Invesco Perpetual UK Smaller Companies Investment Trust
plc
LEI: 549300K1D1P23R8U4U50
Half-Yearly Financial Report for the Six Months to 31 July 2021
Investment Objective
Invesco Perpetual UK Smaller Companies Investment Trust plc 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
|
Six Months
to |
Year Ended |
|
|
31 July |
31 January |
|
Total Return
Statistics(1) (dividends reinvested) |
2021 |
2021 |
|
Net asset value
(NAV)(1)(2) |
+23.3% |
-3.1% |
|
Share price(1)(2) |
+31.4% |
-16.8% |
|
Benchmark
index(2)(3) |
+18.8% |
-0.9% |
|
FTSE All-Share
Index(2) |
+12.6% |
-7.5% |
|
|
|
|
|
|
At |
At |
|
|
31 July |
31 January |
% |
Period End Date |
2021 |
2021 |
Change |
Net assets (£’000) |
231,627 |
191,380 |
+21.0 |
Net asset
value(1)per share (NAV) |
684.74p |
565.76p |
+21.0 |
Share
price(2) |
622.00p |
483.00p |
+28.8 |
Discount(1) |
(9.2)% |
(14.6)% |
|
Gearing(1): |
|
|
|
– gross gearing |
nil |
nil |
|
– net cash |
1.0% |
2.2% |
|
Maximum authorised gearing |
6.5% |
7.8% |
|
Return and dividend per ordinary
share
|
Six Months
Ended |
Six Months
Ended |
|
31 July |
31 July |
|
2021 |
2020 |
Return(1): |
|
|
– revenue |
4.34p |
0.67p |
– capital |
126.46p |
(139.67)p |
– total |
130.80p |
(139.00)p |
First interim dividend |
3.75p |
3.75p |
Notes:
(1) Alternative Performance Measures (APM). See pages 16
to 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 2021 annual financial report.
(2)
Source: Refinitiv.
(3)
The Benchmark Index of the Company is the Numis Smaller Companies
Index (excluding Investment Companies) with income reinvested.
Chairman’s Statement
Dear Shareholders,
I am pleased to report that over the six months to 31 July 2021 the Portfolio Managers generated
good returns for the Company’s shareholders in both absolute terms
and relative to the Numis Smaller Companies Index (excluding
investment companies), the Company’s benchmark. The Portfolio
Managers’ report which follows sets out how they achieved this.
Over the six months under review, the UK stock market, as
measured by the FTSE All-Share Index, increased by 12.6% on a total
return basis while smaller companies, as measured by the Numis
Smaller Companies Index (excluding investment companies) increased
by 18.8% on a total return basis.
Against this background, the net asset value total return of
your Company was +23.3% over the six month period. This is a
pleasing result which the Board believes supports our Portfolio
Managers’ unchanged focus on owning high quality, growing
businesses at attractive valuations.
The Company’s share price increased from 483p to 622p during the
period to 31 July, an increase of 28.8% (a 31.4% increase on a
total return basis), and the discount to net asset value ended the
period at 9.2%, having been 14.6% as at 31
January 2021.
Since the Company’s half-year end to 8 October 2021, the
latest practical date before publication of this interim report,
the Company’s NAV total return is +1.6%, the share price total
return is –2.3%, whilst the benchmark total return is +0.8%. As at
8 October 2021, the discount was 12.7%.
Dividends
As set out in the last Annual Financial Report, the Board
reinstated the Company’s dividend policy to pay out all income
earned within the portfolio and to enhance it annually through the
use of realised capital profits with a target dividend yield of 4%
of the year end share price.
In accordance with the dividend policy, on 28 July 2021 the
Board declared a first interim dividend of 3.75p for the year
ending 31 January 2022, payable on 2
September 2021 to shareholders on the register on
6 August 2021 (2020: 3.75p). The expected timetable for the
remaining dividend payments is: second and third interim dividends
in December 2021 and March 2022 respectively, with the final dividend
payable in June 2022, following its
approval by shareholders at the Company’s Annual General
Meeting.
Outlook
Uncertainties, particularly those relating to Covid-19, appear
to be lifting. The UK economic recovery is expected to continue
through the second half of the year, however, the strength of gains
is unlikely to match those experienced over the recent past. Policy
makers now have the difficult task of managing the return to
normality, the repayment of debt incurred during the Pandemic while
at the same time making sure economic recovery is not stifled.
