Annual Financial Report
Invesco Perpetual UK Smaller Companies Investment Trust plc
Annual Financial Report Announcement
for the year ended 31 January 2011
FINANCIAL INFORMATION AND PERFORMANCE STATISTICS
The Benchmark Index of the Company is the Extended Hoare Govett Smaller
Companies Index (excluding Investment Trusts)
AT AT
31 JANUARY 31 JANUARY %
2011 2010 CHANGE
Total return (all income reinvested):
Net asset value(1)(2)(3) +28.6
Benchmark(1)(3) +28.7
FTSE All-Share Index(3) +18.1
Net asset value per ordinary share:
- balance sheet 242.9p 193.7p +25.4
- after charging proposed dividends 240.2p 191.0p +25.8
(capital NAV)
Shareholders' funds (£'000)(2) 133,999 111,281 +20.4
Mid-market price per ordinary share 195.0p 150.5p +29.6
Discount(1) per ordinary share based on 19.7% 22.3%
balance sheet NAV
Capital only return - indices:
Benchmark(1)(3) +25.3
FTSE All-Share Index(3) +14.4
Return and dividend per ordinary share:
Revenue return 4.1p 4.3p
Capital return 47.2p 49.4p
Total return 51.3p 53.7p
First interim dividend 1.6p 1.6p
Final dividend/second interim 2.7p 2.7p
4.3p 4.3p nil
Total expense ratio(1)(4)
- excluding performance fee 0.9% 0.9%
- including performance fee 0.9% 0.9%
Gearing(1)(5)
- gross gearing nil nil
- net gearing -0.6% -1.7%
- potential gearing 14.9% 18.0%
Note:  (1) The term is defined in the Glossary in the Annual Financial Report.
(2) Includes enhancements from share repurchases.
(3) Source: Thomson Reuters Datastream and Morningstar.
(4) Excludes the effect of any recoverable VAT on management fees and interest
thereon.
(5) A gearing level of nil indicates there is no gearing.
CHAIRMAN'S STATEMENT
During the year ended 31 January 2011, the Company achieved an increase in net
asset value (`NAV') of 28.6% on a total return basis, outperforming the FTSE
All-Share Index, which rose by 18.1% over the same period, and effectively
matching its benchmark the Extended Hoare Govett Smaller Companies Index
(excluding Investment Trusts), which rose by 28.7%.
At the same time, I am pleased to note that during the same period the
mid-market price of the Company's shares rose by 29.6% from 150.5p to 195p per
share, accompanied by a narrowing of the discount to NAV from 22.3% to 19.7%.
Dividend
For the year ended 31 January 2011, an interim dividend of 1.6 pence per share
was paid on 22 October 2010 to shareholders on the register on 24 September
2010. The Board is proposing the payment of a final dividend of 2.7 pence per
share on 27 May 2011 to shareholders on the register on 26 April 2011.
Total dividends for the year to 31 January 2011 are 4.3 pence per share, the
same as last year. Future dividends, as well as investment performance, will,
as always, depend on market conditions, the income earned from the investment
portfolio and the ability of the Managers to achieve satisfactory results.
Share Repurchases
During the year ended 31 January 2011, the Company purchased and cancelled a
total of 2,300,600 ordinary shares at a weighted average price of 172 pence per
share and at an average discount to NAV of over 20%. The effect has been to buy
in 4% of the issued share capital and to enhance NAV by approximately 0.9%.
Since the year end, no further ordinary shares have been bought back.
Board Renewal
During the year, the Board undertook the search for a new Director with the
help of an independent consultancy. As a result, I am pleased to report that
Christopher Fletcher, who has broad experience at a senior level in both
accountancy and fund management, agreed to join the Board as a non-executive
Director on 1 December 2010 and will be seeking shareholder's approval for his
election at the forthcoming AGM.
Mark O'Hare will be stepping down from the Board at the AGM after 14 years of
invaluable service. We shall miss his insights and constructive contribution to
the development of the Company.
Management of the Company
As already mentioned in the half-yearly report, during the year the Board
appointed Jonathan Brown as co-manager of the portfolio, alongside the existing
manager, Richard Smith. Both managers have worked together in the same
investment environment for seven years and the Board has confidence in their
ability to add value to the company's assets.
New Management Agreement
The Board has recently completed a review of the management fee provisions of
the investment management agreement and agreed with the Manager a number of
changes to the method of calculating performance related fees. The Board
believes these changes are appropriate both to provide a more consistent basis
for measuring the Company's performance and to bring the level of overall fees
more in-line with the peer group.
