Half-year Report
16/10/2024 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 2024
The following text is extracted from the Half-Yearly Financial Report for the
Six Months to 31 July 2024. All page numbers below refer to the Half-Yearly
Financial Report which will be made available on the Company's website.
Investment Objective
Invesco Perpetual UK Smaller Companies Investment Trust plc (`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.
The Company's shares qualify to be considered as a mainstream investment
product suitable for promotion to retail investors and are eligible for
investment in an ISA.
Financial Information and Performance Statistics
Total Return Statistics
(with dividends reinvested)
For Six For Year
Months to Ended
31 July 31 January
2024 2024
Net asset value (1)(2) +13.8 -4.1
Share price (1)(2) +13.3 -1.8
Benchmark Index (2)(3) +12.1 -3.3
Capital Statistics
At At
31 July 31 January
Period End Date 2024 2024 Change
Total shareholders' funds (£'000) 180,163 161,395 +11.6%
Net asset value (`NAV') per share 532.60p 477.12p +11.6%
Share price (2) 470.00p 424.00p +10.8%
Discount (1) (11.8)% (11.1)%
Gearing (1):
- gross gearing 4.6% 5.4%
- net gearing 4.5% 5.4%
- net cash nil nil
Maximum authorised gearing 11.1% 9.3%
Six Six
months months
ended ended
31 July 31 July
Return and dividend per ordinary share 2024 2023
Return (1)
- revenue 7.33p 8.17p
- capital 57.41p (43.56)p
- Total 64.74p (35.39)p
First interim dividend 3.85p 3.85p
Notes:
(1) Alternative Performance Measures (`APM'). See pages 16 and 18 for the
explanation and calculation of APMs. Further details are provided in the
Glossary of Terms and Alternative Performance Measures in the Company's 2024
Annual Financial Report.
(2) Source: LSEG Data & Analytics.
(3) The benchmark index of the Company is the Deutsche Numis Smaller
Companies + AIM (excluding Investment Companies) Index with dividends
reinvested.
Chairman's Statement
Highlights
· Net asset value (`NAV') total return of +13.8% in excess of benchmark
index total return of +12.1%.
· Special dividend paid to shareholders who have elected to receive it on
8 October 2024.
· First interim dividend paid of 3.85p (2023: 3.85p), maintaining the target
dividend yield of 4%.
· New eNewsletter available to sign up to for free, for regular Company and
sector insights.
Dear Shareholders
As my first full year as Chairman has come to a close, there is a significant
amount to reflect on, in regards to your Company and the UK in general.
Firstly, I am pleased to report that at the Annual General Meeting (`AGM')
held on Thursday 6 June 2024, all resolutions were passed, including the
continuation vote. Your Board thanks shareholders for their ongoing support.
Shareholders will have the opportunity to vote for the continuation of the
Company at each third AGM, with the next being in 2027.
Secondly, the UK market appears to be turning a corner as we have seen
stronger performance which has enabled your Portfolio Managers to deliver a
return ahead of the benchmark index.
Thirdly, we proposed and recently paid a special dividend in October to
shareholders who opted to receive it. This option provided shareholders with
the opportunity to realise a part of their holding at close to NAV. Further
details are included below and on the Company's website.
Performance
In my last statement in April 2024, I commented on the continuing challenge
for the UK and particularly UK smaller companies owing to their greater
economic sensitivity to the domestic economy and market.
At that point, the Portfolio Managers' performance was slightly behind its
benchmark (Deutsche Numis Smaller Companies + AIM (excluding Investment
Companies) Index with dividends reinvested, with both delivering a negative
return for the year ended 31 January 2024.
Over the past six months ended 31 July 2024, the NAV performance of your
Company was +13.8% with the benchmark index returning +12.1% (both on a total
return basis). Not only is the absolute performance generated by the
investment portfolio better but it has also outperformed the index by 1.7%.
To receive regular updates on the trust's performance, portfolio activity and
insights into the UK smaller companies sector as a whole, visit the Company's
website and sign up to our new eNewsletter. It is free and signing up only
takes a minute. You can register for this service by scanning the QR code
included to the right of my signature with your smartphone/device.
