INVESCO PERPETUAL UK SMALLER CO'S INVESTMENT TRUST PLC: Annual Financial Report
INVESCO PERPETUAL UK SMALLER CO'S INVESTMENT TRUST PLC: Annual Financial Report Invesco Perpetual UK Smaller Companies Investment Trust plc
Annual Financial Report Announcement
For the year ended 31 January 2013 FINANCIAL INFORMATION AND PERFORMANCE STATISTICS The Benchmark Index of the Company is the Numis Smaller Companies Index (excluding Investment Trusts) AT AT 31 JANUARY 31 JANUARY % 2013 2012 CHANGE
Net asset value per ordinary share(2):
- balance sheet 285.7p 237.6p +20.2%
- after charging proposed dividends 281.3p 234.2p +20.1% (capital NAV)
Shareholders' funds (£'000)(2) 152,034 126,771 +19.9%
Mid-market price per ordinary share 246.5p 187.5p +31.4%
Discount(1) per ordinary share based on 13.7% 21.1% balance sheet NAV
Total return (all income reinvested):
Net asset value(1)(2)(3) +22.4%
Benchmark Index(1)(3) +25.6%
FTSE All-Share Index(3) +16.3%
Net asset value(1)(2) +20.2%
Benchmark Index(1)(3) +22.0%
FTSE All-Share Index(3) +12.1%
- gross gearing(1) nil 6.7%
- net gearing(1) nil 6.7%
- net cash(1) 5.1% nil
- maximum permissable gearing(1) 13.2% 15.8%
Return and dividend per ordinary share:
Revenue return 6.3p 5.2p
Capital return 46.7p (7.8)p
Total return 53.0p (2.6)p
Interim dividend 1.6p 1.6p
Final dividend 4.4p 3.4p
Total dividends 6.0p 5.0p +20.0%
- excluding performance fee 0.87% 0.89%
- performance fee nil 0.31%
Note: (1) The term is defined in the Glossary on page 53 of the Annual Financial Report.
(2) Includes enhancements from share repurchases.
(3) Source: Thomson Reuters Datastream.
The net asset value (NAV) of your Company rose by 22.4% on a total return basis during its financial year, which ended on 31 January 2013. Whilst this was a satisfactory absolute return for shareholders in a very low interest rate environment, it fell slightly short of the benchmark against which your Board measures the Company's performance, the Numis Smaller Companies Index (excluding Investment Trusts), which returned 25.6%. However, your Company did comfortably out-perform the wider UK stock market, as measured by the FTSE All-Share Index, which rose by a lesser 16.3%.
Over the same period the mid-market price of the Company's shares increased by 31.4%, from 187.5p to 246.5p per share. The discount to NAV at which the Company's shares trade narrowed from 21.1% at the end of the previous financial year to 13.7% at the year end, reflecting improved investor sentiment towards smaller companies in general and your Company in particular.
For the year ended 31 January 2013, an interim dividend of 1.6 pence per share was paid on 24 October 2012 to shareholders on the register on 28 September 2012. The Board is proposing a final dividend of 4.4 pence per share payable on 24 May 2013 to shareholders on the register on 26 April 2013. Total dividends for the year to 31 January 2013 therefore amount to 6.0 pence per share, a 20% increase on the previous year. Future dividends will, as always, depend on market conditions and investment performance.
The Future of the Company
On 25 May 2012, the Company announced that on or around the date of its AGM in 2017, the Board would make available a number of options for shareholders to consider. These may include the continuation of the existing Company, a rollover into a similar or other investment vehicle and/or the provision of a cash exit at a price close to NAV. In time, one of the benefits the Board hopes to achieve by this initiative is a permanent narrowing of the discount to NAV at which the shares trade and progress has already been made in this respect as noted above. The Manager took the initiative in proposing this strategy to the Board, which reflects their confidence in being able to retain the loyalty of the shareholders, through good performance, in the intervening period. Further information can be found in the Directors' Report on page 17 of the Annual Financial Report.
During the year ended 31 January 2013, the Company purchased for cancellation a total of 137,000 ordinary shares at a weighted average price of 201.56 pence per share and at an average discount to NAV of 17.79%. The effect has been to buy in 0.26% of the issued share capital and to enhance NAV by approximately 0.1%. No further ordinary shares have been bought back since the year end. The Board believes the ability to buy back a limited number of shares can, in certain circumstances, be useful in reducing the volatility of the Company's share price whilst boosting NAV per share and on this basis will seek to renew this authority once again at the coming AGM.
