic uncertainty by
buying higher-yielding stocks where profit and dividend prospects have looked
predictable. Thus the best performing holdings have included cigarette
companies British American Tobacco and Imperial Tobacco, and telecom companies
Vodafone and BT. Company-specific successes included insurer Legal & General
and caterer Compass, while the portfolio also benefited from holding little in
mining shares, given falls in commodity prices. The biggest disappointment was
KPN, the Dutch telecom company bought originally as diversification but where
local pricing pressure has been greater than expected.

A small number of holdings have been added in the last year, such as Swedbank,
easyJet and AMEC, financed through sales of Pearson, Admiral and RSA
Insurance. Income from covered call options grew to nearly 3% of total income,
while 6% of the portfolio at year end was invested in non-UK companies.


Growth in most developed countries remains weak, parts of the emerging world
(eg China) are slowing and the Eurozone's financial problems remain. It would
be misleading to suggest that we have a clear picture of how these challenges
will be resolved. The portfolio is being managed more by concentrating on how
individual companies are doing and whether the market is undervaluing their
potential. At the moment we take comfort from the number of holdings where the
business is well-positioned and where management have the potential to
increase the dividend.

These factors are illustrated by some of the portfolio's larger holdings (for
example British American Tobacco, Legal & General, GSK, Reed and Imperial
Tobacco). While we have complemented these with cyclical holdings (eg Daily
Mail and General Trust, Yule Catto and Intermediate Capital) where valuations
are sufficiently low that the shares should perform well with even modest
improvements in economic activity. We also continue to look to a limited
amount of covered call options, non-UK holdings and gearing to boost and
diversify the Company's income.

Schroder Investment Management Limited

21 November 2012

Principal Risks and Uncertainties

The Board has adopted a matrix of key risks which affect its business and a
robust framework of internal controls which is designed to monitor those risks
to enable the Directors to mitigate them as far as possible and which assists
in determining the nature and extent of the significant risks the Board is
willing to take in achieving its strategic objectives. A full analysis of the
Directors' system of internal control and its monitoring system is set out in
the Corporate Governance Statement on page22 of the Annual Report. The
principal risks to the business are considered to be as follows:

Financial Risk

The Company is exposed to the effect of market fluctuations due to the nature
of its business. A significant fall in the UK stock market would have an
adverse impact on the market value of the Company's underlying investments.
The Board considers the risk profile of the portfolio at each Board meeting
and discusses with the Manager appropriate strategies to mitigate any negative
impact arising from substantial changes in markets.

A full analysis of the financial risks facing the Company is set out in
note20 on pages35 to 38 of the Annual Report.

The Company utilises a credit facility, currently in the amount of £15
million, which increases the funds available for investment through borrowing
("gearing"). Therefore, in falling markets, any reduction in the net asset
value and, by implication, the consequent share price movement is amplified by
the gearing. The Directors keep the Company's gearing under review and impose
restrictions on borrowings to mitigate this risk.

Strategic Risk

Over time, investment vehicles and asset classes can become out of favour with
investors, or may fail to meet their investment objectives. This may result in
a wide discount of the share price to underlying asset value. The Board
periodically reviews whether the Company's investment remit remains
appropriate and continually monitors the success of the Company in meeting its
stated objectives.

Accounting, Legal and Regulatory Risk

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.
Should the Company not comply with these requirements, it might lose
investment trust status and capital gains within the Company's portfolio
could, as a result, be subject to UK Capital Gains Tax.

Breaches of the UK Listing Rules, the Companies Act or other laws or
regulations with which the Company is required to comply, could lead to a
number of detrimental outcomes and damage the Company's reputation. Breaches
of controls by service providers, including the Manager, could also lead to
reputational damage or loss.

The Board's system of internal control seeks to mitigate the potential impact
of these risks. The Board also relies on its advisers to assist it in ensuring
continued compliance with relevant laws and regulations.

