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Invesco Perpetual UK Smaller Companies Investment Trust plc

Annual Financial Report Announcement

For the year ended 31 January 2016


The Benchmark Index (1) of the Company is the Numis Smaller Companies Index  (excluding Investment Companies) with income reinvested.

AT 31 JANUARY 2016 2015 CHANGE
Net asset value(1) per share:
  – balance sheet 390.3p 370.1p +5.5%
  – after charging both paid and proposed dividends 382.8p 358.0p      +6.9%  (2)
Shareholders’ funds (£’000)(1) 207,657 196,914 +5.5%
Share price 362.0p 328.3p +10.3%
Discount(1) 7.3% 11.3%
  – gross gearing(1) nil nil
  – net gearing(1) nil nil
  – net cash(1) 4.9% 4.1%
Maximum authorised gearing(1) 7.2% 10.2%
Total return (with income reinvested):
Company's return based on prior year NAV(1) after
  charging both paid and proposed dividends(3) +10.9% +2.4%
Benchmark Index(1)(4) +3.8% –2.6%
FTSE All-Share Index(4) –4.6% +7.1%
Capital return:
Company's return based on prior year NAV(1) after
  charging both paid and proposed dividends(3) +8.4% +0.4%
Benchmark Index(1)(4) +0.9% –5.3%
FTSE All-Share Index(4) –7.9% +3.6%
Returns and dividend per ordinary share:
Revenue return 8.98p 7.39p
Capital return 30.16p 1.29p
Total return 39.14p 8.68p
First interim dividend 3.40p 1.60p
Second interim dividend 3.40p
Third interim dividend 3.40p
Final dividend 4.10p 12.15p
Total dividends 14.30p 13.75p +4.0%
Dividend payable for the year:
  – from revenue 8.98p 12.64p
  – from capital 5.32p 1.11p
14.30p 13.75p
Capital dividend as a % of year end net assets 1.4% 0.3%
Ongoing charges(1) – excluding performance fee 0.82% 0.83%
Performance fee 1.01% 0.73%

Notes:  (1)                The term is defined in the Glossary on page 59 in the annual financial report.

             (2)                Return reflects dividend payable from capital.

             (3)                Source: Invesco Perpetual.

             (4)                Source: Thomson Reuters Datastream.




I am pleased to report that for the year ended 31 January 2016 the net asset value (NAV) of your Company rose by 10.9%, on a total return basis, an outperformance of 7.1% versus the benchmark index of the Company, the Numis Smaller Companies Index (excluding Investment Companies), which returned a lesser 3.8%. When compared to the wider UK stock market, the Company generated an impressive 15.5% outperformance against the FTSE All-Share Index return of –4.6% over the same period. In consequence of this very strong performance over the year, a performance fee of £2.1 million has been earned by the portfolio manager.

Over the same period, the Company’s share price rose from 328.3p to 362p per share, an increase of 10.3%, and the discount, even in recent volatile markets, narrowed to a low of 3.0% and ended the year at 7.3%.


As announced in March 2015, the Board took the decision to implement a material increase in the dividend paid to shareholders, targeting an initial yield of approximately 4% per annum (based on the then prevailing share price of 344p). This was to be achieved through the distribution of all available income, with any shortfall to be paid from capital reserves.

It was also announced that the Company would pay quarterly dividends, comprising three equal interim dividends followed by a final dividend. Accordingly, for the year ended 31 January 2016 three interim dividends of 3.4p each were paid to shareholders, in September and December 2015 and in March 2016.

The Board is now proposing a final dividend of 4.1p per share, bringing the total dividend for the year to 14.3p per share, an increase of 4.0% on the previous year’s total dividend. Based on the year end share price of 362p, this represents a dividend yield of 4%. The final dividend will be payable, subject to shareholder approval, on 3 June 2016 to shareholders on the register on 29 April 2016 and the shares will go ex-dividend on 28 April 2016.

When introducing this change in dividend policy to shareholders in my Chairman’s Statement last year, I emphasised that there would be no change in investment policy or style, although the portfolio manager would have scope to hold slightly larger positions in higher-yielding stocks, where they fit his investment criteria. In the event, there has been a noticeable increase in dividends earned from the portfolio resulting in an increase in revenue return per share – from 7.4p last year to 9.0p this year. As a result, the balance to be paid from capital reserves is 5.3p, representing 1.4% of net assets and well within the 2% level previously announced; this represents only a small proportion of the annualised returns over the past ten years.

The Company received £0.5 million, the equivalent of 1.2p per share, of special dividends during the year. While by their nature special dividends are non-recurring, this was coincidentally the same amount as received last year.

Future of the Company

As shareholders will be aware, the Board made a commitment to offer a number of alternatives at or around the 2017 AGM, including an exit at a price close to NAV. One of the benefits it hoped to achieve by this initiative was a narrowing of the discount to NAV at which the Company’s shares trade. This initiative announced in 2012, in tandem with the dividend changes detailed above, has been successful in narrowing the discount so that at the date of this report the discount stands at 5.93%, well below the level prevailing for its peer group of investment trusts.

Annual General Meeting

This year’s Annual General Meeting will be held on Thursday, 2 June 2016. The Directors have considered all of the resolutions proposed in the Notice of the AGM and believe them to be in the best interests of shareholders and the Company as a whole. The Directors, accordingly, recommend that shareholders vote in favour of each resolution.


The year under review was influenced by a number of factors affecting confidence in global markets, from a slowdown in China’s growth to a collapse in commodity prices, to whether or not the US should have raised interest rates at the end of the year. Inevitably, such events on the global stage will have some impact on a sector such as UK smaller companies – notwithstanding that often the majority of their earnings are derived from the domestic market and thus depend on the confidence shown by UK customers.

