LEGAL
ENTITY IDENTIFIER: 549300K1D1P23R8U4U50
Invesco Perpetual UK Smaller Companies Investment Trust
plc
Annual Financial Report Announcement for the Year Ended
31 January 2024
The
following text is extracted from the Annual Financial Report of the
Company for the year ended 31 January
2024. All page numbers below refer to the Annual Financial
Report which will be made available on the Company's
website.
Investment Objective
The
Company is an investment trust whose investment objective is to
achieve long-term total returns for shareholders primarily by
investment in a broad cross-section of small to medium sized UK
quoted companies.
Financial
Highlights
Total
Return Statistics (with dividends reinvested)
|
Change
for the year (%)
|
2024
|
2023
|
|
Net Asset
Value(1)(2)
|
–4.1
|
–17.5
|
|
Share
Price(1)(2)
|
–1.8
|
–17.0
|
|
Benchmark
Index(2)(3)
|
–3.3
|
–12.4
|
Capital
Statistics
|
At
31 January
|
2024
|
2023
|
Change
|
|
Total
shareholders’ funds (£’000)
|
161,395
|
174,915
|
–7.7%
|
|
Net asset
value (NAV) per share
|
477.12p
|
517.09p
|
–7.7%
|
|
Share
price(1)(2)
|
424.00p
|
451.00p
|
–6.0%
|
|
Discount(1)
|
(11.1)%
|
(12.8)%
|
|
|
|
|
|
|
|
Gearing(1):
|
|
|
|
|
– gross
gearing
|
5.4%
|
nil
|
|
|
– net
gearing
|
5.4%
|
nil
|
|
|
– net
cash
|
nil
|
2.9%
|
|
|
Maximum
authorised gearing
|
9.3%
|
8.6%
|
|
|
|
|
|
|
|
For
the year ended 31 January
|
2024
|
2023
|
|
|
Return(1)
and
dividend per ordinary share:
|
|
|
|
|
Revenue
return
|
13.18p
|
11.99p
|
|
|
Capital
return
|
(34.91)p
|
(124.70)p
|
|
|
Total
return
|
(21.73)p
|
(112.71)p
|
|
|
First
interim dividend
|
3.85p
|
3.75p
|
|
|
Second
interim dividend
|
3.85p
|
3.75p
|
|
|
Third
interim dividend
|
3.85p
|
3.75p
|
|
|
Final
dividend
|
5.41p
|
6.79p
|
|
|
Total
dividends
|
16.96p
|
18.04p
|
–6.0%
|
|
Dividend
Yield(1)
|
4.0%
|
4.0%
|
|
|
Dividend
payable for the year (£’000):
|
|
|
|
|
– from
current year net revenue
|
4,459
|
4,055
|
|
|
– from
capital reserve (2023: from capital reserve)
|
1,278
|
2,047
|
|
|
|
5,737
|
6,102
|
|
|
Capital
dividend as a % of year end net assets(1)
|
0.8%
|
1.2%
|
|
|
Ongoing
charges(1)
|
1.01%
|
0.95%
|
|
Notes:
(1)
Alternative
Performance Measure (APM). See Glossary of Terms and Alternative
Performance Measures on pages 66 to 68 of the financial report for
details of the explanation and reconciliations of APMs.
(2) Source:
LSEG Data & Analytics.
(3) The
Benchmark Index of the Company is the Deutsche Numis Smaller
Companies + AIM (excluding Investment Companies) Index with
dividends reinvested.
Chairman’s
Statement
Highlights
-
Dividend
of 16.96p per share for the year, providing a yield of 4.0% based
on the year end share price.
-
Net
asset value return of –4.1% and share price return of –1.8%,
compared to benchmark return of –3.3%, all based on total return
with dividends reinvested.
-
Long-term
performance is strong over 5 years and 10 years, with superior
returns to the Company’s benchmark.
Dear
Shareholders,
Having
been appointed Chairman of the Board on 8
June 2023, this is my first Chairman’s statement for the
Annual Financial Report.
Performance
Throughout
the earlier stages of 2023, the influence of the ongoing
Ukraine/Russia conflict and the cost-of-living crisis
persisted with heightened inflation and interest rates, making for
a very tough environment for company profits and the UK
consumer.
Latterly,
expectations of future inflation and interest rates appear to have
peaked in the UK, leading to an equity rally in Q4 2023. However,
the UK’s economic backdrop continues to be mixed, with the UK in a
technical recession (classified as two consecutive quarters of
shrinking GDP) in the second half of 2023.
Against a
challenging backdrop, for the year ended 31
January 2024 our Portfolio Managers have marginally
underperformed the benchmark by –0.8% on a net asset value (‘NAV’)
total return basis; where the Company’s NAV returned –4.1% vs –3.3%
for the Benchmark Index, the Deutsche Numis Smaller Companies + AIM
(excluding Investment Companies) Index (both on a total return
basis). However, the Company’s share price total return, our
shareholders’ experience, was able to deliver a better than
benchmark total return of –1.8%, as a result of the discount
continuing its trend of narrowing from 11.6% at the end of
July 2023, to 11.1% at the end of
January 2024.
The Board
continues to monitor the level at which the Company’s shares trade
and is actively seeking to attract potential investors in the
Company which, by increasing demand, should help to further improve
the Company’s share rating.
Dividend
and Dividend Policy
The
Company’s dividend policy is to target a dividend yield of 4.0% of
the year end share price paid from income derived from dividends
from the portfolio and enhanced, as necessary, through the use of
realised capital profits. In accordance with this policy, interim
dividends of 3.85p were paid in September and December 2023, with a third interim dividend of
3.85p paid following the year end on 12
March 2024.
The Board
has resolved that the Company will propose a final dividend of
5.41p per share to bring the total dividends paid for the year to
16.96p per share (2023: 18.04p). The final dividend will be
payable, subject to shareholder approval, on 11 June 2024 to shareholders on the register on
10 May 2024 and the shares will go
ex-dividend on 9 May 2024.
The total
dividend of 16.96p per share is in line with the Company’s stated
dividend policy which includes a target dividend yield of 4.0% of
year end share price which was 424.00p as at 31 January
2024. This represents all of the available revenue earned by
the Company’s portfolio over the year, together with 3.78p per
share from realised capital profits.
The
Company’s revenue per share has increased from 11.99p per share
last year to 13.18p per share this year, which means that the
resulting balance of dividend being paid from realised capital
profits represents 0.8% of net assets at the year end and it
continues to represent a relatively small proportion of the
longer-term total returns achieved by the Portfolio
Managers.
Shareholders
who hold shares on the main register (as a paper share certificate)
and are residents of the UK, Channel
Islands and Isle of Man,
have the opportunity to reinvest their dividend via the Dividend
Reinvestment Plan (‘DRIP’). Shareholders will need to submit an
election by 20 May 2024. Further
information can be found in the leaflet included on the Company’s
webpage: www.invesco.co.uk/ipukscit.
Board
Composition
I would
like to once again thank Jane Lewis
who retired from the Board on 8 June
2023 for all her hard work and service to the
Company.
As
previously announced, Simon
Longfellow joined the Board on 1 July
2023. His experience of investment trust marketing and
communication, especially when communicating with retail
shareholders has been very valuable. He has already made a
significant contribution, working with the Invesco marketing team
to develop an enhanced marketing and communications strategy for
the Company which we hope shareholders will become aware of as the
year progresses.
Future
of the Company
In 2012,
the Board made a commitment to offer shareholders the opportunity
to realise their investment at close to NAV through a tender offer
in 2017. This resulted in a positive rebalancing of the shareholder
register towards supportive, long-term shareholders. During 2019,
the Directors reviewed the Company’s prospects and consulted major
shareholders. As a result, the Board put a continuation vote to
shareholders at the AGM in 2019 which was passed with 99.84% of
votes cast in favour.
At that
time, the Board committed to put a further range of options to
shareholders at the Company’s 2024 AGM. Your directors have
subsequently reviewed the Company’s position and prospects along
with consideration of shareholder feedback where a view had been
forthcoming. The Board believes that the Company has a portfolio of
smaller companies which are well managed and should benefit from a
recovery in sentiment towards the UK market. The Board has
confidence in the Portfolio Managers’ ongoing ability to find
attractive investment opportunities which is reinforced by the
Company’s good long-term performance. The NAV cumulative total
return over the past 5 years is 18.8% which surpasses the benchmark
return of 9.8% by 9.0%, whilst over 10 years the Company’s return
has been 85.4%, surpassing the benchmark return of 40.4% by 45%.
Positively, your Company’s long-term outperformance was recently
recognised in an article published by The Association of Investment
Companies, titled “Top performing Investment trust ISAs over the
last 25 years”*.
The Board
believes that it is desirable to allow the Company the opportunity
to continue to grow over a longer market cycle and therefore, it
will give shareholders the opportunity to vote for the continuation
of the Company at the forthcoming AGM on 6
June 2024. If Resolution 15 is passed the Directors intend
to introduce a continuation vote policy. Shareholders will be given
the opportunity to vote for the continuation of the Company at each
third AGM, the next one being 2027.
The
Directors believe that a continuation of the Company is in the
interests of shareholders and recommend that you vote in favour of
the continuation resolution, as they intend to do in respect of
their own shareholdings.
Annual
General Meeting (‘AGM’)
This
year’s meeting will be held at Invesco’s London office at 12.00pm on Thursday 6 June
2024. As well as the Company’s formal business, there will
be a presentation from Jonathan
Brown and Robin West, the
opportunity to ask questions of the Portfolio Managers and
Directors and to chat informally with all of us over lunch.
