UK Smaller Companies Fund

Transcription

1 Schroder UK Smaller Companies Fund Final Report and Accounts May 2017

2 Contents Schroder UK Smaller Companies Fund Fund Information Investment objective and policy Financial highlights Fund information Ongoing charges figure Review of Investment Activities Risk Profile Risk and reward indicator Specific risks Statement of the Manager s Responsibilities Report of the Trustee Independent Auditors Report to the Unitholders of Schroder UK Smaller Companies Fund Comparative Tables Portfolio Statement Summary of Portfolio Transactions Largest purchases Largest sales Statement of Total Return Statement of Change in Net Assets Attributable to Unitholders Balance Sheet Notes to the Accounts Accounting policies Net capital gains Revenue Expenses Taxation Distributions Fair value hierarchy Debtors Other creditors Contingent liabilities Related party transactions Unit classes Derivative and other financial instruments Direct transaction costs Units in issue reconciliation Remuneration Distribution Table Final distribution for the year ended 31 May Corporate unitholders (unaudited) Equalisation General Information Authorisation Other information Collectively these comprise the Authorised Fund Manager s report.

3 Fund Information Investment objective and policy The fund s investment objective is to aim to achieve capital growth by investing in UK smaller companies. The policy is to invest in smaller companies in the UK which are expected to exhibit superior growth over the long term. Investment will be in directly held transferable securities. The fund may also invest in collective investment schemes, warrants and money market instruments. Financial highlights Selling price % change A Income units 2,953.00p 2,276.00p A Accumulation units 3,951.00p 3,034.00p S Income units 74.04p 57.04p Z Income units p p Z Accumulation units p p Final distribution per Z Income unit p p Fund information Launch date 31 May 1987 Launch price p per A Income unit p per A Accumulation unit Launch date 8 November 2011 Launch price 50.00p per Z Income unit 50.00p per Z Accumulation unit Launch date 31 January 2014 Launch price 50.00p per S Income unit Interim Final Accounting dates 30 November 31 May Revenue allocation date 31 July Ongoing charges figure For the year For the year to to A Income units 1.66% 1.66% A Accumulation units 1.66% 1.66% S Income units 0.54% 0.54% Z Income units 0.91% 0.91% Z Accumulation units 0.91% 0.91% 3

4 Review of Investment Activities From 31 May 2016 to 31 May 2017, the price of A Accumulation units on a selling price to selling price basis rose 30.22%. In comparison the FTSE 1 SmallCap ex Investment Trusts Index and the FTSE 1 All Share Index generated total returns of 23.99% 2 and 24.52% 2 respectively. Small caps performed well over the period in line with the wider market against a backdrop of increased global inflation expectations. Inflation expectations rose as the outlook for global growth improved and as the economic policy discussion switched from a sole focus on monetary stimulus in favour of fiscal policy. Risk appetite waned somewhat towards the end of the period as economic newsflow deteriorated and amid uncertainty about Donald Trump s ability to push through his fiscally expansive policies. Software robotics specialist Blue Prism Group was our top contributor as this exciting growth story caught the imagination of the wider investment community. Taptica International performed very well too as earnings forecasts were upgraded on the back of strong growth in its mobile advertising product. Cosmetics supplier Warpaint London (in which we initiated a holding at the Initial Public Offering in November) also generated triple digit share price returns as it announced a robust set of maiden full year results. Meanwhile, results from IT group Microgen revealed good traction in its core business. Floor coverings specialist Victoria published robust results which underlined good progress in the group s acquisitive growth strategy and self help measures to improve margins. On the negative side, Crawshaw Group performed poorly as trading conditions deteriorated culminating in a profit warning. Travel and logistics group Dart Group lagged amid worries about the negative impact of a weak sterling on demand for its budget package holidays and the company s cost base. UK personal injury (PI) marketing specialist NAHL Group performed poorly given proposed changes to the legal system designed to restrict PI claims. Fund Manager: Andrew Brough Andrew is Head of our Pan European Small and Mid Cap Team His investment career commenced in 1987 when he joined Schroders as a UK equity fund manager, becoming Co-Head of our UK Small Cap Team in 2002 He joined Price Waterhouse in 1985, where he qualified as a Chartered Accountant Degree in Economics We anticipate that concerns over UK consumer spending will increase this year as inflation rises and potentially higher interest rates pressure real disposable incomes. Against a challenging backdrop, quality of earnings is likely to become an increasingly important investment consideration. 1 FTSE International Limited ( FTSE ) FTSE. FTSE is a trade mark of London Stock Exchange plc and The Financial Times Limited and is used by FTSE International Limited under licence. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE s express written consent. 2 Source: Thomson Reuters Datastream. Please remember that past performance is not a guide to future performance and it might not be repeated. The value of investments and the revenue from them may go down as well as up and investors may not get back the amount originally invested. Because of this, you are not certain to make a profit on your investments and you may lose money. 4

