Annual Financial Report

LEGAL ENTITY IDENTIFIER: 549300K1D1P23R8U4U50

Invesco Perpetual UK Smaller Companies Investment Trust plc

Annual Financial Report Announcement for the Year Ended 31 January 2022

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.

Financial Highlights

Total Return Statistics (with dividends reinvested)

Change for the year (%)	2022	2021
Net asset value⁽¹⁾⁽²⁾	+18.8	–3.1
Share price⁽¹⁾⁽²⁾	+21.9	–16.8
Benchmark Index⁽²⁾⁽³⁾	+15.1	–0.9
New Benchmark Index (effective from 1 February 2022) ⁽²⁾⁽³⁾	+11.6	+7.9

At 31 January	2022	2021	Change
Total shareholders’ funds (£000)	220,753	191,380	+15.3%
Net asset value per share (‘NAV’)	652.60p	565.76p	+15.3%
Share price⁽¹⁾⁽²⁾	570.00p	483.00p	+18.0%
Discount⁽¹⁾	(12.7)%	(14.6)%
Gearing⁽¹⁾:
gross gearing	nil	nil
net gearing	nil	nil
net cash	0.7%	2.2%
Maximum authorised gearing	6.8%	7.8%

For the year ended 31 January	2022	2021
Return⁽¹⁾ and dividend per ordinary share:
Revenue return	8.30p	3.31p
Capital return	97.85p	(25.69)p
Total return	106.15p	(22.38)p
First interim dividend	3.75p	3.75p
Second interim dividend	3.75p	3.75p
Third interim dividend	3.75p	3.75p
Final dividend	11.55p	8.07p
Total dividends	22.80p	19.32p	+18.0%
Dividend Yield⁽¹⁾	4.0%	4.0%
Dividend payable for the year (£000):
from current year net revenue	2,808	1,121
from capital reserve (2021: from revenue
and capital reserves)	4,905	5,414
	7,713	6,535
Capital dividend as a % of year end net assets⁽¹⁾	2.2%	2.8%
Ongoing charges⁽¹⁾	0.92%	0.97%

Notes: ⁽¹⁾ Alternative Performance Measure (APM). See Glossary of Terms and Alternative Performance Measures on pages 64 to 66 of the financial report for details of the explanation and reconciliations of APMs.

⁽²⁾ Source: Refinitiv.

⁽³⁾ For the year to 31 January 2022, the Benchmark Index of the Company was the Numis Smaller Companies (excluding Investment Companies) Index with dividends reinvested. From 1 February 2022, the Benchmark Index of the Company changed to the Numis Smaller Companies + AIM (excluding Investment Companies) Index with dividends reinvested.

Chairman’s Statement

Highlights

Net asset value return of +18.8% and share price return of +21.9%, compared to benchmark return of +15.1%, all based on total return with dividends reinvested.
Dividend of 22.80p for the year, providing a yield of 4.0% of the year end share price.
Change of benchmark to the Numis Smaller Companies + AIM (excluding Investment Companies) Index with effect from 1 February 2022.

Dear Shareholders,

Performance

I am pleased to report that for the year ended 31 January 2022 your Company returned +18.8% in Net Asset Value (‘NAV’) terms, outperforming its Benchmark Index, the Numis Smaller Companies (excluding Investment Companies) Index, which returned +15.1%, (in each case measured on total return with dividends reinvested).

The Company’s share price total return for the year was +21.9%.

As at the latest practicable date prior to the publication of this report, being 19 April 2022, the discount stands at 12.2% and the Company’s share price has fallen by 6.1%, the NAV has fallen by 6.6% and the new Benchmark Index is down by 4.1% over the period between 1 February and 19 April 2022.

Discount

During the year the Company’s shares traded at a discount to its Net Asset Value ranging between 3.9% to 16.5%. Many other trusts investing in UK smaller companies have been trading at wider discounts than their historic averages through the course of the year. For the Company, these discount levels are at their widest since the dividend policy, with its target yield (as described below) was introduced. Now that the Board has re-affirmed its commitment to this policy, we hope that shareholders and potential investors recognise the Company has continued to deliver a yield in excess of the average yield of its UK smaller company investment trust peers through investment in a broad cross-section of small to medium sized UK quoted companies.

The Board continues to monitor the 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

The Board has decided that the Company will propose a final dividend of 11.55p to bring the total dividends paid for the year to 22.80p (2021: 19.32p).

The total dividend of 22.80p is in line with the Company’s stated dividend policy which includes a target dividend yield of 4.0% of year-end share price which was 570.00p as at 31 January 2022. This represents all of the available revenue earned by the Company’s portfolio over the year, together with 14.50p from realised capital profits.

The Company’s revenue per share has increased from 3.31p per share last year to 8.30p per share this year, which means that the resulting balance of dividend being paid from realised capital profits represents 2.2% 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 Portfolio Managers.

The Company’s dividends are paid quarterly in September, December, March and June. For the year ended 31 January 2022, three interim dividends of 3.75p each have already been paid and the Board has announced a proposed final dividend of 11.55p per share, making a total for the year of 22.80p per share. The final dividend will be payable, subject to shareholder approval, on 10 June 2022 to shareholders on the register on 13 May 2022 and the shares will go ex-dividend on 12 May 2022.

Benchmark change

The Company’s benchmark for the period under review was the Numis Smaller Companies (NSCI) (excluding Investment Companies) Index, which covers the bottom tenth by value of the main UK equity market but does not include stocks listed on AIM. For many years the Portfolio Managers have invested around 30 per cent of the Company’s portfolio into the AIM market and, as a result, the Board, following consultation with the Portfolio Managers, has concluded that the Numis Smaller Companies + AIM (excluding Investment Companies) Index is a more appropriate index to use as the Company’s benchmark. The new benchmark adds all the AIM stocks which meet the NSCI cut-off criteria and therefore comprises twice as many companies compared with the NSCI including companies currently at smaller market capitalisation levels where the Portfolio Managers have previously identified companies which have gone on to grow quickly. The new benchmark will be used from the start of the Company’s financial year ending 31 January 2023, however this year’s Financial Highlights on page 4 compares the Company’s NAV against both the current and new benchmarks.

Annual General Meeting (‘AGM’)

The Company’s Annual General Meeting will be held at 12 noon on 9 June 2022. The format of this year’s meeting will be somewhat different to past years. The Board encourages shareholder participation at AGMs and other shareholder meetings and this year we will be providing a facility for shareholders to follow the meeting remotely and submit questions to the Board on the business of the meeting to allow those who cannot travel to London to attend remotely. Based on attendance levels, the Board will decide whether this format should be used in future.

