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Schroder Income
Growth Fund plc
Annual Report and Accounts
for the year ended 31 August 2023
Investment objectives
The Company’s principal objectives are to provide growth in income that
exceeds the rate of inflation and capital growth as a consequence of rising
income.
Why Invest in the Company?
Benefit from consistent rising
income
SCF has delivered reliable dividend
growth for shareholders in each of
the last 28 years, allowing investors
to capture fully the significant
power of long-term compounding.
Rely on decades of deep
expertise
Managed by Schroders Head of UK
Equities, Sue Noffke, with support
from an investment team with
nearly a century of combined
experience.
Capture long-term capital
growth
Strong long-term performance
through successful stock-picking,
with the team adding value across
the market cap spectrum.
Strategic Report Governance Financial Other Information
Introduction
Schroder Income Growth Fund plc 1
Overview
Strategic Report
Page 5
Financial
Page 47
Governance
Page 29
Other
Information
Page 71
Performance Summary
Net asset value (“NAV”)
per share total return*
4.2%
2022: –2.7%
Share price total return*
-3.0%
2022: –4.7%
Dividends per share
13.80p
2022: 13.2p
Dividend growth for
the year
+4.6%
2022: +3.1%
Some of the financial measures are classified as Alternative Performance Measures, as defined by the European Securities and
Markets Authority and are indicated with an asterisk (*). Definitions of these performance measures, and other terms used in this
report, are given on pages 79 and 80 together with supporting calculations where appropriate.
2 Schroder Income Growth Fund plc
Strategic Report Governance Financial Other Information
Introduction
Schroder Income Growth Fund plc 3
Ongoing charges ratio*
0.77%
2022: 0.74%
Share price discount to
NAV per share*
8.9%
2022: 2.1%
Revenue earnings per share
13.14p
2022: 13.96p
Gearing*
13.7%
2022: 13.5%
Share price
267.50p
2022: 289.00p
Net revenues after taxation
9.130m
2022: 9.697m
Strategic Report
Chairman’s Statement 6
Manager’s Review 8
ESG 12
Investment Portfolio 14
Ten Year Financial Record 15
Business Review 16
Governance
Board of Directors 30
Directors’ Report 32
Audit and Risk Committee Report 35
Management Engagement
Committee Report 38
Nomination Committee Report 39
Remuneration Committee Report 41
Directors' Remuneration Report 42
Statement of Directors’
Responsibilities 45
Financial
Independent Auditor’s Report 48
Income Statement 53
Statement of Changes in Equity 54
Statement of Financial Position 55
Notes to the Accounts 56
Other Information (unaudited)
Annual General Meeting –
Recommendations 72
Notice of Annual General Meeting 75
Explanatory Notes to the Notice
of Meeting
77
Definitions of Terms and Alternative
Performance Measures 79
Shareholder Information 81
Information about the Company 83
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4 Schroder Income Growth Fund plc
Schroder Income Growth Fund plc 5
Strategic Report
Chairman’s Statement 6
Manager’s Review 8
ESG 12
Investment Portfolio 14
Ten Year Financial Record 15
Business Review 16
Strategic Report
6 Schroder Income Growth Fund plc
Chairman’s
Statement
I am pleased to present the first set of annual results of Schroder
Income Growth Fund plc since becoming Chairman in December
2022. Rising interest rates and sluggish global growth have made
navigating equity markets a challenging task during the year. Your
Manager has not allowed these distractions to alter their fundamental
and well tested investment philosophy.
Revenue and dividends
Despite difficult conditions, your Company was able to increase your
dividend for the 28thyear running. Dividends per share for the year of
13.80p represent a 4.6% increase on the previous year, in accordance
with the Company’s objective to increase the dividend in line with
inflation over the longer term. In this respect we define the medium
term as fiveyears and the longer term as ten.
Earnings per share fell by 5.9% to 13.14p. The dividend of 13.80p was
95.2% covered by earnings. After payment of the fourth interim
dividend on 3November 2023, the revenue reserve will be
£7.5million, representing 10.80p per ordinary share or over nine
months of the annual dividend. The ability to smooth income by
judicious use of revenue reserves remains a particular advantage of
investment trusts over open ended funds.
Income earned by the Company came under pressure during the year
for two main reasons. Firstly, lower commodity prices led to a notable
reduction in earnings and dividends from mining shares. Secondly
corporate managements pivoted from special dividends towards
share buybacks thus reducing income for the market and your
Company. The reduction in earnings per share masks very strong
dividend growth across many stocks held in the portfolio.
In tandem with much higher inflation the Company was consequently
unable to increase the dividend in real terms this year without
drawing heavily on reserves. Such outcomes have arisen from time to
time in the last 28 years of our history. Despite this, we have
continued to fulfil the primary objective of 'real growth of income’
above the levels of inflation over the longer term.
Performance
During a volatile period for UK equity markets the Company returned
4.2% in net asset value total returns. Share price total returns over the
period were -3.0% as compares to a return of 5.2% for the FTSE
All-Share total return index. A bias towards medium and smaller sized
companies, whose returns lagged those of the larger FTSE100,
detracted from short term performance but have added significant
value over the longer term. For more details of performance please
refer to the Manager’s Review.
Share price performance and discount to
NAV
The Company’s share price discount to NAV averaged 1.60% during
the year but widened towards the latter part of the year to end at
8.9%. Whilst the
Company did not buy back any shares during the
year, your Board continues to monitor the discount closely and will
take appropriate action as required.
Gearing
The Company has renewed its £30million revolving credit facility with
Sumitomo Mitsui Banking Corporation Europe Limited (“SMBC”) for a
further year effective from 22 September 2023. The average gearing
level over the year was 12.01% and at the end of the Company’s
financial year the level of gearing was 13.7%.
Annual General Meeting
The AGM will be held at 12.30pm on Wednesday, 13December 2023
at Schroders’ offices at 1London Wall Place, London EC2Y5AU. Your
Board strongly encourages shareholders to attend and participate in
the meeting. Shareholders will also be able to hear a presentation
from the Manager and light refreshments will be served. Please note
that all voting will be by poll and we encourage all shareholders to
exercise their votes by means of registering them with the Company’s
registrar ahead of the meeting, online or by completing paper proxy
forms, and to appoint the Chairman of the meeting as their proxy.
Information on voting can be found in the Notice of Meeting on pages
75 to 78. In the event that shareholders have a question for your
Board, please email amcompanysecretary@schroders.com in advance
of the AGM.
Changes to the Articles of Association
One of the resolutions that will be proposed at the AGM is an
amendment to the Company’s Articles of Association (the “Articles”) to
Your Company was able to increase your
dividend for the 28th year running.
Dividends per share for the year of
13.80p represent a 4.6% increase on the
previous year, in accordance with the
Company’s objective to increase the
dividend in line with inflation over the
longer term.
Schroder Income Growth Fund plc 7
allow for flexibility to hold shareholder meetings (wholly or partially) by
electronic means. This will allow your Board to hold hybrid or virtual
meetings when in the best interests of shareholder safety, for
example, in the event of a future pandemic. The amendments will not
prevent the Company from holding physical meetings and the Board’s
intention and strong preference is always to hold a physical general
meeting when safe and practical to do so.
Other amendments primarily relate to changes in law and regulation
and developments in market practice since the Articles were last
adopted. Further details can be found in the Director’s Report and a
summary of all the changes being introduced can be found in the
Annual General Meeting – Recommendations section on pages72 to
74.
Results Webinar
Please join the Manager for a webinar in which they will report on the
year ended 31August 2023 and outline their thoughts on the future
direction of the portfolio. The presentation will be followed by a live
Q&A session. The webinar will take place on 20November 2023 at
2pm. Register for the event at
https://registration.duuzra.com/form/SCF2023 or via the QR code
below.
Outlook
Many of the challenges the Company has faced look set to continue
into the year ahead. Concerns surrounding inflation and interest rate
rises have been a feature of the last year. It seems likely that interest
rates will stay higher for longer to help bring inflation into line with
Bank of England’s and other Central Banks’ targets. Concerns over
fiscal sustainability have broadened from the UK to the US and Europe
leading to falls in government bond markets and consequent
pressure on equities.
The UK market continues to face negative investor sentiment, relative
to Global and European markets, and investor outflows have been a
drag on UK market returns. In addition, geopolitical risks
understandably remain front of mind for investors. Such sentiment
also creates significant opportunities for the Company over the longer
term. The de-rating of UK smaller and medium sized companies is a
prime example of this, and it is pleasing to see your Manager actively
taking advantage of the valuation dislocations. Company
managements seem to agree their shares are good value with a shift
towards buybacks and away from dividends.
We cannot ignore the reality that higher interest rates allow savers
with an income target choice from a wider range of investments. The
abiding feature of equities though is that their profits and dividends
grow over the long term in nominal and real terms, a factor
sometimes ignored when looking at shorter term cash rates.
For investors real returns matter particularly in periods of rising
inflation and interest rates. This is why the principal aim of the
Company is to increase income above the rate of inflation over the
medium and longer term.
We remain committed to paying an increasing annual dividend and
grow income adjusted for inflation over the long term, and I am
pleased that we have been able to deliver such increases for 28years.
Whilst we utilised the Company’s reserves on this occasion, they
remain strong, having added to them in the previous financial year.
We continue to monitor the income from the portfolio and remain
committed to the sustainability of the Company’s dividend.
Whilst it is disappointing the Company’s performance over the last
year has lagged the broader UK market we are confident in your
Manager and their abilities to deploy their investment approach and
exploit the market inefficiencies to drive returns over the long term.
We base such confidence on the record since Sue Noffke and her
team took over managing the portfolio in 2011. In that period the
share price total return performance of 126.47% and the NAV total
return of 128.46% are both well ahead of the FTSE All-Share Index
total return of 103.50%. Investment performance will fluctuate with
market cycles but we, as your Board, are focused on ensuring the
Company continues to meet its investment objectives over the long
term.
Ewen Cameron Watt
Chairman
25October 2023
Strategic Report Governance Financial Other InformationIntroduction
We are confident in your Manager and
their abilities to deploy their investment
approach and exploit the market
inefficiencies to drive returns over the
long term.
We base such confidence on the record
since Sue Noffke and her team took over
managing the portfolio in 2011. In that
period the share price total return
performance of 126.47% and the NAV
total return of 128.46% are both well
ahead of the FTSE All-Share Index total
return of 103.50%.
8 Schroder Income Growth Fund plc
Manager’s Review
The net asset value total return in the 12months to 31 August 2023
was 4.2%. This compares to 5.2% from the FTSE All Share Total Return
Index. The share price return was -3.0%. The AIC UK Equity Income
median return was 4.4% over the period. It is disappointing to report
that your Company’s return lagged these comparators over the 12
month period.
Revenue after tax for your Company fell by 5.9% compared to the
same period last year. The decline was the result of a fall in income
received and a rise in the cost of gearing, as interest costs reflected
higher average interest rates in the latest 12 months compared to
those in the prior period.
Total income for the Company fell 3.6% compared to the same period
last year, due to three factors. The principal reason was a halving of
total income from the mining sector. Lower commodity prices,
compared to their peak levels of 2021/22, led to a marked reduction in
earnings and dividends from the companies in this sector from the
extraordinarily high level of the prior two years. Ordinary dividends
were lower whilst special dividends, which had been material in the
prior period, were absent except for a small special dividend payment
by Glencore. Your Company had less invested in the mining sector
during the last 12 months compared to the prior period, on the belief
that we had passed the peak for the commodity cycle. Whilst the fall in
mining sector income had been anticipated, the Company was not
able to offset the full reduction despite income from banks holdings
increasing by over 50% and from oils by over 30%.
The second reason was the non-payment of a dividend by the
insurance company Direct Line Group due to disappointing operating
performance, detailed in the performance section. Your Company
exited its position in the stock.
Lastly some changes to dividend dates for a few holdings meant
being paid in September rather than August this year, resulting in
some income being shifted from this period into the Company’s next
financial year. Contributions to your Company’s income from special
dividends peaked in the 12-month period to August 2021 and has
fallen back, in each of the past two years, to levels that appear normal
in historical terms.
Additional factors weighing on income in the year was the split of
GlaxoSmithKline into two businesses, the biopharma company,
rebasing its dividend to free up funds for investment in research and
development. Dividends were around one quarter below their level of
the prior period. Gambling company 888 did not pay a dividend in the
period as the company prioritised balance sheet leverage resulting
from the purchase of William Hill’s UK assets. Additionally, movements
in dividend dates impacted three of the holdings which last year paid
dividends in August and this year switched to September – asset
manager M&G, Asian life insurance business Prudential, and student
property company, Empiric.
On the positive side a diverse range of holdings saw dividends grow
significantly, at more than 20%. Oil majors, Shell and BP, continued to
build back their dividend payments to shareholders after the cuts of
two years ago. Asian oriented banks, HSBC and Standard Chartered,
saw particularly strong growth while domestic bank NatWest Group
and financial services infrastructure business TP ICAP also grew
robustly. Several of your Company’s holdings in the consumer
discretionary area rewarded shareholders with excellent dividend
growth as their businesses flourished following the pandemic
disruptions - Whitbread and Hollywood Bowl saw dividends double
and triple respectively, with strong growth from studios and
broadcaster ITV and luxury goods company Burberry. Double digit
dividend increases were received from domestic bank Lloyds,
investment company 3i, financial services provider XPS Pensions,
power utilities companies SSE and Drax and infrastructure and
construction company Balfour Beatty.
Elsewhere more stable companies – information providers RELX and
Pearson, distribution services business Bunzl, retailer Pets at Home,
utility company National Grid, GP patient practice business Assura,
defence services business QinetiQ, engineering group Spectris, and
insurance company Legal & General all increased dividends by mid to
high single digits. Companies in the portfolio with low or no dividend
growth are typically in a growth phase such as pharmaceuticals
company AstraZeneca, telecoms company BT and sustainable
technologies company Johnson Matthey, or they have switched
preference to share buy backs over dividends as a way of rewarding
shareholders, an example of this is food retailer Tesco.
A feature of the market, particularly evident in the mining, banks and
oils sectors, has been a trend to favour share buy backs in capital
allocation decisions. With resulting dividend payments spread over
reduced share counts, this approach, all other things equal, improves
the sustainability
, and growth, of income for these more cyclical
sectors which are particularly sensitive to the economic cycle.
Companies and their boards must determine whether the price paid
for shares in conducting a share buyback offer attractive returns when
benchmarked against other uses of capital, such as investment in
projects, research and development, staff, facilities or acquisitions.
Several other companies across a range of industries are conducting
share buybacks including food retailer Tesco, budget hotel operator
At a market level we believe a total
shareholder yield in excess of 6%
represents an attractive level in absolute
terms, relative to other equity markets
and other assets – including bonds and
cash.
Schroder Income Growth Fund plc 9
Manager’s Review
Strategic Report Governance Financial Other InformationIntroduction
Whitbread, luxury fashion house Burberry, consumer goods company
Unilever, infrastructure and construction firm Balfour Beatty, TP ICAP
and information companies RELX and Pearson. Some 17 of your
Company’s 43 holdings conducted share buy backs over the period.
At a market level we believe a total shareholder yield in excess of 6%
represents an attractive level in absolute terms, relative to other equity
markets and other assets – including bonds and cash
1
.
Market background
While global economic activity has generally surprised to the upside in
2023, inflation has been stronger and stickier than had been
assumed. Central Banks around the world continued to raise interest
rates during the period which has pushed up bond yields towards
historic averages from the abnormally low levels seen in the post
Global Financial Crisis era. In the second half of the period, bond and
equity markets have been looking for signs that inflation is under
sufficient control for central banks to signal the monetary tightening is
done.
At the start of the period in September 2022 UK gilts suffered an
especially sharp decline, along with Sterling, leading to stresses in the
pensions and fixed income market (LDI) which was driven by the
Truss/Kwarteng ’mini budget’. This resulted in Bank of England
intervention, criticism from outside authorities including the US
government and the International Monetary Fund (IMF), and another
change in the UK’s Prime Minister and Chancellor. UK bond and stock
markets did eventually calm down after many of the policies
announced by Kwarteng were subsequently reversed by the new
Chancellor, Jeremy Hunt, in his Autumn statement promising the
country would tighten its belt in future.
Further afield China loosened its pandemic restrictions, although the
boost to economic activity was underwhelming and China has fallen
short of original expectations with issues in the real estate sector
weighing on activity and confidence. The collapse of Silicon Valley
Bank (SVB) in the US in March raised concerns particularly over US
regional banks that are subject to less regulation than their global
peers. Subsequently in Europe, troubled lender Credit Suisse was
subject to an emergency takeover from rival UBS in a deal brokered by
the Swiss authorities. Enthusiasm for Artificial Intelligence (AI) drove
huge gains in select areas of the US market as investors poured
money into the technology sector.
Portfolio performance
Disappointingly the NAV total return underperformed the FTSE All-
Share Index. Your Company generated a total return of 4.2% over the
12-month period against 5.2% for the FTSE All-Share Index. Portfolio
performance was insufficient to offset the higher cost of gearing in
the period. A bias towards medium and smaller sized companies,
whose returns lagged behind those of the larger FTSE100, detracted
from performance.
At a sector level the main driver of negative relative returns was stock
selection in industrials. Your Company did not own the strongly
performing stocks in this sector. Aerospace and defence companies,
Rolls Royce, Melrose and BAE Systems, rose as orderbooks
strengthened with a strong post covid recovery in civil and defence
aerospace end markets. CRH benefitted from a re-rating of the shares
Five top/bottom relative performers
Weight
Portfolio relative Relative
weight to index performance Impact
(%)
1
(%)
1
(%)
2
(%)
3
British American Tobacco 0.0 -2.9 -23.3 +0.8
Hollywood Bowl 2.0 2.0 40.2 +0.7
Diageo 0.0 -3.5 -17.0 +0.6
3i Group 1.9 1.2 64.2 +0.6
Whitbread 2.2 1.9 35.5 +0.6
Weight
Portfolio relative Relative
weight to index performance Impact
(%)
1
(%)
1
(%)
2
(%)
3
Assura 1.7 1.6 -30.6 -0.7
BT Group 2.6 2.2 -23.3 -0.6
Rolls Royce 0.0 -0.5 183.4 -0.5
Direct Line 0.9 0.8 -26.5 -0.5
Johnson Matthey 2.1 1.9 -21.0 -0.5
Source: Schroders, FactSet, for Schroder Income Growth investment portfolio, 12 months to end August 2023.
1
Average weights over the period.
2
Total return of the stock relative to the FTSE All-Share TR over the period.
3
Contribution to performance relative to the FTSE All-Share TR. The securities shown above are for illustrative purposes only and are not to be considered a recommendation to
buy or sell.
1Total shareholder yield is the sum of a stock's dividend yield (paid over previous twelve months less any special dividends) and the percentage of net share buybacks over the
previous twelve months.
10 Schroder Income Growth Fund plc
in advance of its move to relist on the US stock exchange, whilst
Ashtead continued to experience robust demand for equipment
rental in the USA.
Additionally having more exposure in basic materials than in the
benchmark index detracted from performance with weakness in
commodity prices, particularly precious metals, impacting holdings in
miner Anglo American and sustainability solutions company Johnson
Matthey. Anglo American suffered from a combination of weaker
commodity prices and operational difficulties, now resolved. Your
Manager continues to find the diversified exposure to forward facing
metals and valuation of the business attractive. Lower precious metals
prices weighed on Johnson Matthey whilst increased investment
across areas of the group have hit profits. New management has
begun to execute its strategy and your Manager is encouraged that
Standard Industries, a US activist industrial investor, has increased its
stake in the business (announced in September 2023) to 10% from its
original 5% stake in April 2022.
Property companies suffered the ructions of bond markets in the
autumn of 2022 as yields rose sharply. Assura was the largest
individual detractor in the period. The shares suffered as bond yields
rose and the market fretted about the higher costs of refinancing
debt. BT weighed on performance as the market worried about a
range of issues from the near-term cash flow impact of significant
broadband investment, the impact of higher bond yields on the large
company pension scheme and a change in CEO. The incoming CEO
has been an independent director on the board of BT for 2 years and
is likely to hit the ground running. The group has potential levers to
demonstrate value and the valuation of the shares remains
compelling. Your Company’s position in Direct Line, now sold, was a
significant drag on performance over the period. The impact of
adverse weather and significant claims inflation was detrimental to
profits and capital leading to the company forgoing payment of a
dividend until profits and capital have been restored.
Positioning in the two consumer sector positions contributed
positively to performance by owning less than the market in
consumer staples and owning more than the market in consumer
discretionary sectors. Staples companies underperformed over the
period as they experienced an unwind of the pandemic boost to
volumes of cigarettes and alcohol as well as a headwind to profits
from currency moves over the period as the pound staged a part
recovery from the lows of September 2022. Not owning British
American Tobacco, Imperial Brands or international drinks company
Diageo, all of which were weak, was positive for your Company.
Consumer discretionary stocks performed strongly as they recovered
from the sharp selloff in the summer and early autumn of 2022 on
fears over domestic politics and economic prospects and in the face of
a mounting cost of living crisis and higher costs of servicing
mortgages. Many of your Company’s holdings are resilient businesses
offering consumers good value for money and they have gained
market share in recent years from weaker competitors exiting the
market. Your Company’s material positions in Whitbread, Hollywood
Bowl and Pets at Home, as well as financial investment group 3i
(whose main asset is European value for money retailer Action) all had
strong operating and share price performances.
Portfolio activity
Your Manager has continued to review the portfolio for opportunities
to add new investments for attractive medium term total returns,
augment existing holdings at compelling levels or exit those where
share prices are fully valued or where the investment case and
conviction has weakened. During the 12-month period, six new
holdings were added to your Company and seven were sold.
At a sector level, the principal changes to your Company were a
reduction in exposure to property and additions to existing positions
in banks and utilities. Your Manager sold out of purpose-built student
accommodation (PBSA) provider Unite Group in September, prior to
the significant rise in government bond (gilt) yields arising from the
LDI fallout of the UK’s autumn statement, viewing the valuation of the
shares as close to fair value. Positions in fellow PBSA company, Empiric
Student Property, and Assura, were reduced later in the period. Large
diversified international bank HSBC was considered attractive given
the likelihood of higher for longer interest rates, the stock’s low
valuation, both relative to history and in absolute terms, the strong
capital position and attractive dividend yield together with additional
capital returns, in the form of share buy backs. Your Company added
to its existing positions in regulated electricity network and
renewables company SSE and to electricity and gas transmission and
distribution business National Grid. Both businesses have attractive
growth pathways investing for the energy transition in renewable
electricity in the former and in the electricity grid in both the UK and
USA in the latter. Additionally, their dividend yields, and future
dividend growth are attractive characteristics.
Whilst maintaining your Company’s commodity sector exposures
overall your Manager made changes to its preferences within the oil
and mining areas. The Company established a new holding in BP
through a part reduction in the Company’s large position in fellow oil
major Shell. At its 2022 results, BP signalled its ambition to grow its
dividend, extend share buy backs whilst accelerating investments into
both low carbon energy and fossil fuels, and reduce debt. Your
Manager believes there is scope for Shell to follow a similar strategy
but opted to introduce diversity by owning both companies. The
Company sold iron ore producer Rio Tinto and reduced its position in
Anglo American, subsequently investing the proceeds into a new
holding in diversified miner Glencore. Your Manager is attracted to
Glencore’s asset mix of forward-facing minerals which are well
positioned to benefit as the world moves to decarbonise energy and
industry. Extensive research has been conducted on the company,
particularly around ethics, governance, climate and social risks.
Additionally, several engagements were conducted to understand
better the business strategy and the firm’s commitment to cultural
change associated with the settlement of bribery and corruption fines
from the Department of Justice and Senior Fraud Office authorities.
Your Manager believes that there is sufficient evidence of culture
change and commitment to further improvements which, taken
together justifies a position in the portfolio. Rio Tinto was exited due
to a view of the greater risks and costs associated with the
development of a new iron ore facility in Simandou, Guinea.
Your Company sold out of private assets investment manager
Petershill, reinvesting the proceeds into peer Intermediate Capital,
which it believes is higher quality and more attractively valued. The
holding in National Express (now Mobico) was exited on concerns over
availability and cost inflation pressures of bus drivers, together with a
Manager’s Review
Many of your Company's holdings are
resilient businesses offering consumers
good value for money and they have
gained market share in recent years
from weaker competitors exiting the
market.
Schroder Income Growth Fund plc 11
Manager’s Review
stretched balance sheet. Direct Line Insurance was sold in two stages,
the first following a disappointing trading update, the remainder
following the full year results, and the subsequent announcement of
forgoing a dividend. Part of the proceeds were invested in topping up
its position in global asset management company M&G. Your
Company exited its holding in the mid cap recruitment company
SThree, which focuses on the permanent and flexible contract roles in
STEM areas across Europe and the US, as in the near term it sees
more headwinds as the post Covid hiring has begun to normalise,
especially in the company's core areas of technology and healthcare.
Your Company also sold its allocation to consumer healthcare
business Haleon following its split from GlaxoSmithKline as it was a
small holding with a low dividend yield.
Your Manager saw upside potential from ITV’s strong cash generation
and longer-term digital initiatives and added a new holding in the
media group. A new position was also established in Victrex, a world
leader in high performance polymer solutions for a range of industrial
and medical device applications. The company has strong pricing
power, growth potential and balance sheet. Food producer Cranswick
has industry leading capabilities and continues to invest at pace into a
broad range of growth opportunities for attractive returns. The shares
have derated over the past three years whilst the business has grown,
expanded new facilities (pork and poultry), developed new capabilities
(breaded chicken) and diversified into new areas (pet foods). A new
holding was established in XPS Pensions, a leading pensions
consulting and administration business with significant organic
growth opportunities as it takes share in a large addressable market,
the shares offer an attractive and growing dividend yield.
