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Invesco Perpetual UK (IPU)

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Friday 17 April, 2020

Invesco Perpetual UK

Annual Financial Report

Invesco Perpetual UK Smaller Companies Investment Trust plc

Annual Financial Report Announcement for the Year Ended 31 January 2020

FINANCIAL HIGHLIGHTS

AT 31 JANUARY

2020 2019 CHANGE
Net asset value(1) per share (NAV) 606.7p 481.8p +25.9%
Total shareholders’ funds (£000)(2) 205,243 158,285 +29.7%
Share price(1)(3) 606.0p 465.0p +30.3%
(Discount)/Premium(1) (0.1)% (3.5)%
Gearing (1) :
 gross gearing nil nil
 net gearing nil nil
 net cash 2.7% 6.6%
Maximum authorised gearing 7.3% 9.5%
FOR THE YEAR ENDED 31 JANUARY 2020 2019
Total return (with income reinvested):
NAV(1)(3) +30.4% –7.8%
Share price(1)(3) +35.2% –6.8%
Benchmark Index(1)(3)(4) +13.7% –7.4%
FTSE All-Share Index(3) +10.7% –3.8%
Return (1)  and dividend per ordinary share:
Revenue return 10.13p 10.72p
Capital return 133.21p (51.50)p
Total return 143.34p (40.78)p
First interim dividend 3.75p 3.65p
Second interim dividend 3.75p 3.65p
Third interim dividend 3.75p 3.65p
Final dividend 7.35p 7.65p
Total dividends 18.60p 18.60p
Dividend payable for the year (£000):
 from revenue 3,340 3,521
 from capital 2,879 2,589
6,219 6,110
Capital dividend as a % of year end net assets 1.4% 1.6%
Ongoing charges(1)(5)  excluding performance fee 0.97% 0.88%
Performance fee(6) n/a 0.07%

Notes:  (1)  Alternative Performance Measure (APM). See Glossary of Terms and Alternative Performance Measures on pages 68 to 71 of the financial report for details of the explanation and reconciliations of APMs.

  (2)  For the year to 31 January 2020, 975,000 ordinary shares were issued from treasury for net proceeds after issue costs of £5,872,000 (2019: nil).

  (3)  Source: Refinitiv.

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

  (5)  The ongoing charge for the year has increased due to the new investment management fee arrangements from 1 February 2019 where the performance fee arrangement was removed and the base management fee was increased from 0.65% per annum to 0.75% per annum of gross funds under management. Under the old management fee arrangement, for the year ended 2020, the ongoing charges would have been 0.87% and the performance fee would have been 2.09%. Hence, there was a reduction of 1.99% in total costs to the Company under the new fee arrangement.

  (6)  The performance fee arrangement was removed with effect from 1 February 2019, resulting in no performance fee for the current year. Previously, the performance fee was calculated on the outperformance of the NAV against the Benchmark Index; both excluding income reinvested.

CHAIRMAN’S STATEMENT

Dear Shareholders,

This is my first year reporting to you as Chairman of your Company. Detailed below is a summary of the performance and other information for the financial year ended 31 January 2020.

Performance

Just when we thought the backdrop of difficult market conditions and economic uncertainty was at an end, we have been proven wrong and Covid-19 has brought both back to the forefront of investors’ minds. However, I am pleased to report that for the year ended 31 January 2020 your Company returned +30.4% in net asset value (NAV) terms, outperforming its Benchmark Index, the Numis Smaller Companies Index (excluding Investment Companies), which returned +13.7%, (in each case measured on a total return basis). Within the UK Smaller Companies Investment trust peer group, the average NAV return over the same period was +25.1% (source: JPM Cazenove). The Company’s share price total return for the year was +35.2% (2019: –6.8%).

Against the wider UK stock market (as measured by the FTSE All Share Index), which returned +10.7%, the Company outperformed it by 19.7% over the same period.

Discount/Premium and Share issuance

During the year the shares traded within the range of –8.2% (discount) to +3.9% (premium). In order to satisfy market demand, the Company issued 975,000 shares from its treasury account, at an average price of 604.61p and in each instance at a small premium to the then prevailing cum income NAV, so as not to dilute the interests of existing shareholders. In aggregate, this provided an uplift to the NAV of 0.04%.

As at the latest practicable date prior to the publication of this report, being 14 April 2020, the discount stands at 7.1% and Shareholders will no doubt be acutely aware that the Company’s share price has fallen by 31.1%, the NAV has fallen 25.9% and the Benchmark Index is down 27.4% over the period between 1 February 2020 and 14 April 2020. While the Company’s recent performance is in line with its UK Smaller Company Investment Trust peers and the wider market, that is of little comfort.

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

Dividend and dividend policy

Following the Board’s commitment in 2015 to pay out all income earned within the portfolio and to enhance it annually through the use of a small amount of realised capital profits, your Company’s dividend yield has exceeded most of its peers and is a distinguishing feature of the Company within the UK Smaller Company investment trust sub-sector, particularly in the prevailing low interest rate environment.

The 2015 initiative significantly increased the annual dividend level to an initial yield target of 4% (based on the then prevailing share price) and from 2016 onwards, in normal circumstances, the 4% target yield has been calculated on the year end share price.

The Board is aware how important dividends are to shareholders. Since mid-February 2020 and as a result of COVID-19, the outlook for many UK smaller companies has changed from paying out excess cash by way of dividends to conserving cash in order to survive. This, together with the significant reduction in the Company’s net asset value and share price since the year end, has led the Board to consider carefully the amount of the Company’s final dividend.

The Board has decided that the Company will propose a final dividend of 7.35p to bring the total dividend paid for the year to 18.6p (2019: 18.6p). In line with the Company’s current dividend policy, this represents all of the available revenue earned by the Company’s portfolio over the year, together with 8.47p from realised capital profits. While this amount is lower than had the total dividend been calculated using the target yield based on the 31 January 2020 share price, the Board believes it is a prudent basis on which to proceed, in the current far from normal circumstances, and balances the interests of shareholders and the Company.

The Company’s dividends are paid quarterly in September, December, March and June. For the year ended 31 January 2020, three interim dividends of 3.75p each have already been paid and the Board has announced a proposed final dividend of 7.35p per share, making a total for the year of 18.6p per share. The final dividend will be payable, subject to shareholder approval, on 12 June 2020 to shareholders on the register on 15 May 2020 and the shares will go ex-dividend on 14 May 2020.

Revenue per share has decreased marginally from 10.72p last year to 10.13p this year, which means that the resulting balance of dividend being paid from realised capital profits represents 1.4% of net assets at the year end and it continues to represent only a small proportion of the longer-term returns achieved by the Manager.

Turning to the financial year ending 31 January 2021, while there is no clarity on what the economic impact of COVID-19 will be on the Company’s portfolio and consequent uncertainty about income (especially in the light of recent announcements of dividend cuts) and capital returns in the portfolio, the Board believes that targeting a dividend yield of 4% of the year end share price is no longer appropriate in these circumstances since it might require a material distribution out of capital which would not be consistent with the Board’s approach of paying out a small amount only from capital profits. Accordingly, we are removing the 4% target yield but the Company will continue its policy to distribute all available revenue generated by the portfolio, together with an amount from realised capital profits.