Dividends & Dividend Policy
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 18 July 2024 the Board declared a first interim dividend of
3.85p for the year ending 31 January 2025, which was paid on 30 August 2024
to shareholders on the register on 2 August 2024 (2023: 3.85p). A second
interim dividend of 3.85p (2023: 3.85p) has been declared and will be paid on
6 December 2024 to ordinary shareholders on the register on 8 November 2024.
The expected timetable for the remaining dividend payments is as follows: the
third interim dividend is payable in March 2025, with the final dividend
payable in June 2025, following its approval by shareholders at the Company's
AGM. 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'). Further
information can be found on the Company's webpage: www.invesco.co.uk/ipukscit.
Special Dividend
On 22 May 2024, the Board announced a proposed elective return of capital to
be offered to all shareholders in respect of up to 10% of the Company's issued
shares (excluding treasury shares), and a circular was published providing
context and options for shareholders.
On 20 August 2024, your Board published the result of the special dividend
offer, which was fully taken up. For further details, including important
dates, please visit the "Announcements" section of the Company's website.
Outlook
At the time of writing, your Company's discount is wider than its 12-month
average, and with the improving sentiment to the sector, this should be a good
time to be invested in our Company.
After many years of poor investor sentiment towards the UK, we may now be
seeing some improvement, and whilst experience tells us that such improvement
will not be in a straight line, our hope is that your Portfolio Managers will
deliver outperformance against the benchmark and the peer group.
Bridget Guerin
Chairman
15 October 2024
Portfolio Managers' Report
Q What were the key influences on the market over the period?
A The UK market shrugged off the general election and change of government,
with the largely inevitable result limiting any potential uncertainty. The
improving economic outlook, with accelerating GDP growth, lower inflation and
the potential for lower interest rates had a much greater influence. The
market rally, triggered by improved inflation data at the end of October 2023,
was sustained as CPI trended towards its 2% target level. The much anticipated
cut in UK base rates duly arrived in July 2024, and although inflation has
ticked-up slightly since, the current Bank of England policy seems overly
restrictive, giving the potential for a further easing of rates in the coming
months.
Takeover activity remained a feature of the UK market, with low valuations
drawing interest from a range of both trade and private equity buyers.
Receipts from these deals are generally re-deployed into other listed
businesses, giving an immediate boost to markets. It also highlights the
valuation attractions of the UK market, potentially drawing interest from
other investors.
On a more global level, the industrial sector struggled, as the easing of post
pandemic supply chain disruption allowed businesses to reduce their inventory
levels. Whilst there are now signs of ordering patterns normalising, the
period of adjustment led to lower demand across the sector.
Q How did the portfolio perform over the period?
A The NAV total return for the portfolio over the period was +13.8%, which is
an outperformance of 1.7% when compared with the benchmark index, the Deutsche
Numis Smaller Companies + AIM (excluding Investment Companies) Index with
dividends reinvested, which returned +12.1% on the same basis.
Q Which sectors contributed to and detracted from performance?
A An improving consumer outlook meant that the consumer discretionary sector
was the most positive contributor to portfolio performance, with leisure and
media stocks performing well. We also benefitted from our exposure to
financials, with rising markets driving the outperformance. The sector that
detracted the most from performance was industrials, where ongoing destocking
continued to weigh on profitability.
Q Which stocks contributed to and detracted from performance?
A The best performing stocks over the period included: financial
administration business, JTC (+31%), our largest holding, continued its
impressive long-term record of organic growth. This was augmented with a
number of acquisitions, most notably in the US, where management see a
significant opportunity for growth. Investment platform, AJ Bell (+45%),
gained as stronger stock markets boosted its fee income, and it benefitted as
fears about the impact of new Consumer Duty regulations receded. Keywords
Studios (+44%), and Alpha Financial Markets Consulting (+38%) both received
takeover approaches from private equity. 4imprint (+14%), which sells
promotional products, predominantly in the US, had another strong year. The
business, which is the largest player in its niche, continued to take share by
increasing its advertising spend. The company has good long-term prospects and
remains one of the largest holdings in the portfolio. Defence business, Avon
Protection (+41%), benefitted from restructuring under its new management
team. The business had lost it way under previous management but has
significant recovery potential if margins return to historic levels.
