Invesco Perpetual UK Smaller Co's Investment Trust Plc - Annual Financial Report
LEGAL ENTITY IDENTIFIER: 549300K1D1P23R8U4U50
Annual Financial Report Announcement for the Year Ended
The following text is extracted from the Annual Financial Report of the Company for the year ended
Investment Objective
The Company is an investment trust whose investment objective is to achieve long-term total returns for shareholders primarily by investment in a broad cross-section of small to medium sized
Financial Highlights
Total Return Statistics (with dividends reinvested)
Change for the year (%) 2024 2023 Net Asset Value(1)(2) –4.1 –17.5 Share Price(1)(2) –1.8 –17.0 Benchmark Index(2)(3) –3.3 –12.4
Capital Statistics
At 31 January 2024 2023 Change
Total shareholders’ funds (£’000) 161,395 174,915 –7.7%
Net asset value (NAV) per share 477.12p 517.09p –7.7%
Share price(1)(2) 424.00p 451.00p –6.0%
Discount(1) (11.1)% (12.8)%
Gearing(1):
– gross gearing 5.4% nil
– net gearing 5.4% nil
– net cash nil 2.9%
Maximum authorised gearing 9.3% 8.6%
For the year ended 31 January 2024 2023
Return(1)and dividend per ordinary share:
Revenue return 13.18p 11.99p
Capital return (34.91)p (124.70)p
Total return (21.73)p (112.71)p
First interim dividend 3.85p 3.75p
Second interim dividend 3.85p 3.75p
Third interim dividend 3.85p 3.75p
Final dividend 5.41p 6.79p
Total dividends 16.96p 18.04p –6.0%
Dividend Yield(1) 4.0% 4.0%
Dividend payable for the year (£’000):
– from current year net revenue 4,459 4,055
– from capital reserve (2023: from capital reserve) 1,278 2,047
5,737 6,102
Capital dividend as a % of year end net assets(1) 0.8% 1.2%
Ongoing charges(1) 1.01% 0.95%
Notes: (1) Alternative Performance Measure (APM). See Glossary of Terms and Alternative Performance Measures on pages 66 to 68 of the financial report for details of the explanation and reconciliations of APMs.
(2) Source: LSEG Data & Analytics.
(3) The Benchmark Index of the Company is the Deutsche Numis Smaller Companies + AIM (excluding Investment Companies) Index with dividends reinvested.
Chairman’s Statement
Highlights
-- Dividend of 16.96p per share for the year, providing a yield of 4.0%
based on the year end share price.
-- Net asset value return of –4.1% and share price return of –1.8%,
compared to benchmark return of –3.3%, all based on total return with
dividends reinvested.
-- Long-term performance is strong over 5 years and 10 years, with superior
returns to the Company’s benchmark.
Dear Shareholders,
Having been appointed Chairman of the Board on
Performance
Throughout the earlier stages of 2023, the influence of the ongoing
Latterly, expectations of future inflation and interest rates appear to have peaked in the
Against a challenging backdrop, for the year ended
The Board continues to monitor the level at which the Company’s shares trade and is actively seeking to attract potential investors in the Company which, by increasing demand, should help to further improve the Company’s share rating.
Dividend and Dividend Policy
The Company’s dividend policy is to target a dividend yield of 4.0% of the year end share price paid from income derived from dividends from the portfolio and enhanced, as necessary, through the use of realised capital profits. In accordance with this policy, interim dividends of 3.85p were paid in September and
The Board has resolved that the Company will propose a final dividend of 5.41p per share to bring the total dividends paid for the year to 16.96p per share (2023: 18.04p). The final dividend will be payable, subject to shareholder approval, on
The total dividend of 16.96p per share is in line with the Company’s stated dividend policy which includes a target dividend yield of 4.0% of year end share price which was 424.00p as at 31
The Company’s revenue per share has increased from 11.99p per share last year to 13.18p per share this year, which means that the resulting balance of dividend being paid from realised capital profits represents 0.8% of net assets at the year end and it continues to represent a relatively small proportion of the longer-term total returns achieved by the Portfolio Managers.
Shareholders who hold shares on the main register (as a paper share certificate) and are residents of the
Board Composition
I would like to once again thank
As previously announced,
Future of the Company
In 2012, the Board made a commitment to offer shareholders the opportunity to realise their investment at close to NAV through a tender offer in 2017. This resulted in a positive rebalancing of the shareholder register towards supportive, long-term shareholders. During 2019, the Directors reviewed the Company’s prospects and consulted major shareholders. As a result, the Board put a continuation vote to shareholders at the AGM in 2019 which was passed with 99.84% of votes cast in favour.
At that time, the Board committed to put a further range of options to shareholders at the Company’s 2024 AGM. Your directors have subsequently reviewed the Company’s position and prospects along with consideration of shareholder feedback where a view had been forthcoming. The Board believes that the Company has a portfolio of smaller companies which are well managed and should benefit from a recovery in sentiment towards the
The Board believes that it is desirable to allow the Company the opportunity to continue to grow over a longer market cycle and therefore, it will give shareholders the opportunity to vote for the continuation of the Company at the forthcoming AGM on
The Directors believe that a continuation of the Company is in the interests of shareholders and recommend that you vote in favour of the continuation resolution, as they intend to do in respect of their own shareholdings.
Annual General Meeting (‘AGM’)
This year’s meeting will be held at Invesco’s
Concluding Thoughts
We are going through a testing time for
The portfolio’s investment performance may look different to that time, however with recovery likely not far off and interest rates likely to fall in the
Ultimately, my hope is that there is an improvement in the market sentiment for
Chairman
(*www.theaic.co.uk/aic/news/press-releases/top-performing-investment-trust-isas-over-the-last-25-years – published on 13th March 2024).
Portfolio Managers’ Report
Q What were the key influences on the market over the year?
A
Inflation and interest rates were once again the major influences on the market. The
Thankfully as the year progressed, energy prices reduced towards their pre-conflict levels, and the spectre of inflation began to abate. Sharply lower inflation data in
The much-heralded
Another notable feature of the year was the bout of artificial intelligence (‘AI’) exuberance. This was prompted by the launch of the latest version of “AI” software ChatGPT. Whilst various forms of machine learning have been in use for the last decade, ChatGPT captured the imagination of investors due to its ability to produce written output with a realistic human like quality. Whilst it is a very useful tool, its lack of any actual intelligence makes it prone to regurgitating false information in a highly convincing way. As with all popular stock market trends, investment banks created various instruments (“baskets” of stocks) to allow investors to play this theme. This negatively impacted the shares of a number of companies, which rightly or wrongly, were deemed to be potential victims of this new technology. Whilst we see “AI” as an important tool for driving productivity, we were surprised by the market volatility created by this phenomenon.
Q How did the portfolio perform over the year?
A The NAV total return for the portfolio over the year was –4.1%, which is an under performance of 0.8% when compared with the Benchmark Index, the Deutsche Numis Smaller Companies+ AIM (excluding Investment Companies), which returned –3.3% on the same basis. The share price total return was –1.8%, reflecting the narrowing of the discount from 12.8% at last financial year end to 11.1% at the end of this year.
Q Which sectors contributed to and detracted from performance?
A Although the cost of living crisis was in the headlines during the year, the consumer discretionary sector was the most positive contributor to portfolio performance, with leisure stocks in particular performing well. We also benefitted from being less exposed to the basic materials and energy sectors than the wider market. The sector that detracted the most from performance was industrials, which was impacted by companies reducing inventories, and technology, where higher interest rates triggered a widespread de-rating.
Q Which stocks contributed to and detracted from performance?
A
The best performing stocks over the year included: infrastructure products business,
Hill & Smith
(+49%), which is benefitting from increased spending on infrastructure, particularly in the US, where the company generates most of its profits.
