176289 Schroder UK Mid Cap Fund plc Annual Report Pt1.qxp_176289 Schroder UK Mid Cap Fund plc Annual Report Pt1 06/12/2022 09:48 Page a ## Schroder UK Mid Cap ## Fund plc ## Report and Accounts ## For the year ended ## 30 September 2022 ## Key messages - A high conviction portfolio targeting 40-50 holdings, with the goal of delivering a return in excess of the FTSE 250 ex Investment Trusts Index, offering exposure to a wide spectrum of investment sectors and themes and both UK and overseas earnings. - The Manager seeks out resilient companies that are capable of delivering high risk-adjusted returns with rising cash flows and earnings. They can be disruptors, which challenge the status quo within the marketplace, or established companies which can grow sustainably as they reinvent themselves in response to the disruption. Resilience comes from strong finances, leading ESG/sustainability practices and clear strategic direction. - The investment process is proven and repeatable, having generated a NAV return^ of 9.8% p.a. versus 9.6% p.a. for the benchmark since Schroders became the Manager in 2003*. ^Alternative Performance measure. *Source: Schroders, Morningstar, 1 May 2003 to 30 September 2022. Net asset value total return compared to the benchmark of the FTSE All-Share ex Investment Trusts ex FTSE 100 TR Index until 2011, and subsequently the FTSE 250 ex Investment Trusts Index. Past performance is not a guide to future performance and may not be repeated. ## Investment objective Schroder UK Mid Cap Fund plc's (the "Company") investment objective is to invest in mid cap equities with the aim of providing a total return in excess of the FTSE 250 ex Investment Trusts Index. ## Investment policy The Manager applies a high conviction approach, managing a focused portfolio of resilient companies that are all capable of delivering excess risk-adjusted returns with rising cash flows and earnings. Fundamental research forms the basis of each investment decision taken by the Manager. The Company will predominantly invest in companies from the FTSE 250 Index, but may hold up to 20% of its portfolio in equities and collective investment vehicles outside the benchmark index. The Company may also invest in other collective investment vehicles where desirable, for example to provide exposure to specialist areas within the universe. The Company has the ability to use gearing for investment purposes up to 25% of total assets. ![img-0.jpeg](img-0.jpeg) 176289 Schroder UK Mid Cap Fund plc Annual Report Pt1.qxp_176289 Schroder UK Mid Cap Fund plc Annual Report Pt1 06/12/2022 09:49 Page 1 ## Contents Strategic Report Financial Highlights 2 10 Year Financial Record 3 Chairman’s Statement 4 Manager’s Review 6 Investment Portfolio 10 Strategic Review 11 Strategic Report Strategic Report Governance Board of Directors 22 Directors’ Report 24 Audit and Risk Committee Report 27 Management Engagement Committee Report 29 Nomination Committee Report 30 Remuneration Committee Report 32 Governance Financial Statement of Directors’ Responsibilities in respect of the Annual Report and Accounts 35 Financial Independent Auditor’s Report 36 Income Statement 41 Statement of Changes in Equity 42 Statement of Financial Position 43 Notes to the Accounts 44 Annual General Meeting Annual General Meeting – Recommendations 56 Notice of Annual General Meeting 57 Explanatory Notes to the Notice of Annual General Meeting 58 Definitions of Terms and Performance Measures 60 Shareholder Information Inside back cover Annual General Meeting Annual Report and Accounts Annual Report and Accounts 1 for the year ended 30 September 2022 for the year ended 30 September 2022 176289 Schroder UK Mid Cap Fund plc Annual Report Pt1.qxp_176289 Schroder UK Mid Cap Fund plc Annual Report Pt1 06/12/2022 09:49 Page 2 ## Financial Highlights Some of the financial measures below 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 60 to 61 together with supporting calculations where appropriate. ### Total returns for the year ended 30 September 2022 (Total returns include the impact of dividends paid. Details of the calculations are given on page 60). | | % | | % | | % | | | --- | --- | --- | --- | --- | --- | --- | | -30.0 | | -32.5 | | -26.8 | | | | | 2021: +41.8% 2021: +62.6% | | | | | 2021: +40.9% | 1 1 year net asset value (“NAV”) 1 year share price 1 year benchmark per share total return* total return* ### Annualised total returns for the 10 years ended 30 September 2022 | | | % | | | | % | | | % | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | +7.4 | | | | +8.3 | | | +6.0 | | | | | | | 2021: +14.1% 2021: +15.7% | | | | | | | 2021 +11.8% | | 10 year annualised NAV | | | | 10 year annualised | | | 10 year annualised | | | | 1 per share total return* share price total return* benchmark 1 Source: Thomson Reuters. ### Other financial information 30 September 30 September 2022 2021 % Change Shareholders’ funds (£’000) 187,393 277,569 -32.5 Shares in issue 34,581,190 35,066,190 -1.4 NAV per share (pence) 541.89 791.56 -31.5 Share price (pence) 480.00 730.00 -34.2 Share price discount to NAV per share* (%) 11.4 7.8 Gearing* (%) 10.8 7.7 Year ended Year ended 30 September 30 September 2022 2021 % Change Net revenue return after taxation (£’000) 7,823 5,322 +47.0 Revenue return per share (pence) 22.43 15.18 +47.8 Dividends per share (pence) 19.0 14.80 +28.4 Ongoing Charges* (%) 0.89 0.90 Schroder UK Mid Cap Fund plc 2 # Ten Year Financial Record Definitions of terms and performance measures are provided on pages 60 to 61. | At 30 September | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Shareholders' funds (£'000) | 161,739 | 173,327 | 184,260 | 192,718 | 226,577 | 229,734 | 226,424 | 199,524 | 277,569 | 187,393 | | NAV per share (pence) | 447.5 | 479.6 | 509.8 | 533.2 | 632.0 | 640.8 | 633.5 | 569.0 | 791.6 | 541.9 | | Share price (pence) | 420.0 | 448.9 | 462.5 | 435.4 | 524.5 | 538.0 | 540.0 | 458.5 | 730.0 | 480.0 | | Share price discount to NAV per share* (%) | 6.1 | 6.4 | 9.3 | 18.3 | 17.0 | 16.0 | 14.8 | 19.4 | 7.8 | 11.4 | | Gearing/(net cash)* (%) | 2.0 | (4.4) | (6.1) | 1.5 | (0.5) | (3.0) | 4.3 | 5.3 | 7.7 | 10.8 | | For the year ended 30 September | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | | Net revenue return after taxation (£'000) | 3,096 | 3,506 | 3,549 | 4,455 | 5,031 | 6,015 | 7,325 | 3,155 | 5,322 | 7,823 | | Revenue return per share (pence) | 8.57 | 9.70 | 9.82 | 12.33 | 13.96 | 16.78 | 20.43 | 8.92 | 15.18 | 22.43 | | Dividends per share (pence) | 7.70 | 8.50 | 9.20 | 11.25 | 13.10 | 16.00 | 18.50 | 13.30 | 14.80 | 19.00 | | Ongoing Charges* (%) | 1.01 | 0.94 | 0.93 | 0.95 | 0.92 | 0.90 | 0.90 | 0.90 | 0.90 | 0.89 | | Performance^{1} | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | | NAV total return* | 100.0 | 139.3 | 151.8 | 164.2 | 174.8 | 211.6 | 218.9 | 222.9 | 205.8 | 291.9 | | Share price total return* | 100.0 | 156.0 | 169.7 | 178.1 | 171.0 | 211.4 | 222.1 | 231.0 | 202.1 | 328.6 | | Benchmark | 100.0 | 133.0 | 140.0 | 157.9 | 171.5 | 195.8 | 203.9 | 204.4 | 173.1 | 243.9 | $^{1}$Source: Morningstar/Thomson Reuters. Rebased to 100 at 30 September 2012. *Alternative Performance Measures ## NAV per share, share price and Benchmark total returns for the ten years ended 30 September 2022 ![img-1.jpeg](img-1.jpeg) Source: Morningstar/Thomson Reuters. Rebased to 100 at 30 September 2012. Strategic Report Annual Report and Accounts for the year ended 30 September 2022 3 # Chairman's Statement ![img-2.jpeg](img-2.jpeg) ## Investment and share price performance The Company's net asset value ("NAV") total return for the year was -30.0% compared to -26.8% from the Company's Benchmark (the FTSE 250 ex Investment Trusts Index). The share price total return over the same period was -32.5%. The challenges for UK equities and in particular for those of the mid-cap area grew considerably in the second half of the financial year. The war in Ukraine led to significant increases in raw material costs, hence threatening corporate margins and a squeeze in consumer expenditure. Higher input costs and supply chain bottle necks in part contributed to a very marked increase in headline inflation. This brought with it the start of a significant tightening of monetary policy through higher interest rates which lead to valuation compression for higher growth companies which make up much of the mid-cap universe. Lastly, the UK experienced a period of political turmoil with the resignation of the Prime Minister and uncertainty over the likely successor and policy direction. While higher inflation and tightening monetary policy affected all equity markets, the UK seemed more vulnerable than most perhaps because of the political uncertainties. Overall, we saw a further de-rating of the UK market which has been evident since at least 2016 despite the resilience reported by most companies through the period. The last year has clearly been a challenging period for UK equities, with small and mid caps particularly affected by worsening investor sentiment. This has left the investment universe available to your managers clearly showing attractive valuations and considerable potential for capital gains over the next few years as the current clouds affecting the outlook hopefully clear. For more details on the drivers of performance during the period please refer to the Portfolio Manager's review. ## Revenue and dividends In June of this year, the Board was pleased to announce an increased interim dividend of 5.0 pence per share which represented a 32% increase on the interim dividend paid in 2021. Following a significant recovery in portfolio income, we have declared a final dividend of 14 pence per share for the year ended 30 September 2022. The proposed final dividend, combined with the interim dividend of 5.0 pence per share already paid during the year, brings total dividends for the year to 19 pence per share, a level which is covered by current year earnings, and an increase of 28.4% in dividends declared in respect of the previous financial year. This total dividend is the largest annual distribution to shareholders for the Company to date. At the current share price of 553 pence (as at 5 December 2022) this represents a yield of 3.4%. A resolution to approve the payment of the final dividend for the year ended 30 September 2022 will be proposed at the forthcoming Annual General Meeting ("AGM"). If the resolution is passed, the dividend will be paid on 27 February 2023 to shareholders on the register on 13 January 2023. ## Gearing At the year end, net gearing was 10.8% (2021: 7.7%), which comprised the Company's £25 million loan with Scotiabank Europe plc, maturing in February 2023. As disclosed in the Half-Year Report, the Board also approved an additional £10 million three-year revolving loan facility with Scotiabank in addition to the existing £25 million three-year term loan. It is expected that the Manager will continue to use this gearing to take advantage of attractive new investment opportunities and to participate in capital raisings by portfolio companies. The Board is currently exploring options to replace the £25 million facility upon its expiration in February 2023 and still believes in the long-term attractiveness of gearing, but needs to be mindful of the increased cost of debt at present. ## Discount management During the period the Company's discount to NAV widened from -7.8% to -11.4% at period end, averaging -8.0%. The Board continues to actively monitor the level of the Company's discount and bought back shares during the period when the discount was considered to be unduly wide. The Company bought back a total of 485,000 shares during the period between 27 April and 20 May 2022 with this activity being accretive to the Trusts net asset value. In order to facilitate future buybacks should we deem them to once again be appropriate, we propose that the Company's share buyback authorities be renewed at the forthcoming AGM and that any shares so purchased be cancelled or held in treasury for potential reissue at a premium to NAV. ## Environmental, Social and Governance ("ESG") The Board recognises the continued importance of ESG concerns to investors. ESG considerations have been embedded within the Schroders investment process for over 20 years and the degree of engagement that has occurred with investee companies on areas of investor concern and ways in which improvements can be made can be clearly demonstrated. The board believes that such engagement can bring about improved valuations of companies to the benefit of shareholders. In addition, while the Company is not managed with a specific ESG mandate, the Board is pleased to report that the portfolio has a carbon intensity of around half that of its benchmark. More details of the Manager's approach to ESG can be found on pages 13 to 16 of the Strategic Report. ## Board Changes In line with the Board's tenure policy, Clare Dobie retired from the Board on 15 September 2022 following nine years as a director of the Company. I would like to thank Clare for her outstanding contribution and commitment to the Board. We were delighted to appoint Helen Galbraith to the Board in 4 Schroder UK Mid Cap Fund plc 176289 Schroder UK Mid Cap Fund plc Annual Report Pt1.qxp_176289 Schroder UK Mid Cap Fund plc Annual Report Pt1 06/12/2022 09:49 Page 5 ## Chairman’s Statement April 2022, who brings a wealth of experience in the asset many companies will continue to benefit from ongoing share management industry to the Board. buyback programs as management teams recognise the value in their own shares at current levels and indeed management are also personally buyers of their own ### Annual General Meeting company stock. The Company’s AGM will be held at 12.00 noon on Tuesday, 21 February 2023. We encourage shareholders to attend in In short, the Board believes that weakness in the UK mid-cap person and, if unable to, to cast their votes by proxy. The area over the last twelve months should be seen as AGM will include a presentation by the Manager on the presenting attractive investment opportunities over the prospects for the UK market and the Company’s investment medium and longer-term. Your Portfolio Manager will strategy, and will provide an opportunity for shareholders to continue to diligently seek out those companies with clear ask questions of the Board and the Manager. The meeting pricing power who are best able to sustain themselves in the Strategic Report will be held at the Manager’s office at 1 London Wall Place, short term and emerge as market leaders through the London, EC2Y 5AU. current cycle and beyond. It will also be available to watch online and the details are set out below. Any shareholders planning on attending the AGM will also be able to watch the Manager’s presentation. To sign Robert Talbut up to watch the AGM and presentation, please click on this link Chairman https://schroders.zoom.us/webinar/register/WN_Zy1kUakRS_ 5December 2022 WRiTD-sxsLsA. By using a webinar, I hope more shareholders and interested parties will be able to listen to, and ask questions of, the Manager. In addition to the presentation at the AGM, Jean Roche will also be presenting a separate webinar at 11.00am on Tuesday 7 February 2023, and all shareholders are encouraged to sign up to hear the fund manager’s views. To register for the webinar, please email the following address to receive details of how to join Sunil.Kler@Schroders.com. ### Outlook The period under review has undoubtedly been a challenging one for the Company with sentiment towards the UK deteriorating as global and domestic headwinds strengthened. The prospect of high and sustained inflation, rising interest rates, and a looming recession will undoubtedly present a challenging backdrop at least in the short term for companies, investors, and households looking forwards. Political and policy chaos has only heightened the economic uncertainty. There can be no hiding from the fact that the challenges facing the UK have not been this substantial for many a year. However, out of adversity can come considerable opportunity. Looking forwards at the prospects for UK mid-caps, there are reasons for optimism despite the turbulent backdrop and recent equity market weakness. Current valuations would suggest that the market has already priced in a lot of the prevailing bad news with small and mid cap stocks having underperformed large caps meaningfully during the period. Valuations remain extremely attractive relative to history and your Portfolio Manager feels confident that many of the companies in your portfolio are well placed to thrive in this challenging environment. This could be through their ability to pass through input cost pressures to their prices or by being market leaders in niche fields with services and products with clear competitive advantages or barriers to entry. In addition, M&A activity is likely to continue as overseas firms see opportunity to expand their operations into the UK at extremely attractive valuations with domestically focused mid-caps likely to attract the most attention. Shareholders in Annual Report and Accounts 5 for the year ended 30 September 2022 176289 Schroder UK Mid Cap Fund plc Annual Report Pt1.qxp_176289 Schroder UK Mid Cap Fund plc Annual Report Pt1 06/12/2022 09:49 Page 6 ## Manager’s Review Media company Future also underperformed despite small ### Market Background upgrades to earnings expectations this year. The shares The UK’s mature, slower growing large cap companies suffered a de-rating alongside other growth stocks and amid performed well over the period, underpinning the broader fears around the outlook for the digital advertising market. UK equity market. This resilience masked very poor Towards the end of the period, the announcement that the performance from small and mid-cap equities (smids), the very successful CEO may retire at the end of 2023 after ten extent of whose underperformance against large caps over years at the helm, further impacted confidence. The group’s the period was rare in history. The divergence occurred ability to deliver targeted audiences, both online and in print, against the backdrop of a strong US dollar, a positive for to a wide range of advertisers in niche interest areas from more internationally diversified UK large caps, and global pets to photography, PCs to pianos, remains a strength, as shortages and supply chain issues as activity bounced back does a strong bench of talent around the CEO and, now, a sharply following Covid lockdowns. Soaring energy and food very supportive valuation. costs following Russia’s invasion of Ukraine added further Online gaming group 888 was another detractor over the impetus to interest rate hikes as inflation hit multi-decade period as the UK regulatory uncertainty, which we had highs in many developed countries, including the UK. anticipated would be resolved this year, persisted. Although All the major developed central banks increased interest rates higher than expected cost synergies from the William Hill materially after the Bank of England became the first G7 deal in the UK are helping to offset interest costs, the level of monetary authority to hike from historically low levels. UK financial leverage in the business in a rising interest rate smids are home to many fast-growing companies in new and environment is discouraging the marginal investor (or new emerging industries whose valuations have come under investors). We have performed a stress test analysis that has intense pressure due to rising interest rates. Higher interest given us some comfort that 888 can pay down debt over the costs have also squeezed consumers already struggling to coming years even in a weaker economic environment. cope with inflation, further curtailing spending, which Importantly the debt is without a financial covenant, giving disproportionately hit smids. Market dislocation also led to an management breathing space. Gambling activity has been investor preference for liquidity, which again favoured larger resilient in previous downturns and 888 have restructured stocks. These trends were exacerbated towards the end of their UK business to focus on lower value, recreational the period as the pound retreated to an all-time low against customers. The United States and Canada are structural the dollar, partly on the back of political uncertainty. growth opportunities that we believe are not priced into the shares. IP Group, which invests in the commercialisation of IP with ### Portfolio Performance technology, cleantech and life sciences applications, underperformed over the period as falling technology The portfolio NAV per share underperformed the Mid 250 company valuations affected sentiment towards the Index total return over the 12-month period. Net gearing was company’s shares. During the year, one of its portfolio the main driver of negative relative returns. At the end of the companies, First Light Fusion, achieved nuclear fusion, period the discount was 11.4%, which has narrowed from underscoring the excitement which exists within the 15.0% at the end of March. company’s holdings. Speciality chemicals business Synthomer was the lead Having been an underperformer of note in the last financial detractor over the year. The company cut earnings forecasts year, it was pleasing to see our conviction in multi-utility largely as a result of ongoing destocking in medical nitrile provider Telecom Plus rewarded this year. Management rubber glove markets. Following the creation of a new upgraded earnings expectations as the company benefited division through the acquisition of US chemicals company from rising retail energy prices linked to the Russia Ukraine Eastman Chemical Company’s specialist adhesives business conflict, being able to offer a highly competitive energy deal in the US, Synthomer is better diversified, both to prospective customers. This is thanks to its long-term geographically and from a product perspective. However, it supply agreement with Eon (formerly npower), which has a weaker balance sheet than before. With an active essentially secures wholesale energy at an agreed (c.15%) divestment strategy now underway alongside a cash saving discount, some of which Telecom Plus passes on to its programme, suspension of the dividend, newly-announced customers. The group also benefitted from the collapse of a financing from UK Export Finance, and relaxation of banking number of rival providers which went out of business as they covenants, it is reasonable to expect to see an improvement were unable to manage a spike in wholesale gas prices. in the shares’ performance. Alternative investment manager Man Group bucked the decline in markets as robust net inflows followed strong Schroder UK Mid Cap Fund plc 6 176289 Schroder UK Mid Cap Fund plc Annual Report Pt1.qxp_176289 Schroder UK Mid Cap Fund plc Annual Report Pt1 06/12/2022 09:49 Page 7 ## Manager’s Review performance from many of its products. Man announced a Our underweight exposure in the travel and leisure sector second tranche of share buybacks underlining the strength of was positive for relative returns. Specifically, we did not hold the balance sheet and confidence in the valuation of its shares in airlines Wizz Air and Easyjet, tour operator Tui or shares. Buybacks are now common amongst our holdings Cruise Ship company Carnival. It has been a turbulent year underscoring their attractive valuations and balance sheet for these businesses. Initial hopes of a post pandemic strength. This is the second consecutive year that Man has recovery with the end to travel restrictions and testing has appeared in our top five performers table. been dwarfed by the headwinds of labour shortages, higher expenses, and economic pressures of higher costs of living A further positive contribution came from direct marketing on the consumer. All of this combined with, in many cases, specialist, 4imprint. The company published very strong more shares in issue than before the pandemic, makes for an interim results, citing “customer demand at record levels”, unpalatable combination. driven by a post Covid recovery in its key North American Strategic Report market. An increase in the effectiveness of its US TV Not holding Lloyd’s insurer Beazley, a first mover in cyber advertising spend has markedly boosted profitability. The insurance, detracted from performance. We prefer exposure business model allows for growth together with strong cash to the cyber security structural growth theme via our holding returns which has allowed the company to retain a net cash in cyber security technology company NCC, and the Roke balance sheet whilst growing the interim dividend by 167%. Manor division of our defence company holding, Chemring. Shares in gaming software group, Playtech, also performed Lack of exposure to gas and electricity supply business very well as the company became the subject of a three-way Centrica also weighed on relative returns as it benefitted bidding war. With the stock hitting five-year valuation highs, from high energy prices. Oil and gas producer Harbour we disposed of our position. Energy also performed strongly for this reason. As mentioned, we have exposure to this theme via our holding Stocks held – significant positive and negative in Telecom Plus which performed well during the period. contributions versus the benchmark Stocks not held – significant positive and negative Weight Relative contributions versus the benchmark Positive Portfolio relative to perfor- | | | 1 | | 2 | | 3 | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | contributor weight | | | index mance | | Impact | | | | Weight Relative | | | | | | (%) (%) (%) (%) | | | | | | Positive Portfolio relative to perfor- | | | | | | | | | | | | | | | 1 | | 2 | | 3 | | | | | | | | | contributor weight | | index mance | | Impact | | Telecom Plus 2.5 +2.1 73.5 +1.7 (%) (%) (%) (%) Man Group 4.2 +3.0 41.5 +1.1 Wizz Air – –1.1 –41.6 +0.6 4Imprint 2.2 +1.9 41.5 +0.7 Easyjet – –1.2 –28.5 +0.4 Playtech 0.2 –0.5 20.9 +0.6 Tui – –0.8 –33.6 +0.4 QuinetiQ 2.6 +2.0 30.8 +0.6 Carnival – –0.6 –38.6 +0.3 Marks & Spencer – –1.2 –19.4 +0.2 Weight Relative Negative Portfolio relative to perfor- | | | 1 | | 2 | | 3 | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | contributor weight | | | index mance | | Impact | | | | Weight Relative | | | | | | (%) (%) (%) (%) | | | | | | Negative Portfolio relative to perfor- | | | | | | | | | | | | | | | 1 | | 2 | | 3 | | | | | | | | | contributor weight | | index mance | | Impact | | Synthomer 1.7 +1.3 –49.9 –0.9 (%) (%) (%) (%) Future 2.6 +1.6 –37.4 –0.8 Beazley – –1.1 79.4 –0.6 888 Holdings 1.1 +0.8 –51.4 –0.7 Centrica – –1.1 63.4 –0.5 IP Group 1.9 +1.6 –30.1 –0.6 Harbour Energy – –0.5 111.2 –0.5 Dunelm 3.2 +2.8 –18.7 –0.6 Homeserve – –0.9 59.3 –0.4 Mediclinic – –0.6 85.6 –0.3 Source: Schroders, Factset, close 30September 2021 to close 30September 2022. 