Looking forward, after such a volatile start to 2016, there are still more hurdles ahead, not least in the inevitable uncertainty created by the ‘Brexit’ referendum on 23 June. Meanwhile, governments worldwide have pulled out all the stops to stimulate their countries’ economies with over $10 trillion of quantitative easing to date and interest rates held at all-time lows. There are correspondingly few levers left to pull should the world economy descend into a recession. However, the portfolio manager remains confident that most economies are far better placed to deal with a relatively low growth, low interest rate period, even if that now seems likely to last for longer than expected, before growth restarts in earnest.

As in previous years, your portfolio manager will stick to what he does best: identifying and investing in companies that sell quality products which have the ability to grow market share, even in a low-growth environment, and where ownership interests are aligned with those of shareholders. Your Board continues to endorse this approach.

Ian Barby


18 April 2016



Invesco Perpetual UK Smaller Companies Investment Trust plc is an investment company and its investment objective is set out below. The strategy the Board follows to achieve that objective is to set investment policy and risk guidelines, together with investment limits, and to monitor how they are applied. These are also set out below and have been approved by shareholders.

The Company has contracted the services of Invesco Fund Managers Limited (the ‘Manager’) to manage the portfolio in accordance with the Board’s strategy and under its oversight. The portfolio manager responsible for the day to day management of the portfolio is Jonathan Brown, assisted by Robin West, Deputy Portfolio Manager.

Investment Objective

The Company is an investment trust whose investment objective is to achieve long-term total return for shareholders primarily by investment in a broad cross-section of small to medium sized UK quoted companies.

The Directors have taken the publication of the annual financial report as an opportunity to update the wording of the investment policy to reflect that investment holdings primarily comprise shares traded on the London Stock Exchange and that this covers shares traded on AIM. Accordingly, the following investment policy wording differs slightly from that used in last year’s annual report.

Investment Policy

The portfolio primarily comprises shares traded on the London Stock Exchange including those traded on AIM. The portfolio manager can also invest in unquoted securities, though these are limited to a maximum of 5% of gross assets at the time of acquisition.

The Manager seeks to outperform the Numis Smaller Companies Index (excluding Investment Companies). As a result, the Manager’s approach can, and often does, result in significant overweight or underweight positions in individual stocks or sectors compared with the benchmark. Sector weightings are ultimately determined by stock selection decisions.

Risk diversification is sought through a broad exposure to the market, where no single investment may exceed 5% of the Company’s gross assets at the time of acquisition. The Company may utilise index futures to hedge risk of no more than 10% and other derivatives (including warrants) of no more than 5%. In addition, the Company will not invest more than 10% in collective investment schemes or investment companies, nor more than 10% in non-UK domiciled companies. All these limits are referenced to gross assets at the time of acquisition.

Borrowings may be used to raise market exposure up to the lower of 30% of net asset value and £25 million.

Dividend Policy

The Company’s dividend policy is to distribute all available revenue earned by the portfolio in the form of dividends to shareholders. In addition, the Board has approved the use of the Company’s capital reserves to enhance dividend payments. Therefore, the total dividend, paid to shareholders on a quarterly basis, is made up partly of income received from the portfolio and partly from capital reserves.


The Board reviews performance by reference to a number of Key Performance Indicators which include the following:

•               the movement in net asset values (NAV) per share on a total return basis;

•               the performance relative to the benchmark index and the peer group;

•               the discount;

•               dividend per share;

•               the ongoing charges; and

•               the risk and volatility.

The ten year record for the NAV and share price performance compared with the Company’s benchmark index can be found on page 3 of the annual financial report, together with the five year discount record. The ten year record for dividends and ongoing charges is shown on page 4. Returns versus volatility are shown on the graph on page 12.

Results and Dividends

In the year ended 31 January 2016, the net asset value total return was 10.9%, compared with a total return on the benchmark index of 3.8%, an outperformance of 7.1%. The discount at the year end was 7.3%. The Portfolio Manager’s Report which follows shows an analysis of the relative performance in tabular form.

For the year ended 31 January 2016, three interim dividends of 3.4p per share were paid to shareholders in September and December 2015 and March 2016. A final dividend of 4.lp per share will be proposed to shareholders at the AGM on 2 June 2016 and will be paid on 3 June 2016 to shareholders on the register on 29 April 2016, subject to shareholder approval. This will give total dividends for the year of 14.3p (2015: 13.75p), which will be funded from the net income of 8.98p generated during the year, with the balance of 5.32p from capital.

Financial Position and Borrowings

At 31 January 2016, the Company’s net assets were valued at £208 million (2015: £197 million), comprising a portfolio of equity investments and net current assets, with no borrowings (2015: £nil). Borrowings under a facility with Bank of New York Mellon are limited to the maximum of the lower of 30% of net assets and £15 million (2015: £20 million).

Outlook, including the Future of the Company

The main trends and factors likely to affect the future development, performance and position of the Company’s business, can be found in the Portfolio Manager’s Report. Details of the principal risks affecting the Company are set out under ‘Principal Risks and Uncertainties’ below.

As previously announced, on or around the Company’s AGM in 2017, the Board will make available options for shareholders as set out in the Chairman’s Statement. The Board has assured shareholders that the Manager will continue to use its best endeavours to attempt to achieve above-average performance and thereby earn the authority from shareholders for the Company’s continuation.


Principal Risks and Uncertainties

The principal risks facing the Company are subject to robust assessment by the Directors and these risks, and the steps taken to mitigate them, follow. Most of these risks are market related and are similar to those of other investment trusts investing primarily in listed markets.

Market (Economic) Risk

Factors such as fluctuations in stock markets, interest rates and exchange rates are not under the control of the Board and the portfolio manager, but may give rise to high levels of volatility in the share prices of investee companies, as well as affecting the Company’s own share price and discount to NAV. To a limited extent, futures can be used to mitigate this risk.