Statement of Directors' Responsibilities

The Directors are responsible for preparing the Report of the Directors, the
Remuneration Report and the accounts in accordance with applicable law and

Company law requires the Directors to prepare financial statements for each
financial year. Under that law they have elected to prepare the accounts 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 profit or loss of the Company for that period. In preparing these
financial statements, the Directors are required to:

• select suitable accounting policies and then apply them consistently;

• make judgements and accounting estimates that are reasonable and

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

• prepare the financial statements on the 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.

Under applicable law and regulations, the Directors are also responsible for
preparing a Report of the Directors, Remuneration Report and Corporate
Governance Statement that comply with that law and those regulations.

The Directors are responsible for the maintenance and integrity of the
Company's website. Legislation in the United Kingdom governing the preparation
and dissemination of accounts may differ from legislation in other

Each of the Directors, whose names and functions are set out on the inside
front cover of the Annual Report, confirms that, to the best of his/her

• 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; and

• the Report of the Directors 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.

Going Concern

The Directors believe that, having considered the Company's investment
objectives (see inside front cover), risk management policies (see note 20 to
the accounts on pages35 to 38 of the Annual Report), capital management
policies and procedures (see note 21 to the accounts on page38 of the Annual
Report), the nature of the portfolio and expenditure projections, 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 that there is
reasonable evidence to continue to adopt the going concern basis in preparing
the financial statements.

Income Statement

for the year ended 31 August 2012

2012 2011

Revenue Capital Total Revenue Capital Total

£'000 £'000 £'000 £'000 £'000 £'000


Gains on investments held at fair value
 through profit or loss  -
 9,359  9,359 - 5,346 5,346

Net foreign currency gains
- 2 2 - 14 14

Income from investments  7,627
26 7,653 6,786 - 6,786

Other interest receivable and similar income 232
- 232 108 - 108


Gross return
7,859 9,387 17,246 6,894 5,360 12,254

Investment Management fee  (589) (589)
(1,178) (555) (555) (1,110)

Performance fee 
-  (127) (127) - (120) (120)

Administrative expenses 
(303) - (303) (247) - (247)


Net return before finance costs and taxation 6,967 8,671
15,638 6,092 4,685 10,777

Finance costs 
(31) (31) (62) - - -


Net return on ordinary activities before taxation 6,936
8,640 15,576 6,092 4,685 10,777

Taxation on ordinary activities  
(50) - (50) (27) - (27)


Net return on ordinary activities after taxation  
6,886 8,640 15,526 6,065 4,685 10,750


Return per Ordinary share   10.02p
12.58p 22.60p 8.83p 6.82p 15.65p

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 year.

Reconciliation of Movements in Shareholders' Funds

for the year ended 31 August 2012

Capital Share Warrant

 share Share redemption
purchase exercise Capital Revenue

 capital premium reserve
reserve reserve reserves reserve Total

 £'000 £'000 £'000
£'000 £'000 £'000 £'000 £'000


At 31 August 2010 6,869 7,404 2,011
34,936 1,596 71,728 5,744 130,288

Net return on ordinary
 activities -
- - - - 4,685 6,065 10,750

Dividends paid in the year - -
- - - - (6,251) (6,251)


At 31 August 2011 6,869 7,404 2,011
34,936 1,596 76,413 5,558 134,787

Net return on ordinary
 activities -
- - - - 8,640 6,886 15,526

Dividends paid in the year - -
- - - - (7,213) (7,213)


At 31 August 2012 6,869 7,404 2,011
34,936 1,596 85,053 5,231 143,100


Balance Sheet

at 31 August 2012

2012 2011

£'000 £'000


Fixed assets

Investments held at fair value through profit or
loss 145,852 132,913


3,122 1,015

3,122 1,015

Cash and short-term
1,316 1,314


4,438 2,329


Current liabilities

Creditors: amounts falling due within one
year (7,190) 

Derivative financial instruments held at fair value through
 profit or loss - written
-  (10)


(7,190) (455)


Net current
(2,752) 1,874


Total assets less current
143,100 134,787


143,100 134,787


Capital and reserves

Called-up share
6,869 6,869

7,404 7,404

Capital redemption
2,011 2,011

Share purchase
34,936 34,936

Warrant exercise
1,596 1,596

85,053 76,413

5,231 5,558


Total equity shareholders'
143,100 134,787


Net asset value per
208.33p 196.23p

These accounts were approved and authorised for issue by the Board of
Directors on 21 November 2012 and signed on its behalf by:

Sir Paul Judge


Cash Flow Statement

for the year ended 31 August 2012

2012 2011

£'000 £'000


Net cash inflow from operating
6,149 5,418

Servicing of finance

(48) -


Net cash outflow from servicing of
(48) -



Overseas tax
(68) (55)


Investment activities

Purchases of
(38,023) (39,890)

Sales of
32,477 41,009

Special dividend received allocated to
26 -


Net cash (outflow)/inflow from investment
activities (5,520)


(7,213) (6,251)


Net cash (outflow)/inflow before
(6,700) 231



Loan drawn
6,700 -


Net cash inflow from
6,700 -


Net cash inflow in the
- 231


Notes to the Accounts

for the year ended 31 August 2012

1. Accounting Policies

The accounts are prepared in accordance with the Companies Act 2006, United
Kingdom Generally Accepted Accounting Practice ("UK GAAP") 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 January 2009. 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 at fair value.

The policies applied in these accounts are consistent with those applied in
the preceding year.

2. Income

2012 2011

£'000 £'000


£'000 £'000

Income from investments:

6,912 6,423

715 363


7,627 6,786


Other interest receivable and similar income:

Premiums receivable from written
227 101

5 7


232 108


7,859 6,894



Special dividend, allocated to
26 -


3. Investment Management fee

2012 2011

Capital Total Revenue Capital Total

£'000 £'000 £'000 £'000 £'000


Investment management fee 589 589
1,178 555 555 1,110

Performance fee -
127 127 -120 120


716 1,305 555 675 1,230


4. Return per share

2012 2011

£'000 £'000


6,886 6,065

8,640 4,685


15,526 10,750


Weighted average number of Ordinary shares in issue during the year
68,688,343 68,688,343

Revenue return per
10.02p  8.83p

Capital return per
12.58p 6.82p


Total return per
22.60p 15.65p


5. Net asset value per share

2012 2011


Net assets attributable to Ordinary shareholders
(£'000) 143,100  134,787

Shares in issue at the year
68,688,343 68,688,343


Net asset value per
208.33p  196.23p


6. Transactions with the Manager

The Company has appointed Schroder Investment Management Limited, a wholly
owned subsidiary of Schroders plc, to provide investment management,
accounting and company secretarial services. If the Company invests in funds
managed or advised by the Manager or any of its associated companies, those
funds are excluded from the assets used for the purposes of the management fee
calculation and therefore attract no fee. There is also a performance fee
agreement in place. Details of the management and performance fee calculations
are given in the Report of the Directors on page 13 of the Annual Report.

The management fee payable in respect of the year ended 31 August 2012
amounted to £1,178,000 (2011: £1,110,000) of which £279,000 (2011: £261,000)
was outstanding at the year end. A performance fee amounting to £127,000
(2011: £120,000) is also payable for the year and the whole of this amount
(2011: same) was outstanding at the year end.

No Director of the Company served as a director of Schroder Investment
Management Limited, or any member of the Schroder Group, at any time during

the year.

7. Status of announcement

2011 Financial Information

The figures and financial information for 2011 are extracted from the
published Annual Report and Accounts for the year ended 31 August 2011 and do
not constitute the statutory accounts for that year. The Annual Report and
Accounts have been delivered to the Registrar of Companies and included the
Report of the Independent Auditors which was unqualified and did not contain a
statement under either section 498(2) or section 498(3) of the Companies Act

2012 Financial Information

The figures and financial information for 2012 are extracted from the Annual
Report and Accounts for the year ended 31 August 2012 and do not constitute
the statutory accounts for the year. The Annual Report and Accounts include
the Report of the Independent Auditors which is unqualified and does not
contain a statement under either section 498(2) or section 498(3) of the
Companies Act 2006. The Annual Report and Accounts will be delivered to the
Registrar of Companies in due course.

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

                     This information is provided by RNS
           The company news service from the London Stock Exchange


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