5 Risk Profile Risk and reward indicator The risk category was calculated using historical performance data and may not be a reliable indicator of the fund s future risk profile. The fund is in this category because it can take higher risks in search of higher rewards and its price may rise and fall accordingly. The fund s risk category is not guaranteed to remain fixed and may change over time. A fund in the lowest category does not mean a risk free investment. Specific risks The fund invests predominantly in the securities of a particular country. There may be a greater risk than investing in funds that hold securities in a range of countries. The fund invests in smaller companies which may be less liquid than larger companies and price swings may therefore be greater than in larger company funds. For these reasons, the purchase of units should not normally be regarded as a short term investment. 5

6 Statement of the Manager s Responsibilities The Financial Conduct Authority s Collective Investment Schemes sourcebook (COLL) requires the Manager to prepare accounts for each annual and half yearly accounting period, in accordance with United Kingdom Generally Accepted Accounting Practice, which give a true and fair view of the financial position of the fund and of its net revenue and the net capital gains on the property of the fund for the year. In preparing the accounts the Manager is required to: select suitable accounting policies and then apply them consistently; comply with the disclosure requirements of the Statement of Recommended Practice (SORP) for UK Authorised Funds issued by the Investment Management Association (IMA (now the Investment Association (IA))) in May 2014; follow generally accepted accounting principles and applicable accounting standards; prepare the accounts on the basis that the fund will continue in operation unless it is inappropriate to do so; keep proper accounting records which enable it to demonstrate that the accounts as prepared comply with the above requirements; make judgements and estimates that are prudent and reasonable. The Manager is responsible for the management of the fund in accordance with its Trust Deed, the Prospectus and the COLL and for taking reasonable steps for the prevention and detection of fraud, error and non-compliance with law or regulations. The Manager s report and accounts for the year ended 31 May 2017 were signed on 21 July 2017 on behalf of the Manager by: J.A. Walker-Hazell Directors J.M. Cardew 6

7 Report of the Trustee Statement of the Trustee s responsibilities in relation to the accounts of the Scheme The Trustee is responsible for the safekeeping of all of the property of the Scheme (other than tangible moveable property) which is entrusted to it and for the collection of revenue that arises from that property. It is the duty of the Trustee to take reasonable care to ensure that the Scheme is managed by the Authorised Fund Manager in accordance with the Financial Conduct Authority s Collective Investment Schemes Sourcebook (COLL) and the Scheme s Trust Deed and Prospectus, as appropriate, in relation to the pricing of, and dealings in, units in the Scheme; the application of revenue of the Scheme; and the investment and borrowing powers of the Scheme. Report of the Trustee for the accounting period from 1 June 2016 to 31 May 2017 Schroder UK Smaller Companies Fund ( the Scheme ) Having carried out such procedures as we consider necessary to discharge our responsibilities as Trustee of the Scheme, it is our opinion, based on the information available to us and the explanations provided, that in all material respects the Authorised Fund Manager: (i) has carried out the issue, sale, redemption and cancellation, and calculation of the price of the Scheme s units and the application of the Scheme s revenue in accordance with the COLL as appropriate, and, where applicable, the Scheme s Trust Deed and Prospectus; and (ii) has observed the investment and borrowing powers and restrictions applicable to the Scheme. J.P. Morgan Europe Limited Trustee Bournemouth 21 June

8 Independent Auditors Report to the Unitholders of Schroder UK Smaller Companies Fund Report on the financial statements Our opinion In our opinion, Schroder UK Smaller Companies Fund s financial statements, (the financial statements ): give a true and fair view of the financial position of the fund as at 31 May 2017 and of the net revenue and the net capital gains of its scheme property for the year then ended; and have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice, the Statement of Recommended Practice for UK Authorised Funds, the Collective Investment Schemes sourcebook and the Trust Deed. What we have audited The financial statements, included within the Final Report and Accounts, which are prepared by Schroder Unit Trusts Limited (the Authorised Fund Manager ), comprise: the balance sheet as at 31 May 2017; the statement of total return for the year then ended; the statement of change in net assets attributable to unitholders for the year then ended; the notes to the financial statements, which include a summary of significant accounting policies and other explanatory information; and the distribution table. The financial reporting framework that has been applied in their preparation is United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland and applicable law), the Statement of Recommended Practice Financial Statements of UK Authorised Funds issued by the Investment Management Association (the Statement of Recommended Practice for UK Authorised Funds ), the Collective Investment Schemes sourcebook and the Trust Deed. In applying the financial reporting framework, the Authorised Fund Manager has made judgements where appropriate, for example in respect of substantive accounting estimates. In preparing such estimates, they have considered future events and related assumptions. 8

