Annual Financial Report

Invesco Perpetual UK Smaller Companies Investment Trust plc

Annual Financial Report Announcement for the Year Ended 31 January 2021

FINANCIAL HIGHLIGHTS

AT 31 JANUARY

	2021	2020	Change
Total shareholders’ funds (£000)	191,380	205,243	–6.8%
Net asset value⁽¹⁾ per share (NAV)	565.76p	606.74p	–6.8%
Share price⁽¹⁾⁽²⁾	483.00p	606.00p	–20.3%
Discount⁽¹⁾	(14.6)%	(0.1)%

Gearing⁽¹):
gross gearing	nil	nil
net gearing	nil	nil
net cash	2.2%	2.7%
Maximum authorised gearing	7.8%	7.3%

FOR THE YEAR ENDED 31 JANUARY	2021	2020

Total return (with income reinvested):
NAV⁽¹⁾⁽³⁾	-3.1%	+30.4%
Share price⁽¹⁾⁽³⁾	-16.8%	+35.2%
Benchmark Index^(1)(3)(4)	-0.9%	+13.7%
FTSE All-Share Index⁽³⁾	-7.5%	+10.7%

Return⁽¹⁾ and dividend per ordinary share:
Revenue	3.31p	10.13p
Capital	(25.69)p	133.21p
Total	(22.38)p	143.34p
First interim dividend	3.75p	3.75p
Second interim dividend	3.75p	3.75p
Third interim dividend	3.75p	3.75p
Final dividend	8.07p	7.35p
Total dividends	19.32p	18.60p	+3.9%
Dividend Yield⁽¹⁾	4.0%	3.1%
Dividend payable for the year (£000):
from current year net revenue	1,121	3,340
from revenue reserves and capital reserves	5,414	2,877
	6,535	6,217
Capital dividend as a % of year end net assets⁽¹⁾	2.8%	1.4%
Ongoing charges⁽¹⁾	0.97%	0.97%

Notes: (1) Alternative Performance Measure (APM). See Glossary of Terms and Alternative Performance Measures on pages 69 to 72 of the financial report for details of the explanation and reconciliations of APMs.

(2) Source: Refinitiv.

(3) The Benchmark Index of the Company is the Numis Smaller Companies Index (excluding Investment Companies) with income reinvested.

CHAIRMAN’S STATEMENT

Dear Shareholders,

Below is a summary of performance and other information for the financial year under review. This includes:

– reinstatement of the Company’s dividend policy targeting a dividend yield of 4% of year end share price;

– continuing to deliver a yield in excess of its UK Smaller Company Investment Trust peer group; and

– enhancement of the dividend from realised capital profits in the context of annualised long term growth.

Performance

For the year ended 31 January 2021 your Company returned –3.1% in net asset value (NAV) terms, underperforming its Benchmark Index, the Numis Smaller Companies Index (excluding Investment Companies), which returned –0.9%, (in each case measured on a total return basis). While the Portfolio Managers express their disappointment at having underperformed the Company’s benchmark, the Board has been impressed with their disciplined approach to investment in the face of such turbulent market conditions.

The Company’s share price total return for the year was –16.8% (2020: +35.2%). The Board believes sentiment towards the Company, reflected in its share price and discount performance over the year, is at least in part due to expectations around the level of dividend the Company would pay in future years. Dividend and dividend policy are covered on the next page.

For information, against the wider UK stock market (as measured by the FTSE All-Share Index), which returned –7.5%, the Company outperformed by 4.4% over the same period.

As at the latest practicable date prior to the publication of this report, being 20 April 2021, the discount stands at 9.0% and the Company’s share price has risen by 21.5%, the NAV has risen 14.0% and the Benchmark Index is up 14.7% over the period between 1 February and 20 April 2021.

Discount/Premium

During the year the shares traded within the range of –21.7% (discount) to +3.3% (premium).

The Board continues to monitor the discount level at which the Company’s shares trade and may seek to limit any future volatility through the prudent use of both share issuance and share buybacks, as the circumstances require.

Dividend and dividend policy

Shareholders will recall that last year the Board made the decision to maintain the Company’s dividend at the prior year pence per share level. This decision was made against a background of trying to assess the impact of Covid-19 on UK smaller companies, an increasing number of announcements of dividend cuts for cash conservation purposes within portfolio companies and uncertainty as to when or whether recovery might occur. Unlike many investment trusts, your Company does not have revenue reserves to call upon in times of income deterioration as these were distributed in full to shareholders in 2015 when the Company’s dividend policy was amended. However, the Company does have sufficient capital profits from which dividends can be and have been enhanced since 2015.

Through the twelve month period, the Company’s dividend policy has remained under review and, as promised, the Board has kept shareholders updated with their thinking. Midway through 2020, revenue receipts and the outlook at that point led the Board to believe a progressive dividend policy, starting from the established position would be the most sensible way ahead, given the importance of dividends to shareholders.

Uncertainty surrounding whether the Board would be able to resume the Company’s previous dividend policy, namely, to pay out all income earned within the portfolio and to enhance it annually through the use of a small amount of realised capital profits with a target dividend yield of 4% of year end share price, has weighed on the Company’s share price performance and discount rating over the past twelve months. This can be seen in the chart showing the Company’s discount versus its investment trust peers.

In recognition of the above, together with the improved outlook for recovery described by the Portfolio Managers, ongoing monetary stimulus provided by governments and rollout of vaccine programmes across the world, the Board is pleased to confirm to shareholders that the Company’s dividend policy will be reinstated, including the target dividend yield of 4% of year end share price.

For the year under review, this will result in a larger payment from realised capital profits than the Board would, under normal circumstances be comfortable to recommend. However, in these exceptional times, the Board believes it is appropriate in the context of the Portfolio Managers’ expectations for annualised capital growth within the smaller companies investment universe continuing to be attractive.

The Board has decided that the Company will propose a final dividend of 8.07p to bring the total dividend paid for the year to 19.32p (2020: 18.60p). This represents all of the available revenue earned by the Company’s portfolio over the year, together with 16.01p from realised capital profits. Revenue per share has decreased from 10.13p last year to 3.31p this year, which means that the resulting balance of dividend being paid from realised capital profits represents 2.8% of net assets at the year end and it continues to represent a relatively small proportion of the longer-term total returns achieved by the Manager.

The Company’s dividends are paid quarterly in September, December, March and June. For the year ended 31 January 2021, three interim dividends of 3.75p each have already been paid and the Board has announced a proposed final dividend of 8.07p per share, making a total for the year of 19.32p per share. The final dividend will be payable, subject to shareholder approval, on 11 June 2021 to shareholders on the register on 14 May 2021 and the shares will go ex-dividend on 13 May 2021.

Board Composition and Succession Planning

During the year the Board reviewed its composition and succession planning and consequently engaged Fletcher Jones Ltd, an external search consultant, to conduct a search for a new Director. As a result, Mike Prentis was appointed a Director of the Company on 22 February 2021 and will accordingly stand for election by shareholders at the forthcoming AGM.

Mike is a former fund manager specialising in the UK smaller companies sector and his skills will complement those of the other members of the Board. More details about Mike’s career and experience are set out on page 25.

Having served on the Board for over 10 years, Christopher Fletcher will retire as a Director of the Company at the conclusion of the forthcoming AGM. The Board and I would like to thank Christopher for his years of excellent service to the Company.

I am pleased to announce that Bridget Guerin will be appointed as Chairman of the Management Engagement Committee and Senior Independent Director with effect from the conclusion of the AGM. Following the AGM, the Board will consist of four Non-Executive Directors with a range of skills which the Board considers is an appropriate mix for your Company at this time.

Environmental, social and governance (ESG) matters

Shareholders are rightly concerned that their Company should be seen to be investing in companies which operate in a responsible and sustainable way. The Portfolio Managers set out their own approach within the Investment Strategy section of their report and greater detail about Invesco’s policies can be found in the Strategic Report on pages 18 to 21.

Annual General Meeting (‘AGM’)

The Company’s Annual General Meeting will be held at 12 noon on 10 June 2021 at 43-45 Portman Square, London W1H 6LY. Details of the business of the meeting are set out in the Notice of Meeting on pages 62 to 65. The Board is mindful of the travel and meeting restrictions in place in response to Covid-19 and therefore the AGM will be held as a closed meeting. Shareholders are therefore encouraged to submit their votes by proxy. Shareholders are also strongly encouraged to lodge their vote either electronically via the Registrar’s online portal, contacting your platform provider or using a Form of Proxy to appoint the Chairman of the AGM as your proxy to vote on your behalf.

The Board is cognisant of the fact that many shareholders value the opportunity to hear from the Portfolio Managers and the Board. I would like therefore, to invite you to attend a webinar with us on 2 June 2021 at 10am. A presentation will be made by Jonathan Brown followed by a question and answer session. Shareholders can submit questions during the webinar or in advance by writing to the Company Secretary at the address given on page 68 or investmenttrusts@invesco.com. Details on how to register for the event are available via the Company’s website www.invesco.co.uk/ipukscit

Outlook

At the time of writing this statement there is both optimism as the vaccine programme is rolled out in the UK together with uncertainty surrounding further waves of new variants of Covid-19 in Europe and the wider world. As a result, it is still difficult to assess the longer-term impacts of the pandemic on the operations of businesses and public services not to mention on everyday life. However, there is generally a more optimistic feel to the forecasts for growth being published at a company level and more broadly across the UK economy.

Vaccine disputes apart, the trade agreement negotiated to deliver Brexit also appears to be providing sufficient certainty to allow businesses to take a more positive view of trading with the EU and to invest accordingly.

Your Portfolio Managers have set out their case in the following pages for a more positive outlook, particularly in the second half of this year and the Board retains confidence in their investment approach.

In conclusion I would like to thank our Portfolio Managers for their response to the various challenges which have arisen throughout the past year. Their professional approach, skills and adaptability will, we believe, continue to serve your Company well.

