TIDMIPU
LEGAL ENTITY IDENTIFIER: 549300K1D1P23R8U4U50
Invesco Perpetual UK Smaller Companies Investment Trust plc
Half-Yearly Financial Report for the Six Months to 31 July 2023
The following text is extracted from the Half-Yearly Financial Report for the
Six Months to 31 July 2023. All page numbers below refer to the Half-Yearly
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 Information and Performance Statistics
Total Return Statistics Six Months to 31 July Year Ended
(with dividends
reinvested) 2023 31 January
2023
Net asset value(1)(2) -6.9% -17.5%
Share price(1)(2) -5.4% -17.0%
Benchmark Index (2)(3) -4.2% -12.4%
Capital Statistics
At At
31 July 31 January
Period End Date 2023 2023 Change
Total shareholders' funds (£'000) 159,378 174,915 -8.9%
Net asset value per share (`NAV') 471.16p 517.09p -8.9%
Share price(2) 416.50p 451.00p -7.6%
Discount(1) (11.6)% (12.8)%
Gearing(1):
- gross gearing nil nil
- net cash 0.4% 2.9%
Maximum authorised gearing 9.4% 8.6%
Six Six
months months
ended ended
31 July 31 July
2023 2022
Return and dividend per ordinary share
Return(1)
- revenue 8.17p 6.74p
- capital (43.56)p (80.21)p
- Total (35.39)p (73.47)p
First interim dividend 3.85p 3.75p
Notes:
(1)Alternative Performance Measures (`APM'). See pages 16 and 17 for the
explanation and calculation of APMs. Further details are provided in the
Glossary of Terms and Alternative Performance Measures in the Company's 2023
Annual Financial Report.
(2)Source: Refinitiv.
(3)The Benchmark Index of the Company is the Numis Smaller Companies + AIM
(excluding Investment Companies) Index with dividends reinvested.
CHAIRMAN'S STATEMENT
Highlights
· Discount to NAV has narrowed from 12.8% to 11.6% during the period
· Discount has further narrowed to 8.9% as at 9 October 2023
· First interim dividend increased to 3.85p (2022: 3.75p), maintaining the
target dividend yield of 4%
· Revenue per ordinary share up to 8.17p (2022: 6.74p) during the period
Dear Shareholders,
I am pleased to succeed JaneLewis as the Company's new Chairman. Having served
on the Board for nine years, Jane retired at the conclusion of the AGM held in
June 2023. Iwould like to take this opportunity to thank Jane for all her hard
work and service to the Company. Her vast knowledge and experience of the
investment trust industry proved invaluable to the Board over that time. I would
also like to welcome Simon Longfellow to the Board. As previously announced,
Simon was appointed as a Non-Executive Director of the Company with effect from
1 July 2023 and has specialist experience of marketing investment trusts and
communicating effectively with Shareholders. The Board has now settled back to
its normal number of fourDirectors.
Performance
In common with many companies investing in the smaller companies sector, it has
been a difficult six months. The increasing interest rate environment has led to
the highest rates the UK has experienced for 15 years which has proven
challenging for markets in general and smaller companies in particular. Fears
about the cost of living crisis and the UK dipping into recession have weighed
heavily on sentiment. There is hope that interest rates might have peaked and
that the UK may avoid recession, though growth is still weak.
Your Company's net asset value (`NAV') return was -6.9% compared to -4.2% for
the benchmark index (in each case measured on a total return basis).
The Company's share price fell from 451.00p to 416.50p during the six months to
31 July 2023, a decrease of 7.6% (a 5.4% decrease on a total return basis), and
the discount to net asset value ended the period narrower at 11.6%, having been
12.8% as at 31 January 2023.
It is particularly pleasing to report an increase in revenue per share for the
period to 8.17p (2022: 6.74p). This reflects the robust dividend flow from the
portfolio.
Since the Company's half-year end to 9 October 2023, the latest practical date
before publication of this interim report, the Company's NAV total return is
-9.1%, the share price total return is -6.2%, whilst the benchmark index total
return is -8.7%. As at 9 October 2023, the discount has narrowed further to
8.9%.
Dividends
The Company's dividend policy is to target a dividend yield of 4% of the year
end share price paid from income earned within the portfolio and enhanced, as
necessary, through the use of realised capital profits.
In accordance with this policy, on 20 July 2023 the Board declared a first
interim dividend of 3.85p for the year ending 31 January 2024, which was paid on
1 September 2023 to shareholders on the register on 4 August 2023 (2022: 3.75p).
The expected timetable for the remaining dividend payments is as follows: the
second and third interim dividends are payable in December 2023 and March 2024
respectively, with the final dividend payable in June 2024, following its
approval by shareholders at the Company's Annual General Meeting.
Shareholders who hold shares on the main register and are residents of the UK,
Channel Islands and Isle of Man, have the opportunity to reinvest their dividend
via the Dividend Reinvestment Plan (`DRIP'). Shareholders will need to submit an
election by the 17 November 2023. Further information can be found in the
leaflet included with this report and on the Company's webpage:
www.invesco.co.uk/ipukscit.
Outlook
It is hoped that interest rates and inflation have now peaked; while it is too
early to declare new shoots of growth, there are some positive indicators such
as the easing of wage inflation. The worst may now be behind us and there is
certainly a widespread belief that UK equities are good value. Our portfolio
managers comment more about this in relation to UKsmaller companies in their
report.
Bridget Guerin
Chairman
10 October 2023
PORTFOLIO MANAGERS' REPORT
Q What were the key influences on the market over the period?