By far the biggest detractor from performance in the period was veterinary
company CVS (-32%). The shares fell following the commencement of a
Competition and Markets Authority (`CMA') investigation into the sector
triggered by rising vets bills. There is a structural undersupply of vets in
the UK, and overseas recruitment has been more difficult since Brexit. Whilst
prices in the sector have risen significantly over the last few years, CVS has
only increased charges in-line with staff costs, which have increased
substantially to attract and retain enough vets. We do not believe the sector
is "over earning", and therefore do not believe that the CMA investigation
will ultimately have a significant impact on profitability for the business.
The company continues to trade well and we have maintained our holding. Market
research business, YouGov (-60%), which is a relatively new holding, suffered
from lower demand and increased competition in some areas of its business.
When introducing new holdings to the portfolio we generally buy a smaller
initial position and wait for further news. So thankfully this was a
relatively small holding. We will monitor the progress of the business over
coming months and decide whether to exit or build to a full position.
Focusrite (-26%), is a music technology business which has experienced softer
trading following a spike in demand during the pandemic. More recently this
has been exacerbated by destocking amongst its retail customers. The business
benefits from a market leading position in its segments, and we believe it
will recover over the coming years, so we have maintained our holding.
Q What is the current portfolio strategy?
A Our investment philosophy remains unchanged. The current portfolio is
comprised of 60-70 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". 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.
In terms of portfolio construction, we continue to favour a mix of both
cyclical (economically sensitive) stocks, and more defensive businesses. We
believe that the outlook for both the consumer and industrial sectors has
improved, and we have reflected this with a tilt towards more cyclically
exposed stocks over the 6 months.
Q What are the major holdings in the portfolio?
A The 5 largest holdings in the portfolio at the end of the period were:
· JTC (4.5% 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.
· 4imprint (3.9% of the portfolio) sells promotional materials such as pens,
bags and clothing which are emblazoned with company logos. The business
gathers orders through online and catalogue marketing, which are then routed
to their suppliers who produce and dispatch the products to customers. As a
result of outsourcing most of the manufacturing, 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.
· Hill & Smith (3.4% of the portfolio) is a supplier of products and
services into the infrastructure sectors in the US and UK. 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.
· AJ Bell (3.3% of the portfolio) is an investment platform offering share
dealing, custody and other investment services to both financial advisors and
retail investors in the UK. The business benefits from a high level of
recurring revenue from levying charges on assets under administration. It has
an excellent long term growth record, and its low fee structure and well
invested technology stack should enable it to continue taking market share in
the future.
· Hilton Food (3.2% of the portfolio) partners with major supermarkets
across the world to supply their prepacked meat, fish, and plant-based
products on a long-term "cost plus" basis. This model reduces the volatility
in profits typically seen in food businesses by allowing them to pass changes
in the cost of raw materials on to their customers. The business has
benefitted from the global trend in supermarkets moving from in-store to
centralised packing and relying on a reduced number of trusted suppliers.
Hilton Foods has an excellent long term growth record, both from signing
customers in new countries and increasing share within existing customers. The
business has also successfully added new product categories via acquisition,
which it can then sell into its global customer base.
Q What were the new holdings added over the period?
A New stocks that we added to the portfolio in the period include:
· GlobalData (£1,800 million market cap) provides data and analytics to
businesses in the healthcare, technology and consumer sectors. The business
benefits from a high level of recurring revenue, with 85% of sales coming via
subscriptions. The company owns over 290 proprietary data sets including
medical/drug data, pricing indices and industry sales data, which it packages
and sells to companies in different ways. The business has an enviable growth
record, with revenue increasing 80% over the last 5 years, and is highly
profitable, with margins in excess of 25%. The business recently sold a 40%
share of its healthcare division for £434 million. The company will use the
proceeds to accelerate the growth of the business investing in people,
acquisitions, and Artificial Intelligence (`AI') tools to make its data more
useable.
