Annual Financial Report

Invesco Perpetual UK Smaller Companies Investment Trust plc Annual Financial Report Announcement for the year ended 31 January 2010 FINANCIAL INFORMATION AND PERFORMANCE STATISTICS The Benchmark Index of the Company is the Extended Hoare Govett Smaller Companies Index (excluding Investment Trusts) AT AT 31 JANUARY 31 JANUARY % 2010 2009 CHANGE Total return (all income reinvested): Net asset value(1)(2)(3) +40.1 Benchmark(1)(3) +62.8 FTSE All-Share Index(3) +33.2 Net asset value per ordinary share: - balance sheet 193.7p 144.7p +33.8 - after charging proposed 191.0p 141.0p +35.5 dividends (capital NAV) Shareholders' funds (£'000) 111,281 84,348 +31.9 (2) Mid-market price per ordinary 150.5p 107.0p +40.7 share Discount(1) per ordinary 22.3% 26.1% share based on balance sheet NAV Capital only return - indices: Benchmark(1)(3) +58.1 FTSE All-Share Index(3) +28.0 Return and dividend per ordinary share: Revenue return 4.3p 6.0p Capital return 49.4p (63.9)p Total return 53.7p (57.9)p First interim dividend 1.6p 1.6p Second interim/final dividend 2.7p 2.5p 4.3p 4.1p +4.9 Special dividend - 1.2p Total dividends 4.3p 5.3p Total expense ratio(1)(4) - excluding performance fee 0.9% 0.9% - including performance fee 0.9% 2.1% Gearing(1) - actual gearing 100 100 - potential gearing 122 130 - asset gearing 98 93 Note: (1) The term is defined in the Glossary in the Annual Financial Report. (2) Includes enhancements from share repurchases. (3) Source: Datastream and Morningstar. (4) Excludes the effect of any recoverable VAT on management fees and interest thereon. Chairman's statement In my statement in the Half-Yearly Financial Report, I highlighted that the six months under review had been a remarkable period for UK smaller companies. This has continued during the second six months of the year, resulting in a near record performance of the benchmark index, which rose 62.8% over the whole period, on a total return basis. As the investment manager highlights in his report, the performance of the index was particularly affected by two factors. Firstly, a number of previously large capitalisation stocks entered it for the first time following a rebalancing at the beginning of 2009, only to rise substantially in price and move back out. Secondly, many second or third line companies within the index, whose shares had fallen materially because of the level of their indebtedness, recovered significantly in price, as the threat of bankruptcy was perceived to recede. Against this background, your Company's portfolio - which remained defensively positioned, with a bias towards higher quality, stable companies and underweight cyclical and recovery situations - could not keep pace with its benchmark, though it still returned a meaningful 40.1% on a net asset value, total return basis, while the discount to NAV, while high, narrowed from 26.1% to 22.3%. In my statement in the Half-Yearly Financial Report, I also confirmed that the Board continued to believe that the investment strategy of the Manager would benefit shareholders over the medium to longer term. It is, therefore, worth recording that the Company has performed well against the other UK smaller companies investment trusts, ranking fourth out of eighteen over three and five years, in terms of net asset value growth (Source, JPMorgan Cazenove). I am also pleased to note that, over the year to 31 January 2010, the mid-market price of the Company's shares rose by 40.7%. Dividend For the year ended 31 January 2010, two interim dividends were declared, rather than an interim and a final. The first interim dividend of 1.6 pence per share was paid on 23 October 2009 to shareholders on the register on 25 September 2009 and the second interim dividend of 2.7 pence per share was paid on 31 March 2010 to shareholders on the register on 12 March 2010. As a second interim dividend has been paid, the Board will not be proposing a final dividend to shareholders at the Annual General Meeting. Total dividends for the year to 31 January 2010 were 4.3 pence per share, representing an increase of 4.9% on the total dividend of 4.1 pence per share in 2009, excluding the special dividend of 1.2 pence per share which was paid in respect of the Manager's recovery of VAT paid on management fees. Future dividends, as well as investment performance, will, of course, depend on market conditions, the income earned from the investment portfolio and the ability of the Manager to achieve satisfactory results. Share repurchases During the year ended 31 January 2010, the Company purchased and cancelled a total of 820,000 ordinary shares at an average price of 117 pence per share and at an average discount to NAV of over 22.7%. The effect has been to buy in over 1% of the issued share capital and to enhance NAV by approximately 0.3%. Since the period end, a further 95,000 ordinary shares have been bought back and cancelled, at an average price and discount to NAV of 148.75 pence per share and 21.1%, respectively. Annual General Meeting (`AGM') The Directors have considered carefully all the resolutions proposed in the Notice of the AGM and believe them to be in the best interests of shareholders. The Directors