Annual Financial Report
INVESCO PERPETUAL UK SMALLER COMPANIES
INVESTMENT TRUST PLC
ANNUAL FINANCIAL REPORT
FOR THE YEAR ENDED 31 JANUARY 2015
FINANCIAL HIGHLIGHTS
The Benchmark Index of the Company is the Numis Smaller Companies Index
(excluding Investment Companies) with income reinvested
AT AT
31 JANUARY 31 JANUARY %
2015 2014 CHANGE
Net asset value per share, as shown
on the balance sheet 370.1p 367.9p +0.6
Shareholders' funds (£'000) (1) 196,914 195,749 +0.6
Share price 328.3p 316.8p +3.6
Discount(1) 11.3% 13.9%
Total return (with income reinvested):
Net asset value(1)(2) +2.2
Benchmark Index(1)(2) -2.6
FTSE All-Share Index(2) +7.1
Capital return:
Net asset value(1)(2) +0.4
Benchmark Index(1)(2) -5.3
FTSE All-Share Index(2) +3.6
Gearing:
- gross gearing(1) nil 1.2%
- net gearing(1) nil nil
- net cash(1) 4.1% 1.2%
Maximum permissible gearing(1) 10.2% 10.2%
Return and dividend per ordinary share:
Revenue return 7.4p 6.9p
Capital return 1.3p 81.2p
Total return 8.7p 88.1p
Interim dividend 1.60p 1.60p
Final dividend 12.15p 4.90p
Total dividends 13.75p 6.50p +111.5
Ongoing charges (1)
- excluding performance fee 0.83% 0.83%
- performance fee 0.73% nil
Notes: (1) The term is defined in the Glossary on page 57 of the Annual
Financial Report.
(2) Source: Thomson Reuters Datastream.
.
STRATEGIC REPORT
FOR THE YEAR ENDED 31 JANUARY 2015
CHAIRMAN'S STATEMENT
I am pleased to report that for the year ended 31 January 2015 the net asset
value (NAV) of your Company, on a total return basis, rose by 2.2%. This
compared very favourably with the benchmark index of the Company, the Numis
Smaller Companies Index (excluding Investment Companies), which fell by 2.6%.
The UK Smaller Companies sector as a whole underperformed the wider UK stock
market, as measured by the FTSE All-Share Index, which rose by 7.1%. However,
as mentioned in the Portfolio Manager's Report, over the long term the sector
has materially outperformed the main index. Over the Company's financial year,
the share price of the Company rose from 316.8p to 328.3p per share, an
increase of 3.6%, and the discount narrowed from 13.9% to 11.3%. As a result of
this significant outperformance, a performance fee of £1,408,000 has been
earned by the portfolio manager.
Changes to the Company's Dividend Policy
The Board, mindful of the current interest rate environment and the imminent
reform to pension rules, believes that investors are attracted to
income-producing investments. Following consultation with the Company's major
shareholders, the Company announced on 10 March 2015 that it would be
implementing a material increase in its dividend on an ongoing basis, targeting
an initial yield of approximately 4% per annum (based on the prevailing share
price of 344p). Dividends will be funded by distributing 100% of available
income each year, with the balance being paid from capital reserves which, for
the year to 31 January 2016, is anticipated to amount to approximately 2% of
assets. This should be seen in the context of annualised capital growth of
nearly l0% over the last ten years. We hope that the potential resulting minor
tax disadvantage to some shareholders of distributing a small percentage of
capital reserves as income will be offset by a permanent narrowing of the
discount to NAV at which the Company's shares trade. Going forward, the Company
will pay quarterly dividends comprising three equal interim dividends, followed
by a final dividend.
As a result of these changes, the investment objective of the Company will no
longer include wording to the effect that `the pursuit of income is of
secondary importance'. I should emphasise that there will be no change to the
current investment policy or style, although the portfolio manager will have
the scope to hold slightly larger positions in higher-yielding stocks within
the portfolio, where they fit his normal investment criteria. This change will
not affect the total return produced by the portfolio manager, but is designed
to alter the way that return is paid to shareholders via a significant increase
in the annual dividend payment.
The changes to the Company's dividend policy will not affect the Board's
commitment to shareholders for a vote on various options for the Company's
future in 2017, as announced previously.
Dividend
For the year ended 31 January 2015, an interim dividend of 1.6p per share was
paid on 24 October 2014 to those shareholders who were on the register on 26
September 2014. The Board is proposing a final dividend for the year ended 31
January 2015 of 12.15p per share, making a total dividend for the year of
13.75p per share, an increase of 111.5% on the dividend for the year ended 31
January 2014. The final dividend will be payable on 5 June 2015 to shareholders
on the register on 24 April 2015. The shares will go ex-dividend on 23 April
2015.
This final dividend will be substantially funded out of available income and
brought forward revenue reserves. The balance of £589,000 (representing 0.3% of
net assets) will be funded from capital reserves.
The Company received £0.6 million or 1.2p per share (2014: £0.6 million or
1.1p) of special dividends. By the nature, special dividends are non-recurring
and future receipts are uncertain.
Annual General Meeting
This year's Annual General Meeting will be held on Thursday, 4 June 2015. The
Directors have carefully considered all of the resolutions proposed in the
Notice of the AGM and believe them to be in the best interests of shareholders
and the Company as a whole. The Directors, accordingly, recommend that
shareholders vote in favour of each resolution.
Outlook
As you will read in the Portfolio Manager's Report, the smaller company sector
underperformed the main market which, in turn, underperformed other major world
markets in the period under review. However, empirical evidence shows that
smaller companies have outperformed larger stocks, with lower volatility, over
longer time scales.