The principal changes to the annual performance fee calculation are:
• performance to be measured on the basis of NAV rather than share price;
• fees to be reduced from 15% to 12.5% of the value of the outperformance;
• maximum fee payable reduced from 1.85% to 1% of funds under management; and
• maximum percentage to carry forward has been reduced from 1.85% to 1%.
There will be no change to the benchmark index. The changes have taken effect
from the beginning of the current financial year, on 1 February 2011, and any
under- or outperformance of the benchmark for periods up to 31 January 2011
will not be carried forward.
Annual General Meeting
The Directors have carefully considered all of the resolutions proposed in the
Notice of the AGM and believe them to be in the best interests of shareholders
and the Company as a whole. The Directors accordingly recommend that
shareholders vote in favour of each resolution.
There are four resolutions to be proposed as Special Business at the AGM and
these will be proposed as one Ordinary Resolution and three Special
Resolutions.
Authority to Allot Shares and Authority to Buy Back Shares (Resolutions 9, 10
and 11)
In order to assist the Board with its commitment to discount management, the
Directors are seeking to renew the authority to undertake purchases of the
Company's ordinary shares in the market and to issue new ordinary shares, and
are also seeking authority to issue new ordinary shares whilst disapplying
pre-emption rights, if required, within the set limits set out in Ordinary
Resolution 9 and Special Resolutions 10 and 11 in the Notice of AGM. New shares
will not be issued at prices below, nor will shares be repurchased at prices
higher, than the prevailing net asset value.
As stated in previous years, the Directors might consider holding repurchased
shares as treasury shares, with a view to possible resale. To take account of
the possibility of treasury shares, the disapplication of pre-emption rights
has been extended to apply to the resale of treasury shares (if any) in the
same way as to the allotment of new securities.
Notice Period for General Meetings (Resolution 12)
The implementation of the EU Shareholder Rights Directive in 2009, has
increased the notice period for general meetings of companies to 21 days unless
certain conditions are met in which case it may be 14 days' notice.
At the Company's AGM last year, a resolution was passed by shareholders
allowing the period of notice required for general meetings (other than AGMs)
to be not less than 14 days' notice. The Directors are proposing Special
Resolution 12, to renew this authority.
Outlook
The Manager's Report highlights the difficulties facing the UK economy and the
factors which could militate against its continued recovery. At the same time
it is worth recording the emphasis in your Company's portfolio on high quality
mid to small-cap stocks, whose overseas earnings exceed those from the domestic
market and provide both the possibility of relative outperformance and the
maintenance of continued defensive characteristics. Your Manager's long-term
record of superior stock selection will remain key and will determine the
likelihood of achieving a continued positive return for the year ahead from a
balanced portfolio of quality companies.
Ian Barby
Chairman
14 April 2011
MANAGERS' REPORT
Investment Review
In the period under review, the UK stock market was buffeted by both internal
and external factors. Initially, the stock market continued the recovery begun
in 2009. However, from a peak in April there was a sharp sell-off, resulting
from sovereign debt problems, initially in Greece and Ireland, but later
spreading to Portugal and Spain. A substantial bail-out package from the EU and
IMF, combined with harsh spending cuts brought some stability to the situation.
At the same time, the UK had its own problems, following an indecisive general
election result in May. This was resolved by the formation of the first
coalition government since the Second World War; investors, however, remained
cautious ahead of the comprehensive spending review in October. Even so, by
late summer the stock market resumed its uptrend, encouraged by the continuing
recovery in the global economy, further quantitative easing by the US and
stronger than expected increases in profits for many companies. Even the poor
weather in December was shrugged off, as shares recorded their strongest month
of the year. For the year to 31 January 2011, the UK stock market, as measured
by the FTSE All Share Index, rose 18.1% (on a total return basis). This
compares with just a 4% gain at the halfway stage at the end of July 2010.
Small to mid-cap stocks significantly outperformed the larger capitalisation
companies, this for the second year in a row, as they demonstrated selectively
their greater ability to grow and their flexibility to handle difficult
environments. The FTSE 250 Index gained 27.4% and your Company's benchmark
index, the Extended Hoare Govett Smaller Companies Index, increased 28.7%.
Against this background, the net asset value of the shares (on a total return
basis) rose 28.6%. The portfolio benefited from overweight positions in the
Industrial Engineering, Electronic Equipment and Chemicals sectors, but
suffered from under exposure to the Mining and Travel and Leisure sectors. The
main contributors were: Fenner, which increased by 80% during the period, as a
result of a succession of earnings upgrades, due to the recovery in its
industrial polymers division and a continued good performance from its heavy
duty conveyor belting which is used extensively in the coal mining industry;
Croda, which gained 94%, is a specialty chemicals business whose products are a
small but important part of the ingredients in a wide range of skincare and
cosmetic products; Synergy Healthcare, which increased 41%, is a leading
provider of decontamination services for surgical instruments, sterilisation
services for medical instruments and linen services to the NHS; Domino
Printing, which gained 94%, is a leading manufacturer of digital ink jet
printers which are used to track and trace the origin of products. The year was
not without its disappointments, however. Historically the managers have wished
to be overweight in support services, because of the recurring nature of the
revenue of many of the companies in this sector. Unfortunately, in a more
difficult economic environment, these revenues have proved less defensive than
expected. Investments in Connaught and Mouchel have been disappointing.