accordingly recommend that shareholders vote in favour of each resolution. There are four resolutions to be proposed as Special Business at the AGM and these will be proposed as one Ordinary Resolution and three Special Resolutions. Authority to Allot Shares and Authority to Buy Back Shares (Resolutions 9, 10 and 11) In order to assist the Board with its commitment to discount management, the Directors are seeking to renew the authority to undertake purchases of the Company's ordinary shares in the market and to issue new ordinary shares, and are also seeking authority to issue new ordinary shares whilst disapplying pre-emption rights, if required, within the set limits set out in Ordinary Resolution 9 and Special Resolutions 10 and 11 in the Notice of AGM. New shares will not be issued at prices below, nor will shares be repurchased at prices higher, than the prevailing net asset value. As stated in previous years, the Directors might consider holding repurchased shares as treasury shares, with a view to possible resale. To take account of the possibility of treasury shares, the disapplication of pre-emption rights has been extended to apply to the resale of treasury shares (if any) in the same way as to the allotment of new securities. Notice Period for General Meetings (Resolution 12) The implementation of the EU Shareholder Rights Directive in 2009, has increased the notice period for general meetings of companies to 21 days unless certain conditions are met in which case it may be 14 days' notice. At the Company's AGM last year, a resolution was passed by shareholders allowing the period of notice required for general meetings (other than AGMs) to be not less than 14 days' notice. The Directors are proposing Special Resolution 12, to renew this authority. Outlook As the Manager states in his report, there will always be periods in which the market does not suit the investment style of the manager and in which the Company is, therefore, likely to under-perform its benchmark. The long term record of the Company, however, demonstrates the value of the Manager's approach to stock selection and confirms that the investment style continues to be suited to those investors seeking long term returns for a reasonable level of risk. Although we have seen a modest return to growth in the UK economy during the fourth quarter of 2009, this has been against a backdrop of unprecedented fiscal stimulus and record low interest rates. The Board continues to be supportive of the Manager's strategy of investing in well established, fundamentally strong companies with healthy balance sheets and the ability to grow earnings and continues to believe that this strategy will benefit shareholders over the medium to long term. Ian Barby Chairman 9 April 2010 Manager's Report Investment Review Financial markets began 2009 in turmoil. The decision to allow Lehman Brothers to go bankrupt in the previous September set off a chain of events which forced substantial intervention by the world's central banks. Initially, these rescue measures brought about some stabilisation but, by early 2009, markets were once again under pressure as investors worried about the condition of many banks, particularly those with exposure to Eastern Europe. By March 2009, however, the gloom started to lift and markets began to recover, aided by greater stimulus packages from many governments, very low interest rates and huge injections of liquidity by central banks. By this stage, markets had become so oversold that any signs of optimism, which duly came in the form of a slowing in the rate of decline of the economy and house prices, were seized upon as an excuse for a rally. Gradually investors' confidence began to recover further on the back of signs that destocking was coming to an end and of a series of much better than expected corporate profit announcements. In retrospect, it is clear that company managements had not only given out very cautious guidance but also had undertaken huge cost-cutting programmes, such that slightly better than expected volumes produced substantially better than expected profits. Evidence that most economies would show positive growth in the fourth quarter of 2009 was enough to carry stock markets to new recovery highs as we entered 2010. The UK has experienced most of the same economic events as other world economies, namely bank bailouts, quantitative easing, a ballooning budget deficit and a deep recession. In addition, with a general election in May 2010, there is a political overtone to all economic decisions. In spite of this, the UK stock market rose 33.2% (on a total return basis) in the 12 months to January 2010, as measured by the FTSE All-Share Index. Smaller companies, as measured by our benchmark index, the Extended Hoare Govett Smaller Companies Index (excluding investment trusts), produced a near-record performance, gaining 62.8% (on a total return basis). Many second and third line stocks, especially those with large amounts of debt and whose shares had fallen significantly, experienced almost meteoric rises once the threat of bankruptcy was removed. Also the rebalancing of the benchmark index at the beginning of 2009 