1 Weights are averages. 2 Performance of the stock in the index relative to the FTSE 250 (ex. ITs) Index return. 3 Impact is the contribution to performance relative to the FTSE 250 (ex. ITs) Index Annual Report and Accounts 7 for the year ended 30 September 2022 # Manager's Review ## Portfolio Activity Attractively priced structural growth opportunities in market niches continue to influence our new additions to the portfolio. We took advantage of share price weakness to initiate a new holding in **Watches of Switzerland**. The company has excellent relationships with luxury brands such as Rolex and Patek Philippe. The Rolex relationship dates back to 1919 and is a key strength. Watches of Switzerland has a three-year waiting list for new Rolex watches which should ensure resilience through a more difficult economic environment. There are strong growth prospects in the United States where the luxury market is significantly under penetrated compared to the UK due to a lack of investment in the retail experience. Watches of Switzerland is taking market share through both organic and acquisitive growth as the major brands reallocate supply away from smaller retailers to larger, better invested stores. We initiated a new position in **Just Group** which we expect to enjoy the structural growth opportunity in the UK bulk annuity market. The company has a strong balance sheet and is a likely beneficiary of a rising interest rate environment. Keeping with structural growth opportunities, but with the theme of digital innovation, we added **Clarkson**, the London-based leading shipping services provider, whose innovative digital platform, Sea/net, which brings together all aspects of shipping data and services, is showing early signs of success. We added two new positions in the industrials sector, **Weir Group** and **XP Power**. Weir Group, provides equipment (mainly slurry pumps) and aftermarket support for hardware in the mining space. It has an interesting sustainability angle and, we believe, will benefit from increased mining activity. XP Power, is a critical power control solutions provider. The company supplies the technology, semiconductor fab, healthcare and industrial electronics industries, and is exposed to the structural growth drivers within these industries. Whilst the shares have been under some pressure following the unexpected loss of a legal dispute in March 2022, the position's size during the period has meant that it has had little negative impact. We can, additionally, expect the shares to recover as China emerges from pandemic related disruption. Moving to the energy sector, we added energy services business **Petrofac**, which we have previously owned, back into the portfolio. After settling a case with the UK's Serious Fraud Office the company can now bid for new business in Saudi Arabia and appears high on the list to be reinstated for work with state oil company Saudi Aramco. Another new holding in the portfolio is UK independent hospital group **Spire Healthcare**, which gives options to well-off consumers amid long NHS waiting lists. Lastly, we diversified our real estate exposure by building positions in both **Savills** and **Sirius Real Estate**. We initiated our position in the former to gain exposure to the theme of a rapidly changing property landscape as opposed to the owners of the underlying properties. We bought a position in mixed use business park landlord and operator Sirius Real Estate as it raised capital for an attractive UK deal which complements its German business. The German operations are poised to benefit, in the medium term, from a trend towards near shoring. Turning to sales over the period, we disposed of positions in both Dechra Pharmaceuticals and Electrocomponents (now renamed RS Group) following their promotions to the FTSE 100, in line with our stated policy of selling stocks which reach this pinnacle. M&A activity continues to remain elevated in the small and mid-cap space. Takeovers from overseas investors in particular, continue to be a driver for turnover in the portfolio. UK based wealth manager, Brewin Dolphin, received a bid with a premium of over 60% from Royal Bank of Canada. Software company Micro Focus received a bid at over 90% premium to the previous close from Canadian software company OpenText. Both share prices were lifted following the bids, and we have since sold our holdings. Finally, gaming software provider, Playtech, was also subject to multiple ex-UK takeover bids during the period, which lifted the share price whereupon we decided to take profits and disposed of our position. We disposed entirely of our holding in provider for private rented accommodation **Grainger**. We also exited a residual stake in commercial real estate business **CLS Holdings** as we expect to see further pressure in the office space, not only from the shift in working patterns, but also from regulation. We have diversified our (still underweight) real estate exposure towards new holdings Savills and Sirius Real Estate. We also sold our small position in alternative investment manager and 2021 IPO, **Petershill Partners**. We anticipate downward pressure on the valuations of underlying holdings in the venture capital funded companies in which it holds stakes, due to the squeeze on capital provision because of structurally higher interest rates. ## Outlook There has been no respite this year as a UK mid cap investor. Companies have seen 1970s-style pressure on supply chains and inflation rates in their cost bases. Investors have responded by adopting a risk off approach, moving into the largest capitalised stocks for 'safety'. This has had a disproportionate impact on the SMID area of the market as share prices have sold off aggressively: year to date, the benchmark index has returned -27.7%. There has been some pressure on earnings due to the above factors and the Company's portfolio has not escaped entirely from these challenges. However, earnings growth for the overall portfolio continues to be healthy even as stocks continue to de-rate. Stock valuations are starting to attract attention from several quarters, which we discuss further below. This is a theme which we expect to continue, especially as sterling weakness persists. Putting some more numbers around this, 85 FTSE 250 companies' share prices are down more than one third year to date. This compares with 140 during the GFC in 2008, when the global banking system failed. 8 Schroder UK Mid Cap Fund plc # Manager's Review ## Number of FTSE 250 constituents whose share prices have fallen by over a third ![img-3.jpeg](img-3.jpeg) Source: Datastream Refinitiv, Schroders. Data as at 02 November 2022. Calendar year data shown for all years, except 2022, where value is based on year to date. We note that three types of market participants seem most willing to take advantage of this opportunity. These are private equity and strategic corporate acquirors, particularly North American ones, management teams via share buybacks, and company directors. - UK SMIDs which have been acquired or approached since the beginning of the year include Brewin Dolphin, Micro Focus, Playtech and Ted Baker, as mentioned above. The list goes on, however, and includes both established mid cap companies such as Euromoney and Homeserve and more recent IPOs Darktrace and The Hut. - A significant proportion, fifteen, of our c. fifty holdings are currently buying back shares. These include Grafton, Pets at Home, Redrow, Man Group and Spectris. - Insider share purchases are becoming more frequent and may be considered a significant indicator of management confidence in their business. Turning back to the UK economy, the big question is where inflation goes from here and whether unfilled job vacancies outnumbering those actively seeking work translates into rising wage growth. Although energy and food inflation are widely anticipated to ease next year, domestically driven inflation remains a concern. It is notable that the Bank of England now appears to be managing down expectations of further significant rate rises. If this comes to pass, it should help to quieten financial markets. Meanwhile, the consumer will be cushioned to some extent by the government's energy package and residual excess savings. As stock pickers, we are confident that the collective strength of our holdings' balance sheets will provide resilience in a challenging economic environment. We are sticking to our sell discipline, avoiding companies whose business models are in danger of being disrupted while seeking out companies which have the ability to reinvent themselves, or which might be the next mid cap disruptor. ## The team ![img-4.jpeg](img-4.jpeg) The Company's portfolio is co-managed by Jean Roche and Andy Brough. Jean, who has been the lead manager since 2021, and was co-manager for four years before this, has over 20 years of investment experience and holds the Chartered Financial Analyst designation, as well as an MSc in Financial and Industrial Mathematics. She was previously named a Wall Street Journal analyst of the year based on her stock picking skills. Annual Report and Accounts for the year ended 30 September 2022 9 Strategic Report 176289 Schroder UK Mid Cap Fund plc Annual Report Pt1.qxp_176289 Schroder UK Mid Cap Fund plc Annual Report Pt1 06/12/2022 09:49 Page 10 ## Investment Portfolio ## as at 30 September 2022 Stocks in bold are the 20 largest investments, which by value account for 61.4% (30September 2021: 56.2%) of total investments. Investments are all equities. £’000 % £’000 % | Industrials | Consumer Goods | | --- | --- | | Spectris 8,208 4.0 | Cranswick 6,159 3.0 | | Diploma 8,166 3.9 | Games Workshop 5,964 2.9 | | QinetiQ 7,260 3.5 | A.G. Barr 4,004 1.9 | | Oxford Instruments 6,066 2.9 | Crest Nicholson 2,673 1.3 | | Chemring 5,758 2.8 | Vistry 2,648 1.3 | | Grafton 5,169 2.5 | PZ Cussons 1,170 0.6 | | Redrow 3,752 1.8 | Ted Baker 451 0.2 | | Bodycote International 3,489 1.7 | Total Consumer Goods 23,069 11.2 | | Keller 3,339 1.6 | Technology | | Redde Northgate 3,329 1.6 | Computacenter 6,182 3.0 | | Paypoint 2,991 1.4 | IP Group 3,606 1.7 | | Tyman 2,352 1.1 | NCC 3,059 1.5 | | Clarkson 2,104 1.0 | Ascential 2,670 1.3 | | International Workplace 2,019 1.0 | Total Technology 15,517 7.5 | | Weir 1,857 0.9 | Basic Materials | | XP Power 750 0.4 | Victrex 6,513 3.1 | | James Fisher 423 0.2 | Anglo Pacific 3,472 1.7 | | Total Industrials 67,032 32.3 | Synthomer 1,603 0.8 | | Financials | Total Basic Materials 11,588 5.6 | | Man Group 8,572 4.1 | Healthcare | | Safestore 6,044 2.9 | Genus 4,186 2.0 | | IG Group 5,993 2.9 | Spire Healthcare 2,473 1.2 | | Paragon 4,935 2.4 | Total Healthcare 6,659 3.2 | | Investec 4,355 2.1 | Telecommunications | | Londonmetric Property 3,560 1.7 | Telecom Plus 6,130 3.0 | | Savills 3,526 1.7 | Total Telecommunications 6,130 3.0 | | OSB 3,195 1.5 | Oil & Gas | | Sirius 1,408 0.7 | Petrofac 2,031 1.0 | | Bridgepoint 1,276 0.6 | Total Oil & Gas 2,031 1.0 | | Just Group 280 0.1 | Total investments 207,289 100.0 | Total Financials 43,144 20.7 Consumer Services Inchcape 7,979 3.8 4Imprint 6,780 3.3 Dunelm 6,607 3.2 Pets At Home 4,330 2.1 Future 3,954 1.9 888 Holdings 1,392 0.7 Watches of Switzerland 1,077 0.5 Total Consumer Services 32,119 15.5 Schroder UK Mid Cap Fund plc 10 176289 Schroder UK Mid Cap Fund plc Annual Report Pt1.qxp_176289 Schroder UK Mid Cap Fund plc Annual Report Pt1 06/12/2022 09:49 Page 11 ## Strategic Review The Strategic Report sets out the Company’s strategy for delivering the investment objective (set out on the inside front cover), the business model, the risks involved and how the Board manages and mitigates those risks. It also details the Company’s purpose, values and culture, and how it interacts with stakeholders. Strategic ReportStrategic Report ### Business model 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 in more detail 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 on pages 12 to 14. Investment —Manager implements the investment strategy by Strategy following an investment process —Supported by strong Competitiveness —Sets objectives, strategy Board research and risk and KPIs management Board is focused on ensuring: —Appoints Manager and other environment —that the fees and Ongoing service providers to achieve —Responsible for overall —Regular reporting and Charges remain objectives strategy and oversight interaction with the Board competitive —Oversees portfolio Investor including risk management —that the vehicle remains management —Activities focused on the attractive to investors value —Monitors achievement of creation of shareholder —satisfactory performance KPIs Promotion value of the Manager against the —Oversees the use of gearing Benchmark and peers —Oversees discount —Marketing and sales management capability of the Manager —Support from the corporate Annual Report and Accounts broker with secondary 11 for the year ended 30 September 2022 market intervention to support discount/premium management 176289 Schroder UK Mid Cap Fund plc Annual Report Pt1.qxp_176289 Schroder UK Mid Cap Fund plc Annual Report Pt1 06/12/2022 09:49 Page 12 ## Strategic Review ### Investment objective Gearing Schroder UK Mid Cap Fund plc’s (the “Company”) investment The Company currently has in place a three year £25million objective is to invest in mid cap equities with the aim of term loan, converted from a revolving credit facility on providing a total return in excess of the FTSE 250 28February 2020. During the year, as disclosed in the ex Investment Trusts Index. Company's half year report, the Board approved an additional £10 million three-year revolving loan facility with Scotiabank ### Investment policy in addition to the existing £25 million three-year term loan. In rising markets the gearing amplifies increases in the NAV and The Manager applies a high conviction approach, managing a in falling markets any reduction in NAV would be amplified by focused portfolio of resilient companies that are all capable of the gearing. The Company’s gearing continues to be operated delivering excess risk-adjusted returns with rising cash flows within pre-agreed limits so that it does not exceed 25% of and earnings. Fundamental research forms the basis of each total assets. The flexibility to utilise gearing remains an investment decision taken by the Manager. important tool in allowing the Manager to pursue investment The Company will predominantly invest in companies from opportunities when appropriate. The Manager is currently in the FTSE 250 Index, but may hold up to 20% of its portfolio in discussion with several providers to secure new borrowing equities and collective investment vehicles outside the facilities upon expiry of the current term loan in February benchmark index. 2023. If a new loan cannot be arranged with acceptable terms, the Board is satisfied that the Company has sufficient The Company may also invest in other collective investment readily realisable assets to repay the term loan. vehicles where desirable, for example to provide exposure to specialist areas within the universe. ### Promotion The Company has the ability to use gearing for investment The Company promotes its shares to a broad range of purposes up to 25% of total assets. investors who have the potential to be long-term supporters of the investment strategy. The Company seeks to achieve ### Investment restrictions and spread of this through its Manager and corporate broker, which ### investment risk promote the shares of the Company through regular contact with both current and potential shareholders. Risk in relation to the Company’s investments is spread as a result of the Manager monitoring the Company’s portfolio with These activities usually consist of investor lunches, one-on- a view to ensuring that the portfolio retains an appropriate one meetings, regional road shows and attendances at balance to meet the Company’s investment objective. The key conferences for professional investors. In addition, the restrictions imposed on the Manager include: (a) no more than Company’s shares are supported by the Manager’s wider 15% of the Company’s total net assets, at the date of marketing of investment companies targeted at all types of acquisition, may be invested in any one single company; (b) no investors. This includes maintaining close relationships with more than 10% of the value of the Company’s gross assets may adviser and execution-only platforms, advertising in the trade be invested in other listed investment companies unless such press, maintaining relationships with financial journalists and companies have a stated investment policy not to invest more the provision of digital information on Schroders’ website. than 15% of their gross assets in other listed investment The Board also seeks active engagement with investors and companies; (c) no more than 15% of the Company’s gross meetings with the Chairman are offered to professional assets may be invested in other listed investment companies investors where appropriate. (including listed investment trusts); (d) no more than 15% of Shareholders are encouraged to sign up to the Manager’s the Company’s total net assets may be invested in open-ended Investment Trusts update, to receive information on the funds; and (e) no holding may represent 20% or more of the Company directly https://www.schroders.com/en/uk/ equity capital of any company. No breaches of these privateinvestor/fund-centre/funds-in-focus/investment- investment restrictions took place during the financial year. trusts/ schroders-investment-trusts/never-miss-an-update/ . The investment portfolio on page 10 demonstrates that, as at Details of the Board’s approach to discount management 30 September 2022, the Company held 53 investments spread may be found in the Chairman’s Statement and in the Annual over a range of industry sectors. The Board therefore believes General Meeting – Recommendations on page56. that the objective of spreading investment risk has been achieved and will continue to be achieved as the Manager ### moves towards its target focused portfolio of 40-50 Key performance indicator – achievement investments. ### of the investment objective The Company’s financial instruments comprise its investment The Board measures the development and success of the portfolio, cash balances, bank borrowings and debtors and Company’s business through achievement of its investment creditors that arise directly from its operations such as sales objective, which is considered to be the most significant key and purchases awaiting settlement and accrued income. The performance indicator for the Company. financial risk management objectives and policies arising Comment on performance against the investment objective from its financial instruments and the exposure of the can be found in the Chairman’s Statement. Company to risk are disclosed in note 20 on pages 51 to 55. The Board continues to review 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 Schroder UK Mid Cap Fund plc 12 176289 Schroder UK Mid Cap Fund plc Annual Report Pt1.qxp_176289 Schroder UK Mid Cap Fund plc Annual Report Pt1 06/12/2022 09:49 Page 13 ## Strategic Review Strategic Report analysis of the Company’s costs, including the management incorporated into the Managers’ investment decision making fee, directors’ fees and general expenses, is submitted to process. Another form of sustainability comes from acting each board meeting. responsibly, ethically and in an environmentally sound way and Schroders’ proprietary Sustainability tools, SustainEx and ### Investment process Context, assist us in examining whether companies are targeting the correct behaviours. Examples in the portfolio In order to meet the investment objective, the Manager which tick both boxes include Victrex and Oxford applies a high conviction approach, managing a focused Instruments. portfolio of high quality companies that are all capable of delivering excess risk-adjusted returns with rising cash flows Reinvent: Established companies which do not continually and earnings. These returns can come from “disruptors”, reinvent themselves are exposed to an existential threat in which change the status quo within the marketplace, or from the Manager’s view. Examples of companies which are established companies which can grow sustainably by avoiding this threat in the portfolio include Grafton, which reinventing themselves in response to the disruption. has moved away from commodity products and into high value niche markets, and Inchcape, which is assisting its High conviction: We only invest where we believe there is a customers (the original equipment manufacturers), using its very strong case to do so. We don’t carry any stocks where we technology and vast store of data, thus helping to modernise are not convinced that they will make a positive impact on the car distribution industry. performance. This is reflected in a high active share. ### Resilient: Resilience goes hand in hand with sustainability. Sustainable growth is key to the When we say resilience, we mean the ability of a business to ### investment strategy thrive for many years into the future. It is a driver of investment returns and an approach for reducing risk. With As Manager of the Company, we are stewards of capital, that in mind, we seek well-managed companies, where focusing on the long-term prospects of the assets in which management has a long-term vision, so that the business is we invest. We analyse each investment’s ability to create, capable of generating risk adjusted returns in excess of cost sustain and protect value to ensure that it can deliver returns of capital. We are aiming for good quality longer-term returns in line with our shareholders’ objectives. Sustainability is key rather than risking money on a short-term anomaly. We and that is reflected in our approach to investing. continue to see Games Workshop as a prime example of a Sustainable companies can continue for an extended period company demonstrating this quality, alongside Dunelm and or without interruption. They will possess many, if not all, of Pets at Home, particularly given the experiences of the the following characteristics: pandemic. High conviction • Capable of compound growth, often due to exposure to Challenging the status quo: Whether it be a service or a 40-50 stocks a structural growth market, or gaining significant share product, or the delivery of this, the company is “doing it a in a static or declining market different way”. An example of this in the portfolio is fund management company Man Group, which uses quantitative • Possessing a unique or rare business model, relative to Well managed, leading Positively and profitably Resilie t responding to disruption methods to deliver novel investment ideas. the investment universe ESG practices, strong finances and clear Growing sustainably: Sustainability in investment has • Led by a proven, strong management team, or one strategic vision multiple facets. We seek out companies which are exposed to nt where we see potential for this a structural growth market and have a strong or potentially Reinven Investment • With business practices which