Invesco Perpetual UK Smaller Co's Investment Trust Plc

LEGAL ENTITY IDENTIFIER: 549300K1D1P23R8U4U50

Invesco Perpetual UK Smaller Companies Investment Trust plc

Annual Financial Report Announcement for the Year Ended 31 January 2023

The following text is extracted from the Annual Financial Report of the Company for the year ended 31 January 2023. 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 (%)	2023	2022
Net asset value⁽¹⁾⁽²⁾	–17.5	+18.8
Share price⁽¹⁾⁽²⁾	–17.0	+21.9
Benchmark Index⁽²⁾⁽³⁾	–12.4	+11.6

Capital Statistics

At 31 January	2023	2022	Change
Total shareholders’ funds (£’000)	174,915	220,753	–20.8%
Net asset value per share (‘NAV’)	517.09p	652.60p	–20.8%
Share price⁽¹⁾⁽²⁾	451.00p	570.00p	–20.9%
Discount⁽¹⁾	(12.8)%	(12.7)%
Gearing⁽¹⁾:
– gross gearing	nil	nil
– net gearing	nil	nil
– net cash	2.9%	0.7%
Maximum authorised gearing	8.6%	6.8%

For the year ended 31 January	2023	2022
Return⁽¹⁾ and dividend per ordinary share:
Revenue return	11.99p	8.30p
Capital return	(124.70)p	97.85p
Total return	(112.71)p	106.15p
First interim dividend	3.75p	3.75p
Second interim dividend	3.75p	3.75p
Third interim dividend	3.75p	3.75p
Final dividend	6.79p	11.55p
Total dividends	18.04p	22.80p	–20.9%
Dividend Yield⁽¹⁾	4.0%	4.0%
Dividend payable for the year (£’000):
– from current year net revenue	4,055	2,808
– from capital reserve (2022: from capital reserve)	2,047	4,905
	6,102	7,713
Capital dividend as a % of year end net assets⁽¹⁾	1.2%	2.2%
Ongoing charges⁽¹⁾	0.95%	0.92%

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: Refinitiv.

⁽³⁾ From 1 February 2022, the Benchmark Index of the Company changed to the Numis Smaller Companies + AIM (excluding Investment Companies) Index with dividends reinvested. For the year to 31 January 2022, the Benchmark Index of the Company was the Numis Smaller Companies (excluding Investment Companies) Index with dividends reinvested.

Chairman’s Statement

Highlights

Net asset value return of –17.5% and share price return of –17.0%, compared to benchmark return of –12.4%, all based on total return with dividends reinvested. The share price is showing signs of recovery from lows following the mini-Budget in September 2022.
Dividend of 18.04p per share for the year, providing a yield of 4.0% based on the year end share price.

Dear Shareholders,

Performance

Against a backdrop of energy supply issues and concerns about inflation, with both heightened by the continuing hostilities in Ukraine, it is perhaps unsurprising that for the year ended 31 January 2023 your Company returned –17.5% in Net Asset Value (‘NAV’) terms, underperforming its Benchmark Index, the Numis Smaller Companies + AIM (excluding Investment Companies) Index, which returned –12.4%, (in each case measured on total return with dividends reinvested).

The Company’s share price total return for the year was –17.0% (with dividends reinvested).

This weak one year return should not be viewed out of context as in 2022 our Portfolio Managers delivered strong results in terms of both NAV and share price total returns and their longer term performance shown in the graph on the preceding page in the Annual Financial Report, speaks for itself.

As at the latest practicable date prior to the publication of this report, being 17 April 2023, the discount stands at 12.3% and the Company’s share price has fallen by 3.7%, the NAV has fallen by 4.2% and the Benchmark Index is down by 3.9% over the period between 1 February and 17 April 2023. This reflects the ongoing difficult trading environment for many UK listed smaller companies and investment trusts that invest in them including your Company and many of its peers.

Discount

During the year the Company’s shares traded at a discount to its NAV ranging between 9.8% to 18.6%. Many other trusts investing in UK smaller companies also continue to trade at wider discounts than their historic averages. We hope that shareholders and potential investors recognise the Company has continued to deliver a yield in excess of the average yield of its UK smaller company investment trust peers through investment in a broad cross-section of small to medium sized UK quoted companies.

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

Dividend and Dividend Policy

The Board has decided that the Company will propose a final dividend of 6.79p per share to bring the total dividends paid for the year to 18.04p per share (2022: 22.80p).

The total dividend of 18.04p 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 451.00p as at 31 January 2023. This represents all of the available revenue earned by the Company’s portfolio over the year, together with 6.05p per share from realised capital profits.

The Company’s revenue per share has increased from 8.30p per share last year to 11.99p per share this year, which means that the resulting balance of dividend being paid from realised capital profits represents 1.2% 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.

The Company’s dividends are paid quarterly in September, December, March and June. For the year ended 31 January 2023, three interim dividends of 3.75p per share each have already been paid and the Board has proposed a final dividend of 6.79p per share, making a total for the year of 18.04p per share. The final dividend will be payable, subject to shareholder approval, on 13 June 2023 to shareholders on the register on 12 May 2023 and the shares will go ex-dividend on 11 May 2023.