Investment Risk

The Company invests in small and medium-sized companies traded on the London Stock Exchange or on AIM. By their nature these are generally considered riskier than their larger counterparts and their share prices can be more volatile, with lower liquidity. In addition, as smaller companies do not generally have the financial strength, diversity and resources of larger companies, they may find it more difficult to overcome periods of economic slowdown or recession.

The portfolio manager’s approach to investment is one of individual stock selection. Investment risk is mitigated via the stock selection process, together with the slow build-up of holdings rather than the purchase of large positions outright. This allows the portfolio manager to observe more data points from a company before adding to a position. The overall portfolio is well diversified by company and sector. The weighting of an investment in the portfolio tends to be loosely aligned with the market capitalisation of that company. This means that the largest holdings will often be amongst the larger of the smaller companies available.

The portfolio manager is relatively risk averse, looks for lower volatility in the portfolio and seeks to outperform in more challenging markets. The portfolio manager remains cognisant at all times of the potential liquidity of the portfolio.

There can be no guarantee that the Company’s strategy and business model will be successful in achieving its investment objective. The Board monitors the performance of the Company and has guidelines in place to ensure that the portfolio manager adheres to the approved investment policy. The continuation of the portfolio manager’s mandate is reviewed annually.

Shareholders’ Risk

The value of an investment in the Company may go down as well as up and an investor may not get back the amount invested.

As explained in the Chairman’s Statement, on 10 March 2015 the Company announced a new dividend policy, targeting an initial yield of approximately 4% per annum based on the prevailing share price at that time of 344p per share. Dividends will continue to be funded by distributing 100% of available income each year, with the balance paid from capital.

The Board and the portfolio manager maintain an active dialogue with the aim of ensuring that the market rating of the Company’s shares reflects the underlying net asset value; and there are in place both share buy back and issuance facilities to help the management of this process.


The Company may borrow money for investment purposes. If the investments fall in value, any borrowings (or gearing) will magnify the extent of any loss. If the borrowing facility could not be renewed, the Company might have to sell investments to repay any borrowings made under it. All borrowing and gearing levels are reviewed at every Board meeting and limits agreed.

Reliance on the Manager and other Third Party Providers

The Company has no employees and the Directors have all been appointed on a non-executive basis. The Company is therefore reliant upon the performance of third party providers both for its executive function and other service provision. In particular, the Manager performs services which are integral to the operation of the Company. Failure by any service provider to carry out its obligations to the Company in accordance with the terms of its appointment could have a materially detrimental impact on the operation of the Company and could affect the ability of the Company to successfully pursue its investment policy.

The Manager 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. Any damage to the reputation of the Manager could result in potential counterparties and third parties being unwilling to deal with the Manager and by extension the Company, which carries the Manager’s name. This could have an adverse impact on the ability of the Company to pursue its investment policy successfully. The Company’s main service providers are listed on page 58 in the annual financial report.

The Audit Committee regularly reviews the performance and internal controls of the Manager, the results of which are reported to the Board. The Manager reviews the performance of all third party providers regularly through formal and informal meetings.

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 Alternative Investment Fund Managers Directive. A loss of investment trust status could lead to the Company being subject to capital gains tax on the sale of its investments. Other control failures, either by the Manager or any other of the Company’s service providers, could result in operational or reputational problems, erroneous disclosures or loss of assets through fraud, as well as breaches of regulations.

The Manager reviews the level of compliance with tax and other financial regulatory requirements on a daily basis. The Board regularly considers all risks, the measures in place to control them and the possibility of any other risks that could arise. The Manager’s Compliance and Internal Audit Officers produce regular reports for review at the Company’s Audit Committee.

Further details of risks and risk management policies as they relate to the financial assets and liabilities of the Company are detailed in note 19 to the financial statements in the annual financial report.

Viability Statement

In accordance with provision C.2.2 of the 2014 revision of the UK Corporate Governance Code, the Directors have assessed the prospects of the Company over a longer period than the 12 months required by the ‘Going Concern’ provision. The Company is an investment trust, a collective investment vehicle designed and managed for long term investment. This is the view taken by both the Board and the portfolio manager in his management of the portfolio. While a number of options will be put to shareholders at or around the Company’s AGM in 2017 (the ‘2017 event’), the Board believes that the Company, at its essence, remains evergreen and that the existence of the 2017 event does not distort this view. While the appropriate period over which to assess the Company’s viability may vary from year to year, the long term for the purpose of this viability statement is currently considered by the Board to be at least five years, with the life of the Company not intended to be limited to that or any other period.

The main risks to the Company’s continuation are: continuing poor investment performance; or shareholder dissatisfaction through failure to meet the Company’s investment objective; or the investment policy not being appropriate in prevailing market conditions. Accordingly, failure to meet the Company’s investment objective, and contributory market and investment risks, are deemed by the Board to be principal risks of the Company and are given particular consideration when assessing the Company’s long term viability.

Until 2015, the investment objective of the Company had been unchanged for many years. Last year’s amendment gave some additional weight to delivering increased dividend income to shareholders. This change was not expected to, and did not, affect the total return sought or produced by the portfolio manager but was designed to increase significantly returns distributed to shareholders. This has been well received by the market. Accordingly, the Board considers the revised investment objective remains appropriate. This is confirmed by contact with major shareholders and demonstrated by demand for the Company’s shares, as evidenced by the narrower discount to net asset value at which they now trade.

Performance derives from returns for risk taken. The Portfolio Manager’s Report which follows sets out his current investment strategy. The Company’s performance has been very strong for many years and through different market cycles, as shown by the ten year total return performance graph on page 3 of the annual financial report, and by comparison with its peer group’s returns versus volatility over five years, as set out on page 12 in the annual financial report. Whilst past performance may not be indicative of performance in the future, it should be noted that the Company’s current Manager has been in place throughout that ten years, the current portfolio manager has been involved with the Company for over 10 years, and there has been no material change in the Company’s investment objective or policy.