9 Independent Auditors Report to the Unitholders of Schroder UK Smaller Companies Fund (continued) Opinions on matters prescribed by the Collective Investment Schemes sourcebook In our opinion: we have obtained all the information and explanations we consider necessary for the purposes of the audit; and the information given in the Authorised Fund Manager s Report for the financial year for which the financial statements are prepared is consistent with the financial statements. Other matters on which we are required to report by exception Propriety of accounting records and information and explanations received Under the Collective Investment Schemes sourcebook we are required to report to you if, in our opinion: proper accounting records have not been kept; or the financial statements are not in agreement with the accounting records and returns. We have no exceptions to report arising from this responsibility. Responsibilities for the financial statements and the audit Our responsibilities and those of the Authorised Fund Manager As explained more fully in the Authorised Fund Manager s Responsibilities Statement set out on page 6, the Authorised Fund Manager is responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland) ( ISAs (UK & Ireland) ). Those standards require us to comply with the Auditing Practices Board s Ethical Standards for Auditors. This report, including the opinions, has been prepared for and only for the fund s unitholders as a body in accordance with paragraph of the Collective Investment Schemes sourcebook and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. 9

10 Independent Auditors Report to the Unitholders of Schroder UK Smaller Companies Fund (continued) What an audit of financial statements involves We conducted our audit in accordance with ISAs (UK & Ireland). An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the fund s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Authorised Fund Manager; and the overall presentation of the financial statements. We primarily focus our work in these areas by assessing the Authorised Fund Manager s judgements against available evidence, forming our own judgements, and evaluating the disclosures in the financial statements. We test and examine information, using sampling and other auditing techniques, to the extent we consider necessary to provide a reasonable basis for us to draw conclusions. We obtain audit evidence through testing the effectiveness of controls, substantive procedures or a combination of both. In addition, we read all the financial and non-financial information in the Final Report and Accounts (the Annual Report ) to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors Edinburgh 21 July 2017 (a) The maintenance and integrity of the Schroders website is the responsibility of the Authorised Fund Manager; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website. (b) Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. 10

11 Comparative Tables A Income units Financial year to 31 May p per unit p per unit p per unit Change in net asset value Opening net asset value 2, , , Return before operating charges Operating charges (41.72) (36.97) (32.49) Return after operating charges* Distributions 1 (9.56) (7.71) (7.48) Closing net asset value 2, , , *after direct transaction costs of (1.25) 0.45 (0.39) Performance Return after charges (%) Other information Closing net asset value ( 000 s) 39,206 28,503 38,749 Closing number of units 1,325,646 1,255,162 1,779,113 Operating charges (%) Direct transaction costs (%)** 0.05 (0.02) Prices Highest buying price (p) 3, , , Lowest selling price (p) 2, , ,

12 Comparative Tables (continued) A Accumulation units Financial year to 31 May p per unit p per unit p per unit Change in net asset value Opening net asset value 3, , , Return before operating charges Operating charges (55.43) (49.31) (43.14) Return after operating charges* Distributions 1 (12.78) (10.32) (9.94) Retained distributions Closing net asset value 3, , , *after direct transaction costs of (1.67) 0.59 (0.52) Performance Return after charges (%) Other information Closing net asset value ( 000 s) 364, , ,057 Closing number of units 9,194,876 10,846,513 11,572,886 Operating charges (%) Direct transaction costs (%)** 0.05 (0.02) Prices Highest buying price (p) 4, , , Lowest selling price (p) 2, , ,

13 Comparative Tables (continued) S Income units Financial year to 31 May p per unit p per unit p per unit Change in net asset value Opening net asset value Return before operating charges Operating charges (0.34) (0.30) (0.26) Return after operating charges* Distributions 1 (0.94) (0.82) (0.73) Closing net asset value *after direct transaction costs of (0.03) 0.01 (0.01) Performance Return after charges (%) Other information Closing net asset value ( 000 s) 14,763 13,265 13,201 Closing number of units 20,101,157 23,566,601 24,460,716 Operating charges (%) Direct transaction costs (%)** 0.05 (0.02) Prices Highest buying price (p) Lowest selling price (p)

14 Comparative Tables (continued) Z Income units Financial year to 31 May p per unit p per unit p per unit Change in net asset value Opening net asset value Return before operating charges Operating charges (1.02) (0.91) (0.80) Return after operating charges* Distributions 1 (1.27) (1.10) (0.99) Closing net asset value *after direct transaction costs of (0.06) 0.02 (0.02) Performance Return after charges (%) Other information Closing net asset value ( 000 s) 48,617 36,842 16,872 Closing number of units 36,864,386 36,426,812 17,397,440 Operating charges (%) Direct transaction costs (%)** 0.05 (0.02) Prices Highest buying price (p) Lowest selling price (p)