Your Manager continues to add to existing holdings on share price
weakness when there is conviction in the investment case, in line with
the investment process. Research into other potential investments is
conducted continuously, along with risk/reward assessments versus
existing portfolio holdings, in a healthy competition for capital. Your
Manager is genuinely excited about the companies in the portfolio
and see exceptional opportunities within the market to deliver growth
in capital and income.
Outlook
Global economic activity in 2023 has surprised on the upside, leading
to higher and more stubborn inflation than anticipated by both global
Central Banks and markets. However, inflation has moderated from its
peak levels. Higher for longer interest rates are now seen as
necessary to bring inflation down towards the targets and forecasts of
Central Banks. Central Banks are currently at or close to peak rates as
the impact of significant rate rises over the past two years, which
always work with a lag, appears to be taking effect, cooling both
activity and inflation. In addition to economic risks, there are political
risks that include a US election and likely a UK election in 2024,
ongoing geopolitical tensions between the USA and China, and
unresolved conflict between Russia and Ukraine. While the risks of a
recession may have diminished, they have not entirely disappeared.
Investing in the UK equity market is not the same as investing in the
UK economy. Listed UK equities include a wide array of international
firms, many of which are global leaders in their fields and derive the
majority of their revenues from overseas. In fact, 77% of FTSE All Share
revenues come from outside the UK. However, the negative narrative
surrounding the UK economy has heavily impacted investor sentiment
in the UK equity market, leading to an acceleration of outflows from
the market into mainly global equities and other asset classes.
Since the Brexit vote in 2016, the UK has gained a reputation as a
problematic economy among major economies, with political
instability generating uncertainty about the nation's future and a lack
of confidence from both domestic and overseas investors. However,
the economic performance of the UK has been better than feared.
While Brexit has weakened supply potential, the UK economy has
broadly kept pace with the trends seen across advanced economies
over the past seven years. Recent revisions to UK economic data
challenge the prevailing view that the UK lags behind all other major
industrial economies (the G7) in its economic performance since the
Covid pandemic. UK business investment has also been picking up
more recently, having initially stalled after the UK’s vote to leave the EU
and the aftermath of the pandemic. Recent data continues to exceed
expectations, and UK corporates have strong balance sheets and
liquidity to increase investment spending.
Sentiment towards UK equities has remained very negative, with
persistent outflows weighing on market valuations. This has heavily
impacted the absolute and relative valuations of listed UK companies,
particularly those in the small and medium-sized (SMID) sectors. There
has been a significant de-rating of medium and smaller-sized
companies over the past two years, both in absolute terms and
relative to the largest FTSE 100 companies, due to selling pressures
from outflows. However, SMID companies have traditionally outgrown
larger companies in the UK and have delivered attractive total returns
that have kept pace with the best returns from global equity markets
over the long term. The convergence of valuations between SMID and
large-cap areas presents a mispriced opportunity.
Negative sentiment has resulted in aggregate valuations of UK
equities at multi-year lows. Total shareholder yields are high in
absolute terms, relative to other equity markets and other assets,
including bonds and cash. Companies across the market, including
those in your portfolio, are particularly active in buying back their own
shares, as they see compelling returns from investing in their
businesses at current prices. Small and medium-sized stocks are
subject to ongoing bid activity from overseas and private equity-
backed entities. These low valuations are unlikely to persist
indefinitely, and there is currently a broad set of investment
opportunities within the UK equity market that may well be
considered bargains in the future.
Fading political uncertainty, combined with a reassessment of
economic performance on growth and inflation, could support a
revision of the negative narrative on UK risk assets and be one of the
catalysts to address the market’s persistent undervaluation. Investing
in a market that remains significantly out of favour with investors
provides a plethora of opportunities across the market spectrum,
which should provide patient investors with highly attractive returns in
the medium term.
Sue Noffke
Portfolio Manager
Schroder Investment Management Limited
25 October 2023
Strategic Report Governance Financial Other InformationIntroduction
Investing in a market that remains
significantly out of favour with investors
provides a plethora of opportunities
across the market spectrum, which
should provide patient investors with
highly attractive returns in the medium
term.
12 Schroder Income Growth Fund plc
ESG
Integration of ESG into the investment process
ESG is integrated within your Manager’s investment approach. In your
Manager’s view, ESG and industry trends are intrinsically linked. Your
Manager identifies the key ESG issues of each company it invests in
and analyses and examines the management of these to determine
the risks and opportunities of an investment. A range of inputs to help
identify these including proprietary analysis done by the team based
on information published by the companies themselves, output from
proprietary internal tools, work done by internal analysts as well as
input from external providers such as MSCI or Sustainalytics. To your
Manager, effective ESG integration means conducting a rigorous
bottom-up examination of a company’s ESG performance and
incorporating that analysis into investment decisions rather than
outsourcing to third parties.
Extensive engagement with portfolio companies
Regular engagement with the board, executive management, investor
relations and sustainability professionals of a portfolio company is a
key feature of our approach. Your Manager meets with the
management of all portfolio companies at least once a year. In many
cases your Manager meets more frequently. These engagements are
led by the investment team in most cases as they have the knowledge
of and relationships with the companies. Your Manager also benefits
from engagements led by other Schroders’ teams. Your Manager is
not afraid to be robust with management teams where needed. To
achieve the goals with engagements, your Manager works closely with
Schroders’ Sustainable Investment team, consisting of over 50
dedicated specialists. Engagement is usually directly with
management teams and, where necessary as a form of escalation, the
team will use voting rights against management to encourage
change. Once your Manager engages with companies, its findings will
be documented in its proprietary tool called ActiveIQ, which helps
keep track of the progress made and monitor the success of previous
engagements with the company. Your Manager reviews engagement
progress quarterly and where an engagement may be stalling, your
Manager will discuss next steps and how to take this forward.
The chart below shows an illustration of the main engagement issues
the investment team have had with UK companies over the past three
years:
Source: Schroders. Most significant engagement topics over 3 years to 31December
2022. Engagement topics are grouped by Blueprint theme. For more information
refer to https://mybrand.schroders.com/m/3222ea4ed44a1f2c/original/schroders-
engagement-blueprint.pdf; our vision for active ownership at Schroders. For
illustrative purposes only and should not be viewed as a recommendation to buy or
sell.
The table below shows the number of company meetings and
resolutions the Company voted on in the last one and three years.
2023
1
2021-23
Number (%) Number
(%)
Meetings 43 145
Resolutions 915 2646
Votes with management 902 98.6 2554 96.5
Votes against management 13 1.4 52 2.0
Did not vote 0 0 0 0
1
Calendar years. 2023 to 31 August.
Where your Manager votes against on behalf of the Company, in most
cases this has been to oppose the re-election of a director or to
oppose the remuneration report. Your Manager will oppose the
re-election of a director for several reasons including ‘over-boarding’,
where it believes a director holds too many board positions at once so
are unable to dedicate sufficient time to each. In the case of
remuneration, your Manager pushes for management teams to have
firm alignment with shareholders.
ESG in practice
Several topics come up consistently in your Manager’s engagements
with all companies. Governance structures, capital allocation and
executive remuneration would be key examples. Your Manager
engages to ensure that companies have the right governance
structures in place to make effective capital allocation decisions that
are in the interests of shareholders and that executive pay is of an
appropriate quantum, is aligned with the interest of shareholders and
incorporates ESG metrics in an appropriate way. Another particular
focus for engagement in FY23 has been Climate and Biodiversity. The
investment team conducted several engagements with portfolio
companies over the course of the year to understand approaches to
these topics and encourage best practice. As part of these
engagements, your Manager met with several more carbon intensive
companies to understand better their transition plans, benchmark
their strategy against peers and provide feedback (and voting
decisions) to reflect your Manager’s view as to whether the strategy is
sufficiently ambitious and achievable.
Sustainability at Schroders
Your Manager’s policies on sustainability are based on what it has
learned from more than 20 years of integrating ESG analysis for its
clients. The below chart shows several milestones hit over the last 20
years of ESG integration at Schroders.
Source: Schroders, December 2022.
1
Carbon Disclosure Project.
2
UN Principles for
Responsible Investing.
3
UN Global Compact.
4
Strategy and Governance module.
5
For
certain businesses acquired recently we have not yet integrated ESG factors into
investment decision-making. There are also a small number of strategies for which
ESG integration is not practicable or possible, for example passive index tracking or
legacy business or investments in the process of or soon to be liquidated, and certain
joint venture businesses are excluded.
Sustainability at Schroders
A continuously evolving approach
Source: Schroders, December 2022.
1
Carbon Disclosure Project.
2
UN Principles for Responsible Investing.
3
UN Global Compact.
4
Strategy and Governance module.
5
For certain businesses acquired during the course of 2020 and 2021 we have not yet
integrated ESG factors into investment decision-making. There are also a small number of strategies for which ESG integration is not practicable or now possible, for example passive index tracking or legacy businesses or
investments in the process of or soon to be liquidated, and certain joint venture businesses are excluded.
'Issues such as climate change, resource scarcity, population growth and corporate failure have put responsible investment atthe forefront of
investors’ minds. We believe that companies with a strong environmental, social and governance ethos tend to deliver better results for our
clients.'
Peter Harrison, Group Chief Executive, Schroders plc
1998 2001 2006 2007 2008 2011 2016 2017 2019 2020 2021 2022
Published corporate
governance policy
Published first socially
responsible policy
Became a CDP
1
signatory
Became a UNPRI
2
signatory
Top 5 in 2017
AODP Global
Climate 50 Asset
Manager Index
Developed responsible
fixed income policy
6 years of
A+
UNPRI
rating
4
Became a
UNGC
3
signatory
Developed
responsible real
estate investment
policy
Acquired majority
stake in
BlueOrchard
Launched first
sustainable
strategy
Launched SustainEx &
Climate Progress
Dashboard
Linked ESG to
revolving credit
facility
Business
operating on a
carbon-neutral
basis
+
Achieved
full ESG
integration
5
Science-based
targets
validated by
SBTi
Launched
CONTEXT
Natural Capital
Research
partnership
#1 in ShareAction
European RI asset
management survey
CEO letter to
FTSE350
companies on
climate change
First dedicated
ESG resource
Founding
Signatory to
Net Zero
Asset
Managers
Initiative
Became a
member of
the UN Race
to Net Zero
Initiative
Published
Engagement
Blueprint
Published
Climate
Transition
Action Plan
Became a Natural Capital
Investment Alliance
member
Acquired 75%
shareholding in
Greencoat
Capital
Achieved A
rating from
CDP
Joined
Finance for
Biodiversity
Pledge
& published
our Plan for
Nature
Schroder Income Growth Fund plc 13
ESG
Internal accreditation
In 2019 Schroders introduced an internal ESG accreditation process.
Each investment manager can apply to be ‘accredited’ by submitting a
document articulating how they integrate ESG into their investment
process. Schroders’ Sustainable Investment Team awards
accreditation based on this submission fulfilling several criteria. The
award is then annually reviewed against this consistent criteria. There
are 3 sustainability categories to distinguish each product/fund
approach: The managers of the investment Company achieved
Schroders Integrated accreditation status in 2019, and had this
renewed in 2020, 2021, 2022 and 2023. The award submission
detailed the Manager’s use of Schroders proprietary tools and
significant engagement with portfolio companies to deepen our ESG
analysis.
Climate related disclosures
On 30 June 2023, the Company’s AIFM produced a product level
disclosure consistent with the Task Force on Climate-Related Financial
Disclosures (“TCFD”) for the period 1 January 2022 to 31December
2022. This can be found here:
https://mybrand.schroders.com/m/6f7e91c1169baada/original/TCFD-
Schroder-Income-Growth-Fund-20221231.pdf
14 Schroder Income Growth Fund plc
Investment Portfolio
as at 31 August 2023
Companies in bold represent the 20 largest investments, which by value account for 66.6% (2022: 68.3%) of total investments. All companies
are headquartered in the UK unless otherwise stated.
All investments are equities, listed on a recognised stock exchange.
£’000 %
Financials
HSBC 9,733 4.2
Legal & General 6,257 2.7
Standard Chartered 6,245 2.7
Lloyds Bank 5,690 2.5
3i Group 5,668 2.5
Prudential 5,655 2.5
M&G 4,680 2.0
Intermediate Capital 4,423 1.9
Empiric Student Property 4,359 1.9
Assura 3,203 1.4
TP ICAP 3,022 1.3
Natwest 2,560 1.1
Total Financials 61,495 26.7
Consumer Services
RELX 9,728 4.2
Pets At Home 6,504 2.8
Pearson 6,253 2.7
Whitbread 5,452 2.4
Hollywood Bowl 4,386 1.9
Tesco 3,816 1.7
XPS 2,234 1.0
888 (Gibraltar) 1,760 0.8
ITV 1,497 0.7
Cazoo 7 0.0
Total Consumer Services 41,637 18.2
Healthcare
AstraZeneca 15,565 6.8
GSK (GlaxoSmithKline) 9,014 3.9
ConvaTec 4,859 2.1
Total Healthcare 29,438 12.8
£’000 %
Basic Materials
Glencore 8,623 3.8
Anglo American 4,822 2.1
Johnson Matthey 4,665 2.0
Victrex 1,528 0.7
Total Basic Materials 19,638 8.6
Oil and Gas
Shell 14,840 6.5
BP 4,596 2.0
Total Oil and Gas 19,436 8.5
Industrials
QinetiQ 5,546 2.4
Balfour Beatty 5,257 2.3
Bunzl 4,409 1.9
Paypoint 2,072 0.9
Spectris 1,385 0.6
Total Industrials 18,669 8.1
Consumer Goods
Unilever 8,115 3.5
Burberry 6,684 2.9
Cranswick 2,386 1.0
Total Consumer Goods 17,185 7.4
Utilities
SSE 6,262 2.7
National Grid 5,920 2.6
Drax 4,722 2.1
Total Utilities 16,904 7.4
Telecommunications
BT 5,312 2.3
Total Telecommunications 5,312 2.3
Total Investments 229,714 100.0
Schroder Income Growth Fund plc 15
Ten Year Financial Record
At 31 August 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Shareholders’ funds (£’000) 188,936 188,165 196,490 216,718 216,740 204,458 170,324 219,915 205,100 203,932
NAV per share (pence) 275.06 273.94 286.06 315.51 315.54 297.66 246.71 316.59 295.26 293.58
Share price (pence) 266.50 269.75 257.00 293.63 301.00 273.00 242.00 316.50 289.00 267.50
Share price discount to
NAV per share* (%) (3.1) (1.5) (10.2) (6.9) (4.6) (8.3) (1.9) 0.0 (2.1) (8.9)
Gearing* (%)
1
9.6 9.5 8.4 5.8 8.3 15.5 9.5 7.9 13.5 13.7
For the year ended 31 August 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Net revenue return after
taxation (£’000) 7,428 7,761 8,299 9,107 8,767 9,744 8,042 8,370 9,697 9,130
Revenue return per share
(pence) 10.82 11.30 12.08 13.26 12.76 14.19 11.69 12.08 13.96 13.14
Dividends per share (pence) 10.10 10.30 10.60 11.20 11.80 12.40 12.60 12.80 13.20 13.80
Ongoing charges* (%)
2
0.93 0.99 1.00 0.95 0.93 0.87 0.86 0.79 0.74 0.77
Performance
3
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
NAV total return* 100.0 143.1 147.8 160.3 183.1 190.5 186.9 162.2 217.9 211.7 220.6
Share price total
return* 100.0 144.8 152.2 151.0 179.4 191.9 181.5 168.8 231.3 220.4 213.8
FTSE All-Share
Index total return 100.0 131.2 128.1 143.1 163.7 171.3 172.1 150.3 190.8 192.7 170.6
1
Borrowings used for investment purposes, less cash, expressed as a percentage of net assets. If the amount so calculated is negative, this is
shown as a “Net cash” position.
2
Ongoing Charges represents the management fee and all other operating expenses excluding finance costs and transaction costs, expressed
as a percentage of the average daily net asset values during the year.
3
Source: Morningstar/Thomson Reuters. Rebased to 100 at 31 August 2013.
*Alternative Performance Measures.
NAV/share price/FTSE All-Share Index
total returns for the ten years ended
31 August 2023
Dividends per share versus the rate of
inflation for the ten years ended
31 August 2023
Source: Morningstar/Thomson Reuters. Rebased to 100 at 31 August
2013
CPI/RPI
Dividends per share
3
1
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-2
0
2
2
3
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2
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90
100
110
120
130
140
150
Source: Morningstar/Office for National Statistics. Rebased to 100 at
31August 2013. The Retail Prices Index (“RPI”) was used as the
measure of inflation up to 31 August 2014 and the Consumer Prices
Index (“CPI”) thereafter.
3
1
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80
100
120
140
160
180
200
220
240
260
280
300
NAV Total Return
Share Price Total Return
FTSE All-Share Total Return
Strategic Report Governance Financial Other InformationIntroduction
16 Schroder Income Growth Fund plc
Business Review
Investor
value
Strategy
Board
Appoint Manager and
other service providers
to achieve objectives
Responsible for
overall strategy and
oversight including
risk management
Activities centred
on the creation of
shareholder value
–
–
–
Set objectives, strategy
and KPIs
–
Oversight
Oversee portfolio
management
Monitor achievement
of KPIs
Oversee the use of gearing
Oversee discount/premium
management and the
provision of liquidity
through share issuance
and repurchase
–
–
–
–
Investment
Manager implements
the investment strategy
by following an
investment process
Supported by strong
research and
risk environment
Regular reporting and
interaction with the Board
–
–
–
Promotion
Marketing and sales
capability of the Manager
Support from the corporate
broker with secondary
market intervention to
support discount/
premium management
–
–
Competitiveness
Board is focused on ensuring:
– that the vehicle remains
attractive to investors
– that the fees and ongoing
charges remain competitive
Purpose, values and culture
The Company’s purpose is to create long-term shareholder value.
The Company’s culture is driven by its values: Transparency,
Engagement and Rigour, with collegial behaviour and constructive,
robust challenge. The values are all centred on achieving returns for
shareholders in line with the Company’s investment objective. The
Board also promotes the effective management or mitigation of the
risks faced by the Company and, to the extent it does not conflict with
the investment objective, aims to structure the Company’s operations
with regard to all its stakeholders and take account of the impact of
the Company’s operations on the environment and community.
As the Company has no employees and acts through its service
providers, its culture is represented by the values and behaviour of the
Board and third parties to which it delegates. The Board aims to fulfil
the Company’s investment objective by encouraging a culture of
constructive challenge with all key suppliers and openness with all
stakeholders. The Board is responsible for embedding the Company’s
culture in the Company‘s operations.
The Board recognises the Company’s responsibilities with respect to
corporate and social responsibility and engages with its outsourced
service providers to safeguard the Company’s interests. As part of this
ongoing monitoring, the Board receives reporting from its service
providers with respect to their anti-bribery and corruption policies;
Modern Slavery Act 2015 statements; diversity policies; and
greenhouse gas and energy usage reporting.
Strategy and Business model
The Company is a listed investment trust, that has outsourced its
operations to third party service providers. The Board has appointed
the Manager, Schroder Unit Trusts Limited to implement the
investment strategy and to manage the Company’s assets in line with
the appropriate restrictions placed on it by the Board, including limits
on the type and relative size of holdings which may be held in the
portfolio and on the use of gearing, cash, derivatives and other
financial instruments as appropriate. The terms of the appointment
are described more completely in the Directors’ Report. The Manager
also promotes the Company using its sales and marketing teams. The
Board and Manager work together to deliver the Company’s
investment objective, as demonstrated in the diagram above. The
investment and promotion processes set out in the diagram are
described in more detail below.
Investment objectives
The Company’s principal objectives are to provide growth in income
that exceeds the rate of inflation and capital growth as a consequence
of rising income.
Investment policy
The investment policy of the Company is to invest primarily in UK
equities but up to 20% of the portfolio may be invested in equities
listed on recognised stock exchanges outside the UK. If considered
appropriate, the Company may use equity related instruments such as
convertible securities and up to 10% of the portfolio may be invested
in bonds. In addition, up to 20% of total income may be generated by
short-dated call options written on holdings in the portfolio. Put
options comprising short-term exchange-traded instruments on
major stock market indices of an amount up to the value of the
Company’s borrowings may also be utilised.
Investment restrictions and spread of
investment risk
Risk in relation to the Company’s investments is spread as a result of
the Manager investing the Company’s portfolio with a view to
ensuring that the portfolio retains an appropriate balance to meet the
Company’s investment objectives. The key restrictions imposed on the
Manager include:
(i) no more than 15% of the Company’s total net assets, at the date
of acquisition, may be invested in any one single company;
Business model
Schroder Income Growth Fund plc 17
(ii) no more than 10% of the value of the Company’s gross assets
may be invested in other listed investment companies unless
such companies have a stated investment policy not to invest
more than 15% of their gross assets in other investment
companies or investment trusts which are listed on the Official
List of the London Stock Exchange;
(iii) no more than 15% of the Company’s gross assets may be
invested in other investment companies or investment trusts
which are listed on the Official List of the London Stock Exchange;
(iv) no more than 15% of the Company’s total net assets may be
invested in open-ended funds; and
(v) no more than 25% of the Company’s total net assets may be
invested in the aggregate in unlisted investments and holdings
representing 20% or more of the equity capital of any company.
The investment portfolio on page 14 demonstrates that, as at
31August 2023, the Manager invested in 43 UK equity investments
spread across nine industry sectors. The Board believes that the
diversity of the stocks, along with the above-mentioned restrictions
imposed on the Manager, achieve the objective of spreading
investment risk.
Status
The Company carries on business as an investment trust. Its shares
are listed and admitted to trading on the premium segment of the
main market of the London Stock Exchange. It has been approved by
HM Revenue & Customs as an investment trust in accordance with
section 1158 of the Corporation Tax Act 2010, by way of a one-off
application and it is intended that the Company will continue to
conduct its affairs in a manner which will enable it to retain this
status.
The Company is domiciled in the UK and is an investment company
within the meaning of section 833 of the Companies Act 2006. The
Company is not a “close” company for taxation purposes.
It is not intended that the Company should have a limited life but the
Directors consider it desirable that the shareholders should have the
opportunity to review the future of the Company at appropriate
intervals. Accordingly, the Articles of Association contain provisions
requiring the Directors to put a proposal for the continuation of the
Company to shareholders at the Annual General Meeting (“AGM”) in
2025 and thereafter at five yearly intervals.
Key performance indicators
The investment objective
The Board measures the development and success of the Company’s
business through achievement of the Company’s investment
objective, to provide real growth of income, being growth of income in
excess of the rate of inflation, and capital growth as a consequence of
the rising income, which is considered to be the most significant key
performance indicator for the Company.
Commentary on performance against the investment objective can be
found in the Chairman’s Statement.
At each meeting, the Board considers a number of performance
indicators to assess the Company’s success in achieving its investment
objective. These are as follows:
–
NAV performance;
– Share price performance;
– Share price discount/premium; and
– Ongoing charges ratio.
These are classed as Alternative Performance Measures (“APMs”) and
their calculations are explained in more detail on page 79.
The performance against these indicators is reported on page 15.
Net asset value and share price total return
At each meeting, the Board reviews the performance of the portfolio
in detail and discusses the views of the portfolio managers with them.
Share price discount/premium to net asset value per
share
The Board reviews the level of discount/premium to net asset value
per share at every board meeting and is alert to the value
shareholders place on maintaining as low a level of discount/
premium volatility as possible.
Ongoing charges
The Board reviews the Company’s ongoing charges to ensure that the
total costs incurred by shareholders in the running of the Company
remain competitive when measured against peer group funds. An
analysis of the Company’s costs, including management and
performance fees, directors’ fees and general expenses, is submitted
to each board meeting. Management and any performance fees
payable are reviewed at least annually.
Revenue and dividend policy
The net revenue return for the year, before finance costs and taxation,
was £9,676,000 (2022: £9,912,000). After deducting finance costs and
taxation the amount available for distribution to shareholders was
£9,130,000 (2022: £9,697,000) equivalent to net revenue of 13.14p
(2022: 13.96p) per ordinary share.
The Directors of the Company intend to continue to pay dividends at
the end of January, April, July and October in each year. Although it is
intended to distribute substantially all net income after expenses and
taxation, the Company may retain up to a maximum of 15% of the
Company’s gross income in each year as a revenue reserve to provide
consistency in dividend policy. For the year ended 31 August 2023, the
Directors have declared four interim dividends, totalling 13.80 (2022:
13.20) pence per ordinary share.
Investment process
Your Company’s investment team look beyond today’s highest
dividend payers to provide attractive levels of yield and future income
growth. By utilising a barbell approach to income generation,
diversification is achieved by allocating towards mispriced
opportunities in capital growth and income. Your Manager aims to
balance the companies with a sustainably high yield with those that
offer a lower dividend but with greater growth prospects.
Your Manager seeks to identify and invest in mispriced situations
through fundamental research. While macroeconomic outcomes are
difficult to predict precisely, your Manager monitors the risk to the
Company’s holdings using their experience gained over multiple
economic cycles. Your Manager maintains a focus on constructing a
diversified portfolio consisting of their highest conviction stock picks
for the long term, within the constraints of delivering the Company’s
required income objective.
