Final Results
Invesco Perpetual UK Smaller Companies Investment Trust plc
Annual Financial Report Announcement
For the year ended 31 January 2012
FINANCIAL INFORMATION AND PERFORMANCE STATISTICS
The Benchmark Index of the Company is the Extended Hoare Govett Smaller
Companies Index (excluding Investment Trusts)
AT AT
31 JANUARY 31 JANUARY %
2012 2011 CHANGE
Net asset value per ordinary
share(2):
- balance sheet 237.6p 242.9p -2.2%
- after charging proposed 234.2p 240.2p -2.5%
dividends (capital NAV)
Shareholders' funds (£'000) 126,771 133,999 -5.4%
(2)
Mid-market price per 187.5p 195.0p -3.8%
ordinary share
Discount(1) per ordinary 21.1% 19.7%
share based on balance sheet
NAV
Total return (all income
reinvested):
Net asset value(1)(2)(3) -0.8%
Benchmark(1)(3) -1.8%
FTSE All-Share Index(3) -0.3%
Capital only return:
Net asset value(1)(2) -2.5%
Benchmark(1)(3) -4.5%
FTSE All-Share Index(3) -3.7%
Gearing
  - gross gearing(1) 6.7% nil
  - net gearing(1) 6.7% -0.6%
  - maximum permissable 15.8% 14.9%
gearing(1)
Return and dividend per
ordinary share:
Revenue return 5.2p 4.1p
Capital return (7.8)p 47.2p
Total return (2.6)p 51.3p
First interim dividend 1.6p 1.6p
Final dividend 3.4p 2.7p
5.0p 4.3p +16.3%
Total expense ratio(1)
- excluding performance 0.88% 0.86%
fee
- including performance 1.18% 0.86%
fee
Note:  (1) The term is defined in the Glossary in the Annual Financial Report.
(2) Includes enhancements from share repurchases.
(3) Source: Thomson Reuters and Morningstar.
CHAIRMAN'S STATEMENT
Your Company's net asset value (`NAV') fell -0.8% on a total return basis
during its financial year, which ended on 31 January 2012. This result was
better than its benchmark, the Extended Hoare Govett Smaller Companies Index
(excluding Investment Trusts), which returned -1.8%. The FTSE All-Share Index
fell by a slightly lesser -0.3% over the same period.
The mid-market price of the Company's shares fell by 3.8% - from 195.0p to
187.5p per share - over the same period, partially reflecting a widening of the
discount to NAV at which the shares traded, from 19.7% to 21.1%. However, since
the Company's year end the discount has narrowed to 18.6%, accompanied by a
rise in the share price to 211p as at 2 April 2012.
Dividend
For the year ended 31 January 2012, an interim dividend of 1.6 pence per share
was paid on 21 October 2011 to shareholders on the register on 30 September
2011. The Board is proposing the payment of a final dividend of 3.4 pence per
share on 24 May 2012 to shareholders on the register on 27 April 2012. Total
dividends for the year to 31 January 2012 are 5 pence per share, a 16.3%
increase on the previous year. Future dividends, as well as investment
performance, will, as always, depend on market conditions, and the ability of
the Managers to achieve satisfactory results.
Share Repurchases
During the year ended 31 January 2012, the Company purchased and cancelled a
total of 1,812,945 ordinary shares at a weighted average price of 189.69 pence
per share and at an average discount to NAV of 18.36%. The effect has been to
buy in 3.34% of the issued share capital and to enhance NAV by approximately
0.61%. Since the year end, a further 137,000 ordinary shares have been bought
back and cancelled.
Annual General Meeting
The Directors have carefully considered all of the resolutions proposed in the
Notice of the AGM and believe them to be in the best interests of shareholders
and the Company as a whole. The Directors accordingly recommend that
shareholders vote in favour of each resolution.
Outlook
As you will note from the Portfolio Managers' Review, our Managers continue to
believe that economic challenges may persist for a few years to come and the
outlook for stockmarkets beyond the next 6 months remains uncertain at best.
Nevertheless, the balance of opinion suggests that remaining invested in
equities is the right approach. Moreover, a diversified portfolio of quality
smaller companies, as identified by your Portfolio Managers, looks capable of
delivering above-average returns.
However, the next 2-3 years present a continuing challenge - and one that many
had expected would have already been successfully resolved. In the event, with
some form of austerity measures likely to be implemented following a US
presidential election and continuing uncertainties surrounding the Eurozone, a
more defensive positioning may be warranted.
Meanwhile, your Portfolio Managers' out-performance of their benchmark in 2011,
against such a difficult market backdrop, is a credible result and consistent
with the aim of building long-term, above-benchmark returns for shareholders.
