LEGAL ENTITY IDENTIFIER:
549300K1D1P23R8U4U50
Invesco Perpetual
UK Smaller Companies Investment Trust plc
Half-Yearly
Financial Report for the Six Months to 31
July 2022
Investment Objective
Invesco Perpetual UK Smaller Companies Investment Trust plc
(‘the Company’) is an investment trust whose investment
objective is to achieve long-term total returns for shareholders
primarily by investment in a broad cross-section of small to medium
sized UK quoted companies.
Financial Information and Performance
Statistics
Total Return Statistics(1) (with
dividends reinvested) |
Six Months to 31
July
2022 |
Year Ended
31 January
2022 |
|
Net asset value
(NAV)(1)(2) |
-11.3% |
+18.8% |
|
Share price(1)(2) |
-14.8% |
+21.9% |
|
Benchmark Index
(2)(3) |
-12.0% |
+11.6% |
|
|
At |
At |
|
|
31 July |
31 January |
|
Period End Date |
2022 |
2022 |
Change % |
Total shareholders’ funds
(£’000) |
190,725 |
220,753 |
–13.6 |
|
|
|
|
Net asset value per share (NAV) |
563.83p |
652.60p |
–13.6 |
Share price(2) |
471.00p |
570.00p |
–17.4 |
Discount(1) |
(16.5)% |
(12.7)% |
|
Gearing(1): |
|
|
|
– gross gearing |
nil |
nil |
|
– net cash |
2.3% |
0.7% |
|
Maximum authorised gearing |
7.9% |
6.8 % |
|
|
Six |
Six |
|
months |
months |
|
ended |
ended |
|
31 July |
31 July |
Return and dividend per ordinary
share |
2022 |
2021 |
Return(1) |
|
|
– revenue |
6.74p |
4.34p |
– capital |
(80.21)p |
126.46p |
– total |
(73.47)p |
130.80p |
First interim dividend |
3.75p |
3.75p |
Notes:
(1) Alternative Performance Measures (APM). See further
below for the explanation and calculation of APMs. Further details
are provided in the Glossary of Terms and Alternative Performance
Measures in the Company’s 2022 Annual Financial Report.
(2) Source: Refinitiv.
(3) For the year to 31 January
2022, the Benchmark Index of the Company was the Numis
Smaller Companies (excluding Investment Companies) Index with
dividends reinvested. From 1 February
2022, the Benchmark Index of the Company changed to the
Numis Smaller Companies + AIM (excluding Investment Companies)
Index with dividends reinvested.
CHAIRMAN’S STATEMENT
Highlights
- NAV total return of –11.3% compared to –12.0% for the
benchmark(1)
- Target dividend yield of 4% of the year
Dear Shareholders,
Against a backdrop of continued political and economic
uncertainty together with the ongoing humanitarian crisis caused by
the conflict in Ukraine, the
difficult market conditions of the six months to 31 July 2022 were not unexpected. Your Company’s
net asset value (NAV) return was –11.3% compared to -12.0% for the
benchmark(1) (in each case measured on a total return
basis).
The Company’s share price fell from 570p to 471p during the six
months to 31 July, a decrease of 17.4% (a 14.8% decrease on a total
return basis), and the discount to net asset value ended the period
wider at 16.5%, having been 12.7% as at 31
January 2022.
Since the Company’s half-year end to 5
October 2022, the latest practical date before publication
of this interim report, the Company’s NAV total return is -15.0%,
the share price total return is -15.3%, whilst the benchmark total
return is -9.4%. As at 5 October
2022, the discount was 16.8%.
Dividends
The Company’s dividend policy is to pay out all income earned
within the portfolio and to enhance it annually through the use of
realised capital profits with a target dividend yield of 4% of the
year end share price.
In accordance with this policy, on 19
July 2022 the Board declared a first interim dividend of
3.75p for the year ending 31 January
2023, which was paid on 1 September
2022 to shareholders on the register on 5 August 2022 (2021: 3.75p). The expected
timetable for the remaining dividend payments is: second and third
interim dividends in December 2022
and March 2023 respectively, with the
final dividend payable in June 2023,
following its approval by shareholders at the Company’s Annual
General Meeting.
Board Composition
Having served on the Board for nine years as at December 2022, I will retire as a Director of the
Company at the conclusion of the AGM to be held in June 2023. The Nomination Committee has reviewed
the composition of the Board and its succession plan and I am
pleased to announce that Bridget
Guerin will be appointed Chairman of the Board and Chairman
of the Nomination Committee on my retirement. As you will be aware,
Bridget has been a non-executive director of your Company for a
number of years and the Board believes her understanding of the
Company together with her broad experience of investment
companies, venture capital companies and marketing demonstrate her
strong credentials to lead the Company in the next phase of its
development.
The Nomination Committee will shortly commence a search to find
a new non-executive director and will report the results of this
process to shareholders in due course.
Outlook
It is hard to think of positive sentiments to include in this
outlook for the remainder of the Company’s financial year. The news
we read each day is full of statistics about increasing inflation
and its expected duration alongside stories about the impact of the
cost of living crisis, interest rate increases, the continuing war
in Ukraine and more recently the
weakness and volatility of Sterling.
Inflationary concerns have led to de-rating in valuations,
particularly of growth companies, often despite both strong
underlying operational merits and financial performance. In
the small to medium sized UK quoted companies in which the Company
invests, the impact can be more pronounced than for larger
companies.
The Board is encouraged that despite the gloom, the Portfolio
Managers are finding opportunities to take advantage of pricing
anomalies and position the Company's portfolio for future recovery
and growth.
Jane
Lewis
Chairman
7 October 2022
(1) Numis Smaller Companies +AIM (excluding
Investment Companies) Index.
Portfolio Managers’ Report
Q What were the key influences on
the market over the period?
A The period began with expectations of higher
interest rates prompting a sell-off in the more highly rated
technology and growth stocks. Any hopes that increased inflation
would be transitory were dashed by the significant increase in
energy prices following the Russian invasion of Ukraine.
