TIDMIPRT
Invesco Perpetual Recovery Trust 2011 plc
Half-Yearly Financial Report for the Six Months to 30 April 2011,
incorporating the Interim Management Report
KEY FACTS
Invesco Perpetual Recovery Trust 2011 plc (`the Company') is a UK investment
trust company listed on the London Stock Exchange.
Investment Objectives of the Company
The Company's principal objectives are to meet the capital entitlements of the
Zero Dividend Preference Shares (`ZDP Shares') and to provide capital growth, a
high dividend income and the potential for growth in dividends for Ordinary
Shares. The Company is geared to the extent of its ZDP Shares and it has no
other fixed borrowings.
Full details of the Company's investment policy, risk and limits can be found
in the 2010 annual financial report.
Performance Statistics
AT AT
30 APRIL 31 OCTOBER %
2011 2010 CHANGE
Capital
Total assets less current liabilities 33,465 32,351 +3.4
(excluding ZDP shares as current liabilities
- GBP'000)
Net assets attributable to Ordinary 6,521 6,174 +5.6
Shareholders (GBP'000)
Actual gearing 413% 424%
Asset gearing 338% 420%
Ordinary Shares:
Net asset value 40.6p 38.5p +5.5
Mid-market price 36.5p 37.5p -2.7
Discount with prior
charges deducted:
- at calculated value 10.1% 2.6%
- at market value 15.1% 5.5%
Market capitalisation (GBP'000) 5,856 6,017 -2.7
Zero Dividend Preference Shares:
Calculated value 137.4p 133.5p +2.9
Mid-market price 135.5p 132.5p +2.3
Discount 1.4% 0.7%
Market capitalisation (GBP'000) 26,572 25,984 +2.3
Units:
Calculated value 1877p 1815p +3.4
Mid-market price 1618p 1600p +1.1
Discount 13.8% 11.8%
Total Return on Portfolio +5.0
Total Returns Indices:
FTSE All-Share Index 4,283.53 3,926.44 +9.1
FTSE 350 High Yield Index 4,149.76 3,809.71 +8.9
Merrill Lynch Sterling High 365.13 362.49 +0.7
Yield Index
Dividends on Ordinary Shares
Six months ended 30 April
2011 2010
First interim - paid 1.5p 1.5p
Second interim - proposed 1.5p 1.5p
Chairman's Statement
Company Performance
In this, my sixth half-yearly financial report to shareholders as the Chairman
of the Company, I am pleased to report an increase in the Company's total
assets less current liabilities (which for comparison purposes to my earlier
reports I have shown as excluding the zero dividend preference shares as
current liabilities) of 3.4% during the period from 1 November 2010 to 30 April
2011.
The nature of the Company's investments, whether equity or fixed interest, is
orientated towards company specifics and the Board considers that the
performance of the three company orientated indices, namely the FTSE All-Share
Index and the FTSE 350 High Yield Index for equity comparisons, and the Merrill
Lynch Sterling High Yield Index for fixed interest comparisons are those
generally most relevant to the investments of the Company for performance
comparison purposes. Most of the Company's investments throughout its life have
been invested in equity recovery stocks. At the end of the Company's last
financial year fixed interest recovery investments had grown to represent 15.6%
of the portfolio. Since then that percentage has reduced to 8.6% as the
remaining recovery potential of those investments has diminished.
The total return on the portfolio was 5.0% whilst the corresponding total
returns on the FTSE All-Share Index, the FTSE 350 High Yield Index and The
Merrill Lynch Sterling High Yield index were 9.1%, 8.9% and 0.7% respectively.
Therefore the total portfolio return has lagged the total returns on the chosen
equity indices and has outperformed only the bond index. The Board considers
this to be a disappointing performance.
However I am pleased to report that, for this half-yearly financial period, a
first interim dividend of 1.5p per Ordinary Share has been paid and the
Directors have declared a second interim dividend of 1.5p payable on 15 July
2011 to shareholders on the register on 17 June 2011. The amounts of each of
these dividends are unchanged from those paid for the corresponding periods of
the Company's last financial year. The Board has always been prudent in setting
the level of quarterly dividends at a sustainable rate, having taken the view
that any excess dividend should be distributed as a special dividend rather
than consolidated into the quarterly dividends. As a result the Board still
currently expects to be able to maintain the same rate of quarterly dividend,
if necessary by utilising the revenue reserves.