· Oxford Instruments (£1,340 million market cap) provides high technology
products and services to industrial businesses and scientific research
organisations in the healthcare, life sciences, semiconductor, and
communications sectors. Its product range includes optical spectroscopy,
X-ray, atomic force microscopy, nuclear magnetic resonance, electron
microscopy, and low-temperature systems, which customers use for materials
analysis, life sciences, astronomy, quantum technology etc. It generates
attractive margins, has a good long term growth record, and a cash balance
sheet.
Q What is the 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 have moved the Company to a
geared position of around 4.5%.
The valuation of the UK Smaller Companies sector continues to look attractive.
Interest rates are likely to fall further with inflation back towards its
target, and this should improve the relative attraction of equites compared to
bonds and bank deposits. This combined with an improving economic backdrop,
and the ongoing takeover activity in the sector, suggest that we are likely to
increase gearing over the coming months.
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 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% 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 Despite the protestations of the new government, the UK economy is in
decent shape. The consumer sector is seeing discretionary income growing at
over 10% this year, as wages continue to rise at a rate well ahead of
inflation. Household balance sheets are also relatively strong following a
period of elevated savings. This, combined with full employment, should ensure
a healthy consumer backdrop as we progress through the year.
The industrial sector has struggled over the last year, as businesses reduced
inventories following the period of post pandemic supply chain disruption.
Conversations with businesses suggest that in many cases inventories have
returned to historic levels and ordering patterns are normalising. We are
hopeful that this will herald a return to growth for the industrial sector
over the coming year.
So, with an improving economic outlook, a continued high level of take-over
activity, and the relatively low valuation of UK smaller companies, we believe
the sector can continue to make good progress over the next year.
Jonathan Brown & Robin West
Portfolio Managers
15 October 2024
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 The Directors have assessed the market impact of the ongoing uncertainty from the conflicts in the Middle East and 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.
companies, as well as affecting the Company's own share price and the discount to its NAV. The risk could be triggered by unfavourable developments globally and/or in one or more regions, contemporary examples being the market uncertainty in relation to
the wider political developments in Ukraine and the Middle East.
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 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.
lower liquidity. In addition, as smaller companies may not generally have the financial strength, diversity and resources of larger companies, they may find it more difficult to overcome periods of economic slowdown or recession. 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 the Board comprises non-executive directors only. The Company is therefore reliant upon the performance of third-party service providers for its executive 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.
function and service provisions. The Company's operational structure means that all cyber risk (information and physical security) arises at its third-party service providers, including fraud, sabotage or crime against the Company. 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 19. The Manager may be exposed to reputational risks. In particular, the Manager may be exposed to the risk that litigation, misconduct, operational failures, negative publicity
and press speculation, whether or not it is valid, will harm its reputation. Damage to the reputation of the Manager could potentially result in counterparties and third parties being unwilling to deal with the Manager and by extension the Company, which
carries the Manager's name. This could have an adverse impact on the ability of the Company to pursue its investment policy successfully.
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 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 2024 Annual Financial Report.
status could lead to the Company being subject to corporation tax on the chargeable capital gains arising on the sale of its investments. Other control failures, either by the Manager or any other of the Company's service providers, could result in
operational or reputational problems, erroneous disclosures or loss of assets through fraud, as well as breaches of regulations.
In the view of the Board, these principal risks and uncertainties are as much
applicable to the remaining six months of the financial year as they were to
the six months under review.