Despite sharply reduced estimates for economic growth, with
inflation touching multi-decade highs, central banks responded by
raising interest rates in an attempt to bring inflation under
control. This cocktail of lower growth and higher interest rates
was tough for markets to swallow and the sell-off was broadly
based, with only the Defence and Oil & Gas sectors bucking the
trend.
Q How did the portfolio perform
over the six-month period to 31 July 2022?
A The NAV total return for the Company over the
period was –11.3%, which was marginally better than the benchmark
index, the Numis Smaller Companies + AIM (excluding Investment
Companies) Index, which returned –12.0% on a total return
basis.
Q Which stocks contributed to and
detracted from performance?
A The best performing stocks over the period
included: Outsourcing business, Serco (+41%), which
continued to win a significant volume of new contracts,
particularly in the US. The company’s defensive characteristics and
good earnings visibility led to a re-rating in the stock as
investors sought safe havens. 4imprint (+14%) which sells
promotional products in the US, benefitted from clients increasing
marketing spend in the wake of the pandemic. The business emerged
from the pandemic in a much stronger competitive position after
management continued investing whilst competitors were cutting
costs. Chemring (+27%), a defence business with world
leading positions in countermeasures and cyber security, continued
to trade well and benefitted from improved sentiment towards the
sector following the war in Ukraine. Oil & Gas business, Energean
(+21%), which has a significant gas discovery in the
Mediterranean, took a step closer to production when its new
production vessel was installed on site. The company also had
success with its drilling campaign, resulting in a substantial
discovery adjacent to its main field.
In a difficult period for markets, inevitably there were some
poorly performing holdings: Legal business, Knights (–66%),
disappointed the market with a profit warning. The business had
performed well since its IPO four years ago, but a downturn in
corporate work and increased staff absences due to Covid-19 led to
a substantial shortfall in profit. Trading has proved more volatile
than anticipated, therefore we have reduced the holding.
Essentra (–29%), is an industrial conglomerate which is
currently restructuring its business to focus on its higher growth,
higher margin components division. The business continued to trade
well, however, the market was disappointed by the disposal price
for its healthcare packaging division. We believe the business has
the potential to be more valuable once the restructuring is
complete and have maintained our holding. Online media and
magazines business, Future (–42%), continued to trade well
but was caught up in the sell-off in the technology sector.
Although there may be some short-term headwinds, we think the
business has substantial potential and have used the opportunity to
add to our holding. Inspecs (–36%), which manufactures
eyewear, had to delay its results due to an accounting issue in its
small US subsidiary. Whilst the problem was minor, it damaged
investor sentiment towards the stock. We still believe the business
has good long-term prospects and have retained a holding.
Q What is the current portfolio
strategy?
A Our investment philosophy remains unchanged. The
current portfolio is comprised of around 70 stocks with the sector
weightings being determined by where we are finding attractive
companies at a given time, rather than by allocating assets
according to a “top down” view of the economy. We continue to seek
growing businesses, which have the potential to be significantly
larger in the medium term. These tend to be companies that either
have great products or services, that can enable them to take
market share from their competitors, or companies that are exposed
to higher growth niches within the UK economy or overseas. We
prefer to invest in cash generative businesses that can fund their
own expansion, although we are willing to back strong management
teams by providing additional capital to invest for growth.
The sustainability of returns and profit margins is vital for
the long-term success of a company. The assessment of the position
of a business within its supply chain and a clear understanding of
how work is won and priced are key to determining if a company has
“pricing power”, which is particularly important in the current
inflationary environment. It is also important to determine which
businesses possess unique capabilities, in the form of intellectual
property, specialist know-how or a scale advantage in their chosen
market. We conduct around 300 company meetings and site visits a
year, and these areas are a particular focus for us on such
occasions.
The current environment poses a number of challenges to
investors. The spike in energy prices and the subsequent effect on
company profitability and economic growth is likely to create
ongoing headwinds across the market. Investors often react to
“price in” these factors well ahead of time, and this has been the
case over the last six months, resulting in many businesses now
trading at historically low valuations. Rather than just running
with the herd, we believe that it is often important to take a
contrarian view. This could involve selling stocks when there are
signs of a bubble forming, as we saw with technology stocks in
2020, but also adding to holdings when we believe they are
oversold.
In the current unpredictable environment, we believe we are best
served by maintaining a well balanced portfolio. Following the
substantial decline in growth and technology stocks earlier in the
period, we have rebuilt positions in a number of these companies
which are now trading at reasonable valuations. We have also
maintained holdings in some consumer related stocks. While these
businesses will be impacted by a more difficult backdrop in the
coming months, they are trading at very low valuations and could
rally very significantly in the event of more positive news around
energy prices. We also continue to like businesses with “self-help”
and structural growth characteristics, which should enable them to
grow at a rate in excess of the prevailing economy.
The future is always unpredictable, so we believe that running a
balanced portfolio and maintaining our focus on quality and
valuation will serve us best in this environment.
Q What are the major holdings in
the portfolio?
A The five largest holdings in the portfolio at the
end of the period were:
• JTC (3.4% of the portfolio) is
a financial administration business providing services to real
estate and private equity funds, multinational companies, and high
net worth individuals. The business has a strong culture, a
reputation for quality and has augmented its organic growth with
acquisitions. Margins and returns on capital are strong and the
business benefits from long term contracts, giving it excellent
earnings visibility.
• 4imprint (3.0% of the
portfolio) 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 who 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.
• Advanced Medical Solutions
(3.0% of the portfolio) produces a range of proprietary wound care
and wound closure products such as sutures, medical adhesives,
antimicrobial dressings and surgical devices. The business suffered
over the pandemic due to the reduction in elective surgery, which
provided us with an opportunity to build the holding. The company
should benefit from the backlog in medical procedures in the short
term and has an exciting pipeline of innovative products which
should drive longer term growth.