Board Composition

As planned, and reported in the Interim Report, I will retire as a Director and Chairman of the Company at the conclusion of the AGM to be held in June 2023. Bridget Guerin will be appointed Chairman of the Board and of the Nomination Committee on my retirement. Mike Prentis will take over as Senior Independent Director and as Chairman of the Management Engagement Committee.

The Nomination Committee has commenced the search to find a new non-executive director and will report the results of this process to shareholders in due course.

Annual General Meeting (‘AGM’)

This year’s meeting will be held in person at Invesco’s London office at 12.00pm on Thursday 8 June 2023. 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, we will record a special version of the presentation and post it onto our 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

As your Portfolio Managers have highlighted in their report on the following pages, over the past year, equity markets have been adversely affected by the ongoing conflict in Ukraine, UK politics and more recently, renewed worries about the global banking system.

In the face of all of the macroeconomic problems and political turmoil, I am pleased to report that your Portfolio Managers have continued to manage your portfolio according to their investment philosophy, namely seeking out well managed, growing businesses with outstanding products or services, with the prospect of taking market share from competitors and which are also profitable and cash generative.

Conviction that UK smaller companies continue to provide investment opportunities with which to deliver long-term total returns for shareholders remains a constant, regardless of the investment conditions which prevail. This year it has led Jonathan and Robin to a more ‘barbell’ portfolio construction with investments typically categorised as cyclical or defensive to find balance in the uncertain market conditions in which they have been working. Such pragmatism has meant that the quality and valuation metrics your Portfolio Managers seek for the portfolio have not been sacrificed.

The year ahead will doubtless see the portfolio evolve further as conditions change again, hopefully for the better. While I will not be witnessing those changes as a director of your Company, I shall look forward to following them as a shareholder.

Jane Lewis

Chairman

18 April 2023

Portfolio Managers’ Report

Q What were the key influences on the market over the year?

A The war in Ukraine and its impact on energy prices was the dominant feature of the year. Hopes that inflation would be transitory were dashed and markets began to factor in materially higher interest rates. The shift from the ultra-low interest rate environment in the decade following the Global Financial Crisis to a level more in line with historical norms had a dramatic impact on asset prices. Equities tumbled both in the UK and overseas, and bond prices fell sharply as traders factored in the rapidly changing outlook. The sell-off initially focussed on highly rated growth and technology stocks but broadened into consumer related sectors as the cost-of-living crisis began to bite.

The situation was further exacerbated by political turmoil in the UK. The short-lived Liz Truss government unsettled markets with a package of tax give-aways and spending pledges which led some commentators to question how the UK could fund itself. A run on Sterling and significantly higher gilt yields paved the way for further change, with Truss becoming the shortest lived Prime Minister in UK history. The Sunak government reversed many of the policies of his predecessor, which prompted the beginning of a market rally, reversing some of the declines of the previous year.

Q How did the portfolio perform over the period?

A The Net Asset Value total return for the portfolio over the period was –17.5%, compared with the Benchmark Index, the Numis Smaller Companies + AIM (excluding Investment Companies) Index, which returned –12.4% on the same basis. This performance compares to a return of –16.8% for the Investment Association UK Smaller Companies sector.

Q What factors led to the underperformance versus the benchmark?

A In a difficult year for the market, very few sectors ended the period in positive territory. However, in the wake of the Russian invasion of Ukraine, Oil & Gas, Defence and Mining all performed strongly. Whilst we have some exposure to these areas, it is not always possible to find companies that meet our quality criteria in these sectors, and therefore we were underweight relative to the benchmark.

Q Which stocks contributed to and detracted from performance?

A The best performing stocks over the period included: Online promotional products business, 4imprint (+64%), which is the leading player in its sector in the US. Management’s decision to continue investing in the business through the pandemic saw it emerge from the downturn with a stronger market position. The stock benefitted from a series of upgrades to analysts’ earnings expectations. Keywords Studios (+13%), which is a global leader in providing outsourced services to the computer games industry, continued to grow strongly, driven by a mixture of above market growth and acquisitions. The computer games industry, which is now a £220bn per year sector, continues to grow and is ever more reliant on outsourcers to help manage the creation of new titles. Oil & Gas business, Energean (+23%), benefitted from improved sentiment towards the sector as the Ukraine conflict elevated the price of energy. The business achieved initial production from its substantial gas discovery in the eastern Mediterranean and also had further drilling success in the region. Coats (+11%) is a world leading supplier of thread and other components to global apparel manufacturers. The business benefitted from two acquisitions, giving it market leadership in the casual footwear segment, and from a recovery in the sector following the pandemic. Defence business, Ultra Electronics (+14%), was taken over for an attractive price at the beginning of the period.