Your Company’s investment approach is based on Schroders’ belief
that stock markets are inefficient, whilst your Manager believes it can
exploit such inefficiencies by conducting primary research, through
disciplined portfolio construction, and taking a long-term view. Your
Company’s lead Manager, Sue Noffke, is head of UK equities, head of
the Prime UK equity team, has been a member of Schroders’ UK
Equity team for over 30 years and has been managing your
Company’s portfolio since 2011. Your Company’s investment team
employs a rigorous and disciplined investment process aiming to
deliver consistent outperformance with low volatility against set
objectives.
The investment team’s edge is built on several pillars:
1. Experience and stability. The team has over 93 years’
experience
2
investing in the UK equity market.
Strategic Report Governance Financial Other InformationIntroduction
18 Schroder Income Growth Fund plc
2. A rigorously implemented, repeatable process. The
foundations of the investment process have been stable since
2006, though significant incremental enhancements have been
made.
3. A pragmatic rather than ideological investment style. A
focus on building style neutral portfolios allows the team to hunt
for opportunities in all corners of the market.
4. Behavioural. The team’s time horizon allows them to embrace
short term uncertainty when they are confident in the long-term
destination.
5. The depth of Schroders resources available. The team are
members of the UK Equity community and regularly collaborate
with global colleagues.
6. Active Ownership. The team’s longer holding periods allow
them to affect change where appropriate, prevent bad outcomes
and ensure alignment of incentives.
1. Experience and Stability
Your Manager believes that just as investment returns compound,
knowledge also does. The investment team has over 93 years of
investment experience that gives them an important edge. The
Portfolio Managers (PMs), led by Sue Noffke, have worked together
since 2015. They have built a deep understanding of UK businesses,
industries, management teams and competitive dynamics. This
knowledge is shared across the team continually, in a collaborative
way of working. Consequently, the entire team benefits from the
experience of investing through various cycles, interest rate regimes,
inflation and valuation environments. The team use this knowledge to
build its investment edge. For example, deciding when trends are
structural rather than cyclical, spot changes in competitive dynamics
and back proven management teams.
2. Rigorously implemented, repeatable process
The investment process is built on the belief that a collaborative,
team-based approach is key to avoiding rash decisions. All buy and
sell decisions must be unanimous across the portfolio managers.
Unanimity creates a high hurdle for buy decisions and a shared
responsibility for all holdings. Performance is therefore worn
collectively, creating psychological safety. Every week, the investment
team hold two portfolio construction meetings where existing
positions and new ideas are debated. The team review portfolios,
reflect on company meetings and examine mistakes for learning
opportunities. A key aspect of the team's edge is both recognising and
avoiding the situations and environments we struggle to perform in.
3. Pragmatic rather than ideological investment style
Your Manager believes that the industry terms ‘value’ and ‘growth’
create inefficiencies to take advantage of, and to deliver the best risk
adjusted returns. Style neutrality allows the team to focus on where
the opportunities are and act independently of whichever ‘factor’ is in
favour. Mispricing can occur in a high growth company on high
headline multiples of earnings and cash flows, or a mature business
priced below market multiples. There are examples of both types of
company in your Company’s portfolio. Over the years the team have
had success identifying mispricings where fundamentally sound
companies encounter a serious but temporary problem. They are
unafraid to take a contrarian view when backed by research. Over 80%
of your Company’s active return comes from stock selection.
1
It
believes that style neutrality helps deliver consistent alpha generation
which gives our clients a smoother experience, reducing the chances
of selling prematurely.
4. Behavioural
Your investment team have a behavioural edge that has been
repeatedly exploited over many years. It strikes your Manager as odd
that the increasing number of portfolio managers proclaiming to be
‘long term’ investors coincides with a sustained shortening of holding
periods. Your Company’s 10 year average portfolio turnover is below
20%, implying an average holding period of over 5years. Many of your
Company’s peers are unable or unwilling to invest where the next
three to six months looks uncertain but the five-year outlook is
positive. These are opportunities your Company steps into when
confident in the destination, believing that underfollowed and
analysed mid-caps represent some of the best opportunities. In the
ten years to the end of 2022, an outsized portion of the alpha
generated by the underlying portfolio of Schroder Income Growth PLC
has come from mid-cap companies.
2
As a result, your Company has
increased its mid cap analyst resource in the past 12 months.
Furthermore, its two dedicated team analysts have roving roles,
freeing them to find the best opportunities rather than be constrained
by sector.
5. Schroders resources
Being part of Schroders is a significant benefit to your investment
team, enhancing its edge. They are members of the UK Equity
Community, a group of 16 investors focused on UK equities.
Colleagues share their research, disseminate information that matters
and provide alternative viewpoints to challenge existing views. Beyond
the UK Equity Community, the team engage with more than 100
equity analysts and 70 Portfolio Managers across the world. As your
teams portfolios’ are style neutral, they regularly collaborate across
the spectrum of investment teams. This provides valuable insight into
UK businesses’ global competitors. They engage daily with Schroder’s
team of over 50 sustainability experts.
6. Active Ownership
Active Ownership at Schroders means engaging with companies to
encourage responsible behaviour and enhance our investment edge.
Your Company’s 5 to 7year holding period means it can build
meaningful relationships with management and the board of
directors. Your Company’s proposals and opinions are given serious
consideration due to Schroders’ reputation in ESG and because they
are in it for the long-term. Moreover, engagements are investor-led.
They do not outsource matters of sustainability and proxy voting to its
sustainability team. They prefer to engage directly. Active Ownership is
focused on aligning the interests of management teams and
stakeholders with shareholders. This can prevent bad outcomes and
gives an alternative insight into company culture. Your Company is
prepared to invest in “progress not perfection”.
1
Source: Schroders performance analysis.
2
FTSE 250 Mid Cap companies. Source: Schroders.
Promotion and shareholder relations
The Company promotes its shares to a broad range of investors who
have the potential to be long-term supporters of the investment
strategy. The Company seeks to achieve this through its Manager and
corporate broker, which promote the shares of the Company through
regular contact with both current and potential shareholders.
Promotion is focused via two channels:
– Discretionary fund managers. The Manager promotes the
Company via both London and regional sales teams.
Business Review
Schroder Income Growth Fund plc 19
– Execution-only investors. The Company promotes its shares via
engaging with platforms, via the press, and through its
webpages. Platforms have experienced strong growth in recent
times and are an important focus for the Manager.
These activities consist of investor meetings, one-on-one meetings,
regional road shows and attendance at conferences for professional
investors. Inaddition, the Company’s shares are supported by the
Manager’s wider marketing of investment companies targeted at all
types of investors; this includes maintaining close relationships with
advisers and execution-only platforms, advertising in the trade press,
maintaining relationships with financial journalists and the provision of
digital information on Schroders’ website. The Board also seeks active
engagement with investors, and meetings with the Chairman are
offered to professional investors where appropriate.
Further disclosures
Shareholder relations are given high priority by both the Board and
the Manager and are detailed further in “Promotion” on page 16.
In addition to the engagement and meetings held during the year
described on pages 12 and 13, the chairs of the Board and
committees and the other Directors, usually attend the AGM and are
available to respond to queries and concerns from shareholders. The
Board is keen to hear from shareholders and can do so by writing to
the Company Secretary (Company Secretary, Schroder Income Growth
Fund plc, 1London Wall Place, London EC2Y5AU), or emailing
amcompanysecretary@schroders.com.
Shareholders are also encouraged to sign up to the Manager’s
Investment Trusts update, to receive information on the Company
directly https://www.schroders.com/en/uk/private-investor/fund-
centre/funds-in-focus/investment-trusts/
schroders-investment-trusts/never-miss-an-update/
Details of the Board’s approach to discount management and share
issuance may be found in the Annual General Meeting
Recommendations on page72 to 74.
Diversity policy
The Board has adopted a diversity and inclusion policy which seeks to
promote diversity of gender, social and ethnic backgrounds, cognitive
and personal strengths. The Board recognises that its debates and
decision-making are greatly enriched by a wider range of perspectives
and thinking. The Board will encourage any recruitment agencies it
engages to find a range of candidates that meet the objective criteria
agreed for each appointment. Appointments will always be based on
merit. Candidates for board vacancies are selected based on their
skills and experience, which are matched against the balance of skills
and experience of the overall board taking into account the criteria for
the role being offered. The Board also considers the diversity and
inclusion policies of its service providers.
Implementation of diversity policy
The Board has adopted the FCA’s Listing Rules (LR 9.8.6R(9)(a) in
relation to diversity which requires that:
(i) at least 40% of individuals on the board are women;
(ii) at least one of the senior board positions is held by a woman;
and
(iii) at least one individual on the board is from a minority ethnic
background.
The FCA defines senior board positions as Chairman, Chief Executive
Officer (CEO), Chief Financial Officer (CFO) or Senior Independent
Director (SID). As an investment trust with no executive officers, the
Company has no CEO or CFO. The Board has reflected the senior
positions of the Chairman and the SID in its diversity tables below.
The Board has chosen to align its diversity reporting reference date
with the Company’s financial year end and proposes to maintain this
alignment for future reporting periods. The Company has met all
three targets on board diversity as at its chosen reference date,
31August 2023, and there have been no changes since then to the
date of publication of the annual report and accounts. The data is set
out in the tables below.
Financial crime policy
The Company continues to be committed to carrying out its business
fairly and operates a financial crime policy, covering bribery and
corruption, tax evasion, money laundering, terrorist financing and
sanctions, as well as seeking confirmations that the Company’s service
providers’ policies are operating soundly.
Business Review
Strategic Report Governance Financial Other InformationIntroduction
Number of Percentage Number of senior Listing
Sex Board Members of the Board positions on the Board Rules Target
Men 2 50% 1
Women 2 50% 1
Prefer not to say – – –
Number of Percentage Number of senior Listing
Ethnic background Board Members of the Board positions on the Board Rules Target
White British or other White
(including minority-white groups) 3 75% 2
Mixed/Multiple Ethnic Groups – – –
Asian/Asian British 1 25% –
Black/African/Caribbean/Black British – – –
Other ethnic group, including Arab – – –
Not specified/prefer not to say – – –
Women should make up at least 40% of the Board
and hold at least one of the senior positions
At least one member of the board should be from
an ethnic minority background excluding white
ethnic groups (as set out in categories used by the
Office for Asian/Asian British 1 17% – National
Statistics)
20 Schroder Income Growth Fund plc
Business Review
Greenhouse gas emissions and energy usage
As the Company outsources its operations to third parties, it has no
significant greenhouse gas emissions and energy usage to report.
Responsible investment
The Company delegates to its Manager the responsibility for taking
environmental, social and governance (“ESG”) issues into account
when assessing the selection, retention and realisation of
investments. The Board expects the Manager to engage with investee
companies on social, environmental and business ethics issues and to
promote best practice. The Board expects the Manager to exercise
the Company’s voting rights in consideration of these issues.
In addition to the description of the Manager’s integration ofESG into
the investment process and the details in theStrategic Report on
pages 12 to 13, a description of theManager’s policy, and its
engagement withinvesteecompanies on these matters, can be found
on the Schroders’ website at
https://www.schroders.com/en/sustainability/active-ownership/.
The Board notes that Schroders believes that companies with good
ESG management often perform better and deliver superior returns
over time. Engaging with companies to understand how they
approach ESG management is an integral part of the investment
process. Schroders is compliant with the UK Stewardship Code and its
compliance with the principles therein is reported on its website.
The Board has received reporting from the Manager on the
application of its policy.
Schroder Income Growth Fund plc 21
Business Review
Strategic Report Governance Financial Other InformationIntroduction
Stakeholder Engagement: Section 172 of the Companies Act2006
During the year under review to 31 August 2023, the Board discharged its duty under section 172 of the Companies Act 2006 to promote the
success of the Company for the benefit of its members as a whole, having regard to the interests of all stakeholders. As an externally managed
investment trust, the Company has no employees, operations or premises. The Board has identified its key stakeholders as the Company’s
shareholders, the Manager, other service providers, the Investee companies and the Company’s Lender. The table below explains how the
Directors have engaged with all stakeholders and outlines key activities undertaken and decisions made by the Board during the reporting
period.
Stakeholder Why they are
important
Engagement 2022/23 Highlights
Shareholders Continued shareholder
support and engagement
are critical to the continuing
existence of the business
and the delivery of the long-
term strategy of its business
Annual General Meeting (AGM): The
Company welcomes attendance and
participation from shareholders at the
AGM. Shareholders have the
opportunity to meet the Directors and
the Manager and ask questions at the
AGM. The Board values the feedback it
receives from shareholders which is
incorporated into Board discussions.
Publications: The annual and interim
results presentations, as well as
quarterly reports and factsheets, are
available on the Company’s webpage
with their availability announced via the
stock exchange. Feedback and/or
questions received from shareholders
enable the Company to evolve its
reporting which, in turn, helps to deliver
transparent and understandable
updates.
Shareholder communication: The
Manager communicates with
shareholders periodically. All investors
are offered the opportunity to meet the
Chair, Senior Independent Director, or
other Board members without using
the Manager or Company Secretary as
a conduit, by writing to the Company's
registered office. The Board also
corresponds with shareholders by letter
and email. The Board receives regular
feedback from its broker on investor
engagement and sentiment.
Investor Relations updates: At every
Board meeting, the Directors receive
updates on the share trading activity,
share price performance and any
shareholders’ feedback, as well as any
publications or comments in the press.
To gain a deeper understanding of the
views of its shareholders and potential
investors, the Manager also undertake
Investor Roadshows following
publications of results.
The AGM was held in person in 2022
and questions and feedback from
shareholders were welcomed. The
Board, along with the Manager, look
forward to meeting and interacting with
more shareholders at the forthcoming
AGM in December 2023.
The Company’s webpages have been
refreshed and enhanced during the
year to optimise the user experience for
shareholders and investors. The
newsletter has also been refreshed for
professional and retail subscribers.
The Manager engaged with several
major shareholders and investors
during the year.
The Board continues to work with
Kepler on promoting the Company
through its research notes which are
published twice a year.
22 Schroder Income Growth Fund plc
Business Review
Stakeholder Why they are
important
Engagement 2022/23 Highlights
Working with external partners: The
Board also engages some external
providers, such as investor
communications advisors to obtain a
more detailed view on specific aspects
of shareholder communications, such
as developing more effective ways to
communicate with investors.
Board Succession Planning: The
composition of the Board and the
succession planning is led by the
Nomination Committee with changes
managed in order to provide regular
refreshment, good diversity and a high
level of relevant skills as set out in its
report on pages 39-40. This ensures the
Board has the expertise to effectively
manage the Company to contribute to
its long-term success and to safeguard
shareholders’ interests.
The Board has made disclosures in
respect of its diversity policy and
implementation of this in the year
under review.
The Manager Holding the Company’s
shares offers investors a
liquid investment vehicle
through which they can
obtain exposure to the
Company’s diversified
portfolio of investment
opportunities. The
Manager’s performance is
critical for the Company to
deliver its investment
strategy successfully and
meet its objective to provide
real growth of income, being
growth of income in excess
of the rate of inflation, and
capital growth as a
consequence of the rising
income.
Maintaining a close and constructive
working relationship with the Manager
is crucial as the Board and the Manager
both aim to continue to achieve
consistent, long-term returns in line
with the investment objective. The
Board invites the Manager to attend all
Board and certain Committee meetings
in order to update the Directors on the
performance of the investments and
the implementation of the investment
strategy and objective.
Important components in the
collaboration with the Manager are:
– Encouraging open discussion with
the Manager.
– Recognising that the interests of
shareholders and the Manager (as
well as of its other clients) are, for the
most part, well aligned, adopting a
tone of constructive challenge,
balanced when those interests are
not fully congruent by robust
negotiation of the Manager’s terms
of engagement.
– Drawing on Directors’ individual
experience to support the Manager
in its monitoring and change
management of portfolio companies,
for the benefit of all stakeholders of
the Company.
The Board reviews the portfolio at each
quarterly meeting and maintains
constructive dialogue with the Manager.
The Board has not repurchased any
shares during the year but it continues
to monitor the discount closely and will
take appropriate action as required.
The Company could not, without a
significant draw down on reserves, to
increase the dividend in real terms this
year, as has happened several times in
the past due to the recent surge in
inflation. However, the ability to smooth
income by judicious use of revenue
reserves remains a particular advantage
of investment trusts. Despite difficult
conditions, the Board was able to
increase its dividend for the 28th
consecutive year. The dividend of 13.80p
was 95.2% covered by earnings. After
payment of the fourth interim dividend,
the revenue reserve will be £7.5million,
representing 10.80p per ordinary share
or over nine months of the annual
dividend.
Strategic Report Governance Financial Other InformationIntroduction
Stakeholder Why they are
important
Engagement 2022/23 Highlights
Investee
companies
The Board is committed to
responsible investing and
actively monitors the
activities of investee
companies through its
delegation to the Manager.
In order to achieve this, the Manager
has discretionary powers to exercise
voting rights on behalf of the Company
on all resolutions proposed by the
investee companies, when the
Company's rights permit voting. The
Board monitors investments made and
divested and questions the Manager’s
rationale for exposures taken and voting
decisions made.
In respect of the year under review, the
Manager engaged with many of its
investee companies and voted at all of
its shareholder meetings (further details
can be found on page 12).
Service
Providers
In order to function as an
investment trust with a
premium listing on the
London Stock Exchange, the
Company relies on a diverse
range of advisers to support
meeting all relevant
obligations.
The Board maintains regular contact
with its key external providers, both
through the Board and Committee
meetings, as well as outside of the
regular meeting cycle. Their advice, as
well as their needs and views, are
routinely taken into account.
During the year, the Management
Engagement Committee reviewed its
third party service providers including
the Manager. The Board considered the
ongoing appointments to be in the best
interests of the Company and its
shareholders as a whole.
Lenders Availability of funding and
liquidity are crucial to the
Company’s ability to take
advantage of investment
opportunities as they arise.
Considering how important the
availability of funding is, the Company
aims to demonstrate to lenders that it is
a well-managed business and, in
particular, that the Board focuses
regularly and carefully on the
management of risk.
The Manager manages the relationship
with the Company's lender and reports
to the Board at each meeting and as
and when required for renewals of
terms or negotiation of loan covenants.
The Manager provides a monthly
statement of compliance of the loan
covenants to the lender.
During the year, gearing was regularly
considered. The revolving loan facility
for £30million with Sumitomo Mitsui
Banking Corporation (“SMBC”) has been
renewed for a further year from
22September 2023.
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Schroder Income Growth Fund plc 23
24 Schroder Income Growth Fund plc
Business Review
Risk Mitigation and management Change
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.
The Board holds a separate annual strategy meeting to
consider the Company’s strategy and performance, the
appropriateness of the Company’s investment remit together
with opportunities and threats to its business. Share price
relative to NAV per share is monitored at quarterly board
meetings and the use of buy back authorities is considered
on a regular basis.
The marketing and distribution activity is actively reviewed
and there is proactive engagement with shareholders.
The Company holds a continuation vote every five years on
whether the Company should continue in its current form.
Shareholders will have the opportunity to vote on the
continuation of the Company at its AGM in 2025.
➔
The Company’s cost base could become
uncompetitive, particularly in light of
open- ended alternatives.
The ongoing competitiveness of all service provider fees is
subject to periodic benchmarking against its competitors.
Annual consideration of management fee levels.
➔
Principal risks and uncertainties
The Board, through its delegation to the Audit and Risk Committee, 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 assessment at least annually. The last assessment took place in October 2023.
During the year, the Board discussed and monitored a number of risks which could potentially impact the Company’s ability to meet its strategic
objectives. The Board received updates from the Manager, Company Secretary and other service providers on emerging risks that could affect
the Company. The Board was mindful of the following emerging risks during the year; the ongoing conflict in Ukraine, rising inflation and
interest rates, the threat of a UK recession and increasing energy prices. These risks were not seen as new principal or emerging risks but those
that exacerbate existing risks and have been incorporated in the market risks section in the table below.
Political risk includes the impact of geopolitical risk, regional tensions, trade wars and sanctions against companies. The Board continued to
monitor the Russian invasion of Ukraine and its impact on political tensions, supply chains, interest rates and in particular higher inflation in the
UK and globally. The Board is also mindful that changes to financial and public policy could impact the Company in the future. Climate change
risk includes how climate change could affect the Company’s investments, and potentially shareholder returns. The Board notes that the
Manager has integrated ESG considerations, including climate change, into the investment process. The Board will continue to monitor this. The
Board considers that both political risks and climate risks referred to above are covered in the table below under economic and market risks and
ESG and climate change risks respectively.
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. Actions taken by the Board and, where
appropriate, its Committees, to manage and mitigate the Company’s principal risks and uncertainties are set out in the table below.
The “Change” column on the right highlights at a glance the Board’s assessment of any increases or decreases in risk during the year after
mitigation and management. The arrows show the risks as increased, decreased or unchanged.
Schroder Income Growth Fund plc 25
Strategic Report Governance Financial Other InformationIntroduction
Risk Mitigation and management Change
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,
including resources and key personnel risk.
➔
Economic and 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.
The portfolio will normally be fairly fully
invested and as such will therefore
inevitably be exposed to economic and
market risk. Changes in general
economic and market conditions, such
as currency exchange rates, interest
rates, inflation rates, industry conditions,
tax laws, political events and trends can
substantially and adversely affect the
value of investments. Market risk
includes the potential impact of events
which are outside the Company’s
control, such as pandemics, civil unrest
and wars.
The risk profile of the portfolio is considered and appropriate
strategies to mitigate any negative impact of substantial
changes in markets are discussed with the Manager.
There are inherent risks involved in stock selection. The
Manager is experienced and has a long track record in
successfully investing in public equity holdings.
The Manager monitors the impact of foreign currency
movements on the portfolio and is able to rebalance the
portfolio towards stocks which are less impacted by changes
in foreign currency exchange rates if required.
The increased risk reflects the
continuing geopolitical
concerns globally as well as
higher inflation, interest rate
rises and the ongoing
economic impact of these. The
Board continues to monitor
these macro events on a
regular basis.
➔
Custody
Safe custody of the Company’s assets
may be compromised through control
failures by the depositary.
The depositary reports on the safe custody of the Company’s
assets, including cash and portfolio holdings, which are
independently reconciled with the Manager’s records.
The review of audited internal controls reports covering
custodial arrangements is undertaken.
An annual report from the depositary on its activities,
including matters arising from custody operations is reviewed.
➔
Gearing
The Company utilises a credit facility.
This arrangement increases 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 is monitored and strict restrictions on borrowings are
imposed: gearing continues to operate within pre-agreed
limits so as not to exceed 25% of shareholders’ funds.
The loan was renewed in
September 2023 for a further
year. Borrowing remains
expensive in the current falling
market environment However,
the Manager optimises the
use of gearing to maximise the
return to its equity
shareholders through
appropriate borrowing levels.
➔
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26 Schroder Income Growth Fund plc
Risk Mitigation and management Change
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.
The confirmation of compliance with relevant laws and
regulations by key service providers.
Shareholder documents and announcements, including the
Company’s published annual report are subject to stringent
review processes.
Procedures have been 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 and poor
performance of any service provider
could lead to disruption, reputational
damage or loss.
Service providers are appointed subject to due diligence
processes and with clearly-documented contractual
arrangements detailing service expectations.
Regular reports are provided by key service providers and the
quality of services provided are monitored.
Audited internal controls reports from key service providers,
including confirmation of business continuity arrangements,
are reviewed annually.
➔
Cyber
The Company’s service providers are all
exposed to the risk of cyber attacks.
Cyber attacks could lead to loss of
personal or confidential information or
disrupt operations.
Service providers report on cyber risk mitigation and
management at least annually, which includes confirmation of
business continuity capability in the event of a cyber attack.
In addition, the Board received presentations from the
Manager, the registrar and the safekeeping agent and
custodian on cyber risk.
The evolving nature of cyber
attacks remains prevalent
across the industry. While the
risk of financial loss is probably
small, the risk of reputational
damage and loss of sensitive
information continues to be
significant.
➔
ESG and climate change
The failure of the Manager to identify
ESG issues, including the impact of
climate change, could impact
shareholder returns due to valuation
issues in investee companies and the
Company’s shares becoming less
attractive to investors.
The Manager’s ESG policies, including those relating to
climate change, which have been adopted by the Company,
are fully integrated into the investment process, as set out in
the Strategic Report. Investments are valued at fair value and
reflect market participants’ views of ESG and climate change
risk on the Company’s portfolio investments. The Manager
regularly reports to the Board on ESG and climate change
matters, including engagement with investee companies. Any
investor feedback is also taken into consideration by the
Board.
➔
Business Review
Risk assessment and internal controls review by the Board
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. The Board is satisfied that it has undertaken a detailed review of the risks
facing the Company.
A full analysis of the financial risks facing the Company is set out in note 19 to the accounts on pages 65 to 69.
Schroder Income Growth Fund plc 27
Strategic Report Governance Financial Other InformationIntroduction
Viability statement
The Directors have assessed the viability of the Company over a five
year period, taking into account the Company’s position at 31August
2023 and the potential impacts of the principal risks and uncertainties
it faces for the review period. The Directors have assessed the
Company’s operational resilience and they are satisfied that the
Company’s outsourced service providers will continue to operate
effectively.
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, dividends and
availability of funding.
In its assessment of the viability of the Company, the Directors have
considered each of the Company’s principal risks and uncertainties
detailed on pages 24 to 26 and in particular the impact of a significant
fall in UK equity markets on the value of the Company’s investment
portfolio. The Directors have 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 and on that basis consider that five
years is an appropriate time period. The Directors also considered the
beneficial tax treatment the Company is eligible for as an investment
trust. If changes to these taxation arrangements were to be made it
would affect the viability of the Company to act as an effective
investment vehicle.