• Hilton Food (2.8% of the
portfolio) partners with major supermarkets across the world to
supply their prepacked meat, fish, and plant-based products on a
long-term “cost plus” basis. This model reduces the volatility in
profits typically seen in food businesses by allowing them to pass
changes in the cost of raw materials on to their customers. The
business has benefitted from the global trend in supermarkets
moving from in-store to centralised packing and relying on a
reduced number of trusted suppliers. Hilton Foods has a good long
term growth record, both from signing customers in new countries,
and taking share within existing customers. The business has also
successfully added new product categories via acquisition, which it
can then sell into its global customer base. However, in September
the Company noted it had seen sales volumes come under pressure as
consumers cut back, and had also suffered from unprecedented raw
material price increases.
• Serco (2.5% of the portfolio)
is an outsourcing business focussed on the areas of defence,
citizen services, transport, justice, and health. The business got
into difficulties several years ago due to poor risk management and
aggressive accounting. The current management team has spent the
last six years cleaning up the business and focussing it on areas
that offer growth, and where the company has expertise. The
business now generates less than half its profit in the UK, with
the US being a particular focus due to more favourable margins and
relatively predictable open-book contracts, particularly in the
defence sector.
Q What were the new holdings
added over the period?
A New stocks that we added to the portfolio in the
period include:
• XP Power manufactures power
conversion units for the semiconductor, healthcare and industrial
technology sectors. Power converters convert high voltage
alternating current from the main grid into the stable, low voltage
direct current required for electronic equipment in areas such as
industrial, technology and healthcare. Its products are sold
globally, with North America
accounting for 63% of revenue, Europe 28% and Asia 9%. Whilst clearly cyclical, the business
has a good long term growth record and a strong level of repeat
revenue once designed into a product. Although there is not a lot
of intellectual property in the business, its reputation for
quality, reliability and service levels enables it to generate
circa 20% margins. It is a business we have followed for some time
and the 40% share price decline presented us with an opportunity to
start building a position.
• Auction Technology is a
business we have held before in the portfolio. The origin of the
business was as the publisher of the Auction Trade Gazette, the
trade magazine for the UK antiques industry. The business moved
into providing an online platform for auction houses
(the-saleroom.com) to augment the “in-room” bidding at auctions.
This pulls in a significantly larger pool of bidders and improves
pricing, which has led to rapid adoption by auctioneers in both the
UK, US and continental Europe. The
business has also diversified into the auction of used industrial
equipment in the US, which is a sizable market. The company
generates very high margins, but these have the potential to grow
further as its largely fixed cost base is leveraged by increasing
revenue. We decided to rebuild the position following a circa 50%
decline in its share price.
• GBG helps online companies to
validate and verify the identity and locations of their customers.
It enables organisations to offer a better user experience, protect
themselves against fraud, and ensure regulatory compliance.
Services include ID verification, credit risk checking, anti-money
laundering compliance, age verification and document validation.
The business has a strong long-term organic growth record which it
augments via acquisition. The circa 50% decline in its share price
provided us with an interesting entry point.
• AJ Bell provides online
investment platform and stockbroking services. The business has two
main products: D2C platform, Youinvest, and Investcentre, a B2B
platform focussed on the IFA market. It is one of the UK’s leading
players with around £75 billion of assets under administration
and aims to offer lower fee rates than its main rivals. The company
has an enviable long-term growth record and still has plenty of
scope for market share gains. We like the financial characteristics
of the business (cash generative, high margins, strong balance
sheet), although revenue is affected by market levels. We have
owned the business historically and believe the recent 30%+ decline
in the share price offered a good opportunity to rebuild the
holding.
Q What is the managers approach to
gearing?
A Gearing decisions are taken after reviewing a
variety of metrics including valuations, earnings momentum, market
momentum, bond spreads and a range of economic indicators. After
analysing this data, we concluded that the Company should not be
geared at this point. We will continue to monitor these factors and
look to gear the trust when the indicators turn more positive.
Q How does ESG factor in the investment
process?
A Environmental, Social and Governance (ESG) issues
are increasingly a focus for many investors and analysis of these
factors has always been a core part of our investment process.
Invesco has significant resources focussed on ESG, both at a group
and individual team level. Our proprietary ESGintel system draws in
company specific data from a broad range of sources and enables ESG
related metrics to be quantified. This provides fund managers with
clear overview of areas of concern, allowing targeted engagement
with businesses to bring about positive change.
Environmental liabilities, socially dubious business practises
and poor corporate governance can all have a significant impact on
share prices. We assess environmental risks within a business, and
analyse the steps being taken to reduce its environmental impact.
We like businesses with strong cultures and engaged employees, and
avoid businesses which, whilst acting within the law, run the risk
of a public backlash, or being constrained by new legislation. When
it comes to governance, board structure and incentivisation, we
proactively consult with all the businesses we own and vote against
resolutions where standards fall short of our expectations.
Q What is the dividend policy of the
Company?
A The Company pays out all the income earned within
the portfolio and enhances it using a small amount of realised
capital profits to target a dividend yield of 4% based on the year
end share price. This provides shareholders with an attractive and
consistent yield whilst allowing us to invest in businesses that we
believe will deliver the best total return, without having to
compromise on quality to hit an income target.
Q What are your expectations for the year
ahead?
A The outlook is clouded by very high energy prices
following the Russian invasion of Ukraine. Economic growth in the UK and other
countries will slow over the coming months, potentially resulting
in recession, and while interest rates are likely to increase
further, there are signs that inflation may soon peak. The oil
price is 20-25% below the high it reached in June, and as we
annualise the gas price shock from earlier in the year, the
inflation rate should begin to moderate.
Although this gloomy economic prognosis may appear unappealing,
following the market decline so far this year, the UK market is
trading at its lowest valuation for quite some time. It is an old
stock market adage that one should be greedy when others are
fearful. Conflicts and recessions come and go, and with hindsight,
these periods may represent excellent buying opportunities.