Jane Lewis

Chairman

22 April 2021

PORTFOLIO MANAGER’S REPORT

Investment Review

The year under review was unusually turbulent. The Covid-19 pandemic and the measures put in place by governments to combat its effects had a profound impact on individuals, markets, and the economy. The market collapse in March was one of the most dramatic on record in terms of both pace and amplitude, with many indices falling 30-40%. The economic impact was equally historic, with the UK economy suffering its worst contraction in over 300 years. In the face of such unprecedented events, central banks initiated huge monetary stimulus programmes to support the economy by targeting both companies and individuals. This led to a significant recovery in equity markets, which received a further boost later in the year as positive news about vaccine programmes emerged. It is remarkable that after such a tumultuous period, equity markets had recovered most of the losses and in some cases ended the year in positive territory.

Over the year to 31 January 2021 the UK stock market, as measured by the FTSE All-Share Index, declined 7.5% on a total return basis. Smaller companies, as measured by the Numis Smaller Companies Index (excluding Investment Companies), fared better, declining just 0.9% on a total return basis over the year.

Invesco Perpetual UK Smaller Companies Investment Trust plc

Performance attribution for the year ended 31 January 2021

	TOTAL
	ABSOLUTE
	%
Net asset value total return⁽¹⁾	–3.1
Less: Benchmark total return⁽¹⁾	–0.9
Relative underperformance	–2.2
Analysis of Relative Performance
Portfolio total return including
cash and excluding expenses	–2.1
Less: Benchmark total return⁽¹⁾	–0.9
Portfolio underperformance	–1.2
Net gearing effect	–
Management fees	–0.8
Other expenses	–0.2
Total	–2.2

(1) Source: Refinitiv.

Performance attribution analyses the Company’s net asset value performance relative to its benchmark.

Portfolio (under)/outperformance measures the relative effect of the Company’s investment portfolio including cash and excluding expenses against that of its benchmark.

Net gearing effect measures the impact of borrowings less any cash balances on the Company’s relative performance. This is nil where there is no gearing in a year.

Management fees and other expenses 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.

Portfolio Review

Against this background, your Company generated a net asset value total return of –3.1% for the fiscal year. As your fund managers, we are disappointed to have underperformed the market over the period. However, we believe that maintaining valuation discipline and a focus on good quality, growing business will continue to produce good returns over the long term for our shareholders. In terms of sector performance, it was a year of two halves, with the worst performing sectors in the first half of year (Leisure & Consumer Goods) becoming the best performing sectors in the second half.

At the individual stock level, the best performers included: Keywords Studios (+118%), which provides outsourced services to the computer games industry. The sector fared well through the crisis and Keywords Studios continued to grow its presence in areas such as art creation, language translation and games engineering. Financial administration business JTC (+47%), which provides services to real estate and private equity funds, multinational companies and high net worth individuals, weathered the crisis well. It benefits from long-term contracts and recurring revenue, which along with some earnings accretive acquisitions enabled the business to grow despite the pandemic. Kainos (+60%), an IT services business which reduces administrative costs for the government by creating systems that allow people to “self-serve” in areas such as paying their road tax, continued to perform well. The company is seen as an ongoing winner as the public and private sector continue to modernise their interactions with customers.

The portfolio also benefited from a number of new holdings bought in the depths of the market sell off. These included: Builders merchant, Grafton (+112%), which sold off very heavily in March but has recovered strongly as the construction industry resumed work ahead of many other sectors. Low cost gym operator, The Gym (+124%) also presented us with an exciting opportunity, falling 75% from its pre-crisis level. We are confident the business will return to growth once lockdowns are eased. Pub group Mitchells & Butlers (+98%) also fell heavily. The stock was trading at around half asset value, which offered the potential for significant upside even in the event of a protracted return to normality.

Inevitably there were disappointments in the period: Housebuilder, Vistry (-42%), fell as much as 65% in the sell-off. Trading has recovered well, and the business is in a strong financial position, which has given us confidence to add to the holding. James Fisher and Sons (–49%), which is a marine services business, saw lower demand for its services as Covid-19 disrupted its end markets. We still believe the business has a good future, and its expertise in the construction of offshore wind farms should drive growth once normal working practices resume. Promotional products business 4imprint (–29%) has been an excellent stock for us over the years, but it saw sharply lower demand for its products as face to face meetings were curtailed by the crisis. The company has emerged from previous downturns with a stronger market position, so we took the opportunity to add to the holding.

Investment Strategy

Our investment strategy remains unchanged. The current portfolio is comprised of 78 stocks with the sector weightings being determined by where we are finding attractive companies at a given time, rather than by allocating assets according to a “top down” view of the economy. We continue to seek growing businesses, which have the potential to be significantly larger in the medium term. These tend to be companies that either have great products or services, that can enable them to take market share from their competitors, or companies that are exposed to higher growth niches within the UK economy or overseas. We prefer to invest in cash generative businesses that can fund their own expansion, although we are willing to back strong management teams by providing additional capital to invest for growth.

The sustainability of returns and profit margins is vital for the long term success of a company. The assessment of a business’s position within its supply chain and a clear understanding of how work is won and priced are key to determining if a company has “pricing power”. It is also important to determine which businesses possess unique capabilities, in the form of intellectual property, specialist know-how or a scale advantage in their chosen market. In normal times we conduct around 300 company meetings and site visits a year, and these areas are a particular focus for us on such occasions. During the past year, these meetings have been conducted virtually.

Environmental, social and governance (ESG) issues have become a key focus for many investors. Analysis of these factors has always been a core part of our investment process. The impact of environmental liabilities, socially dubious business practices and poor corporate governance, on share prices can be very significant. We always seek to quantify the cost and probability of environmental risks within a business, and factor this into our valuation considerations. Social issues can be less tangible, but we try to avoid businesses, which whilst acting within the law, run the risk of a public backlash, or being constrained by new legislation. When it comes to the governance, board structure and incentivisation, we proactively consult with all the businesses we own and will vote against resolutions where standards fall short of our expectations.

Significant Holdings

The 5 largest holdings in the portfolio at the end of the period were:

• RWS (3.8% of the portfolio) is a language translation business with world leading positions in the translation of patents, scientific and technical texts. The specialist knowledge and requirement for precision in these kinds of areas allows the business to generate strong margins. The business recently merged with SDL, which enhanced its language technology capability and created the world’s largest language translation business.

• JTC (3.2% of the portfolio) is a financial administration business operating primarily in the Channel Islands but also with offices in North America and Europe. It provides services to real estate and private equity funds, multinational companies and high net worth individuals. The business has a strong reputation for quality and has augmented its organic growth with acquisitions. The business benefits from long term contracts, giving it excellent earnings visibility.

• CVS (3.2% of the portfolio) is a leading veterinary services business, which owns over 500 vet surgeries and specialist centres, predominantly in the UK. The scale of the business gives it purchasing power, allowing it to generate a higher margin than individual surgeries. Management successfully built a significant share of UK market and have recently entered continental Europe. The business is relatively unaffected by the economic cycle, and with more money being spent on the wellbeing of the nation’s pets, can continue to grow for many years to come.

• Future (3.0% of the portfolio) is a media business which is successfully transitioning from publishing magazines to running a diverse range of niche interest websites such as TechRadar, What Hi-Fi, Period Living and Digital Camera World. The business aims to produce relevant, high quality content and monetise it via subscriptions, advertising, and e-commerce. Management have been successful in revitalising numerous brands, and the company has grown revenue and profit both organically and via acquisition.

• Clinigen (2.5% of the portfolio) is a healthcare business which is a world leader in the specialist distribution of drugs to geographies where they haven’t been formally approved, experimental drugs to acutely ill patients and comparator drugs into medical trials. These activities give management insight into drugs that could potentially be used on a wider basis. This enables management to acquire the rights to compounds where they can increase profitability by achieving further approvals for new categories of patients.

Outlook

Despite the UK economy suffering its biggest set-back in 300 years, we think the building blocks are in place for a strong recovery in the second half of 2021. The current pace of the vaccination programme should mean that we see a significant reduction in the number of deaths and hospitalisations from Covid-19, paving the way for the government to loosen the emergency restrictions. We believe there is considerable pent-up demand for both leisure and retail spending, and due to the high savings rate during lockdown, the consumer sector could be a driver of strong GDP growth from the summer onwards. Additionally, the Brexit trade agreement gives businesses certainty around trading arrangements with the EU, allowing companies to invest with confidence. The government has provided unprecedented support for the UK economy during the pandemic, and we expect continued support, for example, in infrastructure to help further drive the recovery from the pandemic.

It is understandable, given the level of uncertainty, that analysts and companies have taken a cautious view on the pace of recovery; with a fair wind we believe many businesses will exceed these expectations and to have regained historic levels of revenue within twelve to twenty-four months. Beyond that we believe that the growth opportunities for our investee companies remain undiminished, and in many cases they have emerged from the crisis with enhanced market positions and growth potential.

While the events of the last year have taken a heavy toll on individuals, companies, and the economy, we face the future with optimism. We believe our approach of investing in good quality businesses at sensible valuations remains the correct strategy for achieving long term returns.

Jonathan Brown

Portfolio Manager

Robin West

Deputy Portfolio Manager

22 April 2021

BUSINESS REVIEW

Purpose, Culture, Business Model and Strategy

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’s purpose is to generate returns for shareholders by investing their pooled capital to achieve the Company’s investment objective through the application of its investment policy and with the aim of spreading investment risk.

As the Company has no employees, the business model the Company has adopted to achieve its objective has been to contract its operations to appropriate external service providers. The Board has oversight of the Company’s service providers, and monitors them on a formal and regular basis. The Board has a collegiate culture and pursues its fiduciary responsibilities with independence, integrity and diligence, taking advice and outside views as appropriate and constructively challenging and interacting with service providers, including the Manager.

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. The Manager has delegated portfolio valuation, fund accounting and administrative services to The Bank of New York Mellon, London Branch.

In addition, the Company has contractual arrangements with Link Asset Services to act as registrar and The Bank of New York Mellon (International) Limited (BNYMIL) as depositary and custodian.

