Half-year Report
11/10/2023 07:00
LEGAL ENTITY IDENTIFIER: 549300K1D1P23R8U4U50
Invesco Perpetual UK Smaller Companies Investment Trust plc
Half-Yearly Financial Report for the Six Months to 31 July 2023
The following text is extracted from the Half-Yearly Financial Report for the
Six Months to 31 July 2023. All page numbers below refer to the Half-Yearly
Financial Report which will be made available on the Company's website.
Investment Objective
The Company is an investment trust whose investment objective is to achieve
long-term total returns for shareholders primarily by investment in a broad
cross-section of small to medium sized UK quoted companies.
Financial Information and Performance Statistics
Total Return Statistics (with dividends reinvested) Six Months to 31 July 2023 Year Ended 31 January 2023
Net asset value (1)(2) -6.9% -17.5%
Share price (1)(2) -5.4% -17.0%
Benchmark Index (2)(3) -4.2% -12.4%
Capital Statistics
At At
31 July 31 January
Period End Date 2023 2023 Change
Total shareholders’ funds (£’000) 159,378 174,915 –8.9%
Net asset value per share (‘NAV’) 471.16p 517.09p –8.9%
Share price (2) 416.50p 451.00p –7.6%
Discount (1) (11.6)% (12.8)%
Gearing (1) :
– gross gearing nil nil
– net cash 0.4% 2.9%
Maximum authorised gearing 9.4% 8.6%
Six months ended 31 July 2023 Six months ended 31 July 2022
Return and dividend per ordinary share
Return (1)
– revenue 8.17p 6.74p
– capital (43.56)p (80.21)p
- Total (35.39)p (73.47)p
First interim dividend 3.85p 3.75p
Notes:
(1) Alternative Performance Measures (‘APM’). See pages 16 and 17 for the
explanation and calculation of APMs. Further details are provided in the
Glossary of Terms and Alternative Performance Measures in the Company’s 2023
Annual Financial Report.
(2) Source: Refinitiv.
(3) The Benchmark Index of the Company is the Numis Smaller Companies + AIM
(excluding Investment Companies) Index with dividends reinvested.
CHAIRMAN’S STATEMENT
Highlights
* Discount to NAV has narrowed from 12.8% to 11.6% during the period
* Discount has further narrowed to 8.9% as at 9 October 2023
* First interim dividend increased to 3.85p (2022: 3.75p), maintaining the
target dividend yield of 4%
* Revenue per ordinary share up to 8.17p (2022: 6.74p) during the period
Dear Shareholders,
I am pleased to succeed Jane Lewis as the Company’s new Chairman. Having
served on the Board for nine years, Jane retired at the conclusion of the AGM
held in June 2023. I would like to take this opportunity to thank Jane for
all her hard work and service to the Company. Her vast knowledge and
experience of the investment trust industry proved invaluable to the Board
over that time. I would also like to welcome Simon Longfellow to the Board. As
previously announced, Simon was appointed as a Non-Executive Director of the
Company with effect from 1 July 2023 and has specialist experience of
marketing investment trusts and communicating effectively with Shareholders.
The Board has now settled back to its normal number of four Directors.
Performance
In common with many companies investing in the smaller companies sector, it
has been a difficult six months. The increasing interest rate environment has
led to the highest rates the UK has experienced for 15 years which has proven
challenging for markets in general and smaller companies in particular. Fears
about the cost of living crisis and the UK dipping into recession have weighed
heavily on sentiment. There is hope that interest rates might have peaked and
that the UK may avoid recession, though growth is still weak.
Your Company’s net asset value (‘NAV’) return was -6.9% compared to
-4.2% for the benchmark index (in each case measured on a total return basis).
The Company’s share price fell from 451.00p to 416.50p during the six months
to 31 July 2023, a decrease of 7.6% (a 5.4% decrease on a total return basis),
and the discount to net asset value ended the period narrower at 11.6%, having
been 12.8% as at 31 January 2023.
It is particularly pleasing to report an increase in revenue per share for the
period to 8.17p (2022: 6.74p). This reflects the robust dividend flow from the
portfolio.
Since the Company’s half-year end to 9 October 2023, the latest practical
date before publication of this interim report, the Company’s NAV total
return is -9.1%, the share price total return is -6.2%, whilst the benchmark
index total return is -8.7%. As at 9 October 2023, the discount has narrowed
further to 8.9%.
Dividends
The Company’s dividend policy is to target a dividend yield of 4% of the
year end share price paid from income earned within the portfolio and
enhanced, as necessary, through the use of realised capital profits.
In accordance with this policy, on 20 July 2023 the Board declared a first
interim dividend of 3.85p for the year ending 31 January 2024, which was paid
on 1 September 2023 to shareholders on the register on 4 August 2023 (2022:
3.75p). The expected timetable for the remaining dividend payments is as
follows: the second and third interim dividends are payable in December 2023
and March 2024 respectively, with the final dividend payable in June 2024,
following its approval by shareholders at the Company’s Annual General
Meeting.
Shareholders who hold shares on the main register and are residents of the UK,
Channel Islands and Isle of Man, have the opportunity to reinvest their
dividend via the Dividend Reinvestment Plan (‘DRIP’). Shareholders will
need to submit an election by the 17 November 2023. Further information can be
found in the leaflet included with this report and on the Company’s webpage:
www.invesco.co.uk/ipukscit.