For those able to attend in person, subject to any Government guidance in relation to Covid-19 that may be in place at the time, the AGM will be held at 43-45 Portman Square, London W1H 6LY.

For those attending remotely, you can access the meeting via the Company's website, www.invesco.co.uk/ipukscit and following the link to the webcast.

Details of the business of the meeting are set out in the Notice of Meeting on pages 58 to 61.

Outlook

Since the Company’s year-end, Russia launched its invasion of Ukraine causing loss of life and devastation. Global markets reacted in shock but seem to have rebounded quickly, however there is still little visibility over what Russia’s intentions towards Ukraine are and how the situation might be resolved. As more is discovered about the humanitarian situation it is likely that there will be ongoing market volatility.

Increasing energy prices resulting from the Ukraine conflict are impacting both companies and domestic consumers. Inflation, as measured by CPI is trending upwards and was reported as 5.5% in January, 6.2% in February and 7.0% in March 2022. The Bank of England is edging interest rates up and has announced three increases in four months. With the conflict in Ukraine adding to the after effects of the pandemic, Central bankers have an even harder task curbing inflation while at the same time keeping economies growing.

As your portfolio managers highlight in their report, there is likely to be uncertainty in the short term, but they remain confident that investment opportunities will also present themselves over the year ahead.

Jane Lewis

Chairman

20 April 2022

Portfolio Managers’ Report

Q&A

Q What were the key influences on the market over the period?

A The Covid-19 pandemic was once again the dominant feature. The vaccination effort and optimism that the worst of the crisis was over drove markets higher, led by the stocks that had suffered most over the prior year. A rapid rebound in economic activity, combined with an inventory rebuild and ongoing supply constraints, pushed inflation to multi decade highs. However central banks have been relatively cautious in their response, in part due to a hope that this inflationary period will be transitory, but also due to fears of choking off the nascent economic recovery. Nevertheless, the sharp sell-off in highly valued growth stocks at the end of the period suggests the market is pricing in a significant rate tightening cycle over the coming year.

Q How did the portfolio perform over the period?

A The NAV total return for the portfolio over the period was +18.8%, which compared favourably with the benchmark index, the Numis Smaller Companies (excluding Investment Companies) Index, which returned 15.1% on the same basis.

Q Which stocks contributed to and detracted from performance?

A The best performing stocks over the period included: Future (+81%) a publisher of online and magazine content, which continued to perform strongly. Its strategy of driving revenue through digital advertising and e-commerce has generated significant organic growth which has been boosted by earnings accretive acquisitions. Alpha Financial Markets Consulting (+77%) offers consultancy services to the fund management and financial sectors. The business has branched out into new areas such as insurance and benefitted from consolidation in the fund management sector and the ever increasing burden of regulation that its customers have to deal with. Volution (+71%) produces a range of ventilation products and is best known in the UK for its Manrose and Vent-Axia brands. The company benefitted from a rebound in the building sector, and an increased focus on indoor air quality due to the pandemic.

The portfolio also benefitted from several takeover approaches, including financial administration business Sanne (+65%), debt recovery company Arrow Global (+45%), defence business Ultra Electronics (+45%), and marketing company M&C Saatchi (+87%). We regard this as a validation of our approach of investing in good businesses at sensible valuations.

Inevitably there were also some poorly performing holdings: marine services business, James Fisher (–62%), was our worst performing stock by some margin. The business suffered from Covid-19 related disruption to some of its activities such as the construction of off-shore wind farms. We have known the business for many years and believe it has the potential to recover from its current level, so we have maintained a holding. Some of our holdings also suffered in the sell-off towards the end of the period. Language translation business RWS (–12%), and financial software business Aptitude Software (– 9%) were both impacted. We believe the prospects for these businesses remain good and we continue to own them in the portfolio.

Q Why is the Company changing its benchmark?

A We believe the change to the Numis Smaller Companies + AIM (excluding Investment Companies) Index will better reflect the composition of the portfolio, which typically holds 30-35% of its investments in AIM stocks. This does not signal a significant change in investment strategy, although we are broadening our scope to encompass stocks further down the market capitalisation scale. Stocks with market capitalisation between £50m and £100m are typically less well researched, often trade at lower valuations, and therefore potentially offer more upside. The new benchmark includes a greater number of stocks within this range and is therefore a more suitable yardstick to assess our performance.

Q What is the current portfolio strategy?

A Our investment philosophy remains unchanged. The current portfolio is comprised of around 75 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 the position of a business 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”, which is particularly important in the current inflationary environment. 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. We conduct around 300 company meetings and site visits a year, and these areas are a particular focus for us on such occasions.

The current economic environment poses a number of questions for investors. Over the last 2 years higher growth, often technology related stocks, increased in value very considerably. Whilst we favour companies with the ability to grow significantly, it is important to be aware of valuation and the impact that it can have on future returns. Our broad direction of travel over the last 2 years had been to reduce our positions in highly rated growth companies and reinvest the proceeds into businesses that had been hit hard by the pandemic but had significant recovery potential. This served us well, however, many of these businesses have now regained much of the ground they lost during 2020.

The recent resurgence of inflation after a decade long hiatus has been dramatic, with the cost of living increasing by rates not seen for 30 or 40 years. Whilst we believe some of the factors behind this are temporary, such as the cost of shipping and the acute squeeze on supply chains, it appears likely that inflation will settle at a higher rate than we have seen for some time.

This has significant implications for investors. One way in which companies can be valued is using a discounted cash flow model (DCF) which discounts future estimated cash flows by a number that is largely derived from prevailing interest rates. As interest rates increase, the present value of those future cash flows decreases (a bit like compound interest in reverse). The effect of this is much more dramatic for high growth businesses which are forecast to have much larger cash flows the further you look out into the future. Therefore, the recent dramatic falls we have seen in technology and other high growth companies is principally due to the expectation of much higher interest rates.

Clearly, this shift in interest rate expectations, and the effect it has had on the market, has been painful for investors. Nevertheless, it is beginning to provide us with opportunities to invest high quality growth businesses at substantially lower prices than we have seen for some time. In many cases we think that valuations in these areas still have further to fall, so we will maintain valuation discipline and be patient. However, we have tentatively begun to rebuild positions in a number of stocks and would envisage adding more as valuations return towards historical norms.

Q What are the major holdings in the portfolio?

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

• JTC (3.3% of the portfolio) is a financial administration business providing services to real estate and private equity funds, multinational companies, and high net worth individuals. The business has a strong culture, a reputation for quality and has augmented its organic growth with acquisitions. Margins and returns on capital are strong and the business benefits from long term contracts, giving it excellent earnings visibility.