The UK economy continues to benefit from low levels of unemployment, continued
record-low interest rates and the anticipated pre-election stimulus. As a
result, the conditions for investing in the equity of high quality smaller
companies appear relatively benign, even allowing for risks, political and
economic, on the world stage. The portfolio manager believes, therefore, that
this Company's diversified portfolio of UK-quoted smaller companies should
perform well in relative and absolute terms in the year ahead.
Ian Barby
Chairman
17 April 2015
BUSINESS REVIEW
Invesco Perpetual UK Smaller Companies Investment Trust plc is an investment
company and its investment objective is set out below. The strategy the Board
follows to achieve that objective is to set investment policy and risk
guidelines, together with investment limits, and to monitor how they are
applied. These are also set out below and have been approved by shareholders.
The Company has contracted the services of Invesco Fund Managers Limited (the
`Manager') to manage the portfolio in accordance with the Board's strategy and
under its oversight. The portfolio manager responsible for the day to day
management of the portfolio is Jonathan Brown, assisted by Robin West, Deputy
Portfolio Manager.
Investment Objective
The Company's investment objective was amended on 10 March 2015 by the removal
of the sentence "The pursuit of income is of secondary importance." Further
details of this change are set out in the Chairman's Statement above. The
revised investment objective is as follows:
`The Company is an investment trust whose investment objective is to achieve
long-term total return for shareholders primarily by investment in a broad
cross-section of small to medium sized UK quoted companies.'
Investment Policy
The portfolio primarily comprises shares traded on the London Stock Exchange,
though it will also usually include a small proportion traded on AIM. The
portfolio manager can also invest in unquoted securities, though these are
limited to a maximum of 5% of gross assets at the time of acquisition.
The Manager seeks to outperform the benchmark index. As a result, the Manager's
approach can, and often does, result in significant overweight or underweight
positions in individual stocks or sectors compared with the benchmark. Sector
weightings are ultimately determined by stock selection decisions.
Risk diversification is sought through a broad exposure to the market, where no
single investment may exceed 5% of the Company's gross assets at the time of
acquisition. The Company may utilise index futures to hedge risk of no more
than 10% and other derivatives (including warrants) of no more than 5%. In
addition, the Company will not invest more than 10% in collective investment
schemes or investment companies, nor more than 10% in non-UK domiciled
companies. All these limits are referenced to gross assets at the time of
acquisition.
Borrowings may be used to raise market exposure up to the lower of 30% of net
asset value and £25 million.
Dividend Policy
The Company's dividend policy is to distribute all available revenue earned by
the portfolio in the form of dividends to shareholders. In addition, the Board
has approved the use of the Company's capital reserves to enhance dividend
payments. Therefore, the total dividend, paid to shareholders on a quarterly
basis, is made up partly of income received from the portfolio and partly from
capital reserves.
Performance
The Board reviews performance by reference to a number of Key Performance
Indicators which include the following:
• the movement in net asset values (NAV) per share on a total return basis;
• the performance relative to the peer group;
• the discount;
• dividend per share;
• the ongoing charges; and
• the risk and volatility.
The ten year record for the NAV and share price performance compared with the
Company's benchmark index can be found on page 3 of the Annual Financial
Report, together with the five year discount record. The ten year record for
dividends and ongoing charges is shown on page 4 of the Annual Financial
Report. Returns versus volatility are shown on the graph on page 11 of the
Annual Financial Report.
Results and Dividends
In the year ended 31 January 2015 the net asset value total return was 2.2%,
compared with a total return on the benchmark index of -2.6%, an outperformance
of 4.8%. The discount at the year end was 11.3%. The Portfolio Manager's Report
shows an analysis of the relative performance in a table on page 11 of the
Annual Financial Report.
For the year ended 31 January 2015, an interim dividend of 1.6p per ordinary
share was paid to shareholders on 24 October 2014. As explained in the
Chairman's Statement, the final dividend has been increased substantially to
12.15p (2014: 4.9p), following the change in the Company's dividend policy. The
final dividend will be proposed to shareholders at the AGM on 4 June 2015 and
will be paid on 5 June 2015 to shareholders on the register on 24 April 2015.
This dividend will be funded from current year and brought forward revenue
reserves, with the balance of 1.1p (£589,000) being funded from capital
reserves.
Financial Position and Borrowings
At 31 January 2015 the Company's net assets were valued at £197 million (2014:
£196 million), comprising a portfolio of equity investments and net current
assets, with no borrowings (2014: £2.4 million). Borrowings, which are
authorised by shareholders up to a maximum of £25 million, would be funded by
the Company's uncommitted bank overdraft facility. This facility has a maximum
of the lower of 30% of net asset value and £20 million.
Outlook, including the Future of the Company
The main trends and factors likely to affect the future development,
performance and position of the Company's business can be found in the
Portfolio Manager's Report. Details of the principal risks affecting the
Company are set out under `Principal Risks and Uncertainties' below.
As previously announced, on or around the Company's AGM in 2017, the Board will
make available options for shareholders as set out in the Chairman's Statement.
The Board has assured shareholders that the Manager will continue to use its
best endeavours to attempt to achieve above-average performance and thereby
earn the authority from shareholders for the Company's continuation.
Principal Risks and Uncertainties
The most significant risks of the Company, and the steps taken to mitigate them
follow. Most of these risks are market related and are similar to those of
other investment trusts investing primarily in listed markets.