Despite the underperformance in 2009/10 and flat performance in 2010/11, on a
five-year basis the Company continues to achieve its objective relative to the
peer group of being an above average performer combined with lower than average
volatility, as the chart in the Annual Financial Report shows.
Investment Strategy
2010 witnessed a steady climb out of recession for many western economies. This
recovery has been aided by strong growth in many developing countries, notably
China, and the reluctance so far for the US, at least at the federal level, to
begin tackling its trade and budget deficits. It has also been helped by easy
monetary policies, developed in response to the unprecedented burden of debt of
many governments and consumers and designed to soften the impact of the
austerity budgets being pursued by many governments. There is little doubt that
the monetary authorities regard the higher inflation generated as more
desirable than either a double dip in economic growth or deflation, both of
which would once again expose underlying deficits which may require large and
politically difficult bailouts. The willingness, however, of lenders to see
their loans devalued in this way remains a major uncertainty. Moreover the UK
authorities are faced with quite a dilemma. Higher UK inflation is
predominantly supply-led, rather than demand-led, being caused by rising
commodity prices, higher UK taxes and increased public-sector service costs as
a result of reduced government subsidies. A rise in UK interest rates,
currently being demanded by financial markets, would do little to subdue these
inflationary pressures but could have the effect of choking off what, so far,
is proving to be a pretty fragile recovery. The more dangerous wage-led
inflation seems unlikely due to the weak bargaining position of labour in the
current environment. Whatever the outcome, the UK and most western economies
surely face a prolonged period of anaemic growth, as the required drop in
living standards takes place and the process of deleveraging runs its course.
Additionally, the recent increases in basic commodities such as food products
as well as oil prices are unhelpful to either developing or developed
economies.
We continue to believe that the outlook for the UK stock market is more
attractive than for the UK economy. Firstly, well over 60% of earnings from UK
public companies come from abroad, where prospects appear brighter. Sterling
may weaken further, enhancing the value of these foreign earnings. Secondly,
the thrust of government policy is to rebalance the economy towards the private
sector which should provide outsourcing opportunities for many UK companies.
Thirdly, valuations appear reasonable on an historical basis. In particular,
dividends are growing again and yields remain attractive versus extremely low
deposit rates. Finally, if we are right about the authorities tolerating a
higher inflation rate, then equities could be a prime beneficiary.
As ever, we wish to run a reasonably balanced portfolio of quality companies.
We remain favourably disposed to businesses with overseas exposure, partly to
benefit from better economic prospects outside the UK, but also we view the
ability to sell products and services around the world as a clear indication of
a strong business. In the current inflationary environment, the need to be
invested in high-quality businesses, with intellectual property and the ability
to pass on rising costs through price increases, has never been more important.
With this in mind, the portfolio retains its exposure to the industrial
engineering sector. We have investments in world-class businesses such as
Fenner, which was described earlier in this report, Rotork, whose valve
actuators are critical components in power stations, pipelines and
infrastructure projects around the world, and Spirax-Sarco, whose steam
handling technology improves the efficiency of a wide range of manufacturing
processes. In the technology sector, we have outstanding companies such as
Aveva, which produces the most widely used 3D design software in the
shipbuilding, petrochemical and energy sectors and Fidessa, which supplies
trading platforms and systems to the global financial sector. We continue to
have a relatively limited exposure to consumer related businesses reflecting
our belief that the consumer will remain under pressure for some time to come.
Where we do invest in the sector, it is in good quality niche companies such as
Brown (N.), which is a catalogue retailer with a significant online presence,
serving the outsize clothing market, a sector not well served on the high
street. We have suffered from being overweight support services companies with
public-sector exposure. Eventually, these companies will benefit from increased
outsourcing opportunities, but in the short term, they remain under pressure to
reduce prices and to curtail certain activities in order to help the government
achieve its spending targets.
Current prospects
The outlook for the UK economy is uncertain. The recovery seen over the first
three quarters of the year came to a halt in the fourth quarter, as poor
weather and the initial impact of prospective government spending cuts were
felt. The fiscal squeeze in the UK and Europe will no doubt be adopted by the
US in coming months, with potentially negative consequences for growth. In the
UK, government and consumer spending account for almost 90% of GDP and explain
why we believe the prospects for the UK economy are for slow growth at best.