The recent sell-off is allowing us to add to holdings in
businesses that have the potential to be substantially more
valuable in the future. Whilst no portfolio will be immune from a
coming downturn, we believe that through careful stock selection we
can position the Company to benefit when the recovery emerges.
Jonathan Brown
Robin West
Portfolio Manager
Deputy Portfolio
Manager
7 October 2022
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.
Principal Risk
Description |
Mitigating Procedures and
Controls |
Market (Economic) Risk
Factors such as fluctuations in stock markets, interest rates and
exchange rates are not under the control of the Board or the
Portfolio Managers, but may give rise to high levels of volatility
in the share prices of investee companies, as well as affecting the
Company’s own share price and the discount to its NAV. The risk
could be triggered by unfavourable developments globally and/or in
one or more regions, contemporary examples being the market
uncertainty in relation to ongoing invasion of Ukraine by Russia
and the current volatility of Sterling following the announcement
of the UK Government's ‘mini budget’. |
The Directors have
assessed the market impact of the ongoing uncertainty from the
conflict in Ukraine and the resulting sanctions imposed on Russia,
and the recent weakness and volatility of Sterling through regular
discussions with the Portfolio Managers and the Corporate Broker.
The Company’s current portfolio consist of companies listed on the
main UK equity market and those listed on AIM. The Company does not
have direct investments in Russia or hold stocks with significant
links to Russia. To a limited extent, futures can be used to
mitigate against Market (Economic) risk, as can the judicious
holding of cash or other very liquid assets. Futures are not
currently being used. |
Investment Risk
The Company invests in small and medium-sized companies traded on
the London Stock Exchange or on AIM. By their nature, these are
generally considered riskier than their larger counterparts and
their share prices can be more volatile, with lower liquidity. In
addition, as smaller companies may not generally have the financial
strength, diversity and resources of larger companies, they may
find it more difficult to overcome periods of economic slowdown or
recession.
Furthermore, the risk of climate change and matters concerning ESG
could affect the valuation of companies held in the portfolio. |
The
Portfolio Managers’ approach to investment is one of individual
stock selection. Investment risk is mitigated via the stock
selection process, together with the slow build-up of holdings
rather than the purchase of large positions outright. This allows
the Portfolio Managers, cautiously, to observe more data points
from a company before adding to a position. The overall portfolio
is well diversified by company and sector. The weighting of an
investment in the portfolio tends to be loosely aligned with the
market capitalisation of that company. This means that the largest
holdings will often be amongst the larger of the smaller companies
available. The Portfolio Managers are relatively risk averse, look
for lower volatility in the portfolio and seek to outperform in
more challenging markets. The Portfolio Managers remain cognisant
at all times of the potential liquidity of the portfolio. There can
be no guarantee that the Company’s strategy and business model will
be successful in achieving its investment objective. The Board
monitors the performance of the Company, giving due consideration
to how the Manager has incorporated ESG considerations including
climate change into their investment process. The Board also has
guidelines in place to ensure that the Portfolio Managers adhere to
the approved investment policy. The continuation of the Manager’s
mandate is reviewed annually. |
Shareholders’ Risk
The value of an investment in the Company may go down as well as up
and an investor may not get back the amount invested. |
The
Board reviews regularly the Company’s investment objective and
strategy to ensure that it remains relevant, as well as reviewing
the composition of the shareholder register, peer group performance
on both a share price and NAV basis, and the Company’s share price
discount to net asset value per share. The Board and the Portfolio
Managers maintain an active dialogue with the aim of ensuring that
the market rating of the Company’s shares reflects the underlying
NAV; both share buy back and issuance facilities are in place to
help the management of this process. |
Reliance on the Manager and other Third-Party Service
Providers
The Company has no employees and comprises non-executive directors
only. The Company is therefore reliant upon the performance of
third-party service providers for its executive function and
service provisions. The Company’s operational structure means that
all cyber risk (information and physical security) arises at its
third-party service providers, including fraud, sabotage or crime
against the Company. The Company’s operational capability relies
upon the ability of its third-party service providers to continue
working throughout the disruption caused by a major event such as
the Covid-19 pandemic. Failure by any service provider to carry out
its obligations to the Company in accordance with the terms of its
appointment could have a materially detrimental impact on the
operation of the Company and could affect the ability of the
Company to successfully pursue its investment policy. The Company’s
main service providers, of which the Manager is the principal
provider, are listed on page 18 of Company’s 2022 Half-Yearly
Financial Report. The Manager may be exposed to reputational risks.
In particular, the Manager may be exposed to the risk that
litigation, misconduct, operational failures, negative publicity
and press speculation, whether or not it is valid, will harm its
reputation. Damage to the reputation of the Manager could
potentially result in counterparties and third parties being
unwilling to deal with the Manager and by extension the Company,
which carries the Manager’s name. This could have an adverse impact
on the ability of the Company to pursue its investment policy
successfully. |
Third-party service providers are subject to ongoing monitoring by
the Manager and the Company.
The Manager reviews the performance of all third-party providers
regularly through formal and informal meetings.
The Audit Committee reviews regularly the performance and internal
controls of the Manager and all third-party providers through
audited service organisation control reports, together with updates
on information security, the results of which are reported to the
Board.
The Manager’s business continuity plans are reviewed on an ongoing
basis and the Directors are satisfied that the Manager has in place
robust plans and infrastructure to minimise the impact on its
operations so that the Company can continue to trade, meet
regulatory obligations, report and meet shareholder requirements.