It was a difficult period for markets so inevitably there were more poorly performing holdings than usual:

Hilton Food (–36%) saw its margins squeezed by raw material price increases. Russian trawlers are a significant source of white fish and sanctions imposed following the invasion of Ukraine led to a surge in prices. The business was unable to quickly pass this on to its supermarket customers and saw a shortfall in profit. We believe the business can navigate through this issue and still has significant growth potential. We used the decline in the share price to add to our holding. Media business, Future (–52%), a publisher of online and magazine content, has historically been an excellent performer in the portfolio. Although the business continued to trade well, it initially fell along with many other growth and technology businesses earlier in the year, and then declined further when its CEO announced she would be retiring at the end of 2023. We have taken substantial profits from the holding over the last few years, and although the recent decline is disappointing, we believe the business could be significantly more valuable in future. Law business, Knights (–76%), a legal and professional services business, suffered a profit warning which management attributed to Covid-19 related staff absences. We believe there is evidence of other issues within the company, so we sold the holding shortly before your Company’s year end. Inspecs (–71%), which manufactures eyewear, initially retreated due to an accounting irregularity in its small US subsidiary, and then from a sudden decline in demand from its German customers following the Russian invasion of Ukraine. The US issue has been resolved and German demand has rebounded, however, we have reduced the holding and will continue to closely assess the performance of the business and the new CEO.

Q What is the current portfolio strategy?

A Our investment philosophy remains unchanged. The current portfolio is comprised of 70-80 stocks with the sector weightings being determined by where we are finding attractive companies at a given time, rather than by allocating assets according to a “top down” view of the economy. We continue to seek growing businesses, which have the potential to be significantly larger in the medium term. These tend to be companies that either have great products or services, that can enable them to take market share from their competitors, or companies that are exposed to higher growth niches within the UK economy or overseas. We prefer to invest in cash generative businesses that can fund their own expansion, although we are willing to back strong management teams by providing additional capital to invest for growth.

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

In terms of portfolio construction, we are currently opting for a “barbell” approach, with a balance of both cyclical (economically sensitive) stocks, and more defensive businesses that should be more resilient in a downturn. Whilst cyclical stocks could see weaker trading in event of a recession this year, this is to some extent factored into profit expectations and valuations, which in many cases are already “pricing in” an economic downturn. These stocks could outperform when the market starts to look through the current weakness to the recovery ahead. 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. The future is unpredictable, so we believe that running a balanced portfolio and maintaining our focus on quality and valuation will serve us best in this environment. We would expect to tilt the barbell as more clarity emerges on the economic outlook.

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 (4.7% 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 the majority of 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.

• CVS (2.9% of the portfolio) is a leading veterinary services business, which owns over 500 vet surgeries and specialist centres, predominantly in the UK. The scale of the business gives it purchasing power, allowing it to generate a higher margin than individual surgeries. The business has been a leading consolidator of the UK market and has recently entered continental Europe. The business is relatively immune to the economic cycle and, with ever more being spent on the wellbeing of the nation’s pets, can continue to grow for many years to come.

• JTC (2.8% 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 (2.7% 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 and 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, 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 (2.5% 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, roads, 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.

Q What were the new holdings added over the period?

A We took advantage of the significant de-rating of a number of technology/growth stocks that we have known for some time, and in some cases owned previously, to start positions in these businesses – for example Auction Technology, GB Group and AJ Bell discussed below.

• XP Power manufactures power conversion units for the semiconductor, healthcare and industrial technology sectors. Power converters convert high voltage alternating current from the main grid into the stable, low voltage direct current required for electronic equipment. Its products are sold globally, with North America accounting for 63% of revenue, Europe 28% and Asia 9%. Whilst clearly cyclical, the business has a good long term growth record and a strong level of repeat revenue once designed into a product. Although there is not significant intellectual property in the business, its reputation for quality, reliability and service levels enables it to generate circa 20% margins. It is a business we have followed for some time and the 40% share price decline presented us with an opportunity to start building a position.

• Auction Technology is a business we have previously held in the portfolio. The origin of the business was as the publisher of the Auction Trade Gazette, the trade magazine for the UK antiques industry. The business moved into providing an online platform for auction houses (the-saleroom.com) to augment the “in-room” bidding. This pulls in a significantly larger pool of bidders and improves pricing, which has led to rapid adoption by auctioneers in both the UK, US and continental Europe. The business has also diversified into the auction of used industrial equipment in the US, which is a very sizable market. The company generates very high margins, but these have potential to grow further as its largely fixed cost base is leveraged by increasing revenue. We decided to rebuild the position following a circa 50% decline in its share price.

• GB Group helps online companies to validate and verify the identity and locations of their customers. It enables organisations to offer a better user experience, protect themselves against fraud, and ensure regulatory compliance. Services include ID verification, credit risk checking, anti-money laundering compliance, age verification and document validation. The business has a strong long-term organic growth record which it augments via acquisition. The circa 50% decline in its share price provided us with an interesting entry point.

• AJ Bell provides online investment platform and stockbroking services. The business has two main products: Direct-to-Consumer platform, AJ Bell, and Investcentre, a Business-to-Consumer platform focussed on the IFA market. It is one of the UK’s leading players with around £75 billion of assets under administration and aims to offer lower fee rates than its main rivals. The company has an enviable long-term growth record and still has plenty of scope for market share gains. We like the financial characteristics of the business (cash generative, high margins, strong balance sheet), although revenue is impacted by market levels. We have owned the business historically and believe the recent 30%+ decline in the share price offered a good opportunity to rebuild the holding.

• Marshalls is the UK’s leading hard landscaping manufacturer, supplying natural stone and innovative concrete products to the construction, home improvement and landscape markets. Its products include paving blocks, walling, drainage systems, greenhouses, garages, and street furniture. Public sector and commercial end markets are the largest users of Marshalls’ products. The UK accounts for about 95% of Marshalls’ total revenue. The business recently acquired Marley, which is the UK leading supplier of roof tiles. Clearly the business is facing cost headwinds and a weaker demand environment. However, we believe this is more than reflected in its valuation following a 65% decline in its share price.