As I said in my last Chairman's statement your Board has been considering
whether and how to extend the life of the Company beyond 27 October 2011. The
Board has investigated many alternatives but I am disappointed to have to
report to you that we have found no course of action that we can recommend to
shareholders. Consequently the Company will be wound up in accordance with the
Articles of Association. The Board will endeavour to present to shareholders an
alternative option to receiving cash from the wind-up.
As the substantial cuts in government expenditure are increasingly felt in the
UK economy the Board believes that there is unlikely to be a significant rise
in the general UK equity market during the remaining life of the Company.
However it is unlikely that short term interest rates will rise much while the
economy is growing at a slow rate and the Board therefore believes that the
downside for the equity market over the next five months is limited. The
portfolio will be managed accordingly to provide the necessary liquid assets at
wind-up.
The Rt. Hon. the Lord Naseby
Chairman
21 June 2011
Investment Manager's Report
The FTSE All-Share Index, representing the general UK equity market, finished
at 3155, within a whisker of its high for the period, and having risen in
capital terms by 7.45%. Broadly the market has traded for most of the period
within a 5% range below this level.
We have made no new purchases during this period other than subscribing for the
Findel rights issue. However we have sold or reduced a number of holdings. STV,
French Connection and Drax have been sold completely. KCOM, Wolseley, Paragon,
British Polythene, Metalrax, BT and Gartmore Fledgling have all been reduced.
We have reduced our fixed interest holdings significantly. As I reported would
be the case at the last year end, we have sold our holding in Anglo Irish
floating rate notes at a loss but the rest of our sales have been made at good
profits. Co-operative Bank Floating Rate Note May 2016 has been entirely sold
and the holdings of Skipton Building Society 10% Floating Rate Note Dec 2018,
Principality Building Society 5.375% Floating Rate Note July 2016 and Scottish
Mutual 7.25% Perpetual have all been reduced. The recovery in our fixed
interest rate holdings has only a little further to go.
Investment Outlook
We do not expect the general UK market to move substantially above or below its
present level within the remaining life of the Company. Given that the Company
is to be wound up we shall manage the portfolio with this in mind. There are
unlikely to be new additions to the portfolio because we consider the remaining
period to be too short to be confident that new holdings would achieve their
recovery potential in time. We shall continue to sell holdings that achieve our
recovery targets and for those shares that may not reach our recovery targets
during the remaining time we shall try to optimise their sale, taking account
of any liquidity considerations and the general level of the market.
Ian Carstairs
Investment Manager
21 June 2011
Related Party
Invesco Asset Management Limited (`IAML'), a wholly owned subsidiary of Invesco
Limited, acts as Manager and Company Secretary to the Company. Details of
IAML's services and fees are given in the 2010 annual financial report which is
available on the Manager's website.
Principal Risks and Uncertainties
There is no guarantee that the investment policy adopted by the Company will
provide the returns sought. The principal risks and uncertainties that could
affect the Company's business can be divided into the following areas:
- Investment Policy and Risk Management;
- Market Movements and Portfolio Performance;
- Share Price Risk;
- Gearing;
- Dividends; and
- Regulatory and Tax Related Risk.
A detailed explanation of these principal risks and uncertainties can be found
on pages 16 and 17 of the 2010 annual financial report which is available on
the Manager's website.
In the view of the Board, these principal risks and uncertainties are equally
applicable to the remaining six months of the financial year as they were to
the six months under review.
Going Concern
As disclosed in the 2010 annual financial report, the Directors consider that
it is no longer appropriate to prepare the accounts on a going concern basis.
Accordingly, the accounts are prepared on a break up basis.
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 UK Accounting
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 Accounting Standards
Board's Statement "Half-Yearly Financial Report"; and
- the interim management report includes a fair review of the information
required by the FSA's Disclosure and Transparency Rules as required under rules
4.2.7R and 4.2.8R and for related party transactions.
The half-yearly financial report has not been audited or reviewed by the
Company's Independent Auditors.
Signed on behalf of the Board of Directors.