Shareholders may bring a guest to these meetings. The Directors and
I look forward to meeting as many of you as possible. For those
unable to attend in person, a video update from the Portfolio
Managers will be available on the Company’s website after the AGM.
Shareholders wishing to lodge questions in advance of the AGM
should do so by email to the Company Secretary at
investmenttrusts@invesco.com or, by letter, to 43-45 Portman
Square, London W1H 6LY.
Concluding
Thoughts
We are
going through a testing time for UK smaller companies, potentially
comparable to the impact of the global financial crash for the
asset class. Subsequent to the major recession that the global
financial crash of 2007/8 caused, your Company’s NAV rose by 40.1%
in the financial year to 31 January
2010 with the following financial year seeing a return of
28.6%.
The
portfolio’s investment performance may look different to that time,
however with recovery likely not far off and interest rates likely
to fall in the UK this year, this feels very much like a time when
the market will turn more favourable for your Company.
Ultimately,
my hope is that there is an improvement in the market sentiment for
UK listed stocks which should benefit your Company and its share
price.
Bridget Guerin
Chairman
30
April 2024
(*www.theaic.co.uk/aic/news/press-releases/top-performing-investment-trust-isas-over-the-last-25-years
– published on 13th March
2024).
Portfolio
Managers’ Report
Q What
were the key influences on the market over the
year?
A Inflation
and interest rates were once again the major influences on the
market. The Bank of England raised
rates significantly, from 3.5% to 5.25%, as it grappled with the
highest inflation in four decades. The principal driver of price
increases was the rapid rise in energy prices following the Russian
invasion of Ukraine, which fed
through to most areas of the economy over time. The surge in costs,
along with lower demand as businesses reduced inventory as supply
chain tightness abated, created an unusually difficult period for
company profits. A study by Ernst & Young LLP showed that this
culminated in a record 18.2% of UK listed companies issuing profit
warnings last year, which surpassed the previous peak of 17.7%
during the 2008 global financial crisis. Against that backdrop, the
market struggled for much of the year.
Thankfully
as the year progressed, energy prices reduced towards their
pre-conflict levels, and the spectre of inflation began to abate.
Sharply lower inflation data in October
2023 led to a substantial rally in equity markets, with many
economists believing that interest rate cuts could be back on the
agenda in 2024.
The
much-heralded UK recession finally materialised in the second half
of year, when figures were revised downwards to show a small level
of economic contraction. Nevertheless, we continue to benefit from
full employment and relatively strong consumer balance sheets,
although that is cold comfort to those squeezed by higher mortgage
costs over the last year. Elsewhere however, the significant
increase in income from savings and return to growth of real wages,
have created a much stronger consumer backdrop than the news
headlines would have led you to believe, with the leisure sector in
particular performing well.
Another
notable feature of the year was the bout of artificial intelligence
(‘AI’) exuberance. This was prompted by the launch of the latest
version of “AI” software ChatGPT. Whilst various forms of machine
learning have been in use for the last decade, ChatGPT captured the
imagination of investors due to its ability to produce written
output with a realistic human like quality. Whilst it is a very
useful tool, its lack of any actual intelligence makes it prone to
regurgitating false information in a highly convincing way. As with
all popular stock market trends, investment banks created various
instruments (“baskets” of stocks) to allow investors to play this
theme. This negatively impacted the shares of a number of
companies, which rightly or wrongly, were deemed to be potential
victims of this new technology. Whilst we see “AI” as an important
tool for driving productivity, we were surprised by the market
volatility created by this phenomenon.
Q How
did the portfolio perform over the year?
A The
NAV total return for the portfolio over the year was –4.1%, which
is an under performance of 0.8% when compared with the Benchmark
Index, the Deutsche Numis Smaller Companies+ AIM (excluding
Investment Companies), which returned –3.3% on the same basis. The
share price total return was –1.8%, reflecting the narrowing of the
discount from 12.8% at last financial year end to 11.1% at the end
of this year.
Q Which
sectors contributed to and detracted from
performance?
A Although
the cost of living crisis was in the headlines during the year, the
consumer discretionary sector was the most positive contributor to
portfolio performance, with leisure stocks in particular performing
well. We also benefitted from being less exposed to the basic
materials and energy sectors than the wider market. The sector that
detracted the most from performance was industrials, which was
impacted by companies reducing inventories, and technology, where
higher interest rates triggered a widespread de-rating.
Q Which
stocks contributed to and detracted from
performance?
A The
best performing stocks over the year included: infrastructure
products business, Hill
& Smith (+49%),
which is benefitting from increased spending on infrastructure,
particularly in the US, where the company generates most of its
profits. 4imprint
(+24%),
which sells promotional products, predominantly in the US, had
another strong year. The business, which is the largest player in
its niche, continued to take share by increasing its advertising
spend. The company has strong long-term prospects and remains the
largest holding in the portfolio. Defence business
Chemring
(+25%),
saw strong demand for its products in the wake of the war in
Ukraine. The company specialises
in propellants for missiles, cyber security and electronic warfare,
demand for which should remain buoyant for some time to
come.
Despite
the cost of living crisis, leisure spending remained robust. We
benefitted from strong performances from pub groups,
Mitchells
and Butlers (+58%)
and Young
& Co’s Brewery (+17%),
and ten-pin bowling operator Hollywood
Bowl (+15%).
Additionally, Restaurant
Group (+78%),
which is best known for its Wagamama brand, received a takeover
approach and was subsequently sold.
In such a
difficult period for company profitability, inevitably we had some
disappointments:
Videndum
(–68%)
which is a leading manufacturer of equipment used in photography,
broadcasting and film making, was hit by a combination of weaker
demand due to destocking, and the actor and writers strikes in the
US. Unfortunately, this led to a substantial profit shortfall and
the business had to be recapitalised via a rights issue. The
company should benefit from pent-up demand now the strikes have
ended, and it typically sees stronger trading during Olympic and US
presidential election years, so we have retained a holding in the
stock. Jadestone
Energy (–68%),
suffered from reduced production due to some maintenance issues at
its main oil field. The profit shortfall meant the business had to
issue shares at a discount to bolster its cash position. We believe
the company can recover from these issues and have retained a
position for now. Keywords
Studios (–41%),
which provides outsourced services to the computer games industry,
continued to trade well, but was caught up in the bout of “AI
mania” which gripped the market following the release of the latest
version of ChatGPT. Some commentators believe that its revenue
could be negatively impacted by generative AI. However, the company
already uses AI as a productivity tool in various areas of its
business, so we believe the fears are misplaced. We think it is an
excellent business and used the share price weakness to add to the
holding.
Q What
is the current portfolio strategy?
A Our
investment philosophy remains unchanged. The current portfolio is
comprised of 60-70 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 has been particularly important in the
recent 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.
In terms
of portfolio construction, we continue to favour a mix of both
cyclical (economically sensitive) stocks, and more defensive
businesses. Whilst many cyclical stocks are currently experiencing
more difficult trading, this is largely factored into profit
expectations and valuations. These stocks have the potential to
outperform when investors begin to look beyond the short-term
weakness. Market moves over the last few months suggest that this
process may be underway, and this has encouraged us to begin adding
to this area of the portfolio.
Counterbalancing
this are more defensive businesses that should continue to trade
resiliently even if the economy struggles more than anticipated.
These stocks offer a greater degree of certainty, and this is often
reflected in higher valuations. As we gain more confidence that a
recovery is underway, we may look to take profits from some of
these positions and redeploy the proceeds elsewhere.
Q What
are the major holdings in the portfolio?
A The
5 largest holdings in the portfolio at the end of the year
were:
• 4imprint
(4.9% of
the portfolio) sells promotional materials such as pens, bags and
clothing which are emblazoned with company logos. The business
gathers orders through online and catalogue marketing, which are
then routed to their suppliers who produce and dispatch the
products to customers. As a result of outsourcing most of the
manufacturing, 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.
• JTC
(3.8% 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.
• Hollywood
Bowl (3.2% of
the portfolio) is a leisure business operating ten pin bowling
alleys in the UK and Canada. The
sector had historically been woefully underinvested in the UK.
Management have successfully grown the business by acquiring and
modernising existing sites, and by opening new sites in leisure and
retail parks. The low ticket price and family friendly nature of
the activity has allowed the business to grow even in more
difficult economic conditions. Management recently acquired a
business in Canada, where they
believe there is a similar opportunity to consolidate and modernise
the sector.
• Hill
& Smith (3.1% of
the portfolio) is a supplier of products and services into the
infrastructure sectors in the UK, US, and Europe. Its proprietary steel and composite
products are used in the rail, road, water, and energy sectors. The
business also provides galvanizing services to protect steel
structures, and leases temporary road barriers and security
products. The company generates good margins and benefits from
exposure to growing infrastructure investment.
• Hilton
Food (2.9% of
the portfolio) partners with major supermarkets across the world to
supply their prepacked meat, fish, and plant-based products on a
long-term “cost plus” basis. This model reduces the volatility in
profits typically seen in food businesses by allowing them to pass
changes in the cost of raw materials on to their customers. The
business has benefitted from the global trend in supermarkets
moving from in-store to centralised packing and relying on a
reduced number of trusted suppliers. Hilton Food has an excellent
long term growth record, both from signing customers in new
countries, most recently with Walmart in Canada, and growing revenue from existing
customers. The business has also successfully added new product
categories via acquisition, which it can then sell into its global
customer base.
Q What
were the new holdings added over the year?
A New
stocks that we added to the portfolio in the year
include:
• Tatton
Asset Management
creates
model portfolios which it sells via independent financial advisors
(‘IFAs’) in the UK. The outsourcing of investment decisions by IFAs
to businesses such as Tatton has increased significantly over the
last decade due to an increasing burden of regulation on IFAs.