are transparent, clearly strong position in this market. The company could also be Process laid out and explained creating a new market (a “disruptor”). While the Company does not automatically exclude sectors or particular • Having accounting practices which are of a high standard companies based on specific ESG metrics, ESG factors are • Generating cash which allows the business to grow sustainably Grow llenge the Annual Report and Accounts 13 tus quo for the year ended 30 September 2022 Cha a Exposed to a growing st market and a strong Offering their stakeholders market position something different, new or or potential better # Strategic Review - Underpinned by a strong or strengthening (thanks to cash conversion) balance sheet - Management will not destroy value, e.g. by making frequent or unsuitable acquisitions or over gearing the balance sheet. ## ESG and sustainability benchmarking ### Internal accreditation - Sustainability is a building block of the investment process and can be clearly evidenced - The investment process applied by the portfolio managers of Schroder UK Mid Cap Fund plc is ESG "integrated" In 2019 Schroders rolled out an internal ESG accreditation process. As part of this, the portfolio's integration process has been reviewed and approved every year since 2020. This means that sustainability is a building block of the investment process and can be clearly evidenced. ### External benchmarking We are pleased to report that the Company has been given a Morningstar Sustainability Rating ("Globe" rating) of 5, out of a maximum of 5. This means that it is in the top 10% of Morningstar's UK Equity Mid/Small Cap global category. This fund-level rating evaluates how much ESG risk is embedded in a fund relative to its Morningstar peer group, i.e. the risk of something going wrong in an ESG context. Under the widely accepted premise that the world is transitioning to a more sustainable economy, Morningstar's view is that a risk-based evaluation is the best available technique to assess the ESG characteristics of a fund. ![img-5.jpeg](img-5.jpeg) ### Morningstar Sustainability Rating If we look specifically at carbon intensity, one measure of this, which we source from MSCI data, indicates that the Company's carbon intensity is around half that of the benchmark. For this we use Scope 1+2 Carbon Intensity – which is the average carbon intensity (tonnes CO2e/$ million of revenues) of portfolio companies, weighted by position size. ### Carbon intensity Tonnes of CO2 per $million sales ![img-6.jpeg](img-6.jpeg) Source: MSCI. 2021: Fund coverage: 93%, Benchmark coverage: 95% 2022: Fund coverage: 92%, Benchmark coverage: 96% ## Extensive engagement with portfolio companies The Manager believes that, as external research on mid cap companies is limited in scope and often in quality, this provides an opportunity to deliver excess returns to shareholders. Detailed analysis of company reports and accounts, company meetings and visits, ESG analysis and engagements and the use of industry experts are all a vital part of the Manager's research process. It is the application of experience to these varied inputs, coupled with an extensive global in-house analytical resource that the Board believes gives the team the potential to deliver attractive returns. As part of our process, we meet with company management teams in advance of investing, as well as meeting with the management of all portfolio companies at least once a year. In many cases, we meet with them more often than this, as well as engaging with Board members. In addition, we will attend meetings with most management teams of companies in this dynamic Benchmark over the course of a year as we regularly review the investment cases of companies not held in the portfolio. We believe it is just as important to understand why you don't hold something as it is to know why you do. ## Dedicated team of ESG specialists We have always taken pride in our level of engagement with companies. Our brand, as well as extensive analytical resource, affords us the ability to regularly engage with companies on all aspects of corporate strategy, including specific ESG/sustainability matters. We are fortunate at Schroders to have access to a dedicated team of over 50 ESG/sustainability specialists. Their role is to research ESG/sustainability themes within sectors, provide proprietary analytics and tools, as well as to analyse and engage with individual companies on these issues. We engage with the output of this team regularly to ensure that these factors inform the investment process. The next table shows the number of company resolutions the Company voted on in the last one and three years. | Proxy voting | Year ended 30 September 2022 | 3 years to 30 September 2022 | | --- | --- | --- | | Meetings | 65 | 195 | | Resolutions | 976 | 3,032 | | Voted against management | 14 | 73 | | Did not vote | 0 | 0 | Source: Schroders Schroder UK Mid Cap Fund plc 176289 Schroder UK Mid Cap Fund plc Annual Report Pt1.qxp_176289 Schroder UK Mid Cap Fund plc Annual Report Pt1 06/12/2022 09:49 Page 15 ## Strategic Review ### Schroders Engagement ### Extensive resources ensure we engage fully on ESG matters with UK companies Schroder UK Equity team ESG engagements – past 3 years Most significant engagement topics 400 350 300 250 Strategic Report 200 150 100 50 0 Remuneration Corporate Strategy Governance oversight Climate Change Human Capital Environmental Policy/ Other - Environmental & Management Strategy Social  Source: Schroders. Most significant engagement topics over 3 years to 31 December 2020. For illustrative purposes only and should not be viewed as a recommendation to buy or sell. ### Sustainability at Schroders Our policies on sustainability are based on what we have learned from more than 20 years of including ESG analysis into the investment decisions we take on behalf of our clients. The below chart shows a number of sustainability-related milestones hit over the last 20 years at Schroders. ### A continually evolving approach Became a Natural Capital Investment Alliance Founding member Signatory to Net Zero Asset | | | | | | | | Became a | | Managers | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | | | | UNGC | 3 | Initiative | | | | | Partnership with | | | | | | | | | | signatory | | | | CEO letter to | | | Akaria Natural | | | | | | | | #1 in ShareAction | | | | | | FTSE350 | | | | Capital | | | | | Launched first | | European RI asset | | | | | | companies on | | | | | | | | | sustainable | | management survey | | | | | | climate change | | | | | | | | | strategy | | | | | | | Achieved | | | Published | | | | Published corporate | | 1 | | Developed responsible | | | | | | full ESG | | Natural Capital | Engagement | | | | | Became a CDP | | | | | Linked ESG to | | | | | 5 | | | | | | governance policy | | | | fixed income policy | | | | | | integration | | Research | Blueprint | | | signatory revolving credit partnership facility 1998 2001 2006 2007 2008 2011 2016 2017 2019 2020 2021 2022 + Top 5 in 2017 2 AODP Global Acquired majority 6 years of First dedicated Became a UNPRI Developed Climate 50 Asset stake in Published A+ UNPRI | ESG resource | | signatory | responsible real | | Launched | Manager Index | | | | 4 | | Climate | Science-based | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | | | | BlueOrchard | | rating | | | | | | | | | | | estate investment | | CONTEXT | | | | | | Became a | Transition | | targets | | | | Published first socially | | | policy | | | | Business | | | member of | Action Plan | validated by | | | | | responsible policy | | | | | | | operating on a | | | | | | | Acquired 75% | | | | | | | | | | | | | the UN Race | | | SBTi | shareholding in | | | | | | | | Launched SustainEx & | | carbon- | | | to Net Zero | | | | | Greencoat Capital Climate Progress neutral basis Initiative Dashboard ’Issues such as climate change, resource scarcity, population growth and corporate failure have put responsible investment at the forefront of esults for our Annual Report and Accounts clients.’ 15 for the year ended 30 September 2022 Peter Harrison, Group Chief Executive, Schroders plc Source: Schroders, September 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. # Strategic Review ## Purpose, Values and Culture The Company's purpose is to create long-term shareholder value through the achievement of the investment objective. The Board endeavours to create an open and constructive dialogue with all stakeholders and its 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 functions. 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. ## Corporate and social responsibility ### Diversity As at 30 September 2022, the Board comprised two female and two male directors. With respect to recruitment of non-executive Directors, the Board recognises that its debates and decision-making are greatly enriched by a wider range of perspectives and thinking, fostered by diversity of experience and knowledge, social and ethnic backgrounds, gender, and cognitive and personal strengths. It will encourage any recruitment agencies it engages to find a diverse range of candidates that meet the objective criteria agreed for each appointment. Appointments will always be based on merit alone. 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. ### Financial crime policy The Company continues to be committed to carrying out its business fairly, honestly and openly operates a financial crime policy (available on the Company's website), 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. ## Modern Slavery Act 2015 As an investment trust, the Company does not provide goods or services in the normal course of business and does not have customers. Accordingly, the Directors consider that the Company is not required to make any slavery or human trafficking statement under the Modern Slavery Act 2015. ## Greenhouse gas emissions and energy usage As the Company outsources its operations to third parties, it consumed less than 40,000 kWh during the year and so has no greenhouse gas emissions, energy consumption or energy efficiency action to report. Under listing rule 15.4.29(R), the Company, as a closed ended investment fund, is exempt from complying with the Task Force on Climate related Financial Disclosures. The Company is aware that the UK's Climate Change Act places obligations on the UK Government to decarbonise the economy by 2050 and to manage the impacts of climate change. Sustainability is a key focus for the Company and further details are provided in the ESG Report on pages 14 to 16. ## Responsible investment The Company delegates to the 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 and to exercise the Company's voting rights in consideration of these issues. A description of the Manager's policy 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 can 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. Schroders became a signatory to the UNPRI on 29 October 2007, although it has been considering ESG and sustainable investment since 2000. After a delay in the UNPRI reporting cycle, Schroders has now received its 2021 scores, reflecting its activity during 2020. The 2021 reporting cycle introduced a new reporting and assessment framework. Schroders has received scores of 4 and 5 stars across all of the modules in the new reporting structure; which ranges from 1-5 stars (5 being the top score). The Board has received reporting from the Manager on the application of its policy. 16 Schroder UK Mid Cap Fund plc # Strategic Review ## Section 172 of the Companies Act 2006 During the period, 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 its stakeholders. The Board has identified its key stakeholders as the Company's shareholders, the Manager and service providers. As an externally managed investment trust, the Company has no employees, operations or premises and the impact of its own operations on the environment and local community is through the impact its service providers or investee companies have. The Board take a long-term view of the consequences of their decisions, as well as aim to maintain a reputation for high standards of business conduct and fair treatment among the Company's shareholders. Fulfilling this duty naturally supports the Company in achieving its investment objective and helps to ensure that all decisions are made in a responsible way, taking sustainability into account. In accordance with the requirements of the Companies (Miscellaneous Reporting) Regulations 2018, the Directors explain below how they have individually and collectively discharged their duties under section 172 of the Companies Act 2006 over the course of the reporting period and key decisions made during the period and related engagement activities. | Stakeholder | Stakeholder considerations, engagement and key decisions | | --- | --- | | Shareholders | The Company welcomes attendance and participation from shareholders at the Annual General Meeting. If attending, shareholders have the opportunity to meet the Directors and ask questions at the AGM. The Board values the feedback and questions which it receives from shareholders. Shareholder relations are given high priority by both the Board and the Manager and are detailed further in 'Promotion' on page 12. In addition to the AGM, shareholders may also contact the Board by writing to the Company Secretary (Company Secretary, Schroder UK Mid Cap Fund plc, 1 London Wall Place, London EC2Y 5AU), or emailing amcompanysecretary@schroders.com. Shareholders are also encouraged to register for updates on the Company on the Company's website. To sign up please visit https://www.schroders.com/en-gb/uk/individual/nevermiss-an-update/. The annual and half year results presentations, as well as monthly updates are available on the Company's website, with results announced via a regulatory news service. Feedback and/or questions received from shareholders enable the Company to evolve its reporting which, in turn, helps to deliver transparent and understandable updates. The Manager communicates with shareholders periodically. All investors are offered the opportunity to meet the Chairman and other Board members without using the Manager or Company Secretary as a conduit, by writing to the Company's registered office. At Board meetings, 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. The Board also engages external providers, such as its broker, to obtain a more detailed view on specific aspects of shareholder communications, such as developing more effective ways to communicate with investors. The Board is responsible for discount and premium management and is cognisant of the prevailing discount to NAV. During the year, the Board bought back shares to seek to maintain the price at which the ordinary shares trade relative to their prevailing NAV and determined that current market conditions had seen high, unforeseen levels of volatility which the Board does not regard as normal market conditions. For key decisions, the Board took into account feedback from shareholders either directly or through service providers, including the Manager. The views of shareholders are also taken into account by the Board when considering the levels of gearing the Company employs and the renewal and cost of loan facilities. | | Manager | The Manager aims to continue to achieve consistent, long-term returns in line with the investment objective and maintains a close and collaborative working relationship with the Board. The Board maintains a constructive relationship with the Manager, encouraging open discussion and recognising that the interests of shareholders and the Portfolio Managers are well aligned. The Board invites the Manager to attend all Board meetings and receives regular reports on the performance of the investments and the implementation of the investment strategy, policy and objective. The portfolio activities undertaken by the Manager and the impact of decisions affecting investment performance are set out in the Managers' Review on pages 6 to 9. The Management Engagement Committee reviews the performance of the Manager, its remuneration and the discharge of its contractual obligations at least annually. | Strategic Report Annual Report and Accounts for the year ended 30 September 2022 17 176289 Schroder UK Mid Cap Fund plc Annual Report Pt1.qxp_176289 Schroder UK Mid Cap Fund plc Annual Report Pt1 06/12/2022 09:49 Page 18 ## Strategic Review Stakeholder Stakeholder considerations, engagement and key decisions Service The Board maintains regular contact with its key external providers, both through the Board and providers 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 period, the Management Engagement Committee continued to undertake reviews of the third-party service providers and agreed that their continued appointment remained in the best interests of the Company and its shareholders. The Committee periodically reviews the market rates for services received, to ensure that the Company continues to receive high quality service at a competitive cost. During the year, Directors attended a meeting to assess the internal controls of certain service providers including the Company’s Depositary and Custodian HSBC, the share Delegated Administrator, Computershare and Schroder’s Group Internal Audit. These meetings enable the Board to conduct due diligence on operations and IT risks amongst service providers; and to receive up to date information changes in regulation and market practice in the industry. The Board regularly considers how it meets various regulatory and statutory obligations and follows voluntary and best-practice guidance, while being mindful of how any decisions which it makes can affect its shareholders and wider stakeholders, in the short and the long-term. The Board receives reports from the Manager, Corporate Broker and Company Secretary on recent and proposed changes in regulation and market practice, as well as any likely reputational threats which, in turn, influence the Board’s decision-making process. ### Principal Risks and Uncertainties, including Emerging Risks The Board is responsible for the Company’s system of risk management and internal control and for reviewing its effectiveness. The Board has adopted a detailed matrix of principal risks affecting the Company’s business as an investment trust and has established associated policies and processes designed to manage and, where possible, mitigate those risks, which are monitored by the audit and risk committee on an ongoing basis. This system assists the Board in determining the nature and extent of the risks it is willing to take in achieving the Company’s strategic objectives. Both the principal risks and the monitoring system are also subject to robust review at least annually. Last year the following risks were identified as emerging risks, which this year the Board has re-categorised as principal risks: political risk, climate change risk and inflation risk. Additionally, the Board has considered the ongoing global supply chain issues to represent a new principal risk. In all other respects, the Company’s principal risks and uncertainties have not changed materially since the date of the previous Annual Report and are not expected to change materially for the current financial year. 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. Risk Mitigation and management Strategic The requirements of investors change or diverge in such a The appropriateness of the Company’s investment remit is way as to diverge from the Company’s investment periodically reviewed and the success of the Company in objectives, resulting in a wide discount of the share price to meeting its stated objectives is monitored. underlying NAV per share. The share price relative to NAV per share is monitored and the use of buy back authorities is considered on a regular basis. Marketing and distribution activity is actively reviewed. The Company engages proactively with investors. The Company’s cost base could become uncompetitive, The ongoing competitiveness of all service provider fees is particularly in light of open ended alternatives. subject to periodic benchmarking against their competitors. Annual consideration of management fee levels is undertaken. Schroder UK Mid Cap Fund plc 18 176289 Schroder UK Mid Cap Fund plc Annual Report Pt1.qxp_176289 Schroder UK Mid Cap Fund plc Annual Report Pt1 06/12/2022 09:49 Page 19 ## Strategic Review Risk Mitigation and management Investment management The Manager’s investment strategy, if inappropriate, may Review of the Manager’s compliance with its agreed result in the Company underperforming the market and/or investment restrictions, investment performance and risk peer group companies, leading to the Company and its against investment objectives and strategy; relative objectives becoming unattractive to investors. performance; the portfolio’s risk profile; and whether appropriate strategies are employed to mitigate any negative impact of substantial changes in markets. The Manager also reports on the Company’s portfolio, and the market generally. Strategic Report Annual review of the ongoing suitability of the Manager, including resources and key personnel risk. Financial and market risk The Company is exposed to the effect of market fluctuations The risk profile of the portfolio is considered and due to the nature of its business. A significant fall in equity appropriate strategies to mitigate any negative impact of markets could have an adverse impact on the market value substantial changes in markets are discussed with the of the Company’s underlying investments. Manager. See note 20 of the notes to the accounts. Custody Safe custody of the Company’s assets may be compromised The depositary reports on the safe custody of the Company’s through control failures by the depositary, including cyber assets, including cash and portfolio holdings which are hacking. 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 received. Gearing and leverage The Company utilises credit facilities. These arrangements Gearing is monitored and strict restrictions on borrowings increase the funds available for investment through are imposed: gearing continues to operate within pre- borrowing. While this has the potential to enhance agreed limits so as not to exceed 25% of total assets. investment returns in rising markets, in falling markets the The Manager is currently in discussion with several providers impact could be detrimental to performance. to secure new borrowing facilities upon expiry of the current term loan in February 2023. If a new loan cannot be arranged with acceptable terms, the Board is satisfied that this does not represent a significant risk to the Company since it has sufficient readily realisable assets to repay the loan. The Board also reviews the cost of gearing. Accounting, legal and regulatory In order to continue to qualify as an investment trust, the The confirmation of compliance with relevant laws and Company must comply with the requirements of section regulations by key service providers is reviewed. 