Demand for the Company’s shares and performance are not things that can be forecast, but there are no current indications that either or both of these may falter materially over the next five years so as to affect the Company’s viability.

The Company’s portfolio is readily realisable and many times the value of its short term liabilities and annual operating costs. It follows that there is little to no prospect of the Company not being able to meet both its short and long term obligations as they fall due in the next five years. Accordingly, failure to do so is not a principal risk of the Company.

Based on the above analysis, the Directors confirm that they expect the Company will continue to operate and meet its liabilities, as they fall due, during the five years ending January 2021.

Board Diversity

The Board considers diversity, including the balance of skills, knowledge, diversity (including gender) and experience, amongst other factors when reviewing its composition and appointing new directors, but does not consider it appropriate to establish targets or quotas in this regard. The Board consists of five directors, one of whom is a woman, thereby constituting 20% female representation.

Social and Environmental Matters

As an investment company with no employees, property or activities outside investment, environmental policy has limited application. The Manager considers various factors when evaluating potential investments. While a company’s policy towards the environment and social responsibility, including with regard to human rights, is considered as part of the overall assessment of risk and suitability for the portfolio, the Manager does not necessarily decide to, or not to, make an investment on environmental and social grounds alone. The Manager applies the United Nations Principles for Responsible Investment.



Investment Review

The year under review saw mixed returns from global stock markets for most of the period, followed by a vicious sell-off in January 2016. Of the major markets, only Japan and the US managed to hold on to some of their earlier gains. Investors’ appetite for risk was blunted by slowing economic growth in China and the US Federal Reserve’s decision to raise interest rates for the first time in almost a decade.

The price of oil and other commodities fell significantly over the year, partly prompted by weaker demand from China, but also due to a significant expansion in production over the preceding several years. This severely impacted the share prices of oil and mining companies, which contributed to the falls in equity indices. Demand for products used in these sectors has collapsed, putting significant pressure on many industrial businesses. Ultimately, the reduced cost of energy and other raw materials should benefit the consumer, with the lower cost of living boosting household discretionary cash flow. So far consumers have appeared reluctant to spend this windfall, perhaps due to a more prudent mind-set adopted since the financial crisis.

During the year, the UK stock market, as measured by the FTSE All-Share Index, returned –4.6% on a total return basis. The negative performance was largely due to the UK market having a higher relative exposure to the mining, oil & gas and banking sectors. The economic backdrop in the UK, however, has continued to be favourable, with low unemployment only gradually feeding through to wage inflation, and a conclusive result in the general election leading to an improved political backdrop. Whilst continuing to expand, the rate of UK GDP growth waned compared to the previous year. The manufacturing and export sectors have struggled due to slowing growth overseas and the headwind created by the strength of sterling. Additionally, ongoing government austerity and a softening in the housing market, prompted by changes to legislation, have counterbalanced a resilient consumer sector.

UK smaller companies, as measured by the Numis Smaller Companies Index (excl. investment companies), fared somewhat better than the wider UK equity market, increasing by 3.8% on a total return basis. The sector benefited from a higher exposure to the relatively buoyant UK consumer and a lower exposure to the oil & gas, mining and banking sectors than to the UK equity market as a whole.

Portfolio Strategy and Review

Against this background, your Company generated a net asset value total return of 10.9% for the fiscal year. Positive contributions came from retail and technology, while the portfolio’s exposure to the oil & gas and chemical sectors negatively impacted performance.

At the individual stock level, the stand-out performer was JD Sports (+68%), a leading sportswear retailer. The business is successfully growing same-store sales and rolling out its format into continental Europe. The company enjoys strong support from the major brands, enabling it to take share from its rival, Sports Direct. Staffline (+67%), a blue collar recruitment business, also had a strong year. It continues to win new customers in the logistics and food sectors and has grown its presence in the government Work Programme, where it helps re-employ the long term unemployed. CVS (+64%), a veterinary services business, had another good year. Management have continued to acquire smaller competitors, leveraging its market-leading position to drive more business through its specialist centres and pet crematoria. Also of note is Sanne (+88%), which we acquired as an IPO in April. The business offers back office outsourcing services to the financial sector, and is well positioned to grow over the next few years.

Inevitably, there were some disappointments. Northgate (–43%), a flexible van rental business, found itself out of favour with investors. There was some minor disappointment, with a small reduction in the UK fleet due to lower demand from the solar panel installation sector, but on the whole trading was solid. There is also some pressure on the value of its used vans, but nothing that fully explains the share price decline and we have added to the position. Ithaca Energy (–64%), is a North Sea oil producer, which has seen profits reduced by a lower oil price. We only have a small exposure to oil & gas producers, but with hindsight it would have been better to have had none. Another smaller holding that proved to be particularly disappointing was Stanley Gibbons (–75%), which trades stamps, coins and other collectables. We had hoped its new online trading platform would create a significant growth opportunity, but a combination of poor IT implementations, management in-fighting and weak trading, which resulted in an over indebted balance sheet, has severely damaged investor sentiment. We sold the position since the year end and before the recent fall in share price.

Invesco Perpetual UK Smaller Companies Investment Trust plc

Performance attribution for the year ended 31 January 2016

Net asset value total return 10.9
Less:?Benchmark total return 3.8
Relative outperformance 7.1
Analysis of Relative Performance
Portfolio total return 12.2
Less: Benchmark total return (3.8)
Portfolio outperformance 8.4
Net gearing effect
Management fees (0.7)
Performance fee (1.1)
Interest payable
Other expenses (0.2)
Effect of dividends paid from capital 0.7
Total 7.1

Performance attribution analyses the Company’s performance relative to its benchmark.

Portfolio outperformance measures the relative effect of the Company’s investment portfolio against that of its benchmark.

Net gearing effect measures the impact of borrowings and cash interest on the Company’s relative performance. This is nil where there is no gearing in a year.