• Sanne (2.7% of the portfolio) provides a broad range of administration services to investment businesses. Increased outsourcing of these activities has driven organic growth which management has augmented with a series of bolt-on acquisitions. Long term contracts give the business good earnings visibility, and the specialist nature of the services allows the company to generate an attractive profit margin. As noted earlier, the business is in the process of being taken-over.

• Essentra (2.7% of the portfolio) is an industrial conglomerate which is in the process of simplifying its business. The company announced that it is reviewing the structure of business and is likely to dispose of both its filters and pharmaceutical packaging businesses, leaving its higher growth, higher margin components business as the remaining division. We believe this will uncover the hidden value within the company and allow management to accelerate the growth of the international components business via acquisition.

• Advanced Medical Solutions (2.4% of the portfolio) produces a range of proprietary wound care and wound closure products such as sutures, medical adhesives, antimicrobial dressings and surgical devices. The business suffered over the pandemic due to the reduction in elective surgery, which provided us with an opportunity to build the holding. The company should benefit from the backlog in medical procedures in the short term and has an exciting pipeline of innovative products which should drive longer term growth.

• Hilton Food (2.4% of the portfolio) partners with major supermarkets across the world to supply their prepacked meat, fish, and plant-based products on a long-term “cost plus” basis. This model reduces the volatility in profits typically seen in food businesses by allowing them to pass changes in the cost of raw materials on to their customers. The business has benefitted from the global trend in supermarkets moving from in-store to centralised packing and relying on a reduced number of trusted suppliers. Hilton Food has an excellent long term growth record, both from signing customers in new countries, and taking share within existing customers. The business has also successfully added new product categories via acquisition, which it can then sell into its global customer base.

Q What were the new holdings added over the period?

A New stocks that we added to the portfolio in the period include:

• Restaurant Group – The business, which is best known for its Wagamama and Frankie & Benny’s brands, successfully exited a large number of underperforming sites over the last year. Trading should benefit from the recovery in consumer spending and a reduction in competition following significant site closures during the pandemic.

• Avon Protection – The business is a leading supplier of protective equipment for the armed services, with a leading position in the UK and US. We bought a position after a significant fall in the share price following some contract delays. We believe these issues will prove to be relatively short term in nature, and that the company can return to growth.

• Focusrite designs and sells equipment and software used in music production to customers around the world. The company owns some strong brands within its sector, with products aimed at both professionals and hobbyists. The business has a strong long-term growth record and generates high profit margins. It is a stock we have followed for some time, and the recent pull-back in the share price presented us with an opportunity.

• PZ Cussons is a manufacturer of detergents, personal care and beauty products which it sells primarily in the UK, US, Australia, Nigeria and Indonesia. The business is undergoing restructuring under a new management team to focus on growing their strongest brands, such as Morning Fresh, Carex, St Tropez and Imperial Leather. We believe management have a credible turn-around plan and there is significant profit growth potential if they get it right.

• Gresham House is an alternative asset management group specialising in areas such as forestry, green energy and sustainable infrastructure. The business is often directly involved in developing these assets, which it then places into funds. It benefits from exposure to higher growth trends within the asset management sector and has a favourable fee structure.

Q How does Environmental, Social and Governance (‘ESG’) factor in the investment process?

A ESG issues are increasingly a focus for many investors and analysis of these factors has always been a core part of our investment process. Invesco has significant resources focussed on ESG, both at a group and individual team level. Our proprietary ESGintel system draws in company specific data from a broad range of sources and enables ESG related metrics to be quantified. This provides fund managers with a clear overview of areas of concern, allowing targeted engagement with businesses to bring about positive change.

Environmental liabilities, socially dubious business practises and poor corporate governance, can have a significant impact on share prices. We assess environmental risks within a business, and analyse what investments the business is making to reduce its environmental impact. We like businesses with strong cultures and engaged employees, and 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 governance, board structure and incentivisation, we proactively consult with all the businesses we own and vote against resolutions where standards fall short of our expectations. Further details of the ESG process of the Manager is disclosed on pages 18 to 21.

A recent example of engagement was with a company that manufactures technology products and provides services in the aerospace and defence market. Ahead of the company’s AGM in the 3rd quarter of 2021, we reviewed the company’s proposed changes to the directors’ remuneration policy and noted that the CEO overall remuneration was increasing to reflect a successful business transformation. We had queries regarding some aspects of the policy and engaged with the company as they appeared to be out of line with similar sized companies. We also felt that the inclusion of performance and ESG targets could be improved.

Our engagement resulted in the proposed increase in CEO salary being phased over two years and the inclusion of material and measurable ESG metrics in the Performance Share Plan as well as Earnings Per Share (‘EPS’) growth and other financial metrics.

Additionally the directors’ pension benefits were out of line with the majority of the workforce. We engaged with the company on the matter, pressing for clarification on how the disparity would be addressed. Following our engagement it was agreed that the directors’ pension provision would be aligned to the wider workforce by 1 November 2022. As a result we felt able to support all resolutions at the company’s AGM.

Q What is the dividend policy of the Company?

A The Company pays out all the income earned within the portfolio and enhances it using a small amount of realised capital profits to target a dividend yield of 4.0% based on the year-end share price. This provides shareholders with an attractive and consistent yield whilst allowing us to target businesses that we believe will deliver the best total return, without having to compromise on quality to hit an income target.

Q What are your expectations for the year ahead?

A Russia’s invasion of Ukraine has had a dramatic effect on energy prices, adding to inflationary pressures, and dampening business and consumer confidence. Clearly, the longer the conflict persists the greater the damage will be to the economy. Our portfolio has no material exposure to Russia, however, the sharp rise in energy prices causes a cost headwind for many businesses. Whilst our holdings in the defence and oil and gas sectors could be beneficiaries of the conflict, it is not a positive for markets overall.

Domestically the “cost of living crisis” is dominating the headlines at present, but it is worth remembering that consumer balance sheets are at their strongest for many years, and that wage growth has mostly outpaced inflation over the last few years. Unemployment also remains very low relative to history, and this is an important driver of consumer confidence. Despite the current gloomy tone of commentary around the UK economy, the OECD predicts the UK will be the fastest growing economy in the G7 in 2022.

More broadly, we expect many of the supply bottlenecks that have held back growth over the last year to abate as the Covid crisis eases. This could potentially lead to some moderation in inflation as we move through the later part of the year, although we expect it to remain elevated relative to recent history, particularly if the price of oil remains high.