Ian Barby
Chairman
10 April 2012
MANAGERS' REPORT
Investment Review
In the period under review, the UK stock market has struggled to make progress
against the backdrop of the European sovereign debt crisis and, in particular,
the threat of a Greek default. The broader picture is one of low economic
growth in developed countries as a result of the deleveraging amongst financial
institutions, following the banking crisis of 2007/8 and the austerity
programmes, driven by governments fearful of losing control of their borrowing
costs. Central banks have sought to counter the deflationary effects of these
factors by maintaining interest rates at low levels and by injections of
liquidity via quantitative easing. Emerging countries continued to expand but
growth slowed on the back of inflation in essential food items and a
deceleration in the Chinese economy.
The year began well, with the stock market shrugging off the uncertainties of
the Arab Spring revolution and the Japanese earthquake, to record new recovery
highs in May and early July. Thereafter, the stock market experienced a setback
which exceeded 20%. This sharp fall was driven by a downgrade of US government
debt by Standard & Poor's and a fear of debt contagion amongst Eurozone
countries, in particular Italy. August lows in the stock market were tested
again in October but, since then, there has been a strong rally which has
resulted in the US stock market fully recovering the losses of the second half
of 2011. European stock markets have lagged a little. The principal reason for
the rally in stock markets appears to be a better trend of economic indicators
for the US economy and the start of quantitative easing in Europe. For the year
to 31 January 2012, the UK stock market, as measured by the FTSE All-Share
Index, declined 0.3% on a total return basis. On a similar basis, UK smaller
companies, as measured by the Extended Hoare Govett Smaller Companies Index (ex
investment trusts), fell 1.8%. Smaller companies had lagged the recovery of the
wider market but the sector substantially outperformed in January and February
2012.
Against this background, the net asset value of the shares of the Company fell
0.8% on a total return basis. The portfolio benefited from being overweight in
the Industrial Engineering and Software & Computer Services sectors and being
underweight in the Retail and Financial sectors. The Company suffered from
under exposure to Housebuilding and Media, and over exposure to Aerospace &
Defence. Despite this, several of the Company's major holdings performed very
well in the period under review. The main contributors were: Fenner (share
price +32%), a major holding of the Company, which had a succession of earnings
upgrades reflecting the strengthening of its market position in heavy duty
conveyor belting, used extensively in coal mining, and the recovery in its
industrial polymers division; Babcock International (+27%), a defence services
business, which maintains nuclear submarines and military sites, experienced a
number of contract wins; RPC (+38%), a manufacturer of plastic packaging, which
undertook the major acquisition of a European competitor, and Diploma (+22%), a
specialist distributor which enjoyed a strong recovery in profits. Amongst the
disappointments were Chemring (-31%), a defence business which suffered from
delayed orders and negative sentiment to the sector, and IQE (-59%), a
manufacturer of semiconductor components, which had earnings downgrades driven
by a large customer destocking. Both companies are still in the portfolio and
are showing encouraging signs of recovery.
The Company continues, on a five year basis, to achieve its objective relative
to the peer group of being an above average performer combined with a much
lower than average volatility.
Investment Strategy
Observation of western stock markets reveals an alternating cycle of about 15/
20 years of strong returns, adjusted for inflation, followed by a similar
period of weak returns, adjusted for inflation. These periods are referred to
as secular bull and bear markets. The logic behind the pattern is that the
bullish phase creates excesses in the stock market (high valuations) and in the
underlying economy, whilst the bearish phase provides the necessary correction
and consolidation. The last secular bull market was 1982 to 2000 when stock
prices rose, in real terms, over 700% as measured by the Dow Jones Industrial
Average (DJIA), ending with the extreme valuations of the technology bubble.
The preceding secular bear phase (1966-82) saw share prices fall in excess of
70%, in real terms, with valuations more than halving from the days of the
"nifty 50" in the late 1960s. Of interest, and maybe contributing to the
phenomena, is the cycle in commodity prices which is almost exactly the
opposite to the stock market. The secular bull market in equities is typically
accompanied by falling commodity prices and vice versa.
In our view, western stock markets have been in a secular bear market since
2000. This depressing prospect, however, needs to be put into perspective.
There are opportunities to make money in such a market. In the period 1966-82
there were at least 4 cyclical bull markets but there were also many times when
going to cash and sitting on the sidelines was important. We have possibly seen
the lows of this bear phase. The end date of the secular bear market is not
necessarily the lowest point in share price terms. In the period 1966-82, the
low in markets was seen in 1974, nearly 8 years before the DJIA decisively
broke through the 1000 barrier in 1982, when the secular bull is judged to have
taken over. Finally, to point out the obvious, we are currently in the 12th
year of a 15/20 cycle. We are nearer the end than the beginning. From a
historical perspective, however, it would be surprising if there was not at
least one more decline in share prices to come before the end of the secular
bear market. The great hope this time is that the decline will turn out to be
more of a sideways consolidation as share prices are supported by continuing
low interest rates.