Outlook
It is hoped that interest rates and inflation have now peaked; while it is too
early to declare new shoots of growth, there are some positive indicators such
as the easing of wage inflation. The worst may now be behind us and there is
certainly a widespread belief that UK equities are good value. Our portfolio
managers comment more about this in relation to UK smaller companies in their
report.
Bridget Guerin
Chairman
10 October 2023
PORTFOLIO MANAGERS’ REPORT
Q What were the key influences on the market over the period?
A Inflation and the central banks response to inflation were the dominant
features of the period under review. The Bank of England raised rates
significantly, from 3.5% to 5.25%, with the hope that the increased cost of
borrowing would reduce demand and moderate price increases. Although inflation
has begun to moderate, it typically takes around a year for higher rates to
take effect, suggesting this has so far been a minor factor. In fact, many
economists calculate that the increased income from consumer savings currently
outweighs the negative impact from higher mortgage rates. More importantly,
many of the factors that drove inflation to multi-decade highs, such as energy
prices, and the supply chain disruption that we saw after the pandemic, have
finally begun to normalise.
Another notable feature of the half year was a bout of Artificial Intelligence
(‘AI’) exuberance. This was prompted by the launch of the latest version
of AI software ChatGPT. Whilst various forms of machine learning have been in
use for the last decade, ChatGPT captured the imagination of investors due to
its ability to produce written output with a realistic human like quality. The
software analyses vast amounts of written online content and uses the
information to predict the order in which to place words to create coherent
text. Whilst it is a very useful tool, its lack of any actual intelligence
makes it prone to regurgitating false information in a highly convincing way.
As with all popular stock market trends, investment banks created various
instruments (“baskets” of stocks) to allow investors to play this theme.
This negatively impacted the shares of a number of companies, which rightly or
wrongly, were deemed to be potential victims of this new technology. Whilst we
see AI as an important tool for driving productivity, we were surprised by the
market volatility created by this phenomenon.
The much-heralded UK recession is yet to materialise. Although the level of
growth in the UK economy is anaemic, we continue to benefit from full
employment and a higher level of consumer savings than we have seen for some
time. So contrary to the endless news headlines about the “cost of living
crisis”, the consumer discretionary sector was by far the strongest
performing area within the UK smaller companies sector, with leisure stocks
performing particularly well.
Q How did the portfolio perform over the period?
A The Net Asset Value total return for the portfolio over the period was
-6.9%, which was an underperformance versus the benchmark index, the Numis
Smaller Companies + AIM (excluding Investment Companies), which returned -4.2%
on the same basis. The share price total return was -5.4%, reflecting the
narrowing of the discount from 12.8% at last financial year end to 11.6% at
the end of this period.
Q Which stocks contributed to and detracted from performance?
A The best performing stocks over the period included: Infrastructure products
business, Hill & Smith (+27%), which is benefitting from increased spending on
infrastructure, particularly in the US, where the company generates most of
its profits. Gresham House (+42%), is a fund management business focused on
ethical investing. The company received a takeover approach at a significant
premium to its share price. Pubs businesses, Young & Co’s Brewery (+32%) and
Mitchells & Butlers (+40%), both recovered significantly after a period of
underperformance. The shares had suffered due to high energy prices and wage
inflation substantially reducing profits. However, consumer spending has
remained far more resilient than many had expected, and with energy prices
now moderating, the stocks have recovered much of the lost ground. Software
and services company, FD Technologies (+31%), had a good period after it
announced strong sales figures for its innovative data software. Historically
it was mostly used within the financial sector, but the company is now gaining
new customers across a variety of verticals, which has substantially increased
the addressable market for its product.
In a difficult period for markets, inevitably there were some poorly
performing holdings: Oil and Gas company, Jadestone Energy (–73%), suffered
from reduced production due to some maintenance issues at its main oil field.
The profit shortfall meant the business had to issue shares at a discount to
bolster its cash position. Whilst the stock appears good value it has been
blighted by a number of missteps, so we are currently reviewing the holding.
Keywords Studios (–38%), which provides outsourced services to the computer
games industry, was caught up in the bout of AI exuberance which gripped the
market following the release of the latest version of ChatGPT. Some
commentators believe that its revenue could be negatively impacted by
generative AI. However, the company already uses AI as a productivity tool in
a number of areas of its business, so we believe the fears are misplaced. We
think it is an excellent business and used the share price weakness to add to
the holding. Software and services business, Learning Technologies (–46%),
was also impacted by short selling due to fears about the impact of AI. Again,
we do not believe the business will be significantly affected. However, lower
business confidence in the US did lead to a reduction in earnings estimates
toward the end of the period. Whilst this is disappointing, we believe the
company still has substantial growth potential and we have retained our
holding. Videndum (–40%), which manufactures products used in the TV, film
and photographic industries has seen its earnings expectations eroded due to
the strikes called by script writers and actors in the US. The strikes will
ultimately be resolved, and profits will recover, so we have retained our
holding.
Q What is the current portfolio strategy?
A Our investment philosophy remains unchanged. The current portfolio is
comprised of around 70 stocks with the sector weightings being determined by
where we are finding attractive companies at a given time, rather than by
allocating assets according to a “top down” view of the economy. We
continue to seek growing businesses, which have the potential to be
significantly larger in the medium term. These tend to be companies that
either have great products or services, that can enable them to take market
share from their competitors, or companies that are exposed to higher growth
niches within the UK economy or overseas. We prefer to invest in cash
generative businesses that can fund their own expansion, although we are
willing to back strong management teams by providing additional capital to
invest for growth.