4imprint
(+24%), which sells promotional products, predominantly in the US, had another strong year. The business, which is the largest player in its niche, continued to take share by increasing its advertising spend. The company has strong long-term prospects and remains the largest holding in the portfolio. Defence business
Chemring
(+25%), saw strong demand for its products in the wake of the war in
Despite the cost of living crisis, leisure spending remained robust. We benefitted from strong performances from pub groups,
Mitchells and Butlers
(+58%) and
Young & Co’s Brewery
(+17%), and ten-pin bowling operator
Hollywood Bowl
(+15%). Additionally,
In such a difficult period for company profitability, inevitably we had some disappointments:
Videndum (–68%) which is a leading manufacturer of equipment used in photography, broadcasting and film making, was hit by a combination of weaker demand due to destocking, and the actor and writers strikes in the US. Unfortunately, this led to a substantial profit shortfall and the business had to be recapitalised via a rights issue. The company should benefit from pent-up demand now the strikes have ended, and it typically sees stronger trading during Olympic and US presidential election years, so we have retained a holding in the stock. Jadestone Energy (–68%), suffered from reduced production due to some maintenance issues at its main oil field. The profit shortfall meant the business had to issue shares at a discount to bolster its cash position. We believe the company can recover from these issues and have retained a position for now. Keywords Studios (–41%), which provides outsourced services to the computer games industry, continued to trade well, but was caught up in the bout of “AI mania” which gripped the market following the release of the latest version of ChatGPT. Some commentators believe that its revenue could be negatively impacted by generative AI. However, the company already uses AI as a productivity tool in various areas of its business, so we believe the fears are misplaced. We think it is an excellent business and used the share price weakness to add to the holding.
Q What is the current portfolio strategy?
A
Our investment philosophy remains unchanged. The current portfolio is comprised of 60-70 stocks with the sector weightings being determined by where we are finding attractive companies at a given time, rather than by allocating assets according to a “top down” view of the economy. We continue to seek growing businesses, which have the potential to be significantly larger in the medium term. These tend to be companies that either have great products or services, that can enable them to take market share from their competitors, or companies that are exposed to higher growth niches within the
The sustainability of returns and profit margins is vital for the long-term success of a company. The assessment of the position of a business within its supply chain and a clear understanding of how work is won and priced are key to determining if a company has “pricing power”, which has been particularly important in the recent inflationary environment. It is also important to determine which businesses possess unique capabilities, in the form of intellectual property, specialist know-how or a scale advantage in their chosen market. We conduct around 300 company meetings and site visits a year, and these areas are a particular focus for us on such occasions.
In terms of portfolio construction, we continue to favour a mix of both cyclical (economically sensitive) stocks, and more defensive businesses. Whilst many cyclical stocks are currently experiencing more difficult trading, this is largely factored into profit expectations and valuations. These stocks have the potential to outperform when investors begin to look beyond the short-term weakness. Market moves over the last few months suggest that this process may be underway, and this has encouraged us to begin adding to this area of the portfolio.
Counterbalancing this are more defensive businesses that should continue to trade resiliently even if the economy struggles more than anticipated. These stocks offer a greater degree of certainty, and this is often reflected in higher valuations. As we gain more confidence that a recovery is underway, we may look to take profits from some of these positions and redeploy the proceeds elsewhere.
Q What are the major holdings in the portfolio?
A The 5 largest holdings in the portfolio at the end of the year were:
• 4imprint (4.9% of the portfolio) sells promotional materials such as pens, bags and clothing which are emblazoned with company logos. The business gathers orders through online and catalogue marketing, which are then routed to their suppliers who produce and dispatch the products to customers. As a result of outsourcing most of the manufacturing, the business has a relatively low capital requirement and can focus on marketing and customer service. Continual reinvestment of revenue into marketing campaigns has enabled the business to generate an enviable long term growth record whilst maintaining margins.
• JTC (3.8% of the portfolio) is a financial administration business providing services to real estate and private equity funds, multinational companies, and high net worth individuals. The business has a strong culture, a reputation for quality and has augmented its organic growth with acquisitions. Margins and returns on capital are strong and the business benefits from long term contracts, giving it excellent earnings visibility.
•
Hollywood Bowl
(3.2% of the portfolio) is a leisure business operating ten pin bowling alleys in the
•
Hill & Smith
(3.1% of the portfolio) is a supplier of products and services into the infrastructure sectors in the
•
Hilton Food
(2.9% of the portfolio) partners with major supermarkets across the world to supply their prepacked meat, fish, and plant-based products on a long-term “cost plus” basis. This model reduces the volatility in profits typically seen in food businesses by allowing them to pass changes in the cost of raw materials on to their customers. The business has benefitted from the global trend in supermarkets moving from in-store to centralised packing and relying on a reduced number of trusted suppliers. Hilton Food has an excellent long term growth record, both from signing customers in new countries, most recently with Walmart in
Q What were the new holdings added over the year?
A New stocks that we added to the portfolio in the year include:
•
Tatton Asset
Management
creates model portfolios which it sells via independent financial advisors (‘IFAs’) in the
•
NIOX
is a medical diagnostic business with technology that can more accurately diagnose and monitor asthma. The company is the world leader in fractional exhaled nitric oxide (‘FeNO’) testing, which measures exhaled Nitric Oxide as a diagnostic marker for asthma. FeNO testing is significantly more accurate than traditional methods of testing. The product is approved by The
• YouGov is a market research company that uses online polling to generate data which it packages and sells to businesses. The business has gained a strong reputation for quality by consistently being the most accurate polling organisation in predicting the outcomes of general elections. The business has leveraged this reputation to take share from the large incumbents in the sector, which has driven an impressive level of organic growth. The company recently announced the acquisition of GFK’s consumer panel business, which management believe can accelerate the internationalisation of the business and facilitate the launch of new products. The business benefits from multi-year relationships with its customers, giving the business good visibility over future revenue.
•
MJ Gleeson
is a
Q What is the Portfolio Managers’ approach to gearing?
A Gearing decisions are taken after reviewing a variety of metrics including valuations, earnings momentum, market momentum, bond spreads and a range of economic indicators. After analysing this data, we have moved the Company to a geared position of around 5%.
The factors influencing our decision to utilise gearing include the substantial reduction in the
Q How does ESG factor in the investment process?
A Environment, Social and Governance (‘ESG’) issues are increasingly a focus for many investors and analysis of these factors has always been a core part of our investment process. Invesco has significant resources focussed on ESG, both at a group and individual team level. Our proprietary ESGintel system draws in company specific data from a broad range of sources and enables ESG related metrics to be quantified. This provides fund managers with clear overview of areas of concern, allowing targeted engagement with businesses to bring about positive change.
Environmental liabilities, socially dubious business practices and poor corporate governance, can have a significant impact on share prices. We assess environmental risks within a business, and analyse the steps being taken to reduce its environmental impact. We like businesses with strong cultures and engaged employees, and avoid businesses, which, whilst acting within the law, run the risk of a public backlash, or being constrained by new legislation. We believe that governance, board structure and incentivisation, are by far the most important factors within ESG in determining shareholder returns. The importance of businesses being managed by good quality people, with appropriate incentivisation should not be underestimated. Therefore, we proactively consult with all the businesses we own on these matters and vote against resolutions where standards fall short of our expectations.
Q What is the dividend policy of the Company?
A The Company pays out all the income earned within the portfolio and enhances it using a small amount of realised capital profits to target a dividend yield of 4.0% based on the year end share price. This provides shareholders with an attractive and consistent yield whilst allowing us to target businesses that we believe will deliver the best total return, without having to compromise on quality to hit an income target.
Q What are your expectations for the year ahead?