We regard the pattern described above as consistent with our expectations for
continuing low growth of western economies. Deleveraging by consumers and banks
and government austerity programmes, together with the unemployment caused,
will be likely to dampen prospects for some time to come. Indeed, given the
size of quantitative easing, economic progress since the banking crisis of 2007
/8 can be regarded as disappointing. We doubt that the European crisis has
ended with the latest bailout of Greece. We expect problems to resurface and
eventually a stronger euro will emerge based on a core of financially stronger
countries but this will require substantial support of European banks. The
weaker countries will re-establish their own currencies and in time, will
benefit from the lower cost base established. Other challenges remain. The US
economy is clearly showing signs of recovery but we await a real attempt to
reduce the size of the US trade and budget deficits, which is unlikely before
the new President takes office in 2013. Above all, time is required for western
economies and consumers to adjust to lower living standards, for bank balance
sheets to recuperate and for the seeds of recovery to be sown. Politicians,
driven by the need to be re-elected, will continue making matters worse and
there will be other bumps along the road, such as spikes in oil prices.
Nevertheless, over the next few years, a new secular bull market will emerge.
Despite our misgivings for western stock markets in the next few years, we
regard equities as a relatively attractive asset class, provided there is no
serious bout of deflation. Many public companies are highly profitable with
substantial cash balances. With subdued labour militancy, profit margins will
show surprising resilience, with the main pressure on profits coming from
uncertain volume trends. Dividends are well covered, should be capable of
modest growth, supported as they are by strong balance sheets, and should
produce cash returns substantially ahead of bank deposits and fixed interest
investments. Moreover, over time, we expect managements to shed their cautious
approach and to look around for suitable acquisitions, using their cash
balances which yield them a minimal return. Small and midcap companies have
surprised with a long period of outperformance and sustained premium ratings.
We believe this reflects the reality that smaller, focused and flexible
companies are more capable of producing growing profits in this difficult
economic environment.
As ever, we wish to run a reasonably balanced portfolio of quality companies.
In the current, protracted period of sub-optimal economic growth the onus is on
us to find companies that can shape their own destiny and continue growth
despite the economic backdrop. These may be businesses exposed to higher growth
in other countries, in more attractive niches, or with the ability to take
share from competitors. With this in mind we have holdings in companies such as
Synergy Healthcare, a healthcare outsourcing business, which continues to win
new decontamination business from hospitals by offering both higher quality and
lower prices than in-house operations and by expanding its international
operations to gain new sterilisation work from global medical device
manufacturers. Dechra Pharmaceuticals, which distributes veterinary products,
is enjoying an on-going margin improvement from its development of proprietary
drugs for the pet market. These new products are sold through Dechra's existing
distribution platform, resulting in far higher levels of profitability which
will allow the company to grow earnings even in a static market. Domino
Printing, whose products are used to add information such as sell-by-dates to
food labels, has recently signed a deal to code eggs for America's largest food
retailer. This will allow the retailer to "track and trace" individual eggs to
reduce wastage, and will provide an additional leg of growth to an already
exciting business. Fenner, which supplies heavy duty conveyor belting to the
coal mining industry, has been a star performer for us over the last 2 years
but continues to grow revenue and margins as its service based offering takes
market share.
Current Prospects
Equity markets, including the UK, have rallied sharply in the last 4 months. We
judge this to be still part of the cyclical upswing that began in March 2009
and which is therefore about 3 years in duration. The recent recovery owes much
to a string of better economic indicators from the US and the start of Europe's
version of quantitative easing, the Long Term Refinancing Operation (LTRO
scheme). Generally, economies seemed to have had a sluggish end to 2011 but
have begun 2012 on a brighter note. Also, we are in the midst of the US
election year, monetary policy will remain accommodative and no major policy
initiatives are likely before 2013. The challenge of the twin deficits remain
to be tackled. We regard much of today's news as short term economic noise; the
economy will continue to fluctuate but we will still be in a low growth phase
and only the passage of time will make an appreciable difference. In the UK,
consumer spending may pick up modestly on the back of reduced inflation, higher
pensions and reduced taxes on low income earners. However, a spike in oil
prices could undo much of the potential positives in the UK and other
economies, and in this regard the on-going tension surrounding Iran and Syria
is unhelpful. In our view, the outlook for the UK and major stock markets
becomes more uncertain as 2013 approaches, particularly following the US
elections - but, there are a number of supportive factors. These include low
valuations, attractive and growing dividend yields, and the potential for a
pick-up in takeover activity. Together, these factors will support share prices
but a flexible approach will be required.