The sustainability of returns and profit margins is vital for the long-term
success of a company. The assessment of the position of a business within its
supply chain and a clear understanding of how work is won and priced are key
to determining if a company has “pricing power”, which is particularly
important in the current inflationary environment. It is also important to
determine which businesses possess unique capabilities, in the form of
intellectual property, specialist know-how or a scale advantage in their
chosen market. We conduct around 300 company meetings and site visits a year,
and these areas are a particular focus for us on such occasions.
The current uncertainty over the timing and pace of economic recovery has led
us to manage the portfolio using a “barbell” strategy. Around half the
portfolio is invested in businesses with more defensive characteristics. These
companies either benefit from long term contracts or are exposed to more
stable, less economically sensitive end markets. These characteristics provide
a greater degree of resilience and earnings visibility in the current
environment. However, it should be noted that this sort of certainty comes at
a price, with these stocks typically trading at a valuation premium to the
market. The other half of the portfolio is invested in more cyclical,
economically sensitive stocks. In some cases, these businesses are
experiencing more difficult trading, however, we believe they can still be
attractive investments where this is reflected in the valuation. When economic
conditions improve it is possible to make strong returns from these stocks, as
both earnings and the multiple investors willing to pay for those earnings,
start to recover.
Q What are the major holdings in the portfolio?
A The 5 largest holdings in the portfolio at the end of the period were:
• 4imprint (4.4% of the portfolio) sells promotional materials such as
pens, bags and clothing which are printed with company logos. The business
gathers orders through online and catalogue marketing, which are then routed
to their suppliers who print and dispatch the products to customers. As a
result of outsourcing manufacture, the business has a relatively low capital
requirement and can focus on marketing and customer service. Continual
reinvestment of revenue into marketing campaigns has enabled the business to
generate an enviable long term growth record whilst maintaining margins.
• JTC (3.3% of the portfolio) is a financial administration business
providing services to real estate and private equity funds, multinational
companies, and high net worth individuals. The business has a strong culture,
a reputation for quality and has augmented its organic growth with
acquisitions. Margins and returns on capital are strong and the business
benefits from long term contracts, giving it excellent earnings visibility.
• Hill & Smith (3.2% of the portfolio) is a supplier of products and
services into the infrastructure sectors in the UK and US. Its proprietary
steel and composite products are used in the rail, roads, water, and energy
sectors. The business also provides galvanizing services to protect steel
structures, and leases temporary road barriers and security products. The
company generates good margins and benefits from exposure to growing
infrastructure investment, particularly in the US.
• CVS (3.1% of the portfolio) is a leading veterinary services business,
which owns over 500 vet surgeries and specialist centres, predominantly in the
UK. The scale of the business gives it purchasing power, allowing it to
generate a higher margin than individual surgeries. The business has been a
leading consolidator of the UK market and have recently entered continental
Europe and Australia. The company is relatively immune to the economic cycle,
and with ever more being spent on the wellbeing of the nation’s pets, it can
continue to grow for many years to come.
The recent announcement of a Competition and Markets Authority consultation
on the sector has negatively impacted its share price. However, there are
already restrictions on the number of vets any business can have in a given
area in order to ensure a competitive market, and we do not believe the
business is generating excessive profits. Whilst prices for veterinary
services have risen over the last few years, the increases have only been
in-line with wage inflation in the sector.
• Advanced Medical Solutions (2.7% of the portfolio) produces a range of
proprietary wound care and wound closure products such as sutures, medical
adhesives, antimicrobial dressings and surgical devices. The company should
benefit from the backlog of medical procedures following the pandemic and has
an exciting pipeline of innovative products which should drive longer term
growth.
Q What were the new holdings added over the period?
A New stocks that we added to the portfolio in the period include:
• Tatton Asset Management (‘Tatton’) creates model portfolios which it
sells via independent financial advisors (‘IFAs’) in the UK. The
outsourcing of investment decisions by IFAs to businesses such as Tatton has
increased significantly over the last decade due to an increasing burden of
regulation on IFAs. Tatton has a range of model portfolios, made up of both
active and passive funds, that correspond with a variety of risk categories
for clients. The service has one of the lowest fee structures in the industry,
a good long-term performance record and a strong reputation within the IFA
sector. The business is growing strongly, and with a highly scalable business
model, it achieves an enviable level of profitability.
• Niox is a medical diagnostic business with technology that can more
accurately diagnose and monitor asthma. The company is the world leader in
fractional exhaled nitric oxide (‘FeNO’) testing, which measures exhaled
Nitric Oxide as a diagnostic marker for asthma. FeNO testing is significantly
more accurate than traditional methods of testing. The product is approved by
the National Institute for Health and Care Excellence in the UK and is
reimbursable in all its major markets. We believe the business can
substantially grow its installed base of devices, and this should drive a high
level of recurring test kit revenue.
Q What is the Portfolio Managers’ approach to gearing?
A Gearing decisions are taken after reviewing a variety of metrics including
valuations, earnings momentum, market momentum, bond spreads and a range of
economic indicators. After analysing this data, we concluded that the Company
should not be geared at this point. We will continue to monitor these factors
and look to gear the Company when the indicators turn more positive.
Q How does ESG factor in the investment process?
A Environment, Social and Governance (‘ESG’) issues are increasingly a
focus for many investors and analysis of these factors has always been a core
part of our investment process. Invesco has significant resources focussed on
ESG, both at a group and individual team level. Our proprietary ESGintel
system draws in company specific data from a broad range of sources and
enables ESG related metrics to be quantified. This provides fund managers with
a clear overview of areas of concern, allowing targeted engagement with
businesses to bring about positive change.