The Board believes that shareholders need to know what they might expect as a minimum by way of yield in the year ahead. For 2021, the Company will continue to distribute all available revenue generated by the portfolio, together with an amount from realised capital profits, which in aggregate will amount to not less than 2% of the Company’s 31 January 2021 share price with the aim that the Company returns to delivering a higher yield than its UK Smaller Company investment trust peers once the impact of COVID-19 has abated. As the Board is better able to assess the impact of COVID-19, further revisions to the Company’s dividend policy may be required and updates will be made to shareholders.

Future of the Company

Prior to the 2015 initiative in relation to dividends, the Board made a commitment in 2012 to offer shareholders an opportunity to realise their investment at close to NAV in 2017. This took the form of a tender offer for up to 40% of the Company’s shares which was undersubscribed at 38.2%. The tender offer allowed several institutional investors, which had built up significant positions and which had supported the Company during the period when its shares traded at a wide discount to NAV, to dispose of their shareholdings in an orderly manner at close to NAV. Given that many of the Company’s other shareholders chose not to participate in the tender, this resulted in a positive rebalancing of the shareholder register toward supportive, long-term shareholders.

At the time of the tender offer in 2017, the Board committed to put a further range of options to shareholders at the Company’s 2020 AGM. During 2019, Directors reviewed the Company’s position and prospects and consulted major shareholders. As a result, the Board put a continuation vote Resolution to shareholders at the AGM in 2019 which was passed with 99.84% of votes cast in favour.

The Directors intend to put further options to shareholders at the AGM in 2024, or sooner, if the Board believes this to be in the interests of shareholders. The precise nature of these options will depend upon the circumstances prevailing at the time.

Board Composition and Succession Planning

As reported in the Half-Yearly Financial Report, during the year the Board reviewed its composition and succession planning and consequently engaged Trust Associates Limited, an external search consultant, to conduct a search for a new Director. As a result, Graham Paterson was appointed a Director of the Company with effect from 15 October 2019 and will accordingly stand for election by shareholders at the forthcoming AGM.

Graham is a chartered accountant with extensive experience in the fields of private equity and other early stage investment vehicles and his skills will complement those of the other members of the Board.

Having served on the Board for over 32 years, Richard Brooman will retire as a Director of the Company at the conclusion of the forthcoming AGM. The Board and I would like to thank Richard for his years of excellent service to the Company. In addition to his skills in chairing the Audit Committee he has been a valuable resource for ‘corporate memory’, which cannot be underrated for entities such as this Company, where many changes have occurred through its considerable history.

I am pleased to announce that Graham Paterson will be appointed as Chairman of the Audit Committee and Christopher Fletcher will be appointed as Senior Independent Director with effect from the conclusion of the AGM. Following the AGM, the Board will consist of four Non-Executive Directors with a range of skills which the Board considers is an appropriate mix for your Company at this time. We will review whether this remains the case on a regular basis.

Annual General Meeting

In response to COVID-19, the Stay at Home Measures were passed into law in England and Wales on 26 March 2020, with immediate effect. These measures dictate that gatherings of more than two people are not permitted.

However, the Company is still legally required to hold an AGM which will be held on 11 June 2020 at 12 noon. As the attendance of more than two people at an AGM (other than where this is essential for work purposes) is not permitted and shareholders should not attend the AGM. Anyone who ignores the Stay at Home Measures and attempts to join the meeting in person will not be admitted. Given the restrictions on attendance, shareholders are encouraged to appoint the ‘Chairman of the Meeting’ as their proxy rather than another person who will not be permitted to attend the meeting. Should the Stay at Home Measures have been lifted prior to the AGM, the Directors will consider whether it is possible to make arrangements for shareholders to be admitted as usual to the AGM and will make further announcements if necessary.

This year’s AGM will be restricted to the formal business of the meeting as set out in the Notice of Meeting. There will be no presentation by the Portfolio Managers. All Directors will be standing for re-election, with the exception of Richard Brooman. The Directors have carefully considered all resolutions proposed and believe them to be in the best interests of shareholders and the Company as a whole. Accordingly, the Directors recommend that shareholders vote in favour of each resolution, as will the Directors in respect of their own shareholdings. Shareholders are strongly encouraged to submit their proxy votes in advance of the meeting.

We encourage all investors who have any questions or comments to contact the Company Secretary who will relay your comments to the Board, and we will respond in due course. The Board would like to thank all shareholders for their understanding during these unprecedented times. We will return to full shareholder engagement as soon as possible.

Outlook

At the time of writing there remains considerable uncertainty as to the full impact of COVID-19 in terms of both health outcomes and its effect on companies in your Company’s investment universe. This, combined with the collapse in the oil price has fuelled volatility across the market.

Your Portfolio Managers’ views of the investment horizon are set out later in this document. The Board has reviewed the Portfolio Managers’ initial portfolio analysis relating to the effect of COVID-19 related measures including ‘lock down’ on investee companies and we draw comfort that while many will have to defer dividends and furlough staff, such measures are being undertaken in order to ensure these companies are in the best possible position to resume normal operations when conditions allow.

In this fast changing and worrying environment, your Portfolio Managers continue to invest into businesses with returns and profit margins that are sustainable and which offer great products or services, are in higher growth areas and where they are able to take market share from competitors. The investment trust structure of your Company means that they are able to do so without having to be concerned about managing the portfolio to allow for redemption outflows as is the case for open-ended companies.

The Board remains confident that an investment in the Company will serve shareholders well over the longer term.

Jane Lewis

Chairman

16 April 2020

PORTFOLIO MANAGERS’ REPORT

Investment Review

The year under review was a positive one for global stock markets. Following a softer year last year, central banks resumed monetary easing, which combined with hopes of a resolution to the US trade dispute with China, created a positive backdrop for investors. In the UK, the decisive election result in December 2019 provided some much needed stability to the political outlook, and the “Boris bounce” carried markets higher in the month. Whilst activity data for the UK economy remained weak, there was a distinct pick-up in a number of forward looking indicators at the end of the period.

Over the 12 months to 31 January 2020 the UK stock market, as measured by the FTSE All-Share Index, gained 10.7% on a total return basis. Smaller companies, as measured by the Numis Smaller Companies Index (excluding investment companies) fared better, gaining 13.7% on a total return basis over the year. The smaller companies sector has a greater exposure to the UK domestic economy, and therefore received a greater benefit from improved sentiment towards the UK following the UK election result.

Portfolio Strategy and Review

Against this background, your Company generated a net asset value total return of +30.4% for the fiscal year. Positive contributions came from the Media, Support Services and Technology sectors, while the portfolio’s exposure to the Consumer Goods sector negatively affected performance.

At the individual stock level, the best performers included: Future (+186%), a publishing business which owns titles such as Tech Radar and What Hi-Fi, and is transitioning from printing magazines to a predominantly online business model. Management have significantly increased margins by generating new revenue streams from their content via online advertising and e-commerce. CVS (+179%), the leading veterinary services business, bounced back strongly following a poor performance last year. New management brought a renewed focus on operational efficiency, which has led to a margin recovery. We continue to believe the business could be a takeover target. Ultra Electronics (+74%) is a defence business with a focus on marine and electronic warfare. The business has performed well under new management and looks well placed to benefit from an increase in defence spending. 4imprint (+70%) which sells promotional products in the US, saw a larger than expected uplift in trading from its decision to increase TV marketing spend to improve brand recognition. The company is now the market leader in the US but still has significant room to take market share.