• Ergomed is a contract research organisation focussed on the pharmaceutical industry. Around two thirds of revenue is derived from pharmacovigilance, which collects data for on-market drugs, particularly around adverse events associated with the drug. A third of revenue is derived from clinical research services, which provides services to pharma and biotech business which facilitate the process of conducting medical trials and ultimately achieving regulatory approval for new products. The business focusses on the niche areas of oncology and rare diseases, which offer higher potential growth rates. Services include patient recruitment, project management, clinical monitoring, data management and medical writing. The business has a good long term growth record, both organically and via acquisition.

• Next Fifteen Communications is part advertising agency and part digital transformation consultancy. The company helps businesses market themselves more effectively and improves the way they interact with customers online. It counts 57 of the top 100 “best loved” global brands as clients, generating around 60% of revenue from the US. The business has a good track record of winning clients and then expanding the range of services that they supply, which often results in multi-year relationships with major businesses. The company has a very good long term growth record.

Q What is the managers approach to gearing?

A Gearing decisions are taken after reviewing a variety of metrics including valuations, earnings momentum, market momentum, bond spreads and a range of economic indicators. After analysing this data and following discussions with the Board, we concluded that the Company should not be geared at this point, although we have reduced the cash position towards the year end. We will continue to monitor these factors and look to gear the Company when the indicators turn more positive.

Q How does Environment, Social and Governance (‘ESG’) factor in the investment process?

A ESG issues are increasingly a focus for many investors and analysis of these factors has always been a core part of our investment process. Invesco has significant resources focussed on ESG, both at a group and individual team level. Our proprietary ESGintel system draws in company specific data from a broad range of sources and enables ESG related metrics to be quantified. This provides fund managers with clear overview of areas of concern, allowing targeted engagement with businesses to bring about positive change.

Environmental liabilities, socially dubious business practises and poor corporate governance can have a significant impact on share prices. We assess environmental risks within a business, and analyse the steps being taken to reduce its environmental impact. We like businesses with strong cultures and engaged employees, and avoid businesses which, whilst acting within the law, run the risk of a public backlash, or being constrained by new legislation. When it comes to governance, board structure and incentivisation, we proactively consult with all the businesses we own and vote against resolutions where standards fall short of our expectations. We believe that high standards of governance and incentivisation that aligns management with shareholders, are the most important aspects of ESG for driving shareholder returns within the smaller companies sector. Further details of the ESG process of the Manager is disclosed on pages 19 to 22.

A recent example of engagement was with a company that provides equipment for rental and associated services to a range of end markets including infrastructure, construction, and oil and gas. We engaged as part of a regular update with the company and discussed both environmental and governance factors.

On environmental factors, the company is investing in greener, more environmentally friendly equipment. In many cases this new equipment is no more expensive than replacing the old petrol equipment. The company has continued to make good progress in their engagement with customers and supply chain partners to deliver sustainable fleet solutions as they strive to reduce emissions. They are investing further in battery and solar powered equipment and in lower emission commercial vehicles and as a result are seeing increased demand from customers. The heavier equipment they provide is more difficult to convert to electric and hydrogen may be longer term solution for this area.

With regard to governance factors, we successfully engaged with the company regarding refreshment of the board given the long tenure of two non-executive directors (‘NEDs’). The change was instigated with a view to improving board independence. We are pleased with the improvements made on governance factors and are content to maintain the position.

Q What is the dividend policy of the Company?

A The Company pays out all the income earned within the portfolio and enhances it using a small amount of realised capital profits to target a dividend yield of 4% based on the year end share price. This provides shareholders with an attractive and consistent yield whilst allowing us to target businesses that we believe will deliver the best total return, without having to compromise on quality to achieve an income target.

Q What are your expectations for the year ahead?

A The last three years have been unusually volatile, however we can see a more stable picture emerging. Energy prices have declined substantially from their peak, with oil and gas prices now below the level they were a year ago. Whilst there is always a lag to this feeding through to the cost of living, it seems likely that inflation will return towards its historical average of 4-5% as we move through the middle of the year. Tight labour markets are a blessing for job hunters, but wage demands could potentially cause inflation to be quite stubborn around this level. We would expect the Bank of England to halt interest rate increases this year, and this should be a positive for markets, but it seems less likely that we will see cuts to base rates in the short term.

The UK smaller companies sector is very cheap when compared to both its own history and other global markets. A more stable political situation in the UK, a peaking of the interest rate cycle and the prospect of economic recovery could all provide the catalyst for this discount to narrow. We continue to see interesting opportunities across a range of sectors and will continue to take advantage of these as they arise. So, whether we see a recession or not this year, we believe that the UK smaller companies sector continues to offer a wealth of opportunity for investors.

Jonathan Brown Robin West

Portfolio Managers Deputy Portfolio Manager

18 April 2023

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 ongoing invasion of Ukraine by Russia and renewed concerns regarding the global banking system.	The Directors have assessed the market impact of the ongoing uncertainty from the conflict in Ukraine and the resulting sanctions imposed on Russia, and the concerns regarding the global banking system 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 the 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: 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 invasion of Ukraine by Russia, 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, 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 2028.