The current inflationary environment is cause for concern as
economic recovery continues and input prices rise. Our Portfolio
Managers are watchful as to how this might affect the companies
they invest in, as well as any opportunities it creates.
While there is greater visibility in the outlook for the
companies in which the Portfolio Managers invest, changes in the
operating and economic environments may affect investee companies
in ways that are not yet fully understood. The Company’s
diversified portfolio continues to provide shareholders with an
investment in good quality businesses which over the longer term
should be able to provide attractive total returns and balance the
opportunities and risks of investing in UK smaller companies.
Jane
Lewis
Chairman
11 October 2021
Portfolio Manager’s Report
Investment Review
The period under review produced good returns for equity
investors as the success of vaccination programmes and the
subsequent relaxation of restrictions facilitated a strong economic
recovery. The UK market also benefitted from a surge in takeover
activity, as private equity funds looked to take advantage of cheap
debt and lower valuations for UK stocks in the wake firstly of
Brexit and then Covid-19. The rapid rebound in activity, combined
with a variety of pandemic related constraints on production, has
led to supply chain disruption for many businesses and a
significant increase in inflation. So far governments have been
reluctant to reduce the level of monetary stimulus applied to the
economy, which has created a favourable backdrop for markets.
Over the last six months the UK stock market, as measured by the
FTSE All-Share Index, increased by 12.6% on a total return basis.
Smaller companies, as measured by the Numis Smaller Companies Index
(excluding Investment Companies), fared even better, increasing by
18.8% on a total return basis over the Company’s half-year.
Portfolio Review
Against this background, your Company generated a net asset
value total return of +23.3% at the interim stage. This is a
pleasing result which we believe vindicates our focus on owning
high quality businesses at the right valuation. In terms of sector
performance, the portfolio benefitted from its positions in more
economically sensitive sectors such as Industrials, Construction
Materials, Media, and Financials. We had disappointing performances
from the Oil & Gas and Pharmaceutical sectors.
At the individual stock level, the best performers included:
Future (+98%), a publisher of online and magazine content, which
continued to perform strongly. Its strategy of driving revenue
through digital advertising and e-commerce has generated
significant organic growth which has been boosted by acquisitions.
Volution (+67%), which produces ventilation products, benefitted
from a rebound in construction activity and an increased focus on
indoor air quality. Defence business Ultra Electronics (+60%),
received a takeover approach from Cobham. Its focus on the
strategically important areas of marine warfare, secure
communications, and electronic warfare, make the business a highly
attractive asset. CVS (+57%), which is one of the country’s leading
veterinary services groups, should continue to benefit from
increased pet ownership in the UK for many years to come. Financial
administration business, Sanne (+53%), is currently the subject of
acquisition approaches. We continue to like its combination of high
margins, organic growth, and strong revenue visibility from
multi-year contracts.
Although it was a strong six months for the portfolio, there
were a couple of significant disappointments: Pharmaceutical
business, Clinigen (-22%), suffered from a sales shortfall as
Covid-19 reduced the level of hospital activity and therefore the
use of its products. We are hopeful of an improvement in the
situation as the number of Covid-19 cases subsides, so we have
maintained our holding. Oil & Gas business, Energean (-18%),
saw profit taking after a strong performance over the previous
period. Disruption to working practises due to Covid-19 also
delayed the construction of its production platform, which it
requires to extract gas from its new field in the
Mediterranean.
It has been an unusually active period for takeover bids in the
UK, predominantly by private equity funds, but also corporates. The
UK market had underperformed many overseas markets over the last
few years, and this left many stocks undervalued and vulnerable to
an approach. Much of the activity has focussed on the smaller
companies sector and a number of our holdings have been bid for.
These include Ultra Electronics and Sanne, as mentioned above, but
also: real estate business, St. Modwen Properties; respiratory drug
company, Vectura; office services business, Restore; and software
engineering company, Sumo. Whilst it is encouraging that the value
in these holdings is being recognised, we are keen to ensure that
they are not taken out “on the cheap” and that we receive full
value for these businesses and have engaged with management where
appropriate.
Investment Strategy
Our investment strategy remains unchanged. The current portfolio
is comprised of around 75 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 (where this is possible), and these areas are a particular
focus for us on such occasions.