Management fees, performance fee, other expenses and cash payable reduce the level of assets and therefore result in a negative effect for relative performance. There are no fees or expenses imputed to the benchmark index.

Dividends paid from capital will increase returns to shareholders and therefore enhance the Company’s performance relative to its benchmark.

Investment Strategy

We continue to run a portfolio of around 80-100 stocks. As ‘stock pickers’, the proportion of assets invested into a particular sector is principally determined by the number of attractive companies we can find in that area, rather than by taking a more general view on the wider economy. We look for companies that either have great products or services that can enable them to take market share off their competitors, or companies that are exposed to higher growth niches within the UK economy or overseas. A business also needs to be able to make strong profit margins, and have a means of preventing them being competed away. These ‘barriers to entry’ can be in the form of intellectual property, specialist know-how, strong brands or a high share of a particular market. We also like businesses that have strong balance sheets and strong cash flows. If a company’s profit is not turned into cash, it is often a symptom of a deeper issue with a business.

The consumer sector remains a higher growth area within the UK economy, as low inflation, growing wages and increasing employment boost household cash flow. We are invested in market leading businesses such as Topps Tiles, which dominates the UK tile market and continues to take share as the major DIY outlets retreat from the sector, and Majestic Wine, where new management is reinvigorating its UK operations and expanding on-line sales in the US.

The highly diverse industrial sector has been hit hard in the recent sell off, particularly in manufacturing. Whilst the bulk of our industrial exposure is in service companies, such as Keywords Studios, a world leader in language translation and testing services for gaming companies, we still like businesses such as Hill & Smith, which manufactures infrastructure products, and Coats (formerly Guinness Peat), a world leader in industrial textiles.

We continue to have substantial positions in the technology and healthcare sectors, where many companies have an attractive combination of growth and proprietary products. Our larger healthcare holdings include: Consort Medical, which manufactures drug delivery devices for a broad range of global pharmaceutical programmes, and Dechra Pharmaceuticals, a veterinary drug business, which has been a good performer for us over many years. In technology, we have added to Servelec and EMIS, which are enjoying strong growth from their healthcare software, and SDL, a stock we have re-entered following a change in management.

In the current low growth environment we also favour stocks with ‘self-help’ characteristics. By this, we mean companies with the ability to grow profits independently of the wider economy. This can include restructuring stories, such as Carpetright, which has the potential to significantly reduce its rent roll by rationalising its store base, and Dairy Crest, which has sold its loss making milk business to focus on its highly profitable Cathedral City cheese brand. We also like businesses that have scope to roll-out a successful concept more widely. A good example of this is JD Sports, as we touched on earlier, which is achieving excellent returns by opening sportswear stores in continental Europe. Acquisitions are another avenue for growth. This is particularly interesting where a business can consolidate a fragmented industry and derive a benefit from increased scale. CVS, one of our largest holdings, is consolidating the highly fragmented veterinary services sector. Its scale allows it to purchase goods more cheaply than smaller competitors, and this can significantly increase the profitability of the acquired businesses. Innovation, although inherently speculative due to the up-front cost, can lead to rapid growth. We have a sizable holding in Vectura, which has over many years developed a world leading position in respiratory drug delivery. The company is now reaping the benefit of this, with a variety of pharmaceuticals using its technology being launched onto the market, driving a substantial increase in profitability.


The market is sometimes characterised as swinging between fear and greed. The sell-off in early 2016 appears to have been driven by the fear that central banks may not have many policy options left with which to re-stimulate a slowing global economy. Lower commodity prices, particularly oil, would ordinarily be seen as positive for growth, reducing costs for both businesses and consumers. However, the potential inability of mining and oil companies to repay their loans, due to lower revenues derived from their products, has the potential to cause stress within the global banking sector. This situation is being exacerbated by the low or negative interest policies of central banks, which is impairing the ability of banks to generate profits. It should be noted that the banks are significantly better capitalised than they were prior to the financial crisis, and for investors these bouts of fear often create interesting buying opportunities. Following the market sell-off the valuations of some smaller companies looked much more attractive than we have seen for some time, and assuming the UK votes to remain in the European Union, the prospects for the market are reasonably attractive. The low oil price will continue to support household cash flow, which is already benefitting from high levels of employment and wage inflation. Also, interest rate increases now seem unlikely in the short term. While volatility remains, we believe there will be good buying opportunities at some point during the coming year.

Jonathan Brown

Portfolio Manager

Robin West

Deputy Portfolio Manager

The Strategic Report was approved by the Board of Directors on 18 April 2016.