A Inflation and the central banks response to inflation were the dominant
features of the period under review. The Bank of England raised rates
significantly, from 3.5% to 5.25%, with the hope that the increased cost of
borrowing would reduce demand and moderate price increases. Although inflation
has begun to moderate, it typically takes around a year for higher rates to take
effect, suggesting this has so far been a minor factor. In fact, many economists
calculate that the increased income from consumer savings currently outweighs
the negative impact from higher mortgage rates. More importantly, many of the
factors that drove inflation to multi-decade highs, such as energy prices, and
the supply chain disruption that we saw after the pandemic, have finally begun
to normalise.
Another notable feature of the half year was a bout of Artificial Intelligence
(`AI') exuberance. This was prompted by the launch of the latest version of AI
software ChatGPT. Whilst various forms of machine learning have been in use for
the last decade, ChatGPT captured the imagination of investors due to its
ability to produce written output with a realistic human like quality. The
software analyses vast amounts of written online content and uses the
information to predict the order in which to place words to create coherent
text. Whilst it is a very useful tool, its lack of any actual intelligence makes
it prone to regurgitating false information in a highly convincing way. As with
all popular stock market trends, investment banks created various instruments
("baskets" of stocks) to allow investors to play this theme. This negatively
impacted the shares of a number of companies, which rightly or wrongly, were
deemed to be potential victims of this new technology. Whilst we see AI as an
important tool for driving productivity, we were surprised by the market
volatility created by this phenomenon.
The much-heralded UK recession is yet to materialise. Although the level of
growth in the UK economy is anaemic, we continue to benefit from full employment
and a higher level of consumer savings than we have seen for some time. So
contrary to the endless news headlines about the "cost of living crisis", the
consumer discretionary sector was by far the strongest performing area within
the UK smaller companies sector, with leisure stocks performing particularly
well.
Q How did the portfolio perform over the period?
A The Net Asset Value total return for the portfolio over the period was -6.9%,
which was an underperformance versus the benchmark index, the Numis Smaller
Companies + AIM (excluding Investment Companies), which returned -4.2% on the
same basis. The share price total return was -5.4%, reflecting the narrowing of
the discount from 12.8% at last financial year end to 11.6% at the end of this
period.
Q Which stocks contributed to and detracted from performance?
A The best performing stocks over the period included: Infrastructure products
business, Hill & Smith (+27%), which is benefitting from increased spending on
infrastructure, particularly in the US, where the company generates most of its
profits. Gresham House (+42%), is a fund management business focused on ethical
investing. The company received a takeover approach at a significant premium to
its share price. Pubs businesses, Young & Co's Brewery (+32%) and Mitchells &
Butlers (+40%), both recovered significantly after a period of underperformance.
The shares had suffered due to high energy prices and wage inflation
substantially reducing profits. However, consumer spending has remained far more
resilient than many had expected, and with energyprices now moderating, the
stockshave recovered much of the lostground. Software and services company,
FDTechnologies (+31%), had a good period after it announced strong sales figures
for its innovative data software. Historically it was mostly used within the
financial sector, but the company is now gaining new customers across a variety
of verticals, which has substantially increased the addressable market for its
product.
In a difficult period for markets, inevitably there were some poorly performing
holdings: Oil and Gas company, Jadestone Energy (-73%), suffered from reduced
production due to some maintenance issues at its main oil field. The profit
shortfall meant the business had to issue shares at a discount to bolster its
cash position. Whilst the stock appears good value it has been blighted by a
number of missteps, so we are currently reviewing the holding. Keywords Studios
(-38%), which provides outsourced services to the computer games industry, was
caught up in the bout of AIexuberance which gripped the market following the
release of the latest version of ChatGPT. Some commentators believe that its
revenue could be negatively impacted by generative AI. However, the company
already uses AI as a productivity tool in a number of areas of its business, so
we believe the fears are misplaced. We think it is an excellent business and
used the share price weakness to add to the holding. Software and services
business, Learning Technologies (-46%), was also impacted by short selling due
to fears about the impact of AI. Again, we do not believe the business will be
significantly affected. However, lower business confidence in the US did lead to
a reduction in earnings estimates toward the end of the period. Whilst this is
disappointing, we believe the company still has substantial growth potential and
we have retained our holding. Videndum (-40%), which manufactures products used
in the TV, film and photographic industries has seen its earnings expectations
eroded due to the strikes called by script writers and actors in the US. The
strikes will ultimately be resolved, and profits will recover, so we have
retained our holding.
Q What is the current portfolio strategy?
A Our investment philosophy remains unchanged. The current portfolio is
comprised of around 70 stocks with the sector weightings being determined by
where we are finding attractive companies at a given time, rather than by
allocating assets according to a "top down" view of the economy. We continue to
seek growing businesses, which have the potential to be significantly larger in
the medium term. These tend to be companies that either have great products or
services, that can enable them to take market share from their competitors, or
companies that are exposed to higher growth niches within the UK economy or
overseas. We prefer to invest in cash generative businesses that can fund their
own expansion, although we are willing to back strong management teams by
providing additional capital to invest for growth.
The sustainability of returns and profit margins is vital for the long-term
success of a company. The assessment of the position of a business within its
supply chain and a clear understanding of how work is won and priced are key to
determining if a company has "pricing power", which is particularly important in
the current inflationary environment. It is also important to determine which
businesses possess unique capabilities, in the form of intellectual property,
specialist know-how or a scale advantage in their chosen market. We conduct
around 300 company meetings and site visits a year, and these areas are a
particular focus for us on such occasions.