Environmental, Social and Governance (ESG) issues are currently
a focus for many investors and analysis of these factors has always
been a core part of our investment process. Environmental
liabilities, socially dubious business practises and poor corporate
governance, can have a significant impact on share prices. We seek
to quantify the cost and probability of environmental risks within
a business, and factor this into our valuation considerations
before we invest and over the course of our ownership. Social
issues can be less tangible, but we avoid unethical 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.
The Company remains ungeared. We retain an overdraft facility to
give us flexibility to gear the Company up to a maximum of 6.5% of
the net assets, as at 31 October
2021. We monitor a range of economic and valuation data
points and will gear the Company when we feel it is likely to
enhance shareholder returns.
New Holdings
New stocks that we added to the portfolio in the period
include:
• Serco –
Although the business has a chequered history, it has returned to
growth and addressed its legacy issues under the current management
team. The company reduced its reliance on UK government work, with
more than half its profit now coming from overseas. We like the
high level of recurring revenue from multi-year contracts and
believe the valuation is modest for a business with significant
growth potential.
• Restaurant
Group – The business, which is best known for its Wagamama and
Frankie & Benny’s brands, has successfully exited a large
number of underperforming sites over the last year. Trading should
benefit from the recovery in consumer spending and reduced
competition following the pandemic.
•
• Avon
Protection – The business is a leading supplier of protective
equipment for the armed services, with a leading position in the UK
and US. We bought a position after a significant fall in the share
price following some contract delays. We believe these issues will
prove to be relatively short term in nature, and that the company
can return to growth
Significant Holdings
The 5 largest holdings in the portfolio at the interim stage
are:
• Future (3.5%
of the portfolio) is a media business which is successfully
transitioning from publishing magazines to running a diverse range
of niche interest websites such as TechRadar, What Hi-Fi, Period
Living and Decanter. The business aims to produce relevant, high
quality content and monetise it via subscriptions, advertising, and
e-commerce. Management has been successful in revitalising numerous
brands, and the company has grown revenue and profit both
organically and via acquisition.
• JTC (2.7% of
the portfolio) is a financial administration business operating
primarily in the Channel Islands but also with offices in
North America and Europe. It provides services to real estate
and private equity funds, multinational companies, and high net
worth individuals. The business has a strong reputation for quality
and has augmented its organic growth with acquisitions. The
business benefits from long term contracts, giving it excellent
earnings visibility.
• NCC (2.5% of
the portfolio) is a cyber-security and software escrow business.
Its cyber-security division helps businesses protect themselves
against cyber-attacks and assists them in their recovery following
an attack. Its software escrow division protects businesses against
the failure of software suppliers. The company has genuine
expertise and is growing organically and potentially by
acquisition.
• Hill &
Smith (2.4% 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 is exposed to
growing areas of expenditure.
• Sanne (2.4%
of the portfolio) provides a broad range of administration services
to investment businesses. Increased outsourcing of these activities
has driven organic growth which management has augmented with a
series of bolt-on acquisitions. Long term contracts give the
business good earnings visibility, and the specialist nature of the
services allows the company to generate an attractive profit
margin.
Outlook
With vaccination programmes around the world progressing well,
we are hopeful that the worst of the Covid-19 pandemic is behind
us. However, the recent increase in inflation, caused by the rapid
economic recovery combined with widespread supply disruption,
creates a quandary for central banks. Ordinarily, interest rates
would rise to restrain burgeoning inflation. However, with the
future path of the pandemic still unclear, and public sector debt
at post war highs, central banks are currently hoping that price
increases will be transient. Whilst we believe that this is the
most likely outcome, if inflation proves more persistent, then a
more rapid increase in interest rates might be necessary and this
could have consequences for asset values.
Even the worst of crises can present opportunities. Significant
economic set-backs tend to see weaker businesses either downsizing
or exiting the market entirely. This reduction in capacity presents
an opportunity for significant market share gains by businesses
with ability to invest for growth. Our approach of focussing on
financially strong, market leading businesses should serve us well
in this environment. Recent discussions with the management of
portfolio businesses suggests that this is already occurring, and
clearly, we are keen to support businesses by providing capital for
acquisitions and organic expansion.