1158 of the Corporation Tax Act 2010. Shareholder documents and announcements, including the Company’s published annual report are subject to stringent Breaches of the UK Listing Rules, the Companies Act or review processes. other regulations with which the Company is required to comply, could lead to a number of detrimental outcomes. Procedures are established to safeguard against the disclosure of inside information. Annual Report and Accounts 19 for the year ended 30 September 2022 176289 Schroder UK Mid Cap Fund plc Annual Report Pt1.qxp_176289 Schroder UK Mid Cap Fund plc Annual Report Pt1 06/12/2022 09:49 Page 20 ## Strategic Review Risk Mitigation and management Service provider The Company has no employees and has delegated certain Service providers are appointed subject to due diligence functions to a number of service providers. Failure of processes and with clearly-documented contractual controls, including as a result of cyber hacking, and poor arrangements detailing service expectations. performance of any service provider, could lead to Regular reports are provided by key service providers and disruption, reputational damage or loss. the quality of their services is monitored. Review of annual audited internal controls reports from key service providers, including confirmation of business continuity arrangements and IT controls is undertaken. Cyber The Company’s service providers are all exposed to the risk Service providers report on cyber risk mitigation and of cyber attacks. Cyber attacks could lead to loss of personal management at least annually, which includes confirmation or confidential information or disrupt operations. of business continuity capability in the event of a cyber attack. Political risk This includes trade wars, regional tensions and UK political The Board continues to monitor the impact of the UK’s risks specifically. departure from the European Union and to assess the potential consequences for the Company’s future activities. The Board is also mindful that changes to public policy in the UK could impact the Company in the future. Climate change risk A failure to understand the pricing of assets affected by The Manager has developed a range of proprietary tools to climate change or a lower demand for impacted assets better understand the impacts of climate change on the could lead to poor investment decisions or more volatile portfolio. The investment process applied by the portfolio pricing as asset prices adjust to reflect the increasing managers is ESG “integrated”. The Manager monitors the regulation of carbon emissions. emissions of investee companies and can engage with companies to reduce their emissions or aim to invest in companies committed to reaching net zero carbon emissions. The Board receives updates from the Manager at Board meetings and in 2022 held a session with the Manager and the Schroders sustainability team to discuss ESG matters, including climate change. The Board has challenged the Manager regarding the need to carefully consider and monitor sustainability and environmental and societal impacts when assessing investment opportunities, in addition to the well founded attention to good corporate governance principles, which have been in place for many years. Inflation & Global supply chain risk Rising supplier costs and availability of supply. The Board has, in conjunction with the Manager, considered the risks relating to elevated levels of price inflation, generally, together with the evolution in the way that supply chains are operating and the concomitant risks of rising supplier costs and availability of supply. It is the Board’s view that the complexion of these risks has changed over the past year in a way that requires them now to be assessed as principal risks. The key mitigation to these risks comes from diligent appraisal and monitoring of investments by the Manager, including engagement with the management of investee companies, together with a critical assessment of investee companies’ ability to pass on rising costs to customers as a result of their pricing power and strong market positions alongside their ability to control costs. Schroder UK Mid Cap Fund plc 20 176289 Schroder UK Mid Cap Fund plc Annual Report Pt1.qxp_176289 Schroder UK Mid Cap Fund plc Annual Report Pt1 06/12/2022 09:49 Page 21 ## Strategic 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. A full analysis of the financial risks facing the Company is set out in note 20 to the accounts on pages 51 to 55. Strategic Report The operating costs of the Company are predictable and ### Viability statement modest in comparison with the assets and there are no The directors have assessed the viability of the Company over capital commitments foreseen which would alter that a five year period, to 30 September 2027, taking into account position. the Company’s position at 30 September 2022 and the Furthermore, the Company has no employees and potential impact of the principal risks and uncertainties it consequently no redundancy or other employment related faces for the review period. liabilities. A period of five years has been chosen as the Board believes The Board reviews the performance of the Company’s service that this reflects a suitable time horizon for strategic providers regularly, including the Manager, along with planning, taking into account the investment policy, liquidity internal controls reports to provide assurance regarding the of investments, potential impact of economic cycles, nature effective operation of internal controls as reported on by of operating costs, dividends and availability of funding. their reporting accountants. The Board also considers the In its assessment of the viability of the Company, the business continuity arrangements of the Company’s key directors have considered each of the Company’s principal service providers. risks and uncertainties detailed on pages 18 to 20 and in The Board monitors the portfolio risk profile, limits imposed particular the impact of a significant fall in UK equity markets on gearing, counterparty exposure, liquidity risk and financial on the value of the Company’s investment portfolio. The controls at its quarterly meetings. directors have also considered the Company’s income and expenditure projections and the fact that the Company’s The directors have concluded that there is a reasonable investments comprise readily realisable securities which can expectation that the Company will be able to continue in be sold to meet funding requirements if necessary and on operation and meet its liabilities as they fall due over the five that basis consider that five years is an appropriate time year period of their assessment. Such conclusion is based on period. the Company’s processes for monitoring operating costs, the Board’s view that the Manager has the appropriate depth and The directors have also considered a stress test which quality of resource to achieve superior returns in the longer represents a severe but plausible scenario along with term, as well as the portfolio risk profile, limits imposed on movement in foreign exchange rates. This scenario assumes gearing, counterparty exposure, liquidity risk and financial a severe stock market collapse and/or exchange rate controls. movements at the beginning of the five year period, resulting in a 50% fall in the value of the Company’s investments and investment income and no subsequent recovery in either ### Going concern prices or income in the following five years. For this purpose it is assumed that the Company continues to pay an annual Having assessed the Company’s principal risks, its current dividend in line with current levels and that the borrowing financial position, its cash flows, its liquidity position and facility remains available and remains drawn, subject to the Financial Reporting Council (“FRC”) guidance, the directors gearing limit. The Company’s term loan expires on consider it appropriate to adopt the going concern basis in 28February 2023. If a new loan cannot be arranged with preparing the accounts as detailed in note 1(a) of the acceptable terms, the Board is satisfied that the Company accounts. has sufficient readily realisable assets to repay the loan. By order of the Board The Company’s investments comprise highly liquid, large, listed companies and so its assets are readily realisable securities and could be sold to meet funding requirements or Schroder Investment Management Limited the repayment of the gearing facilities should the need arise. Company Secretary There is no expectation that the nature of the investments held within the portfolio will be materially different in the 5 December 2022 future. Annual Report and Accounts 21 for the year ended 30 September 2022 176289 Schroder UK Mid Cap Fund plc Annual Report Pt2_176289 Schroder UK Mid Cap Fund plc Annual Report Pt2 06/12/2022 09:52 Page 22 ## Board of Directors ### Robert Talbut Status: independent non-executive Chairman Length of service: 6 years – appointed a director in February 2016 Experience: Mr Talbut is an experienced non-executive director having had a range of investment, pensions, charity and insurance roles. He is currently chairman of Shires Income plc and a director of JPMorgan American Investment Trust plc and Pacific Assets Trust plc. He was formerly the chief investment officer of Royal London Asset Management and has over 30 years of experience in the asset management industry. He has represented the asset management industry through the chairmanship of both the ABI Investment Committee and the Asset Management Committee of the Investment Association. He was also a member of the Financial Conduct Authority’s Listing Advisory Panel. Committee membership: audit and risk, management engagement (chairman), nomination (chairman) and remuneration committees Current remuneration: £38,500 per annum Shares held: 8,176* ### Wendy Colquhoun Status: independent non- executive director Length of service: 2 years - appointed a director in January 2020 Experience: Ms Colquhoun is Chairman of Henderson Opportunities Trust plc and a non-executive director of Capital Gearing Trust P.l.c. She is a qualified solicitor and was formerly a senior corporate partner at CMS Cameron McKenna Nabarro Olswang LLP where she specialised in financial services. She has extensive experience of investment trusts having advised investment trust clients for over 25 years. Committee membership: audit and risk, management engagement, nomination and remuneration committees Current remuneration: £26,000 per annum Shares held: 2,000* Schroder UK Mid Cap Fund plc 22 # Board of Directors ![img-7.jpeg](img-7.jpeg) ## Helen Galbraith **Status:** independent non-executive director **Length of service:** Appointed a director in April 2022 **Experience:** Mrs Galbraith is Audit Chair of CT UK High Income Trust plc, Vice Chair of Orwell Housing Association and a Director of Orwell Homes. She was formerly Head of Investor Relations at Aviva plc, Head of Global Equities at Aviva Investors and has over 20 years' experience in the insurance and asset management industry. She is a Chartered Financial Analyst and a passionate advocate of financial education for children having established an online platform and previously worked with charity MyBnk. **Committee membership:** audit and risk, management engagement, nomination and remuneration committees **Current remuneration:** £26,000 per annum **Shares held:** 5,500 ![img-8.jpeg](img-8.jpeg) ## Andrew Page **Status:** senior independent director **Length of service:** 8 years – appointed a director in October 2014 **Experience:** Mr Page was, until August 2014, the chief executive officer of The Restaurant Group plc ("TRG"), a FTSE 250 company which operates 460 restaurants throughout the UK. He has previously served as both chairman and senior independent director on several listed and private equity-backed company boards. He is senior independent director of JP Morgan Emerging Markets Investment Trust plc. Prior to joining TRG in 2001, Mr Page held a number of senior positions within the leisure and hospitality sector including senior vice president with InterContinental Hotels. Before that he spent six years working in Kleinwort Benson's Corporate Finance department. Mr Page is a Chartered Accountant. **Committee membership:** audit and risk (chairman), management engagement, nomination and remuneration (chairman) committees **Current remuneration:** £31,250 per annum **Shares held:** 23,128* *Shareholdings are as at 5 December 2022. Full details of directors' shareholdings, including those of persons closely associated as defined in the Market Abuse Regulation, are set out in the Directors' Remuneration Report on page 34. Governance Annual Report and Accounts for the year ended 30 September 2022 23 # Directors' Report The directors submit their report and the audited financial statements of the Company for the year ended 30 September 2022. ## Directors and officers The Directors as at 30 September 2022 and their biographies are set out on pages 22 and 23. ### 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 22. ### 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. ## Role and operation of the Board 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 Review on pages 11 to 21 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 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 six months' 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 Financial Conduct Authority ("FCA") and provides portfolio management, risk management, and administrative, 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 and administrative accounting and company secretarial services to another wholly owned subsidiary of Schroders plc, Schroder Investment Management Limited. The Company Secretary has an independent reporting line to the Manager and distribution functions within Schroders. The Manager has in place appropriate professional indemnity cover. The Schroders Group manages £752.4 billion (as at 30 September 2022) on behalf of institutional and retail investors, financial institutions and high net worth clients from around the world, invested in a broad range of asset classes across equities, fixed income, multi-asset and alternatives. For the financial year ended 30 September 2022, the Manager was entitled to a management fee at a rate of 0.65% per annum of chargeable assets up to £250 million and 0.60% of any amounts in excess of that. Chargeable assets are defined as total assets less current liabilities other than short-term borrowings, provided that if there are any short-term borrowings, the value of cash up to the level of such borrowings is deducted from the calculation of assets. The management fee payable in respect of the year ended 30 September 2022 amounted to £1,623,000 (2021: £1,736,000), paid quarterly in arrears. The Manager is also entitled to receive a fee for providing administrative, accounting and company secretarial services to the Company. For these services, for the year ended 30 September 2022 it received a fee of £144,000 24 Schroder UK Mid Cap Fund plc # Directors' Report (2021: £137,000), including VAT. The fee continues to be subject to annual adjustment in line with changes in the Retail Prices Index. Details of all amounts payable to the Manager are set out in note 17 on page 51. 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 superior returns over the longer term. Thus, the Board considers that the Manager's appointment under the terms of the AIFM agreement, is in the best interests of shareholders as a whole. ## Depository HSBC Bank plc, which is authorised by the Prudential Regulation Authority and regulated by the FCA and the Prudential Regulation Authority, carries out certain duties of a depository 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 depository may terminate the depository agreement at any time by giving 90 days' notice in writing. The depository may only be removed from office when a new depository is appointed by the Company. ## Registrar Equiniti Limited is 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. ## Revenue and final dividend The net revenue return for the year, after finance costs and taxation, was £7,823,000 (2021: £5,322,000), equivalent to a revenue return per share of 22.43 pence (2021: 15.18 pence). The directors have recommended the payment of a final dividend for the year of 14.0 pence per share (2021: 11.0 pence) payable on 27 February 2023. The dividend will be payable to shareholders on the register on 13 January 2023 and the ex-dividend date will be 12 January 2023. ## Compliance with the Association of Investment Companies ("AIC") Code of Corporate Governance The Board of the Company has considered the principles and provisions of the AIC Code of Corporate Governance (the "AIC Code"). The AIC 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 FRC, provides more relevant information to shareholders. The FCA requires all UK listed companies to disclose how they have complied with the provisions of the UK Code. This statement, together with the Statement of Directors' Responsibilities, viability statement and going concern statement set out on pages 35 and 21 respectively indicates how the Company has complied with the principles of good governance of the UK Code and its requirements on internal control. The Strategic Report and Directors' Report provide further details on the Company's internal controls (including risk management) governance and diversity policies. The Company has complied with the Principles and Provisions of the AIC Code throughout the year under review. The UK Code includes provisions relating to the role of the chief executive, executive directors' remuneration and the need for an internal audit function. For the reasons set out in the AIC Code, the Board considers that these provisions are not relevant to the position of the Company, being an externally managed investment company. The Company has therefore nothing to report in respect of these provisions. The AIC Code is available on the AIC website (www.theaic.co.uk). It includes an explanation of how the AIC Code adapts the Principles and Provisions set out in the UK Code to make them relevant for investment companies. The UK Code is available from the Financial Reporting Council's website at www.frc.org.uk. ## 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, management engagement committee and remuneration committee are incorporated into and form part of the Directors' Report. Given the Board's size and composition, it considers all directors being members of its delegated committees appropriate. ## Other required Directors' Report disclosures under laws, regulations, and the AIC Code ### 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 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 not a "close" company for taxation purposes. Annual Report and Accounts for the year ended 30 September 2022 25 Governance # Directors' Report ## Information included in Strategic Report The Company's disclosures on future developments and carbon emissions are included in the Strategic Report on pages 18 and 16 respectively. ## Financial risk management Details of the Company's financial risk management objectives and exposure to risk can be found in note 20 on pages 51 to 55. ## Share capital and substantial interests As at the date of this report, the Company had 36,143,690 ordinary shares of 25p in issue. 1,562,500 shares were held in treasury. Accordingly, the total number of voting rights in the Company at the date of this report is 34,581,190. No shares have been repurchased since the year end and the date of this report. Further information is provided in note 14 on page 49. All shares in issue rank equally with respect to voting, dividends and any distribution on winding up. There are no restrictions concerning the transfer of securities in the Company; no special rights with regard to control attached to securities; no restrictions on voting rights; no agreements between holders of securities regarding their transfer known to the Company; and no agreements to which the Company is a party which might change or fall away on a change of control or trigger any compensatory payments for Directors following a successful takeover bid. The Company is aware that certain changes to the interests held in the Company of 3% or more of the voting rights attaching to the Company's issued share capital have taken place since the last notification made by investors to the Company. As a result, the following table is based on what the Board believes to be the correct interests in the Company, using the shareholder analysis prepared by Richard Davies Investor Relations Limited, and which is reviewed at every Board meeting. | | As at 30 September 2022 | % of total voting rights | | --- | --- | --- | | Clients of Hargreaves Lansdown, stockbrokers (EO) | 3,853,217 | 11.14 | | Evelyn Partners | 3,583,010 | 10.36 | | Clients of Interactive Investor (EO) | 2,913,360 | 8.42 | | Charles Stanley Group plc | 2,742,653 | 7.93 | | Clients of Redmayne Bentley, stockbrokers | 1,867,043 | 5.40 | | Rathbone Brothers PLC | 1,693,127 | 4.90 | | Saba Capital Management | 1,403,155 | 4.06 | | Allspring Global Investments | 1,330,447 | 3.85 | | Clients of AJ Bell, stockbrokers (EO) | 1,173,109 | 3.39 | Source: Richard Davies Investor Relations Limited Following the year end and at the date of this report, there have been no changes to the interests disclosed above. ## Provision of information to the auditor The directors who held office 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' attendance at meetings 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 per share; promotion of the Company; and services provided by third parties. Additional meetings of the Board are arranged as required. The number of scheduled 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. | Director | Board | Nomination Committee | Audit and Risk Committee | Management Engagement Committee | Remuneration Committee | | --- | --- | --- | --- | --- | --- | | Robert Talbut | 4/4 | 1/1 | 2/2 | 1/1 | 1/1 | | Wendy Colquhoun | 4/4 | 1/1 | 2/2 | 1/1 | 1/1 | | Clare Dobie* | 4/4 | 1/1 | 2/2 | 1/1 | 1/1 | | Helen Galbraith** | 2/2 | 1/1 | 1/1 | 1/1 | 1/1 | | Andrew Page | 4/4 | 1/1 | 2/2 | 1/1 | 1/1 | *Clare Dobie retired on 15 September 2022 **Helen Galbraith was appointed on 7 April 2022 In addition to the above meetings, the Board met once on an ad-hoc basis during the year to discuss the Company's discount level and the Nomination Committee met once on an ad-hoc basis to approve the appointment of Helen Galbraith. The Board is satisfied that the Chairman and each of the other non-executive directors commits sufficient time to the affairs of the Company to fulfil their duties as directors. ## 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 policy and was in place throughout the year under review for each director and to the date of this report. By order of the Board **Schroder Investment Management Limited** Company Secretary 5 December 2022 26 Schroder UK Mid Cap Fund plc 176289 Schroder UK Mid Cap Fund plc Annual Report Pt2_176289 Schroder UK Mid Cap Fund plc Annual Report Pt2 06/12/2022 09:52 Page 27 ## 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 website, www.schroders.co.uk/midcap. All directors are members of the committee. Andrew Page is the chairman of committee. The Chair of the Board is a member of the Committee, and was independent on appointment. 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. ### Ongoing risk review ### Half year Audit Annual Post-audit ### Audit ### report planning report review Approach The committee’s key roles and responsibilities are set out below. Risks and Internal Controls Financial Reports and Valuation Audit Principal risks Financial statements Audit results To establish a process for identifying, To monitor the integrity of the financial To discuss any matters arising from the assessing, managing and monitoring statements of the Company and any audit and recommendations made by emerging and principal risks of the formal announcements relating to the the auditor. Company. Company’s financial performance and valuation. To review the half year report. Emerging risks and uncertainties Going concern Auditor appointment, independence Governance To ensure a robust assessment of the To review the position and make and performance Company’s emerging and principal risks recommendations to the Board in To make recommendations to the Board, and procedures are in place to identify relation to whether it considers it in relation to the appointment, re- emerging risks, and an explanation of appropriate to adopt the going concern appointment, effectiveness and removal how these are being managed or basis of accounting in preparing its of the external auditor, to review their mitigated. annual and half-yearly financial independence, and to approve their statements. remuneration and terms of engagement. Reviewing the audit plan and engagement letter. The below table sets out how the committee discharged its duties during the year. The committee met twice during the year. An evaluation of the committee’s effectiveness and review of its terms of reference was completed during the year. The committee identified one potentially significant financial reporting risk, which is unchanged from the prior period, being the valuation and existence of investments, as well as several other financial reporting risks. Each of the matters considered during the committee's review are outlined below. Application during the year Risks and Internal Controls Financial Reports and Valuation Audit Service provider controls Recognition of investment income Effectiveness of the independent Reviewing the operational controls Considered dividends received against audit process and auditor maintained by the Manager, depositary forecast and the allocation of special performance and registrar. dividends to income or capital. 