Invesco Perpetual UK Smaller Companies Investment Trust plc

Performance attribution for the year ended 31 January 2020

Total
Absolute
%
Net asset value total return(1) 30.4
Less:Benchmark total return(1) 13.7
Relative outperformance 16.7
Analysis of Relative Performance
Portfolio total return including cash and excluding expenses 31.4
Less: Benchmark total return(1) 13.7
Portfolio outperformance 17.7
Net gearing effect
Management fees (0.8)
Other expenses (0.2)
Total 16.7

(1) Source: Refinitiv.

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

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

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

Management fees and other expenses reduce the level of assets and therefore result in a negative effect for relative performance. There are no fees or expenses imputed to the benchmark index.

Inevitably we had some disappointments in the period, the most significant of which was Staffline (–90%). The blue-collar recruitment agency was the subject of a whistleblowing letter on the eve of publishing its annual report. The report was delayed, resulting in a suspension of trading in the stock. Although the allegations made by the whistle blower proved false, the uncertainty was off-putting for potential customers and led to a significant loss of revenue and profitability. The company has been refinanced and can hopefully prosper from here, but it is not yet out of the woods. We have retained a small position in the stock. We also lost money on Ted Baker (–72%) following a difficult period of trading. We bought the stock because it has a strong brand and a loyal customer base. However, the difficult consumer environment and increasing trend to shop online did not favour the business. We no longer own the stock.

Investment Strategy

Our investment strategy remains unchanged. The current portfolio comprises 72 stocks with the sector weightings being determined by where we are finding attractive companies at a given time, rather than by allocating assets according to a “top down” view of the economy. We continue to seek growing businesses, which have the potential to be significantly larger in the medium term. These tend to be companies that either have great products or services, that can enable them to take market share from their competitors, or companies that are exposed to higher growth niches within the UK economy or overseas. We prefer to invest in cash generative businesses that can fund their own expansion, although we are willing to back strong management teams by providing additional capital to invest for growth.

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

The five largest holdings in the portfolio at the beginning of the new year are:

4imprint sells promotional materials such as pens, bags and clothing which are printed with company logos. The business gathers orders through online and catalogue marketing, which are then routed to their suppliers which print and dispatch the products to customers. As a result of outsourcing manufacture, the business has a relatively low capital requirement and can focus on marketing and customer service. Continual reinvestment of revenue into marketing campaigns has enabled the business to generate an enviable long term growth record whilst maintaining margins.

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

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

Johnson Service is one of the UK’s leading linen hire and workwear businesses, supplying bed linen, tablecloths and uniforms to businesses around the country. It has a scale advantage over smaller competitors, reducing the cost of procurement and giving it a greater density of customers in its geography, enabling it to serve those customers more cheaply. It leverages its scale advantage by acquiring smaller competitors and integrating them into its network. Management invest heavily in modern, efficient equipment to further entrench their cost advantage.

Clinigen is a healthcare business which is a world leader in the specialist distribution of drugs to geographies outside the standard regulated North American, European and Japanese markets. These activities give management insight into drugs that could potentially be used on a wider basis. This enables management to acquire the rights to compounds where they can increase profitability by achieving further approvals for new categories of patients.

Outlook

The previously downbeat prospects for the global economy are currently being compounded by stringent actions put in place to limit the spread of the Coronavirus. While the health impact will hopefully be limited, the disruption caused to economic activity and therefore company profitability will be severe. Whilst we always aim to be invested in businesses with strong balance sheets and sustainable business models, even these companies will have to take drastic action to ensure they emerge from this crisis intact.

However dire the current predicament, there are already investment opportunities emerging. Company valuations are approaching historic lows and the massive monetary easing currently underway will ultimately provide a strong impetus to the equity market. Weaker companies will fail, thereby providing some growth opportunities in time for stronger businesses. We will be ready to invest in companies such as these when the time is right.

We have spoken to many of the businesses within the portfolio and assessed their ability to withstand a sustained period of weak trading. Thankfully, our policy of avoiding companies with weak balance sheets and fragile business models means that in the vast majority of cases the companies we own should be in a solid financial position when we finally exit lockdown. Where such businesses become financially stretched or have an opportunity to invest for growth, we will consider supplying them with the capital they need.

Whilst we are all reeling from the recent market falls, we can assure you that we are fully focused on capitalising on the opportunities these present on your behalf.

Jonathan Brown

Portfolio Manager

Robin West

Deputy Portfolio Manager

16 April 2020

Business Review

Purpose, 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.

The Company has contracted the services of Invesco Fund Managers Limited (the ‘Manager’) to manage the portfolio in accordance with the Board’s strategy and under its oversight. The Portfolio Manager responsible for the day to day management of the portfolio is Jonathan Brown, assisted by Robin West, Deputy Portfolio Manager. The Manager has delegated portfolio valuation, fund accounting and administrative services to The Bank of New York Mellon, London Branch.

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

Investment Objective

The Company is an investment trust whose investment objective is to achieve long-term total returns for shareholders, primarily by investment in a broad cross-section of small to medium sized UK quoted companies.

Investment Policy

The portfolio primarily comprises shares traded on the London Stock Exchange and those traded on AIM. The Portfolio Manager can also invest in unquoted securities, though these are limited to a maximum of 5% of gross assets at the time of acquisition.

The Manager seeks to outperform its benchmark, the Numis Smaller Companies Index (excluding Investment Companies) with income reinvested. As a result, the Manager’s approach can, and often does, result in significant overweight or underweight positions in individual stocks or sectors compared with the benchmark. Sector weightings are ultimately determined by stock selection decisions.

Risk diversification is sought through a broad exposure to the market, where no single investment may exceed 5% of the Company’s gross assets at the time of acquisition. The Company may utilise index futures to hedge risk of no more than 10% and other derivatives (including warrants) of no more than 5%. In addition, the Company will not invest more than 10% in collective investment schemes or investment companies, nor more than 10% in non-UK domiciled companies. All these limits are referenced to gross assets at the time of acquisition.

Borrowings under this investment policy may be used to raise market exposure up to the lower of 30% of net asset value and £25 million.

Dividend Policy

The Company’s dividend policy is to distribute all available revenue earned by the portfolio in the form of dividends to shareholders. In addition, the Board has approved the use of the Company’s capital reserves to enhance dividend payments. Therefore, the total dividend, paid to shareholders on a quarterly basis, comprises income received from the portfolio, with the balance coming from capital reserves.

As explained in the Chairman’s Statement on page 6, the Board believes that targeting a dividend yield of 4% of the year end share price is no longer appropriate.  For 2021, the Company will continue to distribute all available revenue generated by the portfolio, together with an amount from realised capital profits which in aggregate will amount to not less than 2% of the Company’s 31 January 2021 share price with the aim that the Company returns to delivering a higher yield than its UK Smaller Company investment trust peers once the impact of COVID-19 has abated.

Performance

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

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

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

• the discount/premium to net asset value;

• dividend per share; and

• the ongoing charges.