A
Although the current level of economic growth in the
The industrial sector has struggled as businesses reduce inventories. Many businesses had carried buffer stocks to cope with supply chain disruption following the pandemic. With lead times normalising, businesses have reduced these stocks, leading to lower demand elsewhere. Recent conversations with businesses suggest that this process has largely run its course, so an industrial sector recovery will hopefully emerge as the year progresses.
The valuation attractions of the
Whilst the news headlines are dominated by doom and gloom, we see a nascent economic recovery and a market offering considerable value. So, after a difficult few years for the sector, we feel optimistic about the year ahead.
Portfolio Managers
Principal Risks and Uncertainties
The Directors confirm that they have carried out a robust assessment of the emerging and principal risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity. Most of these risks are market related and are similar to those of other investment trusts investing primarily in listed markets. The Audit Committee reviews the Company’s risk control summary at each meeting, and as part of this process, gives consideration to identify emerging risks. Emerging risks, such as evolving cyber threat, geo-political tension and climate related risks, have been considered during the year as part of the Directors’ assessment.
______________________________________________________________________________ |Principal Risk Description |Mitigating Procedures and Controls | |______________________________________|_______________________________________| |Market (Economic) Risk |The Directors have assessed the market | | |impact of the ongoing uncertainty from | |Factors such as fluctuations in stock |the conflict in Ukraine and the | |markets, interest rates and exchange |resulting sanctions imposed onRussia | |rates are not under the control of the|through regular discussions with the | |Board or the Portfolio Managers, but |Portfolio Managers and the Corporate | |may give rise to high levels of |Broker. The Company’s current portfolio| |volatility in the share prices of |consists of companies listed on the | |investee companies, as well as |main UK equity market and those listed | |affecting the Company’s own share |on AIM. The Company does not have | |price and the discount to its NAV. The|direct investments in Russia or hold | |risk could be triggered by |stocks with significant links to | |unfavourable developments globally |Russia. To a limited extent, futures | |and/or in one or more regions, |can be used to mitigate against market | |contemporary examples being the market|(economic) risk, as can the judicious | |uncertainty in relation to the wider |holding of cash or other very liquid | |political developments inUkraine and |assets. Futures are not currently being| |the Middle East. |used. | |______________________________________|_______________________________________| | |The Portfolio Managers’ approach to | | |investment is one of individual stock | | |selection. Investment risk is mitigated| | |via the stock selection process, | | |together with the slow build-up of | | |holdings rather than the purchase of | | |large positions outright. This allows | | |the Portfolio Managers, cautiously, to | | |observe more data points from a company| |Investment Risk |before adding to a position. The | | |overall portfolio is well diversified | |The Company invests in small and |by company and sector. The weighting of| |medium-sized companies traded on the |an investment in the portfolio tends to| |London Stock Exchange or on AIM. By |be loosely aligned with the market | |their nature, these are generally |capitalisation of that company. This | |considered riskier than their larger |means that the largest holdings will | |counterparts and their share prices |often be amongst the larger of the | |can be more volatile, with lower |smaller companies available. The | |liquidity. In addition, as smaller |Portfolio Managers are relatively risk | |companies may not generally have the |averse, look for lower volatility in | |financial strength, diversity and |the portfolio and seek to outperform in| |resources of larger companies, they |more challenging markets. The Portfolio| |may find it more difficult to overcome|Managers remain cognisant at all times | |periods of economic slowdown or |of the potential liquidity of the | |recession. |portfolio. There can be no guarantee | | |that the Company’s strategy and | |Furthermore, the risk of climate |business model will be successful in | |change and matters concerning ESG |achieving its investment objective. The| |could affect the valuation of |Board monitors the performance of the | |companies held in the portfolio. |Company, giving due consideration to | | |how the Manager has incorporated ESG | | |considerations including climate change| | |into their investment process. Further | | |details can be found on pages 19 to 22.| | |The Board also has guidelines in place | | |to ensure that the Portfolio Managers | | |adhere to the approved investment | | |policy. The continuation of the | | |Manager’s mandate is reviewed annually.| |______________________________________|_______________________________________| | |The Board reviews regularly the | | |Company’s investment objective and | | |strategy to ensure that it remains | | |relevant, as well as reviewing the | | |composition of the shareholder | |Shareholders’ Risk |register, peer group performance on | | |both a share price and NAV basis, and | |The value of an investment in the |the Company’s share price discount to | |Company may go down as well as up and |NAV per share. The Board and the | |an investor may not get back the |Portfolio Managers maintain an active | |amount invested. |dialogue with the aim of ensuring that | | |the market rating of the Company’s | | |shares reflects the underlying NAV; | | |both share buy back and issuance | | |facilities are in place to help the | | |management of this process. | |______________________________________|_______________________________________| |Reliance on the Manager and other | | |Third-Party Service Providers | | | | | |The Company has no employees and the | | |Board comprises non-executive | | |directors only. The Company is | | |therefore reliant upon the performance| | |of third-party service providers for |Third-party service providers are | |its executive function and service |subject to ongoing monitoring by the | |provisions. The Company’s operational |Manager and the Board. | |structure means that all cyber risk | | |(information and physical security) |The Manager reviews the performance of | |arises at its third-party service |all third-party providers regularly | |providers, including fraud, sabotage |through formal and informal meetings. | |or crime against the Company. The | | |Company’s operational capability |The Audit Committee reviews regularly | |relies upon the ability of its |the performance and internal controls | |third-party service providers to |of the Manager and all third-party | |continue working throughout the |providers through audited service | |disruption caused by a major event |organisation control reports, together | |such as the Covid-19 pandemic. Failure|with updates on information security, | |by any service provider to carry out |the results of which are reported to | |its obligations to the Company in |the Board. | |accordance with the terms of its | | |appointment could have a materially |The Manager’s business continuity plans| |detrimental impact on the operation of|are reviewed on an ongoing basis and | |the Company and could affect the |the Directors are satisfied that the | |ability of the Company to successfully|Manager has in place robust plans and | |pursue its investment policy. The |infrastructure to minimise the impact | |Company’s main service providers, of |on its operations so that the Company | |which the Manager is the principal |can continue to trade, meet regulatory | |provider, are listed on page 65. The |obligations, report and meet | |Manager may be exposed to reputational|shareholder requirements. The Board | |risks. In particular, the Manager may |receives regular update reports from | |be exposed to the risk that |the Manager and third-party service | |litigation, misconduct, operational |providers on business continuity | |failures, negative publicity and press|processes and has been provided with | |speculation, whether or not it is |assurance from them all insofar as | |valid, will harm its reputation. |possible that measures are in place for| |Damage to the reputation of the |them to continue to provide contracted | |Manager could potentially result in |services to the Company. | |counterparties and third parties being| | |unwilling to deal with the Manager and| | |by extension the Company, which | | |carries the Manager’s name. This could| | |have an adverse impact on the ability | | |of the Company to pursue its | | |investment policy successfully. | | |______________________________________|_______________________________________| |Regulatory Risk | | | | | |The Company is subject to various laws|The Manager reviews the level of | |and regulations by virtue of its |compliance with tax and other financial| |status as an investment trust, its |regulatory requirements on a regular | |listing on the London Stock Exchange |basis. The Board regularly considers | |and being an Alternative Investment |all risks, the measures in place to | |Fund under theUK AIFMD regime. A loss|control them and the possibility of any| |of investment trust status could lead |other risks that could arise. The | |to the Company being subject to |Manager’s Compliance and Internal Audit| |corporation tax on the chargeable |team produce annual reports for review | |capital gains arising on the sale of |by the Company’s Audit Committee. | |its investments. Other control |Further details of risks and risk | |failures, either by the Manager or any|management policies as they relate to | |other of the Company’s service |the financial assets and liabilities of| |providers, could result in operational|the Company are detailed in note 16 of | |or reputational problems, erroneous |this Annual Financial Report. | |disclosures or loss of assets through | | |fraud, as well as breaches of | | |regulations. | | |______________________________________|_______________________________________|
Viability Statement
In accordance with provision 31 of the
The main risks to the Company’s continuation are: insufficient liquidity to meet liabilities as they fall due; poor investment performance over an extended period; 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. Despite the current impact on global markets resulting from the ongoing political developments in
The investment objective of the Company has been substantially unchanged for many years. The 2015 amendment to dividend policy gave some additional weight to targeting increased dividend income to shareholders. This change does not affect the total return sought or produced by the Portfolio Managers but was designed to increase returns distributed to shareholders. The Board considers that the Company’s investment objective remains appropriate. This is confirmed by contact with major shareholders.