Environmental liabilities, socially dubious business practises and poor
corporate governance, can have a significant impact on share prices. We assess
environmental risks within a business, and analyse the steps being taken to
reduce its environmental impact. We like businesses with strong cultures and
engaged employees, and avoid businesses, which, whilst acting within the law,
run the risk of a public backlash, or being constrained by new legislation.
We believe that governance, board structure and incentivisation, are by far
the most important factors within ESG in determining shareholder returns.
The importance of businesses being managed by good quality people, with
appropriate incentivisation should not be underestimated. Therefore, we
proactively consult with all the businesses we own on these matters and vote
against resolutions where standards fall short of our expectations.
Q What is the dividend policy of the Company?
A The Company pays out all the income earned within the portfolio and enhances
it using a small amount of realised capital profits to target a dividend yield
of 4.0% based on the year end share price. This provides shareholders with an
attractive and consistent yield whilst allowing us to target businesses that
we believe will deliver the best total return, without having to compromise on
quality to hit an income target.
Q What are your expectations for the year ahead?
A The current level of economic growth in the UK is lacklustre, and we are
just beginning to feel the lagged effects of the steep increase in the Bank of
England base rate, so the prognosis for the coming year appears gloomy.
However, we are not currently in recession and the most recent data suggests
that wages are growing again in real terms for the first time in a couple of
years. We are also in the fortunate position of having full employment and
healthy consumer balance sheets (in aggregate) which should feed through to
confidence over time.
We are hopeful that inflation should continue to decline over coming months.
The supply chain tightness that drove the initial wave of inflation following
the pandemic has largely normalised, and energy prices have now significantly
fallen year on year. Conversations with companies suggest that it is now much
easier to find staff than it was a year ago and this is beginning to feed
through to wage settlements. So hopefully the worst of the cost of living
crisis is now behind us, and we are near the peak of the current interest rate
cycle.
The value within the UK smaller companies market is very apparent to us.
Whether we compare current valuations to history, or to other international
markets, the sector looks anomalously cheap. Over time this should attract
increased interest from the investment community, but in the meantime we have
seen a surge in takeover activity from both corporate and private equity
buyers looking to exploit the “knock-down” prices of UK equities. Whilst
the economic backdrop is underwhelming we continue to see opportunities to buy
undervalued shares in companies with excellent long term growth potential. So,
after a difficult couple of years, we are optimistic of better returns over
the coming year.
Jonathan Brown & Robin West
Portfolio Managers
10 October 2023
PRINCIPAL RISKS AND UNCERTAINTIES
The Directors confirm that they have carried out a robust assessment of the
emerging and principal risks facing the Company, including those that would
threaten its business model, future performance, solvency or liquidity. Most
of these risks are market related and are similar to those of other investment
trusts investing primarily in listed markets. The Audit Committee reviews the
Company’s risk control summary at each meeting, and as part of this process,
gives consideration to identify emerging risks. Emerging risks, such as
evolving cyber threat, geo-political tension and climate related risks, have
been considered during the period as part of the Directors’ assessment.
Principal Risk Description Mitigating Procedures and Controls
Market (Economic) Risk
Factors such as fluctuations in stock markets, interest rates and exchange rates are not under the control of the Board or the Portfolio Managers, but may give rise to high levels of volatility in the share prices of investee companies, as well as The Directors have assessed the market impact of the ongoing uncertainty from the conflict in Ukraine and the resulting sanctions imposed on Russia through regular discussions with the Portfolio Managers and the Corporate Broker. The Company’s current portfolio consists of companies listed on the main UK equity market and those listed on AIM. The Company does not have direct investments in Russia or hold stocks with significant links to Russia. To a limited extent, futures can be used to mitigate against market (economic) risk, as can the judicious holding of cash or other very liquid assets. Futures are not currently being used.
affecting the Company’s own share price and the discount to its NAV. The risk could be triggered by unfavourable developments globally and/or in one or more regions, contemporary examples being the market uncertainty in relation to ongoing invasion of
Ukraine by Russia.
Investment Risk
The Company 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. The Portfolio Managers’ approach to investment is one of individual stock selection. Investment risk is mitigated via the stock selection process, together with the slow build-up of holdings rather than the purchase of large positions outright. This allows the Portfolio Managers, cautiously, to observe more data points from a company before adding to a position. The overall portfolio is well diversified by company and sector. The weighting of an investment in the portfolio tends to be loosely aligned with the market capitalisation of that company. This means that the largest holdings will often be amongst the larger of the smaller companies available. The Portfolio Managers are relatively risk averse, look for lower volatility in the portfolio and seek to outperform in more challenging markets. The Portfolio Managers remain cognisant at all times of the potential liquidity of the portfolio. There can be no guarantee that the Company’s strategy and business model will be successful in achieving its investment objective. The Board monitors the performance of the Company, giving due consideration to how the Manager has incorporated ESG considerations including climate change into their investment process. The Board also has guidelines in place to ensure that the Portfolio Managers adhere to the approved investment policy. The continuation of the Manager’s mandate is reviewed annually.
In addition, as smaller companies may not generally have the financial strength, diversity and resources of larger companies, they may find it more difficult to overcome periods of economic slowdown or recession. Furthermore, the risk of climate change
and matters concerning ESG could affect the valuation of companies held in the portfolio.