introduced a number of previously large capitalisation companies at severely depressed prices. Companies such as Carphone Warehouse and Rentokil entered the index for the first time, made substantial gains and are no longer part of the index in 2010. The shares of higher quality, defensive companies underperformed, partly reflecting the fact that they had fallen less in the previous year. Against this background, the net asset value (on a total return basis) of the shares of the Company rose 40.1%. The main reason for the underperformance relative to the benchmark index was our insistence on continuing to hold quality companies despite their relative outperformance in 2008. Our long-term record demonstrates the value of our disciplined approach to stock selection, but there will always be short periods when the market does not suit our style. In spite of the underperformance in 2009, on a five-year basis the Company continues to achieve its objective relative to the peer group of being an above-average performer combined with lower than average volatility, as the chart in the Annual Financial Report shows. The main contributors to the performance of the Company in 2009 were: Fenner, a world leader in conveyor belting and advanced polymers; Synergy Healthcare, the Company's largest holding and a provider of decontamination of surgical instruments and linen services to the NHS; Intec Telecom, a supplier of billing and intermediation software to the telecoms industry; Premier Oil, a leading independent oil producer which had acquired the operations of a bankrupt North Sea oil and gas explorer and Immunodiagnostics, which produces diagnostic test kits, notably for vitamin D deficiency. Once again, the Company benefited from takeover activity and generated reasonable returns from the acquisitions of BPP and Venture Production. The Company does not seek out takeover candidates but, because most acquisitions involve debt, acquirers are looking for higher quality, cash generative companies which the manager also favours. Investment Strategy The UK economy, similar to that of many developed countries, is an economy where its government and citizens are living beyond their means. This partly reflects the surrender of much of our manufacturing base to overseas countries where labour rates are much lower. This has led to a deterioration in our balance of payments which has not been offset by the development of enough high technology products and services that could be sold abroad. Effectively, the UK has maintained living standards by borrowing more. This structural problem, which will be made worse over the longer term by unhelpful demographic trends, has been compounded in the short term by a deep recession, brought on by the financial problems of the UK banks. As a result, the UK budget deficit has ballooned to around 13% of GDP. Over the last year, this deficit has effectively been funded by quantitative easing, with the Bank of England now owning an equivalent amount of government bonds. This situation is unsustainable over the longer term, not least because overseas creditors will begin to lose confidence in the UK's ability to repay its debts and, as a result, in the value of sterling. One only has to look at Greece where similar problems have already provoked a crisis of confidence. It seems inevitable that, following the general election, the new government will begin a process of reducing public spending. This will likely take place against a background of a lacklustre economy, as consumers boost savings and repay borrowings, and companies are reluctant to increase capital spending. Already, the government is finding it easier to raise taxes than cut spending. The cut in VAT has now been reversed and higher band income tax rates have increased. The `incentive culture' is rapidly becoming one of avoiding taxes rather than one of encouraging hard work. There are also fears for the future of final salary based pension schemes, as companies and governments seek to reduce benefits in order to control large pension deficits. Other schemes transfer risk to the individual, yet look likely to provide very inadequate pensions income. As a result, many people will either feel obliged to increase retirement savings at the expense of consumption or they will expect a retirement in relative poverty. Needless to say, the picture we are painting of the UK economy is not encouraging. The longer term prospects are for anaemic growth and a fall in living standards. Shorter term, we expect to muddle through, provided that sterling, inflation and interest rates remain within tolerable ranges. Whilst we are cautious on the UK economy, it does not follow that we are necessarily negative on the UK stock market. Firstly, what is required to happen to the economy is a rebalancing towards the private sector, implying some corporate growth at least. For instance, there should be a pickup in outsourcing opportunities for many support services companies, as government seeks to cut costs. Secondly well over 60% of earnings from UK public companies come from abroad and, with sterling expected to weaken, there is another source of growth in earnings and dividends. Valuations