In the absence of an unexpected turn for the worse, we expect
the UK economic recovery to continue through the second half of the
year. Equities continue to look good value when compared with
bonds, particularly in the UK, and therefore the market should
remain well supported. Although the current environment presents
significant uncertainty, we believe there is money to be made
through careful stock selection.
Jonathan
Brown & Robin West
Portfolio Managers
11 October 2021
Principal Risks And Uncertainties
The Directors confirm that they have carried out a robust
assessment of the emerging and principal risks facing the Company,
including those that would threaten its business model, future
performance, solvency or liquidity. Most of these risks are market
related and are similar to those of other investment trusts
investing primarily in listed markets.
Principal Risk
Description |
Mitigating Procedures and
Controls |
Market (Economic)
Risk
Factors such as fluctuations in stock markets, interest rates and
exchange rates are not under the control of the Board or the
Portfolio Manager, 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 Covid-19 pandemic. |
The Directors have assessed the
market impact of Covid-19 through regular discussions with the
Portfolio Managers and the Corporate Broker. To a limited extent,
futures can be used to mitigate this risk, as can the judicious
holding of cash or other very liquid assets. |
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. |
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 Manager, 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 Manager is relatively
risk averse, looks for lower volatility in the portfolio and seeks
to outperform in more challenging markets. The Portfolio Manager
remains 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 and
has guidelines in place to ensure that the Portfolio Manager
adheres 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 net asset value basis, and the Company’s share price discount
to net asset value per share. The Board and the Portfolio Manager
maintain an active dialogue with the aim of ensuring that the
market rating of the Company’s shares reflects the underlying net
asset value; both share buy back and issuance facilities are in
place to help the management of this process. |
Borrowings
The Company may borrow money for investment purposes. If the
investments fall in value, any borrowings (or gearing) will magnify
the extent of any loss. If the borrowing facility could not be
renewed, the Company might have to sell investments to repay any
borrowings made under it. |
All borrowing and gearing levels are
reviewed at every Board meeting and limits agreed. The Company did
not use any borrowings during the period under review. |
Reliance on the Manager
and other Third-Party Service Providers
The Company has no employees and the Directors are all
non-executive. 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. 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 successfully to pursue its
investment policy. The Company’s main service providers, of which
the Manager is the principal provider, are listed on page 19. The
Manager may be exposed to reputational risks. In particular, the
Manager may be exposed to the risk that litigation, misconduct,
operational failures, negative publicity and press speculation,
whether or not it is valid, will harm its reputation. Damage to the
reputation of the Manager could potentially result in
counterparties and third parties being unwilling to deal with the
Manager and by extension the Company, which carries the Manager’s
name. This could have an adverse impact on the ability of the
Company to pursue its investment policy successfully. |
Third-party service
providers are subject to ongoing monitoring by the Manager and the
Company.
The Manager reviews the performance of all third-party providers
regularly through formal and informal meetings.
The Audit Committee reviews regularly the performance and internal
controls of the Manager and all third-party providers through
audited service organisation control reports, together with updates
on information security and business continuity plans and testing,
the results of which are reported to the Board.