15 Comparative Tables (continued) Z Accumulation units Financial year to 31 May p per unit p per unit p per unit Change in net asset value Opening net asset value Return before operating charges Operating charges (1.07) (0.94) (0.82) Return after operating charges* Distributions 1 (1.33) (1.14) (1.02) Retained distributions Closing net asset value *after direct transaction costs of (0.06) 0.02 (0.02) Performance Return after charges (%) Other information Closing net asset value ( 000 s) 243, , ,058 Closing number of units 174,330, ,137, ,194,740 Operating charges (%) Direct transaction costs (%)** 0.05 (0.02) Prices Highest buying price (p) Lowest selling price (p) These figures have been rounded to 2 decimal places. 2 The amount received from dilution adjustments, that relate to direct transaction costs, is greater than the direct transaction costs incurred by the fund within the year. ** Direct transaction costs have been stated after deducting the proportion of the amounts collected from dilution adjustments. For Accumulation unit classes, prior years figures have been updated in line with the Investment Association circular, issued on 6 October Please remember that past performance is not a guide to future performance and it might not be repeated. The value of investments and the revenue from them may go down as well as up and investors may not get back the amount originally invested. Because of this, you are not certain to make a profit on your investments and you may lose money. 15

16 Portfolio Statement Holding at Market Value % of net s assets Oil & Gas 2.82% ( %) AFC Energy 34,500,000 3, Cape 2,532,532 6, Lamprell 7,050,000 7, PetroNeft Resources 1,819, President Energy 38,500,000 2, , Basic Materials 2.96% ( %) Anglo Pacific Group 3,486,682 3, Carclo 2,859,740 4, Polypipe Group 2,200,000 9, Zotefoams 1,278,199 3, , Industrials 22.81% ( %) Alumasc Group 600,000 1, Avon Rubber 1,200,000 13, Blancco Technology Group 2,959,000 5, Cohort 2,856,000 11, CPP Group 11,850,701 1, Dialight 1,400,000 14, Digital Barriers 5,140,351 1, Eddie Stobart Logistics 4,374,855 6, Epwin Group 1,057,500 1, George Scarr-Hall Investments Henry Boot 1,534,182 4, Impellam Group 755,985 5, James Fisher & Sons 650,000 11, Johnson Service Group 3,959,640 4, Low & Bonar 4,210,227 3, Mercantile Ports and Logistics 34,310,909 2, Midwich Group 1,478,088 4, Molins 1,900,000 1, Murgitroyd Group 614,042 2, Norcros 1,600,000 2, Pressure Technologies 712,268 1,

17 Portfolio Statement (continued) Holding at Market Value % of net s assets Industrials (continued) Redt Energy 19,088,412 1, Ricardo 1,000,000 8, Speedy Hire 9,000,000 5, Tribal Group 8,400,000 7, Trifast 5,200,000 11, TT Electronics 3,250,000 6, Vitec Group 800,000 7, Wincanton 2,465,674 7, Xaar 1,050,000 3, , Consumer Goods 13.16% ( %) Accrol Group Holdings 4,500,000 6, Autins Group 3,001,190 4, Finsbury Food Group 2,554,702 2, Focusrite 3,121,667 9, Games Workshop Group 900,000 8, MJ Gleeson 2,117,500 13, Photo-Me International 9,615,112 15, Ted Baker 300,000 7, Up Global Sourcing Holdings 1,762,172 3, Victoria 2,324,315 12, Warpaint London 3,210,844 9, , Health Care 8.64% ( %) Advanced Medical Solutions Group 5,000,000 14, Consort Medical 1,250,000 12, Eco Animal Health Group 1,669,209 9, Futura Medical 3,208,660 1, Immunodiagnostic Systems Holdings 1,619,781 4, Medica Group 1,684,132 3, Oxford BioDynamics 2,143,500 2, Quantum Pharma 10,009,895 5, Sinclair Pharma 15,020,352 4, Totally 2,113,966 1, ,

18 Portfolio Statement (continued) Holding at Market Value % of net s assets Consumer Services 16.04% ( %) Adgorithms 3,665,639 1, Air Partner 5,333,915 7, Crawshaw Group 10,230,365 2, Dart Group 2,423,775 15, Dods Group 18,468,749 2, EI Group 3,077,039 4, GlobalData 1,400,000 6, Goals Soccer Centres 3,536,905 3, Hollywood Bowl Group 3,854,290 6, ITE Group 1,750,000 2, MySale Group 10,666,862 11, NAHL Group 3,024,980 4, On the Beach Group 2,150,000 8, Sportech 6,072,781 6, STV Group 1,280,589 4, Taptica International 3,602,777 10, ULS Technology 8,300,000 10, Wilmington 2,150,000 5, , Financials 14.83% ( %) Arrow Global Group 3,302,141 13, Charles Stanley Group 1,054,587 3, CLS Holdings 5,118,970 10, Harworth Group 1,612,743 1, Helical 1,800,000 6, Liontrust Asset Management 3,788,694 16, Morses Club 4,936,766 6, Park Group 12,500,000 10, Raven Russia 8,492,500 4, S&U 102,503 2, Safestore Holdings 2,200,000 9, Sirius Real Estate 1,760, TBC Bank Group 550,000 9, U & I Group 542,415 1, Xafinity 5,987,770 10, ,