Annual General Meeting
At this year's AGM the Board will seek shareholder approval to adopt new Articles of Association which have been amended to afford the Company the ability to take advantage of changes in the investment trust taxation rules and to update them generally to reflect current law and best practice. The Directors have carefully considered all of the resolutions proposed in the Notice of the AGM and believe them to be in the best interests of shareholders and the Company as a whole. The Directors, accordingly, recommend that shareholders vote in favour of each resolution as they themselves intend to do.
As you will read in their report that follows, your portfolio managers identify the drivers behind good stock market performance over the last year to be a combination of continued quantitative easing, record low interest rates and accommodative monetary policy measures adopted by the authorities. However, an end to quantitative easing and the prospect of inflation resulting in rising interest rates pose a future threat, though one potentially offset by a greater confidence in the ability of the world economy to deliver growth without external stimulus. The market may well both anticipate such a scenario and regard it positively - albeit as one potentially subject to periodic setbacks.
In such an environment, your portfolio managers' preference for investing in better quality companies may, from time-to-time, work against them as a rising tide lifts all boats. However, your Board remains firmly of the opinion that their strategy is correct and that investing in companies with solid balance sheets and sound business models remains the best long term option.
8 April 2013
PORTFOLIO MANAGERS' REPORT
In the year under review, the majority of stock markets, particularly those of the developed countries, performed strongly. Most have fully recovered from the sharp setback in mid-2011 caused by the downgrading of US government debt by ratings agency Standard & Poor's as well as fears of debt contagion amongst eurozone countries. A resurgence of eurozone worries took place in the second quarter of 2012, but since then stock markets have trended steadily higher. For the moment at least, economic tensions have eased. In Europe, the pledge to preserve the euro by the European Central Bank's president and the generally supportive role taken by Germany have led to a recovery in the euro and a narrowing of government debt spreads. In the US, the re-election of President Obama is regarded as pro-growth and preferable to a divided Republican opposition. In addition, in spite of the lessons of the 1930's depression, markets appear to have allowed Japan to undertake a substantial competitive devaluation of the yen which is necessary in view of Japan's unsustainably high government debt-to-GDP ratios. Finally, markets have benefited from low interest rates and easy monetary policies.
The UK stock market, as measured by the FTSE All-Share Index, rose 16.3% on a total return basis. Economic growth has been disappointing in spite of a surprising increase in private sector job creation. One of the impediments to growth in the UK was always going to be the large size of the financial sector relative both to GDP and to other countries prior to the financial crisis of 2008. The subsequent fall in banks' profits and the resulting lower sector employment has had a major negative effect on the budget deficit. More importantly, the poor condition of many UK banks has led to a restriction in credit growth which has also held back recovery. Not surprisingly, investors have preferred a selective approach to stock picking. One of the stock market sectors favoured has been UK small companies. Their size, flexibility and, in many cases, their financial strength have led to significant outperformance versus their large cap peers during the last 5 years. In the year to 31 January 2013, the benchmark index, the Numis Smaller Companies Index (ex investment trusts), rose 25.6% on a total return basis.
Portfolio Strategy and Review
Against this background, your Company produced an increase in net asset value on a total return basis of 22.4% for the fiscal year. Positive contributions came from the Health Care and Support Services sectors, while the portfolio's exposure to the Mining sector negatively impacted performance.
At the individual stock level, the stand-out performer was TalkTalk Telecom (+92%).This provider of broadband services is recovering from a period of poor customer performance. PayPoint shares (+51%) also increased in value following better than expected results. The portfolio benefited from overweight positions in the two largest holdings in the portfolio - Dechra Pharmaceuticals (+30%) and Synergy Health (+29%)- while Dunelm (+54%), a retailer of homewares, performed strongly in what proved a difficult year for UK retailers in general. While contributors to the portfolio substantially outweighed detractors, there were disappointments from Avocet Mining (-76%) which issued a profits warning due to production problems at its main Inata gold mine in West Africa. Subsequently, the problems facing the company worsened, reserves were reduced and the dividend was omitted. Since the year end, we sold the holding. Cape (-43%), a multi-disciplinary supplier of industrial services, suffered from individual contract problems and a general delay to large energy projects in Australia. A new chief executive has adopted an appropriately cautious approach to forecasts which, in our view, still leaves the shares looking undervalued. May Gurney Integrated Services (-39%), a provider of outsourced services to local authorities, fell on news of serious operational issues with two of its environmental contracts.