The Directors have reviewed the operational capabilities as
detailed in the “Operational Resilience Risk” section. |
Regulatory Risk
The Company is subject to various laws and regulations by virtue of
its status as an investment trust, its listing on the London Stock
Exchange and being an Alternative Investment Fund under the UK
AIFMD regime. A loss of investment trust status could lead to the
Company being subject to corporation tax on the chargeable capital
gains arising on the sale of its investments. Other control
failures, either by the Manager or any other of the Company’s
service providers, could result in operational or reputational
problems, erroneous disclosures or loss of assets through fraud, as
well as breaches of regulations. |
The Manager reviews the level of
compliance with tax and other financial regulatory requirements on
a regular basis. The Board regularly considers all risks, the
measures in place to control them and the possibility of any other
risks that could arise. The Manager’s Compliance and Internal Audit
Officers produce regular reports for review at the Company’s Audit
Committee. Further details of risks and risk management policies as
they relate to the financial assets and liabilities of the Company
are detailed in note 16 of the Company’s 2021 annual financial
report. |
Operational Resilience
Risk
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. |
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. As the impact of Covid-19
continues, the Manager maintains work from home arrangements and
has implemented split team working for business premises and
meetings can be held virtually or via conference calls. Other
similar working arrangements are in place for the Company’s
third-party service providers. 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. |
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 Holdings At
31 July 2021
Ordinary shares unless stated
otherwise
|
|
AT MARKET |
|
|
|
VALUE |
% OF |
COMPANY |
SECTOR |
£’000 |
PORTFOLIO |
Future |
Media |
7,990 |
3.5 |
JTC |
Investment Banking and Brokerage
Services |
6,233 |
2.7 |
NCC |
Software and Computer Services |
5,675 |
2.5 |
Hill & Smith |
Industrial Metals and Mining |
5,553 |
2.4 |
Sanne |
Investment Banking and Brokerage
Services |
5,533 |
2.4 |
RWSAIM |
Industrial Support Services |
5,436 |
2.4 |
CVSAIM |
Consumer Services |
5,411 |
2.4 |
Hilton Food |
Food Producers |
5,185 |
2.3 |
Ultra Electronics |
Aerospace and Defence |
5,110 |
2.2 |
Volution |
Construction and Materials |
5,045 |
2.2 |
Top Ten Holdings |
|
57,171 |
25.0 |
4imprint |
Media |
4,932 |
2.1 |
The Gym |
Travel and Leisure |
4,840 |
2.1 |
Hollywood Bowl |
Travel and Leisure |
4,562 |
2.0 |
discoverIE |
Technology Hardware and
Equipment |
4,559 |
2.0 |
Johnson ServiceAIM |
Industrial Support Services |
4,181 |
1.8 |
Advanced Medical
SolutionsAIM |
Medical Equipment and Services |
4,179 |
1.8 |
Aptitude Software |
Software and Computer Services |
4,116 |
1.8 |
CLS |
Real Estate Investment and
Services |
4,000 |
1.7 |
Brooks MacdonaldAIM |
Investment Banking and Brokerage
Services |
3,907 |
1.7 |
St. Modwen Properties |
Real Estate Investment and
Services |
3,687 |
1.6 |
Top Twenty Holdings |
|
100,134 |
43.6 |
Serco |
Industrial Support Services |
3,673 |
1.6 |
ClinigenAIM |
Pharmaceuticals and
Biotechnology |
3,628 |
1.6 |
Essentra |
Industrial Support Services |
3,546 |
1.6 |
Vistry |
Household Goods and Home
Construction |
3,542 |
1.5 |
Vitec |
Industrial Engineering |
3,482 |
1.5 |
Crest Nicholson |
Household Goods and Home
Construction |
3,395 |
1.5 |
Arrow Global |
Finance and Credit Services |
3,335 |
1.5 |
Learning
TechnologiesAIM |
Software and Computer Services |
3,220 |
1.4 |
RestoreAIM |
Industrial Support Services |
3,194 |
1.4 |
InspecsAIM |
Personal Goods |
3,081 |
1.3 |
Top Thirty Holdings |
|
134,220 |
58.5 |
Other Investments (47) |
|
95,255 |
41.5 |
Total Investments (77) |
|
229,485 |
100.0 |
AIM Investments quoted on AIM.
Governance
Going Concern
The financial statements have been prepared on a going concern
basis. the directors consider this is the appropriate basis, as the
company has adequate resources to continue in operational existence
for the foreseeable future. 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 2021 annual financial report gives
details of related party transactions and transactions with the
Manager. This report is available on the Company’s section of the
Manager’s website at www.invesco.co.uk/ipukscit
Directors’ Responsibility
Statement
In respect of the preparation of the half-yearly financial
report
The Directors are responsible for preparing the half-yearly
financial report using accounting policies consistent with
applicable law and International Financial Reporting Standards.
The Directors confirm that to the best of their knowledge:
– the condensed set of financial statements
contained within the half-yearly financial report have been
prepared in accordance with the International Accounting Standards
34 ‘Interim Financial Reporting’;
– the interim management report includes a
fair review of the information required by 4.2.7R and 4.2.8R of the
UKLA’s Disclosure Guidance and Transparency Rules; and
– the interim management report includes a
fair review of the information required on related party
transactions.
The half-yearly financial report has not been audited or
reviewed by the Company’s auditor.
Signed on behalf of the Board of Directors.