Investment Objective

The Company is an investment trust whose investment objective is to achieve long-term total returns 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 and those 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 its benchmark, the Numis Smaller Companies Index (excluding Investment Companies) with income reinvested. 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 under this investment policy 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, comprises income received from the portfolio, with the balance coming from capital reserves.

In normal circumstances, the dividend for the year is calculated to give a yield of 4% based on the year end share price.

Performance

The Board reviews performance by reference to a number of Key Performance Indicators which include the following:

• the movement in the net asset value (NAV) per share on a total return basis;

• the net asset value and share price performance relative to the benchmark index and the peer group;

• the discount/premium to net asset value;

• dividend per share; and

• the ongoing charges.

The ten year record for the NAV and share price performance compared with the Company’s benchmark index can be found on page 5, and the five year discount record is on page 8. The ten year record for dividends and ongoing charges is shown on page 5.

Results and Dividends

In the year ended 31 January 2021, the net asset value total return was –3.1%, compared with a total return on the benchmark index of –0.9%, an underperformance of 2.2%. The discount at the year end was 14.6% (2020: 0.1%). The Portfolio Managers’ Report shows an analysis of the relative performance in a table on page 10.

For the year ended 31 January 2021, three interim dividends of 3.75p per share were paid to shareholders in September and December 2020 and March 2021. A final dividend of 8.07p per share will be paid on 11 June 2021 to shareholders on the register on 14 May 2021. This will give total dividends for the year of 19.32p (2020: 18.60p), representing a yield of 4% based on the share price as at 31 January 2021. Further details are provided in the Chairman’s Statement on page 8. Of the total dividend, 17% (2020: 54%) was generated from revenue in the year. The remainder was funded from realised capital reserves and represents 2.8% (2020: 1.4% from revenue reserve and realised capital reserves) of the year end net assets.

Financial Position and Borrowings

At 31 January 2021, the Company’s net assets were valued at £191 million (2020: £205 million), comprising a portfolio of equity investments and net current assets, with no borrowings (2020: £nil).

Borrowings under the Company’s investment policy may be used to raise market exposure up to the lower of 30% of net asset value and £25 million. The Company currently has an overdraft facility with The Bank of New York Mellon under which borrowings are limited to the maximum of 30% of net assets and £15 million, whichever is the lower. The overdraft facility is available for gearing or settlement purposes and was not drawn at the year end (2020: £nil).

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 Managers’ Report. Details of the principal risks affecting the Company are set out under ‘Principal Risks and Uncertainties’ below.

Principal Risks and Uncertainties

The Directors confirm that they have carried out a robust assessment of the emerging and principal risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity. Most of these risks are market related and are similar to those of other investment trusts investing primarily in listed markets. The Audit Committee reviews the Company’s risk control summary at each meeting, and as part of this process, gives consideration to identify emerging risks. Any emerging risks that are identified, that are considered to be of significance will be recorded on the Company’s Risk Control Summary with any mitigations. In carrying out this assessment, consideration is being given to the market and the impact from the Coronavirus (Covid-19) outbreak.

Market (Economic) Risk: Factors such as fluctuations in stock markets, interest rates and exchange rates are not under the control of the Board or 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 the discount to its NAV. To a limited extent, futures can be used to mitigate this risk, as can the judicious holding of cash or other very liquid assets. The risk could be triggered by unfavourable developments globally and/or in one or more regions, contemporary examples being the market uncertainty in relation to Covid-19 pandemic. The Directors have assessed the market impact of Covid-19 through regular discussions with the Portfolio Managers and the Corporate Broker.

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 may 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 Managers’ 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, cautiously, 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. 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 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. The Board reviews regularly the Company’s investment objective and strategy to ensure that it remains relevant, as well as reviewing the composition of the shareholder register, peer group performance on both a share price and net asset value basis, and the Company’s share price discount to net asset value per share.

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; both share buy back and issuance facilities are in place 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 limits agreed. The Company did not use any borrowings during the year.

Reliance on the Manager and other Third Party Service Providers: The Company has no employees and the Directors are all non-executive. The Company is therefore reliant upon the performance of third party service providers for its executive function and service provisions. Third party service providers are subject to ongoing monitoring by the Manager and the Company. The Company’s operational structure means that all cyber risk (information and physical security) arises at its third party service providers, including fraud, sabotage or crime against 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 successfully to pursue its investment policy. The Company’s main service providers, of which the Manager is the principal provider, are listed on page 68. The Directors have reviewed the operational readiness as detailed in the “Operational Resilience Risk” section.

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. Damage to the reputation of the Manager could potentially result in 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 Audit Committee reviews regularly the performance and internal controls of the Manager and all third party providers through audited service organisation control reports, together with updates on information security and business continuity plans and testing, 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, its listing on the London Stock Exchange and being an Alternative Investment Fund under the Alternative Investment Fund Managers Directive. A loss of investment trust status could lead to the Company being subject to corporation tax on the chargeable capital gains arising 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 regular 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.

Further details of risks and risk management policies as they relate to the financial assets and liabilities of the Company are detailed in note 16 to the financial statements.

Operational Resilience Risk: The Company’s operational capability relies upon the ability of its third party service providers to continue working throughout the disruption caused by a major event such as the Covid-19 pandemic.

The Manager’s business continuity plans are reviewed on an ongoing basis and the Directors are satisfied that the Manager has in place robust plans and infrastructure to minimise the impact on its operations so that the Company can continue to trade, meet regulatory obligations, report and meet shareholder requirements.

As the impact of Covid-19 continues, the Manager has mandated work from home arrangements and implemented split team working for those whose work is deemed necessary to be carried out on business premises. Any meetings are held virtually or via conference calls. Other similar working arrangements are in place for the Company’s third-party service providers. The Board receives regular update reports from the Manager and third party service providers on business continuity processes and has been provided with assurance from them all insofar as possible that measures are in place for them to continue to provide contracted services to the Company.

Viability Statement

In accordance with provision 31 of the UK Code of Corporate Governance, the Directors have assessed the prospects of the Company over a longer period than 12 months. The Company is an investment trust, a collective investment vehicle designed and managed for long term investment. While the appropriate period over which to assess the Company’s viability may vary from year to year, the long term for the purpose of this viability statement is currently considered by the Board to be at least five years, with the life of the Company not intended to be limited to that or any other period.

The main risks to the Company’s continuation are: poor investment performance over an extended period; or shareholder dissatisfaction through failure to meet the Company’s investment objective; or the investment policy not being appropriate in prevailing market conditions. Accordingly, failure to meet the Company’s investment objective, and contributory market and investment risks, are deemed by the Board to be principal risks of the Company and are given particular consideration when assessing the Company’s long term viability. Despite the disruption from Covid-19 and the impact on global markets, the Directors remain confident that the Company's investment strategy will continue to serve shareholders well over the longer term.

The investment objective of the Company has been substantially unchanged for many years. The 2015 amendment to dividend policy gave some additional weight to targeting increased dividend income to shareholders. This change does not affect the total return sought or produced by the Portfolio Manager but was designed to increase returns distributed to shareholders. The Board considers that the investment objective remains appropriate. This is confirmed by contact with major shareholders.

Performance derives from returns for risk taken. The Portfolio Managers’ Report on pages 10 to 12 sets out their current investment strategy. Disruption from global markets during the year has resulted in under performance at the year end, however, the Company’s performance has been strong through different market cycles, as shown by the ten year total return performance graph on page 6. There has been no material change in the Company’s investment objective or policy.

Demand for the Company’s shares and performance are not things that can be forecast, but there are no current indications that either or both of these may decline materially over the next five years so as to affect the Company’s viability.

The Company is a closed end investment trust and can pursue a long term investment strategy and make use of gearing to enhance returns through investment cycles without the need to maintain liquidity for investor redemptions.

Based on the above analysis, including review of the revenue forecast for future years along with stress testing of the portfolio valuation, the Directors confirm that they expect the Company will continue to operate and meet its liabilities, as they fall due, during the five years ending January 2026.

Duty to Promote the Success of the Company (s.172)

In accordance with the Companies (Miscellaneous Reporting) Regulations 2018, the below details how the Directors have discharged their duties under section 172 of the Companies Act 2006 during the year under review. The Directors have a statutory duty to promote the success of the Company, whilst also having regard to certain broader matters, including the need to engage with employees, suppliers, customers and others, and to have regard to their interests. However, the Company has no employees and no customers in the traditional sense. In accordance with the Company’s nature as an investment trust, the Board’s principal concern has been, and continues to be, the interests of the Company’s shareholders taken as a whole. In doing so, it has due regard to the impact of its actions on other shareholders and the wider community. A formal schedule of matters reserved for decision by the Board details the responsibilities of the Board. The main responsibilities include: setting the Company’s objectives, policies and standards; ensuring that the Company’s obligations to shareholders and others are understood and complied with; approving accounting policies and dividend policy; managing the capital structure; setting long-term objectives and strategy; assessing risk; reviewing investment performance; approving loans and borrowing; and controlling risks. The Schedule of Matters Reserved for the Board and the Terms of Reference for its Committees are reviewed at least annually and published on the Company’s web page.

The Board engages with the Manager at every Board meeting and receives updates from the Portfolio Managers on a regular basis outside of these meetings. The Management Engagement Committee reviews its relationships with the Manager and other third party service providers at least annually. The Manager holds regular service review meetings with the Company’s Registrar, Depositary, Broker, Fund Accountant and Custodian; and reviews their performance against various service level agreements. Summaries of these reviews are presented to the Board on a regular basis and the Manager acts on feedback as appropriate.

At every Board meeting the Directors receive an investor relations update from the Manager, which details any significant changes in the Company's shareholder register, shareholder feedback, as well as notifications of any publications or press articles.