The recent sell-off is presenting us with some interesting opportunities to buy into good businesses at sensible valuations. So, although the short-term direction of the market is unclear, we are increasingly excited by the opportunities that are emerging.

Jonathan Brown Robin West

Portfolio Managers

20 April 2022

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 Invesco Fund Managers Limited (the ‘Manager’).

The Company has contracted the services of 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 Managers 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 (excluding Investment Companies) Index with dividends 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. As noted in the Chairman's Statement, with effect from 1 February 2022, the benchmark index of the Company changed to the Numis Smaller Companies + AIM (excluding Investment Companies) Index. 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 4.0% 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 NAV per share on a total return basis;

• the NAV and share price performance relative to the benchmark index and the peer group;

• the discount/premium to NAV;

• 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 and the five year discount record can be found on page 6. The ten year record for dividends and ongoing charges is shown on page 5.

Results and Dividends

In the year ended 31 January 2022, the NAV total return was 18.8%, compared with a total return on the benchmark index of 15.1%, an outperformance of 3.7%. The discount at the year end was 12.7% (2021: 14.6%).

For the year ended 31 January 2022, three interim dividends of 3.75p per share were paid to shareholders in September and December 2021 and March 2022. A final dividend of 11.55p per share will be paid on 10 June 2022 to shareholders on the register on 13 May 2022. This will give total dividends for the year of 22.80p (2021: 19.32p), representing a yield of 4.0% based on the share price as at 31 January 2022. Further details are provided in the Chairman’s Statement on page 7. Of the total dividend, 36.4% (2021: 17.1%) was generated from revenue in the year. The remainder was funded from realised capital reserves and represents 2.2% (2021: 2.8% from realised capital reserves) of the year end net assets.

Financial Position and Borrowings

At 31 January 2022, the Company’s net assets were valued at £221 million (2021: £191 million), comprising a portfolio of equity investments and net current assets, with no borrowings (2021: £nil).

Borrowings under the Company’s investment policy may be used to raise market exposure up to the lower of 30% of NAV 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 (2021: £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. Emerging risks, such as evolving cyber threat, geo-political tension and climate related risks, have been considered during the year as part of the Directors’ assessment.

Principal Risk Description	Mitigating Procedures and Controls
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 Managers, 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. The risk could be triggered by unfavourable developments globally and/or in one or more regions, a contemporary example being the market uncertainty in relation to the ongoing invasion of Ukraine by Russia.	The Directors have assessed the market impact of the ongoing uncertainty from the conflict in Ukraine and the resulting sanctions imposed on Russia, through regular discussions with the Portfolio Managers and the Corporate Broker. The Company’s current portfolio consist of companies listed on the main UK equity market and those listed on AIM. The Company does not have direct investments in Russia or hold stocks with significant links to Russia. To a limited extent, futures can be used to mitigate this risk, as can the judicious holding of cash or other very liquid assets.
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. Furthermore, the risk of climate change and matters concerning ESG could affect the valuation of companies held in the portfolio.	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 Managers, 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 Managers are relatively risk averse, look for lower volatility in the portfolio and seek to outperform in more challenging markets. The Portfolio Managers remain 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, giving due consideration to how the Manager has incorporated ESG considerations including climate change into their investment process. Further details can be found on pages 18 to 21. The Board also has guidelines in place to ensure that the Portfolio Managers adhere 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 NAV basis, and the Company’s share price discount to net asset value per share. The Board and the Portfolio Managers maintain an active dialogue with the aim of ensuring that the market rating of the Company’s shares reflects the underlying NAV; both share buy back and issuance facilities are in place to help the management of this process.
Reliance on the Manager and other Third-Party Service Providers The Company has no employees and the Board comprises non-executive directors only. The Company is therefore reliant upon the performance of third-party service providers for its executive function and service provisions. 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. 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. Failure by any service provider to carry out its obligations to the Company in accordance with the terms of its appointment could have a materially detrimental impact on the operation of the Company and could affect the ability of the Company to successfully pursue its investment policy. The Company’s main service providers, of which the Manager is the principal provider, are listed on page 63. 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.	Third-party service providers are subject to ongoing monitoring by the Manager and the Company. The Manager reviews the performance of all third-party providers regularly through formal and informal meetings. 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, the results of which are reported to the Board. 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. 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.
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 UK AIFMD regime. 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 of this Annual Financial Report.

Viability Statement

In accordance with provision 31 of the UK Code of Corporate Governance 2018, 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; 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 including the lack of consideration of ESG factors including potential impact of climate change, 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 current impact on global markets resulting from the invasion of Ukraine by Russia, 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 Managers but was designed to increase returns distributed to shareholders. The Board considers that the Company’s 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 9 to 11 sets out their current investment strategy. 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 both the revenue forecast and the portfolio valuation, reverse stress testing of debt covenants and dividend sensitivity analysis, 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 2027.

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

The Directors have a statutory duty under section 172 of the Companies Act 2006 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. The Company has no employees and no customers in the traditional sense and 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 stakeholders including the Manager, other third-party service providers and the impact of the Company’s operations on the community and the environment which are all taken into account during all discussions and as part of the Board’s decision making.

The Board is committed to maintaining open channels of communication and engagement with stakeholders in a manner which they find most meaningful. The table below sets out how the Board engages with each of its key stakeholders:

Stakeholder	Key considerations and engagement
Shareholders	The Board endeavours to provide shareholders with a full understanding of the Company’s activities and reports formally to shareholders each year by way of the Half-Yearly and Annual Financial Reports. This is supplemented by the daily publication of the net asset value of the Company’s ordinary shares on the London Stock Exchange website, and monthly fact sheets. Shareholders who attend the AGM can meet the Board and the Portfolio Managers and have the opportunity to hear directly from the Portfolio Managers and ask questions. Shareholders can also visit the Company’s section of the Manager’s investment trust website, www.invesco.co.uk/ipukscit to access copies of Half-Yearly and Annual Financial Reports, shareholder circulars, factsheets and Stock Exchange announcements. There is a regular dialogue between the Board, the Manager and institutional shareholders to discuss aspects of investment performance, governance and strategy and to listen to shareholder views in order to help to develop an understanding of their issues. Meetings between the Manager and institutional shareholders are reported to the Board, which monitors and reviews shareholder communications on a regular basis.
Manager & other key third-party service providers.	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. 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. The Board engages Kepler Partners LLP to assist the Manager in marketing the Company, Kepler also arranges webinars, roadshows and meetings to introduce the Portfolio Managers to potential investors. Due to Covid-19, much of this activity during the past two years has been carried out online. In order to function as an investment trust with a premium listing on the London Stock Exchange, the Company relies on a diverse range of reputable advisers for support in meeting all relevant obligations. The Board through the Manager maintains regular contact with its key external service providers and receives regular reporting from them, both through the Board and committee meetings, as well as outside of the regular meeting cycle. Their advice, as well as their needs and views are routinely taken into account. The Board (through the Management Engagement Committee) formally assesses the third-party service providers’ performance, fees and continuing appointment annually to ensure that the key service providers continue to function at an acceptable level and are appropriately remunerated to deliver the expected level of service. The Audit Committee reviews and evaluates the financial reporting control environments in place at each service provider. There have been no material changes to the level of service provided by the Company’s third-party suppliers as a result of the Covid-19 pandemic.
Investee Companies	On the Company’s behalf the Manager engages with investee companies, particularly in relation to ESG matters and shares held in the portfolio are voted at general meetings. An example of how the Manager engaged with an investee company can be found on page 11.
Association of Investment Companies (‘AIC’)	The Company is a member of the AIC, which looks after the interests of investment trusts and provides information to the market. Comprehensive information relating to the Company can be found on the AIC website. As a member of the AIC, the Company is welcomed to comment on consultations and proposal documents on matters affecting the Company and annually to nominate and vote for future board members.