Tatton has a range of model portfolios, made up of both active and
passive funds, that correspond with a variety of risk categories
for clients. The service has one of the lowest fee structures in
the industry, a good long-term performance record and a strong
reputation within the IFA sector. The business is growing strongly,
and with a highly scalable business model, achieves an enviable
level of profitability.
• NIOX
is a
medical diagnostic business with technology that can more
accurately diagnose and monitor asthma. The company is the world
leader in fractional exhaled nitric oxide (‘FeNO’) testing, which
measures exhaled Nitric Oxide as a diagnostic marker for asthma.
FeNO testing is significantly more accurate than traditional
methods of testing. The product is approved by The National
Institute for Health Care Excellence (‘NICE’) in the UK and is
reimbursable in all its major markets (which is one of the factors
that determines which products in development eventually make it to
market). We believe the business can substantially grow its
installed base of devices, and this should drive a high level of
recurring test kit revenue.
• YouGov
is a
market research company that uses online polling to generate data
which it packages and sells to businesses. The business has gained
a strong reputation for quality by consistently being the most
accurate polling organisation in predicting the outcomes of general
elections. The business has leveraged this reputation to take share
from the large incumbents in the sector, which has driven an
impressive level of organic growth. The company recently announced
the acquisition of GFK’s consumer panel business, which management
believe can accelerate the internationalisation of the business and
facilitate the launch of new products. The business benefits from
multi-year relationships with its customers, giving the business
good visibility over future revenue.
• MJ
Gleeson is a UK
housebuilder focussed on low-cost housing. Management claim that a
couple earning the minimum wage can afford to buy the majority of
houses in their developments. They achieve this by buying cheap
land in less desirable areas of towns, often brownfield sites in
need of remediation, and by using easier/cheaper methods to build
housing designs. We have met with the business several times and
visited a number of their sites over the years. We were keen to
increase our housebuilding exposure given the improvement in
mortgage rates, and the substantial wage growth experienced by the
company’s target customers.
Q What
is the Portfolio 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 have
moved the Company to a geared position of around 5%.
The
factors influencing our decision to utilise gearing include the
substantial reduction in the UK inflation rate which suggests that
we may have seen the peak in the recent interest rate cycle. Many
economists are expecting inflation to fall further as we move
through 2024 and this could trigger a reduction in interest rates.
This has led to an improvement in market momentum over the last few
months. Additionally, the market valuation is low compared to
history, and this has resulted in a pick-up in takeover activity
for UK small cap stocks which should bolster investor sentiment
towards the sector.
Q How
does ESG factor in the investment process?
A Environment,
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 practices and poor corporate
governance, can 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. We believe that
governance, board structure and incentivisation, are by far the
most important factors within ESG in determining shareholder
returns. The importance of businesses being managed by good quality
people, with appropriate incentivisation should not be
underestimated. Therefore, we proactively consult with all the
businesses we own on these matters 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 4.0% based on the year end share price.
This provides shareholders with an attractive and consistent yield
whilst allowing us to target businesses that we believe will
deliver the best total return, without having to compromise on
quality to hit an income target.
Q What
are your expectations for the year ahead?
A Although
the current level of economic growth in the UK is anaemic, we
believe the situation should improve over the coming year. Forward
looking indicators suggest the service sector, a significant driver
of the UK economy, is returning to growth. The UK also continues to
benefit from full employment, which along with falling inflation,
lower energy costs and higher wages should lead to an improved
outlook for the consumer sector.
The
industrial sector has struggled as businesses reduce inventories.
Many businesses had carried buffer stocks to cope with supply chain
disruption following the pandemic. With lead times normalising,
businesses have reduced these stocks, leading to lower demand
elsewhere. Recent conversations with businesses suggest that this
process has largely run its course, so an industrial sector
recovery will hopefully emerge as the year progresses.
The
valuation attractions of the UK smaller companies sector is very
evident to us. Whether we compare current valuations to history, or
to other international markets, the sector looks anomalously cheap.
The value on offer has not gone unnoticed, with corporate and
private equity buyers stepping in to take advantage. A surge in
takeover activity is often a prelude to a stronger market, as the
proceeds from these bids are redeployed into other stocks in the
sector.
Whilst the
news headlines are dominated by doom and gloom, we see a nascent
economic recovery and a market offering considerable value. So,
after a difficult few years for the sector, we feel optimistic
about the year ahead.
Jonathan Brown & Robin
West
Portfolio
Managers
30
April 2024
Principal
Risks and Uncertainties
The
Directors confirm that they have carried out a robust assessment of
the emerging and principal risks facing the Company, including
those that would threaten its business model, future performance,
solvency or liquidity. Most of these risks are market related and
are similar to those of other investment trusts investing primarily
in listed markets. The Audit Committee reviews the Company’s risk
control summary at each meeting, and as part of this process, gives
consideration to identify emerging risks. Emerging risks, such as
evolving cyber threat, geo-political tension and climate related
risks, have been considered during the year as part of the
Directors’ assessment.
|
Principal
Risk Description
|
Mitigating
Procedures and Controls
|
|
Market
(Economic) Risk
Factors
such as fluctuations in stock markets, interest rates and exchange
rates are not under the control of the Board or the Portfolio
Managers, but may give rise to high levels of volatility in the
share prices of investee companies, as well as affecting the
Company’s own share price and the discount to its NAV. The risk
could be triggered by unfavourable developments globally and/or in
one or more regions, contemporary examples being the market
uncertainty in relation to the wider political developments in
Ukraine and the Middle East.
|
The
Directors have assessed the market impact of the ongoing
uncertainty from the conflict in Ukraine and the resulting
sanctions imposed on Russia through regular discussions with the
Portfolio Managers and the Corporate Broker. The Company’s current
portfolio consists 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. Further details can
be found on pages 19 to 22. 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 NAV per share. The Board and the Portfolio Managers
maintain an active dialogue with the aim of ensuring that the
market rating of the Company’s shares reflects the underlying NAV;
both share buy back and issuance facilities are in place to help
the management of this process.
|
|
Reliance
on the Manager and other Third-Party Service
Providers
The
Company has no employees and the Board comprises non-executive
directors only. The Company is therefore reliant upon the
performance of third-party service providers for its executive
function and service provisions. The Company’s operational
structure means that all cyber risk (information and physical
security) arises at its third-party service providers, including
fraud, sabotage or crime against the Company. The Company’s
operational capability relies upon the ability of its third-party
service providers to continue working throughout the disruption
caused by a major event such as the Covid-19 pandemic. Failure by
any service provider to carry out its obligations to the Company in
accordance with the terms of its appointment could have a
materially detrimental impact on the operation of the Company and
could affect the ability of the Company to successfully pursue its
investment policy. The Company’s main service providers, of which
the Manager is the principal provider, are listed on page 65. 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 Board.
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 team produce annual reports
for review by the Company’s Audit Committee. Further details of
risks and risk management policies as they relate to the financial
assets and liabilities of the Company are detailed in note 16 of
this Annual Financial Report.
|
Viability
Statement
In
accordance with provision 31 of the UK Code of Corporate Governance
2018, the Directors have assessed the prospects of the Company over
a longer period than 12 months. The Company is an investment trust,
a collective investment vehicle designed and managed for long term
investment. While the appropriate period over which to assess the
Company’s viability may vary from year to year, the long term for
the purpose of this viability statement is currently considered by
the Board to be at least five years,
with the life of the Company not intended to be limited to that or
any other period.
The main
risks to the Company’s continuation are: insufficient liquidity to
meet liabilities as they fall due; poor investment performance over
an extended period; shareholder dissatisfaction through failure to
meet the Company’s investment objective; or the investment policy
not being appropriate in prevailing market conditions. Accordingly,
failure to meet the Company’s investment objective, and
contributory market and investment risks 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 current impact on global markets resulting from the
ongoing political developments in Ukraine, Israel and Palestine, the Directors remain
confident that the Company’s investment strategy will continue to
serve shareholders well over the longer term.
The
investment objective of the Company has been substantially
unchanged for many years. The 2015 amendment to dividend policy
gave some additional weight to targeting increased dividend income
to shareholders. This change does not affect the total return
sought or produced by the Portfolio Managers but was designed to
increase returns distributed to shareholders. The Board considers
that the Company’s investment objective remains appropriate. This
is confirmed by contact with major shareholders.
Performance
derives from returns for risk taken. The Portfolio Managers’ Report
on pages 9 to 12 sets out their current investment strategy. There
has been no material change in the Company’s investment objective
or policy.
Demand for
the Company’s shares and performance are not things that can be
forecast, but there are no current indications that either or both
of these may decline substantially over the next five years so as
to affect the Company’s viability.
The
Company is a closed end investment trust and can pursue a long term
investment strategy and make use of gearing to enhance returns
through investment cycles without the need to maintain liquidity
for investor redemptions.
Based on
the above analysis, including review of the revenue forecast for
future years along with stress testing of both the revenue forecast
and the portfolio valuation, reverse stress testing of debt
covenants and dividend sensitivity analysis, and that shareholders
pass the resolution at the forthcoming AGM for the continuation of
the Company, 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 2029.