In the Portfolio Managers' Report to end January 2012 we introduced the concept of secular bull and bear markets, an alternating cycle of about 15/20 years of significant real returns (bull) followed by a period of disappointing real returns (bear). The logic behind the pattern is that the bullish phase creates excesses in the stock market (high valuations) and in the underlying economy, whilst the bearish phase allows for the correction of these excesses. We concluded that western stock markets had been in a secular bear market since 2000 (we have experienced negative real returns on a capital only basis since then) and that, given the economic backdrop of deleveraging by the private sector and the continuing sharp increase in government debt levels, another downward phase in stock markets was likely before the start of a new secular bull market. In this regard, our concern centres on 2013, a year with no major elections in the US and hence a year of relative freedom for US politicians. Most commentators are expecting Europe to remain mired in its problems and they are nervous about excessive infrastructure spending in China and the need for that economy to become more balanced, with more reliance on domestic consumption. Therefore they are pinning their hopes for global growth on the US economy. Recent US GDP figures lend some support to this premise as, when adjusted for inventory changes, there was reasonable underlying growth taking place. In addition, it appears that the US has made a better effort to clean up its banks and, after sharp falls in house prices, there is some evidence of a turn in its housing market. Taken together with a major improvement in energy self-sufficiency, the picture looks promising until you remember that it is 2013, the year of the "fiscal cliff", "sequestration" and "debt ceilings". There will almost certainly be a larger fiscal drag to come from higher taxes but we also believe there are clear political dangers to be overcome as well.
The difficulty of deficit reduction through harsh austerity measures is all too apparent in certain countries of the eurozone. In the Italian election, voters clearly registered their anger over austerity cuts, much as they did in Greece in May 2012. Meanwhile, the level of debt to GDP for the eurozone area continues to pose a considerable hurdle. We firmly believe that a restructured and smaller eurozone will inevitably happen over time, given the differing economic status of member states.
In the UK, we believe that sterling's fall against the euro and the US dollar will negatively impact the consumer in 2013 largely as a result of the higher cost of energy. The UK consumer had benefited from Personal Protection Insurance payments in 2012 but these payments will run at a lower rate in 2013. Given the coalition's current intention to stick to its austerity programme, we feel the economic outlook for the UK looks weaker than for many other developed countries. Whilst we applaud its resolve, we expect the Government will succumb to the political pressure that will be applied as we get nearer to the elections in 2015.
Elsewhere, the weakness in commodity prices ushers in a more subdued period for emerging countries. During the recent expansion phase, operating costs of many mining companies have escalated sharply leading to a squeeze in profits and returns on capital. As a result many mining companies are now focused on improving their operating ratios, reducing their capital employed and returning surplus funds to shareholders, as well as increasing dividends. This situation is not helped by some evidence to show that China appears to have spent considerably more on infrastructure per capita in comparison with other emerging countries at a similar stage of development. Since China has been a major purchaser of commodities and apparently has sizeable stockpiles, this does not augur well for nearer term prospects. In summary, the outlook for recovery in global economic growth is unclear with the best chances seen to be in the US.
Despite the uncertainties surrounding global economic growth, stock markets have performed surprisingly well. We put that down to easy monetary policies of low interest rates and quantitative easing (QE). In spite of this, and major swings within currencies, inflation is generally moderating. To some extent, this shows how strong the deflationary effects of the financial crisis would have been without QE. As it is QE has created a pool of liquidity which, failing to find a natural home within the real economy, has gravitated towards financial markets. Since the beginning of 2013, stock markets have risen even more strongly and there is evidence of a broadening of investor interest to include lower rated, lower quality stocks and companies at the very small end of the market. We have participated in this trend because of the sizeable difference in rating between these companies and recognised quality growth stocks. However, given our views about economic growth, particularly in the UK, we still think the bulk of the portfolio should remain in quality companies with the scale and financial strength to control their own destiny.
There have been a number of new holdings and we draw your attention to the following: Abcam which produces and distributes antibodies via an on-line catalogue to universities and other research bodies, International Personal Finance, which was spun out of Provident Financial and which provides small personal loans in many Eastern European countries and Mexico, and IG Group, the leader in the provision of spread betting and similar products. In addition the following holdings were purchased after the year end: Crest Nicholson, a quality house builder which has recently refloated on the London stock exchange, Catlin Group, a Lloyds Underwriter and Phoenix Group, a specialist insurance company which runs off life insurance companies closed to new business.