Invesco Asset Management Limited

Company Secretary



at 31 JANUARY 2016

Ordinary shares unless stated otherwise

CVS  AIM General Retailers 6,696 3.4
JD Sports General Retailers 6,422 3.2
RPC General Industrials 5,077 2.5
FDM Software & Computer Services 4,661 2.3
Safestore Real Estate Investment Trusts 4,583 2.3
EMISAIM Software & Computer Services 4,492 2.3
Diploma Support Services 4,216 2.1
Senior Aerospace & Defence 4,106 2.1
Bovis Homes Household Goods & Home Construction 4,043 2.0
Gamma Communications  AIM Mobile Telecommunications 3,721 1.9
Top Ten Holdings  48,017 24.1
Servelec Software & Computer Services 3,653 1.8
Marston’s Travel & Leisure 3,650 1.8
Johnson Service  AIM Support Services 3,593 1.8
Vectura Pharmaceuticals & Biotechnology 3,455 1.7
Sanne Financial Services 3,296 1.7
Staffline  AIM Support Services 3,254 1.6
Mears Support Services 3,080 1.6
Dechra Pharmaceuticals Pharmaceuticals & Biotechnology 3,056 1.6
Dairy Crest Food Producers 3,047 1.5
Topps Tiles General Retailers 2,997 1.5
Top Twenty Holdings 81,098 40.7
boohoo.com   AIM General Retailers 2,914 1.5
JD Wetherspoon Travel & Leisure 2,870 1.4
Advanced Medical Solutions    AIM Health Care Equipment & Services 2,838 1.4
Consort Medical Health Care Equipment & Services 2,772 1.4
Equiniti Support Services 2,583 1.3
SDL Software & Computer Services 2,540 1.3
Essentra Support Services 2,483 1.3
M&C Saatchi   AIM Media 2,467 1.2
Hill & Smith Industrial Engineering 2,443 1.2
4imprint Media 2,396 1.2
Top Thirty Holdings 107,404 53.9
Savills Real Estate Investment & Services 2,357 1.2
Polypipe Construction & Materials 2,353 1.2
Cape Oil Equipment, Services & Distribution 2,349 1.2
Softcat Software & Computer Services 2,282 1.2
Severfield Industrial Engineering 2,253 1.1
Carpetright General Retailers 2,241 1.1
Ebiquity   AIM Media 2,239 1.1
Abcam   AIM Pharmaceuticals & Biotechnology 2,207 1.1
Tarsus Media 2,205 1.1
St. Modwen Properties Real Estate Investment & Services 2,199 1.1
Top Forty Holdings 130,089 65.3
Amerisur Resource  AIM Oil & Gas Producers 2,194 1.1
Coats (formerly Guinness Peat) General Industrials 2,181 1.1
Sthree Support Services 2,130 1.1
RWS    AIM Support Services 2,124 1.1
Crest Nicholson Household Goods & Home Construction 2,093 1.0
ECO Animal Health   AIM Pharmaceuticals & Biotechnology 2,033 1.0
VP Support Services 2,022 1.0
Brammer Support Services 2,020 1.0
Hilton Food Food Producers 2,013 1.0
Victrex Chemicals 1,989 1.0
Top Fifty Holdings 150,888 75.7


Majestic Wine    AIM General Retailers 1,961 1.0
Euromoney Institutional Investor Media 1,953 1.0
Brooks Macdonald    AIM Financial Services 1,926 1.0
Keywords Studios   AIM Support Services 1,917 1.0
Northgate Support Services 1,895 0.9
UTV Media Media 1,872 0.9
Fisher (James) & Sons Industrial Transportation 1,828 0.9
CLS Real Estate Investment & Services 1,770 0.9
Aveva Software & Computer Services 1,730 0.9
RPS Support Services 1,700 0.8
Top Sixty Holdings 169,440 85.0
Ultra Electronics Aerospace & Defence 1,680 0.8
LSL Property Services Real Estate Investment & Services 1,627 0.8
Workspace Real Estate Investment Trusts 1,611 0.8
Brewin Dolphin Financial Services 1,590 0.8
Hansteen Real Estate Investment Trusts 1,561 0.8
Mountview Estates Real Estate Investment & Services 1,510 0.8
Dunelm General Retailers 1,496 0.8
NewRiver Retail   AIM Real Estate Investment Trusts 1,479 0.8
N Brown General Retailers 1,471 0.7
Origin Enterprises Food Producers 1,383 0.7
Top Seventy Holdings 184,848 92.8
Faroe Petroleum   AIM Oil & Gas Producers 1,257 0.6
Arrow Global Financial Services 1,138 0.6
Revolution Bars Travel & Leisure 1,118 0.6
Restore   AIM Support Services 1,106 0.6
Patisserie Holdings   AIM Travel & Leisure 1,103 0.5
Bellway Household Goods & Home Construction 1,041 0.5
Urban & Civic Real Estate Investment & Services 986 0.5
Microgen Software & Computer Services 945 0.5
Digital Barriers   AIM Support Services 844 0.4
Rathbone Brothers Financial Services 835 0.4
Top Eighty Holdings 195,221 98.0
Clinigen   AIM Pharmaceuticals & Biotechnology 816 0.4
Cambian Health Care Equipment & Services 747 0.4
Ithaca Energy   AIM Oil & Gas Producers 739 0.4
Sinclair IS Pharma   AIM Pharmaceuticals & Biotechnology 680 0.3
Earthport   AIM Software & Computer Services 638 0.3
Stanley Gibbons   AIM General Retailers 396 0.2
Total Investments (86) 199,237 100.0

AIMInvestments quoted on AIM



in respect of the preparation of the Annual Financial Report

The Directors are responsible for preparing the annual financial report in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under the law the Directors have elected to prepare financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. Under company law, the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period.

In preparing these financial statements, the Directors are required to:

•               select suitable accounting policies and then apply them consistently;

•               make judgements and estimates that are reasonable and prudent;

•               state whether applicable IFRSs have been followed, subject to any material departures disclosed and explained in the financial statements; and

•               prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

Under applicable law and regulations, the Directors are also responsible for preparing the Strategic Report, a Corporate Governance Statement, a Directors’ Remuneration Report and a Directors’ Report that comply with the law and regulations.

The Directors of the Company each confirm to the best of their knowledge, that:

•     the financial statements, prepared in accordance with applicable accounting standards, give a true and fair view of the assets, liabilities, financial position and profit of the Company; and

•     this annual financial report includes a fair review of the development and performance of the business and the position of the Company together with a description of the principal risks and uncertainties that it faces.

The Directors consider that this annual financial report, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company’s position and performance, business model and strategy.

