Half-yearly Report

Invesco Perpetual UK Smaller Companies Investment Trust plc Half-Yearly Financial Report for the Six Months to 31 July 2008 KEY FACTS Invesco Perpetual UK Smaller Companies Investment Trust plc (`the Company') is an investment trust, quoted on the London Stock Exchange, which invests predominantly in the shares of small to medium sized UK quoted companies. Investment objectives of the Company The Company aims to achieve long-term total return for its shareholders via an investment vehicle which gives access to a broad cross section of small to medium sized UK quoted companies. Full details of the Company's investment policy and risk and investment limits can be found in the Annual Financial Report for the year ended 31 January 2008 (`the Annual Financial Report'). Performance Statistics The Benchmark Index of the Company is the Extended Hoare Govett Smaller Companies Index (excluding Investment Trusts). At At % 31 July 2008 31 January 2008 Change Total return (all income reinvested) for the six months ended 31 July 2008: Net asset value* -3.1 Benchmark index* -11.1 FTSE All-Share index* -6.2 Net asset value and share price: Net asset value per ordinary share: - balance sheet 197.6p 205.2p -3.7 - after deducting proposed dividend 196.0p 203.0p -3.4 - excluding current period revenue 194.7p 203.0p -4.1 Mid-market price per ordinary share 155.0p 164.25p -5.6 Discount per ordinary share 21.6% 20.0% Shareholders' funds (£'000)(1) 116,064 124,971 -7.1 Capital return - Indices: Benchmark* -12.8 FTSE All-Share Index* -8.4 Six Months Six Months Ended Ended 31 July 2008 31 July 2007 Return and dividend per ordinary share: Revenue return 2.9p 2.1p Capital return (9.6)p 8.8p Total return (6.7)p 10.9p Interim dividend 1.6p 1.5p +6.7­ At At At 31 July 2008 31 January 2008 31 July 2007 Gearing Actual gearing(2) 100 102 100 Potential gearing(3) 122 120 117 Asset gearing(4) 97 101 98 (1) Includes effects of share buy backs in the period. (2) Actual gearing reflects the amount of loans drawn down and in use by the Company. A gearing level of 100 indicates there is no gearing. (3) Potential gearing is based on borrowings of the lower of 30% of net asset value and £25 million. (4) Asset gearing reflects the amount of loans actively invested in assets and not held in cash. *Source: Datastream and Fundamental Data­ CHAIRMAN'S STATEMENT INCORPORATING THE INTERIM MANAGEMENT REPORT Chairman's Statement In the six months ended 31 July 2008, the net asset value (`NAV') total return per share fell by 3.1%. Although disappointing in absolute terms, this compared favourably with the benchmark index, the Extended Hoare Govett Smaller Companies Index (excluding Investment Trusts) which fell by 11.1% on a total return basis. Over the same six month period, the mid-market price per share fell by 5.6% and the discount to NAV increased from 20% to 21.6%. The Manager's Report includes an investment review and provides commentary on the Manager's investment strategy. Share Buy Backs During the period under review, the Company bought back and cancelled a total of 2.1 million shares at an average price of 165.1p and at an average discount to NAV of over 20.2%. The combined effect has been to buy in 3.5% of the issued share capital and to enhance NAV per share by approximately 0.7%. Interim Dividend I am pleased to report that, for the six months ended 31 July 2008, an interim dividend of 1.6p per share will be paid on 24 October 2008 to shareholders on the register on 26 September 2008, an increase of 6.7% on last year's interim dividend of 1.5p per share. Outlook Economic conditions in the UK have continued to deteriorate and are likely to remain challenging for some time. Against this economic backdrop, smaller companies have underperformed their larger counterparts. The Company, however, holds a diversified portfolio of profitable, well established, quality companies which should provide it with some resilience to combat the current adverse economic conditions. Ian Barby Chairman 16 September 2008 Investment Manager's Report Investment Review The six months under review has been a difficult period for the UK stock market. The market, as measured by the FTSE All Share Index, ended the period 8.4% lower. From the high at the end of February, the market lost almost 20% of its value before recovering slightly in the last two weeks of the period. What began as a financial crisis has ultimately adversely affected the wider economy, with the inevitable effect on share prices. Smaller companies