Thirty Largest Investments
AT 31 JULY 2024
Ordinary shares unless stated otherwise
Market
Value % of
Company Sector £'000 Portfolio
JTC Investment Banking and Brokerage Services 8,437 4.5
4imprint Media 7,379 3.9
Hill & Smith Industrial Metals and Mining 6,403 3.4
AJ Bell Investment Banking and Brokerage Services 6,165 3.3
Hilton Food Food Producers 6,118 3.2
Chemring Aerospace and Defence 5,727 3.0
Advanced Medical Solutions ᴬᴵᴹ Medical Equipment and Services 5,100 2.7
Alfa Financial Software Software and Computer Services 5,088 2.7
Hollywood Bowl Travel and Leisure 5,007 2.7
Coats General Industrials 5,000 2.6
Top Ten Holdings 60,424 32.0
Serco Industrial Support Services 4,260 2.3
Alpha Financial Markets Consulting ᴬᴵᴹ Industrial Support Services 3,981 2.1
Brooks Macdonald ᴬᴵᴹ Investment Banking and Brokerage Services 3,691 2.0
Mitchells & Butlers Travel and Leisure 3,432 1.8
Volution Construction and Materials 3,361 1.8
Genuit Construction and Materials 3,348 1.8
Essentra Industrial Support Services 3,323 1.8
Marshalls Construction and Materials 3,294 1.7
Avon Protection Aerospace and Defence 3,138 1.7
discoverIE Electronic and Electrical Equipment 3,094 1.6
Top Twenty Holdings 95,346 50.6
Johnson Service ᴬᴵᴹ Industrial Support Services 3,066 1.6
Aptitude Software Software and Computer Services 2,995 1.6
The Gym Travel and Leisure 2,991 1.6
Kainos Software and Computer Services 2,988 1.6
CVS ᴬᴵᴹ Consumer Services 2,968 1.6
Loungers ᴬᴵᴹ Travel and Leisure 2,941 1.5
GlobalData ᴬᴵᴹ Media 2,868 1.5
Energean Oil, Gas and Coal 2,815 1.5
Crest Nicholson Household Goods and Home Construction 2,767 1.5
Young & Co's Brewery - Non-Voting ᴬᴵᴹ Travel and Leisure 2,734 1.4
Top Thirty Holdings 124,479 66.0
Other Investments (33) 63,987 34.0
Total Investments: 63
(31 January 2024: 66) 188,466 100.0
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 15 October 2024, the
Company has drawn down £15.4 million of its credit facility, with a further
£4.6 million 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
borrowing, and ongoing expenses as they fall due.
Related Party Transactions and Transactions with the Manager
Note 20 of the Company's 2024 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 FCA'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
15 October 2024
Condensed Statement of Comprehensive Income
For the six months ended For the six months ended
31 July 2024 31 July 2023
Revenue Capital Total Revenue Capital Total
Notes £'000 £'000 £'000 £'000 £'000 £'000
Profit/(loss) on investments held at fair value - 20,361 20,361 - (14,695) (14,695)
Income 2 2,855 - 2,855 3,074 491 3,565
2,855 20,361 23,216 3,074 (14,204) (11,130)
Investment management fee 3 (98) (553) (651) (92) (523) (615)
Other expenses (238) (150) (388) (217) (1) (218)
Profit/(loss) before finance costs and taxation 2,519 19,658 22,177 2,765 (14,728) (11,963)
Finance costs 3 (41) (236) (277) (1) (8) (9)
Profit/(loss) before taxation 2,478 19,422 21,900 2,764 (14,736) (11,972)
Taxation 4 - - - - - -
Profit/(loss) after taxation 2,478 19,422 21,900 2,764 (14,736) (11,972)
Return per ordinary share 7.33p 57.41p 64.74p 8.17p (43.56)p (35.39)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 profit/(loss) after taxation is the total
comprehensive income/(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 2024
At 31 January 2024 10,642 22,366 3,386 123,147 1,854 161,395
Total comprehensive income for the period - - - 19,422 2,478 21,900
Dividends paid 5 - - - (1,278) (1,854) (3,132)
At 31 July 2024 10,642 22,366 3,386 141,291 2,478 180,163
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
Condensed Balance Sheet
Registered number 02129187
At At
31 July 31 January
2024 2024
Notes £'000 £'000
Non-current assets
Investments held at fair value through profit or loss 188,466 169,481
Current assets
Amounts due from brokers 13 529
Overseas withholding tax recoverable - 30
Income tax recoverable - 4
Prepayments and accrued income 357 369
Cash and cash equivalents 18 -
388 932