The current uncertainty over the timing and pace of economic recovery has led us
to manage the portfolio using a "barbell" strategy. Around half the portfolio is
invested in businesses with more defensive characteristics. These companies
either benefit from long term contracts or are exposed to more stable, less
economically sensitive end markets. These characteristics provide a greater
degree of resilience and earnings visibility in the current environment.
However, it should be noted that this sort of certainty comes at a price, with
these stocks typically trading at a valuation premium to the market. The other
half of the portfolio is invested in more cyclical, economically sensitive
stocks. In some cases, these businesses are experiencing more difficult trading,
however, we believe they can still be attractive investments where this is
reflected in the valuation. When economic conditions improve it is possible to
make strong returns from these stocks, as both earnings and the multiple
investors willing to pay for those earnings, start to recover.
Q What are the major holdings in the portfolio?
A The 5 largest holdings in the portfolio at the end of the period were:
·4imprint (4.4% of the portfolio) sells promotional materials such as pens, bags
and clothing which are printed with company logos. The business gathers orders
through online and catalogue marketing, which are then routed to their suppliers
who print and dispatch the products to customers. As a result of outsourcing
manufacture, the business has a relatively low capital requirement and can focus
on marketing and customer service. Continual reinvestment of revenue into
marketing campaigns has enabled the business to generate an enviable long term
growth record whilst maintaining margins.
·JTC (3.3% 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.
·Hill & Smith (3.2% of the portfolio) is a supplier of products and services
into the infrastructure sectors in the UK and US. 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,
particularly in the US.
·CVS (3.1% 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 have recently entered continental Europe and
Australia. The company is relatively immune to the economic cycle, and with ever
more being spent on the wellbeing of the nation's pets, it can continue to grow
for many years to come.
The recent announcement of a Competition and Markets Authority consultation on
the sector has negatively impacted its share price. However, there are already
restrictions on the number of vets any business can have in a given area in
order to ensure a competitive market, and we do not believe the business is
generating excessive profits. Whilst prices for veterinary services have risen
over the last few years, the increases have only been in-line with wage
inflation in the sector.
·Advanced Medical Solutions (2.7% of the portfolio) produces a range of
proprietary wound care and wound closure products such as sutures, medical
adhesives, antimicrobial dressings and surgical devices. The company should
benefit from the backlog of medical procedures following the pandemic and has an
exciting pipeline of innovative products which should drive longer term growth.
Q What were the new holdings added over the period?
A New stocks that we added to the portfolio in the period include:
·Tatton Asset Management (`Tatton') creates model portfolios which it sells via
independent financial advisors (`IFAs') in the UK. The outsourcing of investment
decisions by IFAs to businesses such as Tatton has increased significantly over
the last decade due to an increasing burden of regulation on IFAs. Tatton has a
range of model portfolios, made up of both active and passive funds, that
correspond with a variety of risk categories for clients. The service has one of
the lowest fee structures in the industry, a good long-term performance record
and a strong reputation within the IFA sector. The business is growing strongly,
and with a highly scalable business model, it achieves an enviable level of
profitability.
·Niox is a medical diagnostic business with technology that can more accurately
diagnose and monitor asthma. The company is the world leader in fractional
exhaled nitric oxide (`FeNO') testing, which measures exhaled Nitric Oxide as a
diagnostic marker for asthma. FeNO testing is significantly more accurate than
traditional methods of testing. The product is approved by the National
Institute for Health and Care Excellence in the UK and is reimbursable in all
its major markets. We believe the business can substantially grow its installed
base of devices, and this should drive a high level of recurring test kit
revenue.
Q What is the Portfolio Managers' approach to gearing?
A Gearing decisions are taken after reviewing a variety of metrics including
valuations, earnings momentum, market momentum, bond spreads and a range of
economic indicators. After analysing this data, we concluded that the Company
should not be geared at this point. We will continue to monitor these factors
and look to gear the Company when the indicators turn more positive.
Q How does ESG factor in the investment process?
A Environment, Social and Governance (`ESG') issues are increasingly a focus for
many investors and analysis of these factors has always been a core part of our
investment process. Invesco has significant resources focussed on ESG, both at a
group and individual team level. Our proprietary ESGintel system draws in
company specific data from a broad range of sources and enables ESG related
metrics to be quantified. This provides fund managers with a 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 newlegislation. We
believe that governance, board structure and incentivisation, are byfar the most
important factors within ESGin determining shareholder returns. Theimportance of
businesses being managed by good quality people, with appropriate
incentivisation should not be underestimated. Therefore, we proactively consult
with all the businesses we own on these matters and vote against resolutions
where standards fall short of our expectations.
Q What is the dividend policy of the Company?
A The Company pays out all the income earned within the portfolio and enhances
it using a small amount of realised capital profits to target a dividend yield
of 4.0% based on the year end share price. This provides shareholders with an
attractive and consistent yield whilst allowing us to target businesses that we
believe will deliver the best total return, without having to compromise on
quality to hit an income target.
Q What are your expectations for the year ahead?
A The current level of economic growth in the UK is lacklustre, and we are just
beginning to feel the lagged effects of the steep increase in the Bank of
England base rate, so the prognosis for the coming year appears gloomy. However,
we are not currently in recession and the most recent data suggests that wages
are growing again in real terms for the first time in a couple of years. We are
also in the fortunate position of having full employment and healthy consumer
balance sheets (in aggregate) which should feed through to confidence over time.