Investments in Order of Valuation

AT 31 JANUARY 2023

Ordinary shares unless stated otherwise

		Market
		Value	% of
Company	Sector	£’000	Portfolio
4imprint	Media	8,068	4.7
CVS^AIM	Consumer Services	4,938	2.9
JTC	Investment Banking and Brokerage Services	4,845	2.8
Hollywood Bowl	Travel and Leisure	4,709	2.7
Hill & Smith	Industrial Metals and Mining	4,375	2.5
Advanced Medical Solutions^AIM	Medical Equipment and Services	4,255	2.5
Alfa Financial Software	Software and Computer Services	3,955	2.3
Energean	Oil, Gas and Coal	3,833	2.2
Hilton Food	Food Producers	3,613	2.1
Keywords Studios^AIM	Leisure Goods	3,585	2.1
Top Ten Holdings		46,176	26.8
Brooks Macdonald^AIM	Investment Banking and Brokerage Services	3,572	2.1
Essentra	Industrial Support Services	3,501	2.0
discoverIE	Electronic and Electrical Equipment	3,500	2.0
Serco	Industrial Support Services	3,417	2.0
AJ Bell	Investment Banking and Brokerage Services	3,407	2.0
Coats	General Industrials	3,382	2.0
Marshalls	Construction and Materials	3,344	1.9
RWS^AIM	Industrial Support Services	3,281	1.9
Chemring	Aerospace and Defence	3,154	1.8
Videndum	Industrial Engineering	3,065	1.8
Top Twenty Holdings		79,799	46.3
Kainos	Software and Computer Services	3,007	1.7
Learning Technologies^AIM	Software and Computer Services	2,897	1.7
Alpha Financial Markets Consulting^AIM	Industrial Support Services	2,826	1.6
FDM	Industrial Support Services	2,818	1.6
Aptitude Software	Software and Computer Services	2,810	1.6
Johnson Service^AIM	Industrial Support Services	2,744	1.6
Focusrite^AIM	Leisure Goods	2,711	1.6
Jadestone Energy^AIM	Oil, Gas and Coal	2,702	1.6
Volution	Construction and Materials	2,696	1.6
Future	Media	2,645	1.5
Top Thirty Holdings		107,655	62.4
Robert Walters	Industrial Support Services	2,540	1.5
Loungers^AIM	Travel and Leisure	2,459	1.4
The Gym	Travel and Leisure	2,405	1.4
Crest Nicholson	Household Goods and Home Construction	2,326	1.3
CLS	Real Estate Investment and Services	2,279	1.3
Churchill China^AIM	Household Goods and Home Construction	2,258	1.3
Ricardo	Construction and Materials	2,252	1.3
Young & Co’s Brewery – Non-Voting^AIM	Travel and Leisure	2,220	1.3
PZ Cussons	Personal Care, Drug and Grocery Stores	2,217	1.3
Genuit	Construction and Materials	2,186	1.3
Top Forty Holdings		130,797	75.8
VP	Industrial Transportation	2,102	1.2
Wickes	Retailers	2,058	1.2
Secure Trust Bank	Banks	2,028	1.2
Severfield	Construction and Materials	1,972	1.1
Vistry	Household Goods and Home Construction	1,959	1.1
Gresham House^AIM	Closed End Investments	1,954	1.1
Auction Technology	Software and Computer Services	1,910	1.1
James Fisher and Sons	Industrial Transportation	1,898	1.1
GB Group^AIM	Software and Computer Services	1,809	1.1
Midwich^AIM	Industrial Support Services	1,732	1.0
Top Fifty Holdings		150,219	87.0
Restore^AIM	Industrial Support Services	1,654	1.0
Restaurant Group	Travel and Leisure	1,642	1.0
Avon Protection	Aerospace and Defence	1,634	0.9
Marlowe^AIM	Industrial Support Services	1,578	0.9
Workspace	Real Estate Investment Trusts	1,538	0.9
Mitchells & Butlers	Travel and Leisure	1,441	0.9
M&C Saatchi^AIM	Media	1,272	0.7
Topps Tiles	Retailers	1,258	0.7
FD Technologies^AIM	Software and Computer Services	1,247	0.7
XP Power	Electronic and Electrical Equipment	1,188	0.7
Top Sixty Holdings		164,671	95.4
Treatt	Chemicals	1,118	0.6
Dunelm	Retailers	1,022	0.6
Savills	Real Estate Investment and Services	895	0.5
Ergomed^AIM	Pharmaceuticals and Biotechnology	856	0.5
Gooch & Housego^AIM	Technology Hardware and Equipment	826	0.5
Inspecs^AIM	Personal Goods	825	0.5
Next Fifteen Communications^AIM	Media	805	0.5
Cohort^AIM	Aerospace and Defence	690	0.4
Thruvision^AIM	Electronic and Electrical Equipment	530	0.3
Tyman	Construction and Materials	405	0.2
Top Seventy Holdings		172,643	100.0
Total Investments (70)		172,643	100.0

^AIM Investments quoted on AIM.