Unfortunately, this situation is now being made worse by the political unrest
in the Middle East and the resulting increase in oil prices. The rise in price
of such a widely used commodity such as oil has a similar effect to an increase
in taxes and will result in slower global growth if sustained for long. Not
surprisingly, equity markets around the world have experienced some
profit-taking in recent weeks and are likely to remain subdued until the
political situation stabilises and fears of the unrest spreading to Saudi
Arabia, the major country of the region, subside. Provided that calm returns,
we believe that the UK stock market can make further upward progress, even if
we experience the first increase in official interest rates. Good stock
selection could produce a third successive year of positive returns for your
Company.
Richard Smith Jonathan Brown
Invesco Asset Management Limited
14 April 2011
INVESTMENTS IN ORDER OF VALUATION
AT 31 JANUARY 2011
Ordinary shares unless stated otherwise
VALUE % OF
COMPANY ACTIVITY BY SECTOR £'000 PORTFOLIO
Synergy Healthcare Health Care Equipment & 5,408 4.1
Services
Fenner Industrial Engineering 4,779 3.6
Chemring Aerospace & Defence 4,151 3.1
Babcock Support Services 3,469 2.6
Croda Chemicals 3,104 2.3
Domino Printing Electronic & Electrical 2,971 2.2
Equipment
Homeserve Support Services 2,804 2.1
Dechra Pharma Pharmaceuticals & 2,174 1.6
Biotechnology
Mears Support Services 2,086 1.6
Melrose Industrial Engineering 2,042 1.6
Top Ten Holdings 32,988 24.8
Premier Oil Oil & Gas Producers 2,032 1.5
Brewin Dolphin Financial Services 1,924 1.5
Diploma Support Services 1,916 1.4
Avocet Mining Mining 1,787 1.3
Jupiter Fund Management Financial Services 1,767 1.3
Filtrona Support Services 1,651 1.2
Victrex Chemicals 1,609 1.2
Brown (N.) General Retailers 1,513 1.1
Phoenix Software & Computer Services 1,512 1.1
New Britain Palm Oil Food Producers 1,503 1.1
Top Twenty Holdings 50,202 37.5
Fidessa Software & Computer Services 1,485 1.1
RM Software & Computer Services 1,481 1.1
Spectris Electronic & Electrical 1,470 1.1
Equipment
IQE Technology Hardware & 1,458 1.1
Equipment
Ultra Electronic Aerospace & Defence 1,400 1.1
Cape Oil Equipment, Services & 1,394 1.1
Distribution
Dignity General Retailers 1,384 1.1
James Halstead Construction & Materials 1,382 1.0
United Business Media Media 1,362 1.0
SDL Software & Computer Services 1,347 1.0
Top Thirty Holdings 64,365 48.2
Northgate Support Services 1,321 1.0
Micro Focus Software & Computer Services 1,317 1.0
Greene King Travel & Leisure 1,292 1.0
Beazley Non-life Insurance 1,276 1.0
BTG Pharmaceuticals & 1,264 1.0
Biotechnology
Microgen Software & Computer Services 1,256 1.0
Spirent Communications Technology Hardware & 1,255 1.0
Equipment
Hargreaves Service Support Services 1,253 0.9
Gulfsands Petroleum Oil & Gas Producers 1,173 0.9
NCC Software & Computer Services 1,169 0.9
Top Forty Holdings 76,941 57.9
RWS Support Services 1,167 0.9
Aveva Software & Computer Services 1,146 0.9
Kofax Software & Computer Services 1,143 0.9
Greggs Food & Drug Retailers 1,123 0.8
Spirax-Sarco Industrial Engineering 1,123 0.8
Globeop Financial Financial Services 1,111 0.8
RPS Support Services 1,109 0.8
Mitie Support Services 1,094 0.8
Xchanging Support Services 1,089 0.8
Berendsen Support Services 1,085 0.8
Top Fifty Holdings 88,131 66.2
Rotork Industrial Engineering 1,067 0.8
Dunelm General Retailers 1,067 0.8
Elementis Chemicals 1,057 0.8
H & T Financial Services 1,040 0.8
Hunting Oil Equipment, Services & 1,026 0.8
Distribution
Salamander Energy Oil & Gas Producers 1,020 0.8
Anglo Pacific Mining 1,017 0.8
Emis Software & Computer Services 1,005 0.8
E2V Technologies Electronic & Electrical 999 0.7
Equipment
Cranswick Food Producers 993 0.7
Top Sixty Holdings 98,422 74.0
May Gurney Support Services 992 0.7
PZ Cussons Personal Goods 962 0.7
CPP Support Services 955 0.7
Hiscox Non-life Insurance 948 0.7
Immunodiagnostic Health Care Equipment & 946 0.7
Services
Carillion Support Services 933 0.7
Valiant Petroleum Oil & Gas Producers 920 0.7
CSR Technology Hardware & 857 0.6