Investments
in Order of Valuation
AT
31 JANUARY 2024
Ordinary
shares unless stated otherwise
|
|
|
Market
|
|
|
|
|
Value
|
%
of
|
|
Company
|
Sector
|
£’000
|
Portfolio
|
|
4imprint
|
Media
|
8,397
|
4.9
|
|
JTC
|
Investment
Banking and Brokerage Services
|
6,433
|
3.8
|
|
Hollywood
Bowl
|
Travel and
Leisure
|
5,398
|
3.2
|
|
Hill &
Smith
|
Industrial
Metals and Mining
|
5,206
|
3.1
|
|
Hilton
Food
|
Food
Producers
|
4,852
|
2.9
|
|
Chemring
|
Aerospace
and Defence
|
4,623
|
2.7
|
|
Serco
|
Industrial
Support Services
|
4,519
|
2.7
|
|
CVSAIM
|
Consumer
Services
|
4,426
|
2.6
|
|
Alfa
Financial Software
|
Software
and Computer Services
|
4,402
|
2.6
|
|
Advanced
Medical SolutionsAIM
|
Medical
Equipment and Services
|
4,089
|
2.4
|
|
Top
Ten Holdings
|
|
52,345
|
30.9
|
|
AJ
Bell
|
Investment
Banking and Brokerage Services
|
4,003
|
2.4
|
|
Coats
|
General
Industrials
|
3,766
|
2.2
|
|
discoverIE
|
Electronic
and Electrical Equipment
|
3,583
|
2.1
|
|
Keywords
StudiosAIM
|
Leisure
Goods
|
3,452
|
2.0
|
|
Energean
|
Oil, Gas
and Coal
|
3,400
|
2.0
|
|
Genuit
|
Construction
and Materials
|
3,397
|
2.0
|
|
Brooks
MacdonaldAIM
|
Investment
Banking and Brokerage Services
|
3,311
|
1.9
|
|
Essentra
|
Industrial
Support Services
|
3,169
|
1.9
|
|
Volution
|
Construction
and Materials
|
3,148
|
1.9
|
|
Johnson
ServiceAIM
|
Industrial
Support Services
|
2,984
|
1.8
|
|
Top
Twenty Holdings
|
|
86,558
|
51.1
|
|
Kainos
|
Software
and Computer Services
|
2,936
|
1.7
|
|
Alpha
Financial Markets ConsultingAIM
|
Industrial
Support Services
|
2,859
|
1.7
|
|
Young
& Co’s Brewery - Non-VotingAIM
|
Travel and
Leisure
|
2,826
|
1.7
|
|
Marshalls
|
Construction
and Materials
|
2,782
|
1.7
|
|
LoungersAIM
|
Travel and
Leisure
|
2,773
|
1.6
|
|
Mitchells
& Butlers
|
Travel and
Leisure
|
2,574
|
1.5
|
|
Robert
Walters
|
Industrial
Support Services
|
2,531
|
1.5
|
|
Aptitude
Software
|
Software
and Computer Services
|
2,429
|
1.4
|
|
Wickes
|
Retailers
|
2,404
|
1.4
|
|
RWSAIM
|
Industrial
Support Services
|
2,339
|
1.4
|
|
Top
Thirty Holdings
|
|
113,011
|
66.7
|
|
Ricardo
|
Construction
and Materials
|
2,250
|
1.3
|
|
Churchill
ChinaAIM
|
Household
Goods and Home Construction
|
2,241
|
1.3
|
|
Learning
TechnologiesAIM
|
Software
and Computer Services
|
2,197
|
1.3
|
|
The
Gym
|
Travel and
Leisure
|
2,196
|
1.3
|
|
Videndum
|
Industrial
Engineering
|
2,195
|
1.3
|
|
Avon
Protection
|
Aerospace
and Defence
|
2,172
|
1.3
|
|
XP
Power
|
Electronic
and Electrical Equipment
|
2,170
|
1.3
|
|
FocusriteAIM
|
Leisure
Goods
|
2,056
|
1.2
|
|
Secure
Trust Bank
|
Banks
|
2,007
|
1.2
|
|
Severfield
|
Construction
and Materials
|
1,993
|
1.1
|
|
Top
Forty Holdings
|
|
134,488
|
79.3
|
|
MidwichAIM
|
Industrial
Support Services
|
1,971
|
1.1
|
|
Auction
Technology
|
Software
and Computer Services
|
1,950
|
1.1
|
|
Tatton
Asset ManagementAIM
|
Investment
Banking and Brokerage Services
|
1,875
|
1.1
|
|
FDM
|
Industrial
Support Services
|
1,861
|
1.1
|
|
Crest
Nicholson
|
Household
Goods and Home Construction
|
1,829
|
1.1
|
|
Next
Fifteen CommunicationsAIM
|
Media
|
1,813
|
1.1
|
|
Workspace
|
Real
Estate Investment Trusts
|
1,795
|
1.1
|
|
VP
|
Industrial
Transportation
|
1,707
|
1.0
|
|
GB
GroupAIM
|
Software
and Computer Services
|
1,630
|
1.0
|
|
CLS
|
Real
Estate Investment and Services
|
1,623
|
1.0
|
|
Top
Fifty Holdings
|
|
152,542
|
90.0
|
|
Future
|
Media
|
1,555
|
0.9
|
|
PZ
Cussons
|
Personal
Care, Drug and Grocery Stores
|
1,539
|
0.9
|
|
Treatt
|
Chemicals
|
1,354
|
0.8
|
|
YouGovAIM
|
Media
|
1,352
|
0.8
|
|
M&C
SaatchiAIM
|
Media
|
1,342
|
0.8
|
|
Dunelm
|
Retailers
|
1,299
|
0.8
|
|
FD
TechnologiesAIM
|
Software
and Computer Services
|
1,287
|
0.8
|
|
Topps
Tiles
|
Retailers
|
1,194
|
0.7
|
|
Jadestone
EnergyAIM
|
Oil, Gas
and Coal
|
942
|
0.6
|
|
MarloweAIM
|
Industrial
Support Services
|
911
|
0.5
|
|
Top
Sixty Holdings
|
|
165,317
|
97.6
|
|
Gooch
& HousegoAIM
|
Technology
Hardware and Equipment
|
909
|
0.5
|
|
Vistry
|
Household
Goods and Home Construction
|
888
|
0.5
|
|
NIOXAIM
|
Medical
Equipment and Services
|
746
|
0.4
|
|
Savills
|
Real
Estate Investment and Services
|
609
|
0.4
|
|
MJ
Gleeson
|
Household
Goods and Home Construction
|
579
|
0.3
|
|
ThruvisionAIM
|
Electronic
and Electrical Equipment
|
433
|
0.3
|
|
Total
Investments: (66)
|
|
169,481
|
100.0
|
AIM Investments
quoted on AIM.
The
percentage of the portfolio by value invested in AIM stocks at the
year end was 29.9% (2023: 32.8%). There were 24 AIM stocks held at
the year end, representing 36.4% of the 66 stocks (2023: 26 AIM
stocks held representing 37.1% of the 70 stocks held).
Directors’
Responsibilities Statement
The
Directors are responsible for preparing the Annual Financial Report
in accordance with United Kingdom
applicable law and regulations.
Company
law requires the Directors to prepare financial statements for each
financial year. Under the law the Directors have elected to prepare
financial statements in accordance with UK-adopted international
accounting standards. Under company law, the Directors must not
approve the financial statements unless they are satisfied that
they give a true and fair view of the state of affairs of the
Company and of the profit or loss of the Company for that
period.
In
preparing these financial statements, the Directors are required
to:
• select
suitable accounting policies in accordance with
IAS 8
Accounting Policies, Changes in Accounting Estimates and Errors and
then apply them consistently;
• make
judgements and estimates that are reasonable and
prudent;
• present
information, including accounting policies, in a manner that
provides relevant, reliable, comparable and understandable
information;
• present
additional disclosures when compliance with the specific
requirements in IFRSs is insufficient to enable users to understand
the impact of particular transactions, other events and conditions
on the group and company financial position and financial
performance;
• state
whether UK-adopted international accounting standards have been
followed, subject to any material departures disclosed and
explained in the financial statements; and
• prepare
the financial statements on the going concern basis unless it is
inappropriate to presume that the Company will continue in
business.
The
Directors are responsible for keeping adequate accounting records
that are sufficient to show and explain the Company’s transactions
and disclose with reasonable accuracy at any time the financial
position of the Company and enable them to ensure that the
financial statements comply with the Companies
Act 2006.
They are also responsible for safeguarding the assets of the
Company and hence for taking reasonable steps for the prevention
and detection of fraud and other irregularities.
Under
applicable law and regulations, the Directors are also responsible
for preparing the Strategic Report, a Corporate Governance
Statement, a Directors’ Remuneration Report and a Directors’ Report
that comply with the law and regulations.
The
Directors of the Company each confirm to the best of their
knowledge, that:
• the
financial statements, prepared in accordance with UK adopted
international accounting standards, give a true and fair view of
the assets, liabilities, financial position and profit of the
Company;
• this
Annual Financial Report includes a fair review of the development
and performance of the business and the position of the Company
together with a description of the principal risks and
uncertainties that it faces; and
• they
consider that this Annual Financial Report, taken as a whole, is
fair, balanced and understandable and provides the information
necessary for shareholders to assess the Company’s position and
performance, business model and strategy.