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

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

• to adopt Numis Smaller Companies + AIM (excluding Investment Companies) Index as the Company's new benchmark with effect from 1 February 2022. This better reflects the Company’s investible universe of smaller companies including companies currently at smaller capitalisation levels where the Portfolio Managers have previously identified companies which have gone on to grow quickly.

• to provide a facility for shareholders who cannot travel to London, to follow the AGM remotely and submit questions to the Board which it is hoped will encourage shareholder participation.

• to consider and approve the renewal of the Company’s overdraft facility.

• the appointment of Mike Prentis on 21 February 2021 as part of the ongoing Board succession and review of skills mix.

Environmental, Social and Governance (‘ESG’) Matters

In relation to the portfolio, the Company has delegated the management of the Company’s investments to the 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 achieved a global ‘A+’ rating for its overall approach to responsible investment for the last four years as well as achieving an ‘A’ or ‘A+’ across all categories in the latest available 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 published its Climate Change report in line with the TCFD in November 2021. 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 complied with the spirit of 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 wider Invesco 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 pages 18 to 21.

The Company’s stewardship functions have been delegated to the Manager. The 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 Nomination 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 20 April 2022.

Invesco Asset Management Limited

Corporate Company Secretary

Investments in Order of Valuation

AT 31 JANUARY 2022

Ordinary shares unless stated otherwise

		Market
		Value	% of
Company	Sector	£000	Portfolio
JTC	Investment Banking and Brokerage Services	7,328	3.3
Sanne	Investment Banking and Brokerage Services	5,998	2.7
Essentra	Industrial Support Services	5,835	2.7
Hilton Food	Food Producers	5,251	2.4
Advanced Medical Solutions^AIM	Medical Equipment and Services	5,248	2.4
4imprint	Media	4,924	2.2
Hill & Smith	Industrial Metals and Mining	4,794	2.2
Hollywood Bowl	Travel and Leisure	4,784	2.2
Energean	Oil, Gas and Coal	4,473	2.0
Volution	Construction and Materials	4,424	2.0
Top Ten Holdings		53,059	24.1
Secure Trust Bank	Banks	4,415	2.0
RWS^AIM	Industrial Support Services	4,310	2.0
Johnson Service^AIM	Industrial Support Services	4,267	1.9
The Gym	Travel and Leisure	4,260	1.9
Serco	Industrial Support Services	4,222	1.9
Future	Media	4,156	1.9
Brooks Macdonald^AIM	Investment Banking and Brokerage Services	4,069	1.9
Vitec	Industrial Engineering	3,717	1.7
Robert Walters	Industrial Support Services	3,694	1.7
Chemring	Aerospace and Defence	3,643	1.7
Top Twenty Holdings		93,812	42.7
discoverIE	Technology Hardware and Equipment	3,634	1.7
CVS^AIM	Consumer Services	3,622	1.6
Aptitude Software	Software and Computer Services	3,609	1.6
CLS	Real Estate Investment and Services	3,512	1.6
Clinigen^AIM	Pharmaceuticals and Biotechnology	3,458	1.6
Alfa Financial Software	Software and Computer Services	3,450	1.6
LSL Property Services	Real Estate Investment and Services	3,322	1.5
Tyman	Construction and Materials	3,255	1.5
Restore^AIM	Industrial Support Services	3,243	1.5
Ultra Electronics	Aerospace and Defence	3,207	1.4
Top Thirty Holdings		128,124	58.3
Crest Nicholson	Household Goods and Home Construction	3,148	1.4
Inspecs^AIM	Personal Goods	3,081	1.4
Knights^AIM	Industrial Support Services	3,041	1.4
VP	Industrial Transportation	2,980	1.4
Jadestone Energy^AIM	Oil, Gas and Coal	2,934	1.3
Genuit	Construction and Materials	2,933	1.3
Alpha Financial Markets Consulting^AIM	Industrial Support Services	2,897	1.3
Marlowe^AIM	Industrial Support Services	2,832	1.3
Loungers^AIM	Travel and Leisure	2,811	1.3
Wickes	Retailers	2,722	1.3
Top Forty Holdings		157,503	71.7
Young & Co’s Brewery - Non-Voting^AIM	Travel and Leisure	2,690	1.2
Vistry	Household Goods and Home Construction	2,636	1.2
Workspace	Real Estate Investment Trusts	2,522	1.2
Learning Technologies^AIM	Software and Computer Services	2,506	1.1
Churchill China^AIM	Household Goods and Home Construction	2,500	1.1
Grafton	Industrial Support Services	2,427	1.1
Severfield	Construction and Materials	2,245	1.0
Kainos	Software and Computer Services	2,226	1.0
Gooch & Housego^AIM	Technology Hardware and Equipment	2,217	1.0
DFS Furniture	Retailers	2,180	1.0
Top Fifty Holdings		181,652	82.6
Vesuvius	Industrial Engineering	2,149	1.0
Midwich^AIM	Industrial Support Services	2,078	1.0
Coats	General Industrials	2,066	0.9
Savills	Real Estate Investment and Services	2,006	0.9
Ricardo	Construction and Materials	1,970	0.9
Mitchells & Butlers	Travel and Leisure	1,813	0.8
JD Wetherspoon	Travel and Leisure	1,766	0.8
M&C Saatchi^AIM	Media	1,725	0.8
Topps Tiles	Retailers	1,640	0.8
FDM	Industrial Support Services	1,592	0.7
Top Sixty Holdings		200,457	91.2
Restaurant Group	Travel and Leisure	1,565	0.7
PZ Cussons	Personal Care, Drug and Grocery Stores	1,546	0.7
Safestore	Real Estate Investment Trusts	1,495	0.7
Gresham House^AIM	Closed End Investments	1,441	0.7
James Fisher and Sons	Industrial Transportation	1,416	0.7
Avon Protection	Aerospace and Defence	1,415	0.6
Keywords Studios^AIM	Leisure Goods	1,403	0.6
ECO Animal Health^AIM	Pharmaceuticals and Biotechnology	1,395	0.6
Jupiter Fund Management	Investment Banking and Brokerage Services	1,343	0.6
Cohort^AIM	Aerospace and Defence	1,323	0.6
Top Seventy Holdings		214,799	97.7
FD Technologies^AIM	Software and Computer Services	1,308	0.6
Dunelm	Retailers	927	0.4
Focusrite^AIM	Leisure Goods	869	0.4
Bytes Technology	Software and Computer Services	780	0.4
Thruvision^AIM	Electronic and Electrical Equipment	602	0.3
Treatt	Chemicals	533	0.2
Total Investments (76)		219,818	100.0