appear attractively priced on an historical basis and dividend yields compete favourably with deposit rates. The stock market should also be supported by increased pension fund flows and low interest rates. However, government funding on the scale envisaged could result in pressure for higher interest rates. Also, when one looks at previous periods of low real stock market returns (Japan in the 1990s, US and UK in 1960 - 1980), there were many bull/bear moves such that returns could be enhanced by market timing, rather than a buy and hold strategy. Against this background, we will, as usual, continue to run a portfolio of quality companies. The importance of owning shares in companies with strong balance sheets, sustainable competitive advantage and recurring revenues remains as valid as ever. We aim to hold companies that have a realistic prospect of being able to continue to grow profits, regardless of the wider economy. We believe that these companies should command a significant valuation premium to the market as investors search for growth. Cyclical companies are no longer undervalued and therefore, particularly those companies with still high debt levels, will come under pressure should the economy show signs of relapsing into recession again. Our strategy has not changed and therefore the broad emphasis of the portfolio remains the same. We remain overweight in aerospace and defence (but with an emphasis on services and consumables rather than hardware), healthcare, industrial engineering (large overseas earnings) and support services. Underweight sectors include general retailers, real estate and general financial. There are currently 122 holdings and the portfolio has an average weighted market capitalisation of £560 million, with an estimated yield of 2.9%. Current prospects The short-term outlook for the UK economy seems quite uncertain, despite its return to growth in the fourth quarter of 2009. Monetary policy remains stimulatory with interest rates remaining low but quantitative easing has been put on hold for the time being. There is a general election in May 2010 and fears are growing of a `hung parliament'. Sterling has weakened, partly reflecting UK politics but also beginning to discount an inflection point in US interest rates. The UK electorate understands that whoever is elected will preside over record cuts in government spending. As a result, consumers are likely to be prudent with their own expenditure. It is too early in the recovery to expect companies to fill the vacuum. The danger, therefore, is that the economy could slide back into recession in the latter part of 2010. However, this should be short lived, as consumers adjust to the new government's policies. Currently, the UK stock market is close to its best levels since the rally began in March 2009. If the UK political clouds clear and the Conservatives are elected with a clear majority, then the market should make further gains. We doubt that this will materially change the outlook for the UK economy but investors will be cheered by such a result, at least initially. Thereafter the stock market is likely to consolidate, while waiting for the new policy initiatives to emerge. Small companies significantly outperformed their larger brethren in 2009, which is typical in the first recovery phase from a bear market. Such outperformance is unlikely to be repeated in 2010 but we feel the flexibility and focus that smaller companies have is an important advantage given the uncertain future. We think that good stock selection will be both important and challenging this year and that there are reasonable grounds for believing that the Company's portfolio, with its mixture of defensive growth and overseas earnings, is capable of achieving a positive return in the current year. Richard Smith Invesco Asset Management Limited 9 April 2010 INVESTMENTS IN ORDER OF VALUATION AT 31 JANUARY 2010 Ordinary shares unless stated otherwise COMPANY ACTIVITY BY SECTOR VALUE % OF £'000 PORTFOLIO Synergy Healthcare Health Care Equipment & 4,298 3.9 Services Chemring Aerospace & Defence 4,175 3.8 VT Aerospace & Defence 3,035 2.8 Fenner Industrial Engineering 2,999 2.8 Dignity General Retailers 2,337 2.1 Dechra Pharma Pharmaceuticals & 1,968 1.8 Biotechnology Mouchel Support Services 1,968 1.8 Croda Chemicals 1,942 1.8 Intec Telecom Software & Computer Services 1,826 1.7 Systems RM Software & Computer Services 1,724 1.6 Top Ten Holdings 26,272 24.1 Mears Support Services 1,682 1.5 Homeserve Support Services 1,625 1.5 Domino Printing Electronic & Electrical 1,573 1.4 Equipment Immunodiagnostics Health Care Equipment & 1,560 1.4 Services Micro Focus Software & Computer Services 1,484 1.4 Xchanging Support Services 1,443 1.3 Carillion Construction & Materials 1,419 1.3 Care UK Health Care Equipment & 1,295 1.2 Services Premier Oil Oil & Gas Producers 1,289 1.2 Babcock Support Services 1,266 1.2 Top Twenty Holdings 40,908 37.5 Brown (N.) General Retailers 1,265 1.2 Omega Insurance - Non-life Insurance 1,225 1.1 US common stock Fidessa Group Software & Computer Services 1,208 1.1 Rensburg Sheppards General Financial 1,189 1.1 Diploma Support Services 1,185 1.1 CVS