Shareholders’ Risk
The value of an investment in the Company may go down as well as up and an investor may not get back the amount invested. The Board reviews regularly the Company’s investment objective and strategy to ensure that it remains relevant, as well as reviewing the composition of the shareholder register, peer group performance on both a share price and NAV basis, and the Company’s share price discount to NAV per share. The Board and the Portfolio Managers maintain an active dialogue with the aim of ensuring that the market rating of the Company’s shares reflects the underlying NAV; both share buy back and issuance facilities are in place to help the management of this process.
Reliance on the Manager and other Third-Party Service Providers
The Company has no employees and comprises non-executive directors only. The Company is therefore reliant upon the performance of third-party service providers for its executive function and service provisions. The Company’s operational structure means Third-party service providers are subject to ongoing monitoring by the Manager and the Board. The Manager reviews the performance of all third-party providers regularly through formal and informal meetings. The Audit Committee reviews regularly the performance and internal controls of the Manager and all third-party providers through audited service organisation control reports, together with updates on information security, the results of which are reported to the Board. The Manager’s business continuity plans are reviewed on an ongoing basis and the Directors are satisfied that the Manager has in place robust plans and infrastructure to minimise the impact on its operations so that the Company can continue to trade, meet regulatory obligations, report and meet shareholder requirements. The Board receives regular update reports from the Manager and third-party service providers on business continuity processes and has been provided with assurance from them all insofar as possible that measures are in place for them to continue to provide contracted services to the Company.
that all cyber risk (information and physical security) arises at its third-party service providers, including fraud, sabotage or crime against the Company. The Company’s operational capability relies upon the ability of its third-party service providers
to continue working throughout the disruption caused by a major event such as the Covid-19 pandemic. Failure by any service provider to carry out its obligations to the Company in accordance with the terms of its appointment could have a materially
detrimental impact on the operation of the Company and could affect the ability of the Company to successfully pursue its investment policy. The Company’s main service providers, of which the Manager is the principal provider, are listed on page 18. The
Manager may be exposed to reputational risks. In particular, the Manager may be exposed to the risk that litigation, misconduct, operational failures, negative publicity and press speculation, whether or not it is valid, will harm its reputation. Damage to
the reputation of the Manager could potentially result in counterparties and third parties being unwilling to deal with the Manager and by extension the Company, which carries the Manager’s name. This could have an adverse impact on the ability of the
Company to pursue its investment policy successfully.
Regulatory Risk
The Company is 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 The Manager reviews the level of compliance with tax and other financial regulatory requirements on a regular basis. The Board regularly considers all risks, the measures in place to control them and the possibility of any other risks that could arise. The Manager’s Compliance and Internal Audit team produce annual reports for review by the Company’s Audit Committee. Further details of risks and risk management policies as they relate to the financial assets and liabilities of the Company are detailed in note 16 of the Company’s 2023 Annual Financial Report.
to the Company being subject to corporation tax on the chargeable capital gains arising on the sale of its investments. Other control failures, either by the Manager or any other of the Company’s service providers, could result in operational or
reputational problems, erroneous disclosures or loss of assets through fraud, as well as breaches of regulations.
In the view of the Board, these principal risks and uncertainties are as much
applicable to the remaining six months of the financial year as they were to
the six months under review.
THIRTY LARGEST INVESTMENTS
at 31 July 2023
Ordinary shares unless stated otherwise
Market Value £’000
% of Portfolio
Company Sector
4imprint Media 6,967 4.4
JTC Investment Banking and Brokerage Services 5,206 3.3
Hill & Smith Industrial Metals and Mining 5,072 3.2
CVS AIM Consumer Services 4,865 3.1
Advanced Medical Solutions AIM Medical Equipment and Services 4,240 2.7
Hollywood Bowl Travel and Leisure 4,092 2.6
Chemring Aerospace and Defence 3,937 2.5
Energean Oil, Gas and Coal 3,869 2.4
Serco Industrial Support Services 3,642 2.3
Alfa Financial Software Software and Computer Services 3,592 2.3
Top Ten Holdings 45,482 28.8
Hilton Food Food Producers 3,577 2.2
AJ Bell Investment Banking and Brokerage Services 3,485 2.2
Brooks Macdonald AIM Investment Banking and Brokerage Services 3,456 2.2
Coats General Industrials 3,308 2.1
discoverIE Electronic and Electrical Equipment 3,031 1.9
Young & Co's Brewery - Non-Voting AIM Travel and Leisure 2,945 1.8
Ricardo Construction and Materials 2,869 1.8
Gresham House AIM Closed End Investments 2,789 1.8
Keywords Studios AIM Leisure Goods 2,735 1.7
Johnson Service AIM Industrial Support Services 2,686 1.7
Top Twenty Holdings 76,363 48.2
Essentra Industrial Support Services 2,677 1.7
Kainos Software and Computer Services 2,676 1.7
Volution Construction and Materials 2,612 1.6
Alpha Financial Markets Consulting AIM Industrial Support Services 2,524 1.6
Churchill China AIM Household Goods and Home Construction 2,448 1.5
Marshalls Construction and Materials 2,398 1.5
Aptitude Software Software and Computer Services 2,343 1.5
RWS AIM Industrial Support Services 2,301 1.5
Auction Technology Software and Computer Services 2,283 1.4
Genuit Construction and Materials 2,264 1.4
Top Thirty Holdings 100,889 63.6
Other Investments (40) 57,828 36.4
Total Investments: 70
(31 January 2023: 70) 158,717 100.0
AIM Investments quoted on AIM.