The Rt. Hon. the Lord Naseby
Chairman
21 June 2011
TWENTY FIVE LARGEST HOLDINGS AT 30 APRIL 2011
Ordinary shares unless stated otherwise
COMPANY ACTIVITY MARKET
VALUE % OF
GBP'000 PORTFOLIO
Royal Dutch Shell Oil & Gas Producers 3,607 12.6
Vodafone Mobile Telecommunications 3,259 11.4
Lloyds Banking Group Banks 3,259 11.4
GlaxoSmithKline Pharmaceutical & 2,766 9.7
Biotechnology
AstraZeneca Pharmaceutical & 2,542 8.9
Biotechnology
Gartmore Fledgling Trust Equity Investment 1,446 5.1
Instruments
Phoenix Life - 7.25% Life Insurance (WR) 1,098 3.9
Perpetual
Carnival Travel & Leisure 966 3.4
Royal Bank of Scotland Banks 965 3.4
Legal & General Insurance 920 3.2
BP Oil & Gas Producers 833 2.9
BT Fixed Line 783 2.7
Telecommunications
Aviva Insurance 760 2.7
Principality - 5.375% Jul Banks (BB) 747 2.6
2016
Marston's Travel & Leisure 693 2.4
Skipton - 10% Dec 2018 Banks (Ba2) 602 2.1
Wolseley Support Services 434 1.5
Redrow Housebuilders 401 1.4
Cable & Wireless Worldwide Fixed Line 288 1.0
Telecommunications
Cable & Wireless Fixed Line 278 1.0
Communications Telecommunications
KCOM Fixed Line 247 0.9
Telecommunications
British Polythene General Industrials 224 0.8
Findel General Retailers 210 0.7
Begbies Traynor AIM Support Services 205 0.7
Bovis Homes Housebuilders 197 0.7
27,730 97.1
Other investments 822 2.9
Total value of Investments 28,552 100.0
CONDENSED INCOME STATEMENT
SIX MONTHS TO 30 APRIL SIX MONTHS TO 30 APRIL YEAR ENDED
2011 2010 31 OCTOBER
2010
REVENUE CAPITAL TOTAL REVENUE CAPITAL TOTAL TOTAL
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Gains on - 1,166 1,166 - 3,601 3,601 4,084
investments
Income
UK dividends 452 - 452 445 - 445 944
Unfranked 176 - 176 177 - 177 376
investment
income
Deposit interest 3 - 3 1 - 1 1
631 1,166 1,797 623 3,601 4,224 5,405
Investment (87) - (87) (81) - (81) (165)
management fee -
note 2
Other expenses (114) - (114) (114) - (114) (222)
Net return 430 1,166 1,596 428 3,601 4,029 5,018
before finance
costs and
taxation
Interest payable
and similar
charges
Finance cost of - (767) (767) - (723) (723) (1,481)
Zero Dividend
Preference
Shares
Dividends on (482) - (482) (482) - (482) (964)
Ordinary Shares
- note 3
Return on (52) 399 347 (54) 2,878 2,824 2,573
ordinary
activities
before taxation
Tax on ordinary - - - - - - -
activities
Return on (52) 399 347 (54) 2,878 2,824 2,573
ordinary
activities after
tax
for the
financial period
Return: - note 4
per Ordinary 2.7p 2.5p 5.2p 2.7p 17.9p 20.6p 22.0p
Share - basic
per Zero - 3.9p 3.9p - 3.7p 3.7p 7.6p
Dividend
Preference Share
The total column of this statement represents the Company's profit and loss
account, prepared in accordance with UK Accounting Standards. The supplementary
revenue and capital columns are prepared in accordance with the Statement of
Recommended Practice published by the Association of Investment Companies. All
items in the above statement derive from continuing operations and the Company
has no other gains or losses and therefore no statement of total recognised
gains and losses is presented. No operations were acquired or discontinued in
the period.