The Board receives regular update reports from the Manager and
third-party service providers on business continuity processes and
has been provided with assurance from them all insofar as possible
that measures are in place for them to continue to provide
contracted services to the Company. |
Regulatory Risk
The Company is subject to various laws and regulations by virtue of
its status as an investment trust, its listing on the London Stock
Exchange and being an Alternative Investment Fund under the UK
AIFMD regime. A loss of investment trust status could lead to the
Company being subject to corporation tax on the chargeable capital
gains arising on the sale of its investments. Other control
failures, either by the Manager or any other of the Company’s
service providers, could result in operational or reputational
problems, erroneous disclosures or loss of assets through fraud, as
well as breaches of regulations. |
The Manager reviews
the level of compliance with tax and other financial regulatory
requirements on a regular basis. The Board regularly considers all
risks, the measures in place to control them and the possibility of
any other risks that could arise. The Manager’s Compliance and
Internal Audit Officers produce regular reports for review at the
Company’s Audit Committee. Further details of risks and risk
management policies as they relate to the financial assets and
liabilities of the Company are detailed in note 16 of the Company’s
2022 Annual Financial Report. |
In the view of the Board, these principal risks and
uncertainties are as much applicable to the remaining six months of
the financial year as they were to the six months under review.
THIRTY LARGEST INVESTMENTS
at 31 July
2022
Ordinary shares unless stated
otherwise
|
|
Market |
|
|
|
Value |
% of |
Company |
Sector |
£’000 |
Portfolio |
JTC |
Investment Banking and Brokerage
Services |
6,369 |
3.4 |
4imprint |
Media |
5,610 |
3.0 |
Advanced Medical
SolutionsAIM |
Medical Equipment and Services |
5,509 |
3.0 |
Hilton Food |
Food Producers |
5,184 |
2.8 |
Serco |
Industrial Support Services |
4,607 |
2.5 |
Hill & Smith |
Industrial Metals and Mining |
4,477 |
2.4 |
Essentra |
Industrial Support Services |
4,263 |
2.3 |
CVSAIM |
Consumer Services |
4,154 |
2.2 |
Chemring |
Aerospace and Defence |
3,821 |
2.0 |
Videndum (formerly Vitec) |
Industrial Engineering |
3,781 |
2.0 |
Top Ten Holdings |
|
47,775 |
25.6 |
Energean |
Oil, Gas and Coal |
3,701 |
2.0 |
Hollywood Bowl |
Travel and Leisure |
3,546 |
1.9 |
Aptitude Software |
Software and Computer Services |
3,489 |
1.9 |
Secure Trust Bank |
Banks |
3,479 |
1.9 |
Brooks MacdonaldAIM |
Investment Banking and Brokerage
Services |
3,418 |
1.8 |
Alfa Financial Software |
Software and Computer Services |
3,345 |
1.8 |
RWSAIM |
Industrial Support Services |
3,282 |
1.8 |
Crest Nicholson |
Household Goods and Home
Construction |
3,251 |
1.7 |
discoverIE |
Technology Hardware and
Equipment |
3,233 |
1.7 |
Volution |
Construction and Materials |
3,199 |
1.7 |
Top Twenty Holdings |
|
81,718 |
43.8 |
CLS |
Real Estate Investment and
Services |
3,189 |
1.7 |
Alpha Financial Markets
ConsultingAIM |
Industrial Support Services |
3,175 |
1.7 |
Jadestone EnergyAIM |
Oil, Gas and Coal |
3,157 |
1.7 |
Future |
Media |
3,149 |
1.7 |
Keywords StudiosAIM |
Leisure Goods |
3,124 |
1.7 |
Coats |
General Industrials |
3,065 |
1.6 |
Johnson ServiceAIM |
Industrial Support Services |
3,008 |
1.6 |
The Gym |
Travel and Leisure |
2,960 |
1.6 |
VP |
Industrial Transportation |
2,780 |
1.5 |
LSL Property Services |
Real Estate Investment and
Services |
2,779 |
1.5 |
Top Thirty Holdings |
|
112,104 |
60.1 |
Other Investments (40) |
|
74,283 |
39.9 |
Total Investments: 70 |
|
|
|
(31 January 2022: 76) |
|
186,387 |
100.0 |
AIM Investments quoted on AIM.
GOVERNANCE
Going Concern
The financial statements have been prepared on a going concern
basis. The portfolio of investments is comprised entirely of quoted
securities and the ongoing charges are less than 1% of net assets.
As at 6 October 2022, the Company has
not drawn on any of its borrowing facilities and they remain fully
available for investment opportunities within prescribed limits as
set by the Board.
The Directors consider this is the appropriate basis, as the
Company has adequate resources to continue in operational existence
for the foreseeable future, being taken as at least 12 months after
signing the balance sheet. In considering this, the Directors took
into account the diversified portfolio of readily realisable
securities which can be used to meet funding commitments, and the
ability of the Company to meet all of its liabilities, including
any bank overdraft, and ongoing expenses as they fall due.
Related Party Transactions and
transactions with the Manager
Note 20 of the Company’s 2022 Annual Financial Report gives
details of related party transactions and transactions with the
Manager. This report is available on the Company’s section of the
Manager’s website at www.invesco.co.uk/ipukscit.
Directors’ Responsibility Statement in
respect of the preparation of the Half-Yearly Financial Report
The Directors are responsible for preparing the Half-Yearly
Financial Report using accounting policies consistent with
applicable law and International Financial Reporting Standards.
The Directors confirm that to the best of their knowledge:
– the condensed set of financial statements
contained within the Half-Yearly Financial Report have been
prepared in accordance with the International Accounting Standards
34 ‘Interim Financial Reporting’;
– the interim management report includes a
fair review of the information required by 4.2.7R and 4.2.8R of the
UKLA’s Disclosure Guidance and Transparency Rules; and
– the interim management report includes a
fair review of the information required on related party
transactions.
The Half-Yearly Financial Report has not been audited or
reviewed by the Company’s auditor.
Signed on behalf of the Board of Directors.