^AIM Investments quoted on AIM.

The percentage of the portfolio by value invested in AIM stocks at the year-end was 30.9% (2021: 33.3%). There were 26 AIM stocks held at the year-end, representing 34.2% of the 76 stocks (2021: 25 AIM stocks held representing 32.1% of the 78 stocks held).

Directors’ Responsibilities Statement

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 UK-adopted international accounting standards. 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 in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors and then apply them consistently;

• make judgements and estimates that are reasonable and prudent;

• present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;

• present additional disclosures when compliance with the specific requirements in IFRSs is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the group and company financial position and financial performance;

• state whether UK-adopted international accounting standards 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 UK adopted international 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

20 April 2022

Electronic Publication

The Annual Financial Report is published on www.invesco.co.uk/ipukscit, which is the Company’s website maintained by the Company’s Manager. The work carried out by the auditor did not involve consideration of the maintenance and integrity of this website and accordingly, the auditor accepts no responsibility for any changes that have occurred to the financial statements since they were initially presented on the website. Legislation in the United Kingdom governing the preparation and dissemination of the financial statements may differ from legislation in other jurisdictions.

Statement of Comprehensive Income

FOR THE YEAR ENDED 31 JANUARY

		2022			2021
		Revenue	Capital	Total	Revenue	Capital	Total
	Notes	£000	£000	£000	£000	£000	£000
Profit/(loss) on investments held at fair value	9	-	34,552	34,552	-	(7,625)	(7,625)
Income	2	3,448	-	3,448	1,682	-	1,682
Investment management fees	3	(254)	(1,440)	(1,694)	(187)	(1,057)	(1,244)
Other expenses	4	(385)	(5)	(390)	(371)	(5)	(376)
Profit/(loss) before finance costs and
taxation		2,809	33,107	35,916	1,124	(8,687)	(7,563)
Finance costs	5	(1)	(7)	(8)	(1)	(6)	(7)
Profit/(loss) before taxation		2,808	33,100	35,908	1,123	(8,693)	(7,570)
Taxation	6	–	-	-	(2)	-	(2)
Profit/(loss) after taxation		2,808	33,100	35,908	1,121	(8,693)	(7,572)
Return per ordinary share	7	8.30p	97.85p	106.15p	3.31p	(25.69)p	(22.38)p

The total column of this statement represents the Company’s statement of comprehensive income, prepared in accordance with UK-adopted international accounting standards. The profit/(loss) after taxation is the total comprehensive income/(loss). 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 2020		10,642	22,366	3,386	167,973	876	205,243
(Loss)/profit after taxation		-	-	-	(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
Profit after taxation		-	-	-	33,100	2,808	35,908
Dividends paid	8	-	-	-	(3,997)	(2,538)	(6,535)
At 31 January 2022		10,642	22,366	3,386	184,089	270	220,753

The accompanying accounting policies and notes are an integral part of these financial statements.

Balance Sheet

AS AT 31 JANUARY

		2022	2021
	Notes	£000	£000
Non-current assets
Investments held at fair value through profit or loss	9	219,818	187,782

Current assets
Other receivables	10	157	214
Cash and cash equivalents		1,530	4,218
		1,687	4,432
Total assets		221,505	192,214
Current liabilities
Other payables	11	(752)	(834)
Total assets less current liabilities		220,753	191,380
Net assets		220,753	191,380
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	184,089	154,986
Revenue reserve	13	270	-
Total shareholders’ funds		220,753	191,380
Net asset value per ordinary share
Basic	14	652.60p	565.76p

The financial statements were approved and authorised for issue by the Board of Directors on 20 April 2022.

Signed on behalf of the Board of Directors

Jane Lewis

Chairman

The accompanying accounting policies and notes are an integral part of these financial statements.

Statement of Cash Flows

FOR THE YEAR ENDED 31 JANUARY

	2022	2021
	£000	£000
Cash flow from operating activities
Profit/(loss) before finance costs and taxation	35,916	(7,563)
Taxation	-	(2)

Adjustments for:
Purchase of investments	(55,442)	(48,429)
Sale of investments	57,863	53,293
	2,421	4,864
Scrip dividends	-	(121)
(Profit)/loss on investments held at fair value	(34,552)	7,625
Decrease in receivables	31	232
Increase/(decrease) in payables	39	(12)
Net cash inflow from operating activities	3,855	5,023
Cash flow from financing activities
Finance cost paid	(8)	(7)
Dividends paid – note 8	(6,535)	(6,291)
Net cash outflow from financing activities	(6,543)	(6,298)
Net decrease in cash and cash equivalents	(2,688)	(1,275)
Cash and cash equivalents at start of the year	4,218	5,493
Cash and cash equivalents at the end of the year	1,530	4,218
Reconciliation of cash and cash equivalents to the Balance Sheet is as follows:
Cash held at custodian	155	1,198
Invesco Liquidity Funds plc – Sterling, money market fund	1,375	3,020
Cash and cash equivalents	1,530	4,218
Cash flow from operating activities includes:
Dividends received	3,481	1,787

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.

The accompanying accounting policies and notes are an integral part of these financial statements.

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 30 April 2023.