The ten year record for the NAV and share price performance compared with the Company’s benchmark index can be found on page 4, and the five year discount record is on page 3. The ten year record for dividends and ongoing charges is shown on page 4. Returns versus volatility are shown on the graph on page 10.

Results and Dividends

In the year ended 31 January 2020, the net asset value total return was +30.4%, compared with a total return on the benchmark index of +13.7%, an outperformance of 16.7%. The discount at the year end was 0.1% (2019: 3.5%). The Portfolio Managers’ Report shows an analysis of the relative performance in a table on page 9.

For the year ended 31 January 2020, three interim dividends of 3.75p per share were paid to shareholders in September and December 2019 and March 2020. A final dividend of 7.35p per share will be paid on 12 June 2020 to shareholders on the register on 15 May 2020. This will give total dividends for the year of 18.6p (2019: 18.6p), representing a yield of 3.1% based on the share price as at 31 January 2020. Further details are provided in the Chairman's Statement on pages 6 and 7. Of the total dividend, 54% (2019: 58%) was generated from revenue in the year. The remainder was funded from realised capital reserves and represents 1.4% (2019: 1.6%) of the year end net assets.

Financial Position and Borrowings

At 31 January 2020, the Company’s net assets were valued at £205 million (2019: £158 million), comprising a portfolio of equity investments and net current assets, with no borrowings (2019: £nil).

The Company currently has a facility with The Bank of New York Mellon under which borrowings are limited to the maximum of the lower of 30% of net assets and £15 million.

Outlook, including the Future of the Company

The main trends and factors likely to affect the future development, performance and position of the Company’s business can be found in the Portfolio Managers’ Report. Details of the principal risks affecting the Company are set out under ‘Principal Risks and Uncertainties’ below.

Principal Risks and Uncertainties

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

Market (Economic) Risk

Factors such as fluctuations in stock markets, interest rates and exchange rates are not under the control of the Board or the Portfolio Manager, but may give rise to high levels of volatility in the share prices of investee companies, as well as affecting the Company’s own share price and the discount to its NAV. To a limited extent, futures can be used to mitigate this risk, as can the judicious holding of cash or other very liquid assets. The risk could be triggered by unfavourable developments globally and/or in one or more regions, contemporary examples being the market uncertainty in relation to Brexit during 2019 and the current COVID-19 pandemic. As detailed in the Portfolio Managers’ Report on page 11 and on page 15, the Directors have more recently assessed the market impact of COVID-19.

Investment Risk

The Company invests in small and medium-sized companies traded on the London Stock Exchange or on AIM. By their nature, these are generally considered riskier than their larger counterparts and their share prices can be more volatile, with lower liquidity. In addition, as smaller companies may not generally have the financial strength, diversity and resources of larger companies, they may find it more difficult to overcome periods of economic slowdown or recession.

The Portfolio Managers’ approach to investment is one of individual stock selection. Investment risk is mitigated via the stock selection process, together with the slow build-up of holdings rather than the purchase of large positions outright. This allows the Portfolio Manager, cautiously, to observe more data points from a company before adding to a position. The overall portfolio is well diversified by company and sector. The weighting of an investment in the portfolio tends to be loosely aligned with the market capitalisation of that company. This means that the largest holdings will often be amongst the larger of the smaller companies available.

The Portfolio Manager is relatively risk averse, looks for lower volatility in the portfolio and seeks to outperform in more challenging markets. The Portfolio Manager remains cognisant at all times of the potential liquidity of the portfolio.

There can be no guarantee that the Company’s strategy and business model will be successful in achieving its investment objective. The Board monitors the performance of the Company and has guidelines in place to ensure that the Portfolio Manager adheres to the approved investment policy. The continuation of the Manager’s mandate is reviewed annually.

Shareholders’ Risk

The value of an investment in the Company may go down as well as up and an investor may not get back the amount invested. The Board reviews regularly the Company’s investment objective and strategy to ensure that it remains relevant, as well as reviewing the composition of the shareholder register, peer group performance on both a share price and net asset value basis, and the Company’s share price discount to net asset value per share.

The Board and the Portfolio Manager maintain an active dialogue with the aim of ensuring that the market rating of the Company’s shares reflects the underlying net asset value; both share buy back and issuance facilities are in place to help the management of this process.

Borrowings

The Company may borrow money for investment purposes. If the investments fall in value, any borrowings (or gearing) will magnify the extent of any loss. If the borrowing facility could not be renewed, the Company might have to sell investments to repay any borrowings made under it. All borrowing and gearing levels are reviewed at every Board meeting and limits agreed.

Reliance on the Manager and other Third Party Providers

The Company has no employees and the Directors are all non-executive. The Company is therefore reliant upon the performance of third party service providers for its executive function and service provisions. Third party service providers are subject to ongoing monitoring by the Manager and the Company. The Company’s operational structure means that all cyber risk (information and physical security) arises at its third party service providers, including fraud, sabotage or crime against the Company. Failure by any service provider to carry out its obligations to the Company in accordance with the terms of its appointment could have a materially detrimental impact on the operation of the Company and could affect the ability of the Company successfully to pursue its investment policy. The Company’s main service providers, of which the Manager is the principal provider, are listed on page 67. The Directors have reviewed the operational readiness, effectiveness and efficiency of the Company’s main Third Party Providers in relation to the potential impact of COVID-19 and have sought and 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.

The Manager may be exposed to reputational risks. In particular, the Manager may be exposed to the risk that litigation, misconduct, operational failures, negative publicity and press speculation, whether or not it is valid, will harm its reputation. Damage to the reputation of the Manager could potentially result in counterparties and third parties being unwilling to deal with the Manager and by extension the Company, which carries the Manager’s name. This could have an adverse impact on the ability of the Company to pursue its investment policy successfully.

The Audit Committee reviews regularly the performance and internal controls of the Manager and all third party providers through audited service organisation control reports, together with updates on information security and business continuity plans and testing, the results of which are reported to the Board. The Manager reviews the performance of all third party providers regularly through formal and informal meetings.

Regulatory Risk

The Company is subject to various laws and regulations by virtue of its status as an investment trust, its listing on the London Stock Exchange and being an Alternative Investment Fund under the Alternative Investment Fund Managers Directive. A loss of investment trust status could lead to the Company being subject to corporation tax on the chargeable capital gains arising on the sale of its investments. Other control failures, either by the Manager or any other of the Company’s service providers, could result in operational or reputational problems, erroneous disclosures or loss of assets through fraud, as well as breaches of regulations.

The Manager reviews the level of compliance with tax and other financial regulatory requirements on a regular basis. The Board regularly considers all risks, the measures in place to control them and the possibility of any other risks that could arise. The Manager’s Compliance and Internal Audit Officers produce regular reports for review at the Company’s Audit Committee.

Further details of risks and risk management policies as they relate to the financial assets and liabilities of the Company are detailed in note 17 to the financial statements.

Pandemic (Coronavirus) Risk

As the spread of COVID-19 continues, the Directors are monitoring the situation closely, together with the Manager and third-party service providers. A range of actions has been implemented to ensure that the Company and its service providers are able to continue to operate as normal, even in the event of prolonged disruption. 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 Manager has mandated work from home arrangements and implemented split team working for those whose work is deemed necessary to be carried out on business premises. Any meetings are being held virtually or via conference calls.