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. Annual Report and Accounts 27 for the year ended 30 September 2022 176289 Schroder UK Mid Cap Fund plc Annual Report Pt2_176289 Schroder UK Mid Cap Fund plc Annual Report Pt2 06/12/2022 09:52 Page 28 ## Audit and Risk Committee Report Application during the year Risks and Internal Controls Financial Reports and Valuation Audit | Internal controls and risk | Calculation of the investment | Auditor independence | | --- | --- | --- | | management | management fee and performance fee | The committee last undertook an audit | | Consideration of several key aspects of | Consideration of methodology used to | tender process in 2017 when KPMG LLP was | | internal control and risk management | calculate the fees, matched against the | appointed as auditor in respect of the | | operating within the Manager, depositary | criteria set out in the AIFM agreement. | financial year ended 30 September 2017. | | and registrar, including assurance | | The Company is required to tender the | | reports and presentations on these | | external audit no later than for year ending | | controls. | | 30 September 2027. In accordance with | | It is considered that the Company does | | professional and regulatory standards, the | | not require an internal audit function, | | senior statutory auditor responsible for the | | principally because the Company | | audit is rotated at least every five years in | | delegates its day-to-day operations to | | order to protect independence and | | third parties, which are monitored by the | | objectivity and to provide fresh challenge to | | Committee and provide control reports | | the business. This is the third year that the | | on their operations annually. | | senior statutory auditor, Gary Fensom, has | conducted the audit of the Company’s financial statements. There are no contractual obligations restricting the choice of independent auditor. | Compliance with the investment trust | Overall accuracy of the annual report | Audit results | | --- | --- | --- | | qualifying rules in S1158 of the | and accounts | Met with and reviewed a comprehensive | | Corporation Tax Act 2010 | Consideration of the draft annual report | report from the auditor which detailed the | | Consideration of the Manager’s report | and accounts and the letter from the | results of the audit, compliance with | | confirming compliance. | Manager in support of the letter of | regulatory requirements, safeguards that | | | representation to the auditor. | have been established, and on their own | internal quality control procedures. Principal risks Valuation and existence of holdings Meetings with the auditor Reviewing the principal risks faced by the Quarterly review of portfolio holdings Met the auditors without representatives of Company and the system of internal and assurance reports. the Manager present. Representatives of control. the auditors attended the committee meeting at which the draft annual report and accounts was considered. Fair, balanced and understandable Provision of non-audit services by the Reviewed the annual report and accounts auditor to ensure that it was fair, balanced and The committee has reviewed the FRC’s understandable. 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 Consent to continue as auditor Reviewing the impact of risks on going KPMG LLP indicated to the committee their concern and longer-term viability. willingness to continue to act as auditor. Recommendations made to, and approved by, the Board: As a result of the work performed, the committee has concluded that the annual report for the year ended 30 September 2022, 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 page 35. Having reviewed the performance of the auditors as described above, the committee considered it appropriate to recommend the firm’s re-appointment. Resolutions to re-appoint KPMG LLP as auditor to the Company, and to authorise the directors to determine their remuneration will be proposed at the AGM. Andrew Page Chairman of Audit and Risk Committee 5 December 2022 Schroder UK Mid Cap Fund plc 28 176289 Schroder UK Mid Cap Fund plc Annual Report Pt2_176289 Schroder UK Mid Cap Fund plc Annual Report Pt2 06/12/2022 09:52 Page 29 ## Management Engagement Committee Report 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. Robert Talbut is the chairman of the committee. Its terms of reference are available on the Company’s website, www.schroders.co.uk/ukmidcap. Approach Oversight of the Manager Oversight of other service providers The committee: The committee reviews the performance and competitiveness of the following service providers on at • reviews the Manager’s performance, over the short- least an annual basis: and long-term, against the Benchmark, peer group and the market. • Depositary and custodian • considers the reporting it has received from the • Corporate broker Manager throughout the year, and the reporting • Registrar from the Manager to the shareholders. • Lender • assesses management fees on an absolute and relative basis, receiving input from the Company’s The committee also receives a report from the broker, including peer group and industry figures, as Company Secretary on ancillary service providers, and well as the structure of the fees. considers any recommendations. • reviews the appropriateness of the Manager’s contract, including terms such as notice period. • assesses whether the Company receives appropriate Governance administrative, accounting, company secretarial and marketing support from the Manager. Application during the year The committee undertook a detailed review of the The annual review of each of the other service Manager’s performance and agreed that it has the providers was satisfactory. appropriate depth and quality of resource to deliver superior returns over the longer term. The committee reviewed the management fee structure and agreed that no changes would be proposed. 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. Recommendations made to, and approved by, the Board: • That the ongoing appointment of the Manager on the terms of the AIFM agreement was in the best interests of shareholders as a whole. • That the Company’s service providers’ performance remained satisfactory. Annual Report and Accounts 29 for the year ended 30 September 2022 176289 Schroder UK Mid Cap Fund plc Annual Report Pt2_176289 Schroder UK Mid Cap Fund plc Annual Report Pt2 06/12/2022 09:52 Page 30 ## Nomination Committee Report 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. Robert Talbut is the chairman of the committee. Its terms of reference are available on the Company’s website, www.schroders.co.uk/ukmidcap. Oversight of directors Annual review Application Annual Selection Induction of succession of succession evaluation policy policy Approach Selection and induction Board evaluation Succession • Committee prepares a job • Committee assesses each director annually • Having considered diversity and specification for each role, which and considers whether an external the need for regular refreshment is shared with an independent evaluation should take place. the Board’s policy is that recruitment firm. For the directors’ tenure, including the • Evaluation focuses on whether each director Chairman and the chairs of Chairman of the Board, will be for continues to demonstrate commitment to committees, the committee no longer than nine years, except their role and provides a valuable considers current board in exceptional circumstances, contribution to the Board during the year, members too. and that each director will be taking into account time commitment, • Job specification outlines the subject to annual re-election at independence, conflicts and training needs. knowledge, professional skills, the AGM. personal qualities and • Following the evaluation, the committee • Committee reviews the Board’s experience requirements. provides a recommendation to shareholders current and future needs at least with respect to the annual re-election of • Potential candidates assessed annually. Should any need be directors at the AGM. against the Company’s diversity identified the committee will policy. • All directors retire at the AGM and their initiate the selection process. election, or re-election, as appropriate is • Committee discusses the long • Committee oversees the list, invites a number of subject to shareholder approval. handover process for retiring candidates for interview and directors. makes a recommendation to the Board. • Committee reviews the induction and training of new directors. On appointment, directors receive a full, formal and tailored induction. Directors are also regularly provided with key information on the Company’s policies, regulatory and statutory requirements and internal controls. Changes affecting directors’ responsibilities are advised to the Board as they arise. Directors also regularly participate in relevant training and industry seminars. • 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. For application, see page 31 Schroder UK Mid Cap Fund plc 30 176289 Schroder UK Mid Cap Fund plc Annual Report Pt2_176289 Schroder UK Mid Cap Fund plc Annual Report Pt2 06/12/2022 11:32 Page 31 ## Nomination Committee Report Application during the year Selection and induction Board evaluation and directors’ fees Succession | • The committee commenced its | • The Board and committee evaluation process | • The committee reviewed the | | --- | --- | --- | | search process for a new director | was undertaken in September 2022 using a | board tenure policy and agreed it | | and engaged Trust Associates, an | comprehensive questionnaire which was | was still fit for purpose. | | external search firm with no | completed by all Directors. | | • Claire Dobie retired in September other connection to the Board or • The evaluation of the Chairman was led by the 2022 in accordance with the individual directors. SID, who held a subsequent meeting with the Board’s policy on tenure. Chairman to discuss the results.. • Helen Galbraith was appointed in | • The committee also reviewed each director’s | April 2022 and will be subject to | | --- | --- | | time commitment and independence by | election at the next AGM in | | reviewing a complete list of appointments, | accordance with the Company’s | | including pro bono not for profit roles, to | Articles of Association. | ensure that each director remained free from conflict and had sufficient time available to discharge each of their duties effectively. All directors were considered to be independent in character and judgement. • 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 Governance their biographies on pages 22 and 23, which was supported by the completion of a detailed skills matrix by each Director. • Based on its assessment, the committee provided individual recommendations for each director’s election, or re-election, as appropriate. 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 sustainable success, and remain free from conflicts with the Company and its directors, so should all be recommended for election, or re-election, as appropriate by shareholders at the AGM. • The appointment of Helen Galbraith as a non-executive director in April 2022. Annual Report and Accounts 31 for the year ended 30 September 2022 # Remuneration Committee Report The remuneration committee is responsible for making recommendations to the Board on the remuneration of the directors. All directors are members of the committee and Andrew Page is the chairman. Its terms of reference are available on the Company's website, www.schroders.co.uk/ukmidcap. ## Introduction The following remuneration policy is currently in force and is subject to a binding vote every three years. The next vote will take place at the forthcoming AGM in 2023 and the current policy provisions will continue to apply until that date. An ordinary resolution to approve the directors' remuneration policy will be put to shareholders at the forthcoming AGM (no changes are proposed). The below Directors' Remuneration Report is subject to an annual advisory vote. An ordinary resolution to approve this report will be put to shareholders at the forthcoming AGM. At the AGM held on 28 January 2020, 99.91% 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 0.09% were against. 2,706 votes were withheld. At the AGM held on 9 February 2022, 99.84% 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 30 September 2021 were in favour while 0.16% were against. 49,870 votes were withheld. ## Directors' remuneration policy It is the Board's policy to determine the level of directors' remuneration having regard to amounts payable to non-executive directors in the industry generally, 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 £200,000 per annum and any increase in this level requires approval by the Board and the Company's shareholders. The Chairman and the chairman of the audit and risk committee each receives 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. 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, however 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. ## Implementation of policy The Board did not seek the views of shareholders in setting this remuneration policy. Any 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 directors' remuneration policy was implemented during the year ended 30 September 2022. ## Consideration of matters relating to directors' remuneration Directors' remuneration was last reviewed by the remuneration committee in September 2022. 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 was provided by the Manager and corporate broker and was taken into consideration. Following this review, the remuneration committee recommended that with effect from 1 October 2022, the Chairman's annual fee be increased to £40,000, the chairman of the audit and risk committee's annual fee be increased to £32,500 and the annual fee for non-executive directors be increased to £27,000. Directors' fees were last increased with effect from 1 October 2021. 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. ### Recommendations made to, and approved by, the Board: - That with effect from 1 October 2022, the Chairman's annual fee be increased to £40,000, the chairman of the audit and risk committee's annual fee be increased to £32,500 and the annual fee for non-executive directors be increased to £27,000. 32 Schroder UK Mid Cap Fund plc 176289 Schroder UK Mid Cap Fund plc Annual Report Pt2_176289 Schroder UK Mid Cap Fund plc Annual Report Pt2 06/12/2022 09:52 Page 33 ## Remuneration Committee Report ### Fees paid to directors The following amounts were paid by the Company to directors for their services in respect of the year ended 30September 2022 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 2, under the heading “Financial highlights”. 1 Fees Taxable benefits Total 2022 2021 2022 2021 2022 2021 2020 2019 Director £ £ £ £ £ £ £ £ 2 Robert Talbut (Chairman) 38,500 32,789 395 – 38,895 32,789 25,411 24,412 3 Wendy Colquhoun 26,000 25,000 774 – 26,774 25,000 18,750 – 4 Clare Dobie 24,917 25,000 – – 24,917 25,000 25,141 24,273 5 Helen Galbraith 12,543 – – – 12,543 – – – Andrew Page 31,250 30,000 – – 31,250 30,000 30,105 29,000 6 Robert Rickman – – – – – – 9,652 24,787 7 Eric Sanderson – 13,144 – 916 – 14,060 39,588 41,470 133,210 125,933 1,169 916 134,379 126,849 148,647 143,942 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 8February 2021. 3 Appointed as a director on 1 January 2020. 4 Retired from the board on 15September 2022. 5 Appointed as a director on 7April 2022. 6 Retired from the board on 28January 2020. Governance 7 Retired as Chairman and from the board on 8February 2021. ### Change in annual fees payable Expenditure by the Company on remuneration and distributions to shareholders | | | Year Year Year | The table below compares the remuneration payable to | | | --- | --- | --- | --- | --- | | | | ended ended ended | directors to distributions made to shareholders during the | | | | | 30Sep 30Sep 30Sep | year under review and the prior financial year. In considering | | | | | 2022 2021 2020 | these figures, shareholders should take into account the | | | Director % % % | | | Company’s investment objective. | | | | 1 | | | Year Year | | Robert Talbut (Chairman) | | 18.6 29.0 4.1 | | | ended ended 2 Wendy Colquhoun 7.1 33.3 N/a 30Sep 30Sep 2022 2021 Change 3 Clare Dobie N/a (0.6) 3.6 £’000 £’000 % 4 Helen Galbraith N/a N/a N/a Remuneration payable Andrew Page 4.2 (0.3) 3.8 to directors 134 127 5.5 5 | Robert Rickman | | N/a N/a (61.1) | Distributions paid to | | | --- | --- | --- | --- | --- | | | 6 | | shareholders | | | Eric Sanderson | | N/a (64.5) (4.5) | | | | | | | Dividends | 5,586 4,664 | | 1 | | | Share buybacks 2,675 – | | Appointed Chairman on 8 February 2021. 2 Appointed as a director on 1 January 2020. 3 Total distributions paid Retired from the board on 15 September 2022. 4 Appointed as a director on 7 April 2022. to shareholders 8,261 4,664 77.1 5 Retired from the board on 28 January 2020. 6 Retired as Chairman and from the board on 8 February 2021. The information in the above tables has been audited. Annual Report and Accounts 33 for the year ended 30 September 2022 # Remuneration Committee Report ## Ten year share price and Benchmark total returns ![img-9.jpeg](img-9.jpeg) $^{1}$Source: Morningstar/Thomson Reuters. Rebased to 100 at 30 September 2012. Definitions of terms and Alternative Performance Measures are given on pages 60 and 61. ## Directors' share interests The Company's articles of association do not require directors to own shares in the Company. The interests of the directors, including those of persons closely associated, in the Company's share capital at the beginning and end of the financial year under review are set out below: | | 30 September 2022 | 30 September 2021 | | --- | --- | --- | | Wendy Colquhoun | 2,000 | 2,000 | | Clare Dobie^{1} | 2,044 | 2,044 | | Helen Galbraith^{2} | 5,500 | – | | Andrew Page | 23,128 | 9,128 | | Robert Talbut | 8,176 | 8,176 | $^{1}$Clare Dobie retired from the Board on 15 September 2022. $^{2}$Helen Galbraith was appointed on 7 April 2022. There have been no changes notified since the year end. The information in the above table has been audited. On behalf of the Board ## Andrew Page Chairman of Remuneration Committee 5 December 2022 34 Schroder UK Mid Cap Fund plc 176289 Schroder UK Mid Cap Fund plc Annual Report Pt2_176289 Schroder UK Mid Cap Fund plc Annual Report Pt2 06/12/2022 09:52 Page 35 ## Statement of Directors’ Responsibilities in respect ## of the Annual Report and Accounts ### The directors are responsible for preparing the Annual Responsibility statement of the Directors Report and financial statements in accordance with ### in respect of the annual financial report applicable law and regulations. Each of the Directors, whose names and functions are listed Company law requires the directors to prepare financial on pages 22 and 23 confirm that to the best of their statements for each financial year. Under that law they have knowledge: elected to prepare the financial statements in accordance with UK accounting standards and applicable law (UK • the financial statements, prepared in accordance with Generally Accepted Accounting Practice), including FRS 102 the applicable set of accounting standards, give a true The Financial Reporting Standard applicable in the UK and and fair view of the assets, liabilities, financial position Republic of Ireland. and profit or loss of the Company; and Under company law the directors must not approve the • the Strategic Report includes a fair review of the financial statements unless they are satisfied that they give a development and performance of the business and the true and fair view of the state of affairs of the Company and position of the Company, together with a description of of the profit or loss of the company for that period. In the principal risks and uncertainties that it faces. preparing these financial statements, the directors are We consider the annual report and accounts, taken as a required to: whole, is fair, balanced and understandable and provides the • select suitable accounting policies and then apply them information necessary for shareholders to assess the consistently; Company’s position and performance, business model and strategy. • make judgements and estimates that are reasonable and prudent; • state whether applicable UK accounting standards have On behalf of the Board been followed, subject to any material departures disclosed and explained in the financial statements; Governance • assess the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to Robert Talbut going concern; and Chairman • use the going concern basis of accounting unless they either intend to liquidate the Company or to cease operations or have no realistic alternative but to do so. 5 December 2022 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 comply with the Companies Act 2006. They are responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities. The directors are responsible for the maintenance and integrity of the corporate and financial information included on the company’s website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Annual Report and Accounts 35 for the year ended 30 September 2022 176289 Schroder UK Mid Cap Fund plc Annual Report Pt3_176289 Schroder UK Mid Cap Fund plc Annual Report Pt3 06/12/2022 09:53 Page 36 ## Independent Auditor’s Report to the ## Members of Schroder UK Mid Cap Fund Plc ### 1. Our opinion is unmodified We have audited the financial statements of Schroder UK Mid Cap Fund Plc (“the Company”) for the year ended 30 September 2022 which comprise the Income Statement, Statement of Changes in Equity, Statement of Financial Position and the related notes, including the accounting policies in note 1. In our opinion the financial statements: – give a true and fair view of the state of the Company’s affairs as at 30 September 2022 and of its return for the year then ended; – have been properly prepared in accordance with UK accounting standards, including FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland; 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 are described below. We believe that the audit evidence we have obtained is a sufficient and appropriate basis for our opinion. Our audit opinion is consistent with our report to the audit committee. We were first appointed as auditor by the Directors on 21 June 2017. The period of total uninterrupted engagement is for the six financial years ended 30 September 2022. We have fulfilled our ethical responsibilities under, and we remain independent of the Company in accordance with, UK ethical requirements including the FRC Ethical Standard as applied to listed public interest entities. No non-audit services prohibited by that standard were provided. ### 2. Key audit matters: our assessment of risks of material misstatement Key audit matters are those matters that, in our professional judgement, were of most significance in the audit of the financial statements and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by us, including 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. We summarise below the key audit matter (unchanged from 2021), in arriving at our audit opinion above, together with our key audit procedures to address this matter and, as required for public interest entities, our results from those procedures. This matter was addressed, and our results are based on procedures undertaken, in the context of, and solely for the purpose of, our audit of the financial statements as a whole, and in forming our opinion thereon, and consequently are incidental to that opinion, and we do not provide a separate opinion on this matter. The risk Our response Carrying amount of Low risk, high value We performed the detailed tests below quoted investments rather than seeking to rely on the The Company’s portfolio of quoted Company’s controls, because the nature of (£207.3m; 2021: £300.1m) investments makes up 97.4% (2021: 98.4%) the balance is such that we would expect to of the Company’s total assets (by value) and Refer to page 28 (Audit obtain audit evidence primarily through the is one of the key drivers of results. We do Committee Report), page 44 detailed procedures described below. not consider these investments to be at a (accounting policy) and high risk of significant misstatement, or to Our procedures included: page 48 (financial be subject to a significant level of judgement disclosures). | because they comprise liquid, quoted | – Tests of detail: Agreeing the valuation | | | --- | --- | --- | | investments. However, due to their | | of 100% of the quoted investments in | | materiality in the context of the financial | | the portfolio to externally quoted prices; | | statements as a whole, they are considered | | and | to be one of the areas which had the | greatest effect on our overall audit strategy | – Enquiry of Depositary: Agreeing 100% | | | --- | --- | --- | | and allocation of resources in planning and | | of quoted investment holdings in the | | completing our audit. | | portfolio to independently received third | party confirmations from the investment depository. Our results: We found the carrying amount of quoted investments to be acceptable (2021: acceptable). Schroder UK Mid Cap Fund plc 36 # Independent Auditor's Report to the Members of Schroder UK Mid Cap Fund Plc ## 3. Our application of materiality and an overview of the scope of our audit Materiality for the financial statements as a whole was set at £2.13m (2021: £3.05m), determined with reference to a benchmark of total assets, of which it represents 1% (2021: 1%). In line with our audit methodology, our procedures on individual account balances and disclosures were performed to a lower threshold, performance materiality, so as to reduce to an acceptable level the risk that individually immaterial misstatements in individual account balances add