Some of the key discussions and decisions the Board made during the year were:

• to appoint Graham Paterson as Chairman of the Audit Committee on 11 June 2020 following Richard Brooman’s retirement. Mr Paterson is a qualified chartered accountant with over 20 years' experience in private equity;

• to consider the impact of the Covid-19 on the Company and portfolio holdings;

• to appoint an additional director to enable long term succession planning and to ensure that the Board had a balance of skills. After a recruitment process which began prior to the Company's year end Mike Prentis was appointed as a Director of the Company with effect from 22 February 2021;

• to consider Brexit with additional guidance provided by the Manager and other third-party service providers however, it was decided that there were no direct changes required; and

• to discuss and adjust the Company’s dividend policy in response to the impact of Covid-19 on the portfolio and financial markets. Further details can be found in the Chairman's Statement.

The Company communicates with shareholders at least twice a year providing information about shareholder meetings, dividend payments and financial results. The Company’s page on the Manager’s website provides all shareholder information and hosts blogs and video presentations (vlogs) by the Portfolio Manager. The Company holds its Annual General Meeting in London; this provides shareholders with the opportunity to listen to a presentation by the Portfolio Manager and meet with Directors and representatives of the Manager. All shareholders are encouraged to attend the AGM in normal circumstances and vote on the resolutions. Furthermore, the Manager provides a schedule of regional meetings with institutional investors and analysts to gather the views and thoughts of institutional investors.

Environmental, Social and Governance (ESG) Matters

In relation to the portfolio, the Company has, for the time being, delegated the management of the Company’s investments to the current Manager, who has an ESG Guiding Framework which sets out a number of principles that are considered in the context of its responsibility to manage investments in the financial interests of shareholders.

The Manager is committed to being a responsible investor and applies, and is a signatory to, the United Nations Principles for Responsible Investment (‘PRI’), which demonstrates its extensive efforts in terms of ESG integration, active ownership, investor collaboration and transparency. The Manager also achieved a global ‘A+’ rating for its overall approach to responsible investment for the fourth consecutive year since 2018 as well as achieving an ‘A’ or ‘A+’ across all categories in the 2020 assessment period from PRI for Strategy and Governance. In addition, the Manager is an active member of the UK Sustainable Investment and Finance Association as well as a supporter of the Task Force for Climate Related Financial Disclosure (TCFD) since 2019. The Manager has published its inaugural Climate Change report in line with the TCFD in July 2020. Although TCFD does not apply directly for the Company at present, the Board confirms that it will comply with all reporting regulations as they are implemented.

The Manager has also voluntarily complied with the Sustainable Finance Disclosure Regulation (SFDR) which came into effect within the European Union on 10 March 2021 and introduces a number of sustainability-related disclosure requirements for financial market participants.

The investment team incorporates ESG considerations in its investment process as part of the evaluation of new opportunities, with identified ESG concerns feeding into the final investment decision and assessment of relative value. The portfolio managers make their own conclusions about the ESG characteristics of each investment held and about the overall ESG characteristics of the portfolio, although third party ESG ratings may inform their view. Additionally, the Manager’s ESG team provides formalised ESG portfolio monitoring. This is a rigorous semi-annual process where the portfolio is reviewed from an ESG perspective.

Regarding stewardship, the Board considers that the Company has a responsibility as a shareholder towards ensuring that high standards of corporate governance are maintained in the companies in which it invests. To achieve this, the Board does not seek to intervene in daily management decisions, but aims to support high standards of governance and, where necessary, will take the initiative to ensure those standards are met. The principal means of putting shareholder responsibility into practice is through the exercise of voting rights. The Company’s voting rights are exercised on an informed and independent basis. Further details are shown in the ESG Statement from the Manager on page 21.

The Company’s stewardship functions have been delegated to the Manager. The current Manager has adopted a clear and considered policy towards its responsibility as a shareholder on behalf of the Company. As part of this policy, the Manager takes steps to satisfy itself about the extent to which the companies in which it invests look after shareholders’ value and comply with local recommendations and practices, such as the UK Corporate Governance Code. The Manager is also a Tier 1 signatory of the Financial Reporting Council’s Stewardship Code, which seeks to improve the quality of engagement between institutional investors and companies to help improve long-term returns to shareholders and the efficient exercise of governance responsibilities. A copy of the current Manager’s Stewardship Policy can be found at www.invesco.co.uk.

A greenhouse gas emissions statement is included in the Directors' Report on page 29.

Modern Slavery

The Company is an investment vehicle and does not provide goods or services in the normal course of business or have customers. Accordingly, the Directors consider that the Company is not required to make any slavery or human trafficking statement under the Modern Slavery Act 2015.

Board Diversity

The Board takes into account many factors, including the balance of skills, knowledge, diversity (including gender) and experience, amongst other factors when reviewing its composition and appointing new directors. The Board has considered the recommendations of the Davies and Hampton-Alexander review as well as the Parker review, but does not consider it appropriate to establish targets or quotas in this regard. There are no set targets in respect of diversity, including gender. However, diversity forms part of both the Nominations Committee and main Board’s deliberations when considering new appointments. The Company’s success depends on suitably qualified candidates who are willing, and have the time, to be a director of the Company. Summary biographical details of the Directors are set out on page 25. The Company has no employees. At the year end the Board consisted of four directors, two of whom are women, thereby constituting 50% female representation.

The Strategic Report was approved by the Board of Directors on 22 April 2021.

Invesco Asset Management Limited

Corporate Company Secretary

INVESTMENTS IN ORDER OF VALUATION

AT 31 JANUARY 2021

Ordinary shares unless stated otherwise

		Market
		Value	% of
Company	Sector	£000	Portfolio
RWS^AIM	Support Services	7,160	3.8
JTC	Financial Services	6,039	3.2
CVSAIM	General Retailers	5,987	3.2
Future	Media	5,660	3.0
Clinigen^AIM	Pharmaceuticals & Biotechnology	4,634	2.5
Johnson Service^AIM	Support Services	4,325	2.3
4imprint	Media	4,184	2.2
NCC	Software & Computer Services	4,041	2.2
Aptitude Software	Software & Computer Services	4,020	2.1
Volution	Construction & Materials	3,780	2.0
Top Ten Holdings		49,830	26.5
Hilton Food	Food Producers	3,655	2.0
Essentra	Support Services	3,612	1.9
Arrow Global	Financial Services	3,565	1.9
Hill & Smith	Industrial Engineering	3,524	1.9
Hollywood Bowl	Travel & Leisure	3,368	1.8
Sanne	Financial Services	3,281	1.7
Ultra Electronics	Aerospace & Defence	3,212	1.7
CLS	Real Estate Investment & Services	3,111	1.7
Brooks Macdonald^AIM	Financial Services	3,011	1.6
Energean	Oil & Gas Producers	2,950	1.6
Top Twenty Holdings		83,119	44.3
Keywords Studios^AIM	Leisure Goods	2,889	1.5
The Gym	Travel & Leisure	2,874	1.5
Vistry	Household Goods & Home Construction	2,701	1.4
Young & Co's Brewery – Non-Voting^AIM	Travel & Leisure	2,676	1.4
discoverIE	Electronic & Electrical Equipment	2,627	1.4
Crest Nicholson	Household Goods & Home Construction	2,625	1.4
Learning Technologies^AIM	Software & Computer Services	2,613	1.4
James Fisher and Sons	Industrial Transportation	2,590	1.4
VP	Support Services	2,547	1.4
Vectura	Pharmaceuticals & Biotechnology	2,539	1.4
Top Thirty Holdings		109,800	58.5
St. Modwen Properties	Real Estate Investment & Services	2,537	1.4
Restore^AIM	Support Services	2,532	1.3
Inspecs^AIM	Personal Goods	2,324	1.3
Loungers^AIM	Travel & Leisure	2,290	1.2
Coats	General Industrials	2,278	1.2
Severfield	Industrial Engineering	2,226	1.2
JD Wetherspoon	Travel & Leisure	2,205	1.2
Polypipe	Construction & Materials	2,198	1.2
Vitec	Industrial Engineering	2,183	1.1
Robert Walters	Support Services	2,160	1.1
Top Forty Holdings		132,733	70.7
Churchill China^AIM	Household Goods & Home Construction	2,138	1.1
Knights^AIM	Support Services	2,083	1.1
Advanced Medical Solutions^AIM	Health Care Equipment & Services	2,067	1.1
Kainos	Software & Computer Services	2,052	1.1
Grafton^U	Support Services	2,047	1.1
Jadestone Energy^AIM	Oil & Gas Producers	2,003	1.1
Workspace	Real Estate Investment Trusts	1,927	1.0
Scapa^AIM	Chemicals	1,906	1.0
DFS Furniture	General Retailers	1,872	1.0
Alfa Financial Software	Software & Computer Services	1,835	1.0
Top Fifty Holdings		152,663	81.3
Vesuvius	Industrial Engineering	1,832	1.0
Cohort^AIM	Aerospace & Defence	1,765	0.9
Alpha Financial Markets Consulting^AIM	Support Services	1,677	0.9
Topps Tiles	General Retailers	1,666	0.9
Ricardo	Support Services	1,657	0.9
Mitchells & Butlers	Travel & Leisure	1,603	0.9
Midwich^AIM	Support Services	1,586	0.9
Savills	Real Estate Investment & Services	1,568	0.8
FDM	Software & Computer Services	1,560	0.8
Secure Trust Bank	Banks	1,534	0.8
Top Sixty Holdings		169,111	90.1
Safestore	Real Estate Investment Trusts	1,529	0.8
Gooch & Housego^AIM	Electronic & Electrical Equipment	1,511	0.8
XPS Pensions	Financial Services	1,502	0.8
Marlowe^AIM	Support Services	1,487	0.8
M&C Saatchi^AIM	Media	1,428	0.8
Bytes Technology	Software & Computer Services	1,245	0.7
Chemring	Aerospace & Defence	1,204	0.7
ECO Animal Health^AIM	Pharmaceuticals & Biotechnology	1,149	0.5
Dunelm	General Retailers	1,028	0.5
Sumo^AIM	Leisure Goods	1,021	0.5
Top Seventy Holdings		182,215	97.0
Tyman	Construction & Materials	936	0.5
LSL Property Services	Real Estate Investment & Services	865	0.5
Fuller, Smith & Turner	Travel & Leisure	814	0.5
Serco	Support Services	747	0.4
Euromoney Institutional Investor	Support Services	742	0.4
Thruvision^AIM	Electronic & Electrical Equipment	573	0.3
Premier Oil	Oil & Gas Producers	472	0.2
Treatt	Chemicals	418	0.2
Total Investments (78)		187,782	100.0

AIM Investments quoted on AIM.