Richard Smith Jonathan Brown
Invesco Asset Management Limited
10 April 2012
INVESTMENTS IN ORDER OF VALUATION
AT 31 JANUARY 2012
Ordinary shares unless stated otherwise
VALUE % OF
COMPANY ACTIVITY BY SECTOR £'000 PORTFOLIO
Synergy Healthcare Healthcare Equipment & Services 4,646 3.4
Fenner Industrial Engineering 4,515 3.3
Babcock Support Services 3,766 2.8
International
Dechra Pharmaceuticals & Biotechnology 3,358 2.5
Pharmaceuticals
Croda International Chemicals 3,271 2.4
RPC General Industrials 2,664 2.0
Diploma Support Services 2,491 1.8
Domino Printing Electronic & Electrical 2,257 1.7
Equipment
Mears Support Services 2,191 1.6
BTG Pharmaceuticals & Biotechnology 2,047 1.5
Top Ten Holdings 31,206 23.0
Avocet Mining Mining 2,021 1.5
Premier Oil Oil & Gas Producers 1,960 1.5
Paypoint Support Services 1,960 1.4
Elementis Chemicals 1,941 1.4
Filtrona Support Services 1,911 1.4
Brewin Dolphin Financial Services 1,855 1.4
RPS Support Services 1,846 1.4
RWS Support Services 1,822 1.3
Micro Focus Software & Computer Services 1,736 1.3
Greene King Travel & Leisure 1,731 1.3
Top Twenty Holdings 49,989 36.9
Jupiter Fund Financial Services 1,702 1.3
Management
Melrose Industrial Engineering 1,692 1.2
Chemring Aerospace & Defence 1,642 1.2
Hargreaves Service Support Services 1,613 1.2
Senior Aerospace & Defence 1,550 1.1
H & T Financial Services 1,498 1.1
Ultra Electronic Aerospace & Defence 1,487 1.1
New Britain Palm Oil Food Producers 1,486 1.1
Spectris Electronic & Electrical 1,466 1.1
Equipment
Euromoney Media 1,457 1.1
Top Thirty Holdings 65,582 48.4
Cape Oil Equipment, Services & 1,429 1.1
Distribution
James Halstead Construction & Materials 1,422 1.1
AZ Electronic Chemicals 1,421 1.0
Materials
Northgate Support Services 1,420 1.0
Aveva Software & Computer Services 1,394 1.0
Beazley Non-life Insurance 1,378 1.0
May Gurney Support Services 1,371 1.0
Bellway Household Goods & Home 1,363 1.0
Construction
Microgen Software & Computer Services 1,360 1.0
Brown (N) General Retailers 1,341 1.0
Top Forty Holdings 79,481 58.6
Victrex Chemicals 1,316 1.0
MITIE Support Services 1,313 1.0
Globeop Financial Financial Services 1,308 1.0
Dunelm General Retailers 1,301 1.0
Howden Joinery Support Services 1,248 0.9
Rotork Industrial Engineering 1,238 0.9
Hunting Oil Equipment, Services & 1,215 0.9
Distribution
Berendsen Support Services 1,210 0.9
SDL Software & Computer Services 1,183 0.9
Enquest Oil & Gas Producers 1,174 0.9
Top Fifty Holdings 91,987 68.0
Spirent Technology Hardware & Equipment 1,172 0.9
Communications
Spirax-Sarco Industrial Engineering 1,126 0.8
Anglo Pacific Mining 1,122 0.8
NCC Software & Computer Services 1,100 0.8
Paragon Financial Services 1,095 0.8
Consort Medical Healthcare Equipment & Services 1,093 0.8
UBM Media 1,064 0.8
TalkTalk Telecom Fixed Line Telecommunications 1,064 0.8
Homeserve Support Services 1,036 0.8
Devro Food Producers 1,035 0.8
Top Sixty Holdings 102,894 76.1
Fidessa Software & Computer Services 1,007 0.7
E2V Technologies Electronic & Electrical 994 0.7
Equipment
Hansard Global Life Insurance 991 0.7
LSL Property Real Estate Investment & 962 0.7
Services
Carphone Warehouse General Retailers 951 0.7
Cranswick Food Producers 906 0.7
Telecity Software & Computer Services 906 0.7
Novae Non-life Insurance 889 0.7
Barratt Development Household Goods & Home 879 0.7
Construction
IQE Technology Hardware & Equipment 863 0.6
Top Seventy Holdings 112,242 83.0
Faroe Petroleum Oil & Gas Producers 855 0.6
Sthree Support Services 839 0.6
EMIS Software & Computer Services 823 0.6
Dignity General Retailers 819 0.6
RM Software & Computer Services 780 0.6
Phoenix Software & Computer Services 750 0.6
Hansteen Real Estate Investment Trusts 750 0.6
London Mining Industrial Metals & Mining 748 0.6
Hiscox Non-life Insurance 730 0.5
Moneysupermarket.com Media 716 0.5
Top Eighty Holdings 120,052 88.8
Valiant Petroleum Oil & Gas Producers 699 0.5
Renishaw Electronic & Electrical 690 0.5
Equipment
WH Smith General Retailers 645 0.5
CSR Technology Hardware & Equipment 644 0.5
Brooks Macdonald Financial Services 627 0.5
Greggs Food & Drug Retailers 621 0.5
Sinclair Pharmaceuticals & Biotechnology 616 0.5
Pharmaceuticals
Salamander Energy Oil & Gas Producers 571 0.4
Mountview Estates Real Estate Investment & 567 0.4
Services
Kofax Software & Computer Services 530 0.4
Top Ninety Holdings 126,262 93.5
Impax Financial Services 525 0.4
Advanced Computer Software & Computer Services 524 0.4
Software
Abbey Protection Non-life Insurance 516 0.4
Hill & Smith Industrial Engineering 516 0.4
Advanced Medical Healthcare Equipment & Services 496 0.4
Solutions
Low & Bonar Construction & Materials 488 0.4
JKX Oil & Gas Oil & Gas Producers 475 0.4
Hardy Underwriting Non-life Insurance 470 0.3
Yougov Media 465 0.3
Go-Ahead Travel & Leisure 449 0.3
Top Hundred Holdings 131,186 97.2
Omega Insurance - US Non-life Insurance 447 0.3
common stock
Petra Diamonds Mining 445 0.3