Whilst the Company’s Articles of Association require that a proposal
for the continuation of the Company be put forward at the AGM in
2025, the Directors have no present reason to believe such a
resolution will not be passed by shareholders.
The Directors also considered a stress test in which the Company’s
NAV dropped by 50% and noted that, based on the assumptions in
the test, the Company would continue to be viable over a five year
period. Based on the Company’s processes for monitoring operating
costs, the Board’s view that the Manager has the appropriate depth
and quality of resource to achieve superior returns in the longer term,
the portfolio risk profile, limits imposed on 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 of their assessment.
Going concern
The Directors have assessed the principal risks, the impact of the
emerging risks and uncertainties and the matters referred to in the
viability statement. The Board have considered climate risk, political
risk and external market factors in their assessment. Based on the
work the Directors have performed, they have not identified any
material uncertainties relating to events or conditions that, individually
or collectively, may cast significant doubt on the Company’s ability to
continue as a going concern for the period assessed by the Directors,
being the period to 30 November 2024 which is at least 12months
from the date the financial statements were authorised for issue.
By order of the Board
Schroder Investment Management Limited
Company Secretary
25 October 2023
Business Review
28 Schroder Income Growth Fund plc
Governance
Board of Directors 30
Directors’ Report 32
Audit and Risk Committee Report 35
Management Engagement Committee Report 38
Nomination Committee Report 39
Remuneration Committee Report 41
Directors’ Remuneration Report 42
Statement of Directors’ Responsibilities 45
Go v ernance
Schroder Income Growth Fund plc 29
30 Schroder Income Growth Fund plc
Board of
Directors
Ewen Cameron Watt
Status: independent non-executive
Chairman
Length of service: 6 years – appointed a
Director on 18 December 2017
Experience: Ewen Cameron Watt was a
managing director at Blackrock, where he
spent the majority of his career (including
predecessor companies). From 2011 to 2016,
he was chief investment strategist at the
Blackrock Investment Institute. Prior to
joining Blackrock, he held senior investment
roles in the UK and Hong Kong, including as
portfolio manager from 1995 to 2010 and
head of Asian research for SG Warburg from
1990 to 1995. Ewen is also an independent
adviser to a number of endowments and
pension funds. He began his career as an
analyst at EB Savory Miln in 1978.
Contribution: Ewen brings his extensive
financial services and investment experience.
Committee membership: Audit and Risk,
Management Engagement, Nomination and
Remuneration Committees (Chairman of the
Management Engagement Committee)
Current remuneration: £38,000 per
annum*
Shares held: 13,000**
June Aitken
Status: independent non–executive
Director
Length of service: 9 months – appointed a
Director on 1 January 2023
Experience: June Aitken has over 30 years'
experience with a successful equities
distribution platform background. She
worked in partnership with institutional
investors and subsequently co-founded an
investment manager focused on
environmental and responsible equity
mandates for pension funds and
endowments globally. She brings her
knowledge of the investment trust market,
including intermediary and retail investor
distribution, and experience of risk and
governance frameworks.
She has previously held roles with Berkshire
Capital ICAV, Asian Masters Fund, Emerging
Markets Masters Fund and Aquarius Fund.
June is currently a non-executive Director of
JP Morgan Asia Growth and Income plc, CC
Japan Income & Growth Trust plc and BBGI
Global Infrastructure S.A.
Contribution: June brings broad based
experience in investment trusts and financial
services including distribution, responsible
investment and governance.
Committee membership: Audit and Risk,
Management Engagement, Nomination and
Remuneration Committees (Chairman of the
Nomination Committee)
Current remuneration: £28,000 per
annum*
Shares held: 10,163**
Schroder Income Growth Fund plc 31
Board of
Directors
Fraser McIntyre
Status: independent non-executive
Director
Length of service: 4 years – appointed a
Director on 17 December 2019
Experience: Fraser McIntyre has over 30
years of experience in financial services,
including asset management, investment
banking and audit. He started his career
auditing financial services companies before
working in the prime brokerage/equity
divisions of two banks, Goldman Sachs and
UBS. He has been COO at several multi-
billion dollar hedge funds where he was
responsible for overseeing all operational
areas of the business, including finance and
accounting, operations, risk, legal and
compliance. He has sat on a number of fund
and management company boards whose
investments covered a wide range of asset
classes across traditional and alternative
strategies.
Fraser is a Chartered Accountant. He has
held a variety of executive positions within
the financial services sector, most recently as
Chief Operating Officer of Cantab Capital LLP
which became part of GAM.
Contribution: Fraser brings his experience
in financial services, including asset
management, investment banking and audit.
Committee membership: Audit and Risk,
Management Engagement, Nomination and
Remuneration Committees (Chairman of the
Audit and Risk Committee)
Current remuneration: £33,000 per
annum*
Shares held: 15,415***
Victoria Muir
Status: senior independent non-
executive Director
Length of service: 4 years – appointed a
Director on 23 July 2019
Experience: Victoria Muir is a Chartered
Director and a Fellow of the Institute of
Directors. She has held a variety of executive
positions within the financial services sector,
most notably as an executive director of
Royal London Asset Management Ltd and
some of its sister companies, before
pursuing a career as a non-executive
director. She is chair of Invesco Select Trust
plc, and a director of Premier Miton Global
Renewables Trust plc and its subsidiary
PMGR Securities 2025 plc. Victoria has over
25 years of experience in financial services,
including asset management and inter-
dealer broking. Her experience covers a
broad range of products and services
including investment trusts, segregated
accounts, pension funds, insurance products,
VCTs and hedge funds and a wide breadth of
asset classes across both traditional and
alternative investments.
Contribution: Victoria brings her experience
in financial services, particularly asset
management with a focus on distribution,
strategy and governance.
Committee membership: Audit and Risk,
Management Engagement, Nomination and
Remuneration Committees (Chairman of the
Remuneration Committee)
Current remuneration: £28,000 per
annum*
Shares held: 3,500**
* Current remuneration effective 1 September 2023.
** Shareholdings are as at 25 October 2023. Full details of Directors’ shareholdings and fees paid to Directors are set out in the Directors’ Remuneration Report
on pages 42 to 44.
*** Mr McIntyre's shareholding as at 25 October 2023 includes the holdings of a connected person.
Strategic Report Governance Financial Other InformationIntroduction
32 Schroder Income Growth Fund plc
Directors’
Report
Directors and officers
Chairman
The Chairman is an independent non-executive Director who is
responsible for leadership of the Board and ensuring its effectiveness
in all aspects of its role. The Chairman’s other significant
commitments are detailed on page 30. He has no conflicting
relationships.
Senior Independent Director
Victoria Muir is the Board‘s Senior Independent Director (“SID”) and
has held this position since 15 December 2022. She acts as a
sounding board for the Chairman, meets with major shareholders as
appropriate, provides a channel for any shareholder concerns
regarding the Chairman and takes the lead in the annual evaluation
of the Chairman by the independent Directors.
Company Secretary
Schroder Investment Management Limited provides company
secretarial support to the Board and is responsible for assisting the
Chairman with Board meetings and advising the Board with respect
to governance. The Company Secretary also manages the
relationship with the Company’s service providers, except for the
Manager. Shareholders wishing to lodge questions in advance of the
AGM are invited to do so by writing to the Company Secretary at the
address given on the outside back cover or by email to
amcompanysecretary@schroders.com.
Role and operation of the Board
Four board meetings are usually scheduled each year to deal with
matters including: the setting and monitoring of investment strategy;
approval of borrowings and/or cash positions; review of investment
performance; the level of discount of the Company’s shares to
underlying NAV; promotion of the Company; and services provided by
third parties. Additional meetings of the Board are arranged as
required.
The Board is the Company’s governing body; it sets the Company’s
strategy and is collectively responsible to shareholders for its long-
term success. The Board is responsible for appointing and
subsequently monitoring the activities of the Manager and other
service providers to ensure that the investment objective of the
Company continues to be met. The Board also ensures that the
Manager adheres to the investment restrictions set by the Board and
acts within the parameters set by it in respect of any gearing. The
Strategic Report on pages 6 to 27 sets out further detail of how the
Board reviews the Company’s strategy, risk management and internal
controls and also includes other information required for the
Directors’ Report, and is incorporated by reference.
A formal schedule of matters specifically reserved for decision by the
Board has been defined and a procedure adopted for Directors, in
the furtherance of their duties, to take independent professional
advice at the expense of the Company.
The Chairman ensures that all Directors receive relevant
management, regulatory and financial information in a timely manner
and that they are provided, on a regular basis, with key information
on the Company’s policies, regulatory requirements and internal
controls. The Board meets at least quarterly and receives and
considers reports regularly from the Manager and other key advisers
and ad hoc reports and information are supplied to the Board as
required.
The Board is satisfied that it is of sufficient size with an appropriate
balance of diverse skills and experience, independence and
knowledge of the Company, its sector and the wider investment trust
industry, to enable it to discharge its duties and responsibilities
effectively and that no individual or group of individuals dominates
decision making.
The Board has approved a policy on Directors’ conflicts of interest.
Under this policy, Directors are required to disclose all actual and
potential conflicts of interest to the Board as they arise for
consideration and approval. The Board may impose restrictions or
refuse to authorise such conflicts if deemed appropriate. No Directors
have any connections with the Manager, shared directorships with
other Directors or material interests in any contract which is
significant to the Company’s business.
Key service providers
The Board has adopted an outsourced business model and has
appointed the following key service providers:
Manager
The Company is an alternative investment fund as defined by the
AIFM Directive and has appointed Schroder Unit Trusts Limited
(“SUTL”) as the Manager in accordance with the terms of an
alternative investment fund manager (“AIFM”) agreement. The AIFM
agreement, which is governed by the laws of England and Wales, can
be terminated by either party on 12months’ notice or on immediate
notice in the event of certain breaches or the insolvency of either
party. As at the date of this report no such notice had been given by
either party.
SUTL is authorised and regulated by the FCA and provides portfolio
management, risk management, accounting and company secretarial
services to the Company under the AIFM agreement. The Manager
also provides general marketing support for the Company and
manages relationships with key investors, in conjunction with the
Chairman, other Board members or the corporate broker as
appropriate. The Manager has delegated investment management,
accounting and company secretarial services to another wholly
owned subsidiary of Schroders plc, Schroder Investment
Management Limited. The Manager has appropriate professional
indemnity insurance cover in place.
The Schroders Group manages £726.1 billion (as at 30 June 2023) on
behalf of institutional and retail investors, financial institutions and
highnet-worth clients from around the world, invested in a broad
range of asset classes across equities, fixed income, multi-asset and
alternatives.
Under the terms of the AIFM Agreement, a management fee is
payable at a rate of 0.45% per annum of chargeable assets. A further
fee of £150,000 plus VAT per annum is payable to cover
administration and company secretarial fees.
The management fee payable in respect of the year ended 31 August
2023 amounted to £1,055,000 (2022: £1,054,000).
Details of all amounts payable to the Manager are set out in note
4
on page59.
Schroder Income Growth Fund plc 33
The Board has reviewed the performance of the Manager during the
year under review and continues to consider that it has the
appropriate depth and quality of resource to deliver the Company’s
investment objectives over the longer term. Thus, the Board
considers that the Manager’s appointment under the terms of the
AIFM agreement, details of which are set out above, is in the best
interests of shareholders as a whole.
Depositary
HSBC Bank plc, which is authorised by the Prudential Regulation
Authority and regulated by the Financial Conduct Authority and the
Prudential Regulation Authority, carries out certain duties of a
depositary specified in the AIFM Directive including, in relation to the
Company, as follows:
– safekeeping of the assets of the Company which are entrusted to
it;
– cash monitoring and verifying the Company’s cash flows; and
– oversight of the Company and the Manager.
The Company, the Manager and the depositary may terminate the
depositary agreement at any time by giving 90days’ notice in writing.
HSBC Bank plc may only be removed from office when a new
depositary is appointed by the Company.
Registrar
Equiniti Limited has been appointed as the Company’s registrar.
Equiniti’s services to the Company include share register maintenance
(including the issuance, transfer and cancellation of shares as
necessary), acting as agent for the payment of any dividends,
management of company meetings (including the registering of
proxy votes and scrutineer services as necessary), handling
shareholder queries and correspondence and processing corporate
actions.
Corporate Governance Statement
The Financial Conduct Authority requires all UK listed companies to
disclose how they have applied the principles and complied with the
provisions of the UK Corporate Governance Code 2018 (the “UK
Code”) issued by the Financial Reporting Council (“FRC”).
The Board of the Company has considered the principles and
provisions of the AIC Code of Corporate Governance (the “AIC Code”).
The Code addresses the Principles and Provisions set out in the UK
Corporate Governance Code (the “UK Code”), as well as setting out
additional Provisions on issues that are of specific relevance to the
Company.
The Board considers that reporting against the Principles and
Provisions of the AIC Code, which has been endorsed by the Financial
Reporting Council, provides more relevant information to
shareholders.
The AIC Code is available on the AIC website (www.theaic.co.uk). It
includes an explanation of how the AIC Code adopts the principles
and provisions set out in the UK Code to make them relevant for
investment companies.
The Board confirms that the Company has complied with the AIC
Code, in so far as they apply to the Company’s business, throughout
the year under review. As all of the Company's day-to-day
management and administrative functions are outsourced to third
parties, it has no executive directors, employees or internal
operations and therefore has not reported in respect of the following
UK Code Provisions:
• the role of the executive directors and senior management;
• the need for an internal audit function; and
• executive directors’ remuneration.
Committees
In order to assist the Board in fulfilling its governance responsibilities,
it has delegated certain functions to committees. The roles and
responsibilities of these committees, together with details of work
undertaken during the year under review, are outlined over the next
few pages.
The reports of the Audit and Risk Committee, Nomination Committee,
Remuneration Committee and Management Engagement Committee
are incorporated and form part of the Directors’ Report.
Share capital and substantial share interests
As at 25 October 2023, the Company had 69,463,343 ordinary shares
of 10 pence each in issue. No shares are held in treasury. Accordingly,
the total number of voting rights in the Company at the date of this
report is 69,463,343. Details of changes to the Company’s share
capital during the year under review are given in note 13 to the
accounts on page 63.
The Company has received notifications in accordance with the
Financial Conduct Authority’s (“FCA”) Disclosure Guidance and
Transparency Rule 5.1.2R of the following interests in 3% or more of
the voting rights attached to the Company’s issued share capital.
As at
31 August % of total
2023 voting rights
Charles Stanley & Co. Limited 3,446,355 4.98
There have been no notified changes to the above holdings since the
year end.
Provision of information to the auditor
The Directors at the date of approval of this report confirm that, so
far as each of them is aware, there is no relevant audit information of
which the Company’s auditor is unaware; and each Director has taken
all the steps that he or she ought to have taken as a Director in order
to make himself or herself aware of any relevant audit information
and to establish that the Company’s auditor is aware of that
information.
Directors’
Report
Strategic Report Governance Financial Other InformationIntroduction
34 Schroder Income Growth Fund plc
Directors’
Report
Directors’ attendance at meetings
The number of scheduled and ad hoc meetings of the Board and its
Committees held during the financial year, and the attendance of
individual Directors, is shown below. Whenever possible all Directors
attend the AGM.
Audit Management
and Risk Engagement Nomination Remuneration
Board Committee Committee Committee Committee
Ewen Cameron Watt 4/4 2/2 2/2 2/2 2/2
June Aitken
1
2/4 1/2 1/2 1/2 1/2
Bridget Guerin
2
2/4 1/2 1/2 1/2 1/2
Fraser McIntyre 4/4 2/2 2/2 2/2 2/2
Victoria Muir 4/4 2/2 2/2 2/2 2/2
1
Ms Aitken was appointed to the Board on 1 January 2023.
2
Ms Guerin retired from the Board on 15 December 2022.
In addition to the scheduled quarterly Board meetings, the Board
met once during the year to review and focus on the Company’s
strategy. The Board is satisfied that the Chairman and each of the
other non-executive Directors commit sufficient time to the affairs of
the Company to fulfil their duties.
Directors’ and officers’ liability insurance and indemnities
Directors’ and officers’ liability insurance cover was in place for the
Directors throughout the year. The Company’s Articles of Association
provide, subject to the provisions of UK legislation, an indemnity for
Directors in respect of costs which they may incur relating to the
defence of any proceedings brought against them arising out of their
positions as Directors, in which they are acquitted or judgment is
given in their favour by the court. This is a qualifying third party
indemnity provision and was in place throughout the year under
review and to the date of this report.
By order of the Board
Schroder Investment Management Limited
Company Secretary
25 October 2023
Schroder Income Growth Fund plc 35
Strategic Report Governance Financial Other InformationIntroduction
Audit and Risk Committee Report
The responsibilities and work carried out by the Audit and Risk Committee during the year under review are set out in the following report. The
duties and responsibilities of the Committee, which include monitoring the integrity of the Company’s financial reporting and internal controls,
are set out in further detail below, and may be found in the terms of reference which are set out on the Company’s webpages,
www.schroders.co.uk/incomegrowth.
All Directors are members of the Committee. Fraser McIntyre is the Chairman of the Committee. The Board has satisfied itself that at least one
of the Committee’s members has recent and relevant financial experience and that the Committee as a whole has competence relevant to the
sector in which the company operates. The Chairman of the Board is a member of the Committee, and was independent on appointment.
Provision 24 of the UK Code states that the chairman of the board should not be a member of the audit committee. However, the AIC Code
permits the Chairman to be a member of, but not chair, the Committee if they were independent on appointment. In view of the size of the
Board, the Directors feel it is appropriate for him to continue as a member, so that the Committee can continue to benefit from his experience
and knowledge. The activities of the Committee were considered as part of the internally facilitated board appraisal process completed in
accordance with standard governance arrangements. The evaluation found that the Committee functioned well, with the right balance of
membership, skills and experience.
Ongoing risk review
Half year
report
Audit
planning
Audit
Annual
report
Post-audit
review
Approach
The Committee’s key roles and responsibilities are set out below.
Risks and Internal Controls Financial Reports and Valuation Audit
Principal and Emerging risks and
uncertainties
To establish a process for identifying,
assessing, managing and monitoring
emerging and principal risks of the
Company, and an explanation of how
these are being managed or mitigated.
The Committee is responsible for
reviewing the adequacy and effectiveness
of the Company’s internal controls and
the whistleblowing procedures operated
by the AIFM and other services providers.
Financial statements
To monitor the integrity of the financial
statements of the Company and any
formal announcements relating to the
Company’s financial performance and
valuation. To review the half year report.
Audit results
To discuss any matters arising from the
audit and recommendations made by the
auditor.
Going concern and viability
To review the position and make
recommendations to the Board in relation
to whether it considers it appropriate to
adopt the going concern basis of
accounting in preparing its annual and
half-yearly financial statements.
The Committee is also responsible for
reviewing the disclosures made by the
Company in the viability statement.
Auditor appointment, independence
and performance
To make recommendations to the Board,
in relation to the appointment,
re-appointment, effectiveness, any
non-audit services by the auditor,
removal of the external auditor, to review
their independence, and to approve their
remuneration and terms of engagement.
To review the audit plan and engagement
letter.
36 Schroder Income Growth Fund plc
Audit and Risk Committee Report
The below table sets out how the Committee discharged its duties during the year. The Committee met twice during the year. Further details
on attendance can be found on page 34. An evaluation of the Committee’s effectiveness and review of its terms of reference was completed
during the year.
Application during the year
Risks and Internal Controls Financial Reports and Valuation Audit
Principal and Emerging risks
Reviewed the principal and emerging
risks faced by the Company together with
the systems, processes and oversight in
place to manage and mitigate them.
Service provider controls
Consideration of the operational controls
maintained by the Manager, Depositary
and Registrar.
Recognition of investment income
Considered dividends received against
forecast and the allocation of special
dividends to income or capital.
Effectiveness of the independent
audit process and auditor
performance
Evaluated the effectiveness of the
independent audit firm and process prior
to making a recommendation that it
should be re-appointed at the
forthcoming AGM. Evaluated the auditor’s
performance against agreed criteria
including: qualification; knowledge,
expertise and resources; independence
policies; effectiveness of audit planning;
adherence to auditing standards; and
overall competence was considered,
alongside feedback from the Manager on
the audit process. Professional scepticism
of the auditor was questioned and the
Committee was satisfied with the auditor’s
replies.
Internal controls and risk
management
Consideration of several key aspects of
internal control and risk management
operating within the Manager, Depositary
and Registrar, including assurance reports
and presentations on these controls.
Calculation of the investment
management fee
Consideration of methodology used to
calculate the fees, matched against the
criteria set out in the AIFM agreement.
Auditor independence
Ernst & Young LLP has provided audit
services to the Company since it was
appointed on 17May 2019.
The auditor is required to rotate the
senior statutory auditor every five years.
There are no contractual obligations
restricting the choice of external auditor.
This is the fourth year that the senior
statutory auditor, Matthew Price, has
conducted the audit of the Company’s
financial statements.
Compliance with the investment trust
qualifying rules in S1158 of the
Corporation Tax Act 2010
Consideration of the Manager’s report
confirming compliance.
Overall accuracy of the annual report
and accounts
Consideration of the draft annual report
and accounts and the letter from the
Manager in support of the letter of
representation to the auditor.
Audit results
Met with and reviewed a comprehensive
report from the auditor which detailed
the results of the audit, compliance with
regulatory requirements, safeguards that
have been established, and on their own
internal quality control procedures.
Valuation and existence of holdings
Quarterly review of portfolio holdings and
assurance reports.
Meetings with the auditor
Met the auditor without representatives
of the Manager present. Representatives
of the auditor attended the Committee
meeting at which the draft annual report
and accounts was considered.
Schroder Income Growth Fund plc 37
Audit and Risk Committee Report
Application during the year
Risks and Internal Controls Financial Reports and Valuation Audit
Fair, balanced and understandable
Reviewed the annual report and accounts
to ensure that it was fair, balanced and
understandable.
Provision of non-audit services by the
auditor
The Committee has reviewed the FRC’s
Guidance on Audit Committees and has
formulated a policy on the provision of
non-audit services by the Company’s
auditor. The Committee has determined
that the Company’s appointed auditor will
not be considered for the provision of
certain non-audit services, such as
accounting and preparation of the
financial statements, internal audit and
custody. The auditor may, if required,
provide other non-audit services which
will be judged on a case-by-case basis.
The auditor did not provide any non-audit
services to the Company during the year.
Going concern and viability
To review the position and make
recommendations to the Board in relation
to whether it considers it appropriate to
adopt the going concern basis of
accounting in preparing its annual and
half-yearly report and accounts.
The Committee is also responsible for
reviewing the disclosures made by the
Company in the viability statement.
Consent to continue as auditor
Ernst & Young LLP indicated to the
Committee their willingness to continue
to act as auditor.
Recommendations made to, and approved by, the Board:
• The Committee recommended that the Board approve the report and accounts.
• The Committee recommended that the going concern assumption be adopted in the report and accounts and the explanations
set out in the viability statement.
• As a result of the work performed, the Committee has concluded that the report for the period ended 31 August 2023, taken as
a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company’s
position, performance, business model and strategy, and has reported on these findings to the Board. The Board’s conclusions
in this respect are set out in the Statement of Directors’ Responsibilities on page45.
• Having reviewed the performance of the auditor as described above, the Committee considered it appropriate to recommend
the firm’s re-appointment. Resolutions to re-appoint Ernst & Young LLP as auditor to the Company, and to authorise the
Directors to determine their remuneration will be proposed at the AGM.
Fraser McIntyre
Chairman of the Audit and Risk Committee
25 October 2023
Strategic Report Governance Financial Other InformationIntroduction
38 Schroder Income Growth Fund plc
Management Engagement Committee Report
The Committee undertook a detailed review of the Manager’s
performance and agreed that it has the appropriate depth
and quality of resource to deliver superior returns over the
longer term.
The Committee also reviewed the terms of the AIFM
agreement and agreed they remained fit for purpose.
The Committee reviewed the other services provided by the
Manager and agreed they were satisfactory.
The annual review of each of the service providers was
satisfactory.
The Committee noted that the Audit and Risk Committee had
undertaken a detailed evaluation of the Manager, registrar,
and depositary and custodian’s internal controls.
Oversight of the Manager
The Committee:
• reviews the Manager’s performance, over the short- and
long-term, against the reference index, peer group and the
market.
• considers the reporting it has received from the Manager
throughout the year, and the reporting from the Manager
to the shareholders.
• assesses management fees on an absolute and relative
basis, receiving input from the Company’s broker, including
peer group and industry figures, as well as the structure of
the fees.
• reviews the appropriateness of the Manager’s contract,
including terms such as notice period.
• assesses whether the Company receives appropriate
administrative, accounting, company secretarial and
marketing support from the Manager.
Oversight of other service providers
The Committee reviews the performance and competitiveness
of the following service providers on at least an annual basis:
• Depositary
• Corporate broker
• Registrar
• Lender
The Committee also receives a report from the Company
Secretary on ancillary service providers, and considers any
recommendations.
The Committee notes the Audit and Risk Committee’s review
of the auditor.
The Management Engagement Committee is responsible for (1) the monitoring and oversight of the Manager’s performance and fees, and
confirming the Manager’s ongoing suitability, and (2) reviewing and assessing the Company’s other service providers, including reviewing their
fees. All Directors are members of the Committee. Ewen Cameron Watt is the Chairman of the Committee. Its terms of reference are available
on the Company’s webpages, www.schroders.co.uk/incomegrowth. The activities of the Committee were considered as part of the internally
facilitated board appraisal process completed in accordance with standard governance arrangements. The evaluation found that the
Committee functioned well, with the right balance of membership, skills and experience.