U Units - composite of multiple share classes: 1 ordinary, 1 ‘C’ ordinary and 17 ‘A’ ordinary share classes. These were simplified by Grafton on 7 March 2021 to one ordinary share class.

The percentage of the portfolio invested in AIM stocks at the year end was 33.3% (2020: 27.8%). There were 25 AIM stocks held at the year end, representing 32.1% of the 78 stocks held (2020: 23 AIM stocks held representing 31.9% of the 72 stocks held).

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 United Kingdom 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 accounting standards in conformity with the requirements of the Companies Act 2006. 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 international accounting standards in conformity with the requirements of the Companies Act 2006 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.

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

• they 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, business model and strategy.

Signed on behalf of the Board of Directors

Jane Lewis

Chairman

22 April 2021

STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 JANUARY

		2021			2020
		Revenue	Capital	Total	Revenue	Capital	Total
	Notes	£000	£000	£000	£000	£000	£000
(Loss)/profit on investments held at fair
value	9	—	(7,625)	(7,625)	—	44,913	44,913
Income	2	1,682	—	1,682	3,924	181	4,105
Investment management fees	3	(187)	(1,057)	(1,244)	(204)	(1,160)	(1,364)
Other expenses	4	(371)	(5)	(376)	(379)	(5)	(384)
(Loss)/profit before finance costs and
taxation		1,124	(8,687)	(7,563)	3,341	43,929	47,270
Finance costs	5	(1)	(6)	(7)	(1)	(7)	(8)
(Loss)/profit before taxation		1,123	(8,693)	(7,570)	3,340	43,922	47,262
Taxation	6	(2)	—	(2)	—	—	—
(Loss)/profit after taxation		1,121	(8,693)	(7,572)	3,340	43,922	47,262
Return per ordinary share	7	3.31p	(25.69)p	(22.38)p	10.13p	133.21p	143.34p

The total column of this statement represents the Company’s statement of comprehensive income, prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006. The (loss)/profit after taxation is the total comprehensive (loss)/income. 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 of the Company. 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
	Notes	£000	£000	£000	£000	£000	£000
At 31 January 2019		10,642	21,244	3,386	121,880	1,133	158,285
Total comprehensive income
for the year		—	—	—	43,922	3,340	47,262
Dividends paid	8	—	—	—	(2,579)	(3,597)	(6,176)
Net proceeds from issue
of shares from treasury		—	1,122	—	4,750	—	5,872
At 31 January 2020		10,642	22,366	3,386	167,973	876	205,243
Total comprehensive income
for the year		—	—	—	(8,693)	1,121	(7,572)
Dividends paid	8	—	—	—	(4,294)	(1,997)	(6,291)
At 31 January 2021		10,642	22,366	3,386	154,986	—	191,380

BALANCE SHEET

AS AT 31 JANUARY

		2021	2020
	Notes	£000	£000
Non-current assets
Investments held at fair value through profit or loss	9	187,782	199,973
Current assets
Other receivables	10	214	420
Cash and cash equivalents		4,218	5,493
		4,432	5,913
Total assets		192,214	205,886
Current liabilities
Other payables	11	(834)	(643)
Total assets less current liabilities		191,380	205,243
Net assets		191,380	205,243
Capital and reserves
Share capital	12	10,642	10,642
Share premium	13	22,366	22,366
Capital redemption reserve	13	3,386	3,386
Capital reserve	13	154,986	167,973
Revenue reserve	13	—	876
Total shareholders’ funds		191,380	205,243
Net asset value per ordinary share
Basic	14	565.76p	606.74p

The financial statements were approved and authorised for issue by the Board of Directors on 22 April 2021.

Signed on behalf of the Board of Directors

Jane Lewis

Chairman

CASH FLOW STATEMENT

FOR THE YEAR ENDED 31 JANUARY

	2021	2020
	£000	£000
Cash flow from operating activities
(Loss)/profit before finance costs and taxation	(7,563)	47,270
Taxation	(2)	—
Adjustments for:
Purchase of investments	(48,429)	(45,256)
Sale of investments	53,293	39,201
	4,864	(6,055)
Scrip dividends	(121)	–
Loss/(profit) on investments held at fair value	7,625	(44,913)
Decrease/(increase) in receivables	232	(36)
Decrease in payables	(12)	(861)
Net cash inflow/(outflow) from operating activities	5,023	(4,595)
Cash flow from financing activities
Finance cost paid	(7)	(7)
Net proceeds from issue of shares from treasury	—	5,872
Dividends paid – note 8	(6,291)	(6,176)
Net cash outflow from financing activities	(6,298)	(311)
Net decrease in cash and cash equivalents	(1,275)	(4,906)
Cash and cash equivalents at start of the year	5,493	10,399
Cash and cash equivalents at the end of the year	4,218	5,493
Reconciliation of cash and cash equivalents to the Balance Sheet is as follows:
Cash held at custodian	1,198	103
Invesco Liquidity Funds plc – Sterling, money market fund	3,020	5,390
Cash and cash equivalents	4,218	5,493
Cash flow from operating activities includes:
Dividends received	1,787	4,071

As the Company did not have any long term debt at both the current and prior year ends, no reconciliation of the financial liabilities position is presented.

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 on the grounds that the Company’s investment portfolio (including cash) is sufficiently liquid and significantly exceeds all balance sheet liabilities, there are no unrecorded commitments or contingencies and its gearing facilities remain undrawn. The disclosure on going concern on page 28 in the Directors’ Report provides further detail. The Directors believe the Company has adequate resources to continue in operational existence for the foreseeable future and has the ability to meet its financial obligations as and when they fall due for a period until at least 31 January 2023.

(a) Basis of Preparation

(i) Accounting Standards Applied

The financial statements have been prepared on a historical cost basis, except for the measurement at fair value of investments and derivatives, and in accordance with the applicable international accounting standards in conformity with the requirements of the Companies Act 2006. The standards are those that are effective at the Company’s financial year end.

Where presentational guidance set out in the Statement of Recommended Practice (SORP) ‘Financial Statements of Investment Trust Companies and Venture Capital Trusts’, updated by the Association of Investment Companies in October 2019, is consistent with the requirements of international accounting standards in conformity with the requirements of the Companies Act 2006. The Directors have prepared 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 the SORP.

(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 have an impact on the accounting for future transactions and arrangements.

The following standards became effective during the year:

• IAS 1 and IAS 8 Amendments – definition of Material. The amendments to IAS 1, ’Presentation of Financial Statements’, and IAS 8, ’Accounting Policies, Changes in Accounting Estimates and Errors’, and consequential amendments to other IFRSs require companies to:

(i) use a consistent definition of materiality throughout IFRSs and the Conceptual Framework for Financial Reporting;

(ii) clarify the explanation of the definition of material; and

(iii) incorporate some of the guidance of IAS 1 about immaterial information.

• IFRS 3 Amendment – definition of a Business. This amendment revises the definition of a business. To be considered a business, an acquisition would have to include an input and a substantive process that together significantly contribute to the ability to create outputs.

• IFRS 9 and IFRS 7 Amendments – Interest Rate Benchmark Reform. These amendments provide certain reliefs in connection with the interest rate benchmark reform.

• IAS 1, 8, 34, 37, 38 and IFRS 2, 3, 6, 14, IFRIC 12, 19, 20, 22 and SIC 32 – amendment to References to the Conceptual Framework.

The adoption of the above standards and interpretations (or any other standards and interpretations which are in issue but not effective) have not had a material impact on the financial statements of the Company.

(iii) Critical Accounting Estimates and Judgements

The preparation of the financial statements may require the Directors to make estimations where uncertainty exists. It also requires the Directors to make judgements, estimates and assumptions, in the process of applying the accounting policies. There have been no significant judgements, estimates or assumptions for the current or preceding year.

(b) Foreign Currency and Segmental Reporting

(i) Functional and Presentation Currency

The financial statements are presented in sterling, which is the Company’s functional and presentation currency and the currency in which the Company’s share capital and expenses are denominated, as well as a majority of its assets and liabilities.

(ii) Transactions and Balances

Foreign currency assets and liabilities are translated into sterling at the rates of exchange ruling at the balance sheet date. Transactions in foreign currency, are translated into sterling at the rates of exchange ruling on the dates of such transactions, and profit or loss on translation is taken to revenue or capital depending on whether it is revenue or capital in nature. All are recognised in the statement of comprehensive income.

(iii) Segmental reporting

The Directors are of the opinion that the Company is engaged in a single segment of business of investing in equity and debt securities, issued by companies operating and generating revenue mainly in the UK.

(i) Recognition of Financial Assets and Financial Liabilities

The Company recognises financial assets and financial liabilities when the Company becomes a party to the contractual provisions of the instrument. The Company offsets financial assets and financial liabilities if the Company has a legally enforceable right to set off the recognised amounts and interests and intends to settle on a net basis.

(ii) Derecognition of financial assets

The Company derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the right to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in the transferred financial asset that is created or retained by the Company is recognised as an asset.

(iii) Derecognition of Financial Liabilities

The Company derecognises financial liabilities when its obligations are discharged, cancelled or expired.

(iv) Trade Date Accounting

Purchases and sales of financial assets are recognised on trade date, being the date on which the Company commits to purchase or sell the assets.

(v) Classification of financial assets and financial liabilities

Financial assets

The Company classifies its financial assets as measured at amortised cost or measured at fair value through profit or loss on the basis of both: the entity’s business model for managing the financial assets; and the contractual cash flow characteristics of the financial asset.

Financial assets measured at amortised cost include cash, debtors and prepayments.