We are hopeful that inflation should continueto decline over coming months. The
supply chain tightness that drove the initial wave of inflation following the
pandemic has largely normalised, and energy prices have now significantly fallen
year on year. Conversations with companies suggest that it is now much easier to
find staff than it was a year ago and this is beginning to feed through to wage
settlements. So hopefully the worst of the cost of living crisis is now behind
us, and we are near the peak of the current interest rate cycle.
The value within the UK smaller companies market is very apparent to us. Whether
we compare current valuations to history, or to other international markets, the
sector looks anomalously cheap. Over time this should attract increased interest
from the investment community, but in the meantime we have seen a surge in
takeover activity from both corporate and private equity buyers looking to
exploit the "knock-down" prices of UK equities. Whilst the economic backdrop is
underwhelming we continue to see opportunities to buy undervalued shares in
companies with excellent long term growth potential. So, after a difficult
couple of years, we are optimistic of better returns over the coming year.
Jonathan Brown & Robin West
Portfolio Managers
10 October 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 period as part of the Directors' assessment.
+--------------+---------------------------------------------------------------+
|Principal Risk|Mitigating Procedures and Controls |
|Description | |
+--------------+---------------------------------------------------------------+
|Market | |
|(Economic) | |
|Risk | |
+--------------+---------------------------------------------------------------+
|Factors such |The Directors have assessed the market impact of the ongoing |
|as |uncertainty from the conflict in Ukraine and the resulting |
|fluctuations |sanctions imposed on Russia through regular discussions with |
|in stock |the Portfolio Managers and the Corporate Broker. The Company's |
|markets, |current portfolio consists of companies listed on the main UK |
|interest rates|equity market and those listed on AIM. The Company does not |
|and exchange |have direct investments in Russia or hold stocks with |
|rates are not |significant links to Russia. To a limited extent, futures can |
|under the |be used to mitigate against market (economic) risk, as can the |
|control of the|judicious holding of cash or other very liquid assets. Futures |
|Board or the |are not currently being used. |
|Portfolio | |
|Managers, but | |
|may give rise | |
|to high levels| |
|of volatility | |
|in the share | |
|prices of | |
|investee | |
|companies, as | |
|well as | |
|affecting the | |
|Company's own | |
|share price | |
|and the | |
|discount to | |
|its NAV. The | |
|risk could be | |
|triggered by | |
|unfavourable | |
|developments | |
|globally | |
|and/or in one | |
|or more | |
|regions, | |
|contemporary | |
|examples being| |
|the market | |
|uncertainty in| |
|relation to | |
|ongoing | |
|invasion of | |
|Ukraine by | |
|Russia. | |
+--------------+---------------------------------------------------------------+
|Investment | |
|Risk | |
+--------------+---------------------------------------------------------------+
|The Company |The Portfolio Managers' approach to investment is one of |
|invests in |individual stock selection. Investment risk is mitigated via |
|small and |the stock selection process, together with the slow build-up of|
|medium-sized |holdings rather than the purchase of large positions outright. |
|companies |This allows the Portfolio Managers, cautiously, to observe more|
|traded on the |data points from a company before adding to a position. The |
|London Stock |overall portfolio is well diversified by company and sector. |
|Exchange or on|The weighting of an investment in the portfolio tends to be |
|AIM. By their |loosely aligned with the market capitalisation of that company.|
|nature, these |This means that the largest holdings will often be amongst the |
|are generally |larger of the smaller companies available. The Portfolio |
|considered |Managers are relatively risk averse, look for lower volatility |
|riskier than |in the portfolio and seek to outperform in more challenging |
|their larger |markets. The Portfolio Managers remain cognisant at all times |
|counterparts |of the potential liquidity of the portfolio. There can be no |
|and their |guarantee that the Company's strategy and business model will |
|share prices |be successful in achieving its investment objective. The Board |
|can be more |monitors the performance of the Company, giving due |
|volatile, with|consideration to how the Manager has incorporated ESG |
|lower |considerations including climate change into their investment |
|liquidity. In |process. The Board also has guidelines in place to ensure that |
|addition, as |the Portfolio Managers adhere to the approved investment |
|smaller |policy. The continuation of the Manager's mandate is reviewed |
|companies may |annually. |
|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. | |
+--------------+---------------------------------------------------------------+
|Shareholders' | |
|Risk | |
+--------------+---------------------------------------------------------------+
|The value of |The Board reviews regularly the Company's investment objective |
|an investment |and strategy to ensure that it remains relevant, as well as |
|in the Company|reviewing the composition of the shareholder register, peer |
|may go down as|group performance on both a share price and NAV basis, and the |
|well as up and|Company's share price discount to NAV per share. The Board and |
|an investor |the Portfolio Managers maintain an active dialogue with the aim|
|may not get |of ensuring that the market rating of the Company's shares |
|back the |reflects the underlying NAV; both share buy back and issuance |
|amount |facilities are in place to help the management of this process.|
|invested. | |
+--------------+---------------------------------------------------------------+
|Reliance on | |
|the Manager | |
|and other | |
|Third-Party | |