The percentage of the portfolio by value invested in AIM stocks at the year end was 32.8% (2022: 30.9%). There were 26 AIM stocks held at the year end, representing 37.1% of the 70 stocks (2022: 26 AIM stocks held representing 34.2% of the 76 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

Jane Lewis

Chairman

18 April 2023

Statement of Comprehensive Income

FOR THE YEAR ENDED 31 JANUARY

		2023			2022
		Revenue	Capital	Total	Revenue	Capital	Total
	Notes	£’000	£’000	£’000	£’000	£’000	£’000
(Loss)/profit on investments held at fair value	9	–	(41,010)	(41,010)	–	34,552	34,552
Profit on foreign exchange		–	5	5	–	–	–
Income	2	4,646	–	4,646	3,448	–	3,448
Investment management fees	3	(206)	(1,165)	(1,371)	(254)	(1,440)	(1,694)
Other expenses	4	(384)	(3)	(387)	(385)	(5)	(390)
(Loss)/profit before finance costs and taxation		4,056	(42,173)	(38,117)	2,809	33,107	35,916
Finance costs	5	(1)	(7)	(8)	(1)	(7)	(8)
(Loss)/profit before taxation		4,055	(42,180)	(38,125)	2,808	33,100	35,908
Taxation	6	–	–	–	–	–	–
(Loss)/profit after taxation		4,055	(42,180)	(38,125)	2,808	33,100	35,908
Return per ordinary share	7	11.99p	(124.70)p	(112.71)p	8.30p	97.85p	106.15p

The total column of this statement represents the Company’s statement of comprehensive income, prepared in accordance with UK-adopted international accounting standards. The (loss)/profit after taxation is the total comprehensive (loss)/income. The supplementary revenue and capital columns are both prepared in accordance with the Statement of Recommended Practice issued by the Association of Investment Companies. All items in the above statement derive from continuing operations of the Company. No operations were acquired or discontinued in the year.

Statement of Changes in Equity

FOR THE YEAR ENDED 31 JANUARY

				Capital
		Share	Share	Redemption	Capital	Revenue
		Capital	Premium	Reserve	Reserve	Reserve	Total
	Notes	£’000	£’000	£’000	£’000	£’000	£’000
At 31 January 2021		10,642	22,366	3,386	154,986	–	191,380
Total comprehensive income for the year		–	–	–	33,100	2,808	35,908
Dividends paid	8	–	–	–	(3,997)	(2,538)	(6,535)

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

The accompanying accounting policies and notes are an integral part of these financial statements.

Balance Sheet

AS AT 31 JANUARY

		2023	2022
	Notes	£’000	£’000
Non-current assets
Investments held at fair value through profit or loss	9	172,643	219,818

Current assets
Other receivables	10	400	157
Cash and cash equivalents		5,055	1,530
		5,455	1,687
Total assets		178,098	221,505
Current liabilities
Other payables	11	(3,183)	(752)
Total assets less current liabilities		174,915	220,753
Net assets		174,915	220,753
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	137,004	184,089
Revenue reserve	13	1,517	270
Total shareholders’ funds		174,915	220,753
Net asset value per ordinary share
Basic	14	517.09p	652.60p

The financial statements were approved and authorised for issue by the Board of Directors on 18 April 2023.

Signed on behalf of the Board of Directors

Jane Lewis

Chairman

The accompanying accounting policies and notes are an integral part of these financial statements.

Statement of Cash Flows

FOR THE YEAR ENDED 31 JANUARY

	2023	2022
	£’000	£’000
Cash flow from operating activities
(Loss)/profit before finance costs and taxation	(38,117)	35,916

Adjustments for:
Purchase of investments	(37,739)	(55,442)
Sale of investments	46,313	57,863
	8,574	2,421
Loss/(profit) on investments held at fair value	41,010	(34,552)
(Increase)/decrease in receivables	(195)	31
(Decrease)/increase in payables	(26)	39
Net cash inflow from operating activities	11,246	3,855
Cash flow from financing activities
Finance cost paid	(8)	(8)
Dividends paid – note 8	(7,713)	(6,535)
Net cash outflow from financing activities	(7,721)	(6,543)
Net increase/(decrease) in cash and cash equivalents	3,525	(2,688)
Cash and cash equivalents at start of the year	1,530	4,218
Cash and cash equivalents at the end of the year	5,055	1,530
Reconciliation of cash and cash equivalents to the Balance Sheet is as follows:
Cash held at custodian	80	155
Invesco Liquidity Funds plc – Sterling, money market fund	4,975	1,375
Cash and cash equivalents	5,055	1,530
Cash flow from operating activities includes:
Dividends received	4,447	3,481
Interest received	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 (including cash) is sufficiently liquid and significantly exceeds all balance sheet liabilities, there are no unrecorded commitments or contingencies and its gearing facilities remain undrawn. The disclosure on going concern on page 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 2024.

(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.

(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.

(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, 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, holdings in Invesco Liquidity Funds plc – Sterling, a triple-A rated money market fund and overdrafts. 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.

(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 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 is investment dealing, is not material in the context of these financial statements. The one hundred pounds net asset value of the investment in Berry Starquest Limited has been included in the investments in the Company’s balance sheet. Berry Starquest Limited has not traded throughout the year and the preceding year and, as a dormant company, has exemption under 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.