Performance derives from returns for risk taken. The Portfolio Managers’ Report on pages 9 to 12 sets out their current investment strategy. 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 decline substantially over the next five years so as to affect the Company’s viability.
The Company is a closed end investment trust and can pursue a long term investment strategy and make use of gearing to enhance returns through investment cycles without the need to maintain liquidity for investor redemptions.
Based on the above analysis, including review of the revenue forecast for future years along with stress testing of both the revenue forecast and the portfolio valuation, reverse stress testing of debt covenants and dividend sensitivity analysis, and that shareholders pass the resolution at the forthcoming AGM for the continuation of the Company, 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 2029.
Investments in Order of Valuation
AT
Ordinary shares unless stated otherwise
Market
Value % of
Company Sector £’000 Portfolio
4imprint Media 8,397 4.9
JTC Investment Banking and 6,433 3.8
Brokerage Services
Hollywood Bowl Travel and Leisure 5,398 3.2
Hill & Smith Industrial Metals and Mining 5,206 3.1
Hilton Food Food Producers 4,852 2.9
Chemring Aerospace and Defence 4,623 2.7
Serco Industrial Support Services 4,519 2.7
CVSAIM Consumer Services 4,426 2.6
Alfa Financial Software Software and Computer Services 4,402 2.6
Advanced Medical SolutionsAIM Medical Equipment and Services 4,089 2.4
Top Ten Holdings 52,345 30.9
AJ Bell Investment Banking and 4,003 2.4
Brokerage Services
Coats General Industrials 3,766 2.2
discoverIE Electronic and Electrical 3,583 2.1
Equipment
Keywords StudiosAIM Leisure Goods 3,452 2.0
Energean Oil, Gas and Coal 3,400 2.0
Genuit Construction and Materials 3,397 2.0
Brooks MacdonaldAIM Investment Banking and 3,311 1.9
Brokerage Services
Essentra Industrial Support Services 3,169 1.9
Volution Construction and Materials 3,148 1.9
Johnson ServiceAIM Industrial Support Services 2,984 1.8
Top Twenty Holdings 86,558 51.1
Kainos Software and Computer Services 2,936 1.7
Alpha Financial Markets Industrial Support Services 2,859 1.7
ConsultingAIM
Young & Co’s Brewery - Travel and Leisure 2,826 1.7
Non-VotingAIM
Marshalls Construction and Materials 2,782 1.7
LoungersAIM Travel and Leisure 2,773 1.6
Mitchells & Butlers Travel and Leisure 2,574 1.5
Robert Walters Industrial Support Services 2,531 1.5
Aptitude Software Software and Computer Services 2,429 1.4
Wickes Retailers 2,404 1.4
RWSAIM Industrial Support Services 2,339 1.4
Top Thirty Holdings 113,011 66.7
Ricardo Construction and Materials 2,250 1.3
Churchill ChinaAIM Household Goods and Home 2,241 1.3
Construction
Learning TechnologiesAIM Software and Computer Services 2,197 1.3
The Gym Travel and Leisure 2,196 1.3
Videndum Industrial Engineering 2,195 1.3
Avon Protection Aerospace and Defence 2,172 1.3
XP Power Electronic and Electrical 2,170 1.3
Equipment
FocusriteAIM Leisure Goods 2,056 1.2
Secure Trust Bank Banks 2,007 1.2
Severfield Construction and Materials 1,993 1.1
Top Forty Holdings 134,488 79.3
MidwichAIM Industrial Support Services 1,971 1.1
Auction Technology Software and Computer Services 1,950 1.1
Tatton Asset ManagementAIM Investment Banking and 1,875 1.1
Brokerage Services
FDM Industrial Support Services 1,861 1.1
Crest Nicholson Household Goods and Home 1,829 1.1
Construction
Next Fifteen CommunicationsAIM Media 1,813 1.1
Workspace Real Estate Investment Trusts 1,795 1.1
VP Industrial Transportation 1,707 1.0
GB GroupAIM Software and Computer Services 1,630 1.0
CLS Real Estate Investment and 1,623 1.0
Services
Top Fifty Holdings 152,542 90.0
Future Media 1,555 0.9
PZ Cussons Personal Care, Drug and Grocery 1,539 0.9
Stores
Treatt Chemicals 1,354 0.8
YouGovAIM Media 1,352 0.8
M&C SaatchiAIM Media 1,342 0.8
Dunelm Retailers 1,299 0.8
FD TechnologiesAIM Software and Computer Services 1,287 0.8
Topps Tiles Retailers 1,194 0.7
Jadestone EnergyAIM Oil, Gas and Coal 942 0.6
MarloweAIM Industrial Support Services 911 0.5
Top Sixty Holdings 165,317 97.6
Gooch & HousegoAIM Technology Hardware and 909 0.5
Equipment
Vistry Household Goods and Home 888 0.5
Construction
NIOXAIM Medical Equipment and Services 746 0.4
Savills Real Estate Investment and 609 0.4
Services
MJ Gleeson Household Goods and Home 579 0.3
Construction
ThruvisionAIM Electronic and Electrical 433 0.3
Equipment
Total Investments: (66) 169,481 100.0
AIM Investments quoted on AIM.
The percentage of the portfolio by value invested in AIM stocks at the year end was 29.9% (2023: 32.8%). There were 24 AIM stocks held at the year end, representing 36.4% of the 66 stocks (2023: 26 AIM stocks held representing 37.1% of the 70 stocks held).
Directors’ Responsibilities Statement
The Directors are responsible for preparing the Annual Financial Report in accordance with
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
In preparing these financial statements, the Directors are required to:
• select suitable accounting policies in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors and then apply them consistently;
• make judgements and estimates that are reasonable and prudent;
• present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;
• present additional disclosures when compliance with the specific requirements in IFRSs is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the group and company financial position and financial performance;
•
state whether
• 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
• 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
• they 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
Chairman
Statement of Comprehensive Income
FOR THE YEAR ENDED 31 JANUARY
Year ended 31 January Year ended 31 January
2024 2023
Revenue Capital Total Revenue Capital Total
Notes £’000 £’000 £’000 £’000 £’000 £’000
Loss on investments 9 – (11,138) (11,138) – (41,010) (41,010)
held at fair value
Profit on foreign – – – – 5 5
exchange
Income 2 5,088 491 5,579 4,646 – 4,646
Investment 3 (182) (1,029) (1,211) (206) (1,165) (1,371)
management fees
Other expenses 4 (424) (3) (427) (384) (3) (387)
Loss before finance 4,482 (11,679) (7,197) 4,056 (42,173) (38,117)
costs and taxation
Finance costs 5 (23) (130) (153) (1) (7) (8)
Loss before taxation 4,459 (11,809) (7,350) 4,055 (42,180) (38,125)
Taxation 6 – – – – – –
Loss after taxation 4,459 (11,809) (7,350) 4,055 (42,180) (38,125)
Return per ordinary 7 13.18p (34.91)p (21.73)p 11.99p (124.70)p (112.71)p
share
The total columns of this statement represent the Company’s statement of comprehensive income, prepared in accordance with
Statement of Changes in Equity
Capital
Share Share Redemption Capital Revenue
Capital Premium Reserve Reserve Reserve Total
Notes £’000 £’000 £’000 £’000 £’000 £’000
At 31 January 2022 10,642 22,366 3,386 184,089 270 220,753
Total comprehensive – – – (42,180) 4,055 (38,125)
loss for the year
Dividends paid 8 – – – (4,905) (2,808) (7,713)
At 31 January 2023 10,642 22,366 3,386 137,004 1,517 174,915
Total comprehensive – – – (11,809) 4,459 (7,350)
loss for the year
Dividends paid 8 – – – (2,048) (4,122) (6,170)
At 31 January 2024 10,642 22,366 3,386 123,147 1,854 161,395
The accompanying accounting policies and notes are an integral part of these financial statements.