Approach
Recommendations made to, and approved by, the Board:
• That the ongoing appointment of the Manager on the terms of the AIFM agreement, including the fee, was in the best interests
of shareholders as a whole.
• That the Company’s service providers’ performance remained satisfactory.
Application during the year
Schroder Income Growth Fund plc 39
Nomination Committee Report
Selection and induction
• The Committee prepares a job
specification for each role, which is
shared with an independent
recruitment firm. For the Chairman
and the chairs of committees, the
Committee also considers current
Board members.
• Job specification outlines the
knowledge, professional skills,
personal qualities and experience
requirements.
• Potential candidates are assessed
against the Company’s diversity
policy.
• The Committee discusses the long
list, invites a number of candidates
for interview and makes a
recommendation to the Board.
• The Committee reviews the
induction and training of new
Directors.
Board evaluation
• The Committee assesses each Director
annually and considers whether an external
evaluation should take place.
• Evaluation focuses on whether each Director
continues to demonstrate commitment to their
role and provides a valuable contribution to the
Board during the year, taking into account time
commitment, independence, conflicts and
training needs.
• Following the evaluation, the Committee
provides a recommendation to shareholders
with respect to the annual re-election of
Directors at the AGM.
• All Directors retire at the AGM and their
re-election is subject to shareholder approval.
Succession
• Having considered diversity, the
need for regular refreshment and
orderly succession, the Board’s
policy is that Directors’ tenure will
be for no longer than nine years,
with the exception of the
Chairman, who should not serve
longer than 9years, in ordinary
circumstances and that each
Director will be subject to annual
re-election at the AGM.
• The Committee reviews the Board’s
current and future needs at least
annually. Should any need be
identified the Committee will
initiate the selection process.
• The Committee oversees the
handover process for retiring
Directors.
The Nomination Committee is responsible for (1) the recruitment, selection and induction of Directors, (2) their assessment during their tenure,
and (3) the Board’s succession. All Directors are members of the Committee. June Aitken is the Chairman of the Committee. Its terms of
reference are available on the Company’s webpages, www.schroders.co.uk/incomegrowth. The activities of the Committee were considered as
part of the internally facilitated board appraisal process completed in accordance with standard governance arrangements. The evaluation
found that the Committee functioned well, with the right balance of membership, skills and experience.
Approach
Oversight of Directors
Selection
Induction
Annual
evaluation
Annual review
of succession
policy
Application
of succession
policy
Strategic Report Governance Financial Other InformationIntroduction
40 Schroder Income Growth Fund plc
Nomination Committee Report
Succession
• The Committee believes it is
important for the Board to have
the appropriate skills and diversity
and has reviewed composition and
succession plans with these in
mind.
• The Board has complied with the
FCA Listing Rule in relation to
diversity and provided necessary
disclosures on page 19.
Board evaluation
• The Board evaluation was undertaken in July
2023 and concluded that the Board and its
Committees functioned well, with the right
balance of membership, skills and experience.
• The Committee also reviewed each Director’s
time commitment and independence to ensure
that each Director remained free from conflict
and had sufficient time available to discharge
each of their duties effectively.
The Committee considered each Director’s
contributions, and noted that in addition to
extensive experience as professionals and non-
executive Directors, each Director had valuable
skills and experience, as detailed in their
biographies on pages 30 and 31.
All Directors were considered to be independent
in character and judgement.
• Based on its assessment, the Committee
provided individual recommendations for each
Director’s election or re-election.
Selection and induction
• Following a rigorous selection
process using an independent
external recruitment agency,
Cornforth Consulting Limited, June
Aitken was appointed to the Board
on 1January 2023. An induction
session was held with the Manager
and its various operating functions.
Recommendations made to, and approved by, the Board:
• That all Directors continue to demonstrate commitment to their roles, provide a valuable contribution to the deliberations of
the Board, contribute towards the Company's long-term success, and remain free from conflicts with the Company and its
Directors, so should all be recommended for election or re-election by shareholders at the AGM.
Application during the year
Schroder Income Growth Fund plc 41
Remuneration Committee Report
The Remuneration Committee is responsible for the making recommendations to the Board about the remuneration of the Directors. All
Directors are members of the Committee. Victoria Muir is the Chairman of the Committee. Its terms of reference are available on the
Company’s webpages, www.schroders.co.uk/incomegrowth.
Approach Application during the year
The Committee determines and agrees with the Board the
framework or broad policy for the remuneration of the Directors.
The objective of the policy shall be to ensure that members of the
Board are, in a fair and responsible manner, rewarded for their
individual contributions to the success of the Company. No Director
shall be involved in any decisions as to their own remuneration
outcome.
The remuneration framework, as set out in the Directors’
Remuneration Report, was unchanged during the year.
The Committee reviews the ongoing appropriateness and relevance
of the remuneration policy.
The Committee concluded that the remuneration policy remained
appropriate and relevant.
The Committee reviews Director remuneration annually and makes
recommendations on the fees paid to non-executive Directors in
light of Directors’ workloads, levels of responsibility and industry
norms.
The Committee reviewed Directors’ fees, using external
benchmarking, and determined they remained appropriate.
The Committee ensures that each year the Remuneration Report is
put to shareholders for approval as an advisory vote at the AGM,
and the Remuneration Policy is put to shareholders for approval
every three years at the AGM.
The Remuneration Report and Remuneration Policy will be put to
shareholders for approval at the forthcoming AGM.
Recommendations made to, and approved by, the Board:
• That the remuneration framework and Remuneration Policy remained appropriate.
• That the Remuneration Report should be put to shareholders for approval as an advisory vote at the forthcoming AGM.
• That the Remuneration Policy should be put to shareholders for approval at the forthcoming AGM.
Strategic Report Governance Financial Other InformationIntroduction
42 Schroder Income Growth Fund plc
Directors’ Remuneration Report
Introduction
The following Remuneration Policy is currently in force and is subject
to a binding vote every three years. The shareholders approved the
Directors’ Remuneration Policy at the 2020 AGM and the current
policy provisions will apply until the policy is next considered by
shareholders at the forthcoming AGM. Additionally, an ordinary
resolution to approve this report will be put to shareholders at the
forthcoming AGM.
At the AGM held on 17 December 2020, 98.33% of the votes cast (including
votes cast at the Chairman’s discretion) in respect of approval of the
Directors’ Remuneration Policy were in favour while 1.67% were against.
80,492 votes were withheld.
At the AGM held on 15 December 2022, 97.50% of the votes cast
(including votes cast at the Chairman’s discretion) in respect of approval
of the Directors’ Remuneration Report for the year ended 31 August
2022 were in favour, while 2.50% were against. 35,896votes were
withheld.
Directors’ Remuneration Policy
The determination of the Directors’ fees is the responsibility of the
Remuneration Committee, which makes recommendations to the
Board.
It is the Remuneration Committee’s policy to determine the level of
Directors’ remuneration having regard to amountspayable to
non-executive directors in the industrygenerally,the role that
individual Directors fulfil in respect of Board and Committee
responsibilities, and time committed to the Company’s affairs, taking
into account the aggregate limit of fees set out in the Company’s
Articles of Association. This aggregate level of Directors’ fees is
currently set at £150,000 per annum and any increase in this level
requires approval by the Board and the Company’s shareholders. The
Chairman of the Board and the Chairman of the Audit and Risk
Committee each receive fees at a higher rate than the other Directors
to reflect their additional responsibilities. Directors’ fees are set at a
level to recruit and retain individuals of sufficient calibre, with the level
of knowledge, experience and expertise necessary to promote the
success of the Company in reaching its short and long-term strategic
objectives.
Any Director who performs services which in the opinion of the
Directors are outside the scope of the ordinary duties of a director,
may be paid additional remuneration to be determined by the
Directors, subject to the previously mentioned fee cap.
The Board and its committees exclusively comprise non-executive
Directors. No Director past or present has an entitlement to a pension
from the Company and the Company has not, and does not intend to,
operate a share scheme for Directors or to award any share options or
long-term performance incentives to any Director. No Director has a
service contract with the Company, although Directors have a letter of
appointment. Directors do not receive exit payments and are not
provided with any compensation for loss of office. No other payments
are made to Directors other than the reimbursement of reasonable
out-of-pocket expenses incurred in attending to the Company’s
business.
Fees paid to Directors
The following amounts were paid by the Company to Directors for their services in respect of the year ended 31 August 2023 and the
preceding financial year. Directors’ remuneration is all fixed; they do not receive any variable remuneration. The performance of the Company
over the financial year is presented on page 15.
Change in annual fee
Taxable over years ended
Fees benefits
1
Total 31 August
6
2023 2022 2023 2022 2023 2022 2023 2022 2021
Director £ £ £ £ £ £ % % %
Ewen Cameron Watt (Chairman)
2
34,176 26,000 440 157 34,616 26,157 32.3 9.0 (1.1)
June Aitken
3
18,000 – 103 – 18,103 – 0.0 n/a n/a
Bridget Guerin
4
10,771 36,000 568 253 11,339 36,253 (68.7) 5.5 8.4
Fraser McIntyre
5
32,000 31,000 1,749 116 33,749 31,116 8.5 12.6 71.3
Victoria Muir 27,000 26,000 1,696 – 28,696 26,000 10.3 8.3 (1.2)
Total 121,946 119,000 4,556 526 126,503 119,526
1
Comprise amounts reimbursed for expenses incurred in carrying out business for the Company, and which have been grossed up to include PAYE and NI contributions.
2
Appointed Chairman on 15 December 2022.
3
Appointed to the Board on 1 January 2023.
4
Retired from the Board and as Chairman on 15 December 2022.
5
Appointed as Director on 17 December 2019 and Audit Chairman on 17 December 2020.
6
The percentage increase is attributable to the taxable benefits resulting from a two year delay caused by the Covid pandemic and a return to face to face meetings.
The information in the above table has been audited.
Schroder Income Growth Fund plc 43
Implementation of policy
The terms of Directors’ letters of appointment are available for
inspection at the Company’s registered office address during normal
business hours and during the AGM at the location of such meeting.
The Board did not consult with any individual shareholders before
setting this remuneration policy, although feedback from the
Company’s Manager and corporate broker on shareholder views was
considered. Any specific comments on the policy received from
shareholders would be considered on a case-by-case basis.
As the Company does not have any employees, no employee pay and
employment conditions were taken into account when setting this
remuneration policy and no employees were consulted in its
construction.
Directors’ fees are reviewed annually and take into account research
from third parties on the fee levels of directors of peer group
companies, as well as industry norms and factors affecting the time
commitment expected of the Directors. New directors are subject to
the provisions set out in this remuneration policy.
Directors’ annual report on remuneration
This report sets out how the remuneration policy was implemented
during the year ended 31August 2023.
Consideration of matters relating to
Directors’ remuneration
Directors' fees to 31 August 2023 were as follows: Chairman £37,000;
Audit Committee Chairman £32,000; Director £27,000. Directors’
remuneration was last reviewed by the Remuneration Committee in
July 2023. The members of the Committee and Board at the time that
remuneration levels were considered were as set out on pages30
and 31. Although no external advice was sought in considering the
levels of Directors’ fees, information on fees paid to directors of other
investment trusts managed by Schroders and peer group companies
provided by the Manager and corporate broker was taken into
consideration.
Following this review, it was agreed that with effect from 1September
2023, annual fees would be increased to £38,000 for the Chairman,
£33,000 for the Audit Committee Chairman and £28,000 for
Directors.
The Remuneration Committee believes that the level of increase and
resulting fees appropriately reflects prevailing market rates for an
investment trust of the Company’s size, the increasing complexity of
regulation and resultant time spent by the Directors on Company
matters, and will also enable the Company to attract appropriately
experienced additional Directors in the future.
The maximum level of fees payable, in aggregate, to the Directors of
the Company is currently £150,000 per annum.
Directors’ Remuneration Report
Expenditure by the Company on remuneration and distributions to shareholders
The table below compares the remuneration payable to Directors to distributions paid to shareholders during the year under review and the
prior financial year. In considering these figures, shareholders should take into account the Company’s investment objectives.
Year ended Year ended
31August 2023 31August 2022 %
£’000 £’000 change
Remuneration payable to Directors 127 120 5.8
1
Distribution paid to shareholders – dividends 9,586 9,170 4.5
1
The percentage fee increase is attributable to the taxable benefits resulting from a two year delay caused by the Covid pandemic and a return
to face to face meetings.
Strategic Report Governance Financial Other InformationIntroduction
44 Schroder Income Growth Fund plc
Performance graph
A graph showing the Company’s share price total return compared with the FTSE All-Share Index total return, over the last ten years, is set out
below. The FTSE All-Share Index has been selected as an appropriate comparison based on the composition of the Company’s investment
portfolio.
Source: Morningstar/Thomson Reuters. Rebased to 100 at 31 August 2013.
Directors’ share interests
The Company’s Articles of Association do not require Directors to own shares in the Company. The interests of Directors, including those of
connected persons, at the beginning and end of the financial year under review are set out below.
At At
31 August 1 September
2023 2022
Ewen Cameron Watt 13,000 10,000
June Aitken 10,163 –
Fraser McIntyre 7,984 7,704
Victoria Muir 3,500 3,500
The information in the above table has been audited. On 8 and 11 September 2023, a connected person to Mr McIntyre purchased 3,748 and
3,683 shares respectively. Following this purchase, Mr McIntyre's interests increased to 15,415 ordinary shares in the Company. There have
been no purchases of shares by any of the other Directors since the year end.
Victoria Muir
Chairman of the Remuneration Committee
25 October 2023
31-Au
g
-14
31-Au
g
-15
31-Au
g
-16
31-Au
g
-17
31-Au
g
-18
31-Au
g
-19
31-Au
g
-20
31-Au
g
-23
31-Au
g
-21
75
100
125
150
175
200
225
250
275
Share Price Total Return
FTSE All-Share Total Return
31-Au
g
-22
Directors’ Remuneration Report
The Directors are responsible for preparing the annual report, and
the financial statements in accordance with applicable law and
regulation.
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;
– state whether applicable UK Accounting Standards have been
followed, subject to any material departures disclosed and
explained in the financial statements;
– make judgements and accounting estimates that are reasonable
and prudent; 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 Directors’ Remuneration Report comply
with the Companies Act 2006.
The Directors 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 Manager is 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.
The Directors consider that 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.
Directors’ Statement
Each of the Directors, whose names and functions are listed on
pages30 and 31, confirm that to the best of their knowledge:
– the Company’s financial statements, which have been prepared in
accordance with United Kingdom Generally Accepted Accounting
Practice (United Kingdom Accounting Standards, comprising
FRS102 “The Financial Reporting Standard applicable in the UK
and Republic of Ireland” and applicable law), give a true and fair
view of the assets, liabilities, financial position and loss of the
Company; and
– the Strategic Report 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.
By order of the Board
Ewen Cameron Watt
Chairman
25 October 2023
Statement of Directors’ Responsibilities in respect of the
Annual Report and Accounts
Strategic Report Governance Financial Other InformationIntroduction
Schroder Income Growth Fund plc 45
46 Schroder Income Growth Fund plc
Financial
Independent Auditor’s Report 48
Income Statement 53
Statement of Changes in Equity 54
Statement of Financial Position 55
Notes to the Accounts 56
Financial
Schroder Income Growth Fund plc 47
48 Schroder Income Growth Fund plc
Independent Auditor’s Report to the Members of
Schroder Income Growth Fund plc
Opinion
We have audited the financial statements of Schroder Income Growth
Fund plc (“The Company”) for the year ended 31 August 2023 which
comprise the Income Statement, Statement of Changes in Equity,
Statement of Financial Position, and the related notes 1 to 20
including a summary of significant accounting policies. The financial
reporting framework that has been applied in their preparation is
applicable law and United Kingdom Accounting Standards including
FRS 102 “The Financial Reporting Standard applicable in the UK and
Republic of Ireland” (United Kingdom Generally Accepted Accounting
Practice).
In our opinion, the financial statements:
– give a true and fair view of the Company’s affairs as at 31 August
2023 and of its profit for the year then ended;
– have been properly prepared in accordance with United
Kingdom Generally Accepted Accounting Practice; and
– have been prepared in accordance with the requirements of the
Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards
on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities
under those standards are further described in the Auditor’s
responsibilities for the audit of the financial statements section of our
report. We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.
Independence
We are independent of the Company in accordance with the ethical
requirements that are relevant to our audit of the financial
statements in the UK, including the FRC’s Ethical Standard as applied
to public interest entities, and we have fulfilled our other ethical
responsibilities in accordance with these requirements.
The non-audit services prohibited by the FRC’s Ethical Standard were
not provided to the Company and we remain independent of
Company in conducting the audit.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the
Directors’ use of the going concern basis of accounting in the
preparation of the financial statements is appropriate. Our evaluation
of the Directors’ assessment of the Company’s ability to continue to
adopt the going concern basis of accounting included the following
procedures;
– Confirmation of our understanding of the Company’s going
concern assessment process and engagement with the
Directors and the Company Secretary to determine if all key
factors were considered in their assessment.
– Inspection of the Directors’ assessment of going concern,
including the revenue forecast, for the period to 30 November
2024 which is at least 12 months from the date the financial
statements will be authorised for issue. In preparing the revenue
forecast, the Company has concluded that it is able to continue
to meet its ongoing costs as they fall due.
– Review of the factors and assumptions, including the impact of
the current economic environment, as applied to the revenue
forecast and the liquidity assessment of the investments. We
considered the appropriateness of the methods used to
calculate the revenue forecast and the liquidity assessment and
determined, through testing of the methodology and
calculations, that the methods, inputs and assumptions utilised
are appropriate to be able to make an assessment for the
Company.
– Consideration of the mitigating factors included in the revenue
forecasts that are within the control of the Company. We
reviewed the Company’s assessment of the liquidity of
investments held and evaluated the Company’s ability to sell
those investments in order to cover working capital
requirements should revenue decline significantly.
– Review of Assessment of the risk of breaching the debt
covenants as a result of a reduction in the value of the
Company’s portfolio. We recalculated the Company’s compliance
with debt covenants in the scenarios assessed by the Directors
and performed reverse stress testing in order to identify what
factors would lead to the Company breaching the financial
covenants.
– Review of the Company’s going concern disclosures included in
the annual report in order to assess that the disclosures were
appropriate and in conformity with the reporting standards.
Based on the work we have performed, we have not identified any
material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the
Company’s ability to continue as a going concern for a period covered
by the directors to 30 November 2024 which is at least 12 months
from when the financial statements are authorised for issue.
In relation to the Company’s reporting on how they have applied the
UK Corporate Governance Code, we have nothing material to add or
draw attention to in relation to the Directors’ statement in the
financial statements about whether the directors considered it
appropriate to adopt the going concern basis of accounting.
Our responsibilities and the responsibilities of the directors with
respect to going concern are described in the relevant sections of this
report. However, because not all future events or conditions can be
predicted, this statement is not a guarantee as to the Company’s
ability to continue as a going concern.
Schroder Income Growth Fund plc 49
An overview of the scope of our audit
Tailoring the scope
Our assessment of audit risk, our evaluation of materiality and our
allocation of performance materiality determine our audit scope for
the Company. This enables us to form an opinion on the financial
statements. We take into account size, risk profile, the organisation of
the Company and effectiveness of controls, the potential impact of
climate change and changes in the business environment when
assessing the level of work to be performed. All audit work was
performed directly by the audit engagement team.
Climate change
Stakeholders have been increasingly interested as to how climate
change will impact companies. The Company has determined that
the impact of climate change could affect the Company’s investments
and the overall investment process. This is explained in the principal
risks section on page 26 and which forms part of the “Other
information,” rather than the audited financial statements. Our
procedures on these disclosures therefore consisted solely of
considering whether they are materially inconsistent with the financial
statements, or our knowledge obtained in the course of the audit or
otherwise appear to be materially misstated.
Our audit effort in considering climate change was focused on the
adequacy of the Company’s disclosures in the financial statements as
set out in note 1(a) and conclusion that there was no material impact
of climate change on the valuation of the investments. We also
challenged the Directors’ considerations of climate change in their
assessment of going concern and viability and associated disclosures
Key audit matters
Key audit matters are those matters that, in our professional
judgment, were of most significance in our audit of the financial
statements of the current period and include the most significant
assessed risks of material misstatement (whether or not due to fraud)
that we identified. These matters included those which had the
greatest effect on: the overall audit strategy, the allocation of
resources in the audit; and directing the efforts of the engagement
team. These matters were addressed in the context of our audit of
the financial statements as a whole, and in our opinion thereon, and
we do not provide a separate opinion on these matters.
Strategic Report Governance Financial Other InformationIntroduction
Overview of our audit approach
Key audit matters
– Risk of incomplete or inaccurate revenue recognition, including the classification of special dividends as revenue
or capital items in the Income Statement
– Risk of incorrect valuation or ownership of the investment portfolio
Materiality
– Overall materiality of £2.04m which represents 1% of shareholders’ funds.
Risk Our response to the risk Key observations
communicated to the Audit
and Risk Committee
Incomplete or inaccurate revenue
recognition, including the classification of
special dividends as revenue or capital
items in the Income Statement
As Described in the Audit and Risk Committee
Report (page 24); Accounting policies (note 1 to the
financial statement pages 42 to 43);
The total revenue for the year to 31 August 2023
was £10.56m (2022: £10.96m), consisting
primarily of dividend income from listed equity
investments.
We performed the following procedures:
We obtained an understanding of the Manager’s
and Administrator’s processes and controls
surrounding revenue recognition and
classification of special dividends by performing
walkthrough procedures.
For all dividends received and accrued
dividends, we recalculated the dividend income
by multiplying the investment holdings at the ex-
dividend date, traced from the accounting
records, by the dividend per share, which was
agreed to an independent data vendor. We also
agreed all exchange rates to an external source
where applicable and, for a sample of dividends
received and all accrued dividends, we agreed
the amounts to bank statements.
The results of our procedures
identified no material misstatements
in relation to the risk of incomplete or
inaccurate revenue recognition,
including classification of special
dividends as revenue or capital items
in the Income Statement.
50 Schroder Income Growth Fund plc
Independent Auditor’s Report to the Members of
Schroder Income Growth Fund plc
Risk Our response to the risk Key observations
communicated to the Audit
and Risk Committee
The Company received special dividends
amounting to £0.20m (2022: £2.20m). Of which
£0.20m was classed as revenue (2022: £0.50m),
and £0m (2022: £1.71m) was classed as capital.
The investment income receivable by the
Company during the year directly affects the
Company’s revenue return. There is a risk of
incomplete or inaccurate recognition of revenue
through the failure to recognise proper income
entitlements or to apply an appropriate
accounting treatment.
In addition, the Directors may be required to
exercise judgment in determining whether
income receivable in the form of special
dividends should be classified as ‘revenue’ or
‘capital’ in the Income Statement.
To test completeness of recorded income, we
verified that dividends had been recorded for
each investee Company held during the year
with reference to investee Company
announcements obtained from an independent
data vendor.
For all accrued dividends, we reviewed the
investee Company announcements to assess
whether the entitlement arose prior to
31August 2023.
We performed a review of the income and
acquisition and disposal reports produced by
the Administrator to identify all special dividends
received and accrued. The Company received
two special dividends in the period. For these
dividends, we assessed the appropriateness of
the Administrator’s classification as revenue for
these dividends by reviewing the underlying
rationale for the distribution.
Risk of incorrect valuation or ownership of
the investment portfolio
As described in the Audit and Risk Committee’s
Report (page 24); Accounting policies (note 1 to the
financial statement pages 42 to 43).
The valuation of the investment portfolio at
31 August 2023 was £229.8 million (2022:
£230.5 million) consisting entirely of listed
equities.
The valuation of investments held in the
investment portfolio is the key driver of the
Company’s net asset value and total return.
Incorrect investment pricing, or failure to
maintain proper legal title of the investments
held by the Company, could have a significant
impact on the portfolio valuation and the return
generated for shareholders.
The fair value of listed investments is
determined using quoted market bid prices at
close of business on the reporting date.
We obtained an understanding of the
Administrator’s processes and controls
surrounding investment valuation and legal title
by performing walkthrough procedures.
For all listed investments in the portfolio we
compared the market prices and exchange rates
applied to an independent pricing vendor and
recalculated the investment valuations as at the
year end.
We reviewed the prices for all investments in the
portfolio to identify prices that have not changed
within five business days from year end to verify
whether the listed price is a valid fair value. Our
testing identified no prices which had not
changed, and no stale prices were identified.
We compared the Company’s investment
holdings at 31 August 2023 to independent
confirmations received directly from the
Company’s Custodian.
The results of our procedures
identified no material misstatements
in relation to the risk of incorrect
valuation or ownership of the
investment portfolio.
There have been no changes to the areas of audit focus raised in the
above risk table from the prior year.
Our application of materiality
We apply the concept of materiality in planning and performing the
audit, in evaluating the effect of identified misstatements on the audit
and in forming our audit opinion.
Materiality
The magnitude of an omission or misstatement that, individually or in
the aggregate, could reasonably be expected to influence the economic
decisions of the users of the financial statements. Materiality provides a
basis for determining the nature and extent of our audit procedures.
We determined materiality for the Company to be £2.04m (2022:
£2.05m), which is 1% (2022: 1%) of shareholders’ funds. We believe
that shareholders’ funds provides us with materiality aligned to the
key measure of the Company’s performance.