Northbridge Industrial Engineering 377 0.3
Craneware Software & Computer Services 373 0.3
Bayfield Energy Oil & Gas Producers 350 0.3
Amerisur Oil & Gas Producers 334 0.2
Headlam Household Goods & Home
Construction 302 0.2
Nichols Beverages 291 0.2
Gulfsands Petroleum Oil & Gas Producers 286 0.2
Active Risk Software & Computer Services 284 0.2
Top Hundred and Ten 134,675 99.7
Holdings
MAM Funds Financial Services 259 0.2
Morson Support Services 111 0.1
Berry Starquest Investment Dealing Subsidiary - -
Limited
- see note 1(h)
Minorplanet Systems Industrial Transportation - -
TOTAL INVESTMENTS 135,045 100.0
Principal Risks and Uncertainties
Investment Objective
The Company's investment objective is to achieve long-term return for its
shareholders via an investment vehicle which gives access to a broad cross
section of small to medium sized UK quoted companies.
There can be no guarantee that the Company will achieve its investment
objective.
Market Movements and Portfolio Performance
The majority of the Company's investments are traded on the London Stock
Exchange with some proportion of investments traded on the AIM Market. The
principal risk for investors in the Company is of a significant fall in the
markets and/or a prolonged period of decline in the markets relative to other
forms of investment as well as bad performance of individual portfolio
companies. The Company invests in smaller and medium sized companies, which are
generally considered riskier than their larger counterparts: their share prices
can be more volatile. As smaller companies do not generally have the financial
strength, diversity and resources of larger companies, they may find it more
difficult to overcome periods of economic slowdown or recession. In addition,
the relatively small capitalisation of such companies can make the market in
their shares less liquid, thus affecting the Company's ability to buy and sell
shares in its portfolio.
The portfolio managers' approach to investment is one of individual stock
selection. Market risk is mitigated via the stock selection process, together
with the slow build-up of holdings rather than the purchase of large positions
outright. This allows the portfolio managers 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 remain cognisant at all times of
the potential liquidity of the portfolio.
The portfolio managers are relatively risk averse, look for lower volatility in
the portfolio and seek to outperform in more challenging markets. In comparison
to peer group investment trusts, the Company believes that its portfolio often
has a higher than average market capitalisation and a lower than average
exposure to the AIM market.
The performance of the portfolio managers is carefully monitored by the Board,
and the continuation of the portfolio managers' mandate is revisited annually.
The Board has established guidelines to ensure that the investment policy that
it has approved is pursued by the portfolio managers. 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 net asset
value; and there are in place both share buy back and issuance facilities to
help the management of this process.
The Risks and Risk Management Policies are detailed in note 18 to the financial
statements in the Annual Financial Report.
Ordinary Shares
The market value of the shares in the Company may not reflect their underlying
net asset value (`NAV') and may trade at a discount to its NAV. The value of an
investment in the Company and the income derived from that investment may go
down as well as up and an investor may not get back the amount invested.
Whilst the Directors intend to pay a dividend to ordinary shareholders each
year, the ability to do so will depend upon the level of income received from
securities, the timing of receipts of such income from securities, expenses and
the amount of any distributable reserves.
Regulatory Risk
The Company is subject to various laws and regulations by virtue of its status
as an investment trust, and its listing on the London Stock Exchange. A breach
of s1158 CTA could lead to the Company being subject to capital gains tax on
the sale of its investments. Other control failures, either by the Manager or
any other of the Company's service providers, may result in operational or
reputational problems, erroneous disclosures or loss of assets through fraud,
as well as breaches of regulations.
The Manager reviews the level of compliance with s1158 CTA and other financial
regulatory requirements on a daily basis. All transactions, income and
expenditure are reported to the Board. The Board regularly considers all risks,
the measures in place to control them and the possibility of any other risks
that could arise. The Board ensures that satisfactory assurances are received
from service providers. The Manager's Compliance and Internal Audit Officers
produce regular reports for review at the Company's Audit Committee.