General Retailers 1,181 1.1 Phoenix Software & Computer Services 1,147 1.1 Victrex Chemicals 1,146 1.1 Northgate Industrial Transportation 1,140 1.0 Beazley Non-life Insurance 1,127 1.0 Top Thirty Holdings 52,721 48.4 Davis Service Support Services 1,124 1.0 RWS Support Services 1,109 1.0 Melrose Industrial Engineering 1,086 1.0 Serco Support Services 1,081 1.0 James Halstead Construction & Materials 1,078 1.0 Devro Food Producers 1,054 1.0 Ultra Electronic Aerospace & Defence 1,054 1.0 SDL Software & Computer Services 1,044 1.0 William Hill Travel & Leisure 1,026 0.9 Rotork Industrial Engineering 1,013 0.9 Top Forty Holdings 63,390 58.2 Hill & Smith Industrial Engineering 1,004 0.9 Charles Taylor General Financial 989 0.9 Consulting Spirax-Sarco Industrial Engineering 987 0.9 May Gurney Support Services 977 0.9 Hiscox Non-life Insurance 977 0.9 PZ Cussons Household Goods 977 0.9 Connaught Support Services 973 0.9 Anglo Pacific Mining 971 0.9 Gulfsands Petroleum Oil & Gas Producers 949 0.9 Greggs Food & Drug Retailers 940 0.9 Top Fifty Holdings 73,134 67.2 Filtrona Support Services 937 0.9 Salamander Energy Oil & Gas Producers 936 0.9 Avocet Mining Chemicals 935 0.9 Hargreaves Service Industrial Transportation 920 0.8 Eaga Support Services 860 0.8 Cranswick Food Producers 855 0.8 Greene King Travel & Leisure 812 0.7 Valiant Petroleum Oil & Gas Producers 812 0.7 Hunting Oil Equipment Services & 789 0.7 Distribution Microgen Software & Computer Services 780 0.7 Top Sixty Holdings 81,770 75.1 Cape Construction & Materials 774 0.7 Halfords General Retailers 769 0.7 BTG Pharmaceuticals & 763 0.7 Biotechnology Aveva Software & Computer Services 758 0.7 Kofax Software & Computer Services 745 0.7 Paypoint Support Services 739 0.7 New Britain Palm Food Producers 730 0.7 Oil Headlam Household Goods 703 0.6 Mitie Support Services 686 0.6 E2V Technologies Electronic & Electrical 675 0.6 Equipment Top Seventy Holdings 89,112 81.8 RPS Support Services 675 0.6 Playtech Software & Computer Services 665 0.6 Hansard Global Life Insurance 648 0.6 Datacash Support Services 647 0.6 Hardy Underwriting Non-life Insurance 635 0.6 Consort Medical Health Care Equipment & 630 0.6 Services Pace Technology hardware and 612 0.6 equipment JKX Oil & Gas Oil & Gas Producers 607 0.6 Spectris Electronic & Electrical 606 0.6 Equipment NCC Software & Computer Services 587 0.5 Top Eighty Holdings 95,424 87.7 HMV General Retailers 578 0.5 Fisher J Industrial Transportation 573 0.5 Shaftesbury Real Estate 558 0.5 Marston's Travel & Leisure 542 0.5 Brewin Dolphin General Financial 541 0.5 WH Smith General Retailers 540 0.5 Collins Stewart General Financial 525 0.5 Low & Bonar Construction & Materials 507 0.5 Abbey Protection General Financial 487 0.4 Keller Construction & Materials 457 0.4 Top Ninety Holdings 100,732 92.5 Development Real Estate 444 0.4 Securities Sterling Energy Oil & Gas Producers 432 0.4 Education Support Services 430 0.4 Development Unite Real Estate 425 0.4 Vectura Pharmaceuticals & 419 0.4 Biotechnology United Business Media 372 0.3 Media Axis-Shield Pharmaceuticals & 364 0.3 Biotechnology Mountview Estates Real Estate 359 0.3 Group NBT Software & Computer Services 346 0.3 Afren Oil & Gas Producers 343 0.3 Top Hundred Holdings 104,666 96.0 Globeop Financial General Financial 307 0.3 Laird Electronic & Electrical 302 0.3 Equipment Mucklow A&J Real Estate 296 0.3 Hansteen Real Estate 286 0.3 Cohort Aerospace & Defence 283 0.3 Augean Support Services 271 0.2 Assura Health Care Equipment & 267 0.2 Services Luminar Travel & Leisure 262 0.2 Yougov Support Services 251 0.2 Morson Support Services 232 0.2 Top Hundred and Ten Holdings 107,423 98.5 Sinclair Pharmaceuticals & 218 0.2 Pharmaceuticals Biotechnology System C Healthcare Software & Computer Services 213 0.2 Kewill Software & Computer Services 210 0.2 Coastal Energy Oil & Gas Producers 206 0.2 Personal Non-life Insurance 167 0.2 Strategic Thought Software & Computer Services 139 0.1 Elec Data Process Software & Computer Services 112 0.1 Ark Therapeutics Pharmaceuticals & 99 0.1 Biotechnology Minorplanet Systems Electronic & Electrical 58 0.1 Equipment Energybuild Mining 41 0.1 Top Hundred and Twenty Holdings 108,886 100.0 Mavinwood Support Services 6 - Berry Starquest Investment Dealing Subsidiary - - Limited - see note 1(h) in the Annual Financial Report TOTAL INVESTMENTS 108,892 100.0 As at 31 January 2010 one investment was held at a fair value of nil (2009: 4 investments). Related Party Transactions Invesco Asset Management Limited (`IAML'), a wholly owned subsidiary of Invesco Limited, acts as Manager, Company Secretary and Administrator to the Company. Details of IAML's services and fees are disclosed in the Report of the Directors. Full details of Directors' interests are set out in the Report of the Directors in the Annual Financial Report. There are no other related party transactions. Principal Risks and Uncertainties Investment Objective The Company's investment objective is to achieve long-term return for its shareholders via an investment vehicle which gives access to a broad cross section of small to medium sized UK quoted companies. There can be no guarantee that the Company will