Signed on
behalf of the Board of Directors
Bridget Guerin
Chairman
30
April 2024
Statement
of Comprehensive Income
FOR
THE YEAR ENDED 31 JANUARY
|
|
Year
ended 31 January
|
Year
ended 31 January
|
|
|
2024
|
2023
|
|
|
|
Revenue
|
Capital
|
Total
|
Revenue
|
Capital
|
Total
|
|
|
Notes
|
£’000
|
£’000
|
£’000
|
£’000
|
£’000
|
£’000
|
|
Loss on
investments held at fair value
|
9
|
–
|
(11,138)
|
(11,138)
|
–
|
(41,010)
|
(41,010)
|
|
Profit on
foreign exchange
|
|
–
|
–
|
–
|
–
|
5
|
5
|
|
Income
|
2
|
5,088
|
491
|
5,579
|
4,646
|
–
|
4,646
|
|
Investment
management fees
|
3
|
(182)
|
(1,029)
|
(1,211)
|
(206)
|
(1,165)
|
(1,371)
|
|
Other
expenses
|
4
|
(424)
|
(3)
|
(427)
|
(384)
|
(3)
|
(387)
|
|
Loss
before finance costs and taxation
|
|
4,482
|
(11,679)
|
(7,197)
|
4,056
|
(42,173)
|
(38,117)
|
|
Finance
costs
|
5
|
(23)
|
(130)
|
(153)
|
(1)
|
(7)
|
(8)
|
|
Loss
before taxation
|
|
4,459
|
(11,809)
|
(7,350)
|
4,055
|
(42,180)
|
(38,125)
|
|
Taxation
|
6
|
–
|
–
|
–
|
–
|
–
|
–
|
|
Loss after
taxation
|
|
4,459
|
(11,809)
|
(7,350)
|
4,055
|
(42,180)
|
(38,125)
|
|
Return per
ordinary share
|
7
|
13.18p
|
(34.91)p
|
(21.73)p
|
11.99p
|
(124.70)p
|
(112.71)p
|
The total
columns of this statement represent the Company’s statement of
comprehensive income, prepared in accordance with UK-adopted
international accounting standards. The loss after taxation is the
total comprehensive 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
|
|
|
|
|
Capital
|
|
|
|
|
|
|
Share
|
Share
|
Redemption
|
Capital
|
Revenue
|
|
|
|
|
Capital
|
Premium
|
Reserve
|
Reserve
|
Reserve
|
Total
|
|
|
Notes
|
£’000
|
£’000
|
£’000
|
£’000
|
£’000
|
£’000
|
|
At 31
January 2022
|
|
10,642
|
22,366
|
3,386
|
184,089
|
270
|
220,753
|
|
Total
comprehensive loss for the year
|
|
–
|
–
|
–
|
(42,180)
|
4,055
|
(38,125)
|
|
Dividends
paid
|
8
|
–
|
–
|
–
|
(4,905)
|
(2,808)
|
(7,713)
|
|
At 31
January 2023
|
|
10,642
|
22,366
|
3,386
|
137,004
|
1,517
|
174,915
|
|
Total
comprehensive loss for the year
|
|
–
|
–
|
–
|
(11,809)
|
4,459
|
(7,350)
|
|
Dividends
paid
|
8
|
–
|
–
|
–
|
(2,048)
|
(4,122)
|
(6,170)
|
|
At 31
January 2024
|
|
10,642
|
22,366
|
3,386
|
123,147
|
1,854
|
161,395
|
The
accompanying accounting policies and notes are an integral part of
these financial statements.
Balance
Sheet
|
|
|
As
at
|
As
at
|
|
|
|
31
January
|
31
January
|
|
|
|
2024
|
2023
|
|
|
Notes
|
£’000
|
£’000
|
|
Non-current
assets
|
|
|
|
|
Investments
held at fair value through profit or loss
|
9
|
169,481
|
172,643
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
Other
receivables
|
10
|
932
|
400
|
|
Cash
and cash equivalents
|
|
–
|
5,055
|
|
|
|
932
|
5,455
|
|
Total
assets
|
|
170,413
|
178,098
|
|
Current
liabilities
|
|
|
|
|
Other
payables
|
11
|
(9,018)
|
(3,183)
|
|
|
|
(9,018)
|
(3,183)
|
|
Total
assets less current liabilities
|
|
161,395
|
174,915
|
|
Net
assets
|
|
161,395
|
174,915
|
|
Capital
and reserves
|
|
|
|
|
Share
capital
|
12
|
10,642
|
10,642
|
|
Share
premium
|
13
|
22,366
|
22,366
|
|
Capital
redemption reserve
|
13
|
3,386
|
3,386
|
|
Capital
reserve
|
13
|
123,147
|
137,004
|
|
Revenue
reserve
|
13
|
1,854
|
1,517
|
|
Total
shareholders’ funds
|
|
161,395
|
174,915
|
|
Net asset
value per ordinary share
|
|
|
|
|
Basic
|
14
|
477.12p
|
517.09p
|
The
financial statements were approved and authorised for issue by the
Board of Directors on 30 April
2024.
Signed on
behalf of the Board of Directors
Bridget Guerin
Chairman
The
accompanying accounting policies and notes are an integral part of
these financial statements.
Statement
of Cash Flows
|
|
Year
ended
|
Year
ended
|
|
|
31
January
|
31
January
|
|
|
2024
|
2023
|
|
|
£’000
|
£’000
|
|
Cash flow
from operating activities
|
|
|
|
Loss
before taxation
|
(7,350)
|
(38,125)
|
|
Add back
finance costs
|
153
|
8
|
|
|
|
|
|
Adjustments
for:
|
|
|
|
Purchase
of investments
|
(32,646)
|
(37,739)
|
|
Sale
of investments
|
21,263
|
46,313
|
|
|
|
|
|
|
(11,383)
|
8,574
|
|
Loss on
investments held at fair value
|
11,138
|
41,010
|
|
Increase
in receivables
|
(51)
|
(195)
|
|
Increase/(decrease)
in payables
|
8
|
(26)
|
|
Net cash
(outflow)/inflow from operating activities
|
(7,485)
|
11,246
|
|
Cash flow
from financing activities
|
|
|
|
Finance
cost paid
|
(153)
|
(8)
|
|
Dividends
paid – note 8
|
(6,170)
|
(7,713)
|
|
Increase
in bank overdraft
|
8,753
|
–
|
|
Net cash
inflow/(outflow) from financing activities
|
2,430
|
(7,721)
|
|
Net
(decrease)/increase in cash and cash equivalents
|
(5,055)
|
3,525
|
|
Cash and
cash equivalents at start of the year
|
5,055
|
1,530
|
|
Cash and
cash equivalents at the end of the year
|
—
|
5,055
|
|
Reconciliation
of cash and cash equivalents to the Balance Sheet is as
follows:
|
|
|
|
Cash held
at custodian
|
–
|
80
|
|
Invesco
Liquidity Funds plc – Sterling, money market fund
|
–
|
4,975
|
|
Cash and
cash equivalents
|
—
|
5,055
|
|
Cash flow
from operating activities includes:
|
|
|
|
Dividends
received
|
5,523
|
4,447
|
|
Interest
received
|
3
|
2
|
As the
Company did not have any long term debt at both the current and
prior year ends, no reconciliation of the financial liabilities
position is presented.
The
accompanying accounting policies and notes are an integral part of
these financial statements.
Notes
to the Financial Statements
1. Principal
Accounting Policies
Accounting
policies describe the Company’s approach to recognising and
measuring transactions during the year and the position of the
Company at the year end.
The
principal accounting policies adopted in the preparation of these
financial statements together with the approach to recognition and
measurement 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 is sufficiently
liquid and significantly exceeds all balance sheet liabilities,
there are no unrecorded commitments or contingencies. The
disclosure on going concern on page 29
in the Directors’ Report provides further detail. The Directors
believe the Company has adequate resources to continue in
operational existence for the foreseeable future and has the
ability to meet its financial obligations as and when they fall due
for a period until at least 30 April
2025.
(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 which for
the Company are quoted bid prices for investments in active markets
at the Balance Sheet date and therefore reflect market
participants’ view of climate change risk and in accordance with
the applicable UK-adopted international accounting standards. The
standards are those that are effective at the Company’s financial
year end.
Where
presentational guidance set out in the Statement of Recommended
Practice (‘SORP’) ‘Financial Statements of Investment Trust
Companies and Venture Capital Trusts’, updated by the Association
of Investment Companies in July 2022,
is consistent with the requirements of UK-adopted international
accounting standards, the Directors have prepared the financial
statements on a basis compliant with the recommendations of the
SORP. The supplementary information which analyses the statement of
comprehensive income between items of a revenue and a capital
nature is presented in accordance with the SORP.
The
Directors have considered the impact of climate change on the value
of the listed investments that the Company holds. In the view of
the Directors, as the portfolio consists of listed equities, their
market prices should reflect the impact, if any, of climate change
and accordingly no adjustment has been made to take account of
climate change in the valuation of the portfolio in these financial
statements.
(ii) 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.
(iii)
Continuation Vote
Having
consulted the Company’s major shareholders through the remit of its
advisers, the Directors have a reasonable belief that the
continuation vote will be supported by the majority of shareholders
at the 2024 AGM.
(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.
Financial
assets measured at amortised cost include cash, debtors and
prepayments.
A
financial asset is measured at fair value through profit or loss if
its contractual terms do not give rise to cash flows on specified
dates that are solely payments of principal and interest (‘SPPI’)
on the principal amount outstanding or it is not held within a
business model whose objective is either to collect contractual
cash flows, or to both collect contractual cash flows and sell. The
Company’s equity investments are classified as fair value through
profit or loss as they do not give rise to cash flows that are
SPPI.
Financial
assets held at fair value through profit or loss are initially
recognised at fair value, which is usually the transaction price
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 through the Bank Overdraft, are
initially measured at fair value, net of transaction costs and are
subsequently measured at amortised cost using the effective
interest method, where applicable.
(d)
Cash and Cash Equivalents
Cash and
cash equivalents include any cash held at custodian and approved
depositories as well as holdings in Invesco Liquidity Funds plc –
Sterling, a triple-A rated money market fund. Cash and cash
equivalents are defined as cash itself or being readily convertible
to a known amount of cash and are subject to an insignificant risk
of change in value with original maturities of three months or
less.