Balance Sheet
As at As at
31 January 31 January
2024 2023
Notes £’000 £’000
Non-current assets
Investments held at fair value through profit or 9 169,481 172,643
loss
Current assets
Other receivables 10 932 400
Cash and cash equivalents – 5,055
932 5,455
Total assets 170,413 178,098
Current liabilities
Other payables 11 (9,018) (3,183)
(9,018) (3,183)
Total assets less current liabilities 161,395 174,915
Net assets 161,395 174,915
Capital and reserves
Share capital 12 10,642 10,642
Share premium 13 22,366 22,366
Capital redemption reserve 13 3,386 3,386
Capital reserve 13 123,147 137,004
Revenue reserve 13 1,854 1,517
Total shareholders’ funds 161,395 174,915
Net asset value per ordinary share
Basic 14 477.12p 517.09p
The financial statements were approved and authorised for issue by the Board of Directors on
Signed on behalf of the Board of Directors
Chairman
The accompanying accounting policies and notes are an integral part of these financial statements.
Statement of Cash Flows
Year ended Year ended
31 January 31 January
2024 2023
£’000 £’000
Cash flow from operating activities
Loss before taxation (7,350) (38,125)
Add back finance costs 153 8
Adjustments for:
Purchase of investments (32,646) (37,739)
Sale of investments 21,263 46,313
(11,383) 8,574
Loss on investments held at fair value 11,138 41,010
Increase in receivables (51) (195)
Increase/(decrease) in payables 8 (26)
Net cash (outflow)/inflow from operating activities (7,485) 11,246
Cash flow from financing activities
Finance cost paid (153) (8)
Dividends paid – note 8 (6,170) (7,713)
Increase in bank overdraft 8,753 –
Net cash inflow/(outflow) from financing activities 2,430 (7,721)
Net (decrease)/increase in cash and cash equivalents (5,055) 3,525
Cash and cash equivalents at start of the year 5,055 1,530
Cash and cash equivalents at the end of the year — 5,055
Reconciliation of cash and cash equivalents to the Balance
Sheet is as follows:
Cash held at custodian – 80
Invesco Liquidity Funds plc – Sterling, money market fund – 4,975
Cash and cash equivalents — 5,055
Cash flow from operating activities includes:
Dividends received 5,523 4,447
Interest received 3 2
As the Company did not have any long term debt at both the current and prior year ends, no reconciliation of the financial liabilities position is presented.
The accompanying accounting policies and notes are an integral part of these financial statements.
Notes to the Financial Statements
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 together with the approach to recognition and measurement 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 on the grounds that the Company’s investment portfolio is sufficiently liquid and significantly exceeds all balance sheet liabilities, there are no unrecorded commitments or contingencies. The disclosure on going concern on page
29 in the Directors’ Report provides further detail. The Directors believe the Company has adequate resources to continue in operational existence for the foreseeable future and has the ability to meet its financial obligations as and when they fall due for a period until at least
(a) Basis of Preparation
(i) Accounting Standards Applied
The financial statements have been prepared on a historical cost basis, except for the measurement at fair value of investments which for the Company are quoted bid prices for investments in active markets at the Balance Sheet date and therefore reflect market participants’ view of climate change risk and in accordance with the applicable
Where presentational guidance set out in the Statement of Recommended Practice (‘SORP’) ‘Financial Statements of
The Directors have considered the impact of climate change on the value of the listed investments that the Company holds. In the view of the Directors, as the portfolio consists of listed equities, their market prices should reflect the impact, if any, of climate change and accordingly no adjustment has been made to take account of climate change in the valuation of the portfolio in these financial statements.
(ii) Critical Accounting Estimates and Judgements
The preparation of the financial statements may require the Directors to make estimations where uncertainty exists. It also requires the Directors to make judgements, estimates and assumptions, in the process of applying the accounting policies. There have been no significant judgements, estimates or assumptions for the current or preceding year.
(iii) Continuation Vote
Having consulted the Company’s major shareholders through the remit of its advisers, the Directors have a reasonable belief that the continuation vote will be supported by the majority of shareholders at the 2024 AGM.
(b) Foreign Currency and Segmental Reporting
(i) Functional and Presentation Currency
The financial statements are presented in Sterling, which is the Company’s functional and presentation currency and the currency in which the Company’s share capital and expenses are denominated, as well as a majority of its assets and liabilities.
(ii) Transactions and Balances
Foreign currency assets and liabilities are translated into Sterling at the rates of exchange ruling at the balance sheet date. Transactions in foreign currency, are translated into Sterling at the rates of exchange ruling on the dates of such transactions, and profit or loss on translation is taken to revenue or capital depending on whether it is revenue or capital in nature. All are recognised in the statement of comprehensive income.
(iii) Segmental reporting
The Directors are of the opinion that the Company is engaged in a single segment of business of investing in equity and debt securities, issued by companies operating and generating revenue mainly in the
(c) Financial Instruments
(i) Recognition of Financial Assets and Financial Liabilities
The Company recognises financial assets and financial liabilities when the Company becomes a party to the contractual provisions of the instrument. The Company offsets financial assets and financial liabilities if the Company has a legally enforceable right to set off the recognised amounts and interests and intends to settle on a net basis.
(ii) Derecognition of Financial Assets
The Company derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the right to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in the transferred financial asset that is created or retained by the Company is recognised as an asset.
(iii) Derecognition of Financial Liabilities
The Company derecognises financial liabilities when its obligations are discharged, cancelled or expired.
(iv) Trade Date Accounting
Purchases and sales of financial assets are recognised on trade date, being the date on which the Company commits to purchase or sell the assets.
(v) Classification of Financial Assets and Financial Liabilities
Financial assets
The Company classifies its financial assets as measured at amortised cost or measured at fair value through profit or loss on the basis of both: the entity’s business model for managing the financial assets; and the contractual cash flow characteristics of the financial asset.
Financial assets measured at amortised cost include cash, debtors and prepayments.
A financial asset is measured at fair value through profit or loss if its contractual terms do not give rise to cash flows on specified dates that are solely payments of principal and interest (‘SPPI’) on the principal amount outstanding or it is not held within a business model whose objective is either to collect contractual cash flows, or to both collect contractual cash flows and sell. The Company’s equity investments are classified as fair value through profit or loss as they do not give rise to cash flows that are SPPI.
Financial assets held at fair value through profit or loss are initially recognised at fair value, which is usually the transaction price and are subsequently valued at fair value.
For investments that are actively traded in organised financial markets, fair value is determined by reference to stock exchange quoted bid prices at the balance sheet date.
Financial liabilities
Financial liabilities, including borrowings through the Bank Overdraft, are initially measured at fair value, net of transaction costs and are subsequently measured at amortised cost using the effective interest method, where applicable.