GOVERNANCE
Going Concern
The financial statements have been prepared on a going concern basis. The
portfolio of investments is comprised entirely of quoted securities and the
ongoing charges are around 1% of net assets. As at 9 October 2023, the Company
has drawn down £3.4m of its bank overdraft borrowing facilities, with a
further £11.6m available for investment opportunities within prescribed
limits as set by the Board.
The Directors consider this is the appropriate basis, as the Company has
adequate resources to continue in operational existence for the foreseeable
future, being taken as at least 12 months after signing the balance sheet. In
considering this, the Directors took into account the diversified portfolio of
readily realisable securities which can be used to meet funding commitments,
and the ability of the Company to meet all of its liabilities, including any
bank overdraft, and ongoing expenses as they fall due.
Related Party Transactions and Transactions with the Manager
Note 20 of the Company’s 2023 Annual Financial Report gives details of
related party transactions and transactions with the Manager. This report is
available on the Company’s section of the Manager’s website at
www.invesco.co.uk/ipukscit.
Directors’ Responsibility Statement in respect of the preparation of the
Half-Yearly Financial Report
The Directors are responsible for preparing the Half-Yearly Financial Report
using accounting policies consistent with applicable law and International
Financial Reporting Standards.
The Directors confirm that to the best of their knowledge:
– the condensed set of financial statements contained within the
Half-Yearly Financial Report have been prepared in accordance with the
International Accounting Standards 34 ‘Interim Financial Reporting’;
– the interim management report includes a fair review of the information
required by 4.2.7R and 4.2.8R of the UKLA’s Disclosure Guidance and
Transparency Rules; and
– the interim management report includes a fair review of the information
required on related party transactions.
The Half-Yearly Financial Report has not been audited or reviewed by the
Company’s auditor.
Signed on behalf of the Board of Directors.
Bridget Guerin
Chairman
10 October 2023
CONDENSED STATEMENT OF COMPREHENSIVE INCOME
For the six months ended 31 July 2023 For the six months ended 31 July 2022
Revenue Capital Total Revenue Capital Total
Notes £’000 £’000 £’000 £’000 £’000 £’000
Loss on investments held at fair value — (14,695) (14,695) — (26,494) (26,494)
Income 2 3,074 491 3,565 2,584 — 2,584
3,074 (14,204) (11,130) 2,584 (26,494) (23,910)
Investment management fee 3 (92) (523) (615) (111) (631) (742)
Other expenses (217) (1) (218) (192) (3) (195)
Loss before finance costs and taxation 2,765 (14,728) (11,963) 2,281 (27,128) (24,847)
Finance costs 3 (1) (8) (9) (1) (4) (5)
Loss before taxation 2,764 (14,736) (11,972) 2,280 (27,132) (24,852)
Taxation 4 — — — — — —
Loss after taxation 2,764 (14,736) (11,972) 2,280 (27,132) (24,852)
Return per ordinary share 8.17p (43.56)p (35.39)p 6.74p (80.21)p (73.47)p
Weighted average number of ordinary shares in issue during the period
33,826,929 33,826,929
The total columns of this statement represent the Company’s statement of
comprehensive income, prepared in accordance with UK-adopted international
accounting standards. The loss after taxation is the total comprehensive loss.
The supplementary revenue and capital columns are both prepared in accordance
with the Statement of Recommended Practice issued by the Association of
Investment Companies. All items in the above statement derive from continuing
operations of the Company. No operations were acquired or discontinued in the
period.
CONDENSED STATEMENT OF CHANGES IN EQUITY
Capital
Share Share Redemption Capital Revenue
Capital Premium Reserve Reserve Reserve Total
Notes £’000 £’000 £’000 £’000 £’000 £’000
For the six months ended 31 July 2023
At 31 January 2023 10,642 22,366 3,386 137,004 1,517 174,915
Total comprehensive loss for the period – – – (14,736) 2,764 (11,972)
Dividends paid 5 – – – (2,048) (1,517) (3,565)
At 31 July 2023 10,642 22,366 3,386 120,220 2,764 159,378
For the six months ended 31 July 2022
At 31 January 2022 10,642 22,366 3,386 184,089 270 220,753
Total comprehensive loss for the period – – – (27,132) 2,280 (24,852)
Dividends paid 5 – – – (4,906) (270) (5,176)
At 31 July 2022 10,642 22,366 3,386 152,051 2,280 190,725
CONDENSED BALANCE SHEET
Registered number 2129187
At 31 July 2023 £’000 At 31 January 2023 £’000
Notes
Non-current assets
Investments held at fair value through profit or loss 158,717 172,643
Current assets
Amounts due from brokers — 48
Overseas withholding tax recoverable 30 31
Income tax recoverable 4 4
Prepayments and accrued income 238 317
Cash and cash equivalents 614 5,055
886 5,455
Total assets 159,603 178,098
Current liabilities
Amounts due to brokers (53) (2,974)
Accruals (172) (209)
Total assets less current liabilities (225) (3,183)
Net assets 159,378 174,915
Capital and reserves
Share capital 10,642 10,642
Share premium 22,366 22,366
Capital redemption reserve 3,386 3,386
Capital reserve 120,220 137,004
Revenue reserve 2,764 1,517
Total shareholders’ funds 159,378 174,915
Net asset value per ordinary share 471.16p 517.09p
Number of ordinary shares in issue at the period end 6 33,826,929 33,826,929
CONDENSED CASH FLOW STATEMENT
Six months ended 31 July 2023 £’000 Six months ended 31 July 2022 £’000
Notes
Cash flow from operating activities
Loss before finance costs and taxation (11,963) (24,847)
Adjustments for:
Purchases of investments (9,562) (26,326)
Sales of investments 5,920 32,746
(3,642) 6,420
Loss on investments held at fair value 14,695 26,494
Decrease/(increase) in receivables 80 (71)