Since the beginning of 2013, the UK stock market has performed strongly, with the FTSE All-Share Index rising over 9% but still being outperformed by the Numis Smaller Companies Index (ex investment trusts) which has gained over 11%. The upswing that began in 2009 is clearly still intact. The UK stock market is in the middle of the seasonally strong period (November to May) and could still move higher, although there is some evidence of slowing momentum. We believe this rally is the result of QE and growing optimism about the US. If the politicians can do a deal to end sequestration and remove the threat of the debt ceiling, then the equity market, we believe, could extend its gains.
Richard Smith Jonathan Brown
8 April 2013
INVESTMENTS IN ORDER OF VALUATION
AT 31 JANUARY 2013
Ordinary shares unless stated otherwise
VALUE % OF
COMPANY ACTIVITY BY SECTOR £'000 PORTFOLIO
Synergy Health Health Care Equipment & 5,910 4.0
Dechra Pharmaceuticals Pharmaceuticals & 5,788 4.0
RPC General Industrials 3,170 2.2
Diploma Support Services 3,123 2.1
Howden Joinery Support Services 2,979 2.0
Premier Oil Oil & Gas Producers 2,803 1.9
Mears Support Services 2,724 1.9
Bellway Household Goods & Home 2,537 1.7
Dunelm General Retailers 2,492 1.7
RPS Support Services 2,399 1.6
Top Ten Holdings 33,925 23.1
PayPoint Support Services 2,358 1.6
Brewin Dolphin Financial Services 2,352 1.6
Brown (N) General Retailers 2,344 1.6
Greene King Travel & Leisure 2,343 1.6
Senior Aerospace & Defence 2,280 1.6
Micro Focus International Software & Computer 2,150 1.6
RWS AIM Support Services 2,135 1.5
Jupiter Fund Management Financial Services 2,128 1.5
Filtrona Support Services 2,082 1.4
Euromoney Institutional Investor Media 1,976 1.4
Top Twenty Holdings 56,073 38.5
Bovis Homes Household Goods & Home 1,921 1.3
Domino Printing Sciences Electronic & Electrical 1,872 1.3
Rentokil Initial Support Services 1,863 1.3
Elementis Chemicals 1,798 1.2
Workspace Real Estate Investment 1,783 1.2
Carphone Warehouse General Retailers 1,781 1.2
HomeServe Support Services 1,770 1.2
AZ Electronic Materials Chemicals 1,755 1.2
Northgate Support Services 1,728 1.2
Aveva Software & Computer 1,709 1.2
Top Thirty Holdings 74,053 50.8
TalkTalk Telecom Fixed Line 1,659 1.2
IG Group Financial Services 1,610 1.1
Ultra Electronics Aerospace & Defence 1,595 1.1
Rotork Industrial Engineering 1,574 1.1
Victrex Chemicals 1,564 1.1
EnQuest Oil & Gas Producers 1,546 1.1
Amerisur Resources AIM Oil & Gas Producers 1,542 1.1
Beazley Non-life Insurance 1,507 1.0
Babcock International Support Services 1,506 1.0
IQE AIM Technology Hardware & 1,502 1.0
Top Forty Holdings 89,658 61.6
MITIE Support Services 1,478 1.0
Fenner Industrial Engineering 1,451 1.0
MoneySupermarket.com Media 1,449 1.0
Restaurant Group Travel & Leisure 1,445 1.0
Berendsen Support Services 1,432 1.0
BTG Pharmaceuticals & 1,410 0.9
Hunting Oil Equipment, Services 1,389 0.9
Laird Technology Hardware & 1,338 0.9
Anglo Pacific Mining 1,290 0.9
Consort Medical Health Care Equipment & 1,283 0.9
Top Fifty Holdings 103,623 71.1
H&T AIM Financial Services 1,278 0.9
Spectris Electronic & Electrical 1,232 0.8
Dignity General Retailers 1,223 0.8
Chemring Aerospace & Defence 1,213 0.8
CVS AIM General Retailers 1,204 0.8
EMIS AIM Software & Computer 1,189 0.8
James Halstead AIM Construction & Materials 1,185 0.8
Microgen Software & Computer 1,173 0.8
Paragon Financial Services 1,155 0.8
SDL Software & Computer 1,135 0.8
Top Sixty Holdings 115,610 79.2
International Personal Finance Financial Services 1,117 0.8
Go-Ahead Travel & Leisure 1,091 0.7
Cranswick Food Producers 1,075 0.7
Spirax-Sarco Engineering Industrial Engineering 1,016 0.7
Cape Oil Equipment, Services 989 0.7
LSL Property Services Real Estate Investment & 983 0.7
LondonMetric Property Real Estate Investment 961 0.7
Spirent Communications Technology Hardware & 947 0.6
Melrose Industries Electronic & Electrical 946 0.6
Abcam AIM Pharmaceuticals & 936 0.6
Top Seventy Holdings 125,671 86.0
Brooks Macdonald AIM Financial Services 913 0.6
Devro Food Producers 899 0.6
May Gurney Integrated Services AIM Support Services 835 0.6
Dixons Retail General Retailers 824 0.6