(a) Basis of Preparation

(i) Accounting Standards Applied

In preparing these financial statements the Directors have considered the impact of climate change risk as an emerging risk as set out in page 13, and have concluded that it does not have a material impact on the Company’s investments. The financial statements have been prepared on a historical cost basis, except for the measurement at fair value of investments which for the Company are quoted bid prices for investments in active markets at the Balance Sheet date and therefore reflect market participants’ view of climate change risk and in accordance with the applicable UK-adopted international accounting standards. 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 April 2021, is consistent with the requirements of UK-adopted international accounting standards. 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:

• Reference to the Conceptual Framework – Amendments to IFRS 3.

• Onerous Contracts Cost of Fulfilling a Contract – Amendments to IAS 37.

• Property, Plant and Equipment: Proceeds before Intended Use – Amendments to IAS 16.

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. Cash and cash equivalents are defined as cash itself or being readily convertible to a known amount of cash and are subject to an insignificant risk of change in value.

(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. Where the Company elects to receive scrip dividends (i.e. in the form of additional shares rather than cash), the equivalent of the cash dividend foregone is recognised as income in the revenue account and any excess in value of the shares received over the amount of the cash divided recognised in capital. Deposit interest is 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. Dividends will generally be recognised as revenue however all special dividends will be reviewed, with consideration given to the facts and circumstances of each case, including the reasons for the underlying distribution, 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.

Investment transaction costs such as brokerage commission and stamp duty are recognised in capital in the Statement of Comprehensive Income. All other expenses are allocated to revenue in the Statement of Comprehensive Income.

(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.

	2022	2021
	£000	£000
Income from investments:
UK dividends	3,062	1,061
UK special dividends	198	286
Overseas dividends	188	214
Scrip dividends	-	121
Total income	3,448	1,682

No special dividends have been recognised in capital during the year (2021: nil).

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.

	2022			2021
	Revenue	Capital	Total	Revenue	Capital	Total
	£000	£000	£000	£000	£000	£000
Investment management fee	254	1,440	1,694	187	1,057	1,244

Details of the investment management and administration agreement are given on page 28 in the Directors’ Report.

At 31 January 2022, £138,000 (2021: £120,000) 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.

	2022			2021
	Revenue	Capital	Total	Revenue	Capital	Total
	£000	£000	£000	£000	£000	£000
Directors’ remuneration⁽ⁱ⁾	119	-	119	120	-	120
Auditors’ fees^(ii):
for audit of the Company’s
annual financial statements	45	-	45	27	-	27
additional fees in respect of Covid-19
audit procedures in year to
31 January 2020	-	-	-	5	-	5
Other expenses⁽ⁱⁱⁱ⁾	221	5	226	219	5	224
	385	5	390	371	5	376

⁽ⁱ⁾ The Director’s Remuneration Report on page 35 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;

• 10,500 (2021: £11,200) of employer’s National Insurance payable on Directors’ remuneration. As at 31 January 2022, the amounts outstanding on employer’s National Insurance on Directors’ remuneration was £900 (2021: £800), the amounts outstanding for Directors’ fee was £9,200 (2021: £9,500); and

• custodian transaction charges of £5,000 (2021: £5,000). These are charged to capital.

5. Finance Costs

Finance costs arise on any borrowing facilities the Company has.

	2022			2021
	Revenue	Capital	Total	Revenue	Capital	Total
	£000	£000	£000	£000	£000	£000
Bank overdraft facility fee	1	7	8	1	6	7

The £15 million overdraft facility was renewed on 8 September 2021 and the interest rate is at a margin above the Bank of England base rate. This overdraft facility has not been used in either the current or prior year.

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

	2022	2021
	£000	£000
Overseas taxation	–	2

(b) Reconciliation of tax charge

	2022	2021
	£000	£000
Profit/(loss) before taxation	35,908	(7,570)
Theoretical tax at the current UK Corporation Tax rate of 19% (2021: 19%)	6,823	(1,438)
Effects of:
–Non-taxable UK dividends	(563)	(180)
–Non-taxable UK special dividends	(38)	(54)
–Non-taxable overseas dividends	(36)	(37)
–Non-taxable overseas special dividends	-	(23)
–Non-taxable (gains)/loss on investments	(6,565)	1,448
–Excess of allowable expenses over taxable income	378	283
–Disallowable expenses	1	1
–Overseas taxation	-	2
Tax charge for the year	-	2

The Company has cumulative excess management expenses of £42,720,000 (2021: £40,733,000) that are available to offset future taxable revenue.

A deferred tax asset of £10,680,000 (2021: £7,739,000) at 25% (2021: 19%) 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.

The Finance Act 2021 increases the UK corporation tax rate from 19% to 25% effective 1 April 2023. The Act received Royal Assent on 10 June 2021. Deferred tax assets and liabilities on balance sheets prepared after the enactment of the new tax rate must therefore be re-measured accordingly, so as a result the deferred tax asset has been calculated at 25%.

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.

	2022			2021
	Revenue	Capital	Total	Revenue	Capital	Total
Return £000	2,808	33,100	35,908	1,121	(8,693)	(7,572)
Return per ordinary share	8.30p	97.85p	106.15p	3.31p	(25.69)p	(22.38)p

The returns per ordinary share are based on the weighted average number of shares in issue during the year of 33,826,929 (2021: 33,826,929).

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.

	2022		2021
	Pence	£000	Pence	£000
Dividends paid from revenue in the year:
Third interim (prior year)	–	–	2.59	876
First interim	3.75	1,269	3.31	1,121
Second interim	3.75	1,269	–	–
Total dividends paid from revenue	7.50	2,538	5.90	1,997
Dividends paid from capital in the year:
Third interim (prior year)	3.75	1,269	1.16	393
Final (prior year)	8.07	2,728	7.35	2,484
First interim	–	–	0.44	148
Second interim	–	–	3.75	1,269
Total dividends paid from capital	11.82	3,997	12.70	4,294
Total dividends paid in the year	19.32	6,535	18.60	6,291
	2022		2021
	Pence	£000	Pence	£000
Dividends payable in respect of the year:
First interim	3.75	1,269	3.75	1,269
Second interim	3.75	1,269	3.75	1,269
Third interim	3.75	1,269	3.75	1,269
Final	11.55	3,906	8.07	2,728
	22.80	7,713	19.32	6,535

The third interim dividend of 3.75p per share, in respect of the year ended 31 January 2022, was paid to shareholders on 15 March 2022.

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:

	2022	2021
	£000	£000
Dividends in respect of the year:
from current year net revenue	2,808	1,121
from capital reserves	4,905	5,414
	7,713	6,535

Dividend payable from the capital reserves of £4,905,000 (2021: revenue and capital reserves of £5,414,000) as a percentage of year end net assets of £220,753,000 (2021: £191,380,000) is 2.2% (2021: 2.8%). The Company has £137,089,000 (2021: £119,159,000) of realised distributable capital reserves at the year end.