Other similar working arrangements are in place for the Company’s third-party service providers.

The Directors remain confident that with these measures in place, the Company is in a good position to continue operating largely as normal in these extreme market conditions. In addition, due to the nature of the Company being a closed end investment company, the Portfolio Managers are not presented with regular daily inflows and outflows that require managing.

Viability Statement

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

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

The investment objective of the Company has been substantially unchanged for many years. The 2015 amendment to dividend policy gave some additional weight to targeting increased dividend income to shareholders. This change does not affect the total return sought or produced by the Portfolio Manager but was designed to increase significantly, returns distributed to shareholders. The Board considers that the investment objective remains appropriate. This is confirmed by contact with major shareholders and demonstrated by demand for the Company’s shares, as evidenced by the narrower discount to net asset value at which they traded through the year under review (see page 3).

Performance derives from returns for risk taken. The Portfolio Managers’ Report on pages 9 to 11 sets out their current investment strategy. The Company’s performance has been strong through different market cycles, as shown by the ten year total return performance graph on page 3, and by comparison with its peer group’s returns versus volatility over five years, as set out on page 10. Whilst past performance may not be indicative of performance in the future, it should be noted that the Company’s current Manager has been in place throughout that ten years. The current Portfolio Manager has been involved with the Company for over 13 years, and 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’s portfolio is readily realisable and is many times the value of its normal level of short term liabilities and annual operating costs with the Company able to meet its obligations as they fall due.

Based on the above 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 2025.

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

In accordance with the Companies (Miscellaneous Reporting) Regulations 2018, the below details how the Directors have discharged their duties under section 172 of the Companies Act 2006 during the year under review. The Directors have a statutory duty to promote the success of the Company, whilst also having regard to certain broader matters, including the need to engage with employees, suppliers, customers and others, and to have regards for their interests. However, the Company has no employees and no customers in the traditional sense. Consistent with the Company’s nature as an investment trust, the Board’s principal concern has been, and continues to be, the interests of the Company’s shareholders taken as a whole. In doing so, it has due regard to the impact of its actions on other shareholders and the wider community. The Board has a responsible governance culture and has regard for broader matters so far as they apply. The Schedule of Matters Reserved for the Board and the Terms of Reference for its Committees are reviewed at least annually and published on the Company's web page. These documents detail the Directors’ responsibilities and obligations and detail any statutory and regulatory duties.

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

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

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

• to appoint an additional director to enable long term succession planning and to ensure that the Board had a balance of skills;

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

• to hold discussions with major shareholders ahead of the 2019 continuation vote which highlighted their continued support.

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

Environmental, Social and Governance (ESG) Matters

As an investment company with no employees, property or activities outside investment, environmental policy has limited direct application. 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 intended to be 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, which demonstrates its extensive efforts in terms of ESG integration, active ownership, investor collaboration and transparency. The Manager is also a signatory to the FRC Stewardship Code 2012, 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.

The Henley based Invesco UK equities team, of which the Portfolio Managers are a part, incorporates ESG considerations in its investment process during the evaluation of new primary and secondary market opportunities, with identified ESG concerns feeding into the final investment decision and assessment of relative value. The Portfolio Managers make their own subjective 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.

During 2019, Invesco engaged with a number of companies in the portfolio to discuss their own sustainable practices. Invesco believes that proxy voting is the hallmark of active ownership and serves as a powerful mechanism to drive responsible investment, engagement and investment stewardship. Reports on proxy voting for the Company’s portfolio can be obtained via the Manager’s website at www.invesco.co.uk.

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 considers diversity, including the balance of skills, knowledge and experience, amongst other factors when reviewing its composition and appointing new directors, but does not consider it appropriate to establish targets or quotas in this regard. At the year end the Board consisted of five directors, two of whom are women, thereby constituting 40% female representation.

The Strategic Report was approved by the Board of Directors on 16 April 2020.

Invesco Asset Management Limited
Company Secretary

INVESTMENTS IN ORDER OF VALUATION

at 31 JANUARY 2020

Ordinary shares unless stated otherwise

MARKET
VALUE % OF
ISSUER SECTOR £000 PORTFOLIO
4imprint Media  7,361  3.7
Future Media  7,156  3.6
CVSAIM General Retailers  5,643  2.8
Johnson ServiceAIM Support Services  5,354  2.7
ClinigenAIM Pharmaceuticals & Biotechnology  5,215  2.6
JTC Financial Services  4,957  2.5
RestoreAIM Support Services  4,696  2.3
Ultra Electronics Aerospace & Defence  4,483  2.2
Consort Medical Health Care Equipment & Services  4,386  2.2
Vistry (formerly Bovis Homes) Household Goods & Home Construction  4,271  2.1
Top Ten Holdings 53,522 26.7 
Sanne Support Services  4,261  2.1
Hill & Smith Industrial Engineering  4,245  2.1
Polypipe Construction & Materials  4,240  2.1
NCC Software & Computer Services  4,079  2.1
St. Modwen Properties Real Estate Investment & Services  4,067  2.1
RWSAIM Support Services  4,060  2.0
SDL Software & Computer Services  3,978  2.0
Kainos Software & Computer Services  3,615  1.8
Savills Real Estate Investment & Services  3,598  1.8
Hilton Food Food Producers  3,546  1.8
Top Twenty Holdings 93,211 46.6 
Learning TechnologiesAIM Software & Computer Services  3,532  1.8
Brooks MacdonaldAIM Financial Services  3,500  1.8
ScapaAIM Chemicals  3,357  1.7
Aptitude Software Software & Computer Services  3,330  1.7
CLS Real Estate Investment & Services  3,276  1.6
Arrow Global Financial Services  3,260  1.6
Workspace Real Estate Investment Trusts  3,248  1.6
VP Support Services  3,213  1.6
James Fisher and Sons Industrial Transportation  3,212  1.6
Coats General Industrials  3,152  1.6
Top Thirty Holdings 126,291 63.2 
Hollywood Bowl Travel & Leisure  3,112  1.6
Robert Walters Support Services  2,934  1.5
Young & Co’s Brewery Non-VotingAIM Travel & Leisure  2,927  1.5
Ricardo Support Services  2,874  1.5
Keywords StudiosAIM Support Services  2,833  1.4
Volution Construction & Materials  2,739  1.4
Vectura Pharmaceuticals & Biotechnology  2,671  1.3
Severfield Industrial Engineering  2,646  1.3
Urban & Civic Real Estate Investment & Services  2,628  1.2
Safestore Real Estate Investment Trusts  2,483  1.2
Top Forty Holdings 154,138 77.1 
Premier Oil Oil & Gas Producers  2,480  1.2
Essentra Support Services  2,459  1.2
FDM Software & Computer Services  2,446  1.2
Advanced Medical SolutionsAIM Health Care Equipment & Services  2,376  1.2
KnightsAIM Support Services  2,225  1.1
Secure Trust Bank Banks  2,132  1.1
Euromoney Institutional Investor Media  2,084  1.1
Topps Tiles General Retailers  2,031  1.0
Marston’s Travel & Leisure  2,008  1.0
Energean Oil & Gas Oil & Gas Producers  1,952  1.0
Top Fifty Holdings 176,331 88.2 
Equiniti Support Services  1,899  1.0
JD Wetherspoon Travel & Leisure  1,841  0.9
Dunelm General Retailers  1,785  0.9
XPS Pensions Financial Services  1,765  0.9
Jadestone EnergyAIM Oil & Gas Producers  1,727  0.9
LoungersAIM Travel & Leisure  1,645  0.8
boohoo.comAIM General Retailers  1,460  0.7
M&C SaatchiAIM Media  1,457  0.7
Alfa Financial Software Software & Computer Services  1,271  0.6
Vitec Industrial Engineering  1,133  0.6
Top Sixty Holdings 192,314 96.2 
Softcat Software & Computer Services  1,065  0.5
AJ Bell Financial Services 918  0.5
CohortAIM Aerospace & Defence 877  0.5
DFS Furniture General Retailers 873  0.4
Diploma Support Services 854  0.4
Horizon DiscoveryAIM Pharmaceuticals & Biotechnology 633  0.3
LSL Property Services Real Estate Investment & Services 455  0.2
ThruvisionAIM Electronic & Electrical Equipment 451  0.2
Churchill ChinaAIM Household Goods & Home Construction 437  0.2
MidwichAIM Support Services 426  0.2
Top Seventy Holdings 199,303 99.6 
StafflineAIM Support Services 364  0.2
Nucleus FinancialAIM Financial Services 306  0.2
Total Investments (72) 199,973 100.0