	2023	2022
	£’000	£’000
Income from investments:
UK dividends	4,124	3,062
UK special dividends	288	198
Overseas dividends	232	188
Deposit interest	2	—
Total income	4,646	3,448

No special dividends have been recognised in capital during the year (2022: 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.

	2023			2022
	Revenue	Capital	Total	Revenue	Capital	Total
	£’000	£’000	£’000	£’000	£’000	£’000
Investment management fee	206	1,165	1,371	254	1,440	1,694

Details of the investment management and administration agreement are given on pages 29 and 30 in the Directors’ Report.

At 31 January 2023, £109,000 (2022: £138,000) 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.

	2023			2022
	Revenue	Capital	Total	Revenue	Capital	Total
	£’000	£’000	£’000	£’000	£’000	£’000
Directors’ remuneration⁽ⁱ⁾	117	–	117	119	—	119
Auditor’s fees⁽ⁱⁱ⁾:
– for audit of the Company’s
annual financial statements	45	–	45	45	—	45
Other expenses⁽ⁱⁱⁱ⁾	222	3	225	221	5	226
	384	3	387	385	5	390

⁽ⁱ⁾ The Directors' Remuneration Report on page 37 provides further information on Directors’ fees.

⁽ⁱⁱ⁾ Auditor’s fees include out of pocket expenses but excludes VAT. The VAT is included in other expenses.

⁽ⁱⁱⁱ⁾ Other expenses shown above include:

• amounts payable to the registrar, depositary, custodian, brokers, printers and other legal & professional fees;

• £11,600 (2022: £10,500) of employer’s National Insurance payable on Directors’ remuneration. As at 31 January 2023, the amounts outstanding on employer’s National Insurance on Directors’ remuneration was £900 (2022: £900), the amounts outstanding for Directors’ fee was £9,700 (2022: £9,200); and

• custodian transaction charges of £3,200 (2022: £5,000). These are charged to capital.

5. Finance Costs

Finance costs arise on any borrowing facilities the Company has.

	2023			2022
	Revenue	Capital	Total	Revenue	Capital	Total
	£’000	£’000	£’000	£’000	£’000	£’000
Bank overdraft facility fee	1	6	7	1	7	8
Overdraft interest	–	1	1	–	–	–
	1	7	8	1	7	8

The £15 million overdraft facility was renewed on 14 September 2022 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

	2023	2022
	£’000	£’000
Overseas taxation	–	–

(b) Reconciliation of tax charge

	2023	2022
	£’000	£’000
(Loss)/profit before taxation	(38,125)	35,908
Theoretical tax at the current UK Corporation Tax rate of 19% (2022: 19%)	(7,244)	6,823
Effects of:
– Non-taxable UK dividends	(767)	(563)
– Non-taxable UK special dividends	(55)	(38)
– Non-taxable overseas dividends	(35)	(36)
– Non-taxable loss/(gains) on investments	7,791	(6,565)
– Excess of allowable expenses over taxable income	309	378
– Disallowable expenses	1	1
Tax charge for the year	–	–

The Company has cumulative excess management expenses of £44,324,000 (2022: £42,720,000) that are available to offset future taxable revenue.

A deferred tax asset of £11,081,000 (2022: £10,680,000) at 25% (2022: 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.

	2023			2022
	Revenue	Capital	Total	Revenue	Capital	Total
Return £’000	4,055	(42,180)	(38,125)	2,808	33,100	35,908
Return per ordinary share	11.99p	(124.70)p	(112.71)p	8.30p	97.85p	106.15p

The returns per ordinary share are based on the weighted average number of ordinary shares in issue during the year of 33,826,929 (2022: 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.

	2023		2022
	Pence	£’000	Pence	£’000
Dividends paid from revenue in the year:
Third interim (prior year)	0.80	270	–	–
First interim	3.75	1,269	3.75	1,269
Second interim	3.75	1,269	3.75	1,269
Total dividends paid from revenue	8.30	2,808	7.50	2,538
Dividends paid from capital in the year:
Third interim (prior year)	2.95	999	3.75	1,269
Final (prior year)	11.55	3,906	8.07	2,728
Total dividends paid from capital	14.50	4,905	11.82	3,997
Total dividends paid in the year	22.80	7,713	19.32	6,535
	2023		2022
	Pence	£’000	Pence	£’000
Dividends payable in respect of the year:
First interim	3.75	1,269	3.75	1,269
Second interim	3.75	1,269	3.75	1,269
Third interim	3.75	1,269	3.75	1,269
Final	6.79	2,295	11.55	3,906
	18.04	6,102	22.80	7,713

The third interim dividend of 3.75p per share, in respect of the year ended 31 January 2023, was paid to shareholders on 14 March 2023.

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:

	2023	2022
	£’000	£’000
Dividends in respect of the year:
– from current year net revenue	4,055	2,808
– from capital reserves	2,047	4,905
	6,102	7,713

Dividend payable from the capital reserves of £2,047,000 (2022: capital reserves of £4,905,000) as a percentage of year end net assets of £174,915,000 (2022: £220,753,000) is 1.2% (2022: 2.2%). The Company has £134,201,000 (2022: £137,089,000) 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 regulated 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.