Jane
Lewis
Chairman
7 October 2022
CONDENSED STATEMENT OF COMPREHENSIVE
INCOME
FOR THE SIX MONTHS ENDED
|
|
31 July 2022 |
31 July 2021 |
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
Notes |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
(Loss)/profit on
investments held at fair value |
|
– |
(26,494) |
(26,494) |
— |
43,484 |
43,484 |
Loss on foreign
exchange |
|
– |
– |
– |
— |
(1) |
(1) |
Income |
2 |
2,584 |
– |
2,584 |
1,777 |
— |
1,777 |
|
|
2,584 |
(26,494) |
(23,910) |
1,777 |
43,483 |
45,260 |
Investment management
fee |
3 |
(111) |
(631) |
(742) |
(123) |
(700) |
(823) |
Other expenses |
|
(192) |
(3) |
(195) |
(186) |
(2) |
(188) |
(Loss)/profit
before finance costs and taxation |
|
2,281 |
(27,128) |
(24,847) |
1,468 |
42,781 |
44,249 |
Finance costs |
3 |
(1) |
(4) |
(5) |
(1) |
(3) |
(4) |
(Loss)/profit
before taxation |
|
2,280 |
(27,132) |
(24,852) |
1,467 |
42,778 |
44,245 |
Taxation |
4 |
– |
– |
– |
— |
— |
— |
(Loss)/profit after
taxation |
|
2,280 |
(27,132) |
(24,852) |
1,467 |
42,778 |
44,245 |
Return per ordinary
share |
|
6.74p |
(80.21)p |
(73.47)p |
4.34p |
126.46p |
130.80p |
Weighted average
number of ordinary shares in issue during the period |
|
|
|
33,826,929 |
|
|
33,826,929 |
|
|
|
|
|
|
|
|
|
|
The total column of this statement represents the Company’s
statement of comprehensive income, prepared in accordance with
UK-adopted international accounting standards. The (loss)/profit
after taxation is the total comprehensive (loss)/profit. 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.
CONDENSED STATEMENT OF CHANGES IN
EQUITY
|
|
|
|
Capital |
|
|
|
|
|
Share |
Share |
redemption |
Capital |
Revenue |
|
|
|
Capital |
Premium |
Reserve |
Reserve |
Reserve |
Total |
|
Notes |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
For the six months ended 31 July
2022 |
|
|
|
|
|
|
|
At 31 January 2022 |
|
10,642 |
22,366 |
3,386 |
184,089 |
270 |
220,753 |
Total comprehensive loss for the
period |
|
– |
– |
– |
(27,132) |
2,280 |
(24,852) |
Dividends paid |
5 |
– |
– |
– |
(4,906) |
(270) |
(5,176) |
At 31 July 2022 |
|
10,642 |
22,366 |
3,386 |
152,051 |
2,280 |
190,725 |
For the six months ended 31 July
2021 |
|
|
|
|
|
|
|
At 31 January 2021 |
|
10,642 |
22,366 |
3,386 |
154,986 |
— |
191,380 |
Total comprehensive income for the
period |
|
— |
— |
— |
42,778 |
1,467 |
44,245 |
Dividends paid |
5 |
— |
— |
— |
(3,998) |
— |
(3,998) |
At 31 July 2021 |
|
10,642 |
22,366 |
3,386 |
193,766 |
1,467 |
231,627 |
CONDENSED BALANCE SHEET
Registered number 2129187
|
|
At |
At |
|
|
31 July |
31 January |
|
|
2022 |
2022 |
|
Notes |
£’000 |
£’000 |
Non-current assets |
|
|
|
Investments held at fair value
through profit or loss |
|
186,387 |
219,818 |
|
|
|
|
Current assets |
|
|
|
Tax recoverable |
|
25 |
14 |
Prepayments and accrued income |
|
203 |
143 |
Cash and cash equivalents |
|
4,306 |
1,530 |
|
|
4,534 |
1,687 |
Total assets |
|
190,921 |
221,505 |
Current liabilities |
|
|
|
Amounts due to brokers |
|
– |
(517) |
Accruals |
|
(196) |
(235) |
|
|
(196) |
(752) |
Net assets |
|
190,725 |
220,753 |
Capital and reserves |
|
|
|
Share capital |
|
10,642 |
10,642 |
Share premium |
|
22,366 |
22,366 |
Capital redemption reserve |
|
3,386 |
3,386 |
Capital reserve |
|
152,051 |
184,089 |
Revenue reserve |
|
2,280 |
270 |
Total shareholders’
funds |
|
190,725 |
220,753 |
Net asset value per ordinary
share |
|
563.83p |
652.60p |
Number of ordinary shares in
issue at the period end |
6 |
33,826,929 |
33,826,929 |
CONDENSED CASH FLOW STATEMENT
|
|
Six
months |
Six
months |
|
|
ended 31
July |
ended 31
July |
|
|
2022 |
2021 |
|
Notes |
£’000 |
£’000 |
Cash flow from
operating activities |
|
|
|
(Loss)/profit before
finance costs and taxation |
|
(24,847) |
44,249 |
Adjustments for: |
|
|
|
Purchases of
investments |
|
|
(26,326) |
|
(25,511) |
Sales of
investments |
|
|
32,746 |
|
26,858 |
|
|
6,420 |
1,347 |
Loss/(profit) on
investments held at fair value |
|
26,494 |
(43,484) |
Increase in
receivables |
|
(71) |
(23) |
(Decrease)/increase in
payables |
|
(39) |
7 |
Net cash inflow from
operating activities |
|
7,957 |
2,096 |
Cash flow from
financing activities |
|
|
|
Finance cost paid |
|
(5) |
(4) |
Dividends paid |
5 |
(5,176) |
(3,998) |
Net cash outflow from
financing activities |
|
(5,181) |
(4,002) |
Net
increase/(decrease) in cash and cash equivalents |
|
2,776 |
(1,906) |
Cash and cash
equivalents at start of the period |
|
1,530 |
4,218 |
Cash and cash
equivalents at the end of the period |
|
4,306 |
2,312 |
Reconciliation of
cash and cash equivalents to the Balance Sheet is as
follows: |
|
|
|
Cash held at
custodian |
|
61 |
92 |
Invesco Liquidity Funds
plc – Sterling, money market fund |
|
4,245 |
2,220 |
Cash and cash
equivalents |
|
4,306 |
2,312 |
Cash flow from operating
activities includes: |
|
|
|
Dividends received |
|
2,516 |
1,761 |
|
|
|
|
|
|
|
As the Company did not have any long term debt at both the
current and prior period ends, no reconciliation of the financial
liabilities is presented.