A financial asset is measured at fair value through profit or loss if its contractual terms do not give rise to cash flows on specified dates that are solely payments of principal and interest (SPPI) on the principal amount outstanding or it is not held within a business model whose objective is either to collect contractual cash flows, or to both collect contractual cash flows and sell. The Company’s equity investments are classified as fair value through profit or loss as they do not give rise to cash flows that are SPPI.

Financial assets held at fair value through profit or loss are initially recognised at fair value, which is taken to be their cost and are subsequently valued at fair value.

For investments that are actively traded in organised financial markets, fair value is determined by reference to stock exchange quoted bid prices at the balance sheet date.

Financial liabilities

Financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs and are subsequently measured at amortised cost using the effective interest method, where applicable.

(d) Cash and Cash Equivalents

Cash and cash equivalents include any cash held at custodian and approved depositories, holdings in Invesco Liquidity Funds plc – Sterling, a triple-A rated money market fund and overdrafts.

(e) Income

All dividends are taken into account on the date investments are marked ex-dividend; other income from investments is taken into account on an accruals basis. Deposit interest and underwriting commission receivable are taken into account on an accruals basis. Special dividends representing a return of capital are allocated to capital in the Statement of Comprehensive Income and then taken to capital reserves. All special dividends are reviewed, with consideration given to the facts and circumstances of each case, before a decision over whether allocation is to revenue or capital is made.

(f) Expenses and Finance Costs

All expenses and finance costs are accounted for in the Statement of Comprehensive Income on an accruals basis.

The investment management fee and finance costs are allocated 85% to capital and 15% to revenue. This is in accordance with the Board’s expected long term split of returns, in the form of capital gains and income respectively, from the portfolio.

(g) Taxation

Tax represents the sum of tax payable, withholding tax suffered and deferred tax. Tax is charged or credited in the statement of comprehensive income. Any tax payable is based on taxable profit for the year, however, as expenses exceed taxable income no corporation tax is due. The Company’s liability for current tax is calculated using tax rates that have been enacted or substantially enacted by the balance sheet date.

Deferred taxation is recognised in respect of all temporary differences that have originated but not reversed at the balance sheet date, where transactions or events that result in an obligation to pay more tax in the future or right to pay less tax in the future have occurred at the balance sheet date. This is subject to deferred tax assets only being recognised if it is considered probable that there will be suitable profits from which the future reversal of the temporary differences can be deducted. Deferred tax assets and liabilities are measured at the tax rates expected to apply in the period when the liability is settled or the asset realised.

Investment trusts which have approval under Section 1158 of the Corporation Tax Act 2010 are not liable for taxation on capital gains.

(h) Dividends

Dividends are not accrued in the financial statements, unless there is an obligation to pay the dividends at the balance sheet date. Proposed final dividends are recognised in the financial year in which they are approved by the shareholders.

(i) Consolidation

Consolidated accounts have not been prepared as the subsidiary, whose principal activity is investment dealing, is not material in the context of these financial statements. The one hundred pounds net asset value of the investment in Berry Starquest Limited has been included in the investments in the Company’s balance sheet. Berry Starquest Limited has not traded throughout the year and the preceding year and, as a dormant company, has exemption under 480(1) of the Companies Act 2006 from appointing auditors or obtaining an audit.

2. Income

This note shows the income generated from the portfolio (investment assets) of the Company and income received from any other source.

	2021	2020
	£000	£000
Income from investments
UK dividends	1,061	3,526
UK special dividends	286	130
Overseas dividends	214	268
Scrip dividends	121	–
Total income	1,682	3,924

No special dividends have been recognised in capital during the year (2020: £181,000).

Overseas dividends include dividends received on UK listed investments where the investee company is domiciled outside of the UK.

3. Investment Management Fee

This note shows the fees due to the Manager. These are made up of the management fee calculated and paid monthly and, for the previous year. This fee is based on the value of the assets being managed.

	2021			2020
	Revenue	Capital	Total	Revenue	Capital	Total
	£000	£000	£000	£000	£000	£000
Investment management fee	187	1,057	1,244	204	1,160	1,364

Details of the investment management and secretarial agreement are given on page 29 in the Directors’ Report.

At 31 January 2021, £120,000 (2020: £128,000) was accrued in respect of the investment management fee.

4. Other Expenses

The other expenses of the Company are presented below; those paid to the Directors and auditor are separately identified.

	2021			2020
	Revenue	Capital	Total	Revenue	Capital	Total
	£000	£000	£000	£000	£000	£000
Directors’ remuneration(i)	120	—	120	132	—	132
Auditors’ fees(ii):
for audit of the Company’s
annual financial statements	27	—	27	28	—	28
additional fees in respect of Covid-19
audit procedures in prior year	5	—	5	—	—	—
Other expenses(iii)	219	5	224	219	5	224
	371	5	376	379	5	384

(i) The Director's Remuneration Report on page 37 provides further information on Directors’ fees.

(ii) Auditor’s fees include out of pocket expenses but excludes VAT. The VAT is included in other expenses.

(iii) Other expenses shown above include:

• amounts payable to the registrar, depositary, custodian, brokers, printers and other legal & professional fees;

• £11,200 (2020: £11,200) of employer’s National Insurance payable on Directors’ remuneration. As at 31 January 2021, the amounts outstanding on employer's National Insurance on Directors’ remuneration was £800 (2020: £1,000); and

• custodian transaction charges of £5,000 (2020: £5,400). These are charged to capital.

5. Finance Costs

Finance costs arise on any borrowing facilities the Company has.

	2021				2020
	Revenue	Capital	Total		Revenue	Capital	Total
	£000	£000		£000	£000	£000	£000
Bank overdraft facility fee	1	6		7	1	6	7
Overdraft interest	—	—		—	—	1	1
	1	6		7	1	7	8

The £15 million overdraft facility was renewed on 12 September 2020 and the interest rate is at a margin above the Bank of England base rate.

6. Taxation

As an investment trust the Company pays no tax on capital gains and, as the Company invested principally in UK equities, it has little overseas tax. In addition, no deferred tax is required to provide for tax that is expected to arise in the future due to differences in accounting and tax bases.

(a) Tax charge

	2021	2020
	£000	£000
Overseas taxation	2	—

(b) Reconciliation of tax charge

	2021	2020
	£000	£000
(Loss)/profit before taxation	(7,570)	47,262
Theoretical tax at the current UK Corporation Tax rate of 19% (2020: 19%)	(1,438)	8,980
Effects of:
–Non-taxable UK dividends	(180)	(639)
–Non-taxable UK special dividends	(54)	(59)
–Non-taxable overseas dividends	(37)	(38)
–Non-taxable overseas special dividends	(23)	—
–Non-taxable loss/(gains) on investments	1,448	(8,533)
–Excess of allowable expenses over taxable income	283	289
–Disallowable expenses	1	—
–Overseas taxation	2	—
Tax charge for the year	2	—

The Company has cumulative excess management expenses of £40,733,000 (2020: £39,243,000) that are available to offset future taxable revenue.

A deferred tax asset of £7,739,000 (2020: £6,671,000) at 19% (2020: 17%) has not been recognised in respect of these expenses since the Directors believe that there will be no taxable profits in the future against which the deferred tax assets can be offset.

On 11 March 2020, it was announced (and substantively enacted on 17 March 2020) that the UK corporation tax rate would remain at 19% until 31 March 2025, and not reduce to 17% (the previously enacted rate at the year end) from 1 April 2020. The deferred tax balances shown above as at 31 January 2021 have been calculated with reference to the rate of 19% (2020: 17%).

The UK Government announced on 3 March 2021 its intention to increase the UK rate of corporation tax to 25% from 19% from 1 April 2023. As this rate was not substantively enacted at the year end, deferred tax has been calculated based on the prevailing rate of 19%. Existing temporary differences on which deferred tax has been provided may unwind in periods subject to the 25% rate. The impact of the post balance sheet date change in tax rate, on the unrecognised deferred tax asset, is not expected to be material.

7. Return 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.

	2021			2020
	Revenue	Capital	Total	Revenue	Capital	Total
Return £000	1,121	(8,693)	(7,572)	3,340	43,922	47,262
Return per ordinary share	3.31p	(25.69)p	(22.38)p	10.13p	133.21p	143.34p

The returns per ordinary share are based on the weighted average number of shares in issue during the year of 33,826,929 (2020: 32,971,792).

8. Dividends on Ordinary Shares

The Company paid four dividends in the year – three interims and a final.

The final dividend shown below 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. The third interim and final dividends are paid after the balance sheet date.

	2021				2020
	Pence	£000			Pence		£000
Dividends paid from revenue in the year:
Third interim (prior year)	2.59	876			3.45		1,133
Final (prior year)	—	—			—		—
First interim	3.31	1,121			3.75		1,232
Second interim	–	–			3.75		1,232
Total dividends paid from revenue	5.90	1,997			10.95		3,597
Dividends paid from capital in the year:
Third interim (prior year)	1.16	393			0.20		66
Final (prior year)	7.35	2,484			7.65		2,513
First interim	0.44	148			—		—
Second interim	3.75	1,269			—		—
Total dividends paid from capital	12.70	4,294			7.85		2,579
Total dividends paid in the year	18.60	6,291			18.80		6,176
	2021			2020
	Pence		£000	Pence		£000
Dividends payable in respect of the year:
First interim	3.75		1,269	3.75		1,232
Second interim	3.75		1,269	3.75		1,232
Third interim	3.75		1,269	3.75		1,269
Final	8.07		2,728	7.35		2,484
	19.32		6,535	18.60		6,217

The Company’s dividend policy was changed in 2015 so that dividends will be paid firstly from current year revenue and any revenue reserves available, and thereafter from capital reserves. The amount payable in respect of the year is shown below:

	2021	2020
	£000	£000
Dividends in respect of the year:
from current year revenue	1,121	3,340
from revenue and capital reserves	5,414	2,877
	6,535	6,217

Dividend payable from capital reserves of £5,414,000 (2020: revenue and capital reserves of £2,877,000) as a percentage of year end net assets of £191,380,000 (2020: £205,243,000) is 2.8% (2020: 1.4%).