Performance materiality
The application of materiality at the individual account or balance level.
It is set at an amount to reduce to an appropriately low level the
probability that the aggregate of uncorrected and undetected
misstatements exceeds materiality.
On the basis of our risk assessments, together with our assessment
of the Company’s overall control environment, our judgement was
that performance materiality was 75% (2022: 75%) of our planning
Schroder Income Growth Fund plc 51
Strategic Report Governance Financial Other InformationIntroduction
materiality, namely £1.53m (2022: £1.54m). We have set performance
materiality at this percentage due to our past experience of working
with the key service providers which therefore indicates a lower risk of
misstatements, both corrected and uncorrected.
Given the importance of the distinction between revenue and capital
for investment trusts, we have also applied a separate testing
threshold for the revenue column of the Income Statement which is
calculated as 5% of net revenue before tax. We determined this to be
£0.46m (2022: £0.49m).
Reporting threshold
An amount below which identified misstatements are considered as
being clearly trivial.
We agreed with the Audit Committee that we would report to them
all uncorrected audit differences in excess of £0.10m (2022: £0.10m),
which is set at 5% of planning materiality, as well as differences below
that threshold that, in our view, warranted reporting on qualitative
grounds.
We evaluate any uncorrected misstatements against both the
quantitative measures of materiality discussed above and in light of
other relevant qualitative considerations in forming our opinion.
Other information
The other information comprises the information included in the
annual report other than the financial statements and our auditor’s
report thereon. The directors are responsible for the other
information contained within the annual report.
Our opinion on the financial statements does not cover the other
information and, except to the extent otherwise explicitly stated in
this report, we do not express any form of assurance conclusion
thereon.
Our responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent with
the financial statements or our knowledge obtained in the course of
the audit or otherwise appears to be materially misstated. If we
identify such material inconsistencies or apparent material
misstatements, we are required to determine whether this gives rise
to a material misstatement in the financial statements themselves. If,
based on the work we have performed, we conclude that there is a
material misstatement of the other information, we are required to
report that fact.
We have nothing to report in this regard.
Opinions on other matters prescribed by the
Companies Act 2006
In our opinion the part of the Directors’ remuneration report to be
audited has been properly prepared in accordance with the
Companies Act 2006.
In our opinion, based on the work undertaken in the course of the
audit:
– the information given in the strategic report and the Directors’
report for the financial year for which the financial statements
are prepared is consistent with the financial statements; and
– the strategic report and Directors’ reports have been prepared in
accordance with applicable legal requirements;
Matters on which we are required to report
by exception
In the light of the knowledge and understanding of the Company and
its environment obtained in the course of the audit, we have not
identified material misstatements in the strategic report or Directors’
report.
We have nothing to report in respect of the following matters in
relation to which the Companies Act 2006 requires us to report to
you if, in our opinion:
– adequate accounting records have not been kept, or returns
adequate for our audit have not been received from branches
not visited by us; or
– the financial statements and the part of the Directors’
Remuneration Report to be audited are not in agreement with
the accounting records and returns; or
– certain disclosures of Directors’ remuneration specified by law
are not made; or
– we have not received all the information and explanations we
require for our audit.
Corporate Governance Statement
We have reviewed the Directors’ statement in relation to going
concern, longer-term viability and that part of the Corporate
Governance Statement relating to the Company’s compliance with
the provisions of the UK Corporate Governance Code specified for
our review by the Listing Rules.
Based on the work undertaken as part of our audit, we have
concluded that each of the following elements of the Corporate
Governance Statement is materially consistent with the financial
statements or our knowledge obtained during the audit:
– Directors’ statement with regards to the appropriateness of
adopting the going concern basis of accounting and any
material uncertainties identified set out on page 27;
– Directors’ explanation as to its assessment of the Company’s
prospects, the period this assessment covers and why the period
is appropriate set out on page 27;
– Directors’ statement on whether it has a reasonable expectation
that the group will be able to continue in operation and meets
its liabilities set out on page 27;
– Directors’ statement on fair, balanced and understandable set
out on page 37;
– Board’s confirmation that it has carried out a robust assessment
of the emerging and principal risks set out on page 26;
– The section of the annual report that describes the review of
effectiveness of risk management and internal control systems
set out on pages 35 to 37; and;
– The section describing the work of the audit committee set out
on pages 35 to 37.
Responsibilities of directors
As explained more fully in the Directors’ responsibilities statement set
out on page 45, the directors are responsible for the preparation of
the financial statements and for being satisfied that they give a true
and fair view, and for such internal control as the directors determine
is necessary to enable the preparation of financial statements that
are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible
for assessing the Company’s ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and using
the going concern basis of accounting unless the directors either
intend to liquidate the Company or to cease operations, or have no
realistic alternative but to do so.
52 Schroder Income Growth Fund plc
Independent Auditor’s Report to the Members of
Schroder Income Growth Fund plc
Auditor’s responsibilities for the audit of the
financial statements
Our objectives are to obtain reasonable assurance about whether the
financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditor’s report that
includes our opinion. Reasonable assurance is a high level of
assurance, but is not a guarantee that an audit conducted in
accordance with ISAs (UK) will always detect a material misstatement
when it exists. Misstatements can arise from fraud or error and are
considered material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users
taken on the basis of these financial statements.
Explanation as to what extent the audit was
considered capable of detecting
irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with
laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect irregularities, including
fraud. The risk of not detecting a material misstatement due to fraud
is higher than the risk of not detecting one resulting from error, as
fraud may involve deliberate concealment by, for example, forgery or
intentional misrepresentations, or through collusion. The extent to
which our procedures are capable of detecting irregularities,
including fraud is detailed below.
However, the primary responsibility for the prevention and detection
of fraud rests with both those charged with governance of the
Company and management.
– We obtained an understanding of the legal and regulatory
frameworks that are applicable to the Company and determined
that the most significant United Kingdom Generally Accepted
Accounting Practice, the Companies Act 2006, the Listing Rules,
UK Corporate Governance Code, the Association of Investment
Companies’ Code and Statement of Recommended Practice,
Section 1158 of the Corporation Tax Act 2010 and The
Companies (Miscellaneous Reporting) Regulations 2018.
– We understood how the Company is complying with those
frameworks through discussions with the Audit and Risk
Committee and Company Secretary, review of board minutes
and the Company’s documented policies and procedures.
– We assessed the susceptibility of the Company’s financial
statements to material misstatement, including how fraud might
occur by considering the key risks impacting the financial
statements. We identified a fraud risk with respect to incomplete
or inaccurate revenue recognition through incorrect
classification of special dividends as revenue or capital in the
Income Statement. Further discussion of our approach is set out
in the key audit matter above.
– Based on this understanding we designed our audit procedures
to identify non-compliance with such laws and regulations. Our
procedures involved review of the Company Secretary’s reporting
to the directors with respect to the application of the
documented policies and procedures and review of the financial
statements to ensure compliance with the reporting
requirements of the Company.
A further description of our responsibilities for the audit of the
financial statements is located on the Financial Reporting Council’s
website at https://www.frc.org.uk/auditorsresponsibilities. This
description forms part of our auditor’s report.
Other matters we are required to address
– Following the recommendation from the Audit and Risk
Committee, we were appointed by the Company on 5 July 2019
to audit the financial statements for the year ending 31 August
2023 and subsequent financial periods.
The period of total uninterrupted engagement including
previous renewals and reappointments is five years, covering the
years ending 31 August 2019 to 31 August 2023.
– The audit opinion is consistent with the additional report to the
Audit and Risk Committee.
Use of our report
This report is made solely to the Company’s members, as a body, in
accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the
Company’s members those matters we are required to state to them
in an auditor’s report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to
anyone other than the Company and the Company’s members as a
body, for our audit work, for this report, or for the opinions we have
formed.
Matthew Price (Senior statutory auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor
London
25 October 2023
Schroder Income Growth Fund plc 53
2023 2022
Revenue Capital Total Revenue Capital Total
Note £’000 £’000 £’000 £’000 £’000 £’000
Gains/(losses) on investments held at fair value
through profit or loss 2 – 326 326 – (16,596) (16,596)
Net foreign currency losses – – – – (1) (1)
Income from investments 3 10,560 – 10,560 10,954 1,707 12,661
Other interest receivable and similar income 3 90 – 90 8 – 8
Gross return/(loss) 10,650 326 10,976 10,962 (14,890) (3,928)
Investment management fee 4 (422) (633) (1,055) (527) (527) (1,054)
Administrative expenses 5 (552) – (552) (523) – (523)
Net return/(loss) before finance costs and taxation 9,676 (307) 9,369 9,912 (15,417) (5,505)
Finance costs 6 (546) (821) (1,367) (202) (202) (404)
Net return/(loss) before taxation 9,130 (1,128) 8,002 9,710 (15,619) (5,909)
Taxation 7 – – – (13) – (13)
Net return/(loss) after taxation 9,130 (1,128) 8,002 9,697 (15,619) (5,922)
Return/(loss) per share (pence) 9 13.14 (1.62) 11.52 13.96 (22.49) (8.53)
The “Total” column of this statement is the profit and loss account of the Company. The “Revenue” and “Capital” columns represent
supplementary information prepared under guidance issued by The Association of Investment Companies. The Company has no other items
of other comprehensive income, and therefore the net return after taxation is also the total comprehensive income for the year.
All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or discontinued in the
year.
The notes on pages 56 to 70 form an integral part of these accounts.
Income Statement
for the year ended 31 August 2023
Strategic Report Governance Financial Other InformationIntroduction
54 Schroder Income Growth Fund plc
Called-up Capital Warrant Share
share Share redemption exercise purchase Capital Revenue
capital premium reserve reserve reserve reserves reserve Total
Note £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000
At 31 August 2021 6,946 9,449 2,011 1,596 34,936 153,859 11,118 219,915
Issue of new shares – – – – – – – –
Net (loss)/return on ordinary
activities – – – – – (15,619) 9,697 (5,922)
Dividends paid in the year 8 – – – – – – (8,893) (8,893)
At 31 August 2022 6,946 9,449 2,011 1,596 34,936 138,240 11,922 205,100
Net (loss)/return on ordinary
activities – – – – – (1,128) 9,130 8,002
Dividends paid in the year 8 – – – – – – (9,170) (9,170)
At 31 August 2023 6,946 9,449 2,011 1,596 34,936 137,112 11,882 203,932
The notes on pages 56 to 70 form an integral part of these accounts.
Statement of Changes in Equity
for the year ended 31 August 2023
Schroder Income Growth Fund plc 55
2023 2022
Note £’000 £’000
Fixed assets
Investments held at fair value through profit or loss 10 229,714 230,497
Current assets
Debtors 11 2,557 2,737
Cash at bank and in hand 1,560 2,305
4,117 5,042
Current liabilities
Creditors: amounts falling due within one year 12 (29,899) (30,439)
Net current liabilities (25,782) (25,397)
Total assets less current liabilities 203,932 205,100
Net assets 203,932 205,100
Capital and reserves
Called-up share capital 13 6,946 6,946
Share premium 14 9,449 9,449
Capital redemption reserve 14 2,011 2,011
Warrant exercise reserve 14 1,596 1,596
Share purchase reserve 14 34,936 34,936
Capital reserves 14 137,112 138,240
Revenue reserve 14 11,882 11,922
Total equity shareholders’ funds 203,932 205,100
Net asset value per share (pence) 15 293.58 295.26
These accounts were approved and authorised for issue by the Board of Directors on 25 October 2023 and signed on its behalf by:
Ewen Cameron Watt
Chairman
The notes on pages 56 to 70 form an integral part of these accounts.
Registered in England and Wales as a public company limited by shares
Company registration number: 03008494
Statement of Financial Position
at 31 August 2023
Strategic Report Governance Financial Other InformationIntroduction
56 Schroder Income Growth Fund plc
1. Accounting Policies
(a) Basis of accounting
Schroder Income Growth Fund plc (“the Company”) is registered in England and Wales as a public company limited by shares. The Company’s
registered office is 1 London Wall Place, London EC2Y 5AU.
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 July 2022. 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 and derivative financial instruments held at fair value through profit or loss. The directors believe that the Company has adequate
resources to continue operating until 30 November 2024, which is at least 12 months from the date of approval of these accounts. In forming
this opinion, the directors have taken into consideration: the controls and monitoring processes in place; the Company’s low level of debt and
other payables; the low level of operating expenses, comprising largely variable costs which would reduce pro rata in the event of a market
downturn; and that the Company’s assets comprise cash and readily realisable securities quoted in active markets. The directors have
considered the impact of climate change risk and emerging risk and have concluded that there was no further impact of climate change to be
taken into account as the investments are valued based on market pricing. Further details of directors’ considerations regarding this are given
in the Chairman’s Statement, Portfolio Managers’ Review, Going Concern Statement, Viability Statement and under the Principal Risks and
uncertainties in the Strategic Report.
The Company has not presented a statement of cash flows, as it is not required for an investment trust which meets certain conditions; in
particular that substantially all of the Company’s investments are highly liquid and carried at market value.
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 2022.
Other than the Director’s assessment of going concern, no significant judgements, estimates or assumptions have been required in the
preparation of the accounts for the current or preceding financial year.
(b) Valuation of investments
The Company’s investments are classified as fair value through profit and loss in accordance with FRS 102. Upon initial recognition the
investments are measured at the transaction price, excluding expenses incidental to purchase which are written off to capital at the time of
acquisition. Subsequently the investments are valued at fair value, which are quoted bid prices for investments traded in active markets. Fair
value gains or losses are recognised in the capital column of the Income Statement.
All purchases and sales are accounted for on a trade date basis.
(c) Accounting for reserves
Gains and losses on sales of investments, and the management fee or finance costs allocated to capital, are included in the Income Statement
and dealt with in capital reserves within “Gains and losses on sales of investments”. Increases and decreases in the valuation of investments
held at the year end, are included in the Income Statement and dealt with in capital reserves within “Investment holding gains and losses”.
Foreign exchange gains and losses on cash and deposit balances are included in the Income Statement and in capital reserves within “Gains
and losses on sales of investments”.
(d) Income
Dividends receivable from equity shares are included in revenue on an ex-dividend basis except where, in the opinion of the Board, the
dividend is capital in nature, in which case it is included in capital.
Dividends from overseas companies are included gross of any withholding tax.
Where the Company has elected to receive scrip dividends in the form of additional shares rather than in cash, the amount of the cash
dividend foregone is recognised in revenue. Any excess in the value of the shares received over the amount of the cash dividend is recognised
in capital.
Deposit interest outstanding at the year end is calculated and accrued on a time apportionment basis using market rates of interest.
(e) Expenses
All expenses are accounted for on an accruals basis. Expenses are allocated wholly to revenue with the following exceptions:
– The management fee is allocated 40% to revenue and 60% to capital in line with the
Board’s expected long-term split of revenue and
capital return from the Company’s investment portfolio.
Notes to the accounts
for the year ended 31 August 2023
Schroder Income Growth Fund plc 57
– Expenses incidental to the purchase and sale of an investment are written off to capital at the time of acquisition or disposal. These
expenses are commonly referred to as transaction costs and comprise brokerage commission and stamp duty. Details of transaction
costs are given in note 10 on page 61.
(f) Finance costs
Finance costs, including any premiums payable on settlement or redemption and direct issue costs, are accounted for on an accruals basis
using the effective interest method in accordance with FRS 102.
Finance costs are allocated 40% to revenue and 60% to capital in line with the Board’s expected long-term split of revenue and capital return
from the Company’s investment portfolio.
(g) Financial instruments
Cash at bank and in hand may comprise cash and demand deposits which are readily convertible to a known amount of cash and are subject
to insignificant risk of changes in value.
Other debtors and creditors do not carry any interest, are short-term in nature and are accordingly stated at nominal value, with debtors
reduced by appropriate allowances for estimated irrecoverable amounts.
Bank loans and overdrafts are initially measured at transaction price and, subsequently at amortised cost. They are recorded at the proceeds
received net of direct issue costs.
(h) Taxation
The tax charge for the year is based on amounts expected to be received or paid.
Deferred tax is accounted for in accordance with FRS 102.
Deferred tax is provided on all timing differences that have originated but not reversed by the accounting date.
Deferred tax liabilities are recognised for all taxable timing differences but deferred tax assets are only recognised to the extent that it is
probable that taxable profits will be available against which those timing differences can be utilised.
Deferred tax is measured at the tax rate which is expected to apply in the periods in which the timing differences are expected to reverse,
based on tax rates that have been enacted or substantively enacted at the accounting date and is measured on an undiscounted basis.
(i) Value added tax (“VAT”)
Expenses are disclosed inclusive of the related irrecoverable VAT.
(j) Foreign currency
In accordance with FRS 102, the Company is required to determine a functional currency, being the currency in which the Company
predominantly operates. The Board has determined that sterling is the Company’s functional currency and the presentational currency of the
accounts.
Transactions denominated in foreign currencies are converted at actual exchange rates as at the date of the transaction. Monetary assets,
liabilities and investments held at fair value, denominated in foreign currencies at the year end are translated at the rates of exchange
prevailing at the year end.
(k) Dividends payable
Dividends on equity shares are recognised as a deduction of equity when the liability to pay the dividends arises.
Consequently, interim dividends are recognised when paid and final dividends when approved in the general meeting.
Notes to the accounts
for the year ended 31 August 2023
Strategic Report Governance Financial Other InformationIntroduction
58 Schroder Income Growth Fund plc
2. Gains/(losses) on investments held at fair value through profit or loss
2023 2022
£’000 £’000
Gains on sales of investments based on historic cost 1,242 6,923
Amounts recognised in investment holding gains and losses in the previous year in
respect of investments sold in the year (2,196) (10,239)
(Losses) on sales of investments based on the carrying value at the previous
balance sheet date (954) (3,316)
Net movement in investment holding gains and losses 1,280 (13,280)
Gains/(losses) on investments held at fair value through profit or loss 326 (16,596)
3. Income
2023 2022
£’000 £’000
Income from investments:
UK dividends 8,763 9,406
UK special dividends 196 496
Overseas dividends 1,538 909
Scrip dividends 63 143
10,560 10,954
Other interest receivable and similar income:
Deposit interest 90 8
90 8
Total income 10,650 10,962
Capital:
Special dividends allocated to capital – 1,707
Notes to the accounts
for the year ended 31 August 2023
Schroder Income Growth Fund plc 59
4. Investment management fee
2023 2022
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
Management fee 422 633 1,055 527 527 1,054
The basis for calculating the management fee is set out in the Directors’ Report on page 32.
5. Administrative expenses
2023 2022
£’000 £’000
Administration expenses 374 350
Directors’ fees 122 119
Auditor’s remuneration for the audit of the Company’s financial statements
1
56 54
552 523
1
Includes £9,000 (2022: £9,000) irrecoverable VAT.
6. Finance costs
2023 2022
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
Interest on bank loans and overdrafts 546 821 1,367 202 202 404
7. Taxation
2023 2022
£’000 £’000
(a) Analysis of charge in the year:
Irrecoverable overseas tax – 13
Tax charge for the year – 13
(b) Factors affecting tax charge for the year
The tax assessed for the year is lower (2022: higher) than the Company’s applicable rate of corporation tax for the year of 21.5% (2022: 19.0%).
Notes to the accounts
for the year ended 31 August 2023
Strategic Report Governance Financial Other InformationIntroduction
60 Schroder Income Growth Fund plc
The factors affecting the current tax charge for the year are as follows:
2023 2022
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
Net gain/return on ordinary activities before taxation 9,130 (1,128) 8,002 9,710 (15,619) (5,909)
Net gain/return on ordinary activities before taxation
multiplied by the Company’s applicable rate of
corporation tax for the year of 21.5% (2022: 19.0%) 1,962 (243) 1,719 1,845 (2,968) (1,123)
Effects of:
Capital return/loss on investments – (70) (70) – 3,153 3,153
Income not chargeable to corporation tax (2,181) – (2,181) (1,978) (324) (2,302)
Unrelieved expenses 219 313 532 133 139 272
Irrecoverable overseas tax – – – 13 – 13
Tax charge for the year – – – 13 – 13
(c) Deferred taxation
The Company has an unrecognised deferred tax asset of £9,207,000 (2022: £8,589,000) based on a main rate of corporation tax of 25% (2022:
25%). In its 2021 budget, the UK government announced that the main rate of corporation tax (for all profits except ring fence profits) for the
fiscal year beginning on 1 April 2023 would increase to 25%.
The deferred tax asset has arisen due to the cumulative excess of deductible expenses over taxable income. Given the composition of the
Company’s portfolio, it is not likely that this asset will be utilised in the foreseeable future and therefore no asset has been recognised in the
accounts.
Given the Company’s status as an Investment Trust Company, no provision has been made for deferred tax on any capital gains or losses
arising on the revaluation or disposal of investments.
8. Dividends
2023 2022
£’000 £’000
(a) Dividends paid and declared
2022 fourth interim dividend of 5.7p (2021: 5.3p) 3,959 3,682
First interim dividend of 2.5p (2022: 2.5p) 1,737 1,737
Second interim dividend of 2.5p (2022: 2.5p) 1,737 1,737
Third interim dividend of 2.5p (2022: 2.5p) 1,737 1,737
Total dividends paid in the year 9,170 8,893
2023 2022
£’000 £’000
Fourth interim dividend declared of 6.3p (2022: 5.7p) 4,376 3,959
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 £9,130,000 (2022: £9,697,000).
Notes to the accounts
for the year ended 31 August 2023
Schroder Income Growth Fund plc 61
2023 2022
£’000 £’000
First interim dividend of 2.5p (2022: 2.5p) 1,737 1,737
Second interim dividend of 2.5p (2022: 2.5p) 1,737 1,737
Third interim dividend of 2.5p (2022: 2.5p) 1,737 1,737
Fourth interim dividend of 6.3p (2022: 5.3p) 4,376 3,959
Total dividends of 13.80p (2022: 13.20p) per share 9,587 9,170
9. Return/(loss) per share
2023 2022
£’000 £’000
Revenue return 9,130 9,697
Capital loss (1,128) (15,619)
Total return/(loss) 8,002 (5,922)
Weighted average number of ordinary shares in issue during the year 69,463,343 69,463,343
Revenue return per share 13.14p 13.96p
Capital loss per share (1.62)p (22.49)p
Total return/gain per share 11.52p (8.53)p
10. Investments held at fair value through profit or loss
2023 2022
£’000 £’000
Opening book cost 207,135 187,930
Opening investment holding gains 23,362 46,881
Opening fair value 230,497 234,811
Analysis of transactions made during the year
Purchases at cost 57,193 69,738
Sales proceeds (58,302) (57,456)
Gains/(losses) on investments held at fair value 326 (16,596)
Closing fair value 229,714 230,497
Closing book cost 207,268 207,135
Closing investment holding gains 22,446 23,362
Closing fair value 229,714 230,497
All investments are listed on a recognised stock exchange.
Sales proceeds amounting to £58,302,000 (2022: £57,456,000) were receivable from disposal of investments in the year. The book cost of
these investments when they were purchased was £57,059,000 (2022: £50,533,000). These investments have been revalued over time and
until they were sold any unrealised gains/losses were included in the fair value of the investments.
Notes to the accounts
for the year ended 31 August 2023
Strategic Report Governance Financial Other InformationIntroduction
62 Schroder Income Growth Fund plc
The following transaction costs, comprising stamp duty and brokerage commission were incurred during the year:
2023 2022
£’000 £’000
On acquisitions 236 352
On disposals 30 24
266 376
11. Debtors
2023 2022
£’000 £’000
Dividends and interest receivable 2,537 2,718
Taxation recoverable 5 5
Other debtors 15 14
2,557 2,737
The directors consider that the carrying amount of debtors approximates to their fair value.
12. Creditors: amounts falling due within one year
2023 2022
£’000 £’000
Bank loan 29,500 30,000
Other creditors and accruals 399 439
29,899 30,439
The bank loan comprises £29.5 million (2022: £30 million) drawn down on the Company’s revolving credit facility with SMBC Bank International
plc. The facility was extended for a further year, effective 22 September 2023.
The facility is unsecured but is subject to covenants and restrictions which are customary for a facility of this nature, all of which have been
complied with during the year. Further details of this facility are given in note 19(a)(i).
The Directors consider that the carrying amount of creditors falling due within one year approximates to their fair value.