|Service | |
|Providers | |
+--------------+---------------------------------------------------------------+
|The Company |Third-party service providers are subject to ongoing monitoring|
|has no |by the Manager and the Board. |
|employees and | |
|comprises non |The Manager reviews the performance of all third-party |
|-executive |providers regularly through formal and informal meetings. |
|directors | |
|only. The |The Audit Committee reviews regularly the performance and |
|Company is |internal controls of the Manager and all third-party providers |
|therefore |through audited service organisation control reports, together |
|reliant upon |with updates on information security, the results of which are |
|the |reported to the Board. |
|performance of| |
|third-party |The Manager's business continuity plans are reviewed on an |
|service |ongoing basis and the Directors are satisfied that the Manager |
|providers for |has in place robust plans and infrastructure to minimise the |
|its executive |impact on its operations so that the Company can continue to |
|function and |trade, meet regulatory obligations, report and meet shareholder|
|service |requirements. The Board receives regular update reports from |
|provisions. |the Manager and third-party service providers on business |
|The Company's |continuity processes and has been provided with assurance from |
|operational |them all insofar as possible that measures are in place for |
|structure |them to continue to provide contracted services to the Company.|
|means that all| |
|cyber risk | |
|(information | |
|and physical | |
|security) | |
|arises at its | |
|third-party | |
|service | |
|providers, | |
|including | |
|fraud, | |
|sabotage or | |
|crime against | |
|the Company. | |
|The Company's | |
|operational | |
|capability | |
|relies upon | |
|the ability of| |
|its third | |
|-party service| |
|providers to | |
|continue | |
|working | |
|throughout the| |
|disruption | |
|caused by a | |
|major event | |
|such as the | |
|Covid-19 | |
|pandemic. | |
|Failure by any| |
|service | |
|provider to | |
|carry out its | |
|obligations to| |
|the Company in| |
|accordance | |
|with the terms| |
|of its | |
|appointment | |
|could have a | |
|materially | |
|detrimental | |
|impact on the | |
|operation of | |
|the Company | |
|and could | |
|affect the | |
|ability of the| |
|Company to | |
|successfully | |
|pursue its | |
|investment | |
|policy. The | |
|Company's main| |
|service | |
|providers, of | |
|which the | |
|Manager is the| |
|principal | |
|provider, are | |
|listed on page| |
|18. 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. | |
+--------------+---------------------------------------------------------------+
|Regulatory | |
|Risk | |
+--------------+---------------------------------------------------------------+
|The Company is|The Manager reviews the level of compliance with tax and other |
|subject to |financial regulatory requirements on a regular basis. The Board|
|various laws |regularly considers all risks, the measures in place to control|
|and |them and the possibility of any other risks that could arise. |
|regulations by|The Manager's Compliance and Internal Audit team produce annual|
|virtue of its |reports for review by the Company's Audit Committee. Further |
|status as an |details of risks and risk management policies as they relate to|
|investment |the financial assets and liabilities of the Company are |
|trust, its |detailed in note 16 of the Company's 2023 Annual Financial |
|listing on the|Report. |
|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. | |
+--------------+---------------------------------------------------------------+
In the view of the Board, these principal risks and uncertainties are as much
applicable to the remaining six months of the financial year as they were to the
six months under review.
THIRTY LARGEST INVESTMENTS
at 31 July 2023
Ordinary shares unless stated otherwise
Market
Value
£'000
% of
Portfolio
Company Sector
4imprint Media 6,967 4.4
JTC Investment Banking 5,206 3.3
and Brokerage
Services
Hill & Smith Industrial Metals 5,072 3.2
and Mining
CVSAIM Consumer Services 4,865 3.1
Advanced Medical Medical Equipment 4,240 2.7
SolutionsAIM and Services
Hollywood Bowl Travel and Leisure 4,092 2.6
Chemring Aerospace and 3,937 2.5
Defence
Energean Oil, Gas and Coal 3,869 2.4
Serco Industrial Support 3,642 2.3
Services
Alfa Financial Software and 3,592 2.3
Software Computer Services
Top Ten Holdings 45,482 28.8
Hilton Food Food Producers 3,577 2.2
AJ Bell Investment Banking 3,485 2.2
and Brokerage
Services
Brooks Investment Banking 3,456 2.2
MacdonaldAIM and Brokerage
Services
Coats General Industrials 3,308 2.1
discoverIE Electronic and 3,031 1.9
Electrical Equipment
Young & Co's Travel and Leisure 2,945 1.8
Brewery - Non
-VotingAIM
Ricardo Construction and 2,869 1.8
Materials
Gresham HouseAIM Closed End 2,789 1.8
Investments
Keywords Leisure Goods 2,735 1.7
StudiosAIM
Johnson ServiceAIM Industrial Support 2,686 1.7
Services
Top Twenty 76,363 48.2
Holdings
Essentra Industrial Support 2,677 1.7
Services
Kainos Software and 2,676 1.7
Computer Services
Volution Construction and 2,612 1.6
Materials
Alpha Financial Industrial Support 2,524 1.6
Markets Services
ConsultingAIM
Churchill ChinaAIM Household Goods and 2,448 1.5
Home Construction
Marshalls Construction and 2,398 1.5
Materials
Aptitude Software Software and 2,343 1.5
Computer Services
RWSAIM Industrial Support 2,301 1.5
Services
Auction Technology Software and 2,283 1.4
Computer Services
Genuit Construction and 2,264 1.4
Materials
Top Thirty 100,889 63.6
Holdings
Other Investments 57,828 36.4
(40)
Total Investments:
70
(31 January 2023: 158,717 100.0
70)
AIMInvestments quoted on AIM.
GOVERNANCE
Going Concern
The financial statements have been prepared on a going concern basis. The
portfolio of investments is comprised entirely of quoted securities and the
ongoing charges are around 1% of net assets. As at 9 October 2023, the Company
has drawn down £3.4m of its bank overdraft borrowing facilities, with a further
£11.6m available for investment opportunities within prescribed limits as set by
the Board.