Market (Economic) Risk
Factors such as general fluctuations in stock markets, interest rates and
exchange rates are not under the control of the Board and the portfolio
manager, but may give rise to high levels of volatility in the share prices of
investee companies, as well as affecting the Company's own share price and
discount to NAV. To a limited extent, futures can be used to mitigate this
risk.
Investment Risk
The Company invests in small and medium-sized companies traded on the London
Stock Exchange or on AIM. By their nature these are generally considered
riskier than their larger counterparts and their share prices can be more
volatile, with lower liquidity. In addition, as smaller companies do not
generally have the financial strength, diversity and resources of larger
companies, they may find it more difficult to overcome periods of economic
slowdown or recession.
The portfolio manager's approach to investment is one of individual stock
selection. Investment 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 portfolio 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
of the smaller companies available.
The portfolio manager is relatively risk averse, looks for lower volatility in
the portfolio and seeks to outperform in more challenging markets. In
comparison to peer group investment trusts, the Company's portfolio often has a
higher than average market capitalisation and a lower than average exposure to
the AIM market. The portfolio manager remains cognisant at all times of the
potential liquidity of the portfolio.
There can be no guarantee that the Company's strategy and business model will
be successful in achieving its investment objective. The Board monitors the
performance of the Company and has guidelines in place to ensure that the
portfolio manager adheres to the approved investment policy. The continuation
of the portfolio manager's mandate is reviewed annually.
Shareholders' Risk
The value of an investment in the Company may go down as well as up and an
investor may not get back the amount invested.
As explained in the Chairman's Statement, the Company has announced a dividend
policy which is targeting an initial yield of approximately 4% per annum.
Dividends are likely to be funded partly from capital reserves in the future.
The Board and the portfolio 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.
Borrowings
The Company may borrow money for investment purposes. If the investments fall
in value, any borrowings (or gearing) will magnify the extent of any loss. If
the borrowing facility could not be renewed, the Company might have to sell
investments to repay any borrowings made under it. All borrowing and gearing
levels are reviewed at every Board meeting and preset limits agreed.
Reliance on the Manager and other Third Party Providers
The Company has no employees and the Directors have all been appointed on a
non-executive basis. The Company is therefore reliant upon the performance of
third party providers both for its executive function and other service
provision. In particular, the Manager performs services which are integral to
the operation of the Company. Failure by any service provider to carry out its
obligations to the Company in accordance with the terms of its appointment
could have a materially detrimental impact on the operation of the Company and
could affect the ability of the Company to successfully pursue its investment
policy.
The Manager may be exposed to reputational risks. In particular, the Manager
may be exposed to the risk that litigation, misconduct, operational failures,
negative publicity and press speculation, whether or not it is valid, will harm
its reputation. Any damage to the reputation of the Manager could result in
potential counterparties and third parties being unwilling to deal with the
Manager and by extension the Company, which carries the Manager's name. This
could have an adverse impact on the ability of the Company to pursue its
investment policy successfully. The Company's main service providers are listed
on page 56 of the Annual Financial Report.
The Audit Committee regularly reviews the performance and internal controls of
the Manager, the results of which are reported to the Board. The Manager
reviews the performance of all third party providers regularly through formal
and informal meetings.
Regulatory Risk
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 loss of
investment trust status could lead to the Company being subject to capital
gains tax on the sale of its investments. Other control failures, either by the
Manager or any other of the Company's service providers, could 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 tax and other financial
regulatory requirements on a daily basis. The Board regularly considers all
risks, the measures in place to control them and the possibility of any other
risks that could arise. The Manager's Compliance and Internal Audit Officers
produce regular reports for review at the Company's Audit Committee.
A significant regulatory change in the year was the implementation of the
Alternative Investment Fund Managers Directive. This required the appointment
of a depositary and a change in the contractual arrangements with the Manager,
which continues to bear the main compliance obligations.
Further details of risks and risk management policies as they relate to the
financial assets and liabilities of the Company are detailed in note 18 to the
financial statements in the Annual Financial Report.
Board Diversity
The Company's policy on diversity is set out on page 22 of the Annual Financial
Report. The Board considers diversity, including the balance of skills,
knowledge, diversity (including gender) and experience, amongst other factors
when reviewing its composition and appointing new directors, but does not
consider it appropriate to establish targets or quotas in this regard. The
Board consists of five directors, one of whom is female.
Social and Environmental Matters
As an investment company with no employees, property or activities outside
investment, environmental policy has limited application. The Manager considers
various factors when evaluating potential investments. While a company's policy
towards the environment and social responsibility, including with regard to
human rights, is considered as part of the overall assessment of risk and
suitability for the portfolio, the Manager does not necessarily decide to, or
not to, make an investment on environmental and social grounds alone. The
Manager applies the United Nations Principles for Responsible Investment.
PORTFOLIO MANAGER'S REPORT
Investment Review
The year to 31 January 2015 saw generally good returns from global
stockmarkets, as they shrugged off fears about the ending of quantitative easing in
the US. However, there was a sharp sell-off in the Autumn, led by oil and
mining companies, which followed commodity prices downward. The situation was
exacerbated by escalating geopolitical tensions and deteriorating economic
news, especially from Europe. Thankfully, the weakness was relatively short
lived. Expectations for a US interest rate increase receded into the distance,
as cheaper energy and raw materials exerted further downward pressure on
inflation. The market also began to focus on the benefits of a significantly
lower oil price, which provides a substantial boost to household discretionary
expenditure and to the profitability of many energy consumptive businesses. The
decision taken by the European Central Bank in January 2015 to launch a massive
asset purchase programme provided further impetus to equity markets, pushing a
number of indices to all-time highs.