19 Portfolio Statement (continued) Holding at Market Value % of net s assets Technology 15.58% ( %) Blue Prism Group 1,455,784 13, CentralNic Group 5,006,753 2, Craneware 780,000 10, Earthport 12,294,276 2, Gresham Technologies 5,677,490 9, iomart Group 1,599,643 4, Microgen 3,500,000 11, NCC Group 5,887,133 9, Oxford Metrics 2,715,000 1, Quartix Holdings 390,125 1, RM 5,500,000 9, SDL 1,800,000 11, Servelec Group 2,650,000 7, Shearwater Group 108,571,428 4, SQS Software Quality Systems 1,061,645 4, Tax Systems 3,701,418 2, Tracsis 936,684 3, , Telecommunication Services 0.31% ( %) Be Heard Group 59,538,000 2, , Portfolio of investments 690, Net other assets 20, Net assets attributable to unitholders 711, Unless otherwise stated the above securities are ordinary shares or common stock and admitted to official stock exchange listings. 1 Unlisted, suspended and delisted securities within the meaning of the FCA s COLL. 2 Securities that are not approved within the meaning of the FCA s COLL. 19

20 Summary of Portfolio Transactions Largest purchases Largest sales Cost For the year ended 31 May s Xafinity 8,323 NCC Group 7,400 TBC Bank Group 7,238 Eddie Stobart Logistics 7,000 Hollywood Bowl Group 6,167 Accrol Group Holdings 5,422 Autins Group 5,043 Shearwater Group 4,343 EI Group 4,275 Wincanton 4,250 Proceeds For the year ended 31 May s Teledyne E2V 12,271 Conviviality 11,061 Hill & Smith Holdings 9,658 Vectura Group 9,381 Sanne Group 8,526 Dechra Pharmaceuticals 7,918 Marshalls 7,464 Dart Group 6,430 Gateley Holdings 6,158 Mears Group 5,897 20

21 Statement of Total Return For the year ended 31 May 2017 Income Notes 000 s 000 s 000 s 000 s Net capital gains 2 166,331 21,881 Revenue 3 12,784 11,599 Expenses 4 (8,333) (8,028) Net revenue before taxation 4,451 3,571 Taxation 5 (58) (28) Net revenue after taxation 4,393 3,543 Total return before distributions 170,724 25,424 Distributions 6 (4,405) (3,744) Change in net assets attributable to unitholders from investment activities 166,319 21,680 Statement of Change in Net Assets Attributable to Unitholders For the year ended 31 May s 000 s 000 s 000 s Opening net assets attributable to unitholders 595, ,937 Amounts receivable on issue of units 35,857 76,013 Amounts payable on cancellation of units (91,909) (44,278) (56,052) 31,735 Dilution adjustment 2,269 1,530 Change in net assets attributable to unitholders from investment activities 166,319 21,680 Retained distribution on Accumulation units 3,500 3,132 Unclaimed distributions 1 1 Closing net assets attributable to unitholders 711, ,015 21

22 Balance Sheet As at 31 May Notes 000 s 000 s Assets Investments 690, ,812 Current assets Debtors 8 4,386 3,433 Cash and bank balances 18,353 27,581 Total assets 713, ,826 Liabilities Creditors Bank overdrafts (102) 0 Distributions payable (785) (692) Other creditors 9 (1,620) (1,119) Total liabilities (2,507) (1,811) Net assets attributable to unitholders 711, ,015 22

23 Notes to the Accounts 1 Accounting policies Basis of preparation The accounts have been prepared under the historical cost basis, as modified by the revaluation of investments, and in accordance with the SORP for UK Authorised Funds issued by the IMA in May 2014 and in accordance with United Kingdom Generally Accepted Accounting Practice, including Financial Reporting Standard 102 (The Financial Reporting Standard Applicable in the UK and Republic of Ireland (FRS 102)). Revenue Dividends and real estate income distributions receivable from equity investments are recognised net of attributable tax credits and are credited to revenue when they are first quoted ex-dividend. Interest receivable from bank balances is accounted for on an accruals basis. Special dividends Special dividends are treated as revenue or capital depending on the facts of each particular case. Expenses Expenses of the fund are charged against revenue except for costs associated with the purchase and sale of investments which are allocated to the capital of the fund. Taxation Corporation tax is provided for on the revenue liable to corporation tax less deductible expenses. Deferred taxation is provided for on all timing differences that have originated but not reversed by the balance sheet date, other than those differences regarded as permanent. Any liability to deferred taxation is provided for at the average rate of taxation expected to apply. Deferred tax assets and liabilities are not discounted to reflect the time value of money. Distributions The revenue available for distribution is the total revenue earned by the fund, less deductible expenses and taxation charged to revenue. This revenue is distributed annually on 31 July to Income unitholders. For Accumulation units this revenue is not distributed but automatically reinvested in the fund and is reflected in the value of these units. Distributions which have remained unclaimed by unitholders for more than six years are credited to the capital property of the fund. 23