Equipment
Omega Insurance - US common Non-life Insurance 852 0.6
stock
Devro Food Producers 843 0.6
Top Seventy Holdings 107,630 80.7
Halfords General Retailers 819 0.6
JKX Oil & Gas Oil & Gas Producers 809 0.6
Laird Electronic & Electrical 804 0.6
Equipment
Consort Medical Health Care Equipment & 779 0.6
Services
Mouchel Support Services 776 0.6
Collins Stewart Financial Services 774 0.6
WH Smith General Retailers 773 0.6
Headlam Household Goods & Home 773 0.6
Construction
Sinclair Pharmaceuticals Pharmaceuticals & 768 0.6
Biotechnology
RSM Tenon Financial Services 766 0.6
Top Eighty Holdings 115,471 86.7
London Mining Industrial Metals & Mining 739 0.6
Faroe Petroleum Oil & Gas Producers 722 0.5
Advanced Medical Solutions Health Care Equipment & 672 0.5
Services
Howden Joinery Support Services 664 0.5
Paypoint Support Services 656 0.5
Axis-Shield Pharmaceuticals & 648 0.5
Biotechnology
Hansard Global Life Insurance 646 0.5
Hill & Smith Industrial Engineering 641 0.5
Hardy Underwriting Non-life Insurance 630 0.5
Senior Aerospace & Defence 629 0.5
Top Ninety Holdings 122,118 91.8
Afren Oil & Gas Producers 623 0.5
Pace Technology Hardware & 617 0.5
Equipment
Group NBT Software & Computer Services 602 0.5
Playtech Software & Computer Services 600 0.5
Abbey Protection Non-life Insurance 594 0.4
Low & Bonar Construction & Materials 587 0.4
CVS General Retailers 573 0.4
Renishaw Electronic & Electrical 528 0.4
Equipment
Coastal Energy Oil & Gas Producers 528 0.4
Holidaybreak Travel & Leisure 519 0.4
Top Hundred Holdings 127,889 96.2
Az Electronic Materials Chemicals 505 0.4
RPC General Industrials 446 0.3
Caretech Holdings Health Care Equipment & 434 0.3
Services
Yougov Media 430 0.3
Mountview Estates Real Estate Investment & 400 0.3
Services
Sthree Support Services 356 0.3
Morson Support Services 333 0.2
Petra Diamonds Mining 324 0.2
Britvic Beverages 323 0.2
Unite Real Estate Investment & 301 0.2
Services
Top Hundred and Ten Holdings 131,741 98.9
MAM Funds Financial Services 291 0.2
Hansteen Real Estate Investment Trusts 288 0.2
Strategic Thought Software & Computer Services 260 0.2
Mucklow A&J Real Estate Investment Trusts 250 0.2
Bellway Household Goods & Home 222 0.2
Construction
Keller Construction & Materials 185 0.1
Clean Energy - Warrants Chemicals - -
Minorplanet Systems Industrial Transportation - -
Berry Starquest Limited Investment Dealing Subsidiary - -
TOTAL INVESTMENTS 133,237 100.0
As at 31 January 2011, one investment was held at a fair value of nil (2010:
one).
Related Party Transactions
Invesco Asset Management Limited (`IAML'), a wholly owned subsidiary of Invesco
Limited, acts as Manager, Company Secretary and Administrator to the Company.
Details of IAML's services and fees are disclosed in the Report of the
Directors. Full details of Directors' interests are set out in the Report of
the Directors, and details of Directors' remuneration are set out in the
Remuneration Report in the Annual Financial Report. There are no other related
party transactions.
Principal Risks and Uncertainties
Investment Objective
The Company's investment objective is to achieve long-term return for its
shareholders via an investment vehicle which gives access to a broad cross
section of small to medium sized UK quoted companies.
There can be no guarantee that the Company will achieve its investment
objective.
Market Movements and Portfolio Performance
The majority of the Company's investments is traded on the London Stock
Exchange. A smaller proportion of investments is traded on the AIM Market. The
principal risk for investors in the Company is of a significant fall in the
markets and/or a prolonged period of decline in the markets relative to other
forms of investment as well as bad performance of individual portfolio
companies.
The Managers' approach to investment is one of individual stock selection.
Market 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 Managers 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 smaller companies available.
The Managers remain cognisant at all times of the potential liquidity of the
portfolio.