Total assets 188,854 170,413
Current liabilities
Amounts due to brokers (88) (48)
Bank overdraft - (8,753)
Accruals (403) (217)
(491) (9,018)
Total assets less current liabilities 188,363 161,395
Non-current liabilities
Bank facility (8,200) -
Net assets 180,163 161,395
Capital and reserves
Share capital 10,642 10,642
Share premium 22,366 22,366
Capital redemption reserve 3,386 3,386
Capital reserve 141,291 123,147
Revenue reserve 2,478 1,854
Total shareholders' funds 180,163 161,395
Net asset value per ordinary share 532.60p 477.12p
Number of ordinary shares in issue at the period end 6 33,826,929 33,826,929
Condensed Cash Flow Statement
Six months Six months
ended 31 July ended 31 July
2024 2023
Notes £'000 £'000
Cash flow from operating activities
Profit/(loss) before taxation 21,900 (11,972)
Add back finance costs 277 9
Adjustments for:
Purchases of investments (15,495) (9,562)
Sales of investments 17,427 5,920
1,932 (3,642)
(Profit)/loss on investments held at fair value (20,361) 14,695
Decrease in receivables 46 80
Increase/(decrease) in payables 186 (37)
Net cash inflow/(outflow) from operating activities 3,980 (867)
Cash flow from financing activities
Finance cost paid (277) (9)
Bank overdraft repayment (8,753) -
Bank facility drawdown 8,200 -
Dividends paid 5 (3,132) (3,565)
Net cash outflow from financing activities (3,962) (3,574)
Net increase/(decrease) in cash and cash equivalents 18 (4,441)
Cash and cash equivalents at start of the period - 5,055
Cash and cash equivalents at the end of the period 18 614
Reconciliation of cash and cash equivalents to the Balance Sheet is as follows:
Cash held at custodian 18 44
Invesco Liquidity Funds plc - Sterling, money market fund - 570
Cash and cash equivalents 18 614
Cash flow from operating activities includes:
Dividends received 2,868 3,649
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 2024 Annual Financial
Report. They have been prepared on an historical cost basis, in accordance
with the applicable UK-adopted international accounting standards and, where
possible, in accordance with the Statement of Recommended Practice for
Financial Statements of Investment Trust Companies and Venture Capital Trusts,
updated by the Association of Investment Companies in July 2022 (`AIC SORP').
2. Income
Six months Six months
ended 31 July ended 31 July
2024 2023
£'000 £'000
Income from investments:
UK dividends
- ordinary 2,643 2,561
- special 150 409
Overseas dividends 62 102
2,855 3,072
Other income:
Deposit interest - 2
2,855 3,074
No special dividends have been recognised in capital during the period (31
July 2023: £491,000).
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 2023: 0.75%) per annum by reference to the Company's
gross funds under management.
During the period the Company's £15 million overdraft facility was replaced
with a new uncommitted £20 million 364 day revolving credit facility.
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 2024 31 July 2023
Rate £'000 Rate £'000
Third interim (prior year) 3.85p 1,302 3.75p 1,269
Final (prior year) 5.41p 1,830 6.79p 2,296
Total 9.26p 3,132 10.54p 3,565
The first interim dividend of 3.85p per ordinary share (31 July 2023: 3.85p)
was paid on 30 August 2024 to shareholders on the register on 2 August 2024.
As set out in the Company's circular dated 19 July 2024, during the period the
Board offered a return of capital to shareholders in respect of up to 10% of
the Company's issued shares (excluding treasury shares). The return of capital
was proposed by way of an elective special dividend, where all shareholders
had an opportunity to elect in respect of each share held. The value of the
special dividend was an amount per share which represented 97.5% of the
published unaudited NAV per share of £4.8485 as at the net asset value
certification date (being 6.00 p.m. on 17 September 2024). All shares on
which the special dividend was paid on 8 October 2024 were cancelled for no
consideration pursuant to the reduction of capital.