up to a material amount across the financial statements as a whole. Performance materiality was set at 75% (2021: 75%) of materiality for the financial statements as a whole, which equates to £1.59m (2021: £2.29m). We applied this percentage in our determination of performance materiality because we did not identify any factors indicating an elevated level of risk. In addition, we applied materiality of £390k (2021: £266k) and performance materiality of £292k (2021: £199k) to income (as disclosed in Note 3), for which we believe misstatements of lesser amounts than materiality for the financial statements as a whole could reasonably be expected to influence the Company's members' assessment of the financial performance of the Company. We agreed to report to the Audit Committee any corrected or uncorrected identified misstatements exceeding £106k (2021: £152k), or £39k in relation to income (2021: £26k) in addition to other identified misstatements that warranted reporting on qualitative grounds. Our audit of the Company was undertaken to the materiality level specified above and was performed by a single audit team. The scope of the audit work performed was fully substantive as we did not rely upon the Company's internal control over financial reporting. ## 4. Going Concern The directors have prepared the financial statements on the going concern basis as they do not intend to liquidate the Company or to cease its operations, and as they have concluded that the Company's financial position means that this is realistic. They have also concluded that there are no material uncertainties that could have cast significant doubt over its ability to continue as a going concern for at least a year from the date of approval of the financial statements ("the going concern period"). We used our knowledge of the Company, its industry, and the general economic environment to identify the inherent risks to its business model and analysed how those risks might affect the Company's financial resources or ability to continue operations over the going concern period. The risks that we considered most likely to adversely affect the Company's available financial resources and its ability to operate over this period were: - The impact of a significant reduction in the valuation of investments and the implications for the Company's debt covenants; - The liquidity of the investment portfolio and its ability to meet the liabilities of the Company as and when they fall due; and - The operational resilience of key service organisations. We considered whether these risks could plausibly affect the liquidity or covenant compliance in the going concern period by assessing the degree of downside assumption that, individually and collectively, could result in a liquidity issue, taking into account the Company's current and projected cash and liquid investment position. We considered whether the going concern disclosure in Note 1 to the financial statements gives a full and accurate description of the directors' assessment of going concern, including the identified risks and related sensitivities. Our conclusions based on this work: - we consider that the directors' use of the going concern basis of accounting in the preparation of the financial statements is appropriate; - we have not identified, and concur with the directors' assessment that there is not, a material uncertainty related 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 going concern period; - we have nothing material to add or draw attention to in relation to the directors' statement in Note 1 to the financial statements on the use of the going concern basis of accounting with no material uncertainties that may cast significant doubt over the Company's use of that basis for the going concern period, and we found the going concern disclosure in Note 1 to be acceptable; and - the related statement under the Listing Rules set out on page 21 is materially consistent with the financial statements and our audit knowledge. Annual Report and Accounts for the year ended 30 September 2022 37 Financial 176289 Schroder UK Mid Cap Fund plc Annual Report Pt3_176289 Schroder UK Mid Cap Fund plc Annual Report Pt3 06/12/2022 09:53 Page 38 ## Independent Auditor’s Report to the ## Members of Schroder UK Mid Cap Fund Plc However, as we cannot predict all future events or conditions and as subsequent events may result in outcomes that are inconsistent with judgements that were reasonable at the time they were made, the above conclusions are not a guarantee that the Company will continue in operation. ### 5. Fraud and breaches of laws and regulations – ability to detect To identify risks of material misstatement due to fraud (“fraud risks”) we assessed events or conditions that could indicate an incentive or pressure to commit fraud or provide an opportunity to commit fraud. Our risk assessment procedures included: – Enquiring of directors as to the Company’s high-level policies and procedures to prevent and detect fraud, as well as whether they have knowledge of any actual, suspected or alleged fraud; – Assessing the segregation of duties in place between the directors, the administrator and the Company’s Manager; and – Reading Board and Audit and Risk Committee minutes. As required by auditing standards, we perform procedures to address the risk of management override of controls, in particular to the risk that management may be in a position to make inappropriate accounting entries. We evaluated the design and implementation of the controls over journal entries and other adjustments and made inquiries of the administrator about inappropriate or unusual activity relating to the processing of journal entries and other adjustments. Based on the results of our risk assessment procedures and understanding of the process, including the segregation of the duties between the directors and the administrator, no high-risk journal entries or other adjustments were identified. On this audit we do not believe there is a fraud risk related to revenue recognition because the revenue is non-judgemental and straightforward, with limited opportunity for manipulation. We did not identify any significant unusual transactions or additional fraud risks. Identifying and responding to risks of material misstatement due to non-compliance with laws and regulations We identified areas of laws and regulations that could reasonably be expected to have a material effect on the financial statements from our general commercial and sector experience and through discussion with the directors, the manager and the administrator (as required by auditing standards) and discussed with the directors the policies and procedures regarding compliance with laws and regulations. As the Company is regulated, our assessment of risks involved gaining an understanding of the control environment including the entity’s procedures for complying with regulatory requirements. The potential effect of these laws and regulations on the financial statements varies considerably. Firstly, the Company is subject to laws and regulations that directly affect the financial statements including financial reporting legislation (including related companies legislation), distributable profits legislation, and its qualification as an Investment Trust under UK taxation legislation, any breach of which could lead to the Company losing various deductions and exemptions from UK corporation tax, and we assessed the extent of compliance with these laws and regulations as part of our procedures on the related financial statement items. We assessed the legality of the distributions made by the Company in the period based on comparing the dividends paid to the distributable reserves prior to each distribution. Secondly, the Company is subject to many other laws and regulations where the consequences of non-compliance could have a material effect on amounts or disclosures in the financial statements, for instance through the imposition of fines or litigation. We identified the following areas as those most likely to have such an effect: money laundering, data protection, bribery and corruption legislation and certain aspects of company legislation recognising the financial and regulated nature of the Company’s activities and its legal form. Auditing standards limit the required audit procedures to identify non-compliance with these laws and regulations to enquiry of the directors and the administrator and inspection of regulatory and legal correspondence, if any. Therefore, if a breach of operational regulations is not disclosed to us or evident from relevant correspondence, an audit will not detect that breach. Context of the ability of the audit to detect fraud or breaches of law or regulation Owing to the inherent limitations of an audit, there is an unavoidable risk that we may not have detected some material misstatements in the financial statements, even though we have properly planned and performed our audit in accordance with auditing standards. For example, the further removed non-compliance with laws and regulations is from the events and transactions reflected in the financial statements, the less likely the inherently limited procedures required by auditing standards would identify it. In addition, as with any audit, there remained a higher risk of non-detection of fraud, as these may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal controls. Our audit procedures are designed to detect material misstatement. We are not responsible for preventing non-compliance or fraud and cannot be expected to detect non-compliance with all laws and regulations. Schroder UK Mid Cap Fund plc 38 176289 Schroder UK Mid Cap Fund plc Annual Report Pt3_176289 Schroder UK Mid Cap Fund plc Annual Report Pt3 06/12/2022 09:53 Page 39 ## Independent Auditor’s Report to the ## Members of Schroder UK Mid Cap Fund Plc ### 6. We have nothing to report on the other information in the Annual Report The directors are responsible for the other information presented in the Annual Report together with the financial statements. Our opinion on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion or, except as explicitly stated below, any form of assurance conclusion thereon. Our responsibility is to read the other information and, in doing so, consider whether, based on our financial statements audit work, the information therein is materially misstated or inconsistent with the financial statements or our audit knowledge. Based solely on that work we have not identified material misstatements in the other information. Strategic report and Directors’ report Based solely on our work on the other information: – we have not identified material misstatements in the strategic report and the Directors’ report; – in our opinion the information given in those reports for the financial year is consistent with the financial statements; and – in our opinion those reports have been prepared in accordance with the Companies Act 2006. Directors’ remuneration report In our opinion the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006. Disclosures of emerging and principal risks and longer-term viability We are required to perform procedures to identify whether there is a material inconsistency between the directors’ disclosures in respect of emerging and principal risks and the viability statement, and the financial statements and our audit knowledge. Based on the knowledge we acquired during our financial statements audit, we have nothing material to add or draw attention to in relation to: – the directors’ confirmation within the viability statement on page 21 that they have carried out a robust assessment of the emerging and principal risks facing the Company, including those that would threaten its business model, future performance, solvency and liquidity; – the principal risk and uncertainties disclosures describing these risks and how emerging risks are identified, and explaining how they are being managed and mitigated; and – the directors’ explanation in the viability statement of how they have assessed the prospects of the Company, over what period they have done so and why they considered that period to be appropriate, and their statement as to whether they have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions. We are also required to review the viability statement, set out on page 21 under the Listing Rules. Based on the above Financial procedures, we have concluded that the above disclosures are materially consistent with the financial statements and our audit knowledge. Our work is limited to assessing these matters in the context of only the knowledge acquired during our financial statements audit. As we cannot predict all future events or conditions and as subsequent events may result in outcomes that are inconsistent with judgements that were reasonable at the time they were made, the absence of anything to report on these statements is not a guarantee as to the Company’s longer-term viability. Corporate governance disclosures We are required to perform procedures to identify whether there is a material inconsistency between the directors’ corporate governance disclosures and the financial statements and our audit knowledge. Based on those procedures, we have concluded that each of the following is materially consistent with the financial statements and our audit knowledge: – the directors’ statement that they consider that the annual report and financial statements taken as a whole is fair, balanced and understandable, and provides the information necessary for shareholders to assess the Company’s position and performance, business model and strategy; – the section of the annual report describing the work of the audit and risk committee, including the significant issues that the audit and risk committee considered in relation to the financial statements, and how these issues were addressed; and Annual Report and Accounts 39 for the year ended 30 September 2022 176289 Schroder UK Mid Cap Fund plc Annual Report Pt3_176289 Schroder UK Mid Cap Fund plc Annual Report Pt3 06/12/2022 09:53 Page 40 ## Independent Auditor’s Report to the ## Members of Schroder UK Mid Cap Fund Plc – the section of the annual report that describes the review of the effectiveness of the Company’s risk management and internal control systems. We are required to review the part of Corporate Governance Statement relating to the Company’s compliance with the provisions of the UK Corporate Governance Code specified by the Listing Rules for our review. We have nothing to report in this respect. ### 7. We have nothing to report on the other matters on which we are required to ### report by exception Under the Companies Act 2006, we are required 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. We have nothing to report in these respects. ### 8. Respective responsibilities Directors’ responsibilities As explained more fully in their statement set out on page 35, the directors are responsible for: the preparation of the financial statements including being satisfied that they give a true and fair view; such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error; 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 they either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities 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 our opinion in an auditor’s report. Reasonable assurance is a high level of assurance, but does not 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 aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements. A fuller description of our responsibilities is provided on the FRC’s website at: www.frc.org.uk/auditorsresponsibilities. ### 9. The purpose of our audit work and to whom we owe our responsibilities 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. Gary Fensom (Senior Statutory Auditor) for and on behalf of KPMG LLP, Statutory Auditor Chartered Accountants Saltire Court 20 Castle Terrace Edinburgh EH1 2EG 5 December 2022 Schroder UK Mid Cap Fund plc 40 # Income Statement for the year ended 30 September 2022 | | Note | Revenue £'000 | 2022 Capital £'000 | Total £'000 | Revenue £'000 | 2021 Capital £'000 | Total £'000 | | --- | --- | --- | --- | --- | --- | --- | --- | | (Losses)/gains on investments held at fair value through profit or loss | 2 | - | (88,419) | (88,419) | - | 78,136 | 78,136 | | Income from investments | 3 | 8,958 | 88 | 9,046 | 6,453 | 736 | 7,189 | | Other interest receivable and similar income | 3 | 10 | - | 10 | - | - | - | | **Gross return/(loss)** | | **8,968** | **(88,331)** | **(79,363)** | **6,453** | **78,872** | **85,325** | | Investment management fee | 4 | (487) | (1,136) | (1,623) | (521) | (1,215) | (1,736) | | Administrative expenses | 5 | (542) | - | (542) | (494) | - | (494) | | **Net return/(loss) before finance costs and taxation** | | **7,939** | **(89,467)** | **(81,528)** | **5,438** | **77,657** | **83,095** | | Finance costs | 6 | (116) | (271) | (387) | (116) | (270) | (386) | | **Net return/(loss) before taxation** | | **7,823** | **(89,738)** | **(81,915)** | **5,322** | **77,387** | **82,709** | | Taxation | 7 | - | - | - | - | - | - | | **Net return/(loss) after taxation** | | **7,823** | **(89,738)** | **(81,915)** | **5,322** | **77,387** | **82,709** | | **Return/(loss) per share** | 9 | **22.43p** | **(257.32)p** | **(234.89)p** | **15.18p** | **220.69p** | **235.87p** | 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/(loss) after taxation is also the total comprehensive income/(loss) 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 44 to 55 form an integral part of these accounts. Financial Annual Report and Accounts for the year ended 30 September 2022 41 # Statement of Changes in Equity for the year ended 30 September 2022 | | Note | Called-up share capital £'000 | Share redemption premium £'000 | Capital reserves £'000 | Merger reserve £'000 | Share purchase reserve £'000 | Capital reserves £'000 | Revenue reserve £'000 | Total £'000 | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | At 30 September 2020 | | 9,036 | 13,971 | 220 | 2,184 | 9,908 | 157,980 | 6,225 | 199,524 | | Net return after taxation | | - | - | - | - | - | 77,387 | 5,322 | 82,709 | | Dividends paid in the year | 8 | - | - | - | - | - | - | (4,664) | (4,664) | | At 30 September 2021 | | 9,036 | 13,971 | 220 | 2,184 | 9,908 | 235,367 | 6,883 | 277,569 | | Repurchase of the Company's own shares into treasury | | - | - | - | - | (2,675) | - | - | (2,675) | | Net (loss)/return after taxation | | - | - | - | - | - | (89,738) | 7,823 | (81,915) | | Dividends paid in the year | 8 | - | - | - | - | - | - | (5,586) | (5,586) | | **At 30 September 2022** | | **9,036** | **13,971** | **220** | **2,184** | **7,233** | **145,629** | **9,120** | **187,393** | The notes on pages 44 to 55 form an integral part of these accounts. 42 Schroder UK Mid Cap Fund plc 176289 Schroder UK Mid Cap Fund plc Annual Report Pt3_176289 Schroder UK Mid Cap Fund plc Annual Report Pt3 06/12/2022 09:53 Page 43 ## Statement of Financial Position ## at 30 September 2022 2022 2021 Note £’000 £’000 Fixed assets Investments held at fair value through profit or loss 10 207,289 300,061 Current assets Debtors 11 853 1,389 Cash at bank and in hand 4,786 3,564 5,639 4,953 Current liabilities Creditors: amounts falling due within one year 12 (25,535) (2,445) Net current (liabilities)/assets (19,896) 2,508 Total assets less current liabilities 187,393 302,569 Creditors: amounts falling due after more than one year 13 – (25,000) Net assets 187,393 277,569 Capital and reserves Called-up share capital 14 9,036 9,036 | Share premium 15 | 13,971 13,971 | | | --- | --- | --- | | Capital redemption reserve 15 | | 220 220 | | Merger reserve 15 | 2,184 2,184 | | | Share purchase reserve 15 | 7,233 9,908 | | | Capital reserves 15 | 145,629 235,367 | | Revenue reserve 15 9,120 6,883 Total equity shareholders’ funds 187,393 277,569 Net asset value per share 16 541.89p 791.56p These accounts were approved and authorised for issue by the board of directors on 5 December 2022 and signed on its behalf by: Robert Talbut Chairman Financial The notes on pages 44 to 55 form an integral part of these accounts. Registered in Scotland as a public company limited by shares Company registration number: SC082551 Annual Report and Accounts 43 for the year ended 30 September 2022 176289 Schroder UK Mid Cap Fund plc Annual Report Pt3_176289 Schroder UK Mid Cap Fund plc Annual Report Pt3 06/12/2022 09:53 Page 44 ## Notes to the Accounts ### 1. Accounting Policies (a) Basis of accounting Schroder UK Mid Cap Fund plc (“the Company”) is registered in Scotland as a public company limited by shares. The Company’s registered office is 1 Exchange Crescent, Conference Square, Edinburgh EH3 8UL. 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 held at fair value through profit or loss. The directors believe that the Company has adequate resources to continue operating for at least 12 months from the date of approval of these accounts. In forming this opinion, the directors have taken into consideration: stress testing prepared by the Manager which modelled a 50% decline in valuation of investments and investment income and demonstrated the Company’s ability to comply with the covenants of its borrowing agreements and pay its operating expenses; the controls and monitoring processes in place; the Company’s 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. In forming this opinion, the directors have also considered any potential impact of the economic aftershocks of the COVID-19 pandemic and climate change on the viability of the Company. The Company’s term loan expires on 28February 2023. If a new loan cannot be arranged with acceptable terms, the Board is satisfied that the Company has sufficient readily realisable assets to repay the loan. 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, including Emerging Risks heading on page 18. The Company has not presented a statement of cash flows, as it is not required for an investment fund whose investments are highly liquid, carried at market value and which presents a statement of changes in equity. 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 30September 2021. Other than the directors’ 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 business is investing in financial assets with a view to profiting from their total return in the form of income and capital growth. This portfolio of financial assets is managed and its performance evaluated on a fair value basis, in accordance with a documented investment objective and information is provided internally on that basis to the Company’s board of directors. Accordingly, upon initial recognition the investments are designated by the Company as “held at fair value through profit or loss”. They are included initially at fair value which is taken to be their cost, 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. Any investments that are unlisted or not actively traded would be valued using a variety of techniques to determine their fair value; any such valuations would be reviewed by both the AIFM’s fair value pricing committee and by the directors. 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. Increases and decreases in the valuation of investments held at the year end, are included in the Income Statement and in capital reserves within “Investment holding gains and losses”. (d) Income Dividends receivable 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. 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. Schroder UK Mid Cap Fund plc 44 176289 Schroder UK Mid Cap Fund plc Annual Report Pt3_176289 Schroder UK Mid Cap Fund plc Annual Report Pt3 06/12/2022 09:53 Page 45 ## Notes to the Accounts (e) Expenses All expenses are accounted for on an accruals basis. Expenses are allocated wholly to the revenue column of the Income Statement with the following exceptions: – The management fee is allocated 30% to revenue and 70% to capital in line with the board’s expected long-term split of revenue and capital return from the Company’s investment portfolio. – Expenses incidental to the purchase and sale of investments are written off to capital at the time of the transaction. 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 48. (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 and in accordance with FRS 102. Finance costs are allocated 30% to revenue and 70% 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. Debtors, outstanding settlements, other creditors and accruals 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 fair value and subsequently at amortised cost. They are recorded at the proceeds received net of direct issue costs. (h) Taxation Taxation comprises amounts expected to be received or paid. Deferred tax is provided on all timing differences that have originated but not reversed by the balance sheet 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. Tax relief is allocated to expenses charged to the capital column of the Income Statement on the “marginal basis”. On this basis, if taxable income is capable of being entirely offset by revenue expenses, then no tax relief is transferred to the capital column. 