The Managers are relatively risk averse, look for lower volatility in the
portfolio and seek to outperform in more challenging markets. In comparison to
peer group investment trusts, the Company believes that its portfolio often has
a higher than average market capitalisation and a lower than average exposure
to the AIM market.
The performance of the Managers is carefully monitored by the Board, and the
continuation of the Managers' mandate is revisited annually. The Board has
established guidelines to ensure that the investment policy that it has
approved is pursued by the Managers. The Board and the Managers maintain an
active dialogue with the aim of ensuring that the market rating of the
Company's shares reflects the underlying net asset value; and there are in
place both share buy back and issuance facilities to help the management of
this process.
The Risks and Risk Management Policies are detailed in note 18 to the financial
statements in the Annual Financial Report.
Ordinary Shares
The market value of the shares in the Company may not reflect their underlying
net asset value (`NAV') and may trade at a discount to its NAV. The value of an
investment in the Company and the income derived from that investment may go
down as well as up and an investor may not get back the amount invested.
Whilst the Directors intend to pay a dividend to ordinary shareholders each
year, the ability to do so will depend upon the level of income received from
securities, the timing of receipts of such income from securities, expenses and
the amount of any distributable reserves.
Regulatory and Tax Related
The Company is subject to various laws and regulations by virtue of its status
as an investment trust, and its listing on the London Stock Exchange. A breach
of s1158 CTA (previously s842 ICTA) could lead to the Company being subject to
capital gains tax on the sale of its investments. A serious breach of other
regulatory rules may lead to suspension from the Stock Exchange or a qualified
Audit Report. Other control failures, either by the Manager or any other of the
Company's service providers, may 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 s1158 CTA and other financial
regulatory requirements on a daily basis. All transactions, income and
expenditure are reported to the Board. The Board regularly considers all risks,
the measures in place to control them and the possibility of any other risks
that could arise. The Board ensures that satisfactory assurances are received
from service providers. The Manager's Compliance and Internal Audit Officers
produce regular reports for review at the Company's Audit Committee.
Reliance on Third Party Providers
The Company has no employees and the Directors have all been appointed on a
non-executive basis. The Company is therefore reliant upon the performance of
third party providers for its executive function. In particular, the Manager
performs services which are integral to the operation of 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 to successfully pursue its investment policy.
The Manager many 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. Any damage to the reputation of the Manager could result in
potential counterparties and third parties being unwilling to deal with the
Manager and by extension the Company. This could have an adverse impact on the
ability of the Company to pursue its investment policy successfully.
The Manager reviews the performance of all third party providers regularly
through formal and informal meetings. The results are reported to the Board and
any issues and concerns tend to be dealt with before they become problems.
DIRECTORS' RESPONSIBILITY STATEMENT
in respect of the preparation of the Annual Financial Report
The Directors are responsible for preparing the annual financial report in
accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each
financial year. Under the law the Directors have elected to prepare financial
statements in accordance with International Financial Reporting Standards as
adopted by the European Union (`IFRSs'). Under company law, the Directors must
not approve the financial statements unless they are satisfied that they give a
true and fair view of the state of affairs of the Company and of the profit or
loss of the Company for that period.
In preparing these financial statements, the Directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgements and estimates that are reasonable and prudent;
• state whether applicable IFRSs have been followed, subject to any material
departures disclosed and explained in the financial statements; and
• prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the company will continue in business.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Company's transactions and disclose with
reasonable accuracy at any time the financial position of the Company and
enable them to ensure that the financial statements comply with the Companies
Act 2006 and Article 4 of the IAS Regulation. They are also responsible for
safeguarding the assets of the Company and hence for taking reasonable steps
for the prevention and detection of fraud and other irregularities.
In so far as each of the Directors is aware:
• there is no relevant audit information of which the Company's auditor is
unaware; and
• the Directors have taken all steps that they ought to have taken to make
themselves aware of any relevant audit information and to establish that the
auditors are aware of that information.
The Directors of the Company each confirm to the best of their knowledge, state
that:
• the financial statements, prepared in accordance with the applicable set of
accounting standards, give a true and fair view of the assets, liabilities,
financial position and profit of the Company; and
• this annual financial report includes a fair review of the development and
performance of the business and the position of the Company together with a
description of the principal risks and uncertainties that it faces.