9. Investments Held at Fair Value Through Profit and Loss

The portfolio is made up of investments which are listed or traded on a regulated stock exchange or AIM. Profit and losses in the year include:

• realised, usually arising when investments are sold; and

• unrealised, being the difference from cost on those investments still held at the year end.

	2021	2020
	£000	£000
Investments listed on a regulated stock exchange	124,947	144,472
AIM quoted investments	62,835	55,501
	187,782	199,973
Opening valuation	199,973	149,211
Movements in year:
Purchases at cost	48,753	44,996
Sales proceeds	(53,319)	(39,147)
(Loss)/profit on investments in the year	(7,625)	44,913
Closing valuation	187,782	199,973
Closing book cost	151,955	140,572
Closing investment holding gains in the year	35,827	59,401
Closing valuation	187,782	199,973

The transaction costs amount to £186,000 (2020: £146,000) on purchases and £24,000 (2020: £25,000) for sales. These amounts are included in determining profit/(loss) on investments held at fair value as disclosed in the Statement of Comprehensive Income.

The Company received £53,319,000 (2020: £39,147,000) from investments sold in the year. The book cost of these investments when they were purchased was £37,370,000 (2020: £31,022,000) realising a profit of £15,949,000 (2020: £8,125,000). These investments have been revalued over time and until they were sold any unrealised profits were included in the fair value of the investments.

10. Other Receivables

Other receivables are amounts which are due to the Company, such as monies due from brokers for investments sold and income which has been earned (accrued) but not yet received.

	2021	2020
	£000	£000
Amounts due from brokers	26	—
Prepayments and accrued income	188	420
	214	420

11. Other Payables

Other payables are amounts which must be paid by the Company, and include any amounts due to brokers for the purchase of investments or amounts owed to suppliers (accruals), such as the Manager and auditor.

	2021	2020
	£000	£000
Amounts due to brokers	638	435
Accruals	196	208
	834	643

12. Share Capital

Share capital represents the total number of shares in issue, including shares held in treasury.

	2021		2020
	Number	£000	Number	£000
Allotted, called-up and fully paid
Ordinary shares of 20p each	33,826,929	6,765	33,826,929	6,765
Treasury shares of 20p each	19,382,155	3,877	19,382,155	3,877
	53,209,084	10,642	53,209,084	10,642

For the year to 31 January 2021, no shares were issued from treasury (2020: 975,000). No issue proceeds were received during the year (31 January 2020: gross issue proceeds £5,895,000 at an average price of 604.61p, and the net proceeds after issue costs were £5,872,000).

13. Reserves

This note explains the different reserves attributable to shareholders. The aggregate of the reserves and share capital (see previous note) make up total shareholders’ funds.

The share premium arises whenever shares are issued at a price above the nominal value plus any issue costs. The capital redemption reserve maintains the equity share capital and arises from the nominal value of shares repurchased and cancelled. The share premium and capital redemption reserve are non-distributable.

Capital investment gains and losses are shown in note 9, and form part of the capital reserve. The revenue reserve shows the net revenue retained after payment of dividends. The capital and revenue reserves are distributable by way of dividend. In addition, the capital reserve is also distributable by way of share buy backs.

14. 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 ordinary share		attributable
	2021	2020	2021	2020
	Pence	Pence	£000	£000
Ordinary shares	565.76	606.74	191,380	205,243

Net asset value per ordinary share is based on net assets at the year end and on 33,826,929 (2020: 33,826,929) ordinary shares, being the number of ordinary shares in issue (excluding treasury) at the year end.

15. Subsidiary Undertaking

The Company has one dormant subsidiary which has total assets of £100.

	Net asset		Country of
	value at		incorporation	Description
	31 January	Principal	and	of shares	Percentage
	2021	activity	operation	held	held
Berry Starquest Limited	£100	Investment	England and	Ordinary	100%
		dealing	Wales	shares

During the year and the preceding year, no transactions were undertaken by the subsidiary.

16. Risk Management, Financial Assets and Liabilities

Financial instruments comprise the Company’s investment portfolio and any derivative financial instruments held, as well as any cash, borrowings, other receivables and other payables.

Financial Instruments

The Company’s financial instruments comprise its investment portfolio (as shown on pages 22 to 23), cash, overdraft, other receivables and other payables that arise directly from its operations such as sales and purchases awaiting settlement and accrued income. The accounting policies in note 1 include criteria for the recognition and the basis of measurement applied for financial instruments. Note 1 also includes the basis on which income and expenses arising from financial assets and liabilities are recognised and measured.

Risk Management Policies and Procedures

The Directors have delegated to the Manager the responsibility for the day-to-day investment activities of the Company as more fully described in the Directors’ Report.

As an investment trust the Company invests in equities and other investments for the long-term, so as to meet its investment policy (incorporating the Company's investment objective). In pursuing its investment objective, the Company is exposed to a variety of risks that could result in either a reduction in the Company’s net assets or a reduction of the profits available for dividends. Those related to financial instruments include market risk, liquidity risk and credit risk. These policies are summarised below and have remained substantially unchanged for the two years under review.

The main risk that the Company faces arising from its financial instruments is market risk – this risk is reviewed in detail below. Since the Company invests mainly in UK equities traded on the London Stock Exchange, liquidity risk and credit risk are not significant. Liquidity risk is minimised as the majority of the Company’s investments comprise a diversified portfolio of readily realisable securities which can be sold to meet funding commitments as necessary. In addition, an overdraft facility provides short-term funding flexibility.

Credit risk encompasses the failure by counterparties to deliver securities which the Company has paid for, or to pay for securities which the Company has delivered, and cash balances. Counterparty risk is minimised by using only approved counterparties. The Company’s ability to operate in the short-term may be adversely affected if the Company’s custodian suffers insolvency or other financial difficulties. The appointment of a depositary has substantially lessened this risk. The Board reviews the custodian’s annual controls report and the Manager’s management of the relationship with the custodian, Bank of New York Mellon (International) Limited, an A-1+ rated financial institution. Cash balances are limited to a maximum of 1.25% of net assets with any one deposit taker, with only approved deposit takers being used, and a maximum of 7.5% of net assets for holdings in the Invesco Liquidity Funds plc – Sterling, a triple-A rated money market fund.

Market Risk

The fair value or future cash flows of a financial instrument may fluctuate because of changes in market prices. This market risk comprises three elements – currency risk, interest rate risk and other price risk. The Company’s Manager assesses the Company’s exposure when making each investment decision, and monitors the overall level of market risk on the whole of the investment portfolio on an ongoing basis. The Board meets at least quarterly to assess risk and review investment performance. The Company may utilise hedging instruments to manage market risk. Gearing is used to enhance returns, however, this will also increase the Company’s exposure to market risk and volatility.

1. Currency Risk

The exposure to currency risk is considered minor as the Company’s financial instruments are mainly denominated in sterling. At the current and preceding year end, the Company held no foreign currency investments or cash, although a small amount of dividend income was received in foreign currency.

During this and the previous year, the Company did not use forward currency contracts to mitigate currency risk.

2. Interest Rate Risk

Interest rate movements will affect the level of income receivable on cash deposits and the interest payable on variable rate borrowings. When the Company has cash balances, they are held in variable rate bank accounts yielding rates of interest dependent on the base rate of the Custodian, The Bank of New York Mellon (International) Limited. Additionally, holdings in Invesco Liquidity Funds plc – Sterling are subject to interest rate changes.

The Company has an uncommitted bank overdraft facility up to a maximum of 30% of the net asset value of the Company or £15 million (2020: same), whichever is the lower; the interest rate is charged at a margin over the Bank of England base rate. The Company uses the facility when required, at levels approved and monitored by the Board.

At the year end, there was no overdraft drawn down (2020: none). Based on the maximum amount that can be drawn down at the year end under the overdraft facility of £15 million (2020: £15 million), the effect of a +/– 1% in the interest rate would result in an increase or decrease to the Company’s statement of comprehensive income of £150,000 (2020: £150,000).

The Company’s portfolio is not directly exposed to interest rate risk.

3. Other Price Risk

Other price risks (i.e. the risk of changes in market prices, other than those arising from interest rates or currency) may affect the value of the investments.

Management of Other Price Risk

The Directors manage the market price risks inherent in the investment portfolio by meeting regularly to monitor on a formal basis the Manager’s compliance with the Company’s stated objectives and policies and to review investment performance.

The Company’s portfolio is the result of the Manager’s investment process and as a result is not correlated with the Company’s benchmark or the markets in which the Company invests. Therefore the value of the portfolio will not move in line with the market but will move as a result of the performance of the company shares within the portfolio.

If the value of the portfolio fell by 10% at the balance sheet date, the loss after tax for the year would increase by £19 million (2020: profit after tax for the year would decrease by £20.0 million). Conversely, if the value of the portfolio rose by 10%, the loss after tax would decrease (2020: profit after tax would increase) by the same amount.

Fair Values of Financial Assets and Financial Liabilities

The financial assets and financial liabilities are either carried in the balance sheet at their fair value (investments), or the balance sheet amount is a reasonable approximation of fair value (due from brokers, dividends receivable, accrued income, due to brokers, accruals, cash at bank and overdraft).

Fair Value Hierarchy Disclosures

Except for the one Level 2 and one Level 3 investment described below, all of the Company’s investments are in the Level 1 category as set out in IFRS 13, the three levels of which follow:

Level 1 – The unadjusted quoted price in an active market for identical assets or liabilities that the entity can access at the measurement date.

Level 2 – Inputs other than quoted prices included within Level 1 that are observable (i.e. developed using market data) for the asset or liability, either directly or indirectly.

Level 3 – Inputs are unobservable (i.e. for which market data is unavailable) for the asset or liability.

Categorisation within the hierarchy has been determined on the basis of the lowest level input that is significant to the fair value measurement of each relevant asset/liability.

ECO Animal Health was the only Level 2 investment in the portfolio. The company’s AIM listing was temporarily suspended from 4 January 2021 to 4 February 2021 due to delays in the release of their audited accounts as a result of Covid-19 related issues. At the year end, the suspended price used in the fair value of the company was 247.5p. This price was considered appropriate on the basis that after the temporary suspension, the company commenced trading at a higher price.