A second interim dividend of 3.85p (2023: 3.85p) has been declared and will be
paid on 6 December 2024 to ordinary shareholders on the register on 8 November
2024.
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
2024 2024
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
The elective special dividend paid on 8 October 2024 referred to in note 5
above resulted in a reduction in share capital. As at 15 October 2024, the
Company's share capital consisted of 30,444,281 ordinary shares in issue and a
further 19,382,155 shares held in treasury.
7. Classification Under Fair Value Hierarchy
Note 16 of the Company's 2024 Annual Financial Report sets out the basis of
classification.
As at 31 July 2024, all of the Company's portfolio was composed of quoted
(Level 1) investments.
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
2023 and 31 July 2024 has not been audited. The figures and financial
information for the year ended 31 January 2024 are extracted and abridged from
the latest audited accounts and do not constitute the statutory accounts for
that year. Those accounts have been delivered to the Registrar of Companies
and included the Independent Auditor's Report, which was unqualified.
By order of the Board
Invesco Asset Management Limited
Company Secretary
15 October 2024
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 2024 and the year ended 31 January 2024. The
APMs listed here are widely used in reporting within the investment company
sector and consequently aid comparability.
Benchmark (or Benchmark Index)
A market index, which averages the performance of companies in any sector,
giving a good indication of any rises or falls in the market. The benchmark
used in these accounts is the Deutsche 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
2024 2024
Share price a 470.00p 424.00p
Net asset value per share b 532.60p 477.12p
Discount c = (a-b)/b (11.8)% (11.1)%
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 2024, the Company has gross borrowings of
£8,200,000 (31 January 2024: £8,753,000).
31 July 31 January
2024 2024
£'000 £'000
Bank facility 8,200 -
Bank overdraft facility - 8,753
Gross borrowings a 8,200 8,753
Net asset value b 180,163 161,395
Gross gearing c = a/b 4.6% 5.4%
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
2024 2024
£'000 £'000
Bank facility 8,200 -
Bank overdraft facility - 8,753
Less: cash and cash equivalents (18) -
Net borrowings a 8,182 8,753
Net asset value b 180,163 161,395
Net gearing c = a/b 4.5% 5.4%
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
2024 2024
£'000 £'000
Maximum authorised borrowings as laid down in:
Investment policy:
- lower of 30% of net asset value; and a = 30% x e 54,049 48,419
- £25m b 25,000 25,000
Bank facility covenants: lower of 30% of net asset value and £20m
(31 January 2024: bank overdraft facility covenants: lower of 30% of net asset
value and £15m) c 20,000 15,000
Maximum authorised borrowings (d = lower of a, b and c) d 20,000 15,000
Net asset value e 180,163 161,395
Maximum authorised gearing f = d/e 11.1% 9.3%
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 amortised cost (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 LSEG Data & Analytics 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 2024 Value Price
As at 31 July 2024 532.60p 470.00p
As at 31 January 2024 477.12p 424.00p
Change in period a 11.6% 10.8%
Impact of dividend reinvestments(1) b 2.2% 2.5%
Total return for the period c = a+b 13.8% 13.3%
Net Asset Share
Year ended 31 January 2024 Value Price
As at 31 January 2024 477.12p 424.00p
As at 31 January 2023 517.09p 451.00p
Change in year a -7.7% -6.0%
Impact of dividend reinvestments(1) b 3.6% 4.2%
Total return for the year c = a+b -4.1% -1.8%
(1) Total dividends paid during the six months to 31 July 2024 of 9.26p (31
January 2024: 18.24p) 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.