Notes to the accounts
for the year ended 31 August 2023
Schroder Income Growth Fund plc 63
13. Called-up share capital
2023 2022
£’000 £’000
Ordinary shares allotted, called-up and fully paid:
Ordinary shares of 10p each
Opening balance of 69,463,343 (2022: 69,463,343) shares 6,946 6,946
Total of 69,463,343 (2022: 69,463,343) shares 6,946 6,946
14. Reserves
Year ended 31 August 2023
Capital reserves
Gains and Investment
Capital Warrant Share losses on holding
Share redemption exercise purchase sales of gains and Revenue
premium
1
reserve
1
reserve
1
reserve
2
investments
2
losses
3
reserve
4
£’000 £’000 £’000 £’000 £’000 £’000 £’000
Opening balance 9,449 2,011 1,596 34,936 114,878 23,362 11,922
Gains on sales of investments based on the
carrying value at the previous balance sheet date – – – – (954) – –
Net movement in investment holding gains
and losses – – – – – 1,280 –
Transfer on disposal of investments – – – – 2,196 (2,196) –
Management fee and finance costs allocated
to capital – – – – (1,454) – –
Dividends paid – – – – – – (9,170)
Retained revenue for the year – – – – – – 9,130
Closing balance 9,449 2,011 1,596 34,936 114,666 22,446 11,882
Notes to the accounts
for the year ended 31 August 2023
Strategic Report Governance Financial Other InformationIntroduction
64 Schroder Income Growth Fund plc
Year ended 31 August 2022
Capital reserves
Gains and Investment
Capital Warrant Share losses on holding
Share redemption exercise purchase sales of gains and Revenue
premium
1
reserve
1
reserve
1
reserve
2
investments
2
losses
3
reserve
4
£’000 £’000 £’000 £’000 £’000 £’000 £’000
Opening balance 9,449 2,011 1,596 34,936 106,978 46,881 11,118
Losses on sales of investments based on the
carrying value at the previous balance sheet date – – – – (3,316) – –
Net movement in investment holding gains
and losses – – – – – (13,280) –
Transfer on disposal of investments – – – – 10,239 (10,239) –
Realised exchange gains on currency balances – – – – (1) – –
Management fee and finance costs allocated
to capital – – – – (729) – –
Special dividends allocated to capital – – – – 1,707 – –
Dividends paid – – – – – – (8,893)
Retained revenue for the year – – – – – – 9,697
Closing balance 9,449 2,011 1,596 34,936 114,878 23,362 11,922
The Company’s Articles of Association permit dividend distributions out of realised capital profits.
1
These reserves are not distributable.
2
These are realised (distributable) capital reserves which may be used to repurchase the Company’s own shares or distributed as dividends.
3
This reserve comprises holding gains on liquid investments (which may be deemed to be realised) and other amounts which are unrealised.
An analysis has not been made between those amounts that are realised (and may be distributed as dividends or used to repurchase the
Company’s own shares) and those that are unrealised.
4
The revenue reserve may distributed as dividends or used to repurchase the Company’s own shares.
15. Net asset value per share
2023 2022
Net assets attributable to shareholders (£’000) 203,932 205,100
Shares in issue at the year end 69,463,343 69,463,343
Net asset value per share 293.58p 295.26p
16. Transactions with the Manager
Under the terms of the AlFM Agreement, the Manager is entitled to receive a management fee. Details of the basis of the calculation are given
in the Directors’ Report on page 32. Any investments in funds managed or advised by the Manager or any of its associated companies are
excluded from the assets used for the purpose of the calculation and therefore incur no fee.
The management fee payable in respect of the year ended 31 August 2023 amounted to £1,055,000 (2022: £1,054,000) of which £259,000
(2022: £259,000) was outstanding at the year end.
Effective from 1 March 2021, the Manager is entitled to receive a further fee to cover administration and company secretarial costs. The
secretarial fee payable for the year amounted to £180,000 (2022: £180,000) including VAT, of which £45,000 (2022: £45,000) was outstanding
at the year end.
No Director of the Company served as a director of any member of the Schroder Group at any time during the year.
Notes to the accounts
for the year ended 31 August 2023
Schroder Income Growth Fund plc 65
17. Related party transactions
Details of the remuneration payable to Directors are given in the Directors’ Remuneration Report on pages 42 to 44 and details of directors’
shareholdings are given in the Directors’ Remuneration Report on page 44. Details of transactions with the Manager are given in note 16
above. There have been no other transactions with related parties during the year (2022: nil).
18. 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).
At 31 August 2023, all investments in the Company’s portfolio are categorised as Level 1 (2022: same).
19. Financial instruments’ exposure to risk and risk management policies
The Company’s objectives are set out on the inside front cover of this report. In pursuing these objectives, the Company is exposed to a variety
of financial risks that could result in a reduction in the Company’s net assets or a reduction in the profits available for dividends.
These financial risks include market risk (comprising interest rate risk and other price risk), liquidity risk and credit risk. The directors’ policy for
managing these risks is set out below. The Board coordinates the Company’s risk management policy. The Company has no significant direct
exposure to foreign exchange risk on monetary items. The objectives, policies and processes for managing the risks and the methods used to
measure the risks that are set out below, have not changed from those applying in the comparative year.
The Company’s classes of financial instruments may comprise the following:
– investments in equity shares which are held in accordance with the Company’s investment objectives;
– short-term debtors, creditors and cash arising directly from its operations; and
– loans drawn on a facility, the purpose of which are to assist with financing the Company’s operations.
(a) Market risk
The fair value or future cash flows of a financial instrument held by the Company may fluctuate because of changes in market prices. This
market risk comprises two elements: interest rate risk and other price risk. Information to enable an evaluation of the nature and extent of
these two elements of market risk is given in parts (i) and (ii) of this note, together with sensitivity analyses where appropriate. The Board
reviews and agrees policies for managing these risks and these policies have remained unchanged from those applying in the comparative
year. The Manager assesses the exposure to market risk when making each investment decision and monitors the overall level of market risk
on the whole of the investment portfolio on an ongoing basis.
(i) Interest rate risk
Interest rate movements may affect the level of income receivable on cash deposits and the interest payable on variable rate borrowings when
interest rates are re-set.
Management of interest rate risk
Liquidity and borrowings are managed with the aim of increasing returns to shareholders. The board’s policy is to permit gearing up to 25%
where gearing is defined as borrowings used for investment purposes, less cash, expressed as a percentage of net assets. Any amount drawn
on the facility would normally be for a one month period, at the end of which the drawdown may be rolled over, adjusted or repaid, and the
interest rate is re-set. These amounts have been included in the analysis below, although the exposure to interest rate changes is not
significant as any drawings can be repaid at the end of the one month period under the terms of this flexible arrangement.
The Company has arranged a £5m overdraft facility with HSBC Bank plc, this was not utilised during the current or comparative year.
Notes to the accounts
for the year ended 31 August 2023
Strategic Report Governance Financial Other InformationIntroduction
66 Schroder Income Growth Fund plc
Interest rate exposure
The exposure of financial assets and financial liabilities to floating interest rates, giving cash flow interest rate risk when rates are re-set, is
shown below:
2023 2022
£’000 £’000
Exposure to floating interest rates:
Cash at bank and in hand 1,560 2,305
Creditors falling due within one year: bank loan (29,500) (30,000)
Total exposure (27,940) (27,695)
Cash balances earn interest at a floating rate based on the Sterling Overnight Index Average (2022: Sterling Overnight Index Average).
The Company extended its £30 million credit facility with SMBC Bank International plc for a further year, effective from 22 September 2023.
Interest payable is calculated at the aggregate of the compounded daily Risk Free Rate (“RFR”), plus a margin. Amounts are normally drawn
down on the facility for a one month period, at the end of which it may be rolled over or adjusted. At 31 August 2023, the Company had drawn
down £29.5 million (2022: £30 million), for a one month period at an interest rate of 5.91% (2022: 2.52%) per annum.
The above year end amounts are not representative of the exposure to interest rates during the current or comparative year as the level cash
balances and drawings on the facility have fluctuated. The maximum and minimum exposure during the year was as follows:
2023 2022
£’000 £’000
Minimum debit interest rate exposure during the year – net debt (21,727) (17,972)
Maximum debit interest rate exposure during the year – net debt (27,940) (27,695)
Notes to the accounts
for the year ended 31 August 2023
Schroder Income Growth Fund plc 67
Interest rate sensitivity
The following table illustrates the sensitivity of the return after taxation for the year and net assets to a 1.5% (2022: 1.5%) increase or decrease
in interest rates in regards to the Company’s monetary financial assets and financial liabilities. This level of change is considered to be a
reasonable illustration based on observation of current market conditions. The sensitivity analysis is based on the Company’s monetary
financial instruments held at the balance sheet date which are exposed to interest rate movements, with all other variables held constant.
2023 2022
1.5% increase 1.5% decrease 1.5% increase 1.5% decrease
in rate in rate in rate in rate
£’000 £’000 £’000 £’000
Income statement – return after taxation
Revenue return (154) 154 (145) 145
Capital return (266) 266 (270) 270
Total return after taxation (420) 420 (415) 415
Net assets (420) 420 (415) 415
Given the increase in the UK interest rates, the interest rate sensitivity has been updated to 1.5%. The prior year disclosure has been updated
to 1.5% to show a direct comparison in the sensitivity. In the prior year report, the sensitivity was calculated using 1.0%, which was
representative of the market at 31 August 2022. As disclosed in the prior year annual report, an increase of 1.0% reduced total return after
taxation by £277,000 (a decrease of 1.0% had an equal and opposite effect).
In the opinion of the directors, this sensitivity analysis may not be representative of the Company’s future exposure to interest rate changes as
the level of cash balances and drawings on the facility will fluctuate.
(ii) Other price risk
Market price risk includes changes in market prices, other than those arising from interest rate risk, which may affect the value of investments.
Management of market price risk
The Board meets on at least four occasions each year to consider the asset allocation of the portfolio and the risk associated with particular
industry sectors. The investment management team has responsibility for monitoring the portfolio, which is selected in accordance with the
Company’s investment objective and seeks to ensure that individual stocks meet an acceptable risk/reward profile.
Market price risk exposure
The Company’s total exposure to changes in market prices at 31 August comprised the following:
2023 2022
£’000 £’000
Investments held at fair value through profit or loss 229,714 230,497
The above data is broadly representative of the exposure to market price risk during the year.
Concentration of exposure to market price risk
An analysis of the Company’s investments is given on page 14. The portfolio principally comprises securities of companies listed on the London
Stock Exchange and accordingly there is a concentration of exposure to economic conditions in the UK. However it should be noted that many
of these companies conduct much of their business overseas. Furthermore, up to 20% of the portfolio may be listed on overseas stock
exchanges.
Market price risk sensitivity
The following table illustrates the sensitivity of the return after taxation for the year and net assets to an increase or decrease of 20% (2022:
20%) in the fair values of the Company’s investments. This level of change is considered to be a reasonable illustration based on observation of
current market conditions. The sensitivity analysis is based on the Company’s exposure through equity investments and includes the impact on
the management fee but assumes that all other variables are held constant.
Notes to the accounts
for the year ended 31 August 2023
Strategic Report Governance Financial Other InformationIntroduction
68 Schroder Income Growth Fund plc
2023 2022
20% increase 20% decrease 20% increase 20% decrease
in fair value in fair value in fair value in fair value
£’000 £’000 £’000 £’000
Income statement – return after taxation
Revenue return (83) 83 (104) 104
Capital return 45,819 (45,819) 45,996 (45,996)
Total return after taxation and net assets 45,736 (45,736) 45,892 (45,892)
Change in net asset value 22.4% (22.4%) 22.4% (22.4%)
(b) Liquidity risk
This is the risk that the Company will encounter difficulty in meeting its obligations associated with financial liabilities that are settled by
delivering cash or another financial asset.
Management of liquidity risk
Liquidity risk is not significant as the Company’s assets comprise mainly readily realisable securities, which can be sold to meet funding
requirements if necessary. The facility is also available to provide liquidity at short notice. The Board’s policy is for the Company to remain fully
invested in normal market conditions. The facility may be used to manage working capital requirements and to gear the Company as
appropriate.
Liquidity risk exposure
Contractual maturities of financial liabilities, based on the earliest date on which payment can be required are as follows:
2023 2022
Three months Three months
or less Total or less Total
£’000 £’000 £’000 £’000
Creditors: amounts falling due within one year
Securities purchased awaiting settlement – – – –
Other creditors and accruals 399 399 424 424
Bank loan – including interest 29,645 29,645 30,063 30,063
30,044 30,044 30,487 30,487
(c) Credit risk
Credit risk is the risk that the failure of the counterparty to a transaction to discharge its obligations under that transaction could result in loss
to the Company.
Management of credit risk
This risk is not significant and is managed as follows:
Portfolio dealing
The Company invests in markets that operate a “Delivery Versus Payment” settlement process which mitigates the risk of losing the principal of
a trade during settlement. The Manager continuously monitors dealing activity to ensure best execution, which involves measuring various
indicators including the quality of trade settlement and incidence of failed trades. Counterparties must be pre-approved by the Manager’s
credit committee.
Exposure to the Custodian
The custodian of the Company’s assets is HSBC Bank plc which has long-term Credit Ratings of AA- with Fitch and Aa3 with Moody’s. The
Company’s investments are held in accounts which are segregated from the custodian’s own trading assets. If the custodian were to become
insolvent, the Company’s right of ownership of its investments is clear and they are therefore protected. However the Company’s cash balances
are all deposited with the custodian as banker and held on the custodian’s balance sheet. Accordingly, in accordance with usual banking
practice, the Company will rank as a general creditor to the custodian in respect of cash balances.
Notes to the accounts
for the year ended 31 August 2023
Schroder Income Growth Fund plc 69
Credit risk exposure
The following amounts shown in the Statement of Financial Position, represent the maximum exposure to credit risk at the current and
comparative year end.
2023 2022
Balance Maximum Balance Maximum
sheet exposure sheet exposure
£’000 £’000 £’000 £’000
Fixed assets
Investments held at fair value through
profit or loss 229,714 – 230,497 –
Current assets
Debtors – dividends and interest receivable
and other debtors 2,557 2,557 2,737 2,737
Cash at bank and in hand 1,560 1,560 2,305 2,305
233,831 4,117 235,539 5,042
No debtors are past their due date and none have been written down or deemed to be impaired.
(d) Fair values of financial assets and financial liabilities
All financial assets and liabilities are either carried at fair value or the amount in the Statement of Financial Position is a reasonable
approximation of fair value.
20. Capital management policies and procedures
The Company’s objectives, policies and processes for managing capital are unchanged from the preceding year.
The Company’s debt and capital structure comprises the following:
2023 2022
£’000 £’000
Debt
Bank loan 29,500 30,000
Equity
Called-up share capital 6,946 6,946
Reserves 196,986 198,154
203,932 205,100
Total debt and equity 233,432 235,100
The Company’s capital management objectives are to ensure that it will continue as a going concern and to maximise the return to its equity
shareholders through an appropriate level of gearing.
The Board’s policy is to permit gearing up to 25% where gearing is defined as borrowings used for investment purposes, less cash, expressed
as a percentage of net assets.
2023 2022
£’000 £’000
Borrowings used for investment purposes, less cash 27,940 27,695
Net assets 203,932 205,100
Gearing 13.7% 13.5%
Notes to the accounts
for the year ended 31 August 2023
Strategic Report Governance Financial Other InformationIntroduction
70 Schroder Income Growth Fund plc
The Board, with the assistance of the Manager, monitors and reviews the broad structure of the Company’s capital on an ongoing basis. This
review includes:
– the planned level of gearing, which takes into account the Manager’s views on the market;
– the need to buy back the Company’s own shares for cancellation or to hold in treasury, which takes into account the share price discount;
– the opportunities for issues of new shares; and
– the amount of dividend to be paid, in excess of that which is required to be distributed.
Notes to the accounts
for the year ended 31 August 2023
Other Information (unaudited)
Annual General Meeting – Recommendations 72
Notice of Annual General Meeting 75
Explanatory Notes to the Notice of Meeting 77
Definitions of Terms and Alternative
Performance Measures 79
Shareholder Information 81
Information about the Company 83
Other
Information
Schroder Income Growth Fund plc 71
72 Schroder Income Growth Fund plc
Recommendations
The Annual General Meeting (“AGM”) of the Company will be held on
Wednesday, 13 December 2023 at 12.30 p.m. The formal Notice of
Meeting is set out on pages 75 to 78.
The following information is important and requires your immediate
attention. If you are in any doubt about the action you should take,
you should consult an independent financial adviser, authorised
under the Financial Services and Markets Act 2000. If you have sold
or transferred all of your ordinary shares in the Company, please
forward this document with its accompanying form of proxy at once
to the purchaser or transferee, or to the stockbroker, bank or other
agent through whom the sale or transfer was effected, for onward
transmission to the purchaser or transferee.
Ordinary business
Resolutions 1 to 11 are all ordinary resolutions
Resolutions 1 to 10 are ordinary resolutions. Resolutions2 and 3
concerns the Directors’ Remuneration Policy and Remuneration
Report, on pages 42 to 44. Resolutions4 to 7 invite shareholders to
re-elect each of the Directors for another year, apart from June Aitken
who is standing for election as a Director. The re-elections and
election have been recommended by the Nomination Committee on
pages 39 and 40 (their biographies are set out on pages30 and 31).
Resolutions8 and 9 concern the re-appointment and remuneration
of the Company’s auditor, discussed in the Audit and Risk Committee
Report on pages 35 and 37. Resolution10 relates to an advisory vote
in respect of the Company’s dividend policy.
Special business
Resolution 11: Directors’ authority to allot shares
(ordinary resolution) and Resolution 12: power to disapply
pre-emption rights (special resolution)
The Directors are seeking authority to allot a limited number of
unissued ordinary shares for cash without first offering them to
existing shareholders in accordance with statutory pre-emption
procedures.
Appropriate resolutions will be proposed at the forthcoming AGM
and are set out in full in the Notice of AGM. An ordinary resolution will
be proposed to authorise the directors to allot shares up to a
maximum aggregate nominal amount of £1,389,266 (being 20% of
the issued share capital as at the date of the Notice of the AGM). A
special resolution will also be proposed to give the directors authority
to allot securities for cash on a non pre-emptive basis up to a
maximum aggregate nominal amount of £1,389,266 (being 20% of
the Company’s issued share capital as at the date of the Notice of the
AGM).
The Directors do not intend to allot shares pursuant to these
authorities other than to take advantage of opportunities in the
market as they arise and only if they believe it to be advantageous to
the Company’s existing shareholders to do so. Shares issued under
this authority will only be issued at a premium to the NAV (cum
income) per share after taking into account the costs of issue, and will
not result in any dilution of NAV per share.
If approved, both of these authorities will expire at the conclusion of
the AGM in 2024 unless renewed, varied or revoked earlier.
Resolution 13: authority to make market purchases of
the Company’s own shares (special resolution)
At the AGM held on 15 December 2022, the Company was granted
authority to make market purchases of up to 10,412,555 ordinary
shares of 10p each for cancellation. No shares have been bought
back under this authority and the Company therefore has remaining
authority to purchase up to 10,412,555 ordinary shares. This
authority will expire at the forthcoming AGM.
The Directors believe it is in the best interests of the Company and its
shareholders to have a general authority for the Company to buy
back its ordinary shares in the market as they keep under review the
share price discount to NAV and the purchase of ordinary shares. A
special resolution will be proposed at the forthcoming AGM to give
the Company authority to make market purchases of up to 14.99% of
the ordinary shares in issue as at the date of the Notice of the AGM.
The Directors will exercise this authority only if the directors consider
Schroder Income Growth Fund plc 73
that any purchase would be for the benefit of the Company and its
shareholders, taking into account relevant factors and circumstances
at the time. Any shares so purchased would be cancelled or held in
treasury. If renewed, the authority to be given at the 2023 AGM will
lapse at the conclusion of the AGM in 2024 unless renewed, varied or
revoked earlier.
Resolution 14: amendments of the Articles of Association:
As a result of the circumstances that occurred during the COVID-19
pandemic, the Board is proposing to make amendments to the
Articles of Association to give the Company the flexibility to hold
general meetings (wholly or partially) by electronic means and to
enable members to attend and participate in general meetings at
one or more satellite meeting places. In addition, the Board is
proposing to amend the Articles of Association to give it certain
additional powers in respect of postponing or adjourning meetings in
appropriate circumstances and the security arrangements at
meetings. The amendments are being proposed in response to
restrictions on social interactions during the COVID-19 pandemic that,
on occasion, made it impossible or impractical for shareholders to
attend physical general meetings.
The Board’s objective is to make it easier for shareholders to
participate in general meetings through introducing electronic access
for those not able to travel and to ensure appropriate security
measures are in place for the protection and wellbeing of
shareholders should circumstances similar to those that occurred
during the COVID-19 pandemic occur again. The Board makes it clear
that these powers would only be used if the specific circumstances or
applicable law and regulation require it and the Board’s intention is to
always hold a physical AGM provided it is both safe and practical to
do so. The safety of all of the Company’s stakeholders must of course
remain paramount.
The Board is also proposing to update the Articles of Association to
comply with FCA rules regarding restrictions on transfer, to add
certain provisions to facilitate compliance with the UK’s
implementation of the EU Alternative Investment Fund Managers
directive (No. 2011/61/EU) and to correct certain typographical errors.
The principal changes proposed to be introduced in the Articles of
Association, and their effect, are set out below.
(i) Electronic participation in general meetings
The Board will have the ability to determine the means of attendance
and participation used in relation to general meetings of the
Company, including whether the meeting shall be held physically (at
one or more locations), through an electronic facility, or partly in one
way and partly in another.
(ii) Adjournment of general meetings
The chairman of the meeting will have the ability to interrupt or
adjourn general meetings to such time and with such means of
attendance and participation as the chairman may determine without
the consent of the meeting if it appears to the chairman that the
facilities at any general meeting (including those conducted wholly or
partly electronically) have become inadequate.
(iii) Postponement of general meeting
The Board will be granted new powers to postpone and/or move the
location of a general meeting will be expanded to allow the Board to
change a physical meeting to an electronic meeting and vice versa.
The Board may exercise its ability to postpone a meeting if, in its
absolute discretion, it considers that it is impractical or unreasonable
for any reason to hold the meeting on the date or at the time or at
any place specified in the notice calling the general meeting.
(iv) Documents available for inspection at a meeting
If, in the case of a general meeting which is held wholly or partly by
means of an electronic facility, any document is required to be on
display or available for inspection at that meeting (whether prior to
and/or for the duration of the meeting), the Company shall ensure
that it is electronically available to persons entitled to inspect it for at
least the required period of time.
(v) Accommodation of members and security
arrangements
The Board’s existing powers to put in place security arrangements at
meetings will be expanded to give the Board the ability to make such
arrangements as the Board shall in its absolute discretion consider to
be appropriate to ensure the security and orderly conduct of the
meeting and to control the level of attendance at any meeting
(including at any principal meeting place, satellite meeting place or
electronic facility). Similarly, if a general meeting is held wholly or
partly by means of an electronic facility, the Board may make any
arrangement and impose any requirement or restriction that is
necessary to ensure the identification of those taking part by way of
such electronic facility and the security of electronic communication.
(vi) Method of voting at meetings conducted wholly or
partly electronically
A resolution put to the vote at a general meeting held wholly or partly
by means of an electronic facility or facilities shall be decided on a
poll, with poll votes to be cast by such electronic means as the Board,
in its sole discretion, deems appropriate for the purposes of the
meeting.
(vii) Restrictions on transfer
Article 50 of the Articles of Association (“Prohibition on Shareholdings
by Non-Qualified Person”) allows the Board to require the transfer of
any shares that are held by a “non-qualified person”. At present, a
“non-qualified person” is broadly defined to include any US Person
and any person to whom a transfer of shares might result in the
Company incurring any liability to taxation or suffering any other
pecuniary disadvantage which the Company might not otherwise
have incurred or suffered. Having received advice, the Board does not
consider that this provision complies with the requirements of Listing
Rule 2.2.4R and the related FCA technical guidance, which require the
Company’s shares to be freely transferable, save in certain limited
circumstances where restrictions are necessary to avoid falling within
onerous overseas legislative requirements. The Board is therefore
seeking to amend Article 50 to comply with the FCA rules by ensuring
that all such restrictions are carefully drafted so that they identify the
specific legislative provisions in question. The Company will continue
to retain the right to require the transfer of shares that are held by a
person who may subject the Company to certain onerous legislative
requirements. In connection with these amendments, the Board is
also seeking to supplement Article 50 to allow the Company to
require additional information from shareholders in order to comply
with certain legislative requirements, including the US Foreign
Account Tax Compliance Act 2010, and to give the Board certain
additional powers in relation to non-qualified persons.
Strategic Report Governance Financial Other InformationIntroduction
(viii) UK’s implementation of the EU Alternative
Investment Fund Managers directive
(No.2011/61/EU) (the “UK AIFMD”)
The Board is seeking to add certain provisions to facilitate compliance
with the UK AIFMD, including provisions relating to valuation, investor
disclosures and the ability of a depositary to discharge itself of liability
in certain circumstances.
The proposed new Articles of Association (marked to show the
proposed changes) will be available for inspection on the Company’s
website at www.schroders.co.uk/incomegrowth from the date of this
Report and Accounts until the conclusion of the Annual General
Meeting or may be obtained from the Company Secretary by
requesting a copy using the address and details provided on page 83.
The proposed new Articles of Association (marked to show the
proposed changes) will also be available for inspection at the place of
the forthcoming Annual General Meeting for at least 15minutes
before and during that Annual General Meeting.
Resolution 15: notice period for general meetings
(special resolution)
Resolution 15 set out in the Notice of AGM is a special resolution and
will, if passed, allow the Company to hold general meetings (other
than annual general meetings) on a minimum notice period of 14
clear days, rather than 21 clear days as required by the Companies
Act 2006. The approval will be effective until the Company’s next AGM
to be held in 2024. The Directors will only call general meetings on
14clear days’ notice when they consider it to be in the best interests
of the Company’s shareholders and will only do so if the Company
offers facilities for all shareholders to vote by electronic means and
when the matter needs to be dealt with expediently.
Recommendations
The Board considers that the resolutions relating to the above items
of business are in the best interests of shareholders as a whole.
Accordingly, the Board unanimously recommends to shareholders
that they vote in favour of the above resolutions to be proposed at
the forthcoming AGM, as they intend to do in respect of their own
beneficial holdings.