The Directors consider this is the appropriate basis, as the Company has
adequate resources to continue in operational existence for the foreseeable
future, being taken as at least 12 months after signing the balance sheet. In
considering this, the Directors took into account the diversified portfolio of
readily realisable securities which can be used to meet funding commitments, and
the ability of the Company to meet all of its liabilities, including any bank
overdraft, and ongoing expenses as they fall due.
Related Party Transactions and Transactions with the Manager
Note 20 of the Company's 2023 Annual Financial Report gives details of related
party transactions and transactions with the Manager. This report is available
on the Company's section of the Manager's website at www.invesco.co.uk/ipukscit.
Directors' Responsibility Statement in respect of the preparation of the Half
-Yearly Financial Report
The Directors are responsible for preparing the Half-Yearly Financial Report
using accounting policies consistent with applicable law and International
Financial Reporting Standards.
The Directors confirm that to the best of their knowledge:
-the condensed set of financial statements contained within the Half-Yearly
Financial Report have been prepared in accordance with the International
Accounting Standards 34 `Interim Financial Reporting';
-the interim management report includes a fair review of the information
required by 4.2.7R and 4.2.8R of the UKLA's Disclosure Guidance and Transparency
Rules; and
-the interim management report includes a fair review of the information
required on related party transactions.
The Half-Yearly Financial Report has not been audited or reviewed by the
Company's auditor.
Signed on behalf of the Board of Directors.
Bridget Guerin
Chairman
10 October 2023
CONDENSED STATEMENT OF COMPREHENSIVE INCOME
For the For the
six six
months months
ended ended
31 July 31 July
2023 2022
Revenue Capital Total Revenue Capital Total
Notes £'000 £'000 £'000 £'000 £'000 £'000
Loss on - (14,695) (14,695) - (26,494) (26,494)
investments
held
at fair
value
Income 2 3,074 491 3,565 2,584 - 2,584
3,074 (14,204) (11,130) 2,584 (26,494) (23,910)
Investment 3 (92) (523) (615) (111) (631) (742)
management
fee
Other (217) (1) (218) (192) (3) (195)
expenses
Loss before 2,765 (14,728) (11,963) 2,281 (27,128) (24,847)
finance
costs
and
taxation
Finance 3 (1) (8) (9) (1) (4) (5)
costs
Loss before 2,764 (14,736) (11,972) 2,280 (27,132) (24,852)
taxation
Taxation 4 - - - - - -
Loss after 2,764 (14,736) (11,972) 2,280 (27,132) (24,852)
taxation
Return per 8.17p (43.56)p (35.39)p 6.74p (80.21)p (73.47)p
ordinary
share
Weighted
average
number of
ordinary
shares
in issue
during
the period
33,826,929 33,826,929
The total columns of this statement represent the Company's statement of
comprehensive income, prepared in accordance with UK-adopted international
accounting standards. The loss after taxation is the total comprehensive loss.
The supplementary revenue and capital columns are both prepared in accordance
with the Statement of Recommended Practice issued by the Association of
Investment Companies. All items in the above statement derive from continuing
operations of the Company. No operations were acquired or discontinued in the
period.
CONDENSED STATEMENT OF CHANGES IN EQUITY
Capital
Share Share Redemption Capital Revenue
Capital Premium Reserve Reserve Reserve Total
Notes £'000 £'000 £'000 £'000 £'000 £'000
For the six
months
ended 31 July
2023
At 31 January 10,642 22,366 3,386 137,004 1,517 174,915
2023
Total - - - (14,736) 2,764 (11,972)
comprehensive
loss for the
period
Dividends 5 - - - (2,048) (1,517) (3,565)
paid
At 31 July 10,642 22,366 3,386 120,220 2,764 159,378
2023
For the six
months
ended 31 July
2022
At 31 January 10,642 22,366 3,386 184,089 270 220,753
2022
Total - - - (27,132) 2,280 (24,852)
comprehensive
loss for the
period
Dividends 5 - - - (4,906) (270) (5,176)
paid
At 31 July 10,642 22,366 3,386 152,051 2,280 190,725
2022
CONDENSED BALANCE SHEET
Registered number 2129187
At At
31 July 31 January
2023 2023
£'000 £'000
Notes
Non-current assets
Investments held at fair 158,717 172,643
value through profit or
loss
Current assets
Amounts due from brokers - 48
Overseas withholding tax 30 31
recoverable
Income tax recoverable 4 4
Prepayments and accrued 238 317
income
Cash and cash equivalents 614 5,055
886 5,455
Total assets 159,603 178,098
Current liabilities
Amounts due to brokers (53) (2,974)
Accruals (172) (209)
Total assets less current (225) (3,183)
liabilities
Net assets 159,378 174,915
Capital and reserves
Share capital 10,642 10,642
Share premium 22,366 22,366
Capital redemption reserve 3,386 3,386
Capital reserve 120,220 137,004
Revenue reserve 2,764 1,517
Total shareholders' funds 159,378 174,915
Net asset value per 471.16p 517.09p
ordinary share
Number of ordinary shares 6 33,826,929 33,826,929
in issue at the period end
CONDENSED CASH FLOW STATEMENT
Six months Six months
ended 31 July ended 31 July
2023 2022
£'000 £'000
Notes
Cash flow from operating activities
Loss before finance costs and taxation (11,963) (24,847)
Adjustments for:
Purchases of investments (9,562) (26,326)
Sales of investments 5,920 32,746
(3,642) 6,420
Loss on investments held at fair value 14,695 26,494
Decrease/(increase) in receivables 80 (71)
Decrease in payables (37) (39)
Net cash (outflow)/inflow from (867) 7,957
operating activities
Cash flow from financing activities
Finance cost paid (9) (5)
Dividends paid 5 (3,565) (5,176)
Net cash outflow from financing (3,574) (5,181)
activities
Net (decrease)/increase in cash and (4,441) 2,776
cash equivalents
Cash and cash equivalents at start of 5,055 1,530
the period
Cash and cash equivalents at the end of 614 4,306
the period
Reconciliation of cash and cash
equivalents to the Balance Sheet is as
follows:
Cash held at custodian 44 61
Invesco Liquidity Funds plc - Sterling, 570 4,245
money market fund
Cash and cash equivalents 614 4,306
Cash flow from operating activities
includes:
Dividends received 3,649 2,516
Interest received 2 -
As the Company did not have any long term debt at both the current and prior
period ends, no reconciliation of the financial liabilities is presented.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
1.Basis of Preparation
The condensed financial statements have been prepared using the same accounting
policies as those adopted in the Company's 2023 Annual Financial Report. They
have been prepared on a historical cost basis, in accordance with the applicable
UK-adopted international accounting standards and, where possible, in accordance
with the Statement of Recommended Practice for Financial Statements of
Investment Trust Companies and Venture Capital Trusts, updated by the
Association of Investment Companies in July 2022 (AIC SORP).