(d) Cash and Cash Equivalents
Cash and cash equivalents include any cash held at custodian and approved depositories as well as holdings in
(e) Income
All dividends are taken into account on the date investments are marked ex-dividend; other income from investments is taken into account on an accruals basis. Where the Company elects to receive scrip dividends (i.e. in the form of additional shares rather than cash), the equivalent of the cash dividend foregone is recognised as income in the revenue account and any excess in value of the shares received over the amount of the cash divided recognised in capital. Deposit interest is taken into account on an accruals basis. Special dividends representing a return of capital are allocated to capital in the statement of comprehensive income and then taken to capital reserves. Dividends will generally be recognised as revenue however all special dividends will be reviewed, with consideration given to the facts and circumstances of each case, including the reasons for the underlying distribution, before a decision over whether allocation is to revenue or capital is made.
(f) Expenses and Finance Costs
All expenses and finance costs are accounted for in the statement of comprehensive income on an accruals basis.
The investment management fee and finance costs (including those related to the bank overdraft facility) are allocated 85% to capital and 15% to revenue. This is in accordance with the Board’s expected long term split of returns, in the form of capital gains and income respectively, from the portfolio.
Investment transaction costs such as brokerage commission and stamp duty are recognised in capital in the statement of comprehensive income. All other expenses are allocated to revenue in the statement of comprehensive income.
(g) Taxation
Tax represents the sum of tax payable, withholding tax suffered and deferred tax. Tax is charged or credited in the statement of comprehensive income. Any tax payable is based on taxable profit for the year, however, as expenses exceed taxable income no corporation tax is due. The Company’s liability for current tax is calculated using tax rates that have been enacted or substantially enacted by the balance sheet date.
Deferred taxation is recognised in respect of all temporary differences that have originated but not reversed at the balance sheet date, where transactions or events that result in an obligation to pay more tax in the future or right to pay less tax in the future have occurred at the balance sheet date. This is subject to deferred tax assets only being recognised if it is considered probable that there will be suitable profits from which the future reversal of the temporary differences can be deducted. Deferred tax assets and liabilities are measured at the tax rates expected to apply in the period when the liability is settled or the asset realised.
Investment trusts which have approval under Section 1158 of the Corporation Tax Act 2010 are not liable for taxation on capital gains.
(h) Dividends
Dividends are not accrued in the financial statements, unless there is an obligation to pay the dividends at the balance sheet date. Proposed final dividends are recognised in the financial year in which they are approved by the shareholders.
(i) Consolidation
Consolidated accounts have not been prepared as the subsidiary, whose principal activity was investment dealing, is not material in the context of these financial statements. The subsidiary was dissolved on
2. Income
This note shows the income generated from the portfolio (investment assets) of the Company and income received from any other source.
2024 2023
£’000 £’000
Income from investments:
UK dividends 4,443 4,124
UK special dividends 511 288
Overseas dividends 131 232
Deposit interest 3 2
Total income 5,088 4,646
A special dividend of £491,000 was
recognised in capital during the
year (2023: nil).
Overseas dividends include dividends
received on UK listed investments
where the investee company is
domiciled outside of the UK .
3. Investment Management Fee
This note shows the fees due to the Manager. These are made up of the management fee calculated and paid monthly and, for the previous year. This fee is based on the value of the assets being managed.
2024 2023
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
Investment management fee 182 1,029 1,211 206 1,165 1,371
Details of the investment management and secretarial agreement are given on page 30 in the Directors’ Report.
At
4. Other Expenses
The other expenses of the Company are presented below; those paid to the Directors and auditor are separately identified.
2024 2023
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
Directors’ remuneration(i) 125 – 125 117 – 117
Auditor’s fees(ii):
– for audit of the Company’s
annual financial statements 49 – 49 45 – 45
Other expenses(iii) 250 3 253 222 3 225
424 3 427 384 3 387
(i) The Director’s Remuneration Report provides further information on Directors’ fees.
(ii) Auditor’s fees include expenses but excludes VAT. The VAT is included in other expenses.
(iii) Other expenses include:
•
£11,800 (2023: £11,600) of employer’s
• custodian transaction charges of £3,100 (2023: £3,200). These are charged to capital.
5. Finance Costs
Finance costs arise on any borrowing facilities the Company has.
2024 2023
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
Bank overdraft facility fee 1 6 7 1 6 7
Overdraft interest 22 124 146 – 1 1
23 130 153 1 7 8
The £15 million overdraft facility was renewed on
6. Taxation
As an investment trust the Company pays no tax on capital gains and, as the Company invested principally in
(a) Tax charge
2024 2023
£’000 £’000
Overseas taxation – –
(b) Reconciliation of tax charge
2024 2023
£’000 £’000
Loss before taxation (7,350) (38,125)
Theoretical tax at the current UK Corporation Tax rate of (1,766) (7,244)
24.03% (2023: 19%)
Effects of:
– Non-taxable UK dividends (1,036) (767)
– Non-taxable UK special dividends (241) (55)
– Non-taxable overseas dividends (24) (35)
– Non-taxable loss on investments 2,676 7,791
– Excess of allowable expenses over taxable income 390 309
– Disallowable expenses 1 1
Tax charge for the year – –
(c) Factors that may affect future tax changes
The Company has cumulative excess management expenses of £45,945,000 (2023: £44,324,000) that are available to offset future taxable revenue.
A deferred tax asset of £11,486,000 (2023: £11,081,000) at 25% (2023: 25%) has not been recognised in respect of these expenses since the Directors believe that there will be no taxable profits in the future against which the deferred tax assets can be offset
The Finance Act 2021 increases the
7. Return per Ordinary Share
Return per ordinary share is the amount of gain or loss generated for the financial year divided by the weighted average number of ordinary shares in issue.
2024 2023
Revenue Capital Total Revenue Capital Total
Return £’000 4,459 (11,809) (7,350) 4,055 (42,180) (38,125)
Return per ordinary share 13.18p (34.91)p (21.73)p 11.99p (124.70)p (112.71)p
The returns per ordinary share are based on the weighted average number of shares in issue during the year of 33,826,929 (2023: 33,826,929)
8. 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.
2024 2023
Pence £’000 Pence £’000
Dividends paid from revenue in the year:
Third interim (prior year) 3.75 1,269 0.80 270
Final (prior year) 0.74 249 – –
First interim 3.85 1,302 3.75 1,269
Second interim 3.85 1,302 3.75 1,269
Total dividends paid from revenue 12.19 4,122 8.30 2,808
Dividends paid from capital in the year:
Third interim (prior year) – – 2.95 999
Final (prior year) 6.05 2,048 11.55 3,906
Total dividends paid from capital 6.05 2,048 14.50 4,905
Total dividends paid in the year 18.24 6,170 22.80 7,713
2024 2023
Pence £’000 Pence £’000
Dividends payable in respect of the year:
First interim 3.85 1,302 3.75 1,269
Second interim 3.85 1,302 3.75 1,269
Third interim 3.85 1,302 3.75 1,269
Final 5.41 1,831 6.79 2,295
16.96 5,737 18.04 6,102
The third interim dividend of 3.85p per share, in respect of the year ended
2024 2023
£’000 £’000
Dividends in respect of the year:
– from revenue reserve 4,459 4,055
– from capital reserve 1,278 2,047
5,737 6,102
Dividend payable from the capital reserves of £1,278,000 (2023: capital reserves of £2,047,000) as a percentage of year end net assets of £161,395,000 (2023: £174,915,000) is 0.8% (2023: 1.2%). The Company has £128,237,000 (2023: £134,201,000) of realised distributable capital reserves at the year end.
9. Investments Held at Fair Value Through Profit and Loss
The portfolio is made up of investments which are listed or traded on a primary stock exchange or AIM. Profit and losses in the year include:
• realised, usually arising when investments are sold; and
• unrealised, being the difference from cost on those investments still held at the year end.