The UK stock market, as measured by the FTSE All-Share Index, rose 7.1% on a
total return basis which, while decent, is some way below many of the other
major global indices. This is largely due to the UK market having a higher
relative exposure to mining and oil & gas companies. The economic backdrop in
the UK has continued to be favourable, with the lowest level of unemployment
seen for many years, record low interest rates and a pre-election pick-up in
government spending, supporting a continuing economic expansion. The
uncertainty around the Scottish independence vote was unhelpful for business
confidence, but we have nonetheless seen decent levels of investment, which is
an important support for continued growth. Against this backdrop, the
underperformance of UK smaller companies relative to the wider market, with the
Numis Smaller Companies Index (ex-investment trusts) declining 2.6% on a total
return basis, is somewhat disappointing. This might just be the small cap
market `handing back' a small amount of the huge outperformance we have seen
over recent years, as `all cap' investors reduced their exposure. With
hindsight, smaller company valuations became slightly stretched versus the
wider market, but pleasingly we saw a resumption of small cap outperformance
over the second half of the period.
Portfolio Strategy and Review
Against this background, your Company produced an increase in net asset value
on a total return basis of 2.2% for the year to 31 January 2015. Positive
contributions came from the Healthcare and Technology sectors, while the
portfolio's exposure to the Oil & Gas and Industrial sectors had a negative
effect on performance.
At the individual stock level, the stand-out performer was Synergy Health
(+68%), a world leading healthcare outsourcing business, which received a
takeover bid from US rival Steris. Synergy Health is a stock the Company has
held for many years and has been a terrific performer over the long term. CVS
Group, a veterinary services business, also had an excellent year (+72%). The
stock re-rated significantly as the market began to understand better the
growth potential and resilient qualities of the company. As with last year, the
portfolio also benefited from its holding in Howden Joinery (+26%), which is a
leading manufacturer of pre-fabricated kitchens. The company continued to
benefit from improving household cash flows and market share gains. Other
strong performers in the portfolio included EMIS Group (+49%), a healthcare
software business, which made a strategically important acquisition early in
the period, and Microfocus (+45%), another software business which also
benefited from a highly earnings-accretive deal.
While contributors to the portfolio outweighed detractors, there were
disappointments, particularly from companies exposed to the oil & gas sector.
The shares of RPS (-45%), an environmental consultancy which also provides
services to the oil & gas industry, had a poor year. The stock has partially
recovered since the end of the period, after management indicated that they had
so far seen little fall-out from the lower oil price. Aveva (-37%), a software
business with some exposure to oil & gas, also suffered during the year but has
subsequently recovered some of its losses. Oil production company Amersiur
Resources (-34%) was another casualty, although the business remains profitable
and benefits from a cash-rich balance sheet.
The following table analyses the performance of the Company's NAV relative to
the Benchmark.
Invesco Perpetual UK Smaller Companies Investment Trust plc
Performance attribution for the year ended 31 January 2015
Total
Absolute
%
Net asset value total 2.2
return
Less: Benchmark total (2.6)
return
Relative 4.8
outperformance
Analysis of Relative
Performance
Portfolio total return 3.8
Less: Benchmark total (2.6)
return
Portfolio 6.4
outperformance
Net gearing effect -
Management fees (0.7)
Performance fees (0.7)
Interest payable -
Other expenses (0.2)
Total 4.8
Performance attribution analyses the Company's performance relative
to its benchmark.
Portfolio outperformance measures the relative effect of the Company's
investment portfolio against that of its benchmark.
Net gearing effect measures the impact of borrowings and cash on the
Company's relative performance. This is nil where there is no gearing
in a year.
Management fees, performance fees, other expenses and interest payable
reduce the level of assets and therefore result in a negative effect for
relative performance. There are no fees or expenses imputed to the benchmark
index.
.
Investment Strategy
The UK smaller companies sector, whilst only a small proportion of the market
by value, has over many years generated significant returns for investors. In
fact, over the last 60 years the sector, as measured by the Numis Smaller
Companies Index (ex-investment trusts), has on average returned 15.3% per year
on a total return basis compared to a return of l1.9% from the FTSE All-Share
Index. The market has many appealing characteristics for `stock pickers'. Due
to their smaller scale, the companies receive far less attention from analysts
than their larger brethren, enabling diligent managers to profit from genuinely
undervalued `hidden gems'. The management of the companies also tend to own a
much higher proportion of the stock in their own businesses, meaning that their
interests are better aligned with other shareholders, which is likely to result
in decisions being taken for the long term benefit of the business, rather than
for short term gain. Companies can also gain exposure to higher growth niches
within the economy, which would be insignificant for a `mega-cap' stock, but
can represent a substantial opportunity for the kind of business we seek to
invest in. While the fortunes of the FTSE 100 are tied closely to the
performance of a relatively small number of sectors, such as banks, oil, mining
and pharmaceuticals; investment in the smaller companies sector can provide a
useful diversification into more interesting and potentially higher return
areas of the economy.
We seek to run a portfolio of around 90-100 stocks, which allows us to reduce
company specific risk through diversification, whilst being able to take larger
positions in companies which we feel are particularly interesting at the time.
The proportion of assets invested into a particular sector is principally
determined by the number of fundamentally attractive companies we can find,
rather than by taking a more general view on the wider economy.