NOTES TO THE CONDENSED FINANCIAL
STATEMENTS
1. Basis of
Preparation
The condensed financial statements have been prepared using the
same accounting policies as those adopted in the Company’s 2022
Annual Financial Report. They have been prepared on an historical
cost basis, in accordance with the applicable International
Financial Reporting Standards (IFRS), as adopted by the European
Union and, where possible, in accordance with the Statement of
Recommended Practice for Financial Statements of Investment Trust
Companies and Venture Capital Trusts, issued by the Association of
Investment Companies in July 2022
(AIC SORP).
The revised AIC SORP issued in July
2022 is applicable for accounting periods beginning on or
after 1 January 2022. The AIC SORP
has no substantive changes but has been updated to reflect changes
to IFRS standards and regulatory requirements. No accounting
policies or disclosures have changed as a result of the revised AIC
SORP.
2. Income
|
|
Six months |
Six months |
|
|
ended 31
July |
ended 31
July |
|
|
2022 |
2021 |
|
|
£’000 |
£’000 |
|
Income from investments: |
|
|
|
UK dividends |
|
|
|
– ordinary |
2,249 |
1,625 |
|
– special |
210 |
10 |
|
Overseas dividends |
125 |
142 |
|
|
2,584 |
1,777 |
3. Management Fee
and Finance Costs
The investment management fee and finance costs are allocated
15% to revenue and 85% to capital.
A base management fee is payable monthly in arrears and is
calculated at the rate of 0.75% (2021: 0.75%) per annum by
reference to the Company’s gross funds under management.
4. Taxation and
Investment Trust Status
No tax liability arises on capital gains because the Company has
been accepted by HMRC as an approved investment trust and it is the
intention of the Directors to conduct the affairs of the Company so
that it continues to satisfy the conditions for this approval.
5. Dividends paid
on Ordinary Shares
|
|
Six months ended
31 July 2022 |
Six months ended
31 July 2021 |
|
|
|
|
Rate |
£’000 |
Rate |
£’000 |
|
Third interim (prior year) |
3.75p |
1,269 |
3.75p |
1,269 |
|
Final (prior year) |
11.55p |
3,907 |
8.07p |
2,729 |
|
Total |
15.30p |
5,176 |
11.82p |
3,998 |
The first interim dividend of 3.75p per ordinary share (2021:
3.75p) was paid on 1 September 2022
to shareholders on the register on 5 August
2022.
6. Share Capital,
including Movements
Share capital represents the total number of shares in issue,
including treasury shares.
|
|
Six months |
Year ended |
|
|
ended 31
July |
31 January |
|
|
2022 |
2022 |
|
Share capital: |
|
|
|
Ordinary shares of 20p each
(£’000) |
6,765 |
6,765 |
|
Treasury shares of 20p each
(£’000) |
3,877 |
3,877 |
|
|
10,642 |
10,642 |
|
Number of ordinary shares in
issue: |
33,826,929 |
33,826,929 |
|
Number of shares held in
treasury: |
19,382,155 |
19,382,155 |
|
Total |
53,209,084 |
53,209,084 |
7. Classification
Under Fair Value Hierarchy
Note 16 of the Company’s 2022 Annual Financial Report sets out
the basis of classification.
As at 31 July 2022, the majority
of the Company’s portfolio was composed of quoted (level 1)
investments.
Berry Starquest Limited (dormant subsidiary) was the only Level
3 investment valued at £100 (31 January
2022: £100).
8. Status of
Half-Yearly Financial Report
The financial information contained in this Half-Yearly
Financial Report, which has not been reviewed or audited by an
independent auditor, does not constitute statutory accounts within
the meaning of section 434 of the Companies Act 2006. The financial
information for the half years ended 31 July
2021 and 31 July 2022 has not
been audited. The figures and financial information for the year
ended 31 January 2022 are extracted and abridged from the
latest audited accounts and do not constitute the statutory
accounts for that year. Those accounts have been delivered to the
Registrar of Companies and included the Independent Auditor’s
Report, which was unqualified.
The Half-Yearly Financial Report for the Six Months to
31 July 2022 will be available to
shareholders, and copies may be obtained during normal business
hours from the Company’s Registered Office, from its correspondence
address, 43-45 Portman Square, London W1H 6LY, and via
www.invesco.co.uk/ipukscit.
A copy of the Half-Yearly Financial Report will be submitted
shortly to the National Storage Mechanism ("NSM") and will be
available for inspection at the NSM, which is situated at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism.
By order of the Board
Invesco Asset Management Limited
Company Secretary
7 October 2022
GLOSSARY OF TERMS AND ALTERNATIVE
PERFORMANCE MEASURES
Alternative Performance Measure
(APM)
An APM is a measure of performance or financial position that is
not defined in applicable accounting standards and cannot be
directly derived from the financial statements. The calculations
shown in the corresponding tables are for the six months ended
31 July 2022 and the year ended
31 January 2022. The APMs listed here
are widely used in reporting within the investment company sector
and consequently aid comparability.
Benchmark (or Benchmark Index)
A market index, which averages the performance of companies in
any sector, giving a good indication of any rises or falls in the
market. The benchmark used in these accounts is the Numis Smaller
Companies + AIM (excluding Investment Companies) Index with
dividends reinvested.