2024 2023
£’000 £’000
Investments listed on a primary stock exchange 118,717 116,417
AIM quoted investments 50,764 56,226
169,481 172,643
Opening valuation 172,643 219,818
Movements in year:
Purchases at cost 29,720 40,196
Sales proceeds (21,744) (46,361)
Loss on investments in the year (11,138) (41,010)
Closing valuation 169,481 172,643
Closing book cost 174,572 169,842
Closing investment unrealised (loss)/gain (5,091) 2,801
Closing valuation 169,481 172,643
The transaction costs amount to £90,000 (2023: £134,000) on purchases and £12,000 (2023: £28,000) for sales. These amounts are included in determining loss on investments held at fair value as disclosed in the Statement of Comprehensive Income.
The Company received £21,744,000 (2023: £46,361,000) from investments sold in the year. The book cost of these investments when they were purchased was £24,989,000 (2023: £43,172,000) realising a loss of £3,245,000 (2023: profit of £3,189,000). These investments have been revalued over time and until they were sold any unrealised profits/losses were included in the fair value of the investments.
10. Other Receivables
Other receivables are amounts which are due to the Company, such as monies due from brokers for investments sold and income which has been earned (accrued) but not yet received.
2024 2023
£’000 £’000
Amounts due from brokers 529 48
Overseas withholding tax recoverable 30 31
Income tax recoverable 4 –
Prepayments and accrued income 369 321
932 400
11. Other Payables
Other payables are amounts which must be paid by the Company, and include any amounts due to brokers for the purchase of investments or amounts owed to suppliers (accruals), such as the Manager and auditor.
2024 2023
£’000 £’000
Amounts due to brokers 48 2,974
Bank overdraft 8,753 –
Accruals 217 209
9,018 3,183
12. Share Capital
Share capital represents the total number of shares in issue, including shares held in treasury.
2024 2023
Number £’000 Number £’000
Allotted, called-up and fully paid
Ordinary shares of 20p each 33,826,929 6,765 33,826,929 6,765
Treasury shares of 20p each 19,382,155 3,877 19,382,155 3,877
53,209,084 10,642 53,209,084 10,642
For the year to
13. Reserves
This note explains the different reserves attributable to shareholders. The aggregate of the reserves and share capital (see previous note) make up total shareholders’ funds.
The share premium arises whenever shares are issued at a price above the nominal value plus any issue costs. The capital redemption reserve maintains the equity share capital and arises from the nominal value of shares repurchased and cancelled. The share premium and capital redemption reserve are non-distributable.
Capital investment gains and losses are shown in note 9, and form part of the capital reserve. The revenue reserve shows the net revenue retained after payment of dividends. The capital (to the extent that it constitutes realised profits) and revenue reserves are distributable by way of dividend. In addition, the capital reserve is also distributable by way of share buy backs.
14. 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:
Net asset Net assets
value
per ordinary attributable
share
2024 2023 2024 2023
Pence Pence £’000 £’000
Ordinary shares 477.12 517.09 161,395 174,915
Net asset value per ordinary share is based on net assets at the year end and on 33,826,929 (2023: 33,826,929) ordinary shares, being the number of ordinary shares in issue (excluding treasury) at the year end.
15. Subsidiary Undertaking
The dormant subsidiary,
16. Risk Management, Financial Assets and Liabilities
Financial instruments comprise the Company’s investment portfolio as well as any cash, borrowings, other receivables and other payables.
Financial Instruments
The Company’s financial instruments comprise its investment portfolio (as shown on pages 23 and 24), cash, overdraft, other receivables and other payables that arise directly from its operations such as sales and purchases awaiting settlement and accrued income. The accounting policies in note 1 include criteria for the recognition and the basis of measurement applied for financial instruments. Note 1 also includes the basis on which income and expenses arising from financial assets and liabilities are recognised and measured.
Risk Management Policies and Procedures
The Directors have delegated to the Manager the responsibility for the day-to-day investment activities of the Company as more fully described in the Directors’ Report.
As an investment trust the Company invests in equities and other investments for the long-term, so as to meet its investment policy (incorporating the Company’s investment objective). In pursuing its investment objective, the Company is exposed to a variety of risks that could result in either a reduction in the Company’s net assets or a reduction of the profits available for dividends. Those related to financial instruments include market risk, liquidity risk and credit risk. These policies are summarised below and have remained substantially unchanged for the two years under review.
The main risk that the Company faces arising from its financial instruments is market risk – this risk is reviewed in detail below. Since the Company invests mainly in
Credit risk encompasses the failure by counterparties to deliver securities which the Company has paid for, or to pay for securities which the Company has delivered, and cash balances. Counterparty risk is minimised by using only approved counterparties. The Company’s ability to operate in the short-term may be adversely affected if the Company’s custodian suffers insolvency or other financial difficulties. The appointment of a depositary has substantially lessened this risk. The Board reviews the custodian’s annual controls report and the Manager’s management of the relationship with the custodian,
Market Risk
The fair value or future cash flows of a financial instrument may fluctuate because of changes in market prices. This market risk comprises three elements – currency risk, interest rate risk and other price risk. The Company’s Manager assesses the Company’s exposure when making each investment decision, and monitors the overall level of market risk on the whole of the investment portfolio on an ongoing basis. The Board meets at least quarterly to assess risk and review investment performance. The Company may utilise hedging instruments to manage market risk. Gearing is used to enhance returns, however, this will also increase the Company’s exposure to market risk and volatility.
1. Currency Risk
The exposure to currency risk is considered minor as the Company’s financial instruments are mainly denominated in Sterling. At the current and preceding year end, the Company held no foreign currency investments or cash, although a small amount of dividend income was received in foreign currency.
During this and the previous year, the Company did not use forward currency contracts to mitigate currency risk.
2. Interest Rate Risk
Interest rate movements will affect the level of income receivable on cash deposits and the interest payable on variable rate borrowings. When the Company has cash balances, they are held in variable rate bank accounts yielding rates of interest dependent on the base rate of the Custodian,
The Company has an uncommitted bank overdraft facility up to a maximum of 30% of the net asset value of the Company or £15 million (2023: £15 million), whichever is the lower; the interest rate is charged at a margin over the
At the year end £8.8 million of the overdraft was drawn down (2023: none). Based on the maximum amount that can be drawn down at the year end under the overdraft facility of £15 million (2023: £15 million), the effect of a +/– 3.25% (2023: +/– 1%) in the interest rate would result in an increase or decrease to the Company’s statement of comprehensive income of £488,000 (2023: £150,000).
The Company’s portfolio is not directly exposed to interest rate risk.
3. Other Price Risk
Other price risks (i.e. the risk of changes in market prices, other than those arising from interest rates or currency) may affect the value of the investments.
Management of Other Price Risk
The Directors manage the market price risks inherent in the investment portfolio by meeting regularly to monitor on a formal basis the Manager’s compliance with the Company’s stated objectives and policies and to review investment performance.
The Company’s portfolio is the result of the Manager’s investment process and as a result is not correlated with the Company’s benchmark or the markets in which the Company invests. Therefore, the value of the portfolio will not move in line with the market but will move as a result of the performance of the company shares within the portfolio.
If the value of the portfolio fell by 10% at the balance sheet date, the loss after tax for the year would increase by £16 million (2023: loss after tax for the year would increase by £17 million). Conversely, if the value of the portfolio rose by 10%, the loss after tax would decrease (2023: loss after tax would decrease) by the same amount.
Concentration of exposure to market price risk
There is a concentration of exposure to the
Fair Values of Financial Assets and Financial Liabilities
The financial assets and financial liabilities are either carried in the balance sheet at their fair value (investments), or the balance sheet amount is a reasonable approximation of fair value (due from brokers, dividends receivable, accrued income, due to brokers, accruals, cash at bank and overdraft).
Fair Value Hierarchy Disclosures
All of the Company’s investments are in the Level 1 category as set out in IFRS 13, the three levels of which follow:
Level 1 – The unadjusted quoted price in an active market for identical assets or liabilities that the entity can access at the measurement date.