AIM:  Investments quoted on AIM.

The percentage of the portfolio invested in AIM stocks at the year end was 27.8% (2019: 21.0%).

STATEMENT OF DIRECTORS’ RESPONSIBILITIES

in respect of the preparation of the Annual Financial Report

The Directors are responsible for preparing the annual financial report in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under the law the Directors have elected to prepare financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. Under company law, the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period.

In preparing these financial statements, the Directors are required to:

• select suitable accounting policies and then apply them consistently;

• make judgements and estimates that are reasonable and prudent;

• state whether applicable IFRSs have been followed, subject to any material departures disclosed and explained in the financial statements; and

• prepare the financial statements on the going concern basis, unless it is inappropriate to presume that the Company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

Under applicable law and regulations, the Directors are also responsible for preparing the Strategic Report, a Corporate Governance Statement, a Directors’ Remuneration Report and a Directors’ Report that comply with the law and regulations.

The Directors of the Company each confirm to the best of their knowledge, that:

• the financial statements, prepared in accordance with applicable accounting standards, give a true and fair view of the assets, liabilities, financial position and profit of the Company;

• this annual financial report includes a fair review of the development and performance of the business and the position of the Company together with a description of the principal risks and uncertainties that it faces; and

• they consider that this annual financial report, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company’s position and performance, business model and strategy.

Signed on behalf of the Board of Directors

Jane Lewis

Chairman

16 April 2020

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

2020 2019
REVENUE CAPITAL TOTAL REVENUE CAPITAL TOTAL
NOTES £000 £000 £000 £000 £000 £000
Profit/(loss) on investments held at fair value 9 44,913 44,913 (15,848) (15,848)
Income 2 3,924 181 4,105 4,080 4,080
Investment management fees 3 (204) (1,160) (1,364) (166) (943) (1,109)
Performance fee 3 (116) (116)
Other expenses 4 (379) (5) (384) (391) (2) (393)
Profit/(loss) before finance costs and taxation 3,341 43,929 47,270 3,523 (16,909) (13,386)
Finance costs 5 (1) (7) (8) (2) (9) (11)
Profit/(loss) before taxation 3,340 43,922 47,262 3,521 (16,918) (13,397)
Taxation 6
Profit/(loss) after taxation 3,340 43,922 47,262 3,521 (16,918) (13,397)
Return per ordinary share 7 10.13p 133.21p 143.34p 10.72p (51.50)p (40.78)p

The total column of this statement represents the Company’s statement of comprehensive income, prepared in accordance with International Financial Reporting Standards as adopted by the European Union. 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 2018 10,642  21,244  3,386  142,058  1,241  178,571
Total comprehensive income for the year        (16,918)  3,521 (13,397)
Dividends paid 8     —   (3,260) (3,629) (6,889)
At 31 January 2019 10,642  21,244  3,386  121,880  1,133  158,285
Total comprehensive income for the year 43,922  3,340 47,262
Dividends paid 8 (2,579) (3,597) (6,176)
Net proceeds from issue of shares from treasury  1,122  4,750  5,872
At 31 January 2020 10,642 22,366  3,386  167,973  876  205,243

BALANCE SHEET

AT 31 JANUARY

2020 2019
NOTES £000 £000
Non-current assets
 Investments held at fair value through profit or loss 9 199,973 149,211
Current assets
 Other receivables 10  420  438
 Cash and cash equivalents 5,493  10,399
5,913  10,837
Total assets 205,886 160,048
Current liabilities
 Other payables 11 (643) (1,763)
Total assets less current liabilities 205,243 158,285
Non-current liabilities 12
Net assets 205,243 158,285
Capital and reserves
Share capital 13  10,642  10,642
Share premium 14  22,366  21,244
Capital redemption reserve 14 3,386 3,386
Capital reserve 14 167,973 121,880
Revenue reserve 14  876 1,133
Total shareholders’ funds 205,243 158,285
Net asset value per ordinary share
Basic 15 606.7p 481.8p

The financial statements were approved and authorised for issue by the Board of Directors on 16 April 2020.

Signed on behalf of the Board of Directors

Jane Lewis
Chairman

Richard Brooman
Deputy Chairman

STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 31 JANUARY

2020 2019
£000 £000
Cash flow from operating activities
Profit/(loss) before finance costs and taxation  47,270 (13,386)
Adjustments for:
 Purchases of investments (45,256) (29,667)
 Sales of investments  39,201  40,865
(6,055)  11,198
 (Profit)/loss on investments held at fair value (44,913)  15,848
 Increase in receivables (36) (150)
 Decrease in payables (861) (1,695)
Net cash (outflow)/inflow from operating activities (4,595)  11,815
Cash flow from financing activities
Finance costs paid (7) (27)
Net proceeds from issue of new shares 5,872
Dividends paid – note 8 (6,176) (6,889)
Net cash outflow from financing activities (311) (6,916)
Net (decrease)/increase in cash and cash equivalents (4,906) 4,899
Cash and cash equivalents at the beginning of the year  10,399 5,500
Cash and cash equivalents at the end of the year 5,493  10,399
Reconciliation of cash and cash equivalents to the Balance Sheet is as follows:
Cash held at custodian  103  169
Invesco Liquidity Funds plc*, money market fund 5,390  10,230
Cash and cash equivalents 5,493  10,399
Cash flow from operating activities includes:
Dividends received 4,071 3,927
Interest received 1

* Formerly Short-Term Investment Company (Global Series) plc.

NOTES TO THE FINANCIAL STATEMENTS

1.  Principal Accounting Policies

Accounting policies describe the Company’s approach to recognising and measuring transactions during the year and the position of the Company at the year end.