under performed the general UK market with the benchmark index ending the period 12.8% lower. At their worst, smaller companies recorded a peak to trough decline of almost 34%. Small companies tend to be more vulnerable than larger companies in a weakening economic environment, so it is unsurprising that they have under performed the wider market. Your Company has proved more resilient than the market over the period, with the capital net asset value declining by 4.1%. The outperformance relative to the benchmark was driven by under-weight positions in the Financials (including Real Estate), Media and Retail sectors, all of which declined significantly over the period, and by overweight positions in the Industrial Engineering, Chemicals and Aerospace & Defence sectors, which all performed strongly. At a stock level, there were excellent contributions from two of our largest holdings, Expro International, an oil field services business which was acquired by private equity, and Synergy Healthcare which provides outsourced non-clinical services to the healthcare sector. The Company was helped, when compared with its peer group, by its relatively underweight exposure to the AIM market, which declined 15.1% over the period. Around a third of the AIM market is made up of Mining, Oil & Gas and Basic Materials stocks which suffered a reversal towards the end of the period due to declining commodity prices after a strong run in the preceding two years. The Company was ungeared for most of the period. Investment and Portfolio Strategy Economic conditions in the UK have continued to deteriorate over the period with GDP forecast to stagnate at best over the next year. Unlike the US, where an extensive package of fiscal and monetary stimulus has been implemented to support the economy, the UK Government and the Bank of England have their hands tied. Inflation remains significantly above the 2% target, reducing the scope for interest rate cuts, and the budget deficit remains in excess of 3% of GDP, leaving little scope for tax cuts or increased government spending. Although credit spreads have narrowed over the last 6 months, the credit crunch is proving stubbornly resilient, with asset write-downs approaching $500ï€ billion globally. Recent rights issues have gone some way to recapitalizing the UK banking sector, but there remains the possibility of further write-downs from corporate debt, as highly leveraged private equity structures come under pressure in a weakening economic environment. Against this backdrop, it is not surprising that the decline in house prices continues. With house prices predicted to fall by 20% or more over the next two years, it is understandable that banks either do not want to lend or are demanding prohibitively high deposits from first time buyers. The impact on consumer confidence of the collapsing housing market is being further exacerbated by rising unemployment. Jobless claims are increasing at the fastest rate for 16 years, as jobs are lost in the construction, retail and financial services sectors. The cost of living is rising in excess of wage claims and the savings ratio remains unsustainably low, indicating that UK consumers continue to spend beyond their means. All of this, combined with declining levels of mortgage equity withdrawal and the increasing acknowledgement of the need to save more for retirement, suggests that the UK consumer will remain under pressure for quite some time to come. In the midst of all this doom and gloom there may be cause for optimism. Commodity prices have receded from their record highs, in some cases, such as nickel, zinc and lead, by over 50%, and the oil price is now around 20% lower than at its peak. Although in the short term inflation is likely to increase further, we believe it will return to more manageable levels over the next year, with second round effects, such as wage claims, being muted by higher levels of unemployment. This environment may open the door for reductions in interest rates, which combined with the benefits to exports from weaker sterling, would provide some much needed stimulus for the UK economy. The situation in the US looks more positive. A wide ranging package of economic measures, including tax rebates, 3.25% of interest rate cuts and increased government spending, is providing a much needed boost. In contrast, the situation in mainland Europe is deteriorating with a recession now widely forecast. The Company continues to hold a diversified portfolio of profitable, well