Hargreaves Services AIM Support Services 785 0.5
Faroe Petroleum AIM Oil & Gas Producers 777 0.5
Barratt Developments Household Goods & Home 776 0.5
Polar Capital AIM Financial Services 775 0.5
NCC Software & Computer 764 0.5
Sinclair IS Pharma AIM Pharmaceuticals & 763 0.5
Top Eighty Holdings 133,782 91.4
Xaar Electronic & Electrical 751 0.5
Innovation Software & Computer 750 0.5
Renishaw Electronic & Electrical 746 0.5
Valiant Petroleum AIM Oil & Gas Producers 743 0.5
Advanced Medical Solutions AIM Health Care Equipment & 727 0.5
Salamander Energy Oil & Gas Producers 722 0.5
Mountview Estates Real Estate Investment & 721 0.5
Sthree Support Services 659 0.5
Xchanging Support Services 649 0.4
Hansard Global Life Insurance 597 0.4
Top Ninety Holdings 140,847 96.2
Fidessa Software & Computer 596 0.4
Mulberry AIM Personal Goods 584 0.4
Abbey Protection AIM Non-life Insurance 484 0.3
Impax Asset Management AIM Financial Services 401 0.3
Northbridge Industrial Services Industrial Engineering 393 0.3 AIM
African Barrick Gold Mining 388 0.3
Trinity Exploration & Production Oil & Gas Producers 382 0.3 AIM (formerly Bayfield Energy)
Craneware AIM Software & Computer 327 0.2
Mood Media AIM Media 321 0.2
London Mining AIM Industrial Metals & 319 0.2
Top Hundred Holdings 145,042 99.1
Novae Non-life Insurance 308 0.2
Kenmare Resources Mining 302 0.2
Entertainment One Media 300 0.2
Avocet Mining Mining 287 0.2
Active Risk AIM Software & Computer 99 0.1
Berry Starquest Limited Investment Dealing - -
Total Investments 146,338 100.0
AIM: Investments quoted on AIM (formerly the Alternative Investment Market)
Principal Risks and Uncertainties
There can be no guarantee that the Company will achieve its investment objective as stated on page 16 of the Annual Financial Report.
Market Movements and Portfolio Performance
The majority of the Company's investments are traded on the London Stock Exchange with some proportion of investments traded on the AIM Market. The principal risk for investors in the Company is of a significant fall in the markets and/or a prolonged period of decline in the markets relative to other forms of investment as well as bad performance of individual portfolio companies. The Company invests in smaller and medium sized companies, which are generally considered riskier than their larger counterparts and therefore their share prices can be more volatile. 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. In addition, the relatively small capitalisation of such companies can make the market in their shares less liquid, thus affecting the Company's ability to buy and sell shares in its portfolio.
The portfolio managers' approach to investment is one of individual stock selection. Market risk is mitigated via the stock selection process, together with the slow build-up of holdings rather than the purchase of large positions outright. This allows the portfolio managers to observe more data points from a company before adding to a position. The overall portfolio is well diversified by company and sector. The weighting of an investment in the portfolio tends to be loosely aligned with the market capitalisation of that company. This means that the largest holdings will often be amongst the larger of the smaller companies available. The portfolio managers remain cognisant at all times of the potential liquidity of the portfolio.
The portfolio managers are relatively risk averse, look for lower volatility in the portfolio and seek to outperform in more challenging markets. In comparison to peer group investment trusts, the Company believes that its portfolio often has a higher than average market capitalisation and a lower than average exposure to the AIM market.
The portfolio of the portfolio managers is carefully monitored by the Board, and the continuation of the portfolio managers' mandate is reviewed annually. The Board has established guidelines to ensure that the approved investment policy is pursued by the portfolio managers. 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 net asset value; and there are in place both share buy back and issuance facilities to help the management of this process.