Jane
Lewis
Chairman
11 October 2021
Condensed Statement Of Comprehensive
Income
|
|
Six
Months To 31 Julu 2021 |
Six
Months To 31 July 2020 |
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
Notes |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
Profit/(loss) on investments held at
fair value |
|
— |
43,484 |
43,484 |
— |
(46,740) |
(46,740) |
Loss on foreign exchange |
|
— |
(1) |
(1) |
— |
— |
— |
Income |
2 |
1,777 |
— |
1,777 |
501 |
— |
501 |
|
|
1,777 |
43,483 |
45,260 |
501 |
(46,740) |
(46,239) |
Investment management fees |
3 |
(123) |
(700) |
(823) |
(89) |
(503) |
(592) |
Other expenses |
|
(186) |
(2) |
(188) |
(184) |
(2) |
(186) |
Profit/(loss) before finance
costs |
|
|
|
|
|
|
|
and taxation |
|
1,468 |
42,781 |
44,249 |
228 |
(47,245) |
(47,017) |
Finance costs |
3 |
(1) |
(3) |
(4) |
— |
(3) |
(3) |
Profit/(loss) before
taxation |
|
1,467 |
42,778 |
44,245 |
228 |
(47,248) |
(47,020) |
Taxation |
4 |
— |
— |
— |
— |
— |
— |
Profit/(loss) after
taxation |
|
1,467 |
42,778 |
44,245 |
228 |
(47,248) |
(47,020) |
Return per ordinary
share |
|
4.34p |
126.46p |
130.80p |
0.67p |
(139.67)p |
(139.00)p |
Weighted average number of
ordinary |
|
|
|
|
|
|
|
shares in issue
during the period |
|
|
|
33,826,929 |
|
|
33,826,929 |
The total column of this statement represents the Company’s
statement of comprehensive income, prepared in accordance with
International Financial Reporting Standards in conformity with the
requirements of the Companies Act 2006. The profit/(loss) after
taxation is the total comprehensive 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 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
2021 |
|
|
|
|
|
|
|
At 31 January 2021 |
|
10,642 |
22,366 |
3,386 |
154,986 |
— |
191,380 |
Total comprehensive loss for the
period |
|
— |
— |
— |
42,778 |
1,467 |
44,245 |
Dividends paid |
5 |
— |
— |
— |
(3,998) |
— |
(3,998) |
At 31 July 2021 |
|
10,642 |
22,366 |
3,386 |
193,766 |
1,467 |
231,627 |
|
|
|
|
|
|
|
|
For the six months ended 31 July
2020 |
|
|
|
|
|
|
|
At 31 January 2020 |
|
10,642 |
22,366 |
3,386 |
167,973 |
876 |
205,243 |
Total comprehensive income for the
period |
|
— |
— |
— |
(47,248) |
228 |
(47,020) |
Dividends paid |
5 |
— |
— |
— |
(2,879) |
(876) |
(3,755) |
At 31 July 2020 |
|
10,642 |
22,366 |
3,386 |
117,846 |
228 |
154,468 |
Condensed Balance Sheet
Registered number 2129187
|
|
At |
At |
|
|
31 July |
31 January |
|
|
2021 |
2021 |
|
Notes |
£’000 |
£’000 |
Non-current assets |
|
|
|
Investments held at fair value
through |
|
|
|
profit or loss |
|
229,485 |
187,782 |
Current assets |
|
|
|
Amounts due from brokers |
|
148 |
26 |
Tax recoverable |
|
9 |
— |
Prepayments and accrued income |
|
202 |
188 |
Cash and cash equivalents |
|
2,312 |
4,218 |
|
|
2,671 |
4,432 |
Total assets |
|
232,156 |
192,214 |
Current liabilities |
|
|
|
Amounts due to brokers |
|
(326) |
(638) |
Accruals |
|
(203) |
(196) |
|
|
(529) |
(834) |
Net assets |
|
231,627 |
191,380 |
Capital and reserves |
|
|
|
Share capital |
|
10,642 |
10,642 |
Share premium |
|
22,366 |
22,366 |
Capital redemption reserve |
|
3,386 |
3,386 |
Capital reserve |
|
193,766 |
154,986 |
Revenue reserve |
|
1,467 |
— |
Total shareholders'
funds |
|
231,627 |
191,380 |
Net asset value per
ordinary |
|
|
|
share |
|
684.74p |
565.76 |
Number of ordinary shares
in |
|
|
|
issue at the period
end |
6 |
33,826,929 |
33,826,929 |
Condensed Statement Of Cash Flow
|
|
Six |
Six |
|
|
Months
Ended |
Months
Ended |
|
|
31 July |
31 July |
|
|
2021 |
2020 |
|
Notes |
£’000 |
£’000 |
Cash flow from operating
activities |
|
|
|
Profit/(loss) before