Signed on behalf of the Board of Directors

Ian Barby


18 April 2016




2016 2015
NOTES £’000 £’000 £’000 £’000 £’000 £’000
Profits on investments held
  at fair value 19,288 19,288 3,032 3,032
Exchange differences 45 45
Income 2 5,331 28 5,359 4,468 139 4,607
Investment management fee 3 (207) (1,175) (1,382) (189) (1,069) (1,258)
Performance fee 3 (2,131) (2,131) (1,408) (1,408)
Other expenses (344) (4) (348) (349) (4) (353)
Profit before finance
  costs and taxation 4,780 16,051 20,831 3,930 690 4,620
Finance costs (1) (5) (6)
Profit before tax 4,779 16,046 20,825 3,930 690 4,620
Profit after tax 4,779 16,046 20,825 3,930 690 4,620
Return per ordinary share
Basic 4 8.98p 30.16p 39.14p 7.39p 1.29p 8.68p

The total column of this statement represents the Company’s Statement of Comprehensive Income, prepared in accordance with International Financial Reporting Standards. The profit after tax is the total comprehensive income for the year. The supplementary revenue and capital columns are both prepared 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 and the Company has no other gains or losses. No operations were acquired or discontinued in the year.




NOTES £’000 £’000 £’000 £’000 £’000 £’000
At 31 January 2014 10,642 21,244 3,386 155,077 5,400 195,749
Profit for the year 690 3,930 4,620
Dividends paid 5 (3,455) (3,455)
At 31 January 2015 10,642 21,244 3,386 155,767 5,875 196,914
Profit for the year 16,046 4,779 20,825
Dividends paid 5 (589) (9,493) (10,082)
At 31 January 2016 10,642 21,244 3,386 171,224 1,161 207,657

The accompanying notes are an integral part of these financial statements.




2016 2015
NOTES £’000 £’000
Non-current assets
  Investments held at fair value through profit or loss 199,237 190,510
Current assets
  Other receivables 845 321
  Cash and cash equivalents 10,186 7,998
11,031 8,319
Total assets 210,268 198,829
Current liabilities
  Other payables (2,503) (1,915)
Total assets less current liabilities 207,765 196,914
Non-current liabilities (108)
Net assets 207,657 196,914
Issued capital and reserves
Share capital 6 10,642 10,642
Share premium 21,244 21,244
Capital redemption reserve 3,386 3,386
Capital reserve 171,224 155,767
Revenue reserve 1,161 5,875
Total shareholders’ funds 207,657 196,914
Net asset value per ordinary share
Basic 7 390.3p 370.1p

These financial statements were approved and authorised for issue by the Board of Directors on 18 April 2016.

Signed on behalf of the Board of Directors

Ian Barby


Richard Brooman

Deputy Chairman

The accompanying notes are an integral part of these financial statement.




2016 2015
£’000 £’000
Cash flow from operating activities
Profit before tax 20,825 4,620
Adjustments for:
  Purchases of investments (67,678) (76,406)
  Sales of investments 77,779 82,463
10,101 6,057
  Profits on investments (19,288) (3,032)
  Exchange differences (45)
  Finance costs 6
Operating cash flows before movements in working capital 11,599 7,645
(Increase)/decrease in receivables (73) 58
Increase in payables 705 1,431
Net cash flows from operating activities after tax 12,231 9,134
Cash flows from financing activities
Finance costs paid (6)
Equity dividends paid – note 5 (10,082) (3,455)
Net cash used in financing activities (10,088) (3,455)
Net increase in cash and cash equivalents 2,143 5,679
Exchange differences 45
Cash and cash equivalents at the beginning of the year 7,998 2,319
Cash and cash equivalents at the end of the year 10,186 7,998
Reconciliation of cash and cash equivalents to the
Balance Sheet as follows:
Cash held at custodian 186 203
Short-Term Investment Company (Global Series) plc, money market fund 10,000 7,795
Cash and cash equivalents 10,186 7,998
Cash flow from operating activities includes:
Interest received 1 2
Dividends received 5,288 4,651

The accompanying notes are an integral part of these financial statement.



1.             Principal Accounting Policies

Accounting policies describe the Company’s approach to recognising and measuring transactions during the year and the position of the Company at the year end.

The principal accounting policies adopted in the preparation of these financial statements are set out below. These policies have been consistently applied during the current year and the preceding year, unless otherwise stated. The financial statements have been prepared on a going concern basis. The disclosure on going concern on page 25 of the annual financial report in the Directors’ Report forms part of the financial statements.

(a)           Basis of Preparation

(i)      Accounting Standards Applied

The financial statements have been prepared on an historical cost basis, except for the measurement at fair value of investments and derivatives, and in accordance with the applicable International Financial Reporting Standards (IFRS) and interpretations issued by the International Financial Reporting Interpretations Committee as adopted by the European Union. The standards are those endorsed by the European Union and effective as at the date the financial statements were approved by the Board.

Where presentational guidance set out in the Statement of Recommended Practice (SORP) ‘Financial Statements of Investment Trust Companies and Venture Capital Trusts’, issued by the Association of Investment Companies in November 2014, is consistent with the requirements of IFRS, the Directors have sought to prepare the financial statements on a basis compliant with the recommendations of the SORP. The supplementary information which analyses the statement of comprehensive income between items of a revenue and a capital nature is presented in accordance with this.

(ii)     Adoption of New and Revised Standards

New and revised standards and interpretations that became effective during the year had no significant impact on the amounts reported in these financial statements but may impact accounting for future transactions and arrangements.

At the date of authorising these financial statements, the following standards and interpretations, which have not been applied in these financial statements, were in issue but not yet effective (and in some cases had not yet been adopted by the EU).

•  IFRS 9: Financial Instruments (2014) (effective 1 January 2018).

•  Amendments to IAS 1: Presentation of Financial Statements (effective 1 January 2016).

•  Amendments to IAS 7: Disclosure initiative – Statement of Cash Flows (effective 1 January 2017).

•  Amendment to IAS 12: Income Taxes – Recognition of deferred tax assets for unrealised losses (effective 1 January 2017).

The Directors do not expect the adoption of the above standards and interpretations (or any other standards and interpretations which are in issue but not effective) will have a material impact on the financial statements of the Company in future periods.

2.             Income

This note shows the income generated from the portfolio (investment assets) of the Company and income received from any other source.