achieve its investment objective. Market Movements and Portfolio Performance The majority of the Company's investments is traded on the London Stock Exchange. A smaller proportion of investments is traded on the AIM Market. The principal risk for investors in the Company is of a significant fall in the markets and/or a prolonged period of decline in the markets relative to other forms of investment as well as bad performance of individual portfolio companies. The Manager's approach to investment is one of individual stock selection. Market risk is mitigated via the stock selection process, together with the slow build-up of holdings rather than the purchase of large positions outright. This allows the Manager to observe more data points from a company before adding to a position. The overall portfolio is well diversified by company and sector. The weighting of an investment in the portfolio tends to be loosely aligned with the market capitalisation of that company. This means that the largest holdings will often be amongst the larger smaller companies available. The Manager remains cognisant at all times of the potential liquidity of the portfolio. The Manager is relatively risk averse, seeks lower volatility in the portfolio and has a tendency to outperform in more challenging markets. In comparison to peer group investment trusts, the Company believes that its portfolio often has a higher than average market capitalisation and a lower than average exposure to the AIM market. The Board cannot influence market movements and the performance of portfolio companies. However, the performance of the Manager is carefully monitored by the Board, and the continuation of the Manager's mandate is revisited annually. The Board has established guidelines to ensure that the investment policy that it has approved is pursued by the Manager. The Board and the Manager maintain an active dialogue with the aim of ensuring that the market rating of the Company's shares reflects the underlying net asset value; and there are in place both share buy back and issuance facilities to help the management of this process. The Risks and Risk Management Policies are detailed in note 18 to the financial statements in the Annual Financial Report. Ordinary Shares The market of the shares in the Company may not reflect their underlying net asset value (`NAV') and may trade at a discount to its NAV. The value of an investment in the Company and the income derived from that investment may go down as well as up and an investor may not get back the amount invested. Whilst the Directors intend to pay a dividend to ordinary shareholders each year, the ability to do so will depend upon the level of income received from securities, the timing of receipts of such income from securities, expenses and the amount of any distributable reserves. Regulatory and Tax Related The Company is subject to various laws and regulations by virtue of its status as an investment trust, and its listing on the London Stock Exchange. A breach of s842 ICTA could lead to the Company being subject to capital gains tax on the sale of its investments. A serious breach of other regulatory rules may lead to suspension from the Stock Exchange or a qualified Audit Report. Other control failures, either by the Manager or any other of the Company's service providers, may result in operational or reputational problems, erroneous disclosures or loss of assets through fraud, as well as breaches of regulations. The Manager reviews the level of compliance with s842 ICTA and other financial regulatory requirements on a daily basis. All transactions, income and expenditure are reported to the Board. The Board regularly considers all risks, the measures in place to control them and the possibility of any other risks that could arise. The Board ensures that satisfactory assurances are received from service providers. The Manager's Compliance and Internal Audit Officers produce regular reports for review at the Company's Audit Committee. DIRECTORS' RESPONSIBILITY STATEMENT in respect of the preparation of the Annual Financial Report The Directors are responsible for preparing the annual financial report in accordance with applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under the law the Directors have elected to prepare financial statements in accordance with International Financial Reporting Standards as adopted by the European Union (`IFRSs'). Under company law, the Directors must not approve the accounts unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing these financial statements, the Directors are required to: • select suitable accounting policies and then apply them consistently; • make judgements and estimates that are reasonable and prudent; • state whether applicable IFRSs have been followed, subject to any material departures disclosed and explained in the financial statements; and • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business. The Directors are responsible for keeping adequate accounting records that disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the accounts comply with the Companies Act 2006 and Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. In so far