The Risks and Risk Management Policies are detailed in note 19 in the Annual Financial Report.
The market value of the shares in the Company may not reflect their underlying net asset value and may trade at a discount to its NAV. The value of an investment in the Company and the income derived from that investment may go down as well as up and an investor may not get back the amount invested. The Board monitors the Company's discount to NAV and undertakes targeted buy backs of the Company's ordinary shares where deemed appropriate.
Whilst the Directors intend to pay a dividend to ordinary shareholders each year, the ability to do so will depend upon the level of income received from securities, the timing of receipts of such income from securities, expenses and the amount of any distributable reserves. The Company has adopted a policy of charging 50% of base investment management fees and 80% of finance costs to capital. The effect of this policy is that income returns in each year will be higher, and capital returns lower, than they would if such fees were charged 100% to income.
The Company is subject to various laws and regulations by virtue of its status as an investment trust, and its listing on the London Stock Exchange. A breach of s1158 CTA 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, may result in operational or reputational problems, erroneous disclosures or loss of assets through fraud, as well as breaches of regulations.
The Manager reviews the level of compliance with s1158 CTA and other financial regulatory requirements on a daily basis. 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.
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 borrowing facilities could not be renewed, the Company might have to sell investments to repay borrowings. All borrowing and gearing levels are reviewed at every Board meeting and preset limits agreed.
Reliance on Third Party Providers
The Company has no employees and the Directors have all been appointed on a non-executive basis. The Company is therefore reliant upon the performance of third party providers for its executive function. In particular, the Manager performs services which are integral to the operation of the Company. Failure by any service provider to carry out its obligations to the Company in accordance with the terms of its appointment could have a materially detrimental impact on the operation of the Company and could affect the ability of the Company to successfully pursue its investment policy.
The Manager 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. This could have an adverse impact on the ability of the Company to pursue its investment policy successfully.
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.
DIRECTORS' RESPONSIBILITY STATEMENT
in respect of the preparation of the Annual Financial Report
The Directors are responsible for preparing the annual financial report in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under the law the Directors have elected to prepare financial statements in accordance with International Financial Reporting Standards as adopted by the European Union (`IFRSs'). Under company law, the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period.
In preparing these financial statements, the Directors are required to:
- select suitable accounting policies and then apply them consistently;
- make judgements and estimates that are reasonable and prudent;
- state whether applicable IFRSs have been followed, subject to any material departures disclosed and explained in the financial statements; and
- prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006 and Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
In so far as each of the Directors is aware:
- there is no relevant audit information of which the Company's auditor is unaware; and
- the Directors have taken all steps that they ought to have taken to make themselves aware of any relevant audit information and to establish that the auditors are aware of that information.
The Directors of the Company each confirm to the best of their knowledge, that:
- the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit of the Company;
- 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; and
- the annual report and accounts, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company's performance, business model and strategy.
Signed on behalf of the Board of Directors
8 April 2013
The annual financial report is published on www.invescoperpetual.co.uk/ investmenttrusts which is the Company's website maintained by the Company's Manager. The work carried out by the Auditor did not involve consideration of the maintenance and integrity of this website and accordingly, the Auditor accept no responsibility for any changes that have occurred to the financial statements since they were initially presented on the website. Visitors to the website need to be aware that legislation in the United Kingdom governing the preparation and dissemination of the financial statements may differ from legislation in other jurisdictions.
STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 JANUARY
2013 2012 Notes Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Profits/(losses) on - 25,353 25,353 - (3,441) (3,441) investments at fair value
Losses on derivative - (45) (45) - - - instruments
Income 2 4,123 - 4,123 3,590 - 3,590
Investment management fees (451) (451) (902) (421) (812) (1,233)
Other expenses (290) (2) (292) (309) (2) (311)
Profit/(loss) before 3,382 24,855 28,237 2,860 (4,255) (1,395) finance costs and taxation
Finance costs (7) (29) (36) (3) (12) (15)
Profit/(loss) before tax 3,375 24,826 28,201 2,857 (4,267) (1,410)
Taxation (5) - (5) (5) - (5)
Profit/(loss) after tax 3,370 24,826 28,196 2,852 (4,267) (1,415)
Return per ordinary share
Basic 4 6.3p 46.7p 53.0p 5.2p (7.8)p (2.6)p
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.
STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 JANUARY
Capital Share Share Redemption Capital Revenue NOTES Capital Premium Reserve Reserve Reserve Total
£'000 £'000 £'000 £'000 £'000 £'000
At 31 January 2011 11,032 21,244 2,996 95,030 3,697 133,999
(Loss)/profit for - - - (4,267) 2,852 (1,415) the year
Shares repurchased (363) - 363 (3,464) - (3,464) and cancelled
Dividends paid 5 - - - - (2,349) (2,349)
At 31 January 2012 10,669 21,244 3,359 87,299 4,200 126,771
Profit for the year - - - 24,826 3,370 28,196
Shares repurchased (27) - 27 (278) - (278) and cancelled
Dividends paid 5 - - - - (2,655) (2,655)
At 31 January 2013 10,642 21,244 3,386 111,847 4,915 152,034
The accompanying notes are an integral part of this statement. . BALANCE SHEET AS AT 31 JANUARY Notes 2013 2012
Investments held at fair value 146,338 135,045 through profit or loss
Other receivables 950 1,284
Cash and cash equivalents 7,742 -
Total assets 155,030 136,329
Other payables (2,996) (9,558)
Net assets 152,034 126,771
Issued capital and reserves
Share capital 6 10,642 10,669
Share premium 21,244 21,244
Capital redemption reserve 3,386 3,359
Capital reserve 111,847 87,299
Revenue reserve 4,915 4,200
Total Shareholders' funds 152,034 126,771
Net asset value per ordinary share 7 285.7p 237.6p Basic
These financial statements were approved and authorised for issue by the Board of Directors on
8 April 2013.
Signed on behalf of the Board of Directors
The accompanying notes are an integral part of this statement.
STATEMENT OF CASH FLOW
FOR THE YEAR ENDED 31 JANUARY
Cash flow from operating activities
Profit/(loss) before tax 28,201 (1,410)
Taxation (5) (5)
Purchases of investments (33,823) (41,274)
Sales of investments 50,595 35,419
(Profits)/losses on investments (25,353) 3,441
Finance costs 36 15
Operating cash flows before movements in working 19,651 (3,814) capital
Increase in receivables (62) (21)
(Decrease)/increase in payables (378) 331
Net cash flows from operating activities after 19,211 (3,504) tax
Cash flows from financing activities
Interest paid (36) (15)
Shares repurchased and cancelled (280) (3,477)
Equity dividends paid - note 5 (2,655) (2,349)
Net cash used in financing activities (2,971) (5,841)
Net increase/(decrease) in cash and cash 16,240 (9,345) equivalents
Cash, cash equivalents and bank overdraft at the (8,498) 847 beginning of the year
Cash, cash equivalents and bank overdraft at the 7,742 (8,498) end of the year
The accompanying notes are an integral part of this statement.
NOTES TO THE FINANCIAL STATEMENTS
1. Principal Accounting Policies
The principal accounting policies adopted in the preparation of these financial statements are set out below. These policies have been consistently applied during the current year and the preceding year, unless otherwise stated. The accounts have been prepared on a going concern basis. The disclosure on going concern on page 22 of the Report of the Directors in the Annual Financial 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 (IFRSs) and interpretations issued by the International Financial Reporting Interpretations Committee as adopted by the European Union. The standards are those endorsed by the European Union and effective at 31 January 2013.
Where presentational guidance set out in the Statement of Recommended Practice (SORP) `Financial Statements of Investment Trust Companies and Venture Capital Trusts', issued by the Association of Investment Companies in January 2009, is consistent with the requirements of IFRSs, the Directors have sought to prepare the financial statements on a basis compliant with the recommendations of the SORP. The supplementary information which analyses the statement of comprehensive income between items of a revenue and a capital nature is presented in accordance with this.
(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 (effective for accounting periods starting on or after 1 January 2015)
- IFRS 10: Consolidated Financial Statements (effective for accounting periods starting on or after 1 January 2013)
- IFRS 12: Disclosure of Interests in Other Entities (effective for accounting periods starting on or after 1 January 2013)
- IFRS 13: Fair Value Measurement (effective for accounting periods starting on or after 1 January 2013)
- IFRS 7 Financial Instruments: Disclosures - Amendments enhancing disclosures for offsetting financial assets and financial liabilities (effective 1 January 2013)
- IAS 32 Financial Instruments: Presentation - Amendments to application guidance on the offsetting of financial assets and financial liabilities (effective 1 January 2014)
- Mandatory Effective Date and Transition Disclosures - Amendments to IFRS 9 and IFRS 7(effective 1 January 2015)
- Amendments to IFRS10, IFRS 12 and IAS 27 (October 2012) - Investment Entities (effective for accounting periods starting on or after 1 January 2014)
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.