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. Financial (i) Value added tax (“VAT”) Expenses are disclosed inclusive of the related irrecoverable VAT. (j) Dividends payable In accordance with FRS 102, the final dividend is included in the accounts in the year in which it is approved by shareholders. (k) Repurchases of shares into treasury and subsequent reissues The cost of repurchasing shares into treasury, including the related stamp duty and transaction costs is dealt with in the Statement of Changes in Equity and charged to “Share purchase reserve”. Share repurchase transactions are accounted for on a trade date basis. The sales proceeds of treasury shares reissued are treated as a realised profit up to the amount of the purchase price of those shares and is transferred to capital reserves. The excess of the sales proceeds over the purchase price is transferred to “share premium”. Annual Report and Accounts 45 for the year ended 30 September 2022 # Notes to the Accounts ## 2. (Losses)/gains on investments held at fair value through profit or loss | | 2022 £'000 | 2021 £'000 | | --- | --- | --- | | Gains on sales of investments based on historic cost | 17,274 | 5,867 | | Amounts recognised in investment holding gains and losses in the previous year in respect of investments sold in the year | (12,932) | (8,897) | | Gains/(losses) on sales of investments based on the carrying value at the previous balance sheet date | 4,342 | (3,030) | | Net movement in investment holding gains and losses | (92,761) | 81,166 | | **(Losses)/gains on investments held at fair value through profit or loss** | **(88,419)** | **78,136** | ## 3. Income | Revenue: | 2022 £'000 | 2021 £'000 | | --- | --- | --- | | **Income from investments:** | | | | UK dividends | 8,533 | 6,125 | | UK property income distributions | 388 | 328 | | Stock dividends | 37 | – | | | **8,958** | **6,453** | | Other interest receivable and similar income: | | | | Deposit interest | 10 | – | | | **8,968** | **6,453** | | **Capital:** | | | | Special dividends allocated to capital | 88 | 736 | ## 4. Investment management fee | | Revenue £'000 | 2022 Capital £'000 | Total £'000 | Revenue £'000 | 2021 Capital £'000 | Total £'000 | | --- | --- | --- | --- | --- | --- | --- | | Management fee | 487 | 1,136 | 1,623 | 521 | 1,215 | 1,736 | The bases for calculating the investment management fee and performance fee are set out in the Directors' Report on page 24 and details of all amounts payable to the Manager are given in note 17 on page 51. ## 5. Administrative expenses | | 2022 £'000 | 2021 £'000 | | --- | --- | --- | | Other administrative expenses | 213 | 189 | | Secretarial fee | 144 | 137 | | Directors' fees | 134 | 126 | | Auditor's remuneration for audit services^{1} | 51 | 42 | | | **542** | **494** | $^{1}$Includes £9,000 (2021: £7,000) irrecoverable VAT. 46 Schroder UK Mid Cap Fund plc # Notes to the Accounts ## 6. Finance costs | | Revenue £'000 | 2022 Capital £'000 | Total £'000 | Revenue £'000 | 2021 Capital £'000 | Total £'000 | | --- | --- | --- | --- | --- | --- | --- | | Interest on bank loans and overdrafts | 116 | 271 | 387 | 116 | 270 | 386 | ## 7. Taxation ### (a) Analysis of charge in the year: | | 2022 £'000 | 2021 £'000 | | --- | --- | --- | | Taxation for the year | - | - | ### (b) Factors affecting tax charge for the year The tax assessed for the year is higher (2021: lower) than the Company's applicable rate of corporation tax in for the year of 19.0% (2021: 19.0%). The factors affecting the current tax charge for the year are as follows: | | Revenue £'000 | 2022 Capital £'000 | Total £'000 | Revenue £'000 | 2021 Capital £'000 | Total £'000 | | --- | --- | --- | --- | --- | --- | --- | | Net return/(loss) on ordinary activities before taxation | 7,823 | (89,738) | (81,915) | 5,322 | 77,387 | 82,709 | | Net return/(loss) on ordinary activities before taxation multiplied by the Company's applicable rate of corporation tax for the year of 19.0% (2021: 19.0%) | 1,486 | (17,050) | (15,564) | 1,011 | 14,704 | 15,715 | | Effects of: | | | | | | | | Capital returns on investments | - | 16,800 | 16,800 | - | (14,846) | (14,846) | | Income not chargeable to corporation tax | (1,628) | (17) | (1,645) | (1,164) | (140) | (1,304) | | Unrelieved expenses | 142 | 267 | 409 | 153 | 282 | 435 | | Taxation for the year | - | - | - | - | - | - | ### (c) Deferred taxation The Company has an unrecognised deferred tax asset of £9,357,000 (2021: £8,818,000) based on a prospective corporation tax rate of 25.0% (2021: 25%). In its 2021 budget, the UK government announced that the main rate of corporation tax would increase to 25% for the fiscal year beginning on 1 April 2023. 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 intention to meet the conditions required to retain its 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 ### (a) Dividends paid and declared | | 2022 £'000 | 2021 £'000 | | --- | --- | --- | | 2021 final dividend of 11.0p (2020: 9.5p) paid out of revenue profits | 3,857 | 3,331 | | Interim dividend of 5.0p (2021: 3.8) paid out of revenue profits | 1,729 | 1,333 | | Total dividends paid in the year | 5,586 | 4,664 | Financial Annual Report and Accounts for the year ended 30 September 2022 47 # Notes to the Accounts | | 2022 £'000 | 2021 £'000 | | --- | --- | --- | | 2022 final dividend declared of 14.0p (2021: 11.0p) to be paid out of revenue profits | 4,841 | 3,857 | ## (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 £7,823,000 (2021: £5,322,000). | | 2022 £'000 | 2021 £'000 | | --- | --- | --- | | Interim dividend of 5.0p (2021: 3.8p) | 1,729 | 1,333 | | Final dividend of 14.0p (2021: 11.0p) | 4,841 | 3,857 | | | 6,570 | 5,190 | ## 9. Return/(loss) per share | | 2022 £'000 | 2021 £'000 | | --- | --- | --- | | Revenue return | 7,823 | 5,322 | | Capital (loss)/return | (89,738) | 77,387 | | Total (loss)/return | (81,915) | 82,709 | | Weighted average number of shares in issue during the year | 34,874,738 | 35,066,190 | | Revenue return per share | 22.43p | 15.18p | | Capital (loss)/return per share | (257.32)p | 220.69p | | Total (loss)/return per share | (234.89)p | 235.87p | ## 10. Investments held at fair value through profit or loss | | 2022 £'000 | 2021 £'000 | | --- | --- | --- | | Opening book cost | 210,126 | 192,495 | | Opening investment holding gains | 89,935 | 17,666 | | Opening fair value | 300,061 | 210,161 | | **Analysis of transactions made during the year** | | | | Purchases at cost | 50,360 | 71,850 | | Sales proceeds | (54,713) | (60,086) | | (Losses)/gains on investments held at fair value | (88,419) | 78,136 | | Closing fair value | 207,289 | 300,061 | | Closing book cost | 223,047 | 210,126 | | Closing investment holding (losses)/gains | (15,758) | 89,935 | | Closing fair value | 207,289 | 300,061 | Sales proceeds amounting to £54,713,000 (2021: £60,086,000) were receivable from disposals of investments in the year. The book cost of these investments when they were purchased was £37,439,000 (2021: £54,219,000). These investments have been revalued over time and until they were sold any unrealised gains and losses were included in the fair value of the investments. All investments are listed on a recognised stock exchange. 48 Schroder UK Mid Cap Fund plc # Notes to the Accounts The following transaction costs, comprising stamp duty and brokerage commission were incurred during the year: | | 2022 £'000 | 2021 £'000 | | --- | --- | --- | | On acquisitions | 226 | 335 | | On disposals | 28 | 30 | | | **254** | **365** | ## 11. Debtors | | 2022 £'000 | 2021 £'000 | | --- | --- | --- | | Securities sold awaiting settlement | 45 | 236 | | Dividends and interest receivable | 793 | 1,143 | | Other debtors | 15 | 10 | | | **853** | **1,389** | The directors consider that the carrying amount of debtors approximates to their fair value. ## 12. Creditors: amounts falling due within one year | | 2022 £'000 | 2021 £'000 | | --- | --- | --- | | Bank loan | 25,000 | – | | Securities purchased awaiting settlement | – | 1,783 | | Other creditors and accruals | 535 | 662 | | | **25,535** | **2,445** | The bank loan comprises a £25 million three-year term loan from Scotiabank Europe plc, expiring on 28 February 2023, carrying a fixed rate of interest of 1.546% per annum. The loan is unsecured but is subject to the usual undertakings and restrictions for a loan of this nature, and all of which have been complied with. The directors consider that the carrying amount of the loan approximates to its fair value. The directors consider that the carrying amount of creditors falling due within one year approximates to their fair value. ## 13. Creditors: amounts falling due after more than one year | | 2022 £'000 | 2021 £'000 | | --- | --- | --- | | Bank loan | – | 25,000 | The bank loan is now included in note 12 above, as it falls due within one year of the accounting date. ## 14. Called-up share capital | | 2022 £'000 | 2021 £'000 | | --- | --- | --- | | Allotted, called-up and fully paid: | | | | Ordinary shares of 25p each: | | | | Opening balance of 35,066,190 (2021: same) shares, excluding shares held in treasury | 8,766 | 8,766 | | Repurchase of 485,000 (2021: nil) shares into treasury | (121) | – | | Subtotal of 34,581,190 (2021: 35,066,190) shares | 8,645 | 8,766 | | 1,562,500 (2021: 1,077,500) shares held in treasury | 391 | 270 | | Closing balance^{1} | **9,036** | **9,036** | $^{1}$Represents 36,143,690 (2021: 36,143,690) shares of 25p each, including 1,562,500 (2021: 1,077,500,500) shares held in treasury. During the year, the Company purchased 485,000 of its own shares, nominal value £121,250 to hold in treasury for a total consideration of £2,675,000, representing 1.4% of the shares outstanding at the beginning of the year, excluding shares held in treasury. The reason for these share repurchases was to seek to manage the volatility of the share price discount to net asset value per share. Annual Report and Accounts for the year ended 30 September 2022 49 Financial # Notes to the Accounts ## 15. Reserves ### Year ended 30 September 2022 | | Share premium^{1} £'000 | Capital redemption reserve^{1} £'000 | Merger reserve^{1} £'000 | Share purchase reserve^{1} £'000 | Capital reserves Gains and losses on sales of investments^{2} £'000 | Investment holding gains and losses^{3} £'000 | Revenue reserve^{4} £'000 | | --- | --- | --- | --- | --- | --- | --- | --- | | Opening balance | 13,971 | 220 | 2,184 | 9,908 | 145,432 | 89,935 | 6,883 | | Gains on sales of investments based on the carrying value at the previous balance sheet date | - | - | - | - | 4,342 | - | - | | Net movement in investment holding gains and losses | - | - | - | - | - | (92,761) | - | | Transfer on disposal of investments | - | - | - | - | 12,932 | (12,932) | - | | Management fee allocated to capital | - | - | - | - | (1,136) | - | - | | Special dividend allocated to capital | - | - | - | - | 88 | - | - | | Finance costs allocated to capital | - | - | - | - | (271) | - | - | | Repurchase of shares into treasury | - | - | - | (2,675) | - | - | - | | Dividends paid | - | - | - | - | - | - | (5,586) | | Retained revenue for the year | - | - | - | - | - | - | 7,823 | | **Closing balance** | **13,971** | **220** | **2,184** | **7,233** | **161,387** | **(15,758)** | **9,120** | ### Year ended 30 September 2021 | | Share premium^{1} £'000 | Capital redemption reserve^{1} £'000 | Merger reserve^{1} £'000 | Share purchase reserve^{1} £'000 | Capital reserves Gains and losses on sales of investments^{2} £'000 | Investment holding gains and losses^{3} £'000 | Revenue reserve^{4} £'000 | | --- | --- | --- | --- | --- | --- | --- | --- | | Opening balance | 13,971 | 220 | 2,184 | 9,908 | 140,314 | 17,666 | 6,225 | | Losses on sales of investments based on the carrying value at the previous balance sheet date | - | - | - | - | (3,030) | - | - | | Net movement in investment holding gains and losses | - | - | - | - | - | 81,166 | - | | Transfer on disposal of investments | - | - | - | - | 8,897 | (8,897) | - | | Management fee allocated to capital | - | - | - | - | (1,215) | - | - | | Special dividend allocated to capital | - | - | - | - | 736 | - | - | | Finance costs allocated to capital | - | - | - | - | (270) | - | - | | Dividends paid | - | - | - | - | - | - | (4,664) | | Retained revenue for the year | - | - | - | - | - | - | 5,322 | | **Closing balance** | **13,971** | **220** | **2,184** | **9,908** | **145,432** | **89,935** | **6,883** | $^{1}$These reserves are not distributable. The "Merger reserve" represents the premium over the nominal value of shares issued following a merger in 1989. $^{2}$These are realised (distributable) capital reserves which may be used to repurchase the Company's own shares or distributed as dividends. The "Share purchase reserve" is for the purpose of financing share buy-backs and was created following the cancellation of the "Warrant reserve" in 2003. $^{3}$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 be distributed as dividends or used to repurchase the Company's own shares. 50 Schroder UK Mid Cap Fund plc # Notes to the Accounts ## 16. Net asset value per share | | 2022 | 2021 | | --- | --- | --- | | Net assets attributable to the Ordinary shareholders (£'000) | 187,393 | 277,569 | | Shares in issue at the year end, excluding shares held in treasury | 34,581,190 | 35,066,190 | | Net asset value per share | 541.89p | 791.56p | ## 17. Transactions with the Manager Under the terms of the AIFM Agreement, the Manager is entitled to receive a management fee and a company secretarial fee. Details of the basis of these calculations are given in the Directors' Report on page 24. 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 management fee calculation and therefore incur no fee. The management fee payable in respect of the year ended 30 September 2022 amounted to £1,623,000. (2021: £1,736,000) of which £340,000 (2021: £484,000) was outstanding at the year end. The secretarial fee payable for the year amounted to £144,000 (2021: £137,000) including VAT, of which £36,000 (2021: £34,000) 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. ## 18. Related party transactions Details of the remuneration payable to directors are given in the Remuneration Report on page 33 and details of directors' shareholdings are given in the Remuneration Report on page 34. Details of transactions with the Manager are given in note 17 above. There have been no other transactions with related parties during the year (2021: nil). ## 19. 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 that financial instruments held at fair value are categorised into a hierarchy consisting of the three levels below. A fair value measurement is categorised in its entirety on the basis of the lowest level input that is significant to the fair value measurement. Level 1: valued using unadjusted quoted prices in an active market for identical assets. Level 2: valued using inputs other than quoted prices included within Level 1, that are observable (ie developed using market data). Level 3: valued using inputs that are unobservable (ie for which market data is unavailable). Details of the Company's valuation policy are given in note 1(b) on page 44. At 30 September 2022, the Company's investments were all categorised in Level 1 (2021: same). ## 20. Financial instruments' exposure to risk and risk management policies The Company's investment objective is to invest in mid cap equities with the aim of providing a total return in excess of the FTSE 250 (ex-Investment Companies) Index. In pursuing this objective, 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 exposure to foreign exchange risk. 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 are as follows: - investments in shares which are held in accordance with the Company's investment objective; - short-term debtors, creditors and cash arising directly from its operations; and - a sterling term loan with Scotiabank, the purpose of which is to assist with financing the Company's operations. Annual Report and Accounts for the year ended 30 September 2022 51 Financial # Notes to the Accounts ## (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 any variable rate borrowings when interest rates are re-set. The Company's three-year term loan carries a fixed rate of interest and does not give rise to any interest rate risk. #### *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. #### *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: | | 2022 £'000 | 2021 £'000 | | --- | --- | --- | | Exposure to floating interest rates: | | | | Cash at bank and in hand | 4,786 | 3,564 | | Total exposure | 4,786 | 3,564 | Cash balances earn interest at a floating rate based on the Sterling Overnight Index Average (2021: LIBOR). The Company's revolving credit facility with Scotiabank Europe plc expires on 28 February 2023 and has a limit set at £25 million. The facility is unsecured but subject to covenants and restrictions which are customary for a facility of this nature. Interest is payable at a rate of LIBOR, or its replacement reference rate, as quoted in the market for the loan period, plus a margin, plus Mandatory Costs, which are the lender's costs of complying with certain regulatory requirements of the Bank of England. At 30 September 2022, the Company had drawn down the entire £25 million at an interest rate of 1.546%, repayable on 28 February 2023 (2021: same). The above year end amounts are not representative of the exposure to interest rates during the year due to fluctuations in the level of cash balances. The maximum and minimum exposure during the year was as follows: | | 2022 £'000 | 2021 £'000 | | --- | --- | --- | | Minimum interest rate exposure during the year – net debt | (13,365) | (8,496) | | Maximum interest rate exposure during the year – net debt | (22,681) | (21,436) | #### *Interest rate sensitivity* The following table illustrates the sensitivity of the return after taxation for the year and net assets to a 1.0% (2021: 1.0%) 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 accounting date with all other variables held constant. 52 Schroder UK Mid Cap Fund plc # Notes to the Accounts | | 2022 | | 2021 | | | --- | --- | --- | --- | --- | | | 1.0% increase in rate £'000 | 1.0% decrease in rate £'000 | 1.0% increase in rate £'000 | 1.0% decrease in rate £'000 | | Income statement – return after taxation | | | | | | Revenue return | 48 | (48) | 36 | (36) | | Capital return | – | – | – | – | | Total return after taxation | 48 | (48) | 36 | (36) | | Net assets | 48 | (48) | 36 | (36) | In the opinion of the directors, this sensitivity analysis may not be representative of the Company's future exposure to interest rate changes due to fluctuations in the level of cash balances and drawings on the credit facility. ## (ii) Other price risk Other 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 30 September comprises the following: | | 2022 £'000 | 2021 £'000 | | --- | --- | --- | | Investments held at fair value through profit or loss | 207,289 | 300,061 | 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 10. The Company's investments are all listed in the United Kingdom. Accordingly there is a concentration of exposure to this country. However it should be noted that an investment may not be entirely exposed to the economic conditions in its country of listing. ### 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% (2021: 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 its investments and includes the impact on the management fee, but assumes that all other variables are held constant. | | 2022 | | 2021 | | | --- | --- | --- | --- | --- | | | 20% increase in fair value £'000 | 20% decrease in fair value £'000 | 20% increase in fair value £'000 | 20% decrease in fair value £'000 | | Income statement – return after taxation | | | | | | Revenue return | (81) | 81 | (108) | 108 | | Capital return | 41,269 | (41,269) | 59,760 | (59,760) | | Total return after taxation and net assets | 41,188 | (41,188) | 59,652 | (59,652) | | Percentage change in net asset value | 22.0 | (22.0) | 21.5 | (21.5) | Financial Annual Report and Accounts for the year ended 30 September 2022 53 # Notes to the Accounts ## (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 the 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. ### Liquidity risk exposure Contractual maturities of financial liabilities, based on the earliest date on which payment can be required are as follows: | | 2022 | | 2021 | | | | --- | --- | --- | --- | --- | --- | | | Within one year £'000 | Total £'000 | Within one year £'000 | One to two years £'000 | Total £'000 | | **Creditors: amounts falling due within one year** | | | | | | | Securities purchased awaiting settlement | - | - | 1,783 | - | 1,783 | | Other creditors and accruals | 502 | 502 | 627 | - | 627 | | Other payables: drawings on the revolving credit facility (including interest) | 25,160 | - | - | - | - | | **Creditors: amounts falling due after more than one year** | | | | | | | Other payables: drawings on the revolving credit facility (including interest) | - | - | 422 | 25,155 | 25,577 | | | 25,662 | 502 | 2,832 | 25,155 | 27,987 | ## (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. 54 Schroder UK Mid Cap Fund plc # Notes to the Accounts ## 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. | | 2022 | | 2021 | | | --- | --- | --- | --- | --- | | | Balance sheet £'000 | Maximum exposure £'000 | Balance sheet £'000 | Maximum exposure £'000 | | Current assets | | | | | | Debtors – securities sold awaiting settlement, dividends and interest receivable and other debtors | 853 | 838 | 1,389 | 1,379 | | Cash at bank and in hand | 4,786 | 4,786 | 3,564 | 3,564 | | | **5,639** | **5,624** | 4,953 | 4,943 | 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 in the Statement of Financial Position at fair value or the amount is a reasonable approximation of fair value. ## 21. 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: | | 2022 £'000 | 2021 £'000 | | --- | --- | --- | | **Debt** | | | | Bank loan | 25,000 | 25,000 | | **Equity** | | | | Called-up share capital | 9,036 | 9,036 | | Reserves | 178,357 | 268,533 | | | **187,393** | 277,569 | | **Total debt and equity** | **212,393** | 302,569 | The Company's capital management objectives are to ensure that it will continue as a going concern and to maximise the capital 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. If the figure so calculated were to be negative, this would be shown as a "net cash" position. | | 2022 £'000 | 2021 £'000 | | --- | --- | --- | | Borrowings used for investment purposes, less cash | 20,214 | 21,436 | | Net assets | 187,393 | 277,569 | | Gearing | **10.8%** | 7.7% | 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 dividends to be paid, in excess of that which is required to be distributed. ## 22. Events after the end of the reporting period The market prices of the Company's investments have risen post the accounting date. As a result, the NAV per share was 639.3p and the share price was 553.0p as at close of business on 2 December 2022. This represents an increase of 18.0% and 15.2% in the NAV and share price respectively, versus that reported in the accounts. Annual Report and Accounts for the year ended 30 September 2022 55 Financial # Annual General Meeting – Recommendations The Annual General Meeting (“AGM”) of the Company will be held on Tuesday, 21 February 2023 at noon. The formal Notice of Meeting is set out on page 57. 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. ## Attendance at the meeting The meeting will be held at the Manager’s office at 1 London Wall Place, London, EC2Y 5AU. It will also be available to watch online and the details are set out below. Shareholders watching online will be able to submit questions in writing during the meeting. Any shareholders planning on attending the AGM will also be able to watch the Manager’s presentation. To sign up to watch the meeting and presentation, please click on this link https://schroders.zoom.us/webinar/register/WN_Zy1kUakRS_WRITD-sxsLsA. After registering, you will receive a confirmation email containing information about how to join. ## Ordinary business **Resolutions 1 to 10 are all ordinary resolutions.