CONDENSED BALANCE SHEET
Registered in England and Wales No: 5586582
AT AT AT
30 APRIL 30 APRIL 31 OCTOBER
2011 2010 2010
GBP'000 GBP'000 GBP'000
Fixed assets
Investments held at fair value through profit or - 31,128 -
loss
Current assets
Investments held at fair value through profit or 28,552 - 32,093
loss
Amounts due from brokers 7 - -
Prepayments and accrued income 141 165 250
Cash at bank 4,846 691 115
33,546 856 32,458
Creditors: amounts falling due within one year
Accruals (81) (140) (107)
Zero Dividend Preference Shares (26,944) - (26,177)
(27,025) (140) (26,284)
Total assets less current liabilities 6,521 31,844 6,174
Creditors: amounts falling due after more than
one year (excluding net assets attributable to
Ordinary Shareholders)
Zero Dividend Preference Shares - (25,419) -
Net assets attributable to Ordinary Shareholders 6,521 6,425 6,174
Represented by:
Ordinary share capital 160 160 160
Share premium 15,563 15,563 15,563
Capital reserve (9,829) (9,953) (10,228)
Revenue reserve 627 655 679
6,521 6,425 6,174
Net asset value per share
- note 5
Ordinary Shares -- basic 40.6p 40.0p 38.5p
Zero Dividend Preference Shares 137.4p 129.6p 133.5p
CONDENSED CASH FLOW STATEMENT
SIX SIX YEAR
MONTHS MONTHS
TO
TO TO
31 OCTOBER 2010
30 APRIL 30 APRIL
2011 2010
GBP'000 GBP'000 GBP'000
Total return before finance costs and 1,596 4,029 5,018
taxation
Adjustment for gains on investments (1,166) (3,601) (4,084)
Decrease/(increase) in debtors 109 27 (58)
(Decrease)/increase in creditors (26) 41 8
Net cash inflow from operating activities 513 496 884
Capital expenditure and financial
investment
Purchase of investments (450) (5,568) (7,393)
Sale of investments 5,150 3,610 4,953
Dividends paid (482) (482) (964)
Net cash inflow/(outflow) before management 4,731 (1,944) (2,520)
of liquid resources and financing
Management of liquid resources (4,845) - -
Movement in cash in the period (114) (1,944) (2,520)
Change in cashflow from movement in liquid 4,845 - -
resources
Movement in cash 4,731 (1,944) (2,520)
RECONCILIATION OF NET CASHFLOW TO MOVEMENT IN NET DEBT
SIX MONTHS SIX MONTHS YEAR
TO TO TO
30 APRIL 30 APRIL 31 OCTOBER
2011 2010 2010
GBP'000 GBP'000 GBP'000
Analysis of changes in net debt
Brought forward:
Cash at bank 115 2,635 2,635
Zero Dividend Preference Liability (26,177) (24,696) (24,696)
Net debt brought forward (26,062) (22,061) (22,061)
Movements in the period:
Cash at bank (114) (1,944) (2,520)
Cash placed on 4,845 - -
short-term deposit
Non-cash movement (767) (723) (1,481)
Net debt at end of period (22,098) (24,728) (26,062)
CONDENSED RECONCILIATION OF MOVEMENTS IN ORDINARY SHARE CAPITAL AND RESERVES
SHARE SHARE CAPITAL REVENUE TOTAL
CAPITAL PREMIUM RESERVE RESERVE
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
For the six months ended
30 April 2011
At 31 October 2010 160 15,563 (10,228) 679 6,174
Net return on ordinary - - 399 (52) 347
activities
At 30 April 2011 160 15,563 (9,829) 627 6,521
.
For the six months ended
30 April 2010
At 31 October 2009 160 15,563 (12,831) 709 3,601
Net return from ordinary - - 2,878 (54) 2,824
activities
At 30 April 2010 160 15,563 (9,953) 655 6,425
.
For the year ended 31
October 2010
At 31 October 2009 160 15,563 (12,831) 709 3,601
Net return from ordinary - - 2,603 (30) 2,573
activities
At 31 October 2010 160 15,563 (10,228) 679 6,174
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
1. Accounting Policies
The condensed financial statements have been prepared using the same accounting
policies as those adopted in the annual financial report which are consistent
with applicable United Kingdom Accounting Standards and with the Statement of
Recommended Practice "Financial Statements of Investment Trust and Venture
Capital Trusts" issued by the Association of Investment Companies in January
2009.
Since the Company is likely to wind up on 27 October 2011, this half yearly
report has been prepared on a break up basis, which is consistent with the
basis used in the 2010 annual financial report. As a consequence, the assets
and liabilities are classified as current and investments are stated at their
realisable value which is equivalent to their bid value.
Due to the range of potential outcomes for the Company, it has not been
possible to quantify the liquidation costs with any certainty, and so no
provision has been made.
In accordance with Financial Reporting Standard 25: "Financial Instruments:
Disclosure and Presentation", the provisions of the Company's Articles of
Association in connection with the life of the Company mean that the Ordinary
Shares and reserves are classified as liabilities. Consequently, dividends are
included within finance costs. It should be noted that these classifications
are purely presentational and do not affect the rights and obligations of the
Ordinary Shareholders.
2. Management Fees
A management fee of 0.35% pa of net asset value is payable quarterly in
arrears. No performance fee is provided for.