Income from listed investments
UK dividends 3,859 3,416
UK unfranked investment income 76 10
Overseas dividends 188 164
Total income 4,123 3,590
3. Investment Management Fees
2013 2012 Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Base 451 451 902 421 421 842 management fee
Performance - - - - 391 391 fee charged to capital
451 451 902 421 812 1,233 Invesco Asset Management Limited (`IAML') provides investment and administration services to the Company. Details of the Investment Management Agreement can be found in the Report of the Directors. At 31 January 2013 £81,000 (2012: £75,000) was accrued in respect of the base management fee and there was no accrual for the performance fee (2012: £ 391,000). 4. Earnings per Ordinary Share 2013 2012 Revenue Capital Total Revenue Capital Total
Basic 6.3p 46.7p 53.0p 5.2p (7.8)p (2.6)p
Basic total earnings per ordinary share is based on the net total profit for the financial year of £28,196,000 (2012: loss of £1,415,000).
Basic revenue earnings per ordinary share is based on the net revenue profit for the financial year of £3,370,000 (2012: £2,852,000).
Basic capital earnings per ordinary share is based on the net capital profit for the financial year of £24,826,000 (2012: loss of £4,267,000).
All three earnings are based on the weighted average number of shares in issue during the year of 53,217,249 (2012: 54,467,398).
5. Dividends on Ordinary Shares
Dividends paid in the year: 2013 2012
pence £'000 pence £'000
Final paid in respect of 3.40 1,809 2.70 1,489 previous year
Interim paid 1.60 852 1.60 867
Return of unclaimed dividends - (6) - (7) from previous years
5.00 2,655 4.30 2,349
Dividends payable in respect of the year:
pence £'000 pence £'000
Interim 1.60 852 1.60 867
Final 4.40 2,341 3.40 1,809
6.00 3,193 5.00 2,676 The final dividend is based on shares in issue at the record date or, if the record date has not been reached, on shares in issue on the date the balance sheet is signed. 6. Share Capital 2013 2012
Number £'000 Number £'000
Ordinary shares of 20p each 160,000,000 32,000 160,000,000 32,000
Allotted, called-up and fully paid:
Ordinary shares of 20p each 53,209,084 10,642 53,346,084 10,669
During the year the Company ordinary share movements were as follows:
At 1 February 2012 53,346,084 10,669
Shares repurchased and cancelled (137,000) (27)
At 31 January 2013 53,209,084 10,642
Details of the shares repurchases are given in the Report of the Directors on page 26 of the Annual Financial Report. 7. Net Asset Value per Ordinary Share The net asset value per share and the net asset values attributable at the year end were as follows: Net asset Net assets value per share attributable 2013 2012 2013 2012
pence pence £'000 £'000
- Basic 285.7 237.6 152,034 126,771
Net asset value per ordinary share is based on net assets at the year end and on 53,209,084 (2012: 53,346,084) ordinary shares, being the number of ordinary shares in issue at the year end.
8. Related Party Transactions and Transactions with the Manager
Invesco Asset Management Limited (`IAML'), a wholly owned subsidiary of Invesco Limited, acts as Manager, Company Secretary and Administrator to the Company. Details of IAML's services and fees are disclosed in the Report of the Directors.
Fees paid to Directors are disclosed in the Directors Remuneration Report on page 30 of the Annual Financial Report, with additional disclosure in note 4. Full details of Directors' interests are set out in the Report of the Directors on page 26 of the Annual Financial Report.
9. This Annual Financial Report announcement is not the Company's statutory accounts. The statutory accounts for the year ended 31 January 2012 have been delivered to the Registrar of Companies. The statutory accounts for the year ended 31 January 2012 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 2013 have been approved and audited but have not yet been filed.
10. The Audited Annual Financial Report will be posted to shareholders shortly. Copies may be obtained during normal business hours from the Company's registered office, 30 Finsbury Square, London EC2A 1AG. A copy of the Annual Financial Report will be available from Invesco Perpetual on the following
11. The Annual General Meeting of the Company will be held at 12.00 noon on 21 May 2013 at 30 Finsbury Square, London EC2A 1AG.
By order of the Board
Invesco Asset Management Limited - Company Secretary
8 April 2013
End of announcement
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