as each of the Directors is aware: • there is no relevant audit information of which the Company's auditors are unaware; and • the Directors have taken all steps that they ought to have taken to make themselves aware of any relevant audit information and to establish that the auditors are aware of that information. The Directors of the Company each confirm to the best of their knowledge, state that: • the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit of the Company; and • this annual financial report includes a fair review of the development and performance of the business and the position of the Company together with a description of the principal risks and uncertainties that it faces. Signed on behalf of the Board of Directors Ian Barby Chairman 9 April 2010 STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 JANUARY 2010 2009 Revenue Capital Total Revenue Capital Total £'000 £'000 £'000 £'000 £'000 £'000 Gains/(Losses) on investments at fair value through profit - 28,704 28,704 - (36,782) (36,782) or loss Income - Note 2 2,909 - 2,909 3,666 - 3,666 Investment management (308) (308) (616) (347) (1,589) (1,936) fee - Note 3 VAT recoverable on management fees - Note 188 88 276 519 649 1,168 3 Other expenses (310) (3) (313) (270) (2) (272) Profit/(loss) before 2,479 28,481 30,960 3,568 (37,724) (34,156) finance costs and taxation Finance costs - - - (4) (18) (22) Profit/(loss) before 2,479 28,481 30,960 3,564 (37,742) (34,178) tax Taxation (2) - (2) (4) - (4) Profit/(loss) after 2,477 28,481 30,958 3,560 (37,742) (34,182) tax Earnings per ordinary share Basic - Note 4 4.3p 49.4p 53.7p 6.0p (63.9)p (57.9)p The total column of this statement represents the Company's Income Statement, prepared in accordance with International Financial Reporting Standards. The supplementary revenue and capital columns are both prepared under guidance published by the Association of Investment Companies. All items in the above statement derive from continuing operations and the Company has no other gains or losses. No operations were acquired or discontinued in the year. STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 JANUARY Capital Share Share Redemption Capital Revenue Capital Premium Reserve Reserve Reserve Total £'000 £'000 £'000 £'000 £'000 £'000 At 1 February 2008 12,178 21,244 1,850 86,552 3,147 124,971 Shares bought back (522) - 522 (4,159) - (4,159) and cancelled (Loss)/profit for - - - (37,742) 3,560 (34,182) the year Dividends paid - - - - - (2,282) (2,282) Note 5 At 31 January 2009 11,656 21,244 2,372 44,651 4,425 84,348 Shares bought back and (164) - 164 (967) - (967) cancelled Profit for the year - - - 28,481 2,477 30,958 Dividends paid - - - - - (3,058) (3,058) Note 5 At 31 January 2010 11,492 21,244 2,536 72,165 3,844 111,281 BALANCE SHEET AS AT 31 JANUARY 2010 2009 £'000 £'000 Non-current assets Investments designated at fair value 108,892 78,317 through profit or loss Current assets Other receivables 674 2,076 Cash and cash equivalents 1,939 5,592 2,613 7,668 Total assets 111,505 85,985 Current liabilities Other payables (224) (1,637) Net assets 111,281 84,348 Issued capital and reserves attributable to equity holders Share capital - Note 6 11,492 11,656 Share premium 21,244 21,244 Capital redemption reserve 2,536 2,372 Capital reserve 72,165 44,651 Revenue reserve 3,844 4,425 Total Shareholders' funds 111,281 84,348 Net asset value per ordinary share Basic - Note 7 193.7p 144.7p These financial statements were approved and authorised for issue by the Board of Directors on 9 April 2010. Signed on behalf of the Board of Directors Ian Barby Chairman Richard Brooman Deputy Chairman STATEMENT OF CASH FLOW FOR THE YEAR ENDED 31 JANUARY 2010 2009 £'000 £'000 Cash flow from operating activities Profit/(loss) before tax 30,960 (34,178) Taxation (2) (4) Adjustments for: Purchases of investments (29,822) (19,933) Sales of investments 27,991 32,270 (1,831) 12,337 (Gains)/losses on investments (28,704) 36,782 Finance costs - 22 Operating cash flows before movements in 423 14,959 working capital Decrease/(increase) in receivables 1,225 (1,343) (Decrease)/increase in payables (1,276) 1,226 Net cash flows from operating activities after 372 14,842 tax Cash flows from financing activities Interest paid - (45) Decrease in bank overdraft - (2,764) Buy back of shares (967) (4,159) Equity dividends (3,058) (2,282) Net cash used in financing activities (4,025) (9,250) Net (decrease)/increase in cash and cash (3,653) 5,592 equivalents Cash inflow from movement in bank overdraft - 2,764 Cash, cash equivalents and bank overdraft at 5,592 (2,764) the beginning of the year Cash, cash equivalents and bank overdraft at 1,939 5,592 the end of the year Notes to the condensed Financial Statements 1. Principal Accounting Policies The financial statements of the Company have been prepared in accordance with International Financial Reporting Standards (`IFRS') as adopted by the European Union, and Standing Interpretation Committee and International Financial Reporting Interpretation Committee interpretations issued by the International Accounting Standards Board effective for the Company's reporting for the year and the previous year. (a) Basis