We look for companies that either have great products or services that can
enable them to take market share off their competitors, or companies that are
exposed to higher growth niches within the UK economy or overseas. A business
also needs to be able to make strong profit margins, and have a means of
preventing them being competed away. These `barriers to entry' can be in the
form of intellectual property, specialist knowhow, strong brands or a
particularly high share of their chosen market. We also like businesses that
have strong balance sheets and strong cash flows. If a company's profit is not
turning into cash, it is often a symptom of a deeper issue with a business, and
certainly warrants thorough investigation.
This `stock-picking' process currently finds us with our largest exposure in
the highly diverse Industrial sector, which contains everything from
recruitment consultancies to electrical engineering businesses. The portfolio
includes Senior, which manufactures aerospace components for companies such as
Boeing and Airbus. The company enjoys better visibility than many engineering
businesses due to its customers' order books, some of which stretch out for 8
or 9 years at current build rates. Other holdings include Diploma, a highly
cash generative distribution business which is benefiting from the US economic
recovery, and RPC, a manufacturer of plastic containers, where the new
management have overseen a significant improvement in the profitability of the
business.
Our second largest exposure is to healthcare, which is an area rich in
innovation and intellectual property. This sector continues to benefit from
increases in global healthcare spending, driven by the burgeoning middle
classes in the emerging markets and ageing populations in more developed
countries. There are some very attractive companies in this sector, including
Advanced Medical Solutions, a manufacturer of wound dressings, sutures and
other surgical products, which is successfully taking market share from larger
competitors in the UK and US, and Abcam, which is the world's leading supplier
of antibodies to the medical research sector.
The smaller companies sector also offers a broader range of exposure to
`consumer cyclicals', such as retail and leisure stocks at a time when the UK
consumer is forecast to benefit from a higher growth in discretionary income
than seen for many years. This is being driven by accelerating wage inflation
due to a tighter employment market, lower petrol prices, low interest rates and
a supermarket price war reducing the cost of the weekly shop. Some of this
money will be finding its way into home improvements, pubs, restaurants and the
retail sector. The stocks we favour in this area include pub company JD
Wetherspoon, which offers some of the lowest prices on the high street,
homewares retailer Dunelm, which has become a sector leader by offering
unrivalled choice and everyday low prices, and home shopping company N Brown,
which specialises in out-sized clothing and owns brands such as JD Williams,
Simply Be and Jacamo.
Outlook
Liquidity is a major driver of asset prices and the ECB decision to pour over €
1 trillion into the European economy via open market asset purchases will offer
significant support to stock markets over the next year. Equities, in
particular smaller companies, continue to look better value than bonds, which
appear to have slipped into a strange parallel universe, with some investors
now paying for the privilege of lending to the German government. We continue
to find interesting and attractively priced stocks to add to the portfolio and
with earnings expectations now at particularly low levels, UK smaller companies
could even start to see the benefit of earnings upgrades for the first time in
a few years. Notwithstanding all the geopolitical and macro-economic issues
which are looming large at the current time, including a potentially
inconclusive UK general election, we see good prospects for the companies we
invest in and hope for another year of positive returns.
Jonathan Brown
Portfolio Manager
Robin West
Deputy Portfolio Manager
The Strategic Report was approved by the Board of Directors on 17 April 2015.
Invesco Asset Management Limited
Company Secretary
.
INVESTMENTS IN ORDER OF VALUATION
AT 31 JANUARY 2015
Ordinary shares unless stated otherwise
MARKET
VALUE OF
ISSUER SECTOR £'000 PORTFOLIO
CVS AIM General Retailers 6,042 3.2
Senior Aerospace & Defence 5,675 3.0
Diploma Support Services 5,326 2.8
Bovis Homes Household Goods & Home
Construction 4,477 2.3
Ultra Electronics Aerospace & Defence 4,207 2.2
N Brown General Retailers 4,171 2.2
RPC General Industrials 4,078 2.1
Dechra Pharmaceuticals Pharmaceuticals
& Biotechnology 4,012 2.1
Mears Support Services 3,635 1.9
Northgate Support Services 3,592 1.9
Top Ten Holdings 45,215 23.7
Marston's Travel & Leisure 3,525 1.9
Safestore Real Estate
Investment Trusts 3,351 1.8
EMIS AIM Software & Computer
Services 3,271 1.7
Innovation Software & Computer
Services 3,107 1.6
Victrex Chemicals 3,062 1.6
Elementis Chemicals 3,011 1.6
Euromoney Institutional Investor
Media 2,898 1.5
St. Modwen Properties Real Estate Investment
& Services 2,776 1.5
Vectura Pharmaceuticals &
Biotechnology 2,733 1.4
Dunelm General Retailers 2,729 1.4
Top Twenty Holdings 75,678 39.7
Aveva Software & Computer
Services 2,693 1.4
JD Sports General Retailers 2,690 1.4
FDM Group Software &
Computer Services 2,634 1.4
Synergy Health Health Care Equipment
& Services 2,600 1.4
Consort Medical Health Care Equipment
& Services 2,560 1.3