Recommendations
74 Schroder Income Growth Fund plc
Schroder Income Growth Fund plc 75
Notice of Annual
General Meeting
Notice is hereby given that the Annual General Meeting of Schroder
Income Growth Fund plc will be held on Wednesday, 13December
2023 at 12.30 p.m. at 1London Wall Place, London EC2Y5AU to
consider the following resolutions of which resolutions 1 to 11 will be
proposed as ordinary resolutions and resolutions 12 to 15 will be
proposed as special resolutions:
1. To receive the Report of the Directors and the audited Accounts
for the year ended 31August 2023.
2. To approve the Directors’ Remuneration Policy.
3. To approve the Directors’ Remuneration Report for the year
ended 31August 2023.
4. To approve the re-election of Ewen Cameron Watt as a Director
of the Company.
5. To approve the election of June Aitken as a Director of the
Company.
6. To approve the re-election of Fraser McIntyre as a Director of the
Company.
7. To approve the re-election of Victoria Muir as a Director of the
Company.
8. To re-appoint Ernst & Young LLP as auditor to the Company.
9. To authorise the Directors to determine the remuneration of
Ernst & Young LLP as auditor to the Company.
10. To approve the Company’s dividend policy, as set out on page17
of the Annual Report and Accounts for the year ended 31August
2023.
11. To consider, and if thought fit, pass the following resolution as an
ordinary resolution:
“THAT in substitution for all existing authorities the directors be
generally and unconditionally authorised pursuant to section
551 of the Companies Act 2006 (the “Act”) to exercise all the
powers of the Company to allot relevant securities (within the
meaning of section 551 of the Act) up to an aggregate nominal
amount of £6,946,334 (being 10% of the issued ordinary share
capital, excluding shares held in treasury, at the date of this
Notice) for a period expiring (unless previously renewed, varied
or revoked by the Company in general meeting) at the
conclusion of the next Annual General Meeting of the Company,
but that the Company may make an offer or agreement which
would or might require relevant securities to be allotted after
expiry of this authority and the Board may allot relevant
securities in pursuance of that offer or agreement.”
12. To consider and, if thought fit, to pass the following resolution as
a special resolution:
“That, subject to the passing of Resolution11 set out above, the
directors be and are hereby empowered, pursuant to Section
571 of the Act, to allot equity securities (including any shares
held in treasury) (as defined in section 560(1) of the Act)
pursuant to the authority given in accordance with section 551
of the Act by the said Resolution 11 and/or where such allotment
constitutes an allotment of equity securities by virtue of section
560(2) of the Act as if Section 561(1) of the Act did not apply to
any such allotment, provided that this power shall be limited to
the allotment of equity securities up to an aggregate nominal
amount of £6,946,334 (representing 10% of the aggregate
nominal amount of the share capital in issue at the date of this
Notice); and provided that this power shall expire at the
conclusion of the next Annual General Meeting of the Company
but so that this power shall enable the Company to make offers
or agreements before such expiry which would or might require
equity securities to be allotted after such expiry.”
13. To consider and, if thought fit, to pass the following resolution as
a special resolution:
“THAT the Company be and is hereby generally and
unconditionally authorised in accordance with Section 701 of the
Companies Act 2006 (the “Act”) to make market purchases
(within the meaning of Section 693 of the Act) of ordinary shares
of 10p each in the capital of the Company (“Share”) at whatever
discount the prevailing market price represents to the prevailing
net asset value per Share provided that:
(a) the maximum number of Shares which may be purchased is
10,412,555, representing 14.99% of the Company’s issued
ordinary share capital as at the date of this Notice;
(b) the maximum price (exclusive of expenses) which may be
paid for a Share shall not exceed the higher of;
i) 105% of the average of the middle market quotations for
the Shares as taken from the London Stock Exchange
Daily Official List for the five business days preceding the
date of purchase; and
ii) the higher of the last independent bid and the highest
current independent bid on the London Stock Exchange;
(c) the minimum price (exclusive of expenses) which may be paid
for a Share shall be 10p, being the nominal value per Share;
(d) this authority hereby conferred shall expire at the conclusion
of the next Annual General Meeting of the Company in 2024
(unless previously renewed, varied or revoked by the
Company prior to such date);
(e) the Company may make a contract to purchase Shares under
the authority hereby conferred which will or may be executed
wholly or partly after the expiration of such authority and may
make a purchase of Shares pursuant to any such contract;
and
(f) any Shares so purchased will be cancelled or held in
treasury.”
Strategic Report Governance Financial Other InformationIntroduction
76 Schroder Income Growth Fund plc
14. To consider and, if thought fit, to pass the following resolution as
a special resolution:
“That the amended Articles of Association as set out in the
printed document produced to the meeting (and initialled by the
Chairman of the meeting for the purposes of identification) be
and are hereby approved and adopted as the Articles of
Association of the Company in substitution for, and to the
exclusion of, all existing Articles of Association.”
15. To consider and, if thought fit, to pass the following resolution as
a special resolution:
“That a general meeting, other than an Annual General Meeting,
may be called on not less than 14 clear days’ notice.”
By order of the Board
for and on behalf of
Schroder Investment Management Limited
Company Secretary
25 October 2023
Registered Number: 03008494
Registered office:
1 London Wall Place
London EC2Y 5AU
Notice of Annual
General Meeting
Schroder Income Growth Fund plc 77
Explanatory Notes to the
Notice of Annual General Meeting
1. Ordinary shareholders are entitled to attend and vote at the
meeting and to appoint one or more proxies, who need not be a
shareholder, as their proxy to exercise all or any of their rights to
attend, speak and vote on their behalf at the meeting.
A proxy form is attached. Shareholders are encouraged to
appoint the Chairman as proxy.
If you wish to appoint a person other than the Chairman as your
proxy, please insert the name of your chosen proxy holder in the
space provided at the top of the form. If the proxy is being
appointed in relation to less than your full voting entitlement,
please enter in the box next to the proxy holder’s name the
number of shares in relation to which they are authorised to act
as your proxy. If left blank your proxy will be deemed to be
authorised in respect of your full voting entitlement (or if this
proxy form has been issued in respect of a designated account
for a shareholder, the full voting entitlement for that designated
account). Additional proxy forms can be obtained by contacting
the Company’s Registrars, Equiniti Limited, on +44 (0) 800 032
0641, or you may photocopy the attached proxy form. Please
indicate in the box next to the proxy holder’s name the number
of shares in relation to which they are authorised to act as your
proxy. Please also indicate by ticking the box provided if the
proxy instruction is one of multiple instructions being given.
Completion and return of a form of proxy will not preclude a
member from attending the Annual General Meeting and voting
in person.
On a vote by show of hands, every ordinary shareholder who is
present in person has one vote and every duly appointed proxy
who is present has one vote. On a poll vote, every ordinary
shareholder who is present in person or by way of a proxy has
one vote for every share of which he/she is a holder.
The “Vote Withheld” option on the proxy form is provided to
enable you to abstain on any particular resolution. However it
should be noted that a “Vote Withheld” is not a vote in law and
will not be counted in the calculation of the proportion of the
votes ‘For’ and ‘Against’ a resolution.
A proxy form must be signed and dated by the shareholder or
his or her attorney duly authorised in writing. In the case of joint
holdings, any one holder may sign this form. The vote of the
senior joint holder who tenders a vote, whether in person or by
proxy, will be accepted to the exclusion of the votes of the other
joint holder and for this purpose seniority will be determined by
the order in which the names appear on the Register of
Members in respect of the joint holding. To be valid, proxy
form(s) must be completed and returned to the Company’s
Registrars, Equiniti Limited, Aspect House, Spencer Road,
Lancing, West Sussex BN996DA, or in the enclosed envelope,
together with any power of attorney or other authority under
which it is signed or a copy of such authority certified notarially,
to arrive no later than 48 hours before the time fixed for the
meeting, or an adjourned meeting. Shareholders may also
appoint a proxy to vote on the resolutions being put to the
meeting electronically at www.sharevote.co.uk. Shareholders
who are not registered to vote electronically, will need to enter
the Voting ID, Task ID and Shareholder Reference Number set
out in their personalised proxy form. Alternatively, shareholders
who have already registered with Equiniti’s Shareview service can
appoint a proxy by logging onto their portfolio at
www.shareview.co.uk using their user ID and password. Once
logged in, click “view” on the “My Investments” page, click on the
link to vote, then follow the on-screen instructions. The on-
screen instructions give details on how to complete the
appointment process. Please note that to be valid, your proxy
instructions must be received by Equiniti no later than 12.30pm
on 11December 2023. If you have any difficulties with online
voting, you should contact the shareholder helpline on +44 (0)
800 032 0641.
If an ordinary shareholder submits more than one valid proxy
appointment, the appointment received last before the latest
time for receipt of proxies will take precedence.
Shareholders may not use any electronic address provided either
in this Notice of Annual General Meeting or any related
documents to communicate with the Company for any purposes
other than expressly stated.
Representatives of shareholders that are corporations will have
to produce evidence of their proper appointment when
attending the Annual General Meeting.
2. Any person to whom this notice is sent who is a person
nominated under section 146 of the Companies Act 2006 to
enjoy information rights (a “Nominated Person”) may, under an
agreement between him or her and the shareholder by whom
he or she was nominated, have a right to be appointed (or to
have someone else appointed) as a proxy for the Annual General
Meeting. If a Nominated Person has no such proxy appointment
right or does not wish to exercise it, he or she may, under any
such agreement, have a right to give instructions to the
shareholder as to the exercise of voting rights.
The statement of the rights of ordinary shareholders in relation
to the appointment of proxies in note 1 above does not apply to
Nominated Persons. The rights described in that note can only
be exercised by ordinary shareholders of the Company.
3. Pursuant to Regulation 41 of the Uncertificated Securities
Regulations 2001, the Company has specified that only those
shareholders registered in the Register of Members of the
Company at 6.30 p.m. on 11December 2023, or 6.30 p.m. two
days prior to the date of an adjourned meeting, shall be entitled
to attend and vote at the meeting in respect of the number of
shares registered in their name at that time. Changes to the
Register of Members after 6.30p.m. on 11December 2023 shall
be disregarded in determining the right of any person to attend
and vote at the meeting.
4. CREST members who wish to appoint a proxy or proxies through
the CREST electronic proxy appointment service may do so by
using the procedures described in the CREST manual. The CREST
manual can be viewed at www.euroclear.com. A CREST message
appointing a proxy (a “CREST proxy instruction”) regardless of
whether it constitutes the appointment of a proxy or an
amendment to the instruction previously given to a previously
appointed proxy must, in order to be valid, be transmitted so as
to be received by the issuer’s agent (ID RA19) by the latest time
for receipt of proxy appointments.
5. Copies of the terms of appointment of the non-executive
Directors and a statement of all transactions of each Director and
of his/her family interests in the shares of the Company, will be
available for inspection by any member of the Company at the
registered office of the Company during normal business hours
on any weekday (English public holidays excepted) and at the
Annual General Meeting by any attendee, for at least 15 minutes
prior to, and during, the Annual General Meeting. None of the
directors has a contract of service with the Company.
Strategic Report Governance Financial Other InformationIntroduction
78 Schroder Income Growth Fund plc
In addition, copies of the marked up Articles of Association of the
Company will be available for inspection.
6. The biographies of the Directors offering themselves for election
and re-election are set out on pages 30 and 31 of the Company’s
annual report and accounts for the year ended 31August 2023.
7. As at 25 October 2023, 69,463,343 ordinary shares of 10pence
each were in issue (no shares were held in treasury). Therefore
the total number of voting rights of the Company as at
25October 2023 was 69,463,343.
8. A copy of this notice of meeting, which includes details of
shareholder voting rights, together with any other information
asrequired under Section311A oftheCompanies Act
2006,isavailablefrom the Company’s webpages,
www.schroders.co.uk/incomegrowth.
9. Pursuant to Section 319A of the Companies Act 2006, the
Company must cause to be answered at the Annual General
Meeting any question relating to the business being dealt with at
the Annual General Meeting which is put by a member attending
the meeting, except in certain circumstances, including if it is
undesirable in the interests of the Company or the good order of
the meeting that the question be answered or if to do so would
involve the disclosure of confidential information.
10. Members satisfying the thresholds in section 527 of the
Companies Act 2006 can require the Company to publish a
statement on its website setting out any matter relating to:
(a) the audit of the Company’s Accounts (including the auditor’s
report and the conduct of the audit) that are to be laid before
the Meeting; or
(b) any circumstance connected with an auditor of the Company
ceasing to hold office since the last AGM, that the members
propose to raise at the Meeting. The Company cannot require
the members requesting the publication to pay its expenses.
Any statement placed on the website must also be sent to the
Company’s auditor no later than the time it makes its
statement available on the website. The business which may
be dealt with at the meeting includes any statement that the
Company has been required to publish on its website.
11. The Company’s privacy policy is available on its webpages
http://www.schroders.co.uk/incomegrowth.
Shareholders can contact Equiniti for details of how Equiniti
processes their personal information as part of the AGM.
Explanatory Notes to the
Notice of Annual General Meeting
Strategic Report Governance Financial Other InformationIntroduction
Schroder Income Growth Fund plc 79
The terms and performance measures below are those
commonly used by investment companies to assess values,
investment performance and operating costs. Some of the
financial measures below are classified Alternative
Performance Measures as defined by the European Securities
and Markets Authority, and some numerical calculations are
given for those.
Consumer Prices Index (“CPI”)
The Consumer Price Index is a measure that examines the
weighted average of prices of a basket of consumer goods and
services, such as transportation, food and medical care. It is
calculated by taking price changes for each item in the
predetermined basket of goods and averaging them. Changes in
the CPI are used to assess price changes associated with the cost
of living. The CPI is one of the most frequently used statistics for
identifying periods of inflation or deflation.
Reference index
The index against which it is deemed most appropriate to measure
the Company’s performance. The reference index is the FTSE All-
Share Index.
Net asset value (“NAV”) per share
The NAV per share of 293.58p (2022: 295.26p) represents the net
assets attributable to equity shareholders of £203,932,000 (2022:
£205,100,000) divided by the number of shares in issue of
69,463,343 (2022: 69,463,343).
The change in the NAV amounted to -0.6% (2022: -6.7%) over the
year. However this performance measure excludes the positive
impact of dividends paid out by the Company during the year.
When these dividends are factored into the calculation, the
resulting performance measure is termed the “total return”. Total
return definitions and calculations are given below.
Total return*
The combined effect of any dividends paid, together with the rise
or fall in the NAV per share or share price. Total return statistics
enable the investor to make performance comparisons between
investment companies with different dividend policies. Any
dividends received by a shareholder are assumed to have been
reinvested in either the assets of the Company at its NAV per share
at the time the shares were quoted ex-dividend (to calculate the
NAV per share total return) or in additional shares of the Company
(to calculate the share price total return).
The NAV total return for the year ended 31 August 2023 is
calculated as follows:
NAV at 31/8/22 295.26p
NAV at 31/8/23 293.58p
NAV on Cumulative
Dividend XD date XD date Factor factor
5.7p 03/10/2022 265.18 1.0215 1.0215
2.5p 29/12/2022 298.48 1.0084 1.0301
2.5p 06/04/2023 305.88 1.0082 1.0385
2.5p 06/07/2023 284.73 1.0088 1.0476
NAV total return, being the closing NAV, multiplied by
the cumulative factor, expressed as a percentage
change in the opening NAV 4.2%
The NAV total return for the year ended 31 August 2022 is
calculated as follows:
NAV at 31/8/21 316.59p
NAV at 31/8/22 295.26p
NAV on Cumulative
Dividend XD date XD date Factor factor
5.3p 07/10/2021 299.36 1.0177 1.0177
2.5p 30/12/2021 303.36 1.0082 1.0261
2.5p 07/04/2022 317.39 1.0079 1.0342
2.5p 07/07/2022 295.28 1.0085 1.0429
NAV total return, being the closing NAV, multiplied by
the cumulative factor, expressed as a percentage
change in the opening NAV –2.7%
Definitions of Terms and
Alternative Performance
Measures
*Alternative Performance measure
80 Schroder Income Growth Fund plc
The share price total return for the year ended 31 August 2023 is
calculated as follows:
Share price at 31/8/22 289.00p
Share price at 31/8/23 267.50p
Share price
on Cumulative
Dividend XD date XD date Factor factor
5.7p 13/10/2022 257.00p 1.0222 1.0222
2.5p 29/12/2022 305.00p 1.0082 1.0306
2.5p 06/04/2023 301.00p 1.0083 1.0391
2.5p 06/07/2023 281.00p 1.0089 1.0484
Share price total return, being the closing share price,
multiplied by the cumulative factor, expressed as a
percentage change in the opening share price –3.0%
The share price total return for the year ended 31 August 2022 is
calculated as follows:
Share price at 31/8/21 316.50p
Share price at 31/8/22 289.00p
Share price
on Cumulative
Dividend XD date XD date Factor factor
5.3p 07/10/2021 300.00p 1.0177 1.0177
2.5p 30/12/2021 300.00p 1.0083 1.0261
2.5p 07/04/2022 305.00p 1.0082 1.0346
2.5p 07/07/2022 286.50p 1.0088 1.0436
Share price total return, being the closing share price,
multiplied by the cumulative factor, expressed as a
percentage change in the opening share price –4.7%
Discount/premium
The amount by which the share price of an investment trust is lower
(discount) or higher (premium) than the NAV per share. The discount
or premium is expressed as a percentage of the NAV per share. The
discount at the year end was 8.9% (2022: 2.1%), as the closing share
price at 267.50p (2022: 289.00p) was 8.9% (2022: 2.1%) lower than
the closing NAV of 293.58p (2022: 295.26p).
Gearing
The gearing percentage reflects the amount of borrowings (i.e.bank
loans or overdrafts) which the Company has drawn down and
invested in the market. This figure is indicative of the extra amount by
which shareholders’ funds would move if the Company’s investments
were to rise or fall. This represents borrowings used for investment
purposes, less cash, expressed as a percentage of net assets. The
gearing figure at the year end is calculated as follows:
2023 2022
£’000 £’000
Borrowings used for investment
purposes, less cash 27,941 27,695
Net assets 203,932 205,100
Gearing 13.7% 13.5%
Leverage
For the purpose of the Alternative Investment Fund Managers (AIFM)
Directive, leverage is any method which increases the Company’s
exposure, including the borrowing of cash and the use of derivatives.
It is expressed as the ratio of the Company’s exposure to its net asset
value and is required to be calculated both on a “Gross” and a
“Commitment” method. Under the Gross method, exposure
represents the sum of the absolute values of all positions, so as to
give an indication of overall exposure. Under the Commitment
method, exposure is calculated in a similar way, but after netting off
hedges which satisfy certain strict criteria.
Ongoing Charges
Ongoing Charges is calculated in accordance with the AIC’s
recommended methodology and represents the management fee
and all other operating expenses excluding finance costs and
transaction costs, amounting to £1,607,000 (2022: £1,577,000),
expressed as a percentage of the average daily net asset values
during the year of £207,871,000 (2022: £212,256,000).
Definitions of Terms and
Alternative Performance
Measures
Schroder Income Growth Fund plc 81
Shareholder
Information
Webpage and share price information
The Company has dedicated webpages, which may be found at
www.schroders.co.uk/incomegrowth. The webpages have been
designed to be utilised as the Company’s primary method of
electronic communication with shareholders. It contains details of
the Company’s ordinary share price and copies of annual reports and
accounts and other documents published by the Company as well as
information on the directors, terms of reference of committees and
other governance arrangements. In addition, the webpages contain
links to announcements made by the Company to the market,
Equiniti’s Shareview service and Schroders’ website. There is also a
section entitled “How to Invest”.
The Company releases its NAV per share on both a cum and ex-
income basis to the market on a daily basis.
Share price information may also be found in the FinancialTimes and
on the company’s webpages.
Association of Investment Companies
The Company is a member of the Association of Investment
Companies. Further information on the Association can be found on
its website, www.theaic.co.uk.
Individual Savings Account (“ISA”) status
The Company’s shares are eligible for stocks and shares ISAs.
Non-Mainstream Pooled Investments status
The Company currently conducts its affairs so that its shares can be
recommended by IFAs to ordinary retail investors in accordance with
the FCA’s rules in relation to non-mainstream investment products
and intends to continue to do so for the foreseeable future. The
Company’s shares are excluded from the FCA’s restrictions which
apply to non-mainstream investment products because they are
shares in an investment trust.
Financial calendar
First interim dividend paid 31 January
Second interim dividend paid 30 April
Half year results announced April/May
Third interim dividend paid 31 July
Financial year end 31 August
Fourth interim dividend paid 31 October
Annual results October/
announced November
Annual General Meeting December
Alternative Investment Fund Managers
Directive (“AIFMD”) disclosures
Certain pre-sale, regular and periodic disclosures required by the
AIFM Directive may be found either in this annual report or on the
Company’s webpages.
The Company’s leverage policy and details of limits on leverage
required under the AIFM Directive are published on the Company’s
webpages.
Leverage
The Company’s leverage policy and details of its leverage ratio
calculation and exposure limits as required by the AIFMD are
published on the Company’s webpages and within this report. The
Company is also required to periodically publish its actual leverage
exposures. As at 31 August 2023 these were:
Leverage Maximum Actual
exposure exposure exposure
Gross method 200.0% 128.9%
Commitment
method 200.0% 112.8%
Illiquid assets
As at the date of this report, none of the Company’s assets are
subject to special arrangements arising from their illiquid nature.
Remuneration disclosures
Quantitative remuneration disclosures to be made in this annual
report in accordance with FCA Handbook rule FUND3.3.5 may also
be found in the Company’s AIFMD information disclosure document
published on the Investor Relations section of Schroders’ website
www.schroders.com.
Publication of key information document (“KID”) by the
AIFM
Pursuant to the Packaged Retail and Insurance Based Investment
Products (“PRIIPs”) Regulation, the Manager, as the Company’s AIFM,
is required to publish a short KID on the Company. KIDs are
designed to provide certain prescribed information to retail investors,
including details of potential returns under different performance
scenarios and a risk/reward indicator. The Company’s KID is available
on its webpages.
Strategic Report Governance Financial Other InformationIntroduction
82 Schroder Income Growth Fund plc
Companies are aware that their shareholders have received
unsolicited telephone calls or correspondence concerning
investment matters. These are typically from overseas-based ‘brokers’
who target UK shareholders, offering to sell them what often turn
out to be worthless or high risk shares or investments.
These operations are commonly known as ‘boiler rooms’. These
‘brokers’ can be very persistent and extremely persuasive.
Shareholders are advised to be wary of any unsolicited advice, offers
to buy shares at a discount or offers of free company reports. If you
receive any unsolicited investment advice:
• Make sure you get the correct name of the person and
organisation
• Check that they are properly authorised by the FCA before
getting involved by visiting https://register.fca.org.uk
• Report the matter to the FCA by calling 0800 111 6768 or visiting
https://fca.org.uk/consumers/report-scam-unauthorised-firm
• Do not deal with any firm that you are unsure about
If you deal with an unauthorised firm, you will not be eligible to
receive payment under the Financial Services Compensation Scheme.
The FCA provides a list of unauthorised firms of which it is aware,
which can be accessed at
https://www.fca.org.uk/consumers/warning-list-unauthorised-
firms#list. More detailed information on this or similar activity can be
found on the FCA website at https://fca.org.uk/consumers/protect-
yourself-scams.
Dividends
Paying dividends into a bank or building society account helps
reduce the risk of fraud and will provide you with quicker access to
your funds than payment by cheque.
Applications for an electronic mandate can be made by contacting
the Registrar, Equiniti.
This is the most secure and efficient method of payment and ensures
that you receive any dividends promptly.
If you do not have a UK bank or building society account, please
contact Equiniti for details of their overseas payment service.
Further information can be found at www.shareview.co.uk, including
how to register with Shareview Portfolio and manage your
shareholding online.
Investor Warning
www.schroders.co.uk/incomegrowth
Directors
Ewen Cameron Watt
June Aitken
Fraser McIntyre
Victoria Muir
Advisers
Alternative investment fund manager
(the “Manager”)
Schroder Unit Trusts Limited
1 London Wall Place
London EC2Y 5AU
Investment Manager and Company Secretary
Schroder Investment Management Limited
1 London Wall Place
London EC2Y 5AU
Telephone: 020 7658 6501
Email: amcompanysecretary@schroders.com
Registered office
1 London Wall Place
London EC2Y 5AU
Depositary
HSBC Bank plc
8 Canada Square
London E14 5HQ
Lending bank
Sumitomo Mitsui Banking Corporation
99 Queen Victoria Street
London EC4V 4EH
Corporate broker
Peel Hunt LLP
100 Liverpool Street
London
EC2M 2AT
Independent auditor
Ernst & Young LLP
Atria One
144 Morrison Street
Edinburgh EH3 8EX
Registrar
Equiniti Limited
Aspect House
Spencer Road
Lancing
West Sussex BN99 6DA
Shareholder Helpline: 0800 032 0641*
Website: www.shareview.co.uk
*Calls to this number are free of charge from UK landlines.
Communications with shareholders are mailed to the address held on
the register. Any notifications and enquiries relating to shareholdings,
including a change of address or other amendment should be
directed to Equiniti Limited at the above address.
Shareholder enquiries
General enquiries about the Company should be addressed to the
Company Secretary at the Company’s registered office.
Dealing codes
ISIN: GB0007915860
SEDOL: 0791586
Ticker: SCF
Global intermediary identification number (GIIN)
T34UKV.99999.SL.826
Legal entity identifier (LEI)
549300X1RTYYP7S3YE39
Privacy notice
The Company's privacy notice is available on its webpages
The Company’s privacy notice is
available on its webpages.
Information about the Company
Schroder Income Growth Fund plc