established, quality companies with solid balance sheets. The portfolio bias towards non-cyclical businesses with a low exposure to the UK consumer has been maintained. With this in mind, we continue to be overweight in Healthcare, which should benefit from demographic trends and an increase in non-clinical NHS outsourcing, Aerospace & Defense, where a strong aerospace cycle and on-going geopolitical uncertainty should continue to drive demand into the medium term, and Support Services, where many businesses benefit from a high level of recurring revenue which affords stability and visibility of earnings. Key sector underweights include consumer related sectors such as Travel & Leisure and Retail for the reasons outlined above. Outlook There is no doubt that the period ahead will be a challenging one for most UK companies. Poor financial stewardship in recent years has left the authorities with few fiscal levers to pull, in order to stimulate the UK economy. It is to be hoped that the Bank of England's report predicting a fall in inflation is accurate, as this would facilitate further reductions in interest rates. As things stand the prospects for growth remain pretty dismal and the recovery period will be prolonged. In this environment, the Manager of the Company is acutely aware of the need to preserve capital. Richard Smith Investment Manager 16 September 2008 Related Party 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 arrangements are given in the Annual Financial Report which is available on the Company's website. Principal Risks and Uncertainties The principal risks and uncertainties that could affect the Company's business can be divided into the following areas: - Market Movements and Portfolio Performance; and - Regulatory and Tax. A detailed explanation of these principal risks and uncertainties can be found on page 22 of the latest published Annual Financial Report which is available on the Company's website. In the view of the Board, these principal risks and uncertainties are equally applicable to the remaining six months of the financial year as they were to the six months under review. DIRECTORS' RESPONSIBILITY STATEMENT In respect of the preparation of the half-yearly financial report. The Directors are responsible for preparing the half-yearly financial report using accounting policies consistent with applicable law and International Financial Reporting Standards. The Directors confirm that to the best of their knowledge: - the condensed set of financial statements contained within the half-yearly financial report have been prepared in accordance with the International Accounting Standards 34 `Interim Financial Reporting'; - the interim management report includes a fair review of the information required by 4.2.7 and 4.2.8 of the FSA's Disclosure and Transparency Rules; and - the interim management report includes a fair review of the information required on related party transactions. The half-yearly financial report has not been audited or reviewed by the Company's auditors. Signed on behalf of the Board of Directors. Ian Barby Chairman 16 September 2008 THIRTY LARGEST HOLDINGS AT 31 JULY 2008 Ordinary shares unless stated otherwise VALUE % OF COMPANY ACTIVITY BY SECTOR £'000 PORTFOLIO Synergy Healthcare Health Care Equipment & 5,060 4.5 Services Fenner Industrial Engineering 4,046 3.6 Chemring Aerospace & Defence 3,920 3.5 VT Aerospace & Defence 3,624 3.2 Mouchel Parkman Support Services 3,112 2.8 Dignity General Retailers 2,471 2.2 Croda Chemicals 2,382 2.1 Victrex Chemicals 1,945 1.7 Serco Support Services 1,874 1.7 Spectris Electronic & Electrical 1,860 1.6 Equipment Homeserve Support Services 1,807 1.6 Dechra Pharmaceutical Pharmaceuticals & 1,803 1.6 Biotechnology Mears Support Services 1,628 1.4 Carillion Construction & Materials 1,577 1.4 Aveva Software & Computer Services 1,455 1.3 Melrose Industrial Engineering 1,453 1.3 RPS Support Services 1,416 1.3 Interserve Support Services 1,413 1.2 Ultra Electronic Aerospace & Defence 1,345 1.2 Spirax-Sarco Engineering Industrial Engineering 1,317 1.2 Consort Medical Health Care Equipment & 1,306 1.2 Services Babcock Support Services 1,295 1.1 Just Retirement Life Insurance 1,277 1.1 Filtrona Support Services 1,267 1.1 Rotork Industrial Engineering 1,265 1.1 Charles Taylor Consulting General Financial 1,236 1.1 Hiscox Non-life Insurance 1,222 1.1 Paypoint Support Services 1,215 1.1 Care UK Health Care Equipment & 1,190 1.1 Services Brown (N.) General Retailers 1,166 1.0 57,947 51.4 Other Investments (106) 54,778 48.6 Total Investments (136) 112,725 100.0­ CONDENSED INCOME STATEMENT Six Months to 31 July Six Months to 31 July Year 2008 2007 ended 31 January 2008 Revenue Capital Total Revenue Capital Total Total £'000 £'000 £'000 £'000 £'000 £'000 £'000 (Losses)/gains on investments held at -- (4,113) (4,113) -- 6,141 6,141 (14,455) fair value through profit or loss Income UK dividends 1,961 -- 1,961 1,722 -- 1,722 3,211 Overseas dividends 67 -- 67 29 -- 29 54 Deposit interest 12 -- 12 47 -- 47 62 Underwriting commission 12 -- 12 25 -- 25 25 Gross return 2,052 (4,113) (2,061) 1,823 6,141 7,964 (11,103) Investment management fee (204) (204) (408) (292) (292) (584) (1,080) - note 2 Performance related fee - -- (1,374) (1,374) -- (92) (92) (38) note 2 Other expenses (130) (1) (131) (124) -- (124) (224) Net return before finance costs and 1,718 (5,692) (3,974) 1,407 5,757 7,164 (12,445) taxation Finance costs -- note 2 (4) (18) (22) -- -- -- (177) Return on ordinary 1,714 (5,710) (3,996) 1,407 5,757 7,164 (12,622) activities before tax Taxation -- -- -- -- -- -- (5) Return after tax 1,714 (5,710) (3,996) 1,407 5,757 7,164 (12,627) Return per ordinary share Basic - note 4 2.9p (9.6)p (6.7)p 2.1p 8.8p 10.9p (19.8)p The total column of this statement represents the Company's Income Statement, prepared in accordance with International Financial Reporting Standards. The supplementary revenue and capital columns are both prepared under guidance published by the Association of Investment Companies. All items in the above statement derive from continuing operations and the Company has no other gains or losses. No operations were acquired or discontinued in the period. CONDENSED BALANCE SHEET At At At 31 July 31 January 31 July 2008 2008 2007 £'000 £'000 £'000 Non-current assets Investments held at fair value through 112,725 126,754 147,257 profit or loss Current assets Amounts due from brokers -- 1,177 203 Prepayments and accrued income 481 120 348 Cash and cash equivalents 4,538 -- 2,854 5,019 1,297 3,405 Total assets 117,744 128,051 150,662 Current liabilities Amounts due to brokers (201) (124) (488) Accruals (105) (192) (246) Bank overdraft -- (2,764) -- (306) (3,080) (734) Total assets less current liabilities 117,438 124,971 149,928 Provision for performance fee - note 2 (1,374) -- (92) Net assets 116,064 124,971 149,836 Issued capital and reserves attributable to equity holders Share capital 11,749 12,178 12,629 Share premium 21,244 21,244 21,244 Other reserves: Capital redemption reserve 2,279 1,850 1,399 Capital reserves - realised 62,996 62,992 55,282 Capital reserves - unrealised 14,277 23,560 56,245 Revenue reserve 3,519 3,147 3,037 Total Shareholders' funds 116,064 124,971 149,836 Net asset value per ordinary share Basic - see note 5 197.6p 205.2p 237.3p CONDENSED CASH FLOW STATEMENT Six Months Year Six Months To To To 31 July 31 January 31 July 2008 2008 2007 £'000 £'000 £'000 Cash flow from operating activities (Loss)/profit before tax (3,996) (12,622) 7,164 Taxation -- (5) -- Adjustments for: Purchases of investments (9,123) (46,577) (19,859) Sales of investments 20,293 53,995 28,710 11,170 7,418 8,851 Losses/(gains) on investments 4,113 14,455 (6,141) Finance costs 22 177 -- Operating cash flows before movements in working capital 11,309 9,423 9,874 (Increase)/decrease in receivables (361) 161 (73) Increase/(decrease) in payables 1,307 (1,207) (1,034) Net cash flows from operating activities after tax 12,255 8,377 8,767 Cash flow from financing activities Interest paid (45) (154) -- Buyback of shares (3,566) (11,466) (7,338) Equity dividends (1,342) (2,101) (1,155) Net cash used in financing activities (4,953) (13,721) (8,493) Net increase/(decrease) in cash and cash 7,302 (5,344) 274 equivalents Cash and cash equivalents at the (2,764) 2,580 2,580 beginning of period Cash and cash equivalents at the period 4,538 (2,764) 2,854 end CONDENSED STATEMENT OF CHANGES IN EQUITY ­ Capital Capital Capital Share Share Redemption Reserve - Reserve - Revenue Capital Premium Reserve Realised Unrealised Reserve Total £'000 £'000 £'000 £'000 £'000 £'000 £'000 For the year ended 31 January 2008 Shareholders' funds at 13,359 21,244 669 49,095 64,013 2,785 151,165 1 February 2007 Shares bought back and (1,181) -- 1,181 (11,466) -- -- (11,466) cancelled Profit/(loss) for the -- -- -- 25,363 (40,453) 2,463 (12,627) year Dividends paid -- -- -- -- -- (2,101) (2,101) At 31 January 2008 12,178 21,244 1,850 62,992 23,560 3,147 124,971 For the six months ended 31 July 2008 Shares