Berry Starquest Limited was the only Level 3 investment in the portfolio at the current year end and was also Level 3 investment at the 2020 year end. Berry Starquest Limited is a dormant subsidiary and is valued at £100 (2020: £100).

17. Maturity Analysis of Contractual Liability Cash Flows

The contractual liabilities of the Company are shown in note 11 and comprise amounts due to brokers and accruals. All are paid under contractual terms. For amounts due to brokers, this will generally be the purchase date of the investment plus two business days; accruals would generally be due within three months.

18. Capital Management

The Company’s capital, or equity, is represented by its net assets which are managed to achieve the Company’s investment objective set out on page 13.

The main risks to the Company’s investments are shown in the Strategic Report under the ‘Principal Risks and Uncertainties’ section on pages 14 to 15. These also explain that the Company is able to gear and that gearing will amplify the effect on equity of changes in the value of the portfolio.

The Board can also manage the capital structure directly since it determines dividend payments and has taken the powers, which it is seeking to renew, to buy-back shares, either for cancellation or to be held in treasury, and to issue new shares or sell shares held in treasury.

The Company is subject to externally imposed capital requirements with respect to the obligation and ability to pay dividends by s1158 Corporation Tax Act 2010 and by the Companies Act 2006, respectively, and with respect to the availability of the overdraft facility and by the terms imposed by the lender. The Board regularly monitors, and has complied with, the externally imposed capital requirements. This is unchanged from the prior year.

Total equity at 31 January 2021, the composition of which is shown on the balance sheet on page 48, was £191,380,000 (2020: £205,243,000).

19. Contingencies, Guarantees and Financial Commitments

Liabilities the Company is committed to honour but which are dependent on a future circumstance or event occurring would be disclosed in this note if any existed.

There were no contingencies, guarantees or other financial commitments of the Company as at 31 January 2021 (2020: nil).

20. Related Party Transactions and Transactions with Manager

A related party is a company or individual who has direct or indirect control or who has significant influence over the Company.

Under international accounting standards, in conformity with the requirements of the Companies Act 2006, the Company has identified the Directors as related parties. The Directors’ remuneration and interests have been disclosed on pages 36 to 38 with additional disclosure in note 4. No other related parties have been identified.

Details of the Manager’s services and fees are disclosed in the Directors’ Report on page 29 and in note 3.

21. Post Balance Sheet Events

There are no significant events after the end of the reporting period requiring disclosure.

The Audited Annual Financial Report will be posted to shareholders shortly. Copies may be obtained during normal business hours from the offices of Invesco, 43-45 Portman Square, London, W1H 6LY.

A copy of the Annual Financial Report will be available from Invesco on the following website:

www.invesco.co.uk/ipukscit

By order of the Board

Invesco Asset Management Limited

Company Secretary

22 April 2021

NOTICE OF ANNUAL GENERAL MEETING

THIS NOTICE OF ANNUAL GENERAL MEETING IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you are in any doubt as to what action to take, you should consult your stockbroker, solicitor, accountant or other appropriate independent professional adviser authorised under the Financial Services and Markets Act 2000. If you have sold or otherwise transferred all your shares in Invesco Perpetual UK Smaller Companies Investment Trust plc, please forward this document and the accompanying Form of Proxy to the person through whom the sale or transfer was effected, for transmission to the purchaser or transferee.

The Board is mindful of the travel and meeting restrictions in place in response to Covid-19 and therefore the AGM will be held as a closed meeting. Shareholders are therefore encouraged to submit their votes by proxy. You are strongly encouraged to lodge your vote either electronically via the Registrar's online portal, contacting your platform provider or using a Form of Proxy to appoint the Chairman of the AGM as your proxy to vote on your behalf.

The Board is cognisant of the fact that many shareholders value this opportunity to hear from the Portfolio Managers and the Board and therefore invite you to attend a webinar with us on 2 June 2021 at 10 am. A presentation will be made by Jonathan Brown followed by a question and answer session. Shareholders can submit questions during the webinar or in advance by writing to the Company Secretary at the address give on page 68 or investmenttrusts@invesco.com. Details on how to register for the event are available via the Company's website www.invesco.co.uk/ipukscit

NOTICE IS GIVEN that the Annual General Meeting (‘AGM’) of Invesco Perpetual UK Smaller Companies Investment Trust plc will be held at the offices of Invesco at 43-45 Portman Square, London W1H 6LY at 12 noon on 10 June 2021 for the following purposes:

Ordinary Business

1. To receive and consider the Annual Financial Report for the year ended 31 January 2021.

2. To approve the Directors’ Remuneration Policy.

3. To approve the Annual Statement and Report on Remuneration for the year ended 31 January 2021.

4. To approve a final dividend as recommended.

5. To re-elect Jane Lewis as a Director of the Company.

6. To re-elect Bridget Guerin as a Director of the Company.

7. To re-elect Graham Paterson as a Director of the Company.

8. To elect Mike Prentis as a Director of the Company.

9. To re-appoint the auditor, Ernst & Young LLP.

10. To authorise the Audit Committee to determine the auditor’s remuneration.

Special Business

To consider and, if thought fit, to pass the following resolutions of which resolution 12 will be proposed as an ordinary resolution and resolutions 11 and 13 to 15 as special resolutions:

Articles of Association

11. That:

the Articles of Association as produced to the meeting and initialled by the Chairman for the purpose of identification (the ‘New Articles’) be adopted as the Articles of Association of the Company in substitution for, and to the exclusion of, the existing Articles of Association (the ‘Current Articles’).

Authority to Allot Shares

12. That:

the Directors be generally and unconditionally authorised in accordance with Section 551 of the Companies Act 2006 as amended from time to time prior to the date of the passing of this resolution (the ‘Act’) to exercise all powers of the Company to allot shares and grant rights to subscribe for, or convert any securities into, shares up to an aggregate nominal amount (within the meaning of sections 551(3) and (6) of the Act) of £676,538, this being 10% of the Company’s issued ordinary share capital as at 22 April 2021, such authority to expire at the conclusion of the next AGM of the Company or the date fifteen months after the passing of this resolution, whichever is the earlier unless the authority is renewed or revoked at any other general meeting prior to such time, but so that this authority shall allow the Company to make offers or agreements before the expiry of this authority which would or might require shares to be allotted, or rights to be granted, after such expiry as if the authority conferred by this resolution had not expired.

Disapplication of Pre-emption Rights

13. That:

the Directors be and are hereby empowered, in accordance with Sections 570 and 573 of the Act to allot equity securities (within the meaning of section 560 (1), (2) and (3) of the Act) for cash, either pursuant to the authority given by resolution 12 set out above or (if such allotment constitutes the sale of relevant shares which, immediately before the sale, were held by the Company as treasury shares) otherwise, as if Section 561 of the Act did not apply to any such allotment, provided that this power shall be limited:

(a) to the allotment of equity securities in connection with a rights issue in favour of all holders of a class of equity securities where the equity securities attributable respectively to the interests of all holders of securities of such class are either proportionate (as nearly as may be) to the respective numbers of relevant equity securities held by them or are otherwise allotted in accordance with the rights attaching to such equity securities (subject in either case to such exclusions or other arrangements as the Directors may deem necessary or expedient in relation to fractional entitlements or legal or practical problems under the laws of, or the requirements of, any regulatory body or any stock exchange in any territory or otherwise);

(b) to the allotment (otherwise than pursuant to a rights issue) of equity securities up to an aggregate nominal amount of £676,538, this being 10% of the Company’s issued ordinary share capital as at 22 April 2021; and

(c) to the allotment of equity securities at a price not less than the net asset value per share (as determined by the Directors),

and this power shall expire at the conclusion of the next AGM of the Company or the date fifteen months after the passing of this resolution, whichever is the earlier unless the authority is renewed or revoked at any other general meeting prior to such time, but so that this power shall allow the Company to make offers or agreements before the expiry of this power which would or might require equity securities to be allotted after such expiry as if the power conferred by this resolution had not expired; and so that words and expressions defined in or for the purposes of Part 17 of the Act shall bear the same meanings in this resolution.

Authority to Make Market Purchases of Shares

14. That:

the Company be generally and subject as hereinafter appears unconditionally authorised in accordance with Section 701 of the Act to make market purchases (within the meaning of Section 693(4) of the Act) of its issued ordinary shares of 20p each in the capital of the Company (‘Shares’).

PROVIDED ALWAYS THAT:

(a) the maximum number of Shares hereby authorised to be purchased shall be 14.99% of the Company’s issued ordinary shares, this being 5,070,657 as at 22 April 2021;

(b) the minimum price which may be paid for a Share shall be 20p;

(c) the maximum price which may be paid for a Share must not be more than the higher of: (i) 5% above the average of the mid-market values of the Shares for the five business days before the purchase is made; and (ii) the higher of the price of the last independent trade in the Shares and the highest then current independent bid for the Shares on the London Stock Exchange;

(d) any purchase of Shares will be made in the market for cash at prices below the prevailing net asset value per Share (as determined by the Directors);

(e) the authority hereby conferred shall expire at the conclusion of the next AGM of the Company or the date fifteen months after the passing of this resolution, whichever is the earlier, unless the authority is renewed or revoked at any other general meeting prior to such time;

(f) the Company may make a contract to purchase Shares under the authority hereby conferred prior to the expiry of such authority which will be executed wholly or partly after the expiration of such authority and may make a purchase of Shares pursuant to any such contract; and

(g) any Shares so purchased shall be cancelled or, if the Directors so determine and subject to the provisions of Sections 724 to 731 of the Act and any applicable regulations of the United Kingdom Listing Authority, be held (or otherwise dealt with in accordance with Section 727 or 729 of the Act) as treasury shares.

Period of Notice Required for General Meetings

15. THAT the period of notice required for general meetings of the Company (other than AGMs) shall be not less than 14 clear days.

Dated this 22 April 2021

By order of the Board

Invesco Asset Management Limited

Corporate Company Secretary