Level 2 – Inputs other than quoted prices included within Level 1 that are observable (i.e. developed using market data) for the asset or liability, either directly or indirectly.
Level 3 – Inputs are unobservable (i.e. for which market data is unavailable) for the asset or liability.
Categorisation within the hierarchy has been determined on the basis of the lowest level input that is significant to the fair value measurement of each relevant asset/liability.
17. Maturity Analysis of Contractual Liability Cash Flows
The contractual liabilities of the Company are shown in note 11 and comprise amounts due to brokers and accruals. All are paid under contractual terms. The bank overdraft is repayable upon demand. For amounts due to brokers, this will generally be the purchase date of the investment plus two business days; accruals would generally be due within three months.
18. Capital Management
The Company’s capital, or equity, is represented by its net assets which are managed to achieve the Company’s investment objective set out on page 13.
The main risks to the Company’s investments are shown in the Strategic Report under the ‘Principal Risks and Uncertainties’ section on pages 14 and 15. These also explain that the Company is able to gear and that gearing will amplify the effect on equity of changes in the value of the portfolio.
The Board can also manage the capital structure directly since it determines dividend payments and has taken the powers, which it is seeking to renew, to buy-back shares, either for cancellation or to be held in treasury, and to issue new shares or sell shares held in treasury.
The Company is subject to externally imposed capital requirements with respect to the obligation and ability to pay dividends by s1158 Corporation Tax Act 2010 and by the Companies Act 2006, respectively, and with respect to the availability of the overdraft facility and by the terms imposed by the lender. The Board regularly monitors, and has complied with, the externally imposed capital requirements. This is unchanged from the prior year.
Total equity at
19. Contingencies, Guarantees and Financial Commitments
Liabilities the Company is committed to honour but which are dependent on a future circumstance or event occurring would be disclosed in this note if any existed.
There were no contingencies, guarantees or other financial commitments of the Company as at
20. Related Party Transactions and Transactions with Manager
A related party is a company or individual who has direct or indirect control or who has significant influence over the Company.
Under
Details of the Manager’s services and fees are disclosed in the Directors’ Report on page 30 and in note 3.
21. Post Balance Sheet Events
There are no significant events after the end of the reporting period requiring disclosure.
22. 2024 Financial Information
The figures and financial information for the year ended
23. 2023 Financial Information
The figures and financial information for the year ended
24. Annual Financial Report
The audited 2024 annual financial report will be available to shareholders, and will be delivered to the Registrar of Companies, shortly.
Copies may be obtained during normal business hours from the Company’s Registered Office, from its correspondence address,
A copy of the annual financial report will be submitted shortly to the National Storage Mechanism ("NSM") and will be available for inspection at the NSM, which is situated at https://data.fca.org.uk/#/nsm/nationalstoragemechanism .
Notice of Annual General Meeting
THIS NOTICE OF ANNUAL GENERAL MEETING IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you are in any doubt as to what action to take, you should consult your stockbroker, solicitor, accountant or other appropriate independent professional adviser authorised under the Financial Services and Markets Act 2000. If you have sold or otherwise transferred all your shares in
NOTICE IS GIVEN that the Annual General Meeting (‘AGM’) of
Ordinary Business
1.
To receive and consider the Annual Financial Report for the year ended
2. To approve the Directors’ Remuneration Policy.
3.
To approve the Annual Statement and Report on Remuneration for the year ended 31
4.
To approve the final dividend of 5.41p for the year ended
5.
To re-elect
6.
To re-elect
7.
To re-elect
8.
To elect
9.
To re-appoint the auditor,
10. To authorise the Audit Committee to determine the auditor’s remuneration.
Special Business
To consider and, if thought fit, to pass the following resolutions of which resolution 11 and 15 will be proposed as an ordinary resolution and resolutions 12 to 14 as special resolutions:
Authority to Allot Shares
11. That:
the Directors be generally and unconditionally authorised in accordance with Section 551 of the Companies Act 2006 as amended from time to time prior to the date of the passing of this resolution (the ‘Act’) to exercise all powers of the Company to allot shares and grant rights to subscribe for, or convert any securities into, shares up to an aggregate nominal amount (within the meaning of Sections
551(3) and (6)
of the Act) of £676,538, this being 10% of the Company’s issued ordinary share capital as at 30
Disapplication of Pre-emption Rights
12. That:
the Directors be and are hereby empowered, in accordance with Sections 570 and 573 of the Act to allot equity securities (within the meaning of Section 560 (1), (2) and (3) of the Act) for cash, either pursuant to the authority given by resolution 11 set out above or (if such allotment constitutes the sale of relevant shares which, immediately before the sale, were held by the Company as treasury shares) otherwise, as if Section 561 of the Act did not apply to any such allotment, provided that this power shall be limited:
(a) to the allotment of equity securities in connection with a rights issue in favour of all holders of a class of equity securities where the equity securities attributable respectively to the interests of all holders of securities of such class are either proportionate (as nearly as may be) to the respective numbers of relevant equity securities held by them or are otherwise allotted in accordance with the rights attaching to such equity securities (subject in either case to such exclusions or other arrangements as the Directors may deem necessary or expedient in relation to fractional entitlements or legal or practical problems under the laws of, or the requirements of, any regulatory body or any stock exchange in any territory or otherwise);
(b)
to the allotment (otherwise than pursuant to a rights issue) of equity securities up to an aggregate nominal amount of £676,538, this being 10% of the Company’s issued ordinary share capital as at
(c) to the allotment of equity securities at a price not less than the net asset value per share (as determined by the Directors), and this power shall expire at the conclusion of the next AGM of the Company or the date 15 months after the passing of this resolution, whichever is the earlier unless the authority is renewed or revoked at any other general meeting prior to such time, but so that this power shall allow the Company to make offers or agreements before the expiry of this power which would or might require equity securities to be allotted after such expiry as if the power conferred by this resolution had not expired; and so that words and expressions defined in or for the purposes of Part 17 of the Act shall bear the same meanings in this resolution.
Authority to Make Market Purchases of Shares
13. That:
the Company be generally and subject as hereinafter appears unconditionally authorised in accordance with Section 701 of the Act to make market purchases (within the meaning of Section 693(4) of the Act) of its issued ordinary shares of 20p each in the capital of the Company (‘Shares’).
PROVIDED ALWAYS THAT:
(a)
the maximum number of Shares hereby authorised to be purchased shall be 14.99% of the Company’s issued ordinary shares, this being 5,070,657 as at
(b) the minimum price which may be paid for a Share shall be 20p;
(c)
the maximum price which may be paid for a Share must not be more than the higher of: (i)
5% above the average of the mid-market values of the Shares for the five business days before the purchase is made; and (ii) the higher of the price of the last independent trade in the Shares and the highest then current independent bid for the Shares on the
(d) any purchase of Shares will be made in the market for cash at prices below the prevailing net asset value per Share (as determined by the Directors);
(e) the authority hereby conferred shall expire at the conclusion of the next AGM of the Company or the date 15 months after the passing of this resolution, whichever is the earlier, unless the authority is renewed or revoked at any other general meeting prior to such time;
(f) the Company may make a contract to purchase Shares under the authority hereby conferred prior to the expiry of such authority which will be executed wholly or partly after the expiration of such authority and may make a purchase of Shares pursuant to any such contract; and
(g)
any Shares so purchased shall be cancelled or, if the Directors so determine and subject to the provisions of Sections 724 to 731 of the Act and any applicable regulations of the
Period of Notice Required for General Meetings
14. THAT the period of notice required for general meetings of the Company (other than AGMs) shall be not less than 14 clear days.
Continue in Existence
15. THAT the Company continue in existence as an investment trust.
Dated this
By order of the Board