bought back and (429) -- 429 (3,569) -- -- (3,569) cancelled Profit/(loss) for the -- -- -- 3,573 (9,283) 1,714 (3,996) year Dividends paid -- -- -- -- -- (1,342) (1,342) At 31 July 2008 11,749 21,244 2,279 62,996 14,277 3,519 116,064 For the six months ended 31 July 2007 Shareholders' funds at 13,359 21,244 669 49,095 64,013 2,785 151,165 1 February 2007 Shares bought back and (730) -- 730 (7,338) -- -- (7,338) cancelled Profit/(loss) for the -- -- -- 13,525 (7,768) 1,407 7,164 year Dividends paid -- -- -- -- -- (1,155) (1,155) At 31 July 2007 12,629 21,244 1,399 55,282 56,245 3,037 149,836 NOTES TO THE CONDENSED FINANCIAL STATEMENTS 1. Accounting Policies These condensed financial statements have been prepared using the same accounting policies as those adopted in the Annual Financial Report for 31 January 2008, which are consistent with International Financial Reporting Standards, and Standing Interpretation Committee and International Financial Reporting Interpretation Committee interpretations issued by International Accounting Standards Board to the extent adopted by the EU. 2. Management and Performance Fees The investment management fee is allocated 50% to revenue and 50% to capital, finance costs are allocated 20% to revenue and 80% to capital. A performance fee of £1,374,000 is recognised as at 31 July 2008 (31 January 2008: £38,000; 31 July 2007: £92,000). This provision is charged wholly to capital. 3. Dividends on Ordinary Shares Dividend Rate Six Months Year Six Months Pence Ended Ended Ended 31 July 31 January 31 July 2008 2008 2007 £'000 £'000 £'000 Final 2007 1.75 -- 1,155 1,155 Interim 2008 1.50 -- 946 -- Final 2008 2.25 1,342 -- -- Dividends paid 1,342 2,101 1,155 The interim dividend of 1.6p per ordinary share will be paid on 24 October 2008 to shareholders on the register on 26 September 2008. 4. Basis of Returns Six Months Six Months Year To To To 31 July 31 July 31 January 2008 2007 2008 Returns after tax: £ £ £ Revenue 1,714,000 1,407,000 2,463,000 Capital (5,710,000) 5,757,000 (15,090,000) Total (3,996,000) 7,164,000 (12,627,000) Weighted average number of ordinary shares in issue during the period 59,598,844 65,472,622 63,744,492 5. Net Asset Value per Ordinary Share At At At 31 July 31 July 31 January 2008 2007 2008 Shareholders' funds - £ 116,064,000 149,836,000 124,971,000 Ordinary shares in issue at period end 58,742,629 63,145,452 60,889,229 6. Movements in Share Capital Six Months Six Months Year To To To 31 July 31 July 31 January 2008 2007 2008 Number of ordinary 20p shares: Brought forward 60,889,229 66,796,725 66,796,725 Buy backs in period (2,146,600) (3,651,273) (5,907,496) In issue at period end 58,742,629 63,145,452 60,889,229 During the period 2.1 million shares were bought back at an average price of 165.1p. 7. VAT In late 2007, HMRC announced that investment management services supplied to investment trusts are exempt VAT. As a result, VAT is no longer suffered on management fees. The Board is in negotiations with the current and previous managers in order to recover back VAT; these negotiations are ongoing and as the amounts involved are uncertain, no asset has been recognised. 8. Investment Trust Status It is the intention of the Directors to conduct the affairs of the Company so that it satisfies the conditions for approval as an investment trust company set out in section 842 of the Income and Corporation Taxes Act 1988. 9. Status of Half -Yearly Financial Report The financial information contained in this half-yearly financial report, which has not been reviewed or audited by the independent auditors, does not constitute statutory accounts as defined in section 240 of the Companies Act 1985. The financial information for the half years ended 31 July 2007 and 31 July 2008 has not been audited. The figures and financial information for the year ended 31 January 2008 are extracted and abridged from the latest published accounts and do not constitute the statutory accounts for that year. Those accounts have been delivered to the Registrar of Companies and include the Report of the Independent Auditors, which was unqualified and did not include a statement under either section 237(2) or 237(3) of the Companies Act 1985. By order of the Board Invesco Asset Management Limited Company Secretary 16 September 2008 website address: www.invescoperpetual.co.uk/investmenttrusts

Companies

Invesco Perpetual UK Smaller Companies Inv Trust (IPU)
UK 100
FTSE quotes by TradingView

Latest directors dealings

All directors dealings today