The principal accounting policies adopted in the preparation of these financial statements are set out below. These policies have been consistently applied during the current year and the preceding year, unless otherwise stated. The financial statements have been prepared on a going concern basis 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 30 in the Directors’ Report provides further detail.

(a)  Basis of Preparation

(i)  Accounting Standards Applied

The financial statements have been prepared on a historical cost basis, except for the measurement at fair value of investments and derivatives, and in accordance with the applicable International Financial Reporting Standards (IFRS) 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 Company’s financial year end.

Where presentational guidance set out in the Statement of Recommended Practice (SORP) ‘Financial Statements of Investment Trust Companies and Venture Capital Trusts’, updated by the Association of Investment Companies in October 2019, is consistent with the requirements of IFRS, 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.

The revised SORP issued in October 2019 is applicable for accounting periods beginning on or after 1 January 2019. As a result, the presentation of gains and losses arising from disposals of investments and gains and losses on revaluation of investments have now been combined, as shown in note 9 with no impact to the net asset value or profit/(loss) reported for both the current or prior year. No other accounting policies or disclosures have changed as a result of the revised 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:

• IFRS 16: Leases (effective 1 January 2019). This requires lessees to recognise new assets and liabilities under an on-balance sheet accounting model that is similar to current finance lease accounting.

• IFRIC 23: Uncertainty over Income Tax Treatments (effective 1 January 2019). This applies where there is uncertainty over the acceptable income tax treatment of an item under IAS12.

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.

(c)  Financial Instruments

(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.

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.

(d)  Cash and Cash Equivalents

Cash and cash equivalents include any cash held at custodian and approved depositories, holdings in Invesco Liquidity Funds plc (formerly known as Short-Term Investments Company (Global Series) plc (STIC)), a triple-A rated money market fund and overdrafts.

(e)  Income

All dividends are taken into account on the date investments are marked ex-dividend; other income from investments is taken into account on an accruals basis. Deposit interest and underwriting commission receivable are taken into account on an accruals basis. Special dividends representing a return of capital are allocated to capital in the Statement of Comprehensive Income and then taken to capital reserves.

(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. In the prior year, the performance-related management fee was allocated wholly to capital as it arose from capital returns on the portfolio.

Except for custodian transaction charges and costs in relation to the tender offer, 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.

2020 2019
£000 £000
Income from investments
UK dividends 3,526  3,354
UK special dividends  130 533
Overseas dividends  268 192
3,924  4,079
Other income
Deposit interest 1
Total income 3,924  4,080

Special dividends of £181,000 were recognised in capital during the year (2019: nil).

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

3.  Investment Management and Performance Fees

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, a performance fee calculated and paid annually. Both are based on the value of the assets being managed.

2020 2019
Revenue Capital Total Revenue Capital Total
£000 £000 £000 £000 £000 £000
Investment management fee 204  1,160 1,364 166  943  1,109
Performance fee charged to capital  116 116
204  1,160 1,364 166 1,059  1,225

Details of the investment management agreement are given on page 30 in the Directors’ Report.

At 31 January 2020, £128,000 (2019: £86,000) was accrued in respect of the investment management fee and nil (2019: £901,000) was accrued for the performance fee.

The performance fee arrangement was removed with effect from 1 February 2019.

4.  Other Expenses

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

2020 2019
Revenue Capital Total Revenue Capital Total
£000 £000 £000 £000 £000 £000
Directors’ remuneration (i) 132 132 140 140
Auditors’ fees (ii):
 for audit of the Company’s
 annual financial statements
 28  28  28  28
Other expenses (iii) 219 5 224 223  2 225
379 5 384 391  2 393

(i)  The Director's Remuneration Report 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 include:

• £11,200 (2019: £12,000) of employer’s National Insurance payable on Directors’ remuneration. As at 31 January 2020, the amounts outstanding on employer’s National Insurance payable on Directors' remuneration was £1,000 (2019: £1,000); and

• custodian transaction charges of £5,400 (2019: £1,500). These are charged to capital.

5.  Finance Costs

Finance costs arise on any borrowing facilities the Company has.

2020 2019
Revenue Capital Total Revenue Capital Total
£000 £000 £000 £000 £000 £000
Bank overdraft facility costs 1 6 7 2 9 11
Overdraft interest 1 1
1 7 8 2 9 11

The £15 million overdraft facility was renewed on 16 September 2019. The facility fee is charged at 0.05% and the interest rate is at a margin above the Bank of England base rate.

6.  Taxation

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

(a)  Tax charge

2020 2019
£000 £000
Overseas taxation

(b)  Reconciliation of current tax charge

2020 2019
£000 £000
Profit/(loss) before taxation 47,262 (13,397)
Theoretical tax at UK Corporation Tax rate of 19% (2019: 19%) 8,980 (2,545)
Effects of :
–Non-taxable UK dividends (639) (608)
–Non-taxable UK special dividends (59) (101)
–Non-taxable overseas dividends (38) (30)
–Non-taxable (gains)/loss on investments (8,533)  3,011
–Excess of allowable expenses over taxable income  289 273
Tax charge for the year

(c)  Factors that may affect future tax changes

The Company has cumulative excess management expenses of £39,243,000 (2019: £37,685,000) that are available to offset future taxable revenue.

A deferred tax asset of £6,671,000 (2019: £6,407,000) at 17% (2019: 17%) has not been recognised in respect of these expenses since the Directors believe that there will be no taxable profits in the future against which the deferred tax assets can be offset. The Company has no deferred tax liability at the balance sheet date.

Subsequent to the year end, on 11 March 2020, it was announced (and substantively enacted on 17 March 2020) that the UK corporation tax rate would remain at 19% and not reduce to 17% (the previously enacted rate at the year end) from 1 April 2020. The deferred tax balances shown above have been calculated with reference to the rate of 17%, as required under International Financial Reporting Standards. However, following the substantive enactment of the rate of 19%, it is anticipated that the reversal of temporary differences will occur at this rate and that the maximum impact on the quantum of the unrecognised deferred tax asset will be £785,000.

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.

2020 2019
Revenue Capital Total Revenue Capital Total
Return per ordinary share 10.13p  133.21p 143.34p 10.72p (51.50)p (40.78)p

Basic total return per ordinary share is based on the net total profit for the financial year of £47,262,000 (2019: £13,397,000 loss).

Basic revenue return per ordinary share is based on the net revenue profit for the financial year of £3,340,000 (2019: £3,521,000 profit).

Basic capital return per ordinary share is based on the net capital profit for the financial year of £43,922,000 (2019: £16,918,000 loss).

All three returns are based on the weighted average number of shares in issue during the year of 32,971,792 (2019: 32,851,929).

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.