Gearing
The Company may borrow money for investment purposes. If the investments fall
in value, any borrowings (or `gearing') will magnify the extent of any loss. If
borrowing facilities could not be renewed, the Company might have to sell
investments to repay borrowings. All borrowing and gearing levels are reviewed
at every board meeting and preset limits agreed.
Reliance on Third Party Providers
The Company has no employees and the Directors have all been appointed on a
non-executive basis. The Company is therefore reliant upon the performance of
third party providers for its executive function. In particular, the Manager
performs services which are integral to the operation of the Company. Failure
by any service provider to carry out its obligations to the Company in
accordance with the terms of its appointment could have a materially
detrimental impact on the operation of the Company and could affect the ability
of the Company to successfully pursue its investment policy.
The Manager may be exposed to reputational risks. In particular, the Manager
may be exposed to the risk that litigation, misconduct, operational failures,
negative publicity and press speculation, whether or not it is valid, will harm
its reputation. Any damage to the reputation of the Manager could result in
potential counterparties and third parties being unwilling to deal with the
Manager and by extension the Company. This could have an adverse impact on the
ability of the Company to pursue its investment policy successfully.
The Manager reviews the performance of all third party providers regularly
through formal and informal meetings. The results are reported to the Board and
any issues and concerns tend to be dealt with before they become problems.
DIRECTORS' RESPONSIBILITY STATEMENT
in respect of the preparation of the Annual Financial ReportÂ
The Directors are responsible for preparing the annual financial report in
accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each
financial year. Under the law the Directors have elected to prepare financial
statements in accordance with International Financial Reporting Standards as
adopted by the European Union (`IFRSs'). Under company law, the Directors must
not approve the financial statements unless they are satisfied that they give a
true and fair view of the state of affairs of the Company and of the profit or
loss of the Company for that period.
In preparing these financial statements, the Directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgements and estimates that are reasonable and prudent;
• state whether applicable IFRSs have been followed, subject to any material
departures disclosed and explained in the financial statements; and
• prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the company will continue in business.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Company's transactions and disclose with
reasonable accuracy at any time the financial position of the Company and
enable them to ensure that the financial statements comply with the Companies
Act 2006 and Article 4 of the IAS Regulation. They are also responsible for
safeguarding the assets of the Company and hence for taking reasonable steps
for the prevention and detection of fraud and other irregularities.
In so far as each of the Directors is aware:
• there is no relevant audit information of which the Company's auditor is
unaware; and
• the Directors have taken all steps that they ought to have taken to make
themselves aware of any relevant audit information and to establish that the
auditors are aware of that information.
The Directors of the Company each confirm to the best of their knowledge, state
that:
• the financial statements, prepared in accordance with the applicable set of
accounting standards, give a true and fair view of the assets, liabilities,
financial position and profit of the Company; and
• this annual financial report includes a fair review of the development and
performance of the business and the position of the Company together with a
description of the principal risks and uncertainties that it faces.
Signed on behalf of the Board of Directors
Ian Barby
Chairman
10 April 2012
STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 JANUARY
2012 2011
Notes Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
(Losses)/ - (3,441) (3,441) - 27,225 27,225
profit on
investments
at fair
value
Income 2 3,590 - 3,590 2,985 - 2,985
Investment 3 (421) (812) (1,233) (377) (377) (754)
management
fees
Other (309) (2) (311) (295) (1) (296)
expenses
Profit/ 2,860 (4,255) (1,395) 2,313 26,847 29,160
(loss)
before
finance
costs and
taxation
Finance (3) (12) (15) - - -
costs
Profit/ 2,857 (4,267) (1,410) 2,313 26,847 29,160
(loss)
before tax
Taxation (5) - (5) (1) - (1)
Profit/ 2,852 (4,267) (1,415) 2,312 26,847 29,159
(loss) after
tax
Return per
ordinary
share
  Basic 4 5.2p (7.8)p (2.6)p 4.1p 47.2p 51.3p
The total column of this statement represents the Company's statement of
comprehensive income, prepared in accordance with International Financial
Reporting Standards. The profit after tax is the total comprehensive income for
the year. The supplementary revenue and capital columns are both prepared in
accordance with the Statement of Recommended Practice issued by the Association
of Investment Companies. All items in the above statement derive from
continuing operations. No operations were acquired or discontinued in the year.
STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 JANUARY
Capital
Share Share Redemption Capital Revenue
NOTES Capital Premium Reserve Reserve Reserve Total
£'000 £'000 £'000 £'000 £'000 £'000
At 31 11,492 21,244 2,536 72,165 3,844 111,281
January
2010
Profit for - - - 26,847 2,312 29,159
the year
Shares (460) - 460 (3,982) - (3,982)
repurchased
and
cancelled
Dividends 5 - - - - (2,459) (2,459)
paid
At 31 11,032 21,244 2,996 95,030 3,697 133,999
January
2011
(Loss)/ - - - (4,267) 2,852 (1,415)
profit for
the year
Shares (363) - 363 (3,464) - (3,464)
repurchased
and
cancelled
Dividends 5 - - - - (2,349) (2,349)
paid
At 31 10,669 21,244 3,359 87,299 4,200 126,771
January
2012
The accompanying notes are an integral part of this statement.