24 Notes to the Accounts (continued) Dilution adjustment In certain circumstances the Manager may apply a dilution adjustment on subscriptions and redemptions of units. If applied, the dilution adjustment is paid to the fund. See Prospectus for further details. Dilution adjustments include an estimate of dealing costs and the spread on underlying investments. From 1 January 2017 the transactional revenue earned from the spread (the difference between the creation price and the cancellation price), to the extent that in respect of any Dealing Day subscriptions are netted off against redemptions has been paid by the Manager into the fund and is included within the dilution adjustment in the Statement of Change in Assets Attributable to Unitholders. Amounts receivable from the Manager are included under Debtors in the balance sheet and in the Notes to the Accounts. Valuation Listed investments of the fund have been valued at market value at 18:00 on the balance sheet date. Market value is defined by the SORP as fair value which generally is the bid value of each security. Unquoted, illiquid and suspended investments are valued by the Investment Adviser at a best assessment of fair value. Suspended securities which have previously been reported as having no value and expected to have no value in the future, are not included within the Portfolio Statement. Foreign currencies Transactions in foreign currencies are translated into sterling at the exchange rate prevailing on the date of the transaction. Assets and liabilities valued in foreign currencies have been translated into sterling at the exchange rates prevailing at the balance sheet date and the net gains are reflected under Net capital gains/(losses) in the Notes to the Accounts. 2 Net capital gains The net capital gains during the year comprise: s 000 s Non-derivative securities 166,339 21,886 Transaction costs (8) (5) Net capital gains 166,331 21,881 24

25 Notes to the Accounts (continued) 3 Revenue s 000 s UK dividends 11,948 10,632 Overseas dividends Real estate income distributions Bank interest Total revenue 12,784 11,599 4 Expenses Payable to the Manager, associates of the Manager and agents of either of them: s 000 s Annual management charge 7,320 7,092 Administration charge Payable to the Trustee, associates of the Trustee and agents of either of them: 8,251 7,954 Trustee s fees Safe custody fees 3 3 Other expenses: Audit fee Professional fee Total expenses 8,333 8,028 5 Taxation (a) Analysis of the tax charge for the year s 000 s Overseas withholding tax Total current tax (Note 5(b)) Corporation tax has not been provided for as expenses exceed the revenue liable to corporation tax. 25

26 Notes to the Accounts (continued) (b) Factors affecting the current tax charge for the year The tax assessed for the year is different from that calculated when the standard rate of corporation tax for authorised unit trusts of 20% ( %) is applied to the net revenue before taxation. The differences are explained below s 000 s Net revenue before taxation 4,451 3,571 Net revenue for the year before taxation multiplied by the standard rate of corporation tax Effects of: Revenue not subject to corporation tax (2,467) (2,242) Expenses not deductible for tax purposes 1 0 Movement in excess management expenses 1,582 1,528 Irrecoverable overseas withholding tax Expensed withholding tax incurred (6) 0 Current tax charge for the year (Note 5(a)) (c) Factors that may affect future tax charges At the balance sheet date, there is a potential deferred tax asset of 20,757,329 ( ,175,267) in respect of unutilised management expenses. It is unlikely the fund will generate sufficient taxable profits in the future to utilise this amount and therefore no deferred tax asset has been recognised in the year or prior year. 6 Distributions Distributions The distribution takes account of revenue received on the issue of units and revenue deducted on the cancellation of units, and comprises: s 000 s Final Dividend distribution 4,285 3,824 Add: Revenue deducted on cancellation of units Deduct: Revenue received on issue of units (150) (174) Distributions 4,405 3,744 Net revenue after taxation 4,393 3,543 Expenses taken to capital 5 0 Equalisation on conversions Distributions 4,405 3,744 Details of the distribution per unit are set out in the Distribution Table on page