JD Wetherspoon Travel & Leisure 2,541 1.3
Essentra Support Services 2,446 1.3
Topps Tiles General Retailers 2,413 1.3
Abcam AIM Pharmaceuticals &
Biotechnology 2,398 1.3
Brewin Dolphin Financial Services 2,391 1.3
Top Thirty Holdings 101,044 53.1
Cambian Health Care Equipment
& Services 2,374 1.2
Patisserie AIM Travel & Leisure 2,366 1.2
Crest Nicholson Household Goods &
Home Construction 2,338 1.2
UTV Media Media 2,329 1.2
Polypipe Construction &
Materials 2,216 1.2
Staffline AIM Support Services 2,210 1.2
RWS AIM Support Services 2,163 1.2
Advanced Medical Solutions AIM Health Care Equipment
& Services 2,146 1.1
Interserve Support Services 2,143 1.1
Savills Real Estate Investment & Services 2,119 1.1
Top Forty Holdings 123,448 64.8
Servelec Software & Computer
Services 2,085 1.1
Jupiter Fund Management Financial Services 2,024 1.1
Howden Joinery Support Services 2,002 1.1
Amerisur Resources AIM Oil & Gas Producers 1,999 1.0
Bellway Household Goods &
Home Construction 1,988 1.0
Gamma Communications AIM Mobile
Telecommunications 1,950 1.0
RPS Support Services 1,930 1.0
Cape Oil Equipment, Services
& Distribution 1,909 1.0
LSL Property Services Real Estate Investment
& Services 1,867 1.0
Dignity General Retailers 1,850 1.0
Top Fifty Holdings 143,052 75.1
Ebiquity AIM Media 1,826 1.0
Brammer Support Services 1,804 1.0
Domino Printing Sciences Electronic &
Electrical Equipment 1,762 0.9
Dairy Crest Food Producers 1,756 0.9
Balfour Beatty Construction &
Materials 1,743 0.9
Sthree Support Services 1,736 0.9
Stanley Gibbons AIM General Retailers 1,627 0.9
Brooks Macdonald AIM Financial Services 1,567 0.8
Fidessa Software & Computer
Services 1,548 0.8
NewRiver Retail AIM Real Estate Investment
Trusts 1,524 0.8
Top Sixty Holdings 159,945 84.0
Mountview Estates Real Estate Investment
& Services 1,511 0.8
Workspace Real Estate Investment
Trusts 1,468 0.8
Guinness Peat Financial Services 1,433 0.8
WS Atkins Support Services 1,377 0.7
Polar Capital AIM Financial Services 1,340 0.7
CLS Real Estate Investment
& Services 1,299 0.7
Rathbone Brothers Financial Services 1,292 0.7
M&C Saatchi AIM Media 1,220 0.6
Tungsten AIM Financial Services 1,210 0.6
Restaurant Group Travel & Leisure 1,204 0.6
Top Seventy Holdings 173,299 91.0
Sinclair IS Pharma AIM Pharmaceuticals &
Biotechnology 1,200 0.6
Norcros Construction &
Materials 1,188 0.6
Boohoo AIM General Retailers 1,123 0.6
4imprint Media 1,101 0.6
Hansteen Real Estate Investment
Trusts 1,025 0.5
Microgen Software & Computer
Services 1,009 0.5
Vertu Motors AIM General Retailers 997 0.5
Earthport AIM Software & Computer
Services 916 0.5
Keywords Studios AIM Support Services 914 0.5
Oxford Instruments Electronic & Electrical
Equipment 853 0.5
Top Eighty Holdings 183,625 96.4
Fisher (James) & Sons Industrial
Transportation 844 0.4
Faroe Petroleum AIM Oil & Gas Producers 780 0.4
Latchways Support Services 773 0.4
Accesso Technology AIM Software & Computer
Services 770 0.4
EKF Diagnostics AIM Health Care Equipment
& Services 722 0.4
Urban & Civic Real Estate Investment
& Services 707 0.4
Utilitywise AIM Support Services 502 0.3
Premier Oil Oil & Gas Producers 445 0.2
Redcentric AIM Software & Computer
Services 416 0.2
Ithaca Energy AIM Oil & Gas Producers 404 0.2
Top Ninety Holdings 189,988 99.7
Hilton Food Food Producers 318 0.2
Severfield Industrial Engineering 204 0.1
Total Investments 190,510 100.0
AIM Investments quoted on AIM
.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
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
(IFRSs) as adopted by the European Union. Under company law, the Directors must
not approve the financial statements unless they are satisfied that they give a
true and fair view of the state of affairs of the Company and of the 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 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 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.
Under applicable law and regulations, the Directors are also responsible for
preparing the Strategic Report, a Corporate Governance Statement, a Directors'
Remuneration Report and a Directors' Report that comply with the law and
regulations.
In so far as each of the Directors is aware:
• there is no information, relevant to the audit, of which the Company's
auditor is 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, that:
• the financial statements, prepared in accordance with applicable accounting
standards, give a true and fair view of the assets, liabilities, financial
position and profit of the Company;
• 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; and
The Directors consider that this annual financial report, taken as a whole, is
fair, balanced and understandable and provides the information necessary for
shareholders to assess the Company's position and performance and its business
model and strategy.
Signed on behalf of the Board of Directors
Ian Barby
Chairman
17 April 2015
Electronic Publication
The annual financial report is published on www.invescoperpetual.co.uk/ipukscit
which is the Company's website maintained by the Company's Manager. The work
carried out by the Auditor did not involve consideration of the maintenance and
integrity of this website and accordingly, the Auditor accepts no
responsibility for any changes that have occurred to the financial statements
since they were initially presented on the website. Visitors to the website
need to be aware that legislation in the United Kingdom governing the
preparation and dissemination of the financial statements may differ from
legislation in other jurisdictions.
.
STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 JANUARY
2015 2014
NOTES REVENUE CAPITAL TOTAL REVENUE CAPITAL TOTAL
£'000 £'000 £'000 £'000 £'000 £'000
Profits on investments held - 3,032 3,032 - 43,806 43,806
at fair value
Income 2 4,468 139 4,607 4,555 - 4,555
Investment management fee 3 (189) (1,069) (1,258) (567) (567) (1,134)
Performance fee 3 - (1,408) (1,408) - - -
Other expenses (349) (4) (353) (314) (4) (318)
Profit before finance costs 3,930 690 4,620 3,674 43,235 46,909
and taxation
Finance costs - - - (1) (5) (6)
Profit before tax 3,930 690 4,620 3,673 43,230 46,903
Taxation - - - - - -
Profit after tax 3,930 690 4,620 3,673 43,230 46,903
Return per ordinary share
Basic 4 7.4p 1.3p 8.7p 6.9p 81.2p 88.1p
The total column of this statement represents the Company's Statement of
Comprehensive Income, prepared in accordance with International Financial
Reporting Standards. The profit after tax is the total comprehensive income for
the year. The supplementary revenue and capital columns are both prepared in
accordance with the Statement of Recommended Practice issued 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
NOTES CAPITAL PREMIUM RESERVE RESERVE RESERVE TOTAL
£'000 £'000 £'000 £'000 £'000 £'000
At 31 January 2013 10,642 21,244 3,386 111,847 4,915 152,034
Profit for the year - - - 43,230 3,673 46,903
Dividends paid 5 - - - - (3,188) (3,188)
At 31 January 2014 10,642 21,244 3,386 155,077 5,400 195,749
Profit for the year - - - 690 3,930 4,620
Dividends paid 5 - - - - (3,455) (3,455)
At 31 January 2015 10,642 21,244 3,386 155,767 5,875 196,914
.
BALANCE SHEET
FOR THE YEAR ENDED 31 JANUARY
2015 2014
NOTES £'000 £'000
Non-current assets
Investments held at fair value through 190,510 193,461
profit or loss
Current assets
Other receivables 321 1,108
Cash and cash equivalents 7,998 4,690
8,319 5,798
Total assets 198,829 199,259
Current liabilities
Other payables (1,915) (3,510)
Net assets 196,914 195,749
Issued capital and reserves
Share capital 6 10,642 10,642
Share premium 21,244 21,244
Capital redemption reserve 3,386 3,386
Capital reserve 155,767 155,077
Revenue reserve 5,875 5,400
Total shareholders' funds 196,914 195,749
Net asset value per ordinary
share
Basic 7 370.1p 367.9p
These financial statements were approved and authorised for issue by the Board
of Directors on 17 April 2015.
Signed on behalf of the Board of Directors
Ian Barby
Chairman
Richard Brooman
Deputy Chairman
.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 JANUARY
2015 2014
£'000 £'000
Cash flow from operating activities
Profit before tax 4,620 46,903
Adjustments for:
Purchases of investments (76,406) (86,351)
Sales of investments 82,463 81,044
6,057 (5,307)
Profits on investments (3,032) (43,806)
Finance costs - 6
Operating cash flows before movements in working 7,645 (2,204)
capital
Decrease/(increase) in receivables 58 (49)
Increase in payables 1,431 24
Net cash flows from operating activities after tax 9,134 (2,229)
Cash flows from financing activities
Interest paid - (6)
Equity dividends paid - note 5 (3,455) (3,188)
Net cash used in financing activities (3,455) (3,194)
Net increase/(decrease) in cash and cash equivalents 5,679 (5,423)
Cash and cash equivalents at the beginning of the year 2,319 7,742
Cash and cash equivalents at the end of the year 7,998 2,319
.
Reconciliation of cash and cash equivalents to the
Balance Sheet as follows:
2015 2014
£'000 £'000
Cash held at custodian 203 -
STIC* money market fund 7,795 4,690
Bank overdraft - (2,371)
Cash and cash equivalents 7,998 2,319
* Short-Term Investment Company (Global Series) plc.
NOTES TO THE FINANCIAL STATEMENTS
1. Principal Accounting Policies
Accounting policies describe the Company's approach to recognising and
measuring transactions during the year and the position of the Company at the
year end.
The principal accounting policies adopted in the preparation of these financial
statements are set out below. These policies have been consistently applied
during the current year and the preceding year, unless otherwise stated. The
financial statements have been prepared on a going concern basis. The
disclosure on going concern on page 24 in the Annual Financial Report forms
part of the financial statements.
(a) Basis of Preparation
(i) Accounting Standards applied
The financial statements have been prepared on an historical cost basis, except
for the measurement at fair value of investments and derivatives, and in
accordance with the applicable International Financial Reporting Standards
(IFRSs) and interpretations issued by the International Financial Reporting
Interpretations Committee as adopted by the European Union. The standards are
those endorsed by the European Union and effective at 31 January 2014.
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 in January 2009, is
consistent with the requirements of IFRSs, the Directors have sought to prepare
the financial statements on a basis compliant with the recommendations of the
SORP. The supplementary information which analyses the statement of
comprehensive income between items of a revenue and a capital nature is
presented in accordance with this.
(ii) Adoption of New and Revised Standards
New and revised standards and interpretations that became effective during the
year had no significant impact on the amounts reported in these financial
statements but may impact accounting for future transactions and arrangements.
At the date of authorising these financial statements, the following standards
and interpretations, which have not been applied in these financial statements,
were in issue but not yet effective (and in some cases had not yet been adopted
by the EU).
• Mandatory Effective Date and Transition Disclosures - Amendments to IFRS 9
and IFRS 7 Financial Instruments: Disclosure (effective 1 January 2015).
• IFRS 9: Financial Instruments (2013) (effective 1 January 2018).
• Amendments to IAS 1: Presentation of Financial Statements (effective 1
January 2016).
The Directors do not expect the adoption of the above standards and
interpretations (or any other standards and interpretations which are in issue
but not effective) will have a material impact on the financial statements of
the Company in future periods.