2.Income
Six months Six months
ended 31 July ended 31 July
2023 2022
£'000 £'000
Income from investments:
UK dividends
- ordinary 2,561 2,249
- special 409 210
Overseas dividends 102 125
3,072 2,584
Other income:
Deposit interest 2 -
3,074 2,584
Special dividends of £491,000 were recognised in capital during the period (31
July 2022: £nil).
Overseas dividends include dividends received on UK listed investments where the
investee company is domiciled outside of the UK.
3.Management Fee and Finance Costs
The investment management fee and finance costs are allocated 15% to revenue and
85% to capital.
A base management fee is payable monthly in arrears and is calculated at the
rate of 0.75% (31 July 2022: 0.75%) per annum by reference to the Company's
gross funds under management.
4.Taxation and Investment Trust Status
No tax liability arises on capital gains because the Company has been accepted
by HMRC as an approved investment trust and it is the intention of the Directors
to conduct the affairs of the Company so that it continues to satisfy the
conditions for this approval.
5. Dividends paid on Ordinary Shares
Six months ended Six months ended
31 July 2023 31 July 2022
Rate £'000 Rate £'000
Third interim (prior year) 3.75p 1,269 3.75p 1,269
Final (prior year) 6.79p 2,296 11.55p 3,907
Total 10.54p 3,565 15.30p 5,176
The first interim dividend of 3.85p per ordinary share (31 July 2022: 3.75p) was
paid on 1 September 2023 to shareholders on the register on 4August 2023.
6.Share Capital, including Movements
Share capital represents the total number of shares in issue, including treasury
shares.
Six months Year ended
ended 31 July 31 January
2023 2023
Share capital:
Ordinary shares of 20p each (£'000) 6,765 6,765
Treasury shares of 20p each (£'000) 3,877 3,877
10,642 10,642
Number of ordinary shares in issue: 33,826,929 33,826,929
Number of shares held in treasury: 19,382,155 19,382,155
Total 53,209,084 53,209,084
7.Classification Under Fair Value Hierarchy
Note 16 of the Company's 2023 Annual Financial Report sets out the basis of
classification.
As at 31 July 2023, all of the Company's portfolio was composed of quoted (Level
1) investments.
In the prior year, Berry Starquest Limited was a dormant subsidiary and was the
only Level 3 investment valued at £100 as at 31 January 2023. The subsidiary was
dissolved on 28 February 2023.
8.Status of Half-Yearly Financial Report
The financial information contained in this Half-Yearly Financial Report, which
has not been reviewed or audited by an independent auditor, does not constitute
statutory accounts within the meaning of section 434 of the Companies Act 2006.
The financial information for the half years ended 31 July 2022 and 31 July 2023
has not been audited. The figures and financial information for the year ended
31January 2023 are extracted and abridged from the latest audited accounts and
do not constitute the statutory accounts for that year. Those accounts have been
delivered to the Registrar of Companies and included the Independent Auditor's
Report, which was unqualified.
The Half-Yearly Financial Report for the Six Months to 31 July 2023 will be
available to shareholders, and copies may be obtained during normal business
hours from the Company's Registered Office, from its correspondence address, 43
-45 Portman Square, London W1H 6LY, and via www.invesco.co.uk/ipukscit.
A copy of the Half-Yearly Financial Report will be submitted shortly to the
National Storage Mechanism ("NSM") and will be available for inspection at the
NSM, which is situated at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism.
By order of the Board
Invesco Asset Management Limited
Company Secretary
10 October 2023
GLOSSARY OF TERMS AND ALTERNATIVE PERFORMANCE MEASURES
Alternative Performance Measure (APM)
An APM is a measure of performance or financial position that is not defined in
applicable accounting standards and cannot be directly derived from the
financial statements. The calculations shown in the corresponding tables are for
the six months ended 31 July 2023 and the year ended 31 January 2023. The APMs
listed here are widely used in reporting within the investment company sector
and consequently aid comparability.