	2023	2022
	£’000	£’000
Investments listed on a regulated stock exchange	116,417	151,948
AIM quoted investments	56,226	67,870
	172,643	219,818
Opening valuation	219,818	187,782
Movements in year:
Purchases at cost	40,196	55,321
Sales proceeds	(46,361)	(57,837)
(Loss)/profit on investments in the year	(41,010)	34,552
Closing valuation	172,643	219,818
Closing book cost	169,842	172,818
Closing investment unrealised gain	2,801	47,000
Closing valuation	172,643	219,818

The transaction costs amount to £134,000 (2022: £217,000) on purchases and £28,000 (2022: £27,000) for sales. These amounts are included in determining (loss)/profit on investments held at fair value as disclosed in the Statement of Comprehensive Income.

The Company received £46,361,000 (2022: £57,837,000) from investments sold in the year. The book cost of these investments when they were purchased was £43,172,000 (2022: £34,458,000) realising a profit of £3,189,000 (2022: £23,379,000). 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.

	2023	2022
	£’000	£’000
Amounts due from brokers	48	–
Overseas withholding tax recoverable	31	14
Prepayments and accrued income	321	143
	400	157

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.

	2023	2022
	£’000	£’000
Amounts due to brokers	2,974	517
Accruals	209	235
	3,183	752

12. Share Capital

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

	2023		2022
	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 2023, no shares were bought back into or issued from treasury (2022: 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 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
	2023		2022	2023		2022
	Pence		Pence	£’000		£’000
Ordinary shares	517.09		652.60	174,915		220,753

Net asset value per ordinary share is based on net assets at the year end and on 33,826,929 (2022: 33,826,929) ordinary shares, being the number of ordinary shares in issue (excluding shares held in treasury) at the year end.

15. Subsidiary Undertaking

The Company has one dormant subsidiary which has total assets of £100.

	Net asset		Country of
	value at		incorporation	Description
	31 January	Principal	and	of shares	Percentage
	2023	activity	operation	held	held
Berry Starquest Limited	£100	Investment	England and	Ordinary	100%
		dealing	Wales	shares

During the year and the preceding year, no transactions were undertaken by the subsidiary. Following the year end, the subsidiary was dissolved on 28 February 2023.

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 (2022: £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, there was no overdraft drawn down (2022: none). Based on the maximum amount that can be drawn down at the year end under the overdraft facility of £15 million (2022: £15 million), the effect of a +/– 1% in the interest rate would result in an increase or decrease to the Company’s statement of comprehensive income of £150,000 (2022: £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 £17 million (2022: profit after tax for the year would decrease by £22 million). Conversely, if the value of the portfolio rose by 10%, the loss after tax would decrease (2022: profit after tax would increase) by the same amount.

Fair Values of Financial Assets and Financial Liabilities

The financial assets and financial liabilities are either carried in the balance sheet at their fair value (investments), or the balance sheet amount is a reasonable approximation of fair value (due from brokers, dividends receivable, accrued income, due to brokers, accruals, cash at bank and overdraft).

Fair Value Hierarchy Disclosures

Except for the one Level 3 investment (2022: one Level 3 investment) described below, all of the Company’s investments are in the Level 1 category as set out in IFRS 13, the three levels of which follow:

Level 1 – The unadjusted quoted price in an active market for identical assets or liabilities that the entity can access at the measurement date.

Level 2 – Inputs other than quoted prices included within Level 1 that are observable (i.e. developed using market data) for the asset or liability, either directly or indirectly.

Level 3 – Inputs are unobservable (i.e. for which market data is unavailable) for the asset or liability.

Categorisation within the hierarchy has been determined on the basis of the lowest level input that is significant to the fair value measurement of each relevant asset/liability.

Berry Starquest Limited was the only Level 3 investment in the portfolio at the current year end and was also Level 3 investment at the 2022 year end. Berry Starquest Limited is a dormant subsidiary and is valued at £100 (2022: £100). Subsequent to the year end this subsidiary was dissolved.

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. 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 2023, the composition of which is shown on the Balance Sheet on page 48, was £174,915,000 (2022: £220,753,000).

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 2023 (2022: 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 pages 29 and 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. 2023 Financial Information

The figures and financial information for the year ended 31 January 2023 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 2023 have been audited but have not yet been delivered to the Registrar of Companies. The Auditor's report on the 2023 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. 2022 Financial Information

The figures and financial information for the year ended 31 January 2022 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 2023 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 8 June 2023 for the following purposes:

Ordinary Business

1. To receive and consider the Annual Financial Report for the year ended 31 January 2023.

2. To approve the Directors’ Remuneration Policy.

3. To approve the Annual Statement and Report on Remuneration for the year ended 31 January 2023.

4. To approve a final dividend as recommended.

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 re-appoint the auditor, Ernst & Young LLP.

9. 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 10 will be proposed as an ordinary resolution and resolutions 11 to 13 as special resolutions:

Authority to Allot Shares

10. 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 18 April 2023, 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

11. 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 10 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 18 April 2023; 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

12. 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 18 April 2023;

(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

13. THAT the period of notice required for general meetings of the Company (other than AGMs) shall be not less than 14 clear days.

Dated this 18 April 2023

By order of the Board

Invesco Asset Management Limited

Corporate Company Secretary

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