2020 2019
pence £000 pence £000
Dividends paid from revenue in the year:
 Third interim (prior year)  3.45  1,133  3.55  1,166
 Final (prior year)  0.22  75
 First interim  3.75  1,232  3.65  1,199
 Second interim  3.75  1,232  3.65  1,199
 Return of unclaimed dividends from previous years (10)
Total dividends paid from revenue 10.95  3,597 11.07  3,629
Dividends paid from capital in the year:
 Third interim (prior year)  0.20  66
 Final (prior year)  7.65  2,513  9.93  3,260
Total dividends paid from capital  7.85  2,579  9.93  3,260
Total dividends paid in the year 18.80  6,176 21.00  6,889

   

2020 2019
pence £000 pence £000
Dividends payable in respect of the year:
 First interim  3.75  1,232  3.65  1,199
 Second interim  3.75  1,232  3.65  1,199
 Third interim  3.75  1,269  3.65  1,199
 Final 7.35 2,486  7.65  2,513
18.60 6,219 18.60  6,110

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

2020 2019
£000 £000
Dividends in respect of the year:
 from revenue reserve 3,340 3,521
 from capital reserve 2,879 2,589
6,219 6,110

Dividend payable from capital reserves of £2,879,000 (2019: £2,589,000) as a percentage of year end net assets of £205,243,000 (2019: £158,285,000) is 1.4% (2019: 1.6%).

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 sold; and

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

2020 2019
£000 £000
Investments listed on a regulated stock exchange 144,472  118,198
AIM quoted investments  55,501 31,013
199,973  149,211
Opening valuation 149,211  176,074
Movements in year:
 Purchases at cost  44,996 29,870
 Sales – proceeds (39,147) (40,885)
Profit/(loss) on investments in the year  44,913 (15,848)*
Closing valuation 199,973  149,211
Closing book cost 140,572  126,598
Closing investment holding gains in the year  59,401 22,613
Closing valuation 199,973  149,211

The transaction costs included in gains on investments amount to £146,000 (2019: £86,000) on purchases and £25,000 (2019: £44,000) for sales.

The Company received £39,147,000 (2019: £40,885,000) from investments sold in the year. The book cost of these investments when they were purchased was £31,022,000 (2019: £24,673,000) realising a profit of £8,125,000 (2019: £16,212,000). 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.

*  Due to adoption of the revised SORP issued in October 2019 (see Note 1(a)(i)). The loss on investments figure of £15,848,000 for the year ended 31 January 2019 is made up as follows:

2019
£000
Net realised profit on sales 16,212 
Investment holding loss in the year (32,060)
Loss on investments (15,848)

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. 

2020 2019
£000 £000
Amounts due from brokers  54
Prepayments and accrued income  420 384
 420 438

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.

2020 2019
£000 £000
Amounts due to brokers 435 695
Performance fee – earned and payable for the year 116
Performance fee –prior period provision now payable 785
Accruals 208 167
643 1,763

12.  Non-current Liabilities

Non-current liabilities are amounts payable by the Company more than a year after the balance sheet date.

2020 2019
£000 £000
Performance fee deferred
 brought forward 785
 paid in year (785)

The performance fee arrangement was removed with effect from 1 February 2019.

13.  Share Capital

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

2020 2019
NUMBER £000 NUMBER £000
Allotted, called-up and fully paid
Ordinary shares of 20p each 33,826,929  6,765  32,851,929  6,570
Treasury shares of 20p each 19,382,155  3,877  20,357,155  4,072
53,209,084 10,642  53,209,084 10,642

For the year to 31 January 2020, 975,000 (2019: nil) shares were issued from treasury. These shares were issued in tranches of various quantities throughout the year to satisfy secondary market demand. The gross issue proceeds were £5,895,000 (2019: £nil), at an average price of 604.61p (2019: nil), and the net proceeds after issue costs were £5,872,000 (2019: £nil).

No shares have been issued from or bought back into treasury since the accounting year end.

14.  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.

15.  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
per share
Net assets
attributable
2020 2019 2020 2019
PENCE PENCE £000 £000
Ordinary shares 606.7 481.8 205,243 158,285

Net asset value per ordinary share is based on net assets at the year end and on 33,826,929 (2019: 32,851,929) ordinary shares, being the number of ordinary shares in issue (excluding shares held in treasury) at the year end.

16.  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
2020 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.

17.  Risk Management, Financial Assets and Liabilities

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

Financial Instruments

The Company’s financial instruments comprise its investment portfolio (as shown on pages 18 and 19), 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. Cash balances are limited to a maximum of 1.25% of net assets with any one deposit taker, with only approved deposit takers being used, and a maximum of 7.5% of net assets for holdings in the Invesco Liquidity Funds plc (formerly known as Short-Term Investments Company (Global Series) plc (STIC)), 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.

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 (formerly known as STIC) 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 (2019: same), whichever is the lower; the interest rate is charged at a margin over the Bank of England base rate. The Company uses the facility when required, at levels approved and monitored by the Board.

At the year end, there was no overdraft drawn down (2019: none). Based on the maximum amount that can be drawn down at the year end under the overdraft facility of £15 million (2019: £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 (2019: £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 £20.0 million (2019: loss after tax for the year would increase by £14.9 million). Conversely, if the value of the portfolio rose by 10%, the profit after tax would increase (2019: 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 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.

Berry Starquest Limited was the only Level 3 investment in the portfolio at the current year end (2019: Berry Starquest Limited and Patisserie Holdings). Level 3 investments are investments for which inputs are unobservable (i.e. for which market data is unavailable). Patisserie Holdings fair value was written down to nil following its suspension from trading on AIM in October 2018 and subsequently has been written off (31 January 2019: £nil). Berry Starquest Limited is a dormant subsidiary and is valued at £100 (2019: £100).

18.  Maturity Analysis of Contractual Liability Cash Flows

The contractual liabilities of the Company are shown in notes 11 and 12 and comprise amounts due to brokers, accruals and performance fee deferred. 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.

19.  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 to 15. These also explain that the Company is able to gear and that gearing will amplify the effect on equity of changes in the value of the portfolio.

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

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

Total equity at 31 January 2020, the composition of which is shown on the balance sheet on page 46, was £205,243,000 (2019: £158,285,000).

20.  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 2020 (2019: nil).

21.  Related Party Transactions and Transactions with Manager

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

Under International Financial Reporting Standards, the Company has identified the Directors as related parties. The Directors’ remuneration and interests have been disclosed on pages 36 and 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 30 and in note 3.

22.  Post Balance Sheet Events

Since the year end, the COVID-19 virus was declared a global pandemic which has had a significant impact on global markets and the value of the Company’s investments. As at 14 April 2020, being the latest practical date prior to publication of this annual financial report, the Company’s share price and NAV had fallen by 31.1% and 25.9% respectively. Over the same period, the Company's benchmark index had declined by 27.4%.

Under International Financial Reporting Standards, this is a non-adjusting post balance sheet event and no adjustment to the financial statements has been made; they have been prepared on a Going Concern basis, as described in Note 1 and the Going Concern Statement on page 30. Further details of the COVID-19 business risk assessment and portfolio impact are provided in the Chairman’s Statement on pages 5 to 8, Portfolio Managers’ Report on pages 9 to 11 and Principal Risks and Uncertainties on pages 13 to 15.

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

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

www.invesco.co.uk/ipukscit

The Annual General Meeting (AGM) of the Company will be held at 12.00 noon on 11 June 2020 at 43-45 Portman Square, London, W1H 6LY.  Shareholders are reminded that under the current Stay at Home Measures, shareholders will not be able to attend the AGM. 

The information contained within this announcement is deemed by the Company to constitute inside information under the Market Abuse Regulation (EU) No. 596/2014.

By order of the Board

Invesco Asset Management Limited

Company Secretary

16 April 2020


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