Signed on behalf of the Board of Directors
Ian Barby
Chairman
14 April 2011
STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 JANUARY 2011
2011 2010
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Gains on - 27,225 27,225 - 28,704 28,704
investments at fair
value through
profit or loss
Income - Note 2 2,985 - 2,985 2,909 - 2,909
Investment (377) (377) (754) (308) (308) (616)
management fee -
Note 3
VAT recoverable on - - - 188 88 276
management fees
- Note 3
Other expenses (295) (1) (296) (310) (3) (313)
Profit before 2,313 26,847 29,160 2,479 28,481 30,960
finance costs and
taxation
Finance costs - - - - - -
Profit before tax 2,313 26,847 29,160 2,479 28,481 30,960
Taxation (1) - (1) (2) - (2)
Profit after tax 2,312 26,847 29,159 2,477 28,481 30,958
Earnings per
ordinary share
Basic - Note 4 4.1p 47.2p 51.3p 4.3p 49.4p 53.7p
The total column of this statement represents the Company's statement of
comprehensive income, prepared in accordance with International Financial
Reporting Standards. The profit after tax is the total comprehensive income for
the year. The supplementary revenue and capital columns are both prepared under
guidance 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. No operations were acquired or discontinued in the year.
STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 JANUARY 2011
Capital
Share Share Redemption Capital Revenue
Capital Premium Reserve Reserve Reserve Total
£'000 £'000 £'000 £'000 £'000 £'000
At 31 January 2009 11,656 21,244 2,372 44,651 4,425 84,348
Profit for the year - - - 28,481 2,477 30,958
Shares repurchased (164) - 164 (967) - (967)
and cancelled
Dividends paid - - - - (3,058) (3,058)
- Note 5
At 31 January 2010 11,492 21,244 2,536 72,165 3,844 111,281
Profit for the year - - - 26,847 2,312 29,159
Shares repurchased (460) - 460 (3,982) - (3,982)
and cancelled
Dividends paid - - - - (2,459) (2,459)
- Note 5
At 31 January 2011 11,032 21,244 2,996 95,030 3,697 133,999
BALANCE SHEET
AS AT 31 JANUARY
2011 2010
£'000 £'000
Non-current assets
Investments designated at fair value 133,237 108,892
through profit or loss
Current assets
Other receivables 628 674
Cash and cash equivalents 847 1,939
1,475 2,613
Total assets 134,712 111,505
Current liabilities
Other payables (713) (224)
Net assets 133,999 111,281
Issued capital and reserves
Share capital - Note 6 11,032 11,492
Share premium 21,244 21,244
Capital redemption reserve 2,996 2,536
Capital reserve 95,030 72,165
Revenue reserve 3,697 3,844
Total Shareholders' funds 133,999 111,281
Net asset value per ordinary share
Basic - Note 7 242.9p 193.7p
These financial statements were approved and authorised for issue by the Board
of Directors on
14 April 2011.
Signed on behalf of the Board of Directors
Ian Barby
Chairman
Richard Brooman
Deputy Chairman
STATEMENT OF CASH FLOW
FOR THE YEAR ENDED 31 JANUARY 2011
2011 2010
£'000 £'000
Cash flow from operating activities
Profit before tax 29,160 30,960
Taxation (1) (2)
Adjustments for:
Purchases of investments (29,819) (29,822)
Sales of investments 33,077 27,991
3,258 (1,831)
Gains on investments (27,225) (28,704)
Finance costs - -
Operating cash flows before movements in 5,192 423
working capital
Decrease in receivables 58 1,225
Increase/(decrease) in payables 83 (1,276)
Net cash flows from operating activities 5,333 372
after tax
Cash flows from financing activities
Buy back of shares (3,966) (967)
Equity dividends paid (2,459) (3,058)
Net cash used in financing activities (6,425) (4,025)
Net decrease in cash and cash (1,092) (3,653)
equivalents
Cash, cash equivalents and bank 1,939 5,592
overdraft at the beginning of the year
Cash, cash equivalents and bank 847 1,939
overdraft at the end of the year
The accompanying notes are an integral part of this statement
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
1. Principal Accounting Policies
The principal accounting policies adopted in the preparation of these financial
statements are set out below. These policies have been consistently applied
during the current year and the preceding year, unless otherwise stated. The
accounts have been prepared on a going concern basis. The disclosure on going
concern in the Report of the Directors in the Annual Financial Report forms
part of the financial statements.
(a) Basis of Preparation
The financial statements have been prepared on an historical cost basis, except
for the measurement at fair value of investments and derivatives, and in
accordance with the applicable International Financial Reporting Standards
(`IFRSs') and interpretations issued by the International Financial Reporting
Interpretations Committee as adopted by the European Union. The standards are
those endorsed by the European Union and effective at the date the financial
statements were approved by the Board.
Where presentational guidance set out in the Statement of Recommended Practice
(`SORP') `Financial Statements of Investment Trust Companies and Venture
Capital Trusts', issued by the Association of Investment Companies in January
2009, is consistent with the requirements of IFRSs, the Directors have sought
to prepare the financial statements on a basis compliant with the
recommendations of the SORP. The supplementary information which analyses the
statement of comprehensive income between items of a revenue and a capital
nature is presented in accordance with this.