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.

	2022	2021
	£000	£000
Investments listed on a regulated stock exchange	151,948	124,947
AIM quoted investments	67,870	62,835
	219,818	187,782
Opening valuation	187,782	199,973
Movements in year:
Purchases at cost	55,321	48,753
Sales proceeds	(57,837)	(53,319)
Profit/(loss) on investments in the year	34,552	(7,625)
Closing valuation	219,818	187,782
Closing book cost	172,818	151,955
Closing investment unrealised gain	47,000	35,827
Closing valuation	219,818	187,782

The transaction costs amount to £217,000 (2021: £186,000) on purchases and £27,000 (2021: £24,000) 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 £57,837,000 (2021: £53,319,000) from investments sold in the year. The book cost of these investments when they were purchased was £34,458,000 (2021: £37,370,000) realising a profit of £23,379,000 (2021: £15,949,000). These investments have been revalued over time and until they were sold any unrealised profits/losses 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.

	2022	2021
	£000	£000
Amounts due from brokers	-	26
Overseas withholding tax recoverable	14	–
Prepayments and accrued income	143	188
	157	214

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.

	2022	2021
	£000	£000
Amounts due to brokers	517	638
Accruals	235	196
	752	834

12. Share Capital

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

	2022		2021
	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 2022 no shares were bought back into or issued from treasury (2021: nil).

Subsequent to the year end no shares were bought back into or issued from treasury.

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
	2022	2021	2022	2021
	Pence	Pence	£000	£000
Ordinary shares	652.60	565.76	220,753	191,380

Net asset value per ordinary share is based on net assets at the year end and on 33,826,929 (2021: 33,826,929) ordinary shares, being the number of ordinary shares in issue (excluding shares held in 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
	2022	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 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 and 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 2.5% 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 (2021: £15 million), 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 (2021: none). Based on the maximum amount that can be drawn down at the year end under the overdraft facility of £15 million (2021: £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 (2021: £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 profit after tax for the year would decrease by £22 million (2021: loss after tax for the year would increase by £19 million). Conversely, if the value of the portfolio rose by 10%, the profit after tax would increase (2021: loss after tax would decrease) 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 3 investment (2021: 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.

There is no Level 2 investment in the current year. Last year, ECO Animal Health was the only Level 2 investment in the portfolio, valued at £1,149,000. This allocation had been caused by a temporary suspension of the company’s AIM listing 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. Following the re-admission to AIM listing this investment returned to Level 1.

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 2021 year end. Berry Starquest Limited is a dormant subsidiary and is valued at £100 (2021: £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 12.

The main risks to the Company’s investments are shown in the Strategic Report under the ‘Principal Risks and Uncertainties’ section on pages 13 and 14. 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 2022, the composition of which is shown on the balance sheet on page 46, was £220,753,000 (2021: £191,380,000).

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 2022 (2021: 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 UK-adopted international accounting standards the Company has identified the Directors as related parties. The Directors’ remuneration and interests have been disclosed on pages 35 to 37 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 28 and in note 3.

21. Post Balance Sheet Events

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

The figures and financial information for the year ended 31 January 2022 are extracted from the Company's annual financial statements for that year and do not constitute statutory accounts. The Company's annual financial statements for the year to 31 January 2022 have been audited but have not yet been delivered to the Registrar of Companies. The Auditor's report on the 2022 annual financial statements was unqualified, did not include a reference to any matter to which the Auditor drew attention without qualifying the report, and did not contain any statements under Section 498 of the Companies Act 2006.

The figures and financial information for the year ended 31 January 2021 are compiled from an extract of the published accounts for that year and do not constitute statutory accounts. Those accounts have been delivered to the Registrar of Companies and included the report of the Auditor which was unqualified and did not contain a statement under Sections 498(2) or 498(3) of the Companies Act 2006.

The audited 2022 annual financial report will be available to shareholders, and will be delivered to the Registrar of Companies, shortly. Copies may be obtained during normal business hours from the Company’s Registered Office, from its correspondence address, 43-45 Portman Square, London W1H 6LY, and via www.invesco.co.uk/ipukscit.

A copy of the annual financial report will be submitted shortly to the National Storage Mechanism ("NSM") and will be available for inspection at the NSM, which is situated at https://data.fca.org.uk/#/nsm/nationalstoragemechanism.

The Annual General Meeting will be held on 9 June 2022 at 12 noon at 43-45 Portman Square, London W1H 6LY. Further details are set out in the Notice of Annual General Meeting below.

By order of the Board
Invesco Asset Management Limited
20 April 2022

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 Company’s Annual General Meeting will be held at 12 noon on Thursday 9 June 2022 at 43-45 Portman Square, London W1H 6LY subject to any Government guidance in relation to Covid-19 that may be in place at the time.

The Board encourages shareholder participation at AGMs and for the first time, the Company will be providing a facility for shareholders to follow the meeting remotely and submit questions to the Board on the business of the meeting, using your smartphone, tablet or computer, should they wish to do so. This can be done by accessing the Company's website, www.invesco.co.uk/ipukscit and following the link to the webcast.

On the day of the AGM, you will be prompted to enter your unique 11 digit Investor Code (‘IVC’) and ‘PIN’ which will authenticate you as a shareholder. Details of where you can obtain your IVC and PIN can be found in a letter being sent to Shareholders.

Access to the AGM will be available from 30 minutes before the start of the meeting, although you will not be able to submit questions until you are logged in. Shareholders can submit questions in advance by writing to the Company Secretary at the correspondence address given on page 63 or or by email to investmenttrusts@invesco.com.

The electronic meeting will be broadcast in audio format with presentation slides. Once logged in, and at the commencement of the meeting, you will be able to listen to the proceedings of the meeting on your device, as well as being able to see the slides of the meeting which will include the resolutions to be put forward to the meeting. These slides will progress automatically as the meeting progresses.

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 9 June 2022 for the following purposes:

Ordinary Business

1. To receive and consider the Annual Financial Report for the year ended 31 January 2022.

2. To approve the Directors’ Remuneration Policy.

3. To approve the Annual Statement and Report on Remuneration for the year ended 31 January 2022.

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 re-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 11 will be proposed as an ordinary resolution and resolutions 12 to 14 as special resolutions:

Authority to Allot Shares

11. 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 20 April 2022, 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

12. 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 11 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 20 April 2022; 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

13. 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 20 April 2022;

(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

14. 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 20 April 2022

By order of the Board

Invesco Asset Management Limited

Corporate Company Secretary