(e) Income
All
dividends are taken into account on the date investments are marked
ex-dividend; other income from investments is taken into account on
an accruals basis. Where the Company elects to receive scrip
dividends (i.e. in the form of additional shares rather than cash),
the equivalent of the cash dividend foregone is recognised as
income in the revenue account and any excess in value of the shares
received over the amount of the cash divided recognised in capital.
Deposit interest is taken into account on an accruals basis.
Special dividends representing a return of capital are allocated to
capital in the statement of comprehensive income and then taken to
capital reserves. Dividends will generally be recognised as revenue
however all special dividends will be reviewed, with consideration
given to the facts and circumstances of each case, including the
reasons for the underlying distribution, before a decision over
whether allocation is to revenue or capital is made.
(f) Expenses
and Finance Costs
All
expenses and finance costs are accounted for in the statement of
comprehensive income on an accruals basis.
The
investment management fee and finance costs (including those
related to the bank overdraft facility) are allocated 85% to
capital and 15% to revenue. This is in accordance with the Board’s
expected long term split of returns, in the form of capital gains
and income respectively, from the portfolio.
Investment
transaction costs such as brokerage commission and stamp duty are
recognised in capital in the statement of comprehensive income. All
other expenses are allocated to revenue in the statement of
comprehensive income.
(g) Taxation
Tax
represents the sum of tax payable, withholding tax suffered and
deferred tax. Tax is charged or credited in the statement
of comprehensive
income. Any tax payable is based on taxable profit for the year,
however, as expenses exceed taxable income no corporation tax is
due. The Company’s liability for current tax is calculated using
tax rates that have been enacted or substantially enacted by the
balance sheet date.
Deferred
taxation is recognised in respect of all temporary differences that
have originated but not reversed at the balance sheet date, where
transactions or events that result in an obligation to pay more tax
in the future or right to pay less tax in the future have occurred
at the balance sheet date. This is subject to deferred tax assets
only being recognised if it is considered probable that there will
be suitable profits from which the future reversal of the temporary
differences can be deducted. Deferred tax assets and liabilities
are measured at the tax rates expected to apply in the period when
the liability is settled or the asset realised.
Investment
trusts which have approval under Section 1158 of the Corporation
Tax Act 2010 are not liable for taxation on capital
gains.
(h) Dividends
Dividends
are not accrued in the financial statements, unless there is an
obligation to pay the dividends at the balance sheet date. Proposed
final dividends are recognised in the financial year in which they
are approved by the shareholders.
(i) Consolidation
Consolidated
accounts have not been prepared as the subsidiary, whose principal
activity was investment dealing, is not material in the context of
these financial statements. The subsidiary was dissolved on
28 February 2023. Berry Starquest
Limited did not trade during the year (prior to being dissolved)
and the preceding year and, as a dormant company, had exemption
under Section 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.
|
|
2024
|
2023
|
|
|
£’000
|
£’000
|
|
Income
from investments:
|
|
|
|
UK
dividends
|
4,443
|
4,124
|
|
UK special
dividends
|
511
|
288
|
|
Overseas
dividends
|
131
|
232
|
|
Deposit
interest
|
3
|
2
|
|
Total
income
|
5,088
|
4,646
|
|
A special
dividend of £491,000 was recognised in capital during the year
(2023: nil).
|
|
Overseas
dividends include dividends received on UK listed investments where
the investee company is domiciled outside of the UK.
|
3. Investment
Management Fee
This
note shows the fees due to the Manager. These are made up of the
management fee calculated and paid monthly and, for the previous
year. This fee is based on the value of the assets being
managed.
|
|
2024
|
2023
|
|
|
Revenue
|
Capital
|
Total
|
Revenue
|
Capital
|
Total
|
|
|
£’000
|
£’000
|
£’000
|
£’000
|
£’000
|
£’000
|
|
Investment
management fee
|
182
|
1,029
|
1,211
|
206
|
1,165
|
1,371
|
Details of
the investment management and secretarial agreement are given on
page 30 in the Directors’ Report.
At
31 January 2024, £106,000 (2023:
£109,000) was accrued in respect of the investment management
fee.
4. Other
Expenses
The
other expenses of the Company are presented below; those paid to
the Directors and auditor are separately
identified.
|
|
2024
|
2023
|
|
|
Revenue
|
Capital
|
Total
|
Revenue
|
Capital
|
Total
|
|
|
|
£’000
|
£’000
|
£’000
|
£’000
|
£’000
|
£’000
|
|
|
Directors’
remuneration(i)
|
125
|
–
|
125
|
117
|
–
|
117
|
|
|
Auditor’s
fees(ii):
|
|
|
|
|
|
|
|
|
– for
audit of the Company’s
|
|
|
|
|
|
|
|
|
annual
financial statements
|
49
|
–
|
49
|
45
|
–
|
45
|
|
|
Other
expenses(iii)
|
250
|
3
|
253
|
222
|
3
|
225
|
|
|
|
424
|
3
|
427
|
384
|
3
|
387
|
|
|
|
|
|
|
|
|
|
(i) The
Director’s Remuneration Report provides further information on
Directors’ fees.
(ii) Auditor’s
fees include expenses but excludes VAT. The VAT is included in
other expenses.
(iii) Other
expenses include:
• £11,800
(2023: £11,600) of employer’s National Insurance payable on
Directors’ remuneration. As at 31 January
2024, the amounts outstanding on employer’s National
Insurance on Directors’ remuneration was £1,000 (2023: £900), the
amounts outstanding for Directors’ fee was £10,400 (2023: £9,700);
and
• custodian
transaction charges of £3,100 (2023: £3,200). These are charged to
capital.
5. Finance
Costs
Finance
costs arise on any borrowing facilities the Company
has.
|
|
2024
|
2023
|
|
|
Revenue
|
Capital
|
Total
|
Revenue
|
Capital
|
Total
|
|
|
£’000
|
£’000
|
£’000
|
£’000
|
£’000
|
£’000
|
|
Bank
overdraft facility fee
|
1
|
6
|
7
|
1
|
6
|
7
|
|
Overdraft
interest
|
22
|
124
|
146
|
–
|
1
|
1
|
|
|
23
|
130
|
153
|
1
|
7
|
8
|
The £15
million overdraft facility was renewed on 9
September 2023 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
|
|
2024
|
2023
|
|
|
£’000
|
£’000
|
|
Overseas
taxation
|
–
|
–
|
(b) Reconciliation
of tax charge
|
|
2024
|
2023
|
|
|
£’000
|
£’000
|
|
Loss
before taxation
|
(7,350)
|
(38,125)
|
|
Theoretical
tax at the current UK Corporation Tax rate of 24.03% (2023:
19%)
|
(1,766)
|
(7,244)
|
|
Effects
of:
|
|
|
|
– Non-taxable
UK dividends
|
(1,036)
|
(767)
|
|
– Non-taxable
UK special dividends
|
(241)
|
(55)
|
|
– Non-taxable
overseas dividends
|
(24)
|
(35)
|
|
– Non-taxable
loss on investments
|
2,676
|
7,791
|
|
– Excess
of allowable expenses over taxable income
|
390
|
309
|
|
– Disallowable
expenses
|
1
|
1
|
|
Tax charge
for the year
|
–
|
–
|
(c) Factors
that may affect future tax changes
The
Company has cumulative excess management expenses of £45,945,000
(2023: £44,324,000) that are available to offset future taxable
revenue.
A deferred
tax asset of £11,486,000 (2023: £11,081,000) at 25% (2023: 25%) has
not been recognised in respect of these expenses since the
Directors believe that there will be no taxable profits in the
future against which the deferred tax assets can be
offset
The
Finance Act 2021 increases the UK Corporation Tax rate from 19% to
25% effective 1 April 2023. The Act
received Royal Assent on 10 June
2021. Deferred tax assets and liabilities on balance sheets
prepared after the enactment of the new tax rate must therefore be
re-measured accordingly, so as a result the deferred tax asset has
been calculated at 25%.
7. Return
per Ordinary Share
Return
per ordinary share is the amount of gain or loss generated for the
financial year divided by the weighted average number of ordinary
shares in issue.
|
|
2024
|
2023
|
|
|
Revenue
|
Capital
|
Total
|
Revenue
|
Capital
|
Total
|
|
Return
£’000
|
4,459
|
(11,809)
|
(7,350)
|
4,055
|
(42,180)
|
(38,125)
|
|
Return per
ordinary share
|
13.18p
|
(34.91)p
|
(21.73)p
|
11.99p
|
(124.70)p
|
(112.71)p
|
The
returns per ordinary share are based on the weighted average number
of shares in issue during the year of 33,826,929 (2023:
33,826,929)
8. Dividends
on Ordinary Shares
The
Company paid four dividends in the year – three interims and a
final.