Decrease in payables (37) (39)
Net cash (outflow)/inflow from operating activities (867) 7,957
Cash flow from financing activities
Finance cost paid (9) (5)
Dividends paid 5 (3,565) (5,176)
Net cash outflow from financing activities (3,574) (5,181)
Net (decrease)/increase in cash and cash equivalents (4,441) 2,776
Cash and cash equivalents at start of the period 5,055 1,530
Cash and cash equivalents at the end of the period 614 4,306
Reconciliation of cash and cash equivalents to the Balance Sheet is as follows:
Cash held at custodian 44 61
Invesco Liquidity Funds plc – Sterling, money market fund 570 4,245
Cash and cash equivalents 614 4,306
Cash flow from operating activities includes:
Dividends received 3,649 2,516
Interest received 2 —
As the Company did not have any long term debt at both the current and prior
period ends, no reconciliation of the financial liabilities is presented.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
1. Basis of Preparation
The condensed financial statements have been prepared using the same
accounting policies as those adopted in the Company’s 2023 Annual Financial
Report. They have been prepared on a historical cost basis, in accordance with
the applicable UK-adopted international accounting standards and, where
possible, in accordance with the Statement of Recommended Practice for
Financial Statements of Investment Trust Companies and Venture Capital Trusts,
updated by the Association of Investment Companies in July 2022 (AIC SORP).
2. Income
Six months ended 31 July 2023 £’000 Six months ended 31 July 2022 £’000
Income from investments:
UK dividends
– ordinary 2,561 2,249
– special 409 210
Overseas dividends 102 125
3,072 2,584
Other income:
Deposit interest 2 —
3,074 2,584
Special dividends of £491,000 were recognised in capital during the period
(31 July 2022: £nil).
Overseas dividends include dividends received on UK listed investments where
the investee company is domiciled outside of the UK.
3. Management Fee and Finance Costs
The investment management fee and finance costs are allocated 15% to revenue
and 85% to capital.
A base management fee is payable monthly in arrears and is calculated at the
rate of 0.75% (31 July 2022: 0.75%) per annum by reference to the Company’s
gross funds under management.
4. Taxation and Investment Trust Status
No tax liability arises on capital gains because the Company has been accepted
by HMRC as an approved investment trust and it is the intention of the
Directors to conduct the affairs of the Company so that it continues to
satisfy the conditions for this approval.
5. Dividends paid on Ordinary Shares
Six months ended Six months ended
31 July 2023 31 July 2022
Rate £’000 Rate £’000
Third interim (prior year) 3.75p 1,269 3.75p 1,269
Final (prior year) 6.79p 2,296 11.55p 3,907
Total 10.54p 3,565 15.30p 5,176
The first interim dividend of 3.85p per ordinary share (31 July 2022: 3.75p)
was paid on 1 September 2023 to shareholders on the register on 4 August
2023.
6. Share Capital, including Movements
Share capital represents the total number of shares in issue, including
treasury shares.
Six months Year ended
ended 31 July 31 January
2023 2023
Share capital:
Ordinary shares of 20p each (£’000) 6,765 6,765
Treasury shares of 20p each (£’000) 3,877 3,877
10,642 10,642
Number of ordinary shares in issue: 33,826,929 33,826,929
Number of shares held in treasury: 19,382,155 19,382,155
Total 53,209,084 53,209,084
7. Classification Under Fair Value Hierarchy
Note 16 of the Company’s 2023 Annual Financial Report sets out the basis of
classification.
As at 31 July 2023, all of the Company’s portfolio was composed of quoted
(Level 1) investments.
In the prior year, Berry Starquest Limited was a dormant subsidiary and was
the only Level 3 investment valued at £100 as at 31 January 2023. The
subsidiary was dissolved on 28 February 2023.
8. Status of Half-Yearly Financial Report
The financial information contained in this Half-Yearly Financial Report,
which has not been reviewed or audited by an independent auditor, does not
constitute statutory accounts within the meaning of section 434 of the
Companies Act 2006. The financial information for the half years ended 31 July
2022 and 31 July 2023 has not been audited. The figures and financial
information for the year ended 31 January 2023 are extracted and abridged
from the latest audited accounts and do not constitute the statutory accounts
for that year. Those accounts have been delivered to the Registrar of
Companies and included the Independent Auditor’s Report, which was
unqualified.
The Half-Yearly Financial Report for the Six Months to 31 July 2023 will be
available to shareholders, and copies may be obtained during normal business
hours from the Company’s Registered Office, from its correspondence address,
43-45 Portman Square, London W1H 6LY, and via www.invesco.co.uk/ipukscit.
A copy of the Half-Yearly Financial Report will be submitted shortly to the
National Storage Mechanism ("NSM") and will be available for inspection at the
NSM, which is situated at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism.
By order of the Board
Invesco Asset Management Limited
Company Secretary
10 October 2023
GLOSSARY OF TERMS AND ALTERNATIVE PERFORMANCE MEASURES
Alternative Performance Measure (APM)
An APM is a measure of performance or financial position that is not defined
in applicable accounting standards and cannot be directly derived from the
financial statements. The calculations shown in the corresponding tables are
for the six months ended 31 July 2023 and the year ended 31 January 2023. The
APMs listed here are widely used in reporting within the investment company
sector and consequently aid comparability.