(Discount)/Premium (APM)
Discount is a measure of the amount by which the mid-market
price of an investment company share is lower than the underlying
net asset value (NAV) of that share. Conversely, premium is a
measure of the amount by which the mid-market price of an
investment company share is higher than the underlying net asset
value of that share. In this Half-Yearly Financial Report the
discount is expressed as a percentage of the net asset value per
share and is calculated according to the formula set out below. If
the shares are trading at a premium the result of the below
calculation will be positive and if they are trading at a discount
it will be negative.
|
|
31 July |
31 January |
|
|
2022 |
2022 |
Share price |
a |
471.00p |
570.00p |
Net asset value per share |
b |
563.83p |
652.60p |
Discount |
c = (a-b)/b |
(16.5)% |
(12.7)% |
Gearing (APM)
The gearing percentage reflects the amount of borrowings that a
company has invested. This figure indicates the extra amount by
which net assets, or shareholders’ funds, would move if the value
of a company’s investments were to rise or fall. A positive
percentage indicates the extent to which net assets are geared; a
nil gearing percentage, or ‘nil’, shows a company is ungeared. A
negative percentage indicates that a company is not fully invested
and is holding net cash as described below.
There are several methods of calculating gearing and the
following has been used in this report:
Gross Gearing (APM)
This reflects the amount of gross borrowings in use by a company
and takes no account of any cash balances. It is based on gross
borrowings as a percentage of net assets. As at 31 July 2022 the Company had no gross borrowings
(31 January 2022: £nil).
|
|
|
31 July |
31 January |
|
|
|
2022 |
2022 |
|
|
|
£’000 |
£’000 |
|
Bank overdraft facility |
|
– |
— |
|
Gross borrowings |
a |
– |
— |
|
Net asset value |
b |
190,725 |
220,753 |
|
Gross gearing |
c = a/b |
nil |
nil |
Net Gearing or Net Cash (APM)
Net gearing reflects the amount of net borrowings invested, i.e.
borrowings less cash and cash equivalents (incl. investments in
money market funds). It is based on net borrowings as a percentage
of net assets. Net cash reflects the net exposure to cash and cash
equivalents, as a percentage of net assets, after any offset
against total borrowings.
|
|
|
31 July |
31 January |
|
|
|
2022 |
2022 |
|
|
|
£’000 |
£’000 |
|
Bank overdraft facility |
|
– |
— |
|
Less: cash and cash equivalents |
|
4,306 |
1,530 |
|
Net cash |
a |
4,306 |
1,530 |
|
Net asset value |
b |
190,725 |
220,753 |
|
Net cash |
c = a/b |
2.3% |
0.7% |
Maximum Authorised Gearing
This reflects the maximum authorised borrowings of the Company
taking into account both any gearing limits laid down in the
investment policy and the maximum borrowings laid down in covenants
under any borrowing facility and is calculated as follows:
|
|
|
31 July |
31 January |
|
|
|
2022 |
2022 |
|
|
|
£’000 |
£’000 |
|
Maximum authorised borrowings as
laid down in: |
|
|
|
|
Investment policy: |
|
|
|
|
– lower of 30% of net asset value;
and |
a = 30% x e |
57,218 |
66,226 |
|
– £25m |
b |
25,000 |
25,000 |
|
Bank overdraft facility covenants:
lower of 30% of net asset value and £15m |
c |
15,000 |
15,000 |
|
Maximum authorised borrowings (d =
lower of a, b and c) |
d |
15,000 |
15,000 |
|
Net asset value |
e |
190,725 |
220,753 |
|
Maximum authorised gearing |
f = d/e |
7.9% |
6.8% |
Net Asset Value (NAV)
Also described as shareholders’ funds, the NAV is the value of
total assets less liabilities. Liabilities for this purpose include
current and long-term liabilities. The NAV per ordinary share is
calculated by dividing the net assets by the number of ordinary
shares in issue (excluding shares held in treasury). For accounting
purposes assets are valued at fair (usually market) value and
liabilities are valued at par (their repayment – often nominal –
value).
Return
The return generated in a period from the investments including
the increase and decrease in the value of investments over time and
the income received.
Total Return
Total return is the theoretical return to shareholders that
measures the combined effect of any dividends paid together with
the rise or fall in the share price or NAV. In this Half-Yearly
Financial Report these return figures have been sourced from
Refinitiv who calculate returns on an industry comparative
basis.
Net Asset Value Total Return (APM)
Total return on net asset value per share, assuming dividends
paid by the Company were reinvested into the shares of the Company
at the NAV per share at the time the shares were quoted
ex-dividend.
Share Price Total Return (APM)
Total return to shareholders, on a mid-market price basis,
assuming all dividends received were reinvested, without
transaction costs, into the shares of the Company at the time the
shares were quoted ex-dividend.
|
|
|
Net Asset |
Share |
|
Six months ended 31 July
2022 |
|
Value |
Price |
|
As at 31 July 2022 |
|
563.83p |
471.00p |
|
As at 31 January 2022 |
|
652.60p |
570.00p |
|
Change in period |
a |
–13.6% |
–17.4% |
|
Impact of dividend
reinvestments(1) |
b |
2.3% |
2.6% |
|
Total return for the
period |
c = a+b |
–11.3% |
–14.8% |
|
|
|
Net Asset |
Share |
|
Year Ended 31 January
2022 |
|
Value |
Price |
|
As at 31 January 2022 |
|
652.60p |
570.00p |
|
As at 31 January 2021 |
|
565.76p |
483.00p |
|
Change in year |
a |
15.3% |
18.0% |
|
Impact of dividend
reinvestments(1) |
b |
3.5% |
3.9% |
|
Total return for the
year |
c = a+b |
18.8% |
21.9% |
(1) Total dividends paid during the six months
to 31 July 2022 of 15.30p
(31 January 2022: 19.32p) reinvested
at the NAV or share price on the ex-dividend date. NAV or share
price falls subsequent to the reinvestment date consequently
further reduce the returns, vice versa if the NAV or share price
rises.
Benchmark
Total return on the benchmark is on a mid-market value basis,
assuming all dividends received were reinvested, without
transaction costs, into the shares of the underlying companies at
the time the shares were quoted ex-dividend.