BALANCE SHEET
AS AT 31 JANUARY
Notes 2012 2011
£'000 £'000
Non-current assets
  Investments held at fair 135,045 133,237
value through profit or loss
Current assets
  Other receivables 1,284 628
  Cash and cash equivalents - 847
1,284 1,475
Total assets 136,329 134,712
Current liabilities
  Other payables (9,558) (713)
Net assets 126,771 133,999
Issued capital and reserves
Share capital 6 10,669 11,032
Share premium 21,244 21,244
Capital redemption reserve 3,359 2,996
Capital reserve 87,299 95,030
Revenue reserve 4,200 3,697
Total Shareholders' funds 126,771 133,999
Net asset value per ordinary
share
Basic 7 237.6p 242.9p
These financial statements were approved and authorised for issue by the Board
of Directors on 10 April 2012.
Signed on behalf of the Board of Directors
Ian Barby
Chairman
Richard Brooman
Deputy Chairman
The accompanying notes are an integral part of this statement
STATEMENT OF CASH FLOW
FOR THE YEAR ENDED 31 JANUARY
2012 2011
£'000 £'000
Cash flow from operating activities
(Loss)/profit before tax (1,410) 29,160
Taxation (5) (1)
Adjustments for:
  Purchases of investments (41,274) (29,819)
  Sales of investments 35,419 33,077
(5,855) 3,258
Loss/(profit) on investments 3,441 (27,225)
Finance costs 15 -
Operating cash flows before movements (3,814) 5,192
in working capital
(Increase)/decrease in receivables (21) 58
Increase in payables 331 83
Net cash flows from operating (3,504) 5,333
activities after tax
Cash flows from financing activities
Interest paid (15) -
Shares repurchased and cancelled (3,477) (3,966)
Equity dividends paid - note 8 (2,349) (2,459)
Net cash used in financing activities (5,841) (6,425)
Net decrease in cash and cash (9,345) (1,092)
equivalents
Cash, cash equivalents and bank 847 1,939
overdraft at the beginning of the year
Cash, cash equivalents and bank (8,498) 847
overdraft at the end of the year
The accompanying notes are an integral part of this statement
NOTES TO THE FINANCIAL STATEMENTS
1. Principal Accounting Policies
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
accounts have been prepared on a going concern basis. The disclosure on going
concern in the Report of the Directors in the Annual Financial Report forms
part of the financial statements.
(a) Basis of Preparation
(i) Accounting Standards applied
The financial statements have been prepared on an historical cost basis, except
for the measurement at fair value of investments and derivatives, and in
accordance with the applicable International Financial Reporting Standards
(`IFRSs') and interpretations issued by the International Financial Reporting
Interpretations Committee as adopted by the European Union. The standards are
those endorsed by the European Union and effective at the date the financial
statements were approved by the Board.
Where presentational guidance set out in the Statement of Recommended Practice
(`SORP') `Financial Statements of Investment Trust Companies and Venture
Capital Trusts', issued by the Association of Investment Companies in January
2009, is consistent with the requirements of IFRSs, the Directors have sought
to prepare the financial statements on a basis compliant with the
recommendations of the SORP. The supplementary information which analyses the
statement of comprehensive income between items of a revenue and a capital
nature is presented in accordance with this.
(ii) Adoption of New and Revised Standards
New and revised standards and interpretations that became effective during the
year had no significant impact on the amounts reported in these financial
statements but may impact accounting for future transactions and arrangements.
At the date of authorising these financial statements, the following standards
and interpretations, which have not been applied in these financial statements,
were in issue but not yet effective (and in some cases had not yet been adopted
by the EU).
• IFRS 9 Financial Instruments (effective 1 January 2015)
• IFRS 12 Disclosure of Interests in Other Entities (effective 1 January 2013)
• IFRS 13 Fair Value Measurement (effective 1 January 2013)
• Disclosures - Transfers of Financial Assets - Amendments to IFRS 7 (effective
1 July 2011)
• Deferred Tax: Recovery of Underlying Assets - Amendments to IAS 12 Income
Taxes (effective 1 January 2012)
• Presentation of Items of Other Comprehensive Income - Amendments to IAS 1
(effective 1 July 2012)
• IFRS 7 Financial Instruments: Disclosures - Amendments enhancing disclosures
for offsetting financial assets and financial liabilities (effective 1 January
2013)
• IAS 32 Financial Instruments: Presentation - Amendments to application
guidance on the offsetting of financial assets and financial liabilities
(effective 1 January 2014)
• Mandatory Effective Date and Transition Disclosures - Amendments to IFRS 9
and IFRS 7 (effective 1 January 2015)
The Directors do not expect the adoption of the above standards and
interpretations (or any other standards and interpretations which are in issue
but not effective) will have a material impact on the financial statements of
the Company in future periods.