finance costs and taxation |
|
44,249 |
(47,017) |
Adjustments for: |
|
|
|
Purchases of
investments |
|
(25,511) |
(26,287) |
Sales of
investments |
|
26,588 |
26,799 |
|
|
1,347 |
512 |
(Profit)/loss on investments held at
fair value |
|
(43,484) |
46,740 |
(Increase)/decrease in
receivable |
|
(23) |
318 |
Increase/(decrease) in payables |
|
7 |
(60) |
Net cash inflow from operating
activities after taxation |
|
2,096 |
493 |
Cash flow from financing
activities |
|
|
|
Finance cost paid |
|
(4) |
(3) |
Dividends paid |
5 |
(3,998) |
(3,755) |
Net cash outflow from financing
activities |
|
(4,002) |
(3,758) |
Net decrease in cash and cash
equivalents |
|
(1,906) |
(3,265) |
Cash and cash equivalents at start
of the period |
|
4,218 |
5,493 |
Cash and cash equivalents at the
end of the period |
|
2,312 |
2,228 |
Reconciliation of cash and
cash |
|
|
|
equivalents to the
Balance Sheet |
|
|
|
is as
follows: |
|
|
|
Cash held at custodian |
|
92 |
118 |
Invesco Liquidity Funds plc –
Sterling, money market fund |
|
2,220 |
2,110 |
Cash and cash
equivalents |
|
2,312 |
2,228 |
Cash flow from operating
activities includes: |
|
|
|
Dividends received |
|
1,761 |
823 |
As the Company did not have any long term debt at both the
current and prior period ends, no reconciliation of the net debt
position is presented.
Notes to the Condensed Financial
Statements
1. Basis of
Preparation
Accounting Standards and Policies
The condensed financial statements have been prepared using the
same accounting policies as those adopted in the Company’s 2021
annual financial report. They have been prepared on an historical
cost basis, in accordance with the applicable International
Financial Reporting Standards (IFRS), in conformity with the
requirements of the Companies Act 2006 and, where possible, in
accordance with the Statement of Recommended Practice for Financial
Statements of Investment Trust Companies and Venture Capital
Trusts, issued by the Association of Investment Companies in
April 2021 (‘SORP’).
2.
Income
|
Six Months
Ended |
Six Months
Ended |
|
31 July |
31 July |
|
2021 |
2020 |
SIX MONTHS ENDED |
£’000 |
£’000 |
Income from listed investments: |
|
|
UK dividends |
|
|
|
1,625 |
387 |
– special |
10 |
- |
Overseas dividends |
142 |
114 |
|
1,777 |
501 |
3.
Management Fees and Finance Costs
Investment management fees 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% (2020: 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
|
31
July 2021 |
31
July 2020 |
SIX MONTHS ENDED |
Rate |
£’000 |
Rate |
£’000 |
Third interim |
3.75p |
1,268 |
3.75p |
1,268 |
Final |
8.07p |
2,730 |
7.35p |
2,487 |
Total |
11.82p |
3,998 |
11.10p |
3,755 |
The first interim dividend of 3.75p per ordinary share (2020:
3.75p) was paid on 2 September 2021
to shareholders on the register on 6 August
2021.
6.
Share capital, including Movements
|
Six Months |
Year Ended |
|
To |
To |
|
31 July |
31 January |
|
2021 |
2021 |
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 |
7.
Classification Under Fair Value Hierarchy
Note 16 of the Company's 2021 annual financial report sets out
the basis of classification.
As at 31 July 2021, the majority
of the Company’s portfolio was composed of quoted (Level 1)
investments. As at 31 January 2021,
ECO Animal Health was the only Level 2 investment in the portfolio
valued at £1,149,000. The investment had been temporarily suspended
from AIM but resumed trading on 4 February
2021. This is now included as a Level 1 investment as at
31 July 2021.
Berry Starquest Limited (dormant subsidiary) was the only Level
3 investment valued at £100 (31 January
2021: £100).