Directors, Investment Manager and Administration
Directors
Bridget Guerin (Chairman of the Board and Nomination Committee)
Graham Paterson (Chairman of the Audit Committee)
Mike Prentis (Chairman of the Management Engagement Committee and Senior
Independent Director)
Simon Longfellow (Chairman of the Marketing Committee)
Registered Office and Company Number
Perpetual Park
Perpetual Park Drive
Henley-on-Thames
Oxfordshire RG9 1HH
Registered in England and Wales
Number 02129187
Alternative Investment Fund Manager (Manager)
Invesco Fund Managers Limited
Company Secretary and Correspondence Address
Invesco Asset Management Limited
43-45 Portman Square
London W1H 6LY
020 3753 1000
Company Secretarial Contact: Naomi Rogers/James Poole
Invesco Client Services
Invesco has a Client Services Team available from 8.30am to 6.00pm
Monday to Friday (excluding UK Bank Holidays). Please feel free to take
advantage of their expertise by ringing
0800 085 8677
www.invesco.co.uk/investmenttrusts
Depositary, Custodian and Banker
The Bank of New York Mellon (International) Limited
160 Queen Victoria Street
London EC4V 4LA
Independent Auditor
Ernst & Young LLP
25 Churchill Place
Canary Wharf
London E14 5EY
Corporate Broker
JPMorgan Cazenove
25 Bank Street
London E14 5JP
Registrar
Link Group
Central Square
29 Wellington Street
Leeds LS1 4DL
0371 664 0300
If you hold your shares directly as a paper share certificate and not through
an investment platform or savings scheme and have queries relating to your
shareholding you should contact the company's Registrar, Link Group, on: 0371
664 0300. Calls are charged at the standard geographic rate and will vary by
provider.
Link Group provides an on-line and telephone share dealing service for paper
share certificates to existing shareholders who are not seeking advice on
buying or selling. This service is available at www.linksharedeal.com or 0371
664 0445. Calls are charged at the standard geographic rate and will vary by
provider. Calls from outside the UK will be charged at the applicable
international rate. Lines are open 9.00am to 5.30pm Monday to Friday
(excluding Bank Holidays in England and Wales). Shareholders holding paper
share certificates can also access their holding details via Link's website
www.signalshares.com.
Link Group is the business name of Link Market Services Limited.
Alternatively, you can also buy and sell shares yourself through a wide
variety of `execution-only' investment platforms - where you make the
investment decisions and your shares are held electronically in an account on
your behalf. These tend to be cheaper than holding paper share certificates
and also mean you don't need to worry about losing your certificate. Most
investment platforms allow you to manage your investment trust holdings
online, as well as access to a wide range of investment options.
Platforms generally charge fees for holding and trading shares. You can find a
list of the major platforms at:
https://www.invesco.com/uk/en/investment-trusts/invesco-insights/how-to-invest-in-investment-trusts.html
Manager's Website
Information relating to the Company can be found on the Company's section of
the Manager's website, which can be located at www.invesco.co.uk/ipukscit.
The contents of websites referred to in this document, or accessible links
within those websites, are not incorporated into, nor do they form part of,
this financial report.
General Data Protection Regulation (`GDPR')
The Company has a privacy notice which sets out what personal data is
collected and how and why it is used. The privacy notice can be found at
www.invesco.co.uk/ipukscit under the `Literature' section, or a copy can be
obtained from the Company Secretary whose correspondence address is found
above.
Investor Warning
The Company, Invesco and the Registrar would never contact members of the
public to offer services or require any type of upfront payment. If you
suspect you have been approached by fraudsters, please contact the FCA
consumer helpline on 0800 111 6768 and Action Fraud on 0300 123 2040.
Further details for reporting frauds, or attempted frauds, can be found below.
National Storage Mechanism
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.
Hard copies of the Half-Yearly Financial Report will be posted to shareholders
and can be requested from the Company Secretary by email
at investmenttrusts@invesco.com or at the Company's correspondence address,
2nd Floor, 43-45 Portman Square, London W1H 6LY.
For further information, please contact:
Naomi Rogers/James Poole
For and on behalf of Invesco Asset Management Limited
Corporate Secretary to Invesco Select Trust plc
Email: investmenttrusts@invesco.com
Will Ellis
Head of Specialist Funds - Invesco
Email: will.ellis@invesco.com
Invesco Asset Management Limited
Corporate Company Secretary
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