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.
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