2. Income
2011 2010
£'000 £'000
Income from listed investments
UK dividends 2,749 2,670
UK unfranked investment income 25 -
Overseas dividends 210 136
2,984 2,806
Other income
Underwriting commission 1 11
Interest on VAT recoverable - 92
Total income 2,985 2,909
3. Investment Management Fee
2011 2010
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Investment management 377 377 754 308 308 616
fee
Invesco Asset Management Limited (`IAML') provides investment and
administration services to the Company. Details of the Investment Management
Agreement can be found in the Report of the Directors in the Annual Financial
Report.
At 31 January 2011 an amount of £146,000 (2010: £61,000) was due for payment in
respect of outstanding management fees. No performance-related fee is payable
for the current or the preceding year.
During the year ended 31 January 2010, an additional amount of £276,000 was
received in respect of VAT recoverable on management fees paid to the current
manager, IAML, together with £92,000 of interest thereon.
4. Earnings per Ordinary Share
2011 2010
Revenue Capital Total Revenue Capital Total
Basic 4.1p 47.2p 51.3p 4.3p 49.4p 53.7p
Basic total earnings per ordinary share is based on the net total profit for
the financial year of £29,159,000 (2010: £30,958,000).
Basic revenue earnings per ordinary share is based on the net revenue profit
for the financial year of £2,312,000 (2010: £2,477,000).
Basic capital earnings per ordinary share is based on the net capital profit
for the financial year of £26,847,000 (2010: £28,481,000).
All three earnings are based on the weighted average number of shares in issue
during the year of 56,878,794 (2010: 57,671,287).
5. Dividends on Ordinary Shares
Dividends paid in the year: 2011 2010
pence £'000 pence £'000
Second interim/final paid in 2.70 1,549 2.50 1,443
respect of previous year
Special paid in respect of - - 1.20 692
previous year
First interim paid 1.60 910 1.60 923
4.30 2,459 5.30 3,058
Dividends payable in respect of
the year:
2011 2010
pence £'000 pence £'000
First interim 1.60 910 1.60 923
Final/second interim 2.70 1,489 2.70 1,549
4.30 2,399 4.30 2,472
The final dividend/second interim is based on shares in issue at the record
date or, if the record date has not been reached, on shares in issue on the
date the balance sheet is signed.
6. Share Capital
2011 2010
Number £'000 Number £'000
Authorised:
Ordinary shares of 20p each 160,000,000 32,000 160,000,000 32,000
Allotted, called-up and fully
paid:
Ordinary shares of 20p each 55,159,029 11,032 57,459,629 11,492
During the year the Company's ordinary share
movements were as follows:
Number £'000
At 1 February 2010 57,459,629 11,492
Repurchased and cancelled (2,300,600) (460)
At 31 January 2011 55,159,029 11,032
Details of the share repurchases are given in the Report of Directors in the
Annual Financial Report.
7. Net Asset Value per Ordinary Share
The net asset value per share and the net asset values attributable at the year
end were as follows:
Net asset Net assets
value per share attributable
2011 2010 2011 2010
pence pence £'000 £'000
Ordinary shares
- Basic 242.9 193.7 133,999 111,281
Net asset value per ordinary share is based on net assets at the year end and
on 55,159,029 (2010: 57,459,629) ordinary shares, being the number of ordinary
shares in issue at the year end.
8. This Annual Financial Report announcement is not the Company's statutory
accounts. The statutory accounts for the year ended 31 January 2010 have
been delivered to the Registrar of Companies. The statutory accounts for
the year ended 31 January 2010 received an audit report which was
unqualified, did not include a reference to any matters to which the
auditors drew attention by way of emphasis without qualifying the report,
and did not include a statement under either section 498(2) or 498(3) of
the Companies Act 2006. The statutory accounts for the financial year ended
31 January 2011 have been approved and audited but have not yet been filed.
9. The Audited Annual Financial Report will be posted to shareholders shortly.
Copies may be obtained during normal business hours from the Company's
registered office, 30 Finsbury Square, London EC2A 1AG. A copy of the
Annual Financial Report will be available from Invesco Perpetual on the
following website:
http://investmenttrusts.invescoperpetual.co.uk/portal/site/iptrust/
investmentrange/investmenttrusts/uksmallercompanies
10. The Annual General Meeting of the Company will be held at 12.00 noon on 19
May 2011 at 30 Finsbury Square, London EC2A 1AG.
By order of the Board
Invesco Asset Management Limited - Company Secretary
14 April 2011
Tuesday, 4th June 2024
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