8.
Status of Half-Yearly Financial Report
The financial information contained in this half-yearly
financial report, which has not been reviewed or audited by an
independent auditor, does not constitute statutory accounts within
the meaning of section 434 of the Companies Act 2006. The financial
information for the half years ended 31 July
2020 and 31 July 2021 has not
been audited. The figures and financial information for the year
ended 31 January 2021 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.
By order of the Board
Invesco Asset Management Limited
Company
Secretary
11 October 2021
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 2021 and the year ended
31 January 2021. The APMs listed here
are widely used in reporting within the investment company sector
and consequently aid comparability.
Benchmark (or Benchmark Index)
A market index, which averages the performance of companies in
any sector, giving a good indication of any rises or falls in the
market. The benchmark used in these accounts is the Numis Smaller
Companies Index (excluding Investment Companies) with income
reinvested. This index does not include AIM stocks.
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
2021 |
31 January
2021 |
Share price |
a |
622.00p |
483.00p |
Net asset value per share |
b |
684.74p |
565.76p |
Discount |
c = (a-b)/b |
(9.2)% |
(14.6)% |
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 2021 the Company had no gross
borrowings (31 January 2021:
£nil).
|
|
31 July
2021 |
31 January
2021 |
|
|
£’000 |
£’000 |
Bank overdraft facility |
|
— |
— |
Gross borrowings |
a |
— |
— |
Net asset value |
b |
231,627 |
191,389 |
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
2021 |
31 January
2021 |
|
|
£’000 |
£’000 |
Bank overdraft facility |
|
— |
— |
Less: cash and cash equivalents |
|
(2,312) |
(4.218) |
Net cash |
a |
2,312 |
4,218 |
Net asset value |
b |
231,627 |
191,380 |
Net cash |
c = a/b |
1.0% |
2.2% |
Maximum Authorised Gearing
This reflects the maximum authorised borrowings of a 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
2021 |
31 January
2021 |
|
|
£'000 |
£'000 |
Maximum authorised borrowings |
|
|
|
as laid down in: |
|
|
|
Investment policy: |
|
|
|
– lower of 30% of net asset |
|
|
|
value; and |
a = 30% x e |
69,488 |
57,414 |
– £25m |
b |
25,000 |
25,000 |
Bank facility covenants: lower |
|
|
|
of 30% of net asset
value |
|
|
|
and £15m |
c |
15,000 |
15,000 |
Maximum authorised borrowings |
|
|
|
(d = lower of a, b and
c) |
d |
15,000 |
15,000 |
Net asset value |
e |
231,627 |
191,380 |
Maximum authorised gearing |
f = d/e |
6.5% |
7.8% |
Net Asset Value (NAV)
Also described as shareholders' funds the NAV is the value of
total assets less liabilities. Liabilities for this purpose include
current and long-term liabilities. The NAV per ordinary share is
calculated by dividing the net assets by the number of ordinary
shares in issue. 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, with debt at market value, 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
2021 |
|
Value |
Price |
As at 31 July 2021 |
|
684.75p |
622.00p |
As at 31 January 2021 |
|
565.76p |
483.00p |
Change in period |
a |
21.0% |
28.8% |
Impact of dividend
reinvestments(1) |
b |
2.3% |
2.6% |
Total return for the
period |
c = a+b |
23.3% |
31.4% |
|
|
Net Asset |
Share |
YEAR ENDED 31 JAN 2021 |
|
Value |
Price |
As at 31 January 2020 |
|
565.76p |
483.00p |
As at 31 January 2020 |
|
606.74p |
606.00p |
Change in year |
a |
–6.8% |
–20.3% |
Impact of dividend
reinvestments(1) |
b |
3.7% |
3.5% |
Total return for the year |
c = a+b |
–3.1% |
–16.8% |
- Total dividends paid during the six months to 31 July 2021 of 11.82p (31
January 2021: 18.60p) reinvested at the NAV or share price
on the ex-dividend date. NAV or share price falls subsequent to the
reinvestment date consequently further reduce the returns, vice
versa if the NAV or share price rises.
Benchmark
Total return on the benchmark is
on a mid-market value basis, assuming all dividends received were
reinvested, without transaction costs, into the shares of the
underlying companies at the time the shares were quoted
ex-dividend.