The final
dividend shown below is based on shares in issue at the record date
or, if the record date has not been reached, on shares in issue on
the date the balance sheet is signed. The third interim and final
dividends are paid after the balance sheet date.
|
|
2024
|
2023
|
|
|
Pence
|
£’000
|
Pence
|
£’000
|
|
Dividends
paid from revenue in the year:
|
|
|
|
|
|
Third
interim (prior year)
|
3.75
|
1,269
|
0.80
|
270
|
|
Final
(prior year)
|
0.74
|
249
|
–
|
–
|
|
First
interim
|
3.85
|
1,302
|
3.75
|
1,269
|
|
Second
interim
|
3.85
|
1,302
|
3.75
|
1,269
|
|
Total
dividends paid from revenue
|
12.19
|
4,122
|
8.30
|
2,808
|
|
Dividends
paid from capital in the year:
|
|
|
|
|
|
Third
interim (prior year)
|
–
|
–
|
2.95
|
999
|
|
Final
(prior year)
|
6.05
|
2,048
|
11.55
|
3,906
|
|
Total
dividends paid from capital
|
6.05
|
2,048
|
14.50
|
4,905
|
|
Total
dividends paid in the year
|
18.24
|
6,170
|
22.80
|
7,713
|
|
|
2024
|
2023
|
|
|
Pence
|
£’000
|
Pence
|
£’000
|
|
Dividends
payable in respect of the year:
|
|
|
|
|
|
First
interim
|
3.85
|
1,302
|
3.75
|
1,269
|
|
Second
interim
|
3.85
|
1,302
|
3.75
|
1,269
|
|
Third
interim
|
3.85
|
1,302
|
3.75
|
1,269
|
|
Final
|
5.41
|
1,831
|
6.79
|
2,295
|
|
|
16.96
|
5,737
|
18.04
|
6,102
|
The third
interim dividend of 3.85p per share, in respect of the year ended
31 January 2024, was paid to
shareholders on 12 March
2024. The Company’s dividend policy was changed in 2015 so
that dividends will be paid firstly from current year revenue and
any revenue reserves available, and thereafter from capital
reserves. The amount payable in respect of the year is shown
below:
|
|
2024
|
2023
|
|
|
£’000
|
£’000
|
|
Dividends
in respect of the year:
|
|
|
|
– from
revenue reserve
|
4,459
|
4,055
|
|
– from
capital reserve
|
1,278
|
2,047
|
|
|
5,737
|
6,102
|
Dividend
payable from the capital reserves of £1,278,000 (2023: capital
reserves of £2,047,000) as a percentage of year end net assets of
£161,395,000 (2023: £174,915,000) is 0.8% (2023: 1.2%). The Company
has £128,237,000 (2023: £134,201,000) of realised distributable
capital reserves at the year end.
9. Investments
Held at Fair Value Through Profit and Loss
The
portfolio is made up of investments which are listed or traded on a
primary stock exchange or AIM. Profit and losses in the year
include:
• realised,
usually arising when investments are sold; and
• unrealised,
being the difference from cost on those investments still held at
the year end.
|
|
2024
|
2023
|
|
|
£’000
|
£’000
|
|
Investments
listed on a primary stock exchange
|
118,717
|
116,417
|
|
AIM quoted
investments
|
50,764
|
56,226
|
|
|
169,481
|
172,643
|
|
Opening
valuation
|
172,643
|
219,818
|
|
Movements
in year:
|
|
|
|
Purchases
at cost
|
29,720
|
40,196
|
|
Sales
proceeds
|
(21,744)
|
(46,361)
|
|
Loss on
investments in the year
|
(11,138)
|
(41,010)
|
|
Closing
valuation
|
169,481
|
172,643
|
|
Closing
book cost
|
174,572
|
169,842
|
|
Closing
investment unrealised (loss)/gain
|
(5,091)
|
2,801
|
|
Closing
valuation
|
169,481
|
172,643
|
The
transaction costs amount to £90,000 (2023: £134,000) on purchases
and £12,000 (2023: £28,000) for sales. These amounts are included
in determining loss on investments held at fair value as disclosed
in the Statement of Comprehensive Income.
The
Company received £21,744,000 (2023: £46,361,000) from investments
sold in the year. The book cost of these investments when they were
purchased was £24,989,000 (2023: £43,172,000) realising a loss of
£3,245,000 (2023: profit of £3,189,000). These investments have
been revalued over time and until they were sold any unrealised
profits/losses were included in the fair value of the
investments.
10.
Other Receivables
Other
receivables are amounts which are due to the Company, such as
monies due from brokers for investments sold and income which has
been earned (accrued) but not yet received.
|
|
2024
|
2023
|
|
|
£’000
|
£’000
|
|
Amounts
due from brokers
|
529
|
48
|
|
Overseas
withholding tax recoverable
|
30
|
31
|
|
Income tax
recoverable
|
4
|
–
|
|
Prepayments
and accrued income
|
369
|
321
|
|
|
932
|
400
|
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.
|
|
2024
|
2023
|
|
|
£’000
|
£’000
|
|
Amounts
due to brokers
|
48
|
2,974
|
|
Bank
overdraft
|
8,753
|
–
|
|
Accruals
|
217
|
209
|
|
|
9,018
|
3,183
|
12.
Share
Capital
Share
capital represents the total number of shares in issue, including
shares held in treasury.
|
|
2024
|
2023
|
|
|
Number
|
£’000
|
Number
|
£’000
|
|
Allotted,
called-up and fully paid
|
|
|
|
|
|
Ordinary
shares of 20p each
|
33,826,929
|
6,765
|
33,826,929
|
6,765
|
|
Treasury
shares of 20p each
|
19,382,155
|
3,877
|
19,382,155
|
3,877
|
|
|
53,209,084
|
10,642
|
53,209,084
|
10,642
|
For the
year to 31 January 2024, no shares
were bought back into or issued from treasury (2023: nil).
Subsequent to the year end, no shares were bought back into or
issued from treasury.
13.
Reserves
This
note explains the different reserves attributable to shareholders.
The aggregate of the reserves and share capital (see previous note)
make up total shareholders’ funds.
The share
premium arises whenever shares are issued at a price above the
nominal value plus any issue costs. The capital redemption reserve
maintains the equity share capital and arises from the nominal
value of shares repurchased and cancelled. The share premium and
capital redemption reserve are non-distributable.
Capital
investment gains and losses are shown in note 9, and form part of
the capital reserve. The revenue reserve shows the net revenue
retained after payment of dividends. The capital (to the extent
that it constitutes realised profits) and revenue reserves are
distributable by way of dividend. In addition, the capital reserve
is also distributable by way of share buy backs.
14.
Net
Asset Value per Ordinary Share
The
Company’s total net assets (total assets less total liabilities)
are often termed shareholders’ funds and are converted into net
asset value per ordinary share by dividing by the number of shares
in issue.
The net
asset value per share and the net asset values attributable at the
year end were as follows:
|
|
Net
asset value
|
Net
assets
|
|
|
per
ordinary share
|
attributable
|
|
|
2024
|
2023
|
2024
|
2023
|
|
|
Pence
|
Pence
|
£’000
|
£’000
|
|
Ordinary
shares
|
477.12
|
517.09
|
161,395
|
174,915
|
Net asset
value per ordinary share is based on net assets at the year end and
on 33,826,929 (2023: 33,826,929) ordinary shares, being the number
of ordinary shares in issue (excluding treasury) at the year
end.
15.
Subsidiary
Undertaking
The
dormant subsidiary, Berry Starquest Limited, was dissolved on
28 February 2023 (Net asset value at
31 January 2023: £100).
16.
Risk
Management, Financial Assets and Liabilities
Financial
instruments comprise the Company’s investment portfolio as well as
any cash, borrowings, other receivables and other
payables.
Financial
Instruments
The
Company’s financial instruments comprise its investment portfolio
(as shown on pages 23 and 24), 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, The Bank of New York Mellon
(International) Limited, an A-1+ rated financial institution. Cash
balances are limited to a maximum of 2.5% of net assets with any
one deposit taker, with only approved deposit takers being used,
and a maximum of 7.5% of net assets for holdings in the Invesco
Liquidity Funds plc – Sterling, a triple-A
rated money market fund.
Market
Risk
The fair
value or future cash flows of a financial instrument may fluctuate
because of changes in market prices. This market risk comprises
three elements – currency risk, interest rate risk and other price
risk. The Company’s Manager assesses the Company’s exposure when
making each investment decision, and monitors the overall level of
market risk on the whole of the investment portfolio on an ongoing
basis. The Board meets at least quarterly to assess risk and review
investment performance. The Company may utilise hedging instruments
to manage market risk. Gearing is used to enhance returns, however,
this will also increase the Company’s exposure to market risk and
volatility.
1. Currency
Risk
The
exposure to currency risk is considered minor as the Company’s
financial instruments are mainly denominated in Sterling. At the
current and preceding year end, the Company held no foreign
currency investments or cash, although a small
amount of dividend income was received in foreign
currency.
During
this and the previous year, the Company did not use forward
currency contracts to mitigate currency risk.
2. Interest
Rate Risk
Interest
rate movements will affect the level of income receivable on cash
deposits and the interest payable on variable rate borrowings. When
the Company has cash balances, they are held in variable rate bank
accounts yielding rates of interest dependent on the base rate of
the Custodian, The Bank of New York Mellon (International) Limited.
Additionally, holdings in Invesco Liquidity Funds plc – Sterling
are subject to interest rate changes.
The
Company has an uncommitted bank overdraft facility up to a maximum
of 30% of the net asset value of the Company or £15 million (2023:
£15 million), whichever is the lower; the interest rate is charged
at a margin over the Bank of England base rate. The Company uses the
facility when required, at levels approved and monitored by the
Board.
At the
year end £8.8 million of the overdraft was drawn down (2023: none).
Based on the maximum amount that can be drawn down at the year end
under the overdraft facility of £15 million (2023: £15 million),
the effect of a +/– 3.25%
(2023: +/–
1%) in the interest rate would result in an increase or decrease to
the Company’s statement of comprehensive income of £488,000 (2023:
£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
loss after tax for the year would increase by
£16 million
(2023: loss after tax for the year would increase by £17 million).
Conversely, if the value of the portfolio rose by 10%, the loss
after tax would decrease (2023: loss after tax would decrease) by
the same amount.