27 Notes to the Accounts (continued) 7 Fair value hierarchy Assets Assets Valuation technique 000 s 000 s Quoted prices for identical instruments in active markets 690, ,572 Valuation techniques using non-observable data Total 690, ,812 Valuation techniques using non-observable data Non-observable data has been used only where relevant observable market data is not available. Where there was no reputable price source for an investment, the Manager has assessed information available from internal and external sources in order to arrive at an estimated fair value. The fair value is established by using measures of value such as the price of recent transactions, earnings multiple and net assets. The Manager of the fund also makes judgements and estimates based on their knowledge of recent investment performance, historical experience and other assumptions that are considered reasonable under the circumstances. The estimates and the assumptions used are under continuous review by the Manager with particular attention paid to the carrying value of the investments. 8 Debtors s 000 s Amounts receivable for issue of units Sales awaiting settlement 2, Accrued UK dividends 1,086 1,918 Accrued overseas dividends 63 0 Accrued bank interest 0 4 Overseas withholding tax recoverable Transactional revenue receivable from the Manager Total debtors 4,386 3,433 27

28 Notes to the Accounts (continued) 9 Other creditors s 000 s 000 s 000 s Amounts payable for cancellation of units Purchases awaiting settlement 64 0 Accrued expenses Manager and Agents Annual management charge Administration charge Trustee and Agents Trustee s fees Safe custody fees 1 0 Transaction costs Other accrued expenses Total other creditors 1,620 1, Contingent liabilities There were no contingent liabilities at the balance sheet date (2016 Nil). 11 Related party transactions The Manager exercises control over the fund and is therefore a related party by virtue of its controlling influence. Amounts paid during the year or due to the Manager at the balance sheet date are disclosed under Expenses and Other creditors in the Notes to the Accounts. The Manager acts as principal on all transactions of units in the fund. The aggregate monies received through the issue and cancellation of units are disclosed in the Statement of Change in Net Assets Attributable to Unitholders and Distributions in the Notes to the Accounts. Amounts due from or to the Manager in respect of unit transactions at the balance sheet date are disclosed under Debtors and Other creditors in the Notes to the Accounts. Units held or managed by the Manager or associates of the Manager as a percentage of the fund s net asset value at the balance sheet date were 2.61% ( %). 28

29 Notes to the Accounts (continued) 12 Unit classes The fund currently has five unit classes: A Income units, A Accumulation units, S Income units, Z Income units and Z Accumulation units. The Annual management charge is based on the average value of the fund, calculated on a daily basis, and covers the remuneration of the Manager, the Investment Adviser and their overhead expenses and for each unit class is as follows: A Income units 1.50% A Accumulation units 1.50% S Income units 0.375% Z Income units 0.75% Z Accumulation units 0.75% The closing net asset value of each unit, the closing net asset value per unit and the closing number of units in issue are given in the Comparative Tables on pages 11 to 15. The distribution per unit class is given in the Distribution Table on page 34. All classes have the same rights on winding up. 13 Derivative and other financial instruments In accordance with the investment objective, the fund may hold certain financial instruments. These comprise: securities held in accordance with the investment objective and policy; cash and short term debtors and creditors arising directly from operations. Under normal circumstances, the Manager would expect substantially all of the assets of the fund to be invested in securities appropriate to the fund s investment objective. Cash and near cash may only be held in order to assist in the redemption of units, the efficient management of the fund or purposes regarded as ancillary to the fund. The fund has little exposure to credit risk. The main risks arising from the fund s financial instruments are market price, liquidity and interest rate risks. The Manager s policies for managing these risks are summarised below and have been applied throughout the year and the prior year. Market price risk The fund s investment portfolio is exposed to market price fluctuations which are monitored by the Manager in pursuance of the investment objective and policy. Adherence to investment guidelines and to investment and borrowing powers set out in the Trust Deed, the Prospectus and in the COLL mitigates the risk of excessive exposure to any particular type of security or issuer. 29

30 Notes to the Accounts (continued) Currency risk profile The currency risk profile of the fund s net assets and liabilities at the balance sheet date was as follows: Monetary Non-monetary exposure exposure Total Currency 000 s 000 s 000 s Euro 2017 (102) 0 (102) Sterling , , , , , ,015 Liquidity risk The primary source of this risk to the fund is the liability to unitholders for any cancellation of units. This risk is minimised by holding cash, readily realisable securities and access to overdraft facilities up to the amount prescribed by the COLL. Interest rate risk Interest receivable on bank balances or payable on bank overdraft positions will be affected by fluctuations in interest rates. Interest rate risk profile of financial assets and financial liabilities The interest rate risk profile of financial assets and liabilities at the balance sheet date was as follows: Financial assets Floating rate not carrying financial assets interest Total Currency 000 s 000 s 000 s Sterling , , , , , ,826 Floating rate Financial financial liabilities not liabilities carrying interest Total Currency 000 s 000 s 000 s Euro Sterling ,405 2, ,811 1,811 30