Benchmark (or Benchmark Index)
A market index, which averages the performance of companies in any sector,
giving a good indication of any rises or falls in the market. The benchmark
index used in these accounts is the Numis Smaller Companies + AIM (excluding
Investment Companies) Index with dividends reinvested.
(Discount)/Premium (APM)
Discount is a measure of the amount by which the mid-market price of an
investment company share is lower than the underlying net asset value (`NAV') of
that share. Conversely, premium is a measure of the amount by which the mid
-market price of an investment company share is higher than the underlying net
asset value of that share. In this Half-Yearly Financial Report the discount is
expressed as a percentage of the net asset value per share and is calculated
according to the formula set out below. If the shares are trading at a premium
the result of the below calculation will be positive and if they are trading at
a discount it will be negative.
31 July 31 January
2023 2023
Share price a 416.50p 451.00p
Net asset value per share b 471.16p 517.09p
Discount c = (a-b)/b (11.6)% (12.8)%
Gearing (APM)
The gearing percentage reflects the amount of borrowings that a company has
invested. This figure indicates the extra amount by which net assets, or
shareholders' funds, would move if the value of a company's investments were to
rise or fall. A positive percentage indicates the extent to which net assets are
geared; a nil gearing percentage, or `nil', shows a company is ungeared. A
negative percentage indicates that a company is not fully invested and is
holding net cash as described below.
There are several methods of calculating gearing and the following has been used
in this report:
Gross Gearing (APM)
This reflects the amount of gross borrowings in use by a company and takes no
account of any cash balances. It is based on gross borrowings as a percentage of
net assets. As at 31 July 2023 the Company had no gross borrowings (31 January
2023: £nil).
31 July 31 January
2023 2023
£'000 £'000
Bank overdraft facility - -
Gross borrowings a - -
Net asset value b 159,378 174,915
Gross gearing c = a/b nil nil
Net Gearing or Net Cash (APM)
Net gearing reflects the amount of net borrowings invested, i.e. borrowings less
cash and cash equivalents (incl. investments in money market funds). It is based
on net borrowings as a percentage of net assets. Net cash reflects the net
exposure to cash and cash equivalents, as a percentage of net assets, after any
offset against total borrowings.
31 July 31 January
2023 2023
£'000 £'000
Bank overdraft facility - -
Less: cash and cash equivalents 614 5,055
Net cash a 614 5,055
Net asset value b 159,378 174,915
Net cash c = a/b 0.4% 2.9%
Maximum Authorised Gearing
This reflects the maximum authorised borrowings of the Company taking into
account both any gearing limits laid down in the investment policy and the
maximum borrowings laid down in covenants under any borrowing facility and is
calculated as follows:
31 July 31 January
2023 2023
£'000 £'000
Maximum authorised borrowings as laid
down in:
Investment policy:
- lower of 30% of net asset value; a = 30% x e 47,813 52,475
and
- £25m b 25,000 25,000
Bank overdraft facility covenants: c 15,000 15,000
lower of 30% of net asset value and
£15m
Maximum authorised borrowings (d = d 15,000 15,000
lower of a, b and c)
Net asset value e 159,378 174,915
Maximum authorised gearing f = d/e 9.4% 8.6%
Net Asset Value (`NAV')
Also described as shareholders' funds, the NAV is the value of total assets less
liabilities. Liabilities for this purpose include current and long-term
liabilities. The NAV per share is calculated by dividing the net assets by the
number of ordinary shares in issue (excluding shares held in treasury). For
accounting purposes assets are valued at fair (usually market) value and
liabilities are valued at par (their repayment - often nominal - value).
Return
The return generated in a period from the investments including the increase and
decrease in the value of investments over time and the income received.
Total Return
Total return is the theoretical return to shareholders that measures the
combined effect of any dividends paid together with the rise or fall in the
share price or NAV. In this Half-Yearly Financial Report these return figures
have been sourced from Refinitiv who calculate returns on an industry
comparative basis.
Net Asset Value Total Return (APM)
Total return on net asset value per share, assuming dividends paid by the
Company were reinvested into the shares of the Company at the NAV per share at
the time the shares were quoted ex-dividend.
Share Price Total Return (APM)
Total return to shareholders, on a mid-market price basis, assuming all
dividends received were reinvested, without transaction costs, into the shares
of the Company at the time the shares were quoted ex-dividend.
Net Asset Share
Six months ended 31 July 2023 Value Price
As at 31 July 2023 471.16p 416.50p
As at 31 January 2023 517.09p 451.00p
Change in period a -8.9% -7.6%
Impact of dividend reinvestments(1) b 2.0% 2.2%
Total return for the period c = a+b -6.9% -5.4%
Net Asset Share
Year Ended 31 January 2023 Value Price
As at 31 January 2023 517.09p 451.00p
As at 31 January 2022 652.60p 570.00p
Change in year a -20.8% -20.9%
Impact of dividend reinvestments(1) b 3.3% 3.9%
Total return for the year c = a+b -17.5% -17.0%
(1)Total dividends paid during the six months to 31 July 2023 of 10.54p (31
January 2023: 22.80p) reinvested at the NAV or share price on the ex-dividend
date. NAV or share price falls subsequent to the reinvestment date consequently
further reduce the returns, vice versa if the NAV or share price rises.
Benchmark Index
Total return on the benchmark index is on a mid-market value basis, assuming all
dividends received were reinvested, without transaction costs, into the shares
of the underlying companies at the time the shares were quoted ex-dividend.
This information was brought to you by Cision http://news.cision.com
END
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