** Resolution 1 is a required resolution. Resolution 2 invites shareholders to approve the final dividend. Resolutions 3 and 4 concern the Directors’ Remuneration Policy and the Directors’ Remuneration Report, on pages 32 to 34. Resolutions 5 to 8 invite shareholders to re-elect each of the directors who have put themselves forward for re-election for another year, following the recommendations of the Nomination Committee, set out on pages 30 and 31 (their biographies are set out on pages 22 and 23). Resolutions 9 and 10 concern the re-appointment and remuneration of the Company’s auditor, discussed in the Audit and Risk Committee Report on pages 27 and 28. ## 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 preemption 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 £864,529.75 (being 10% of the issued share capital (excluding any shares held in treasury) 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 preemptive basis up to a maximum aggregate nominal amount of £864,529.75 (being 10% of the Company’s issued share capital (excluding any shares held in treasury) as at the date of the Notice of the AGM). This authority includes shares that the Company sells or transfers that have been held in treasury. The Board has established guidelines for treasury shares and will only reissue shares held in treasury at a price equal to or greater than the Company’s net asset value (inclusive of current year income) plus any applicable costs. 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 and when it would 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 9 February 2022, the Company was granted authority to make market purchases of up to 5,256,421 ordinary shares of 25p each for cancellation or holding in treasury. 485,000 shares have been bought back into treasury under this authority and the Company therefore has remaining authority to purchase up to 4,771,421 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 net asset value 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 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 for potential reissue. 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. ## 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 resolutions to be proposed at the forthcoming 56 Schroder UK Mid Cap Fund plc # Notice of Annual General Meeting Notice is hereby given that the Annual General Meeting of Schroder UK Mid Cap Fund plc will be held at 1 London Wall Place, London EC2Y 5AU at noon on Tuesday, 21 February 2023 to consider the following resolutions of which resolutions 1 to 11 will be proposed as ordinary resolutions and resolutions 12 and 13 will be proposed as special resolutions: 1. To receive the Report of the Directors and the audited accounts for the year ended 30 September 2022. 2. To approve a final dividend of 14.0 pence per share for the financial year ended 30 September 2022. 3. To approve the Directors' Remuneration Report for the year ended 30 September 2022. 4. To approve the Directors' Remuneration Policy. 5. To elect Helen Galbraith as a director of the Company. 6. To re-elect Wendy Colquhoun as a director of the Company. 7. To re-elect Andrew Page as a director of the Company. 8. To re-elect Robert Talbut as a director of the Company. 9. To re-appoint KPMG LLP as auditor to the Company. 10. To authorise the directors to determine the remuneration of KPMG LLP as auditor to the Company. 11. To consider, and if thought fit, pass the following resolution as an ordinary resolution: "THAT 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 £864,529.75 (being 10% of the issued ordinary share capital 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 resolution 11 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 £864,529.75 (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 Act to make market purchases (within the meaning of Section 693 of the Act) of ordinary shares of 25p each in the capital of the Company ("Shares") 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 5,417,939 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 25p, 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 for potential reissue." By order of the Board Schroder Investment Management Limited Company Secretary 5 December 2022 Registered Office: 1 Exchange Crescent, Conference Square, Edinburgh EH3 8UL Registered number: SC082551 Annual Report and Accounts for the year ended 30 September 2022 57 Annual General Meeting 176289 Schroder UK Mid Cap Fund plc Annual Report Pt4_176289 Schroder UK Mid Cap Fund plc Annual Report Pt4 06/12/2022 09:57 Page 58 ## Explanatory Notes to the Notice of Meeting 1. Ordinary shareholders are entitled to attend and vote at resolutions being put to the meeting electronically at the meeting and to appoint one or more proxies, who www.sharevote.co.uk. Shareholders who are not need not be a shareholder, as their proxy to exercise all registered to vote electronically, will need to enter the or any of their rights to attend, speak and vote on their Voting ID, Task ID & Shareholder Reference Number set behalf at the meeting. out in their personalised proxy form. Alternatively, shareholders who have already registered with Equiniti’s A proxy form is attached. If you wish to appoint a person Shareview service can appoint a proxy by logging onto other than the Chairman as your proxy, please insert the their portfolio at www.shareview.co.uk and clicking on name of your chosen proxy holder in the space provided the link to vote. The on-screen instructions give details at the top of the form. If the proxy is being appointed in on how to complete the appointment process. Please relation to less than your full voting entitlement, please note that to be valid, your proxy instructions must be enter in the box next to the proxy holder’s name the received by Equiniti no later than 12.00 noon on number of shares in relation to which they are 17February 2023. If you have any difficulties with online authorised to act as your proxy. If left blank your proxy voting, you should contact the shareholder helpline on will be deemed to be authorised in respect of your full 0800 032 0641 (or +44(0) 121 415 0207 for overseas voting entitlement (or if this proxy form has been issued callers). in respect of a designated account for a shareholder, the full voting entitlement for that designated account). If an ordinary shareholder submits more than one valid proxy appointment, the appointment received last Additional proxy forms can be obtained by contacting before the latest time for receipt of proxies will take the Company’s Registrars, Equiniti Limited, on 0800 032 precedence. 0641 or +44(0) 121 415 0207 for overseas callers, or you may photocopy the attached proxy form. Please indicate Shareholders may not use any electronic address in the box next to the proxy holder’s name the number provided either in this Notice of Annual General Meeting of shares in relation to which they are authorised to act or any related documents to communicate with the as your proxy. Please also indicate by ticking the box Company for any purposes other than expressly stated. provided if the proxy instruction is one of multiple Representatives of shareholders that are corporations instructions being given. Completion and return of a will have to produce evidence of their proper form of proxy will not preclude a member from appointment when attending the Annual General attending the Annual General Meeting and voting in Meeting. person. 2. Any person to whom this notice is sent who is a person On a vote by show of hands, every ordinary shareholder nominated under section 146 of the Companies Act 2006 who is present in person has one vote and every duly to enjoy information rights (a “Nominated Person”) may, appointed proxy who is present has one vote. On a poll under an agreement between him or her and the vote, every ordinary shareholder who is present in shareholder by whom he or she was nominated, have a person or by way of a proxy has one vote for every share right to be appointed (or to have someone else of which he/she is a holder. appointed) as a proxy for the Annual General Meeting. The “Vote Withheld” option on the proxy form is Ifa Nominated Person has no such proxy appointment provided to enable you to abstain on any particular right or does not wish to exercise it, he or she may, resolution. under any such agreement, have a right to give instructions to the shareholder as to the exercise of However it should be noted that a “Vote Withheld” is not voting rights. a vote in law and will not be counted in the calculation of the proportion of the votes “For” and “Against” a The statement of the rights of ordinary shareholders in resolution. relation to the appointment of proxies in note 1 above does not apply to Nominated Persons. The rights A proxy form must be signed and dated by the described in that note can only be exercised by ordinary shareholder or his or her attorney duly authorised in shareholders of the Company. writing. In the case of joint holdings, any one holder may sign this form. The vote of the senior joint holder who 3. Pursuant to Regulation 41 of the Uncertificated tenders a vote, whether in person or by proxy, will be Securities Regulations 2001, the Company has specified accepted to the exclusion of the votes of the other joint that only those shareholders registered in the Register holder and for this purpose seniority will be determined of members of the Company at 6.30 p.m. on 17 February by the order in which the names appear on the Register 2023, or 6.30 p.m. two days prior to the date of an of Members in respect of the joint holding. To be valid, adjourned meeting, excluding non-working days, shall proxy form(s) must be completed and returned to the be entitled to attend and vote at the meeting in respect Company’s Registrars, Equiniti Limited, Aspect House, of the number of shares registered in their name at that Spencer Road, Lancing, West Sussex BN99 6DA, in the time. Changes to the Register of Members after enclosed envelope together with any power of attorney 6.30p.m. on 17 February 2023 shall be disregarded in or other authority under which it is signed or a copy of determining the right of any person to attend and vote such authority certified notarially, to arrive no later than at the meeting. 48 hours before the time fixed for the meeting, or an 4. CREST members who wish to appoint a proxy or proxies adjourned meeting, excluding non-working days. through the CREST electronic proxy appointment service Shareholders may also appoint a proxy to vote on the Schroder UK Mid Cap Fund plc 58 # Explanatory Notes to the Notice of Meeting 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 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. 6. The biographies of the directors offering themselves for re-election are set out on pages 22 and 23 of the Company's annual report and accounts for the year ended 30 September 2022. 7. As at 5 December 2022, 36,143,690 ordinary shares of 25p each were in issue and 1,562,500 shares were held in treasury. Therefore the total number of voting rights of the Company as at 5 December 2022 was 34,581,190. 8. A copy of this Notice of Meeting, which includes details of shareholder voting rights, together with any other information as required under Section 311A of the Companies Act 2006, is available from the website dedicated to the Company: www.schroders.co.uk/ukmidcap. 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 AGM 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 auditors 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. Members satisfying the thresholds in section 338 of the Companies Act 2006 may require the Company to give, to members of the Company entitled to receive notice of the Annual General Meeting, notice of a resolution which those members intend to move (and which may properly be moved) at the Annual General Meeting. A resolution may properly be moved at the Annual General Meeting unless (i) it would, if passed, be ineffective (whether by reason of any inconsistency with any enactment or the Company's constitution or otherwise); (ii) it is defamatory of any person; or (iii) it is frivolous or vexatious. A request made pursuant to this right may be in hard copy or electronic form, must identify the resolution of which notice is to be given, must be authenticated by the person(s) making it and must be received by the Company not later than six weeks before the date of the Annual General Meeting. 12. Members satisfying the thresholds in section 338A of the Companies Act 2006 may request the Company to include in the business to be dealt with at the Annual General Meeting any matter (other than a proposed resolution) which may properly be included in the business at the Annual General Meeting. A matter may properly be included in the business at the Annual General Meeting unless (i) it is defamatory of any person or (ii) it is frivolous or vexatious. A request made pursuant to this right may be in hard copy or electronic form, must identify the matter to be included in the business, must be accompanied by a statement setting out the grounds for the request, must be authenticated by the person(s) making it and must be received by the Company not later than six weeks before the date of the Annual General Meeting. 13. The Company's privacy policy is available on its website. Shareholders can contact Equiniti for details of how Equiniti processes their personal information as part of the AGM. Annual General Meeting Annual Report and Accounts for the year ended 30 September 2022 59 176289 Schroder UK Mid Cap Fund plc Annual Report Pt4_176289 Schroder UK Mid Cap Fund plc Annual Report Pt4 06/12/2022 09:57 Page 60 ## Definitions of Terms and Alternative Performance ## Measures The terms and performance measures below are those The NAV total return for the year ended 30 September 2021 commonly used by investment companies to assess is calculated as follows: values, investment performance and operating costs. NAV at 30/9/20 568.99p Numerical calculations are given where relevant. Some NAV at 30/9/21 791.56p of the financial measures below are classified Alternative Performance Measures (“APMs”) as defined by the Nav on Cumulative European Securities and Markets Authority. Under this Dividend XD date XD date Factor factor definition, APMs include a financial measure of historical 9.5p 14/1/2021 656.71p 1.0144 1.0144 financial performance or financial position, other than a 3.8p 8/7/2021 764.31p 1.0050 1.0195 financial measure defined or specified in the applicable financial reporting framework. APMs have been marked NAV total return, being the closing NAV, with an asterisk. multiplied by the cumulative factor, expressed as a percentage change in the opening NAV +41.8% ### Net asset value (”NAV”) per share The share price total return for the year ended 30 September The NAV per share of 541.89p (2021: 791.56p) represents the 2020 is calculated as follows: net assets attributable to equity shareholders of Share price at 30/9/21 730.00p £187,393,000 (2021: £277,569,000) divided by the number of Share price at 30/9/22 480.00p shares in issue, excluding any shares held in treasury, of 34,581,190 (2021: 35,066,190). Share price Cumulative The change in the NAV amounted to -31.5% (2021: +39.1%) Dividend XD date on XD date Factor factor over the year. However this performance measure excludes 11.0p 13/1/2022 686.00p 1.0160 1.0160 the positive impact of dividends paid out by the Company 9.5p 14/7/2022 510.00p 1.0098 1.0260 during the year. When these dividends are factored into the calculation, the resulting performance measure is termed Share price total return, being the closing the “total return”. Total return calculations and definitions are share price, multiplied by the cumulative given below. factor, expressed as a percentage change in the opening share price -32.5% ### Total return* The share price total return for the year ended 30 September 2021 is calculated as follows: Total return is the combined effect of any dividends paid, together with the rise or fall in the NAV per share or share Share price at 30/9/20 458.50p price. Total return statistics enable the investor to make Share price at 30/9/21 730.00p performance comparisons between investment companies with different dividend policies. Any dividends received by a Share price Cumulative shareholder are assumed to have been reinvested in either Dividend XD date on XD date Factor factor the assets of the Company at its NAV per share at the time 9.5p 14/1/2021 608.00p 1.0156 1.0156 the shares were quoted ex-dividend (to calculate the NAV per 3.8p 8/7/2021 702.00p 1.0054 1.0211 share total return) or in additional shares of the Company (to calculate the share price total return). Share price total return, being the closing share price, multiplied by the cumulative The NAV total return for the year ended 30 September 2022 factor, expressed as a percentage change is calculated as follows: in the opening share price +62.6% NAV at 30/9/21 791.56p NAV at 30/9/22 541.89p ### Annualised total return* | | NAV on Cumulative | The annualised total return is the compound annual rate of | | --- | --- | --- | | Dividend XD date XD date Factor factor | | return which equates to the total return as calculated above, | | 11.0p 13/1/2022 764.79p 1.0144 1.0144 | | for a period of more than one year. | 5.0p 14/7/2022 612.27p 1.0082 1.0227 ### Benchmark NAV total return, being the closing NAV, multiplied by the cumulative factor, expressed A measure against which the performance of an investment as a percentage change in the opening NAV -30.0% company is compared, or against which it sets its objective. The Company’s benchmark is the FTSE 250 (ex-Investment Companies) Index. ### Discount/premium* The amount by which the share price of an investment trust is lower (discount) or higher (premium) than the NAV per share. If shares are trading at a discount, investors would be paying less than the value attributable to the shares by Schroder UK Mid Cap Fund plc 60 # Definitions of Terms and Alternative Performance Measures reference to the underlying assets. A premium or discount is generally the consequence of supply and demand for the shares on the stock market. The discount or premium is expressed as a percentage of the NAV per share. The discount at the year end amounted to 11.4% (2021: discount of 7.8%), as the closing share price at 480.00p (2021: 730.00p) was 11.4% (2021: 7.8%) lower than the closing NAV of 541.89p (2021: 791.56p). ## 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. If the figure so calculated is negative, this is shown as a "Net cash" position. The gearing figure at the year end is calculated as follows: | | 2022 £'000 | 2021 £'000 | | --- | --- | --- | | Borrowings used for investment purposes, less cash | 20,214 | 21,436 | | Net assets | 187,393 | 277,569 | | Gearing | 10.8% | 7.7% | ## 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 £2,165,000 (2021: £2,230,000), expressed as a percentage of the average daily net asset values during the year of £243,523,000 (2021: £247,871,000). ## 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. Annual Report and Accounts for the year ended 30 September 2022 61 Annual General Meeting 176289 Schroder UK Mid Cap Fund plc Annual Report Pt4_176289 Schroder UK Mid Cap Fund plc Annual Report Pt4 06/12/2022 09:57 Page 62 ## Notes Schroder UK Mid Cap Fund plc 62 176289 Schroder UK Mid Cap Fund plc Annual Report Pt4_176289 Schroder UK Mid Cap Fund plc Annual Report Pt4 06/12/2022 09:57 Page 63 ## Notes Annual Report and Accounts 63 for the year ended 30 September 2022 176289 Schroder UK Mid Cap Fund plc Annual Report Pt4_176289 Schroder UK Mid Cap Fund plc Annual Report Pt4 06/12/2022 09:57 Page 64 ## Notes Schroder UK Mid Cap Fund plc 64 176289 Schroder UK Mid Cap Fund plc Annual Report Pt4_176289 Schroder UK Mid Cap Fund plc Annual Report Pt4 06/12/2022 09:57 Page 65 ## Shareholder Information ### Website and share price information Alternative Investment Fund Managers ### The Company has a dedicated website, which may be found Directive (“AIFMD”) disclosures at www.schroders.co.uk/ukmidcap. The website has been ### (unaudited) designed to be utilised as the Company’s primary method of electronic communication with shareholders. It contains The AIFMD, as transposed into the FCA Handbook in the UK, details of the Company’s ordinary share price and copies of requires that certain pre-investment information be made annual report and accounts and other documents published available to investors in Alternative Investment Funds (such by the Company as well as information on the directors, as the Company) and also that certain regular and periodic terms of reference of committees and other governance disclosures are made. This information and these disclosures arrangements. In addition, the website contains links to may be found either below, elsewhere in this annual report, announcements made by the Company to the market, or in the Company’s AIFMD information disclosure document Equiniti’s shareview service and Schroders’ website. published on the Company’s website. The Company releases its NAV per share on both a cum and Leverage ex-income basis to the market on a daily basis. Leverage The Company’s leverage policy and details of its Share price information may also be found in the Financial leverage ratio calculation and exposure limits as required by Times and on the Company’s website. the AIFMD are published on the Company’s website and within this report. The Company is also required to The Manager publishes monthly and quarterly updates on periodically publish its actual leverage exposures. As at the Company and other Schroders investment trusts, which 30September 2022 these were: may be found under the “Documents” section on the website www.schroders.co.uk/ukmidcap. Leverage exposure Maximum ratio Actual ratio Gross Method 2.00 1.27 Commitment Method 2.00 1.10 ### Association of Investment Companies Illiquid assets The Company is a member of the Association of Investment Companies. Further information on the Association can be As at the date of this Report, none of the Company’s assets found on its website, www.theaic.co.uk. are subject to special arrangements arising from their illiquid nature. ### Individual Savings Account (“ISA”) status Remuneration disclosures Quantitative remuneration disclosures to be made in this The Company’s shares are eligible for stocks and shares ISAs. annual report in accordance with FCA Handbook rule FUND3.3.5 may also be found in the Company’s AIFM Directive information disclosure document published on the ### Non-Mainstream Pooled Investments Company’s website. ### status The Company currently conducts its affairs so that its shares Publication of Key Information Document (“KID”) can be recommended by IFAs to ordinary retail investors in by the AIFM accordance with the FCA’s rules in relation to Pursuant to the Packaged Retail and Insurance Based non-mainstream investment products and intends to Products (“PRIIPs”) Regulation, the Manager, as the continue to do so for the foreseeable future. The Company’s Company’s AIFM, is required to publish a short KID on the shares are excluded from the FCA’s restrictions which apply Company. KIDs are designed to provide certain prescribed to non-mainstream investment products because they are information to retail investors, including details of potential shares in an investment trust. returns under different performance scenarios and a risk/reward indicator. The Company’s KID is available on its website. ### Financial calendar Annual General Meeting February Final dividend paid February Half year results announced May/June Interim dividend paid June Financial year end 30 September Annual results announced December 176289 Schroder UK Mid Cap Fund plc Annual Report Pt4_176289 Schroder UK Mid Cap Fund plc Annual Report Pt4 06/12/2022 09:57 Page 66 ### www.schroders.co.uk/ukmidcap | Directors | Independent auditor | | --- | --- | | Robert Talbut (Chairman) | KPMG LLP | | Wendy Colquhoun | Saltire Court | | Helen Galbraith | 20 Castle Terrace | | Andrew Page | Edinburgh | EH1 2EG Registrar ### Advisers Equiniti Limited | Alternative Investment Fund Manager | Aspect House | | | --- | --- | --- | | (the “Manager”) | Spencer Road | | | Schroder Unit Trusts Limited | Lancing | | | 1 London Wall Place | West Sussex BN99 6DA | | | London EC2Y 5AU | Shareholder Helpline: 0800 032 0641* | | | | Website: | www.shareview.co.uk | Investment Manager and Company Secretary *Calls to this number are free of charge from UK landlines. Schroder Investment Management Limited 1 London Wall Place Communications with shareholders are mailed to the address held on the register. Any notifications and enquiries London EC2Y 5AU relating to shareholdings, including a change of address or Telephone: 020 7658 6596 other amendment should be directed to Equiniti Limited at Registered Office the address above. 1 Exchange Crescent Lawyers Conference Square Shepherd and Wedderburn Edinburgh EH3 8UL 1 Exchange Crescent Depositary and Custodian Edinburgh EH3 8UL HSBC Bank plc Shareholder enquiries 8 Canada Square General enquiries about the Company should be addressed London E14 5HQ to the Company Secretary at the address set out above. Lending Bank Dealing Codes | Scotiabank Europe plc | ISIN: GB0006108418 | | --- | --- | | 201 Bishopsgate | SEDOL: 0610841 | | 6th Floor | Ticker: SCP | London EC2M 3NS Global Intermediary Identification Number (GIIN) Corporate Broker 9GN3DU.99999.SL.826 Panmure Gordon & Co Legal Entity Identifier (LEI) 1 New Change 549300SOEWCYZTK2SP87 London EC4M 9AF The Company’s privacy notice is available on its website.