Benchmark (or Benchmark Index)
A market index, which averages the performance of companies in any sector,
giving a good indication of any rises or falls in the market. The benchmark
index used in these accounts is the Numis Smaller Companies + AIM (excluding
Investment Companies) Index with dividends reinvested.
(Discount)/Premium (APM)
Discount is a measure of the amount by which the mid-market price of an
investment company share is lower than the underlying net asset value
(‘NAV’) of that share. Conversely, premium is a measure of the amount by
which the mid-market price of an investment company share is higher than the
underlying net asset value of that share. In this Half-Yearly Financial Report
the discount is expressed as a percentage of the net asset value per share and
is calculated according to the formula set out below. If the shares are
trading at a premium the result of the below calculation will be positive and
if they are trading at a discount it will be negative.
31 July 31 January
2023 2023
Share price a 416.50p 451.00p
Net asset value per share b 471.16p 517.09p
Discount c = (a-b)/b (11.6)% (12.8)%
Gearing (APM)
The gearing percentage reflects the amount of borrowings that a company has
invested. This figure indicates the extra amount by which net assets, or
shareholders’ funds, would move if the value of a company’s investments
were to rise or fall. A positive percentage indicates the extent to which net
assets are geared; a nil gearing percentage, or ‘nil’, shows a company is
ungeared. A negative percentage indicates that a company is not fully invested
and is holding net cash as described below.
There are several methods of calculating gearing and the following has been
used in this report:
Gross Gearing (APM)
This reflects the amount of gross borrowings in use by a company and takes no
account of any cash balances. It is based on gross borrowings as a percentage
of net assets. As at 31 July 2023 the Company had no gross borrowings (31
January 2023: £nil).
31 July 31 January
2023 2023
£’000 £’000
Bank overdraft facility — —
Gross borrowings a — —
Net asset value b 159,378 174,915
Gross gearing c = a/b nil nil
Net Gearing or Net Cash (APM)
Net gearing reflects the amount of net borrowings invested, i.e. borrowings
less cash and cash equivalents (incl. investments in money market funds). It
is based on net borrowings as a percentage of net assets. Net cash reflects
the net exposure to cash and cash equivalents, as a percentage of net assets,
after any offset against total borrowings.
31 July 31 January
2023 2023
£’000 £’000
Bank overdraft facility — —
Less: cash and cash equivalents 614 5,055
Net cash a 614 5,055
Net asset value b 159,378 174,915
Net cash c = a/b 0.4% 2.9%
Maximum Authorised Gearing
This reflects the maximum authorised borrowings of the Company taking into
account both any gearing limits laid down in the investment policy and the
maximum borrowings laid down in covenants under any borrowing facility and is
calculated as follows:
31 July 31 January
2023 2023
£’000 £’000
Maximum authorised borrowings as laid down in:
Investment policy:
– lower of 30% of net asset value; and a = 30% x e 47,813 52,475
– £25m b 25,000 25,000
Bank overdraft 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 159,378 174,915
Maximum authorised gearing f = d/e 9.4% 8.6%
Net Asset Value (‘NAV’)
Also described as shareholders’ funds, the NAV is the value of total assets
less liabilities. Liabilities for this purpose include current and long-term
liabilities. The NAV per share is calculated by dividing the net assets by the
number of ordinary shares in issue (excluding shares held in treasury). For
accounting purposes assets are valued at fair (usually market) value and
liabilities are valued at par (their repayment – often nominal – value).
Return
The return generated in a period from the investments including the increase
and decrease in the value of investments over time and the income received.
Total Return
Total return is the theoretical return to shareholders that measures the
combined effect of any dividends paid together with the rise or fall in the
share price or NAV. In this Half-Yearly Financial Report these return figures
have been sourced from Refinitiv who calculate returns on an industry
comparative basis.
Net Asset Value Total Return (APM)
Total return on net asset value per share, assuming dividends paid by the
Company were reinvested into the shares of the Company at the NAV per share at
the time the shares were quoted ex-dividend.
Share Price Total Return (APM)
Total return to shareholders, on a mid-market price basis, assuming all
dividends received were reinvested, without transaction costs, into the shares
of the Company at the time the shares were quoted ex-dividend.
Net Asset Share
Six months ended 31 July 2023 Value Price
As at 31 July 2023 471.16p 416.50p
As at 31 January 2023 517.09p 451.00p
Change in period a –8.9% –7.6%
Impact of dividend reinvestments (1) b 2.0% 2.2%
Total return for the period c = a+b –6.9% –5.4%
Net Asset Share
Year Ended 31 January 2023 Value Price
As at 31 January 2023 517.09p 451.00p
As at 31 January 2022 652.60p 570.00p
Change in year a –20.8% –20.9%
Impact of dividend reinvestments (1) b 3.3% 3.9%
Total return for the year c = a+b –17.5% –17.0%
(1) Total dividends paid during the six months to 31 July 2023 of 10.54p (31
January 2023: 22.80p) reinvested at the NAV or share price on the ex-dividend
date. NAV or share price falls subsequent to the reinvestment date
consequently further reduce the returns, vice versa if the NAV or share price
rises.
Benchmark Index
Total return on the benchmark index is on a mid-market value basis, assuming
all dividends received were reinvested, without transaction costs, into the
shares of the underlying companies at the time the shares were quoted
ex-dividend.
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