3. Dividends
The Directors have declared interim dividends totalling 3p (2010: 3p) per
Ordinary Share in respect of six months to 30 April 2011. The first interim
dividend of 1.5p was paid on 15 April 2011. The second interim dividend of 1.5p
will be paid on 15 July 2011to shareholders registered at 17 June 2011.
4. Basis of Returns:
SIX MONTHS SIX MONTHS YEAR
TO TO TO
30 APRIL 30 APRIL 31 OCTOBER
2011 2010 2010
GBP'000 GBP'000 GBP'000
Returns attributable to
Ordinary Shareholders:
Revenue return (52) (54) (30)
Add: dividends paid in 482 482 964
period
Revenue return attributable 430 428 934
Capital return attributable 399 2,878 2,603
Total return attributable 829 3,306 3,537
The number of Ordinary Shares in issue throughout each period was 16,044,750.
The capital return for the Zero Dividend Preference Shares ('ZDP Shares') is
the increase in the calculated value per share for the period. There are
19,610,250 ZDP Shares in issue which have a final projected value on 27 October
2011 of 141.4p per ZDP Share, giving a final repayment value of GBP27,729,000.
5. Net Asset Value per Ordinary Share:
AT AT AT
30 APRIL 30 APRIL 31 OCTOBER
2011 2010 2010
GBP'000 GBP'000 GBP'000
Net assets 6,521 6,425 6,174
attributable to
Ordinary
Shareholders
The number of Ordinary Shares in issue at each period end was 16,044,750.
6. ZDP Shares: Calculated vs Actual Value
The ZDP Shares are designed to provide predetermined capital growth from their
issue price of 100p to a final capital entitlement of 141.4p on 27 October
2011. The initial capital entitlement of 100p increases by 0.016% per day,
compounded daily. This is the normal calculated value. However, the actual
value will be less where the net assets attributable to the ZDP Shares are not
sufficient to cover the calculated value. When this occurs, the discount/
premium will be based on the actual value, as will any other financial
information in the financial reports which uses this value.
7. It is the intention of the Directors to conduct the affairs of the Company
so that it satisfies the conditions for approval as an investment trust company
set out in section 1159 of the Corporation Tax Act 2010.
8. The financial information contained in this half-yearly financial report,
which has not been reviewed by the independent auditors, does not
constitute statutory accounts as defined in section 434 of the Companies
Act 2006. The financial information for the half years ended 30 April 2010
and 30 April 2011 has not been audited. The figures and financial
information for the year ended 31 October 2010 are extracted and abridged
from the latest published accounts and do not constitute the statutory
accounts for that year. Those accounts have been delivered to the Registrar
of Companies and included the Report of the Independent Auditors, which was
unqualified and did not include a statement under section 498 of the
Companies Act 2006.
9(a) Projected NAV of Ordinary Shares
The following projected NAVs show the estimates of capital repayments which
could be made to the Ordinary Shareholders assuming a variety of different
growth rates in the Company's total assets less current liabilities (`TALCL'),
excluding amounts due on ZDP Shares, to wind-up in October 2011. Liquidation
costs, which will decrease Ordinary Shareholders' returns only, are not
included in these NAVs.
% GROWTH
PER ANNUM IN
TOTAL ASSETS LESS
CURRENT LIABILITIES, APPROXIMATE
EXCLUDING AMOUNTS NAV PER
DUE ON ZDP SHARES ORDINARY SHARES
-27.3% nil
-20.0% 8.4p
-10.0% 19.2p
0.0% 29.5p
5.0% 34.4p
10.0% 39.2p
15.0% 43.9p
83.4% 100.0p
9(b) Projected NAV of ZDP Shares
If the TALCL of the Company remained at the 30 April 2011 level, then the ZDP
holders would receive their pre-determined final capital entitlement of 141.4p.
The table below illustrates what would happen if the total assets less current
liabilities fell.
% GROWTH
PER ANNUM IN
TOTAL ASSETS LESS
CURRENT LIABILITIES, APPROXIMATE
EXCLUDING AMOUNTS NAV PER
DUE ON ZDP SHARES ZDP SHARES
-27.3% 141.4p
-30.0% 138.8p
-35.0% 133.8p
By order of the Board
Invesco Asset Management Limited
Company Secretary
21 June 2011
www.invescoperpetual.co.uk/investmenttrusts
END
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