31 Notes to the Accounts (continued) There are no material amounts of non-interest bearing financial assets, other than equities, which do not have a maturity date. Floating rate financial assets and financial liabilities Sterling denominated bank balances bear interest at rates based on the Sterling Overnight Index Average rate. Foreign currency bank overdrafts bear interest at rates based on the London Interbank Offer Rate or its international equivalent. Fair value of financial assets and financial liabilities There is no material difference between the value of the financial assets and liabilities, as shown in the balance sheet, and their fair value. 14 Direct transaction costs In the case of shares, broker commissions and transfer taxes/stamp duty are paid by the fund on each transaction. In addition, there is a dealing spread between buying and selling prices of the underlying investments. Unlike shares, other types of investments (such as bonds, money market instruments, derivatives) have no separately identifiable transaction costs; these costs form part of the dealing spread. Dealing spreads vary considerably depending on the transaction value and market sentiment. Commissions Taxes Principal Commissions Taxes Total cost % of % of s 000 s 000 s 000 s principal principal Purchases Purchases 1 : Equities 124, , Corporate actions purchases: Equities , ,819 Sales Equities 165,881 (264) (1) 165,616 (0.16) 0.00 Total cost of the fund s average net asset value (%) Excluding corporate actions. 31

32 Notes to the Accounts (continued) Commissions Taxes Principal Commissions Taxes Total cost % of % of s 000 s 000 s 000 s principal principal Purchases Purchases 1 : Equities 94, , Corporate actions purchases: Equities , ,664 Sales Equities 68,586 (84) 0 68,502 (0.12) 0.00 Total cost of the fund s average net asset value (%) Excluding corporate actions. Average portfolio dealing spread As at the balance sheet date the average portfolio dealing spread was 1.46% ( %). This spread represents the difference between the values determined respectively by reference to the bid and offer prices of investments expressed as a percentage of the value determined by reference to the offer price. 15 Units in issue reconciliation Number Number of units Number Number Number of units in issue as of units of units of units in issue as at issued cancelled converted at A Income units 1,255, ,578 (170,848) (8,246) 1,325,646 A Accumulation units 10,846, ,535 (1,813,176) (46,996) 9,194,876 S Income units 23,566,601 11,000 (3,030,941) (445,503) 20,101,157 Z Income units 36,426,812 4,823,292 (4,789,221) 403,503 36,864,386 Z Accumulation units 176,137,738 15,145,460 (18,320,577) 1,368, ,330,866 32

33 Remuneration Quantitative Remuneration Disclosures Quantitative remuneration disclosures required under the UCITS Directive will be available from Q1 2018, following the conclusion of this performance period, as prior to that date the information available will not provide materially relevant and clear information to investors about how the remuneration policy of Schroder Unit Trusts Limited (the Manager) operates in line with the requirements of the UCITS Directive. 33

34 Distribution Table Final distribution for the year ended 31 May 2017 Corporate unitholders (unaudited) Equalisation Group 1 Units purchased prior to 1 June 2016 Group 2 Units purchased on or after 1 June 2016 Net Distribution Distribution revenue Equalisation payable paid p per unit p per unit p per unit p per unit A Income units Group Group A Accumulation units Group Group S Income units Group Group Z Income units Group Group Z Accumulation units Group Group Corporate unitholders receive the dividend distribution payment as detailed below: % of the total distribution is received as franked investment income. Equalisation applies to units purchased during the distribution period (Group 2 units). It is the average amount of revenue included in the purchase price of Group 2 units and is refunded to the holders of these units as a return of capital. Being capital it is not liable to income tax but must be deducted from the cost of units for capital gains tax purposes. 34

35 General Information Manager Schroder Unit Trusts Limited 31 Gresham Street London EC2V 7QA Authorised and regulated by the Financial Conduct Authority Registrar 1 International Financial Data Services Limited IFDS House St Nicholas Lane Basildon Essex SS15 5FS Investment Adviser Schroder Investment Management Limited 31 Gresham Street London EC2V 7QA Authorised and regulated by the Financial Conduct Authority Trustee J.P. Morgan Europe Limited Chaseside Bournemouth BH7 7DA Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and Prudential Regulation Authority Administration Details Schroders FREEPOST RLTZ-CHSY-HBUT PO Box 1102 Chelmsford Essex CM99 2XX Investor Services investorservices@schroders.com Dealing Fax Independent Auditors PricewaterhouseCoopers LLP Atria One 144 Morrison Street Edinburgh EH3 8EX 1 The Manager has delegated the function of Registrar to International Financial Data Services Limited. Authorisation Other information The fund is an authorised unit trust and is constituted pursuant to the COLL and is structured as a trust. The fund is a UCITS scheme for the purpose of the categorisation of the COLL. The Prospectus, the Key Investor Information Document and details of investment charges and costs are available on request or can be downloaded from our website 35