Concentration of exposure to market price
risk
There is a
concentration of exposure to the UK, though it should be noted that
the Company’s investments may not be entirely exposed to economic
conditions in the UK, as many UK listed companies do much of their
business overseas.
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
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.
17.
Maturity
Analysis of Contractual Liability Cash Flows
The
contractual liabilities of the Company are shown in note 11 and
comprise amounts due to brokers and accruals. All are paid under
contractual terms. The bank overdraft is repayable upon demand. For
amounts due to brokers, this will generally be the purchase date of
the investment plus two business
days; accruals would generally be due within three
months.
18.
Capital Management
The
Company’s capital, or equity, is represented by its net assets
which are managed to achieve the Company’s
investment
objective set out on page 13.
The main
risks to the Company’s investments are shown in the Strategic
Report under the ‘Principal Risks and Uncertainties’ section on
pages 14 and 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 2024, the
composition of which is shown on the Balance Sheet on page 48, was
£161,395,000 (2023: £174,915,000).
19.
Contingencies,
Guarantees and Financial Commitments
Liabilities
the Company is committed to honour but which are dependent on a
future circumstance or event occurring would be disclosed in this
note if any existed.
There were
no contingencies, guarantees or other financial commitments of the
Company as at 31 January 2024 (2023:
nil).
20.
Related
Party Transactions and Transactions with
Manager
A
related party is a company or individual who has direct or indirect
control or who has significant influence over the
Company.
Under
UK-adopted international accounting standards the Company has
identified the Directors as related parties. The Directors’
remuneration and interests have been disclosed on pages 37 to 39
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.
21.
Post
Balance Sheet Events
There are
no significant events after the end of the reporting period
requiring disclosure.
22.
2024
Financial Information
The figures and financial
information for the year ended 31 January
2024 are extracted from the Company's annual financial
statements for that year and do not constitute statutory accounts.
The Company's annual financial statements for the year to
31 January 2024 have been audited but
have not yet been delivered to the Registrar of Companies.
The Auditor's
report on the 2024 annual financial statements was unqualified, did
not include a reference to any matter to which the Auditor drew
attention without qualifying the report, and did not contain any
statements under Section 498 of the Companies Act
2006.
23.
2023 Financial Information
The
figures and financial information for the year ended 31 January 2023 are compiled from an extract of
the published accounts for that year and do not constitute
statutory accounts.
Those
accounts have been delivered to the Registrar of Companies
and
included the report of the Auditor which was unqualified and did
not contain a statement under Sections 498(2) or 498(3) of the
Companies Act 2006.
24.
Annual Financial Report
The
audited 2024 annual financial report will be available to
shareholders, and will be delivered to the Registrar of Companies,
shortly.
Copies may
be obtained during normal business hours from the Company’s
Registered Office, from its correspondence address, 43-45 Portman
Square, London W1H 6LY, and
via
www.invesco.co.uk/ipukscit.
A copy of
the annual financial report will be submitted
shortly to the National Storage Mechanism ("NSM") and will be
available for inspection at the NSM, which is situated
at https://data.fca.org.uk/#/nsm/nationalstoragemechanism.
Notice
of Annual General Meeting
THIS
NOTICE OF ANNUAL GENERAL MEETING IS IMPORTANT AND REQUIRES YOUR
IMMEDIATE ATTENTION. If you are in any doubt as to what action to
take, you should consult your stockbroker, solicitor, accountant or
other appropriate independent professional adviser authorised under
the Financial Services and Markets Act 2000. If you have sold or
otherwise transferred all your shares in Invesco Perpetual UK
Smaller Companies Investment Trust plc, please forward this
document and the accompanying Form of Proxy to the person through
whom the sale or transfer was effected, for transmission to the
purchaser or transferee.
NOTICE IS
GIVEN that the Annual General Meeting (‘AGM’) of Invesco Perpetual
UK Smaller Companies Investment Trust plc will be held at the
offices of Invesco at 43-45 Portman Square, London W1H 6LY at 12.00pm on 6 June
2024 for the following purposes:
Ordinary
Business
1. To
receive and consider the Annual Financial Report for the year ended
31 January 2024.
2. To
approve the Directors’ Remuneration Policy.
3. To
approve the Annual Statement and Report on Remuneration for the
year ended 31 January
2024.
4. To
approve the final dividend of 5.41p for the year ended 31 January 2024.
5. To
re-elect Bridget Guerin as a
Director of the Company.
6. To
re-elect Graham Paterson as a
Director of the Company.
7. To
re-elect Mike Prentis as a Director
of the Company.
8. To
elect Simon Longfellow as a Director
of the Company.
9. To
re-appoint the auditor, Ernst & Young LLP.
10. To
authorise the Audit Committee to determine the auditor’s
remuneration.
Special
Business
To
consider and, if thought fit, to pass the following resolutions of
which resolution 11 and 15 will be proposed as an ordinary
resolution and resolutions 12 to 14 as special
resolutions:
Authority
to Allot Shares
11. That:
the
Directors be generally and unconditionally authorised in accordance
with Section 551 of the Companies Act 2006 as amended from time to
time prior to the date of the passing of this resolution (the
‘Act’) to exercise all powers of the Company to allot shares and
grant rights to subscribe for, or convert any securities into,
shares up to an aggregate nominal amount (within the meaning of
Sections 551(3)
and (6) of
the Act) of £676,538, this being 10% of the Company’s issued
ordinary share capital as at 30 April
2024, such authority to expire at the conclusion of the next
AGM of the Company or the date 15 months
after the passing of this resolution, whichever is the earlier
unless the authority is renewed or revoked at any other general
meeting prior to such time, but so that this authority shall allow
the Company to make offers or agreements before the expiry of this
authority which would or might require shares to be allotted, or
rights to be granted, after such expiry as if the authority
conferred by this resolution had not expired.
Disapplication
of Pre-emption Rights
12. That:
the
Directors be and are hereby empowered, in accordance with Sections
570 and 573 of the Act to allot equity securities (within the
meaning of Section 560
(1), (2) and (3) of the Act) for cash, either pursuant to the
authority given by resolution 11 set out above or (if such
allotment constitutes the sale of relevant shares which,
immediately before the sale, were held by the Company as treasury
shares) otherwise, as if Section 561 of the Act did not apply to
any such allotment, provided that this power shall be
limited:
(a) to
the allotment of equity securities in connection with a rights
issue in favour of all holders of a class of equity securities
where the equity securities attributable respectively to the
interests of all holders of securities of such class are either
proportionate (as nearly as may be) to the respective numbers of
relevant equity securities held by them or are otherwise allotted
in accordance with the rights attaching to such equity securities
(subject in either case to such exclusions or other arrangements as
the Directors may deem necessary or expedient in relation to
fractional entitlements or legal or practical problems under the
laws of, or the requirements of, any regulatory body or any stock
exchange in any territory or otherwise);
(b) to
the allotment (otherwise than pursuant to a rights issue) of equity
securities up to an aggregate nominal amount of £676,538, this
being 10% of the Company’s issued ordinary share capital as at
30 April 2024; and
(c) to
the allotment of equity securities at a price not less than the net
asset value per share (as determined by the Directors), and this
power shall expire at the conclusion of the next AGM of the Company
or the date 15 months after the passing of this resolution,
whichever is the earlier unless the authority is renewed or revoked
at any other general meeting prior to such time, but so that this
power shall allow the Company to make offers or agreements before
the expiry of this power which would or might require equity
securities to be allotted after such expiry as if the power
conferred by this resolution had not expired; and so that words and
expressions defined in or for the purposes of Part 17 of the Act
shall bear the same meanings in this resolution.
Authority
to Make Market Purchases of Shares
13. That:
the
Company be generally and subject as hereinafter appears
unconditionally authorised in accordance with Section 701 of the
Act to make market purchases (within the meaning of Section 693(4)
of the Act) of its issued ordinary shares of 20p each in the
capital of the Company (‘Shares’).
PROVIDED
ALWAYS THAT:
(a) the
maximum number of Shares hereby authorised to be purchased shall be
14.99% of the Company’s issued ordinary shares, this being
5,070,657 as at 30 April
2024;
(b) the
minimum price which may be paid for a Share shall be
20p;
(c) the
maximum price which may be paid for a Share must not be more than
the higher of: (i) 5%
above the average of the mid-market values of the Shares for the
five business days before the purchase is made; and (ii) the higher
of the price of the last independent trade in the Shares and the
highest then current independent bid for the Shares on the London
Stock Exchange;
(d) any
purchase of Shares will be made in the market for cash at prices
below the prevailing net asset value per Share (as determined by
the Directors);
(e) the
authority hereby conferred shall expire at the conclusion of the
next AGM of the Company or the date 15 months after the passing of
this resolution, whichever is the earlier, unless the authority is
renewed or revoked at any other general meeting prior to such
time;
(f) the
Company may make a contract to purchase Shares under the authority
hereby conferred prior to the expiry of such authority which will
be executed wholly or partly after the expiration of such authority
and may make a purchase of Shares pursuant to any such contract;
and
(g) any
Shares so purchased shall be cancelled or, if the Directors so
determine and subject to the provisions of Sections 724 to 731 of
the Act and any applicable regulations of the United Kingdom
Listing Authority, be held (or otherwise dealt with in accordance
with Section 727 or 729 of the Act) as treasury shares.
Period
of Notice Required for General Meetings
14. THAT
the period of notice required for general meetings of the Company
(other than AGMs) shall be not less than 14 clear days.
Continue
in Existence
15. THAT
the Company continue in existence as an investment
trust.
Dated this
30 April 2024
By order
of the Board
Invesco
Asset Management Limited
Corporate
Company Secretary