2016 2015
£’000 £’000
Income from listed investments
UK dividends 4,043 3,605
UK unfranked investment income 249 123
Scrip dividends 244 56
Overseas dividends 302 192
Special dividends 492 481
5,330 4,457
Other income
Deposit interest 1 2
Money market deposit 1
Underwriting commission 8
Total income 5,331 4,468

Special dividends of £28,000 have been recognised in capital (2015: £139,000).

Overseas dividends include dividends received on UK listed investments where the investee company is domiciled outside of the UK.


3.             Investment Management Fees

This note shows the fees due to the Manager. These are made up of the management fee calculated and paid monthly and a performance fee calculated and paid annually. Both are based on the value of the assets being managed.

2016 2015
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
Base management fee 207 1,175 1,382 189 1,069 1,258
Performance fee charged to capital 2,131 2,131 1,408 1,408
207 3,306 3,513 189 2,477 2,666

Details of the Investment Management Agreement can be found in the Directors’ Report in the annual financial report.

At 31 January 2016, £113,000 (2015: £108,000) was accrued in respect of the base management fee and £2,131,000 (2015: £1,408,000) was accrued for the performance fee. The performance fee payable in any year is capped at 1% of average funds under management, with any excess (subject to a total performance fee cap of 2%) carried forward. The excess carried forward for the year is £108,000 (2015: nil) and is shown as a non-current liability in note 12 in the annual financial report.

4.             Returns per Ordinary Share

Return per share is the amount of gain generated for the financial year divided by the weighted average number of ordinary shares in issue.

2016 2015
Revenue Capital Total Revenue Capital Total
Basic 8.98p 30.16p 39.14p 7.39p 1.29p 8.68p

Basic total returns per ordinary share is based on the net total profit for the financial year of £20,825,000 (2015: £4,620,000).

Basic revenue returns per ordinary share is based on the net revenue profit for the financial year of £4,779,000 (2015: £3,930,000).

Basic capital returns per ordinary share is based on the net capital profit for the financial year of £16,046,000 (2015: £690,000).

All three returns are based on the weighted average number of shares in issue during the year of 53,209,084 (2015: 53,209,084).

5.             Dividends on Ordinary Shares

The Company paid four dividends in the year – three interims and a final.

The final dividend shown below is based on shares in issue at the record date or, if the record date has not been reached, on shares in issue on the date the balance sheet is signed. The third interim and final dividends are paid after the balance sheet date.

2016 2015
PENCE £’000 PENCE £’000
Dividends paid in the year:
  Final paid in respect of previous year 12.15 6,464 4.90 2,607
  First interim paid 3.40 1,809 1.60 852
  Second interim paid 3.40 1,809
  Return of unclaimed dividends from
    previous years (4)
18.95 10,082 6.50 3,455
2016 2015
PENCE £’000 PENCE £’000
Dividends payable in respect of the year:
  First interim 3.40 1,809 1.60 852
  Second interim 3.40 1,809
  Third interim 3.40 1,809
  Final 4.10 2,182 12.15 6,464
14.30 7,609 13.75 7,316

The Company’s dividend policy was changed in 2015 so that dividends will be paid firstly from any revenue reserves available, and thereafter from capital reserves. The amount payable in respect of the year is shown below:

  2016 2015
PENCE £’000 PENCE £’000
Dividend payable in respect of the year:
  – from revenue reserves 8.98 4,778 12.64 6,727
  – from capital reserves 5.32 2,831 1.11 589
14.30 7,609 13.75 7,316


6.             Share Capital

Share capital represents the total number of shares in issue, on which dividends accrue.

      2016        2015
NUMBER £’000 NUMBER £’000
Allotted, called-up and fully paid
Ordinary shares of 20p each 53,209,084 10,642 53,209,084 10,642

During the year, the Company did not issue or repurchase any ordinary shares (2015: nil).

7.             Net Asset Value per Ordinary Share

The Company’s total net assets (total assets less total liabilities) are often termed shareholders’ funds and are converted into net asset value per ordinary share by dividing by the number of shares in issue.

The net asset value per share and the net asset values attributable at the year end were as follows:

2016 2015 2016 2015
PENCE PENCE £’000 £’000
Ordinary shares
 – Basic 390.3 370.1 207,657 196,914

Net asset value per ordinary share is based on net assets at the year end and on 53,209,084 (2015: 53,209,084) ordinary shares, being the number of ordinary shares in issue at the year end.

8.             Related Party Transactions

A related party is a company or individual who has direct or indirect control or who has significant influence over the Company.

Under International Financial Reporting Standards, the Company has identified the Directors and the Manager as related parties. Directors’ fees and interests have been disclosed in the Directors’ Remuneration Report on pages 30 to 32 of the annual financial report with additional disclosure in note 4 of the annual financial report. The Manager, Invesco Fund Managers Limited, provides investment management and administration services to the Company. Details of its services and fees are disclosed in the Directors’ Report and note 3 of the annual financial report.


This Annual Financial Report announcement is not the Company's statutory accounts.  The statutory accounts for the year ended 31 January 2015 have been delivered to the Registrar of Companies. The statutory accounts for the year ended 31 January 2015 received an audit report which was unqualified, did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying the report, and did not include a statement under either section 498(2) or 498(3) of the Companies Act 2006. The statutory accounts for the financial year ended 31 January 2016 have been approved and audited but have not yet been filed.

The Audited Annual Financial Report will be posted to shareholders shortly. Copies may be obtained during normal business hours from the offices of Invesco Perpetual, 6th Floor, 125 London Wall, London, EC2Y 5AS.

A copy of the Annual Financial Report will be available from Invesco Perpetual on the following website:


The Annual General Meeting of the Company will be held at 12.00 noon on 2 June 2016 at 12.00pm at 43-45 Portman Square, London, W1H 6LY.

By order of the Board

Invesco Asset Management Limited

Company Secretary

18 April 2016

Source: PR Newswire (April 18, 2016 - 9:57 AM EDT)

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