of Preparation The principal accounting policies adopted are set out below. Where presentational guidance set out in the Statement of Recommended Practice (`SORP') `Financial Statements of Investment Trust Companies and Venture Capital Trusts', issued by the Association of Investment Companies (`AIC') in January 2009 is compatible with the IFRS, the Directors have sought to prepare the financial statements in accordance with the guidance set out in the SORP. 2. Income 2010 2009 £'000 £'000 Income from listed investments UK dividends 2,670 3,256 Overseas dividends 136 221 2,806 3,477 Other income Deposit interest - 15 Interest on VAT recoverable (note 3) 92 159 Underwriting commission 11 15 Total income 2,909 3,666 3. Investment Management Fee 2010 2009 Revenue Capital Total Revenue Capital Total £'000 £'000 £'000 £'000 £'000 £'000 Investment management 308 308 616 347 347 694 fee Performance-related fee - - - - 1,242 1,242 308 308 616 347 1,589 1,936 Invesco Asset Management Limited (`IAML') provides investment and administration services to the Company. Details of the Investment Management Agreement can be found in the Report of the Directors in the Annual Financial Report. The performance-related fee is charged wholly to capital. At 31 January 2010, a creditor of £61,000 (2009: £86,000) was due for payment in respect of outstanding management fees and no fee was due in respect of the performance-related fee (2009: £1,242,000). An additional amount of £276,000 (2009: £1,168,000) has been recognised in these accounts in respect of VAT recoverable on management fees paid to the current manager, IAML, together with £92,000 (2009: £159,000) of interest thereon. 4. Earnings per Ordinary Share 2010 2009 Revenue Capital Total Revenue Capital Total Basic 4.3p 49.4p 53.7p 6.0p (63.9)p (57.9)p Basic total earnings per ordinary share is based on the net total profit for the financial year of £30,958,000 (2009: loss £34,182,000). Basic revenue earnings per ordinary share is based on the net revenue return on ordinary activities after taxation of £2,477,000 (2009: £3,560,000). Basic capital earnings per ordinary share is based on the net capital profit for the financial year after taxation of £28,481,000 (2009: loss £37,742,000). All three earnings are based on the weighted average number of shares in issue during the year of 57,671,287 (2009: 59,034,482). 5. Dividends on Ordinary Shares Dividends paid in the year: 2010 2009 pence £'000 pence £'000 Final paid in respect of 2.50 1,443 2.25 1,342 previous year Specials paid in respect of 1.20 692 - - previous year First interim paid 1.60 923 1.60 940 5.30 3,058 3.85 2,282 Dividends payable in respect of the year: 2010 2009 pence £'000 pence £'000 First interim 1.60 923 1.60 940 Second interim/final 2.70 1,549 2.50 1,443 4.30 2,472 4.10 2,383 Special - - 1.20 692 4.30 2,472 5.30 3,075 The second interim/final dividend is based on shares in issue at the record date or, if the record date has not been reached, on shares in issue on the date the balance sheet is signed. 6. Share Capital 2010 2009 Number £'000 Number £'000 Authorised: Ordinary shares of 20p each 160,000,000 32,000 160,000,000 32,000 Allotted, called-up and fully paid: Ordinary shares of 20p each 57,459,629 11,492 58,279,629 11,656 During the year the Company bought back the following ordinary shares: Number £'000 At 1 February 2009 58,279,629 11,656 Buy backs (820,000) (164) At 31 January 2010 57,459,629 11,492 Details of the share purchases are given in the Report of Directors in the Annual Financial Report Since the year end a further 95,000 ordinary shares have been bought back and cancelled. 7. Net Asset Value The net asset value per ordinary share and the net assets attributable at the year end were as follows: Net asset Net assets value per share attributable 2010 2009 2010 2009 pence pence £'000 £'000 Ordinary shares 193.7 144.7 111,281 84,348 Net asset value per ordinary share is based on net assets at the year end and on 57,459,629 (2009: 58,279,629) ordinary shares of 20p each, being the number of ordinary shares in issue at the year end. 8. This Annual Financial Report announcement is not the Company's statutory accounts. The statutory accounts for the year ended 31 January 2009 have been delivered to the Registrar of Companies. The statutory accounts for the year ended 31 January 2009 received an audit report which was unqualified, did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying the report, and did not include a statement under either section 498(2) or 498(3) of the Companies Act 2006. The statutory accounts for the financial year ended 31 January 2010 have been approved and audited but have not been filed. The Audited Annual Financial Report will be posted to shareholders shortly. Copies may be obtained during normal business hours from the Company's registered office, 30 Finsbury Square, London, EC2A 1AG. A copy of the Annual Financial Report will be available from Invesco Perpetual on the following website: www.invescoperpetual.co.uk/investmenttrusts The Annual General Meeting of the Company will be held at noon on 21 May 2010 at 30 Finsbury Square, London, EC2A 1AG.
UK 100

Latest directors dealings