2. Income
2012 2011
£'000 £'000
Income from listed
investments
UK dividends 3,416 2,749
UK unfranked investment 10 25
income
Overseas dividends 164 210
3,590 2,984
Other income
Underwriting commission - 1
Total income 3,590 2,985
3. Investment Management Fees
2012 2011
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Base 421 421 842 377 377 754
management
fee
Performance - 391 391 - - -
fee charged
to capital
421 812 1,233 377 377 754
Invesco Asset Management Limited (`IAML') provides investment and
administration services to the Company. Details of the Investment Management
Agreement can be found in the Report of the Directors.
At 31 January 2012 £75,000 (2011: £146,000) was accrued in respect of the base
management fee and £391,000 (2011: nil) for the performance fee.
4. Earnings per Ordinary Share
2012 2011
Revenue Capital Total Revenue Capital Total
Basic 5.2p (7.8)p (2.6)p 4.1p 47.2p 51.3p
Basic total earnings per ordinary share is based on the net total loss for the
financial year of £1,415,000 (2011: profit of £29,159,000).
Basic revenue earnings per ordinary share is based on the net revenue profit
for the financial year of £2,852,000 (2011: £2,312,000).
Basic capital earnings per ordinary share is based on the net capital loss for
the financial year of £4,267,000 (2011: profit of £26,847,000).
All three earnings are based on the weighted average number of shares in issue
during the year of 54,467,398 (2011: 56,878,794).
5. Dividends on Ordinary Shares
Dividends paid in the year: 2012 2011
pence £'000 pence £'000
Final paid in respect of 2.70 1,489 2.70 1,549
previous year
Interim paid 1.60 867 1.60 910
Return of unclaimed dividends - (7) - -
from previous years
4.30 2,349 4.30 2,459
Dividends payable in respect of
the year:
2012 2011
pence £'000 pence £'000
Interim 1.60 867 1.60 910
Final 3.40 1,809 2.70 1,489
5.00 2,676 4.30 2,399
The final dividend is based on shares in issue at the record date or, if the
record date has not been reached, on shares in issue on the date the balance
sheet is signed.
6. Share Capital
2012 2011
Number £'000 Number £'000
Authorised:
Ordinary shares of 20p each 160,000,000 32,000 160,000,000 32,000
Allotted, called-up and
fully paid:
Ordinary shares of 20p each 53,346,084 10,669 55,159,029 11,032
During the year the Company ordinary share movements were as follows:
Number £'000
At 1 February 2011 55,159,029 11,032
Shares repurchased and (1,812,945) (363)
cancelled
At 31 January 2012 53,346,084 10,669
Details of the share repurchases are given in the Report of Directors in the
Annual Financial Report
7. Net Asset Value per Ordinary Share
The net asset value per share and the net asset values attributable at the year
end were
as follows:
Net asset Net assets
value per share attributable
2012 2011 2012 2011
pence pence £'000 £'000
Ordinary shares
- Basic 237.6 242.9 126,771 133,999
Net asset value per ordinary share is based on net assets at the year end and
on 53,346,084 (2011: 55,159,029) ordinary shares, being the number of ordinary
shares in issue at the year end.
8. Related Party Transactions
Invesco Asset Management Limited (`IAML'), a wholly owned subsidiary of Invesco
Limited, acts as Manager, Company Secretary and Administrator to the Company.
Details of IAML's services and fees are disclosed in the Report of the
Directors. Full details of Directors' interests are set out in the Report of
the Directors' in the Annual Financial Report. There are no other related party
transactions.
9. This Annual Financial Report announcement is not the Company's statutory
accounts. The statutory accounts for the year ended 31 January 2011 have been
delivered to the Registrar of Companies. The statutory accounts for the year
ended 31 January 2011 received an audit report which was unqualified, did not
include a reference to any matters to which the auditors drew attention by way
of emphasis without qualifying the report, and did not include a statement
under either section 498(2) or 498(3) of the Companies Act 2006. The statutory
accounts for the financial year ended 31 January 2012 have been approved and
audited but have not yet been filed.
10. The Audited Annual Financial Report will be posted to shareholders shortly.
Copies may be obtained during normal business hours from the Company's
registered office, 30 Finsbury Square, London EC2A 1AG. A copy of the Annual
Financial Report will be available from Invesco Perpetual on the following
website:
http://investmenttrusts.invescoperpetual.co.uk/portal/site/iptrust/
investmentrange/investmenttrusts/uksmallercompanies
11. The Annual General Meeting of the Company will be held at 12.00 noon on 22
May 2012 at 30 Finsbury Square, London EC2A 1AG.
By order of the Board
Invesco Asset Management Limited - Company Secretary
10 April 2012
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