2. Income
This note shows the income generated from the portfolio (investment assets) of
the Company and income received from any other source.
2015 2014
£'000 £'000
Income from listed investments
UK dividends 3,605 3,453
UK unfranked investment income 123 36
Scrip dividends 56 206
Overseas dividends 192 273
Special dividends 481 587
4,457 4,555
Other income
Deposit interest 2 -
Money market deposit 1 -
Underwriting commission 8 -
Total income 4,468 4,555
Special dividends of £139,000 have been recognised in capital (2014: nil).
Overseas dividends include dividends received on UK listed investments where
the investee company is domiciled outside of the UK.
3. Investment Management Fees
This note shows the fees due to the Manager. These are made up of the
management fee calculated and paid monthly and a performance fee calculated and
paid annually. Both are based on the value of the assets being managed.
2015 2014
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Base management fee 189 1,069 1,258 567 567 1,134
Performance fee - 1,408 1,408 - - -
charged to capital
189 2,477 2,666 567 567 1,134
Details of the Investment Management Agreement can be found in the Directors'
Report in the Annual Financial Report.
At 31 January 2015, £108,000 (2014: £107,000) was accrued in respect of the
base management fee and £1,408,000 (2014: nil) was accrued for the performance
fee.
4. Earnings per Ordinary Share
Return per share is the amount of gain generated for the financial year divided
by the weighted average number of ordinary shares in issue.
2015 2014
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Basic 7.4p 1.3p 8.7p 6.9p 81.2p 88.1p
Basic total earnings per ordinary share is based on the net total profit for
the financial year of £4,620,000 (2014: £46,903,000).
Basic revenue earnings per ordinary share is based on the net revenue profit
for the financial year of £3,930,000 (2014: £3,673,000).
Basic capital earnings per ordinary share is based on the net capital profit
for the financial year of £690,000 (2014: £43,230,000).
All three earnings are based on the weighted average number of shares in issue
during the year of 53,209,084 (2014: 53,209,084).
5. Dividends on Ordinary Shares
The Company paid two dividends in the year - an interim and a final.
The 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.
2015 2014
pence £'000 pence £'000
Dividends paid in the year:
Final paid in respect of previous 4.90 2,607 4.40 2,341
year
Interim paid 1.60 852 1.60 852
Return of unclaimed dividends from
previous years - (4) - (5)
6.50 3,455 6.00 3,188
2015 2014
pence £'000 pence £'000
Dividends payable in respect of the
year:
Interim 1.60 852 1.60 852
Final 12.15 6,464 4.90 2,607
13.75 7,316 6.50 3,459
As explained in the Chairman's Statement the Company's dividend policy was
changed so that dividends will be paid firstly from any revenue reserves
available, and thereafter from capital reserves. The amount payable in respect
of the year is shown below:
2015 2014
pence £'000 pence £'000
Dividend payable in respect of the
year:
- from revenue reserves 12.64 6,727 6.50 3,459
- from capital reserves 1.11 589 - -
13.75 7,316 6.50 3,459
6. Share Capital
Share capital represents the total number of shares in issue, on which
dividends accrue.
2015 2014
NUMBER £'000 NUMBER £'000
Allotted, called-up and fully
paid
Ordinary shares of 20p each 53,209,084 10,642 53,209,084 10,642
During the year, the Company did not issue or repurchase any ordinary shares
(2014: nil).
7. Net Asset Value per Ordinary Share
The Company's total net assets (total assets less total liabilities) are often
termed shareholders' funds and are converted into net asset value per ordinary
share by dividing by the number of shares in issue.
The net asset value per share and the net asset values attributable at the year
end were as follows:
NET ASSET VALUE NET ASSETS
PER SHARE ATTRIBUTABLE
2015 2014 2015 2014
PENCE PENCE £'000 £'000
Ordinary shares
- Basic 370.1 367.9 196,914 195,749
Net asset value per ordinary share is based on net assets at the year end and
on 53,209,084 (2014: 53,209,084) ordinary shares, being the number of ordinary
shares in issue at the year end.
8. Related Party Transactions and Transactions with the Manager
A related party is a company or individual who has direct or indirect control
or who has significant influence over the Company. Under accounting standards,
the Manager is not a related party.
Under International Financial Reporting Standards, the Company has identified
the Directors as related parties and Directors' fees and interests have been
disclosed in the Directors' Remuneration Report on pages 29 to 31 of the Annual
Financial Report with additional disclosure in note 4. No other related parties
have been identified.
Up to 22 July 2014, the Manager was Invesco Asset Management Limited.
Thereafter, the Manager was Invesco Fund Managers Limited. Details of this
change and the Manager's services and fees are disclosed in the Director's
Report on page 25, and note 3 in the Annual Financial Report.
.
This Annual Financial Report announcement is not the Company's statutory
accounts. The statutory accounts for the year ended 31 January 2014 have been
delivered to the Registrar of Companies. The statutory accounts for the year
ended 31 January 2014 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 2015 have been approved and
audited but have not yet been filed.
The Audited Annual Financial Report will be posted to shareholders shortly.
Copies may be obtained during normal business hours from the offices of Invesco
Perpetual, 6th Floor, 125 London Wall, EC2Y 5AS.
A copy of the Annual Financial Report will be available from Invesco Perpetual
on the following website:
www.invescoperpetual.co.uk/ipukscit
The Annual General Meeting of the Company will be held at 12.00 noon on 4 June
2015 at 43-45 Portman Square, London, W1H 6LY.